No. L-22734. September 15, 1967.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MANUEL B. PINEDA, as the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found
one of the heirs of deceased ATANASIO PINEDA, respondent. that the corresponding income tax returns were not filed. Thereupon, the representative of
the Collector of Internal Revenue filed said returns for the estate on the basis of
Taxation; Income tax; Liability of an heir for tax.An heir is liable for the information and data obtained from the aforesaid estate proceedings and issued an
assessment as an heir and as a holder-transferee of property belonging to the assessment for the following:
estate/taxpayer. As an heir, he is individually answerable for the part of the tax
1. Deficiency income tax
proportionate to the share he received from the inheritance. His liability, however, cannot
1945 P 135.83
exceed the amount of his share (Art. 1311, Civil Code). As a holder of the property
1946 436.95
belonging to the estate, he is liable for the tax up to the amount of the property in his
possession. The reason is that the Government has a lien on such property. But after 1947 1,206.91 P1,779.69
payment of such amount, he will have a right to contribution from his co-heirs. Add: 5% surcharge 88.98
Same; Ways available to government to collect the tax.The Government has two 1% monthly interest 720.77
ways of collecting the taxes in question. One, by going after all the heirs and collecting from November 30,
from each one of them the amount of the tax proportionate to the inheritance received, 1953 to April 15, 1957
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all Compromise for late 80.00
property and rights to property belong to the taxpayer for unpaid income tax, is by filing
subjecting said property of the estate which is in the hands of an heir or transferee to the
Compromise for late 40.00
payment of the tax due the estate.
payment
Same; Taxes are the lifeblood of the government.Taxes are the lifeblood of
Total amount due P2,707.44
government and their prompt and certain availability is an imperious need.
2. Additional residence tax for 14.50
APPEAL from a decision of the Court of Tax Appeals. 1945
3. Real Estate dealers tax for 207.50
The facts are stated in the opinion of the Court. the fourth quarter of
Solicitor General for petitioner. 1946 and the whole year of 1947
Manuel B. Pineda for and in his own behalf as respondent. Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he
appealed to the Court of Tax Appeals alleging that he was appealing only that
BENGZON, J.P., J.: proportionate part or portion pertaining to him as one of the heirs.
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 decision of the Commissioner on the ground that his right to assess and collect the tax has
children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax
in the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow Court in respect to the assessment for income tax for the year 1947 but held that the right
was appointed administratrix. The estate was divided among and awarded to the heirs and to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the
the proceedings terminated on June 8, 1948. Manuel B. Pinedas share amounted to about returns were filed on August 24, 1953; assessments for both taxable years were made
P2,-500.00.
within five years therefrom or on October 19, 1953; and the action to collect the tax was
filed within five years from the latter date, on August 7, 1957. For taxable year 1947,
however, the return was filed on March 1, 1948; the assessment was made on October 19,
1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court
for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional
evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel
B. Pineda liable for the payment corresponding to his share of the following taxes:
Deficiency income tax
1945............................................................ P135.83
1946 ........................................................... 436.95
Real estate dealers fixed tax 4th
__________________
Collector of Internal Revenue v. Manuel B. Pineda as one of the heirs of the deceased
1
Atanasio Pineda, L-14522, May 31, 1961.
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due
from the estate in the total amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for
unpaid income tax due the estate only up to the extent of and in proportion to any share he
received. He relies on Government of the Philippine Islands v. Pamintuan 2 where We held
that after the partition of an estate, heirs and distributees are liable individually for the
payment of all lawful outstanding claims against the estate in proportion to the amount or
value of the property they have respectively received from the estate.
We hold that the Government can require Manuel B. Pineda to pay the full amount of
the taxes assessed. Pineda is liable for the assessment as an heir and as a holder-
transferee of property belonging to the estate/ taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the share he received from the
inheritance.3 His liability, however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for the tax up to the
amount of the property in his possession. The reason is that the Government has a lien on
the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid
income taxes4a for which said estate is liable, pursuant to the last paragraph of Section 315
of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account
_______________
2
55 Phil. 13.
3
Government of the Philippine Islands v. Santos, 56 Phil. 827.
4
Art. 1311, Civil Code of the Philippines.
4a
Real estate dealers fixed tax is subject to the same lien pursuant to the first
paragraph of Sec. 355, Tax Code.
(cuenta en participation), association, or insurance companyliable to pay the income tax,
neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property belonging to the
taxpayer: x x x
By virtue of such lien, the Government has the right to subject the property in Pinedas
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28.
After such payment, Pineda will have a right of contribution from his co-heirs, 5 to achieve
an adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy was adopted in Government of
the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action
against all the heirs for the collection of the tax. This action rests on the concept that
hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first
liable.6The reason why in case suit is filed against all the heirs the tax due from the estate
is levied proportionately against them is to achieve thereby two results: first, payment of
the tax; and second, adjustment of the shares of each heir in the distributed estate as
lessened by the tax.
 Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the very avenue the Government
took in this case to collect the tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the particular provision of the
Tax Code above quoted, because taxes are the lifeblood of government and their prompt
and certain availability is an imperious need.7 And as afore-stated in this case the suit
seeks to achieve only one objective: payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit
for contribution by the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby
ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency
income tax for 1945 and 1946, and real estate dealers fixed tax for the fourth quarter of
1946 and for the whole year 1947, without prejudice to his right of contribution for his co-
heirs. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zal-
divar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Decision modified.
No. L-28896. February 17, 1988.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE
COURT OF TAX APPEALS, respondents.
Taxation; Nature of taxes; Purpose of taxation; Collection of taxes should be made in
accordance with law.Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved.
Same; Appeal; Appeal from a decision of the Commissioner of Internal Revenue with
the Court of Tax Appeals is 30 days from receipt thereof.The above chronology shows that
the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made
within thirty days after receipt of the decision or ruling challenged.
Same; Warrant of distraint and levy; Rule that the warrant of distraint and levy is
proof of the finality of the assessment; Exception is where there is a letter of protest after
receipt of notice of assessment.It is true that as a rule the warrant of distraint and levy is
"proof of the finality of the assessment" and "renders hopeless a request for
reconsideration," being "tantamount to an outright denial thereof and makes the said
request deemed rejected." But there is a special circumstance in the case at bar that
prevents application of this accepted doctrine. The proven fact is that four days after the
private respondent received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint and
levy was issued; indeed, such protest could not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was
premature and could therefore not be served.
Same; Same; Same; Same; Protest filed, not pro forma, and was based on strong legal
considerations; Case at bar.As the Court of Tax Appeals correctly noted, the protest filed
by private respondent was not pro forma and was based on strong legal considerations. It
thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary
period which started on the date the assessment was received, viz., January 14, 1965. The
period started running again only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant was finally
served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Same; Income Tax; Payments in promotional fees, not fictitious; Claimed deduction of
P75,000 proper; Strict business procedures not applied in a family corporation.We find
that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different amounts as each payee's need
arose. It should be remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. Even so,
at the end of the year, when the books were to be closed, each payee made an accounting of
all of the fees received by him or her, to make up the total of P75,000.00. Admittedly,
everything seemed to be informal. This arrangement was understandable, however, in
view of the close relationship among the persons in the family corporation.
Same; Same; Same; Same; Amount of promotional fees, not excessive.We agree with
the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P1 25,000.00. After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the
total commission. This was a reasonable proportion, considering that it was the payees
who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
Same; Same; Same; Same; Burden on taxpayer to prove validity of the claimed
deduction, successfully discharged; Payment of the fees was necessary and reasonable.The
Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has
been discharged satisfactorily. The private respondent has proved that the payment of the
fees was necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of pesos. This was no mean
feat and should be, as it was, sufficiently recompensed.
Same; Same; Rationale of taxation.It is said that taxes are what we pay for
civilized society. Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of
one's hard-earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government, for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values, This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is
an arbitrary method of exaction by those in the seat of power.
APPEAL from the decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as
legitimate business expenses in its income tax returns. The corollary issue is whether or
not the appeal of the private respondent from the decision of the Collector of Internal
Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities, received a
letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959.1 On January 18, 1965, Algue filed a letter of
protest or request for reconsideration, which letter was stamp-received on the same day in
the office of the petitioner.2 On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in the
dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4On April 7,
1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier
sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review
of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6
The above chronology shows that the petition was filed seasonably. According to Rep.
Act No. 1125, the appeal may be made within thirty days after receipt of the decision or
ruling challenged.7 It is true that as a rule the warrant of distraint and levy is "proof of the
finality of the assessment"8 and "renders hopeless a request for reconsideration,"9 being
"tantamount to an outright denial thereof and makes the said request deemed rejected."10
But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's
notice of assessment, it filed its letter of protest. This was apparently not taken into
account before the warrant of distraint and levy was issued; indeed, such protest could not
be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a
copy of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted,11 the protest filed by private respondent
was not pro forma and was based on strong legal considerations. It thus had the effect of
suspending on January 18, 1965, when it was filed, the reglementary period which started
on the date the assessment was received, viz., Jaauary 14, 1965. The period started
running again only on Ap 7, 1965, when the private respondent was definitely informed of
the implied rejection of the said protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had
been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary, reasonable or necessary business expense. The
Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said
amount had been legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees. These were collected by the payees for
their work in the creation of the Vegetable Oil Investment Corporation of the Philippines
and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.
Parenthetically, it may be observed that the petitioner had originally claimed these
promotional fees to be personal holding company income12 but later conformed to the
decision of the respondent court rejecting this assertion. 13 In fact, as the said court found,
the amount was earned through the joint efforts of the persons among whom it was
distributed. It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land. factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith O'Farell, and Pablo Sanchez worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in
it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P125,000.00, and it was from this commission that the P75,000.00
promotional fees were paid to the aforenamed individuals.16
There is no dispute that the payees duly reported their respective shares of the fees in
their income tax returns and paid the corresponding taxes thereon. 17 The Court of Tax
Appeals also found, after examining the evidence, that no distribution of dividends was
involved.18
The petitioner claims that these payments are fictitious because most of the payees are
members of the same family in control of Algue. It is argued that no indication was made
as to how such payments were made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt
to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its
President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the
payments were not made in one lump sum but periodically and in different
amounts as each payee's need arose.19 It should be remembered that this was a family
corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received by him or her, to make up
the total of P75,000.00.20 Admittedly, everything seemed to be informal. This arrangement
was understandable, however, in view of the close relationship among the persons in the
family corporation.
We agree with the respondent court that the amount of the promotional fees was not
excessive. The total commission paid by the Philippine Sugar Estate Development Co. to
the private respondent was P125,000.00.21 After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
This finding of the respondent court is in accord with the following provision of the Tax
Code:
"SEC. 30. Deductions from gross income.In computing net income there shall be allowed
as deductions
1. (a)Expenses:
 1. (1)In general.All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; x x x"22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
"SEC. 70. Compensation for personal services.Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services actually
rendered. The test of
deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and its practical application may be
further stated and illustrated as follows:
"Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for services rendered,
but the excessive payments are a distribution of earnings upon the stock. x x x"
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of
Algue nor were they its controlling stockholders.23
The Solicitor General is correct when he says that the burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case, however, we find that the
onus has been discharged satisfactorily. The private respondent has proved that the
payment of
the fees was necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of pesos. This was no mean
feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard-earned income to the
taxing authorities, every person who is able to must contribute his share in the running of
the government. The government for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the
law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner
was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we
also find that the claimed deduction by the private respondent was permitted under the
Internal Revenue Code and should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
SO ORDERED.
Teehankee (C.J.), Narvasa, Gancayco and Grio-Aquino, JJ., concur.
Decision affirmed.
Notes.Tax assessment by tax examiners are presumed correct and made in good
faith. Taxpayer has duty to prove otherwise. (Commissioner of lnternal Revenue vs.
Construction Resources of Asia, Inc., 145 SCRA 671.)
Commission on Audit cannot make a final decision on tax questions, (Phil, Telegraph
and Telephone Corp. vs, Commission on Audit, 146 SCRA 190.)
 The facts are stated in the opinion of the Court.

Ernesto J. Gonzaga for appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E.

[No. L-7859. December 22, 1955] Torres and Solicitor Felicisimo R. Rosete for appellee.

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio REYES, J.B. L., J.:
Jayme Ledesma, plaintiff and appellant, vs. J. ANTONIO ARANETA, as the Collector of
Internal Revenue, defendant and appellee. This case was initiated in the Court of First Instance of Negros Occidental to test the
legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar
1. 1.CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN Adjustment Act.
AID AND SUPPORT OF SUGAR INDUSTRY.As the protection and promotion
of the sugar industry is a matter of public concern, the Legislature may Promulgated in 1940, the law in question opens (section 1) with a declaration of
determine within reasonable bounds what is necessary for its protection and emergency, due to the threat to our industry by the imminent imposition of export taxes
expedient for its promotion. Here, the legislative discretion must be allowed full upon sugar as provided in the Tydings-McDuffie Act, and the eventual loss of its
play, subject only to the test of reasonableness; and it is not contended that the
preferential position in the United States market; wherefore, the national policy was
means provided in section 6 of Commonwealth Act No. 567 bear no relation to
expressed to obtain a readjustment of the benefits derived from the sugar industry by the
the objective pursued or are oppressive in character. If objective and methods
component elements thereofand to stabilize the sugar industry so as to prepare it for the
arealike constitutionally valid, no reason is seen why the state may not levy
eventuality of the loss of its preferential position in the United States market and the
taxes to raise funds for their prosecution and attainment. Taxation may be made
imposition of the export taxes.
the implement of the states police power (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477;
MCulloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manuf actured; while
1. 2.ID. ; ID. ; ID.; ; POWER OF STATE TO SELECT SUBJECT OF TAXATION.It section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar
is inherent in the power to tax that a state be free to select the subjects of cane and ceded to others for a consideration, on lease or otherwise
taxation, and it has been repeatedly held that inequalities which result from a
singling out of one particular class for taxation or exemption infringe 110 a tax equivalent to the difference between the money value of the rental or consideration
constitutional limitation (Carmichael vs. Southern Coal & Coke Co., 301 U.S. collected and the amount representing 12 per centum of the assessed value of such land.
495, 81 L. Ed. 1245, citing numerous authorities, at 1251).
According to section 6 of the law
APPEAL from a judgment of the Court of First Instance of Negros Occidental. Teodoro,
Sr., J.
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the Sugar Adjustment and Stabilization Fund, and shall be paid
out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual
loss of the preferntial position of the Philippine sugar in the United States market, and
ultimately to insure its continued existence notwithstanding the loss of that market and
the consequent necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the
component elements thereofthe mill, the landowner, the planter of the sugar cane, and
the laborers in the factory and in the fieldso that all might continue profitably to engage
therein;
Third, to limit the production of sugar to areas more economically suited to the
production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their
living and working conditions: Provided, That the President of the Philippines may, until
the adjournment of the next regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment and operation of
sugar experiment station or stations and the undertaking of researchers (a) to increase the
recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs,
(b) to produce and propagate higher yielding varieties of sugar
151
VOL. 98, DECEMBER 22, 1955 151
Lutz vs. Araneta
cane more adaptable to different district conditions in the Philippines, (c) to lower the costs
of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses
for motor fuel, (e) to determine the possibility of utilizing the other by-products of the
industry, (/) to determine what crop or crops are suitable for rotation and for the utilization
of excess cane lands, and (g) on other problems the solution of which would help
rehabilitate and stabilize the industry, and (2) for the improvement of living and working
conditions in sugar mills and sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and allocation of said funds to carry
out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount or amounts needed for salaries,
wages, travelling expenses, equipment, and other sundry expenses of said agency or
agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum
of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years
19481949 and 19491950; alleging that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively, which in plaintiffs opinion
is not a public purpose for which a tax may be constitutionally levied. The action having
been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to
this Court (Judiciary Act, section 17).
The basic defect in the plaintiffs position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a
regulatory purpose, to provide means f or the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police
power.
 This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products;
that it gives employment to thousands of laborers in fields and factories; that it is a great
source of the states wealth, is one of the important sources of foreign exchange needed by
our government, and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds greatly
to the general welfare. Hence it was competent for the legislature to find that the general
welfare demanded that the sugar industry should be stabilized in turn; and in the wide
field of its police power, the lawmaking body could provide that the distribution of benefits
therefrom be readjusted among its components to enable it to resist the added strain of the
increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed.
835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103
Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in
Florida
The protection of a large industry constituting one of the great sources of the states
wealth and therefore directly or Indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign. (128 So. 857)
Once it is conceded, as it must, that the protection and promotion of the sugar industry is
a matter of public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed full play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If
objective and methods are alike constitutionally valid, no reason is seen why the state may
not levy taxes to raise f unds f or their prosecution and attainment. Taxation may be made
the implement of the states police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S.
412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; MCulloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, it is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation (Carmichael vs. Southern Coal & Coke Co., 301 U.S. 495, 81 L.
Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the f unds raised
under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of
the sugar industry, since it is that very enterprise that is being protected. It may be that
other industries are also in need of similar protection; but the legislature is not required
by the Constitution to adhere to a policy of all or none. As ruled in Minnesota ex
rel. Pearson vs. Probate Court, 309 U.S. 270, 84 L. Ed. 744, if the law presumably hits the
evil where it is most felt, it is not to be over-thrown because there are other instances to
which it might have been applied; and that the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach (N. L.R. B. vs. Jones &
Laughlin Steel Corp. 301 U.S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the
devotion of tax money to experimental stations to seek increase of efficiency in sugar
production, utilization of by-products and solution of allied problems, as well as to the
improvement of living and working conditions in sugar mills or plantations, without any
part of such money being channeled directly to private persons, constitutes expenditure of
tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472,
168 ALR 1392, 1400).
The decision appealed f rom is affirmed, with costs against appellant. So ordered.
Pars, C.J., Bengzon, Padilla, Reyes, A., Jugo, Bautista
Angelo, Labrador, and Concepcion, JJ., concur.
Judgment affirmed.
 Same; Same; Same; Same; Congress has the power of control over local
governments; if Congress can grant a municipal corporation the power to tax certain
matters, it can also provide for exemptions or even take back the power.The Charter of the
City of Manila is subject to control by Congress. It should be stressed that municipal
corporations are mere creatures of Congress (Unson v. Lacson, G.R. No. 7909, January 18,
1957) which has the power to create and abolish municipal corporations due to its
general legislative powers (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5
SCRA 541). Congress, therefore, has the power of control over local governments (Hebron
v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the
power to tax certain matters, it can also provide for exemptions or even take back the
power.
UPREME COURT REPORTS ANNOTATED

Same; Same; Same; License Fees; The power of local governments to regulate
gambling thru the grant of franchises, licenses or permits was withdrawn by PD 771, it is
Basco vs. Phil. Amusements and Gaming Corporation
now vested exclusively on the National Government.The City of Manilas power to impose
license fees on gambling, has long been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of franchise, licenses or permits was
G.R. No. 91649. May 14, 1991.*
withdrawn by P.D. No. 771 and was vested exclusively on the National Government. xxx
xxx Therefore, only the National Government has the power to issue licenses or permits
ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND
for the operation of gambling. Necessarily, the power to demand or collect license fees
LORENZO SANCHEZ, petitioners, vs. PHILIPPINE AMUSEMENTS AND GAMING
which is a consequence of the issuance of licenses or permits is no longer vested in the
CORPORATION (PAGCOR), respondent.
City of Manila.

Constitutional Law; Taxation; Municipal Corporations; Municipal corporations have

Same; Same; Same; Same; Local governments have no power to tax instrumentalities
no inherent power to tax; their power to tax must always yield to a legislative act.The City
of the National Government; PAGCOR, being an instrumentality of the Government, is
of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard
therefore exempt from local taxes.Local governments have no power to tax
v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v.
instrumentalities of the National Government. PAGCOR is a government owned or
Municipality of Caloocan, 7 SCRA 643). Thus, the Charter or statute must plainly show
controlled corporation with an original charter, PD 1869. All of its shares of stocks are
an intent to confer that power or the municipality cannot assume it (Medina v. City of
owned by the National Government. xxx xxx PAGCOR has a dual role, to operate and to
Baguio, 12 SCRA 62). Its power to tax therefore must always yield to a legislative act
regulate gambling casinos. The latter role is governmental, which places it in the category
which is superior having been passed upon by the state itself which has the inherent
of an agency or instrumentality of the Government. Being an instrumentality of the
power to tax (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).
Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat
316, 4 L Ed. 579) This doctrine emanates from the supremacy of the National
Government over local governments. Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, italics supplied). Otherwise, mere creatures of
the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as a tool for
regulation (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice
Marshall as the power to destroy (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent power to
wield it.
Same; Same; Same; Same; The power of local government to impose taxes and fees is
always subject to limitations which Congress may provide by law.The power of local
government to impose taxes and fees is always subject to limitations which Congress
may provide by law. Since PD 1869 remains an operative law until amended, repealed or
revoked (Sec. 3, Art. XVIII, 1987 Constitution), its exemption clause remains as an
exception to the exercise of the power of local governments to impose taxes and fees. It
cannot therefore be violative but rather is consistent with the principle of local autonomy.
Same; Same; Same; Local Autonomy; The principle of local autonomy does not make
local governments sovereign within the state, it simply means decentralization.Besides,
the principle of local autonomy under the 1987 Constitution simply means
decentralization (III Records of the 1987 Constitutional Commission, pp. 435-436, as
cited in Bernas, the Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988,
p. 374). It does not make local governments sovereign within the state or an imperium in
imperio. Local Government has been described as a political subdivision of a nation or
state which is constituted by law and has substantial control of local affairs. In a unitary
system of government, such as the government under the Philippine Constitution, local
governments can only be an intra sovereign subdivision of one sovereign nation, it cannot
be an imperium in imperio. Local government in such a system can only mean a measure
of decentralization of the function of government. (italics supplied)
Same; Equal Protection Clause; The equal protection clause does not preclude
classification of individuals who may be accorded different treatment under the law as long
as the classification is not unreasonable or arbitrary.Petitioners next contend that P.D.
1869 violates the equal protection clause of the Constitution, because it legalized
PAGCORconducted gambling, while most gambling are outlawed together with
prostitution, drug trafficking and other vices (p. 82, Rollo). We, likewise, find no valid
ground to sustain this contention. The petitioners posture ignores the well-accepted
meaning of the clause equal protection of the laws. The clause does not preclude
classification of individuals who may be accorded different treatment under the law as long
as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil.
1155). A law does not have to operate in equal force on all persons or things to be
conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No.
89572, December 21, 1989). The equal protection clause does not prohibit the Legislature
from establishing classes of individuals or objects upon which different rules shall operate
(Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are
different in fact or opinion to be treated in law as though they were the same (Gomez v.
Palomar, 25 SCRA 827). Just how P.D. 1869 in legalizing gambling conducted by PAGCOR
is violative of the equal protection is not clearly explained in the petition. The mere fact
that some gambling activities like cockfighting (P.D. 449) horse racing (R.A. 306 as
amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42)
are legalized under certain conditions, while others are prohibited, does not render the
applicable laws, P.D. 1869 for one, unconstitutional. If the law presumably hits the evil
where it is most felt, it is not to be overthrown because there are other instances to which
it might have been applied. (Gomez v. Palomar, 25 SCRA 827) The equal protection
clause of the 14 th Amendment does not mean that all occupations called by the same
name must be treated the same way; the state may do what it can to prevent which is
deemed as evil and stop short of those cases in which harm to the few concerned is not less
than the harm to the public that would insure if the rule laid down were made
mathematically exact. (Dominican Hotel v. Arizana, 249 U.S. 2651).
Same; Statutes; Every law has in its favor the presumption of constitutionality, for a
law to be nullified, it must be shown that there is a clear and unequivocal breach of the
Constitution.Every law has in its favor the presumption of constitutionality (Yu Cong
Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82
SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must
be shown that there is a clear and unequivocal breach of the Constitution, not merely a
doubtful and equivocal one. In other words, the grounds for nullity must be clear and
beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to
declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a
declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners
to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed
to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as
to whether P.D. 1869 remains a wise legislation considering the issues of morality,
monopoly, trend to free enterprise, privatization as well as the state principles on social
justice, role of youth and educational values being raised, is up for Congress to determine.
PADILLA, J., Concurring
Constitutional Law; Legislative Department; The legislative department must outlaw
all forms of gambling, as a fundamental policy.Gambling is reprehensible whether
maintained by government or privatized. The revenues realized by the government out of
legalized gambling will, in the long run, be more than offset and negated by the
irreparable damage to the peoples moral values. Also, the moral standing of the
government in its repeated avowals against illegal gambling is fatally flawed and
becomes untenable when it itself engages in the very activity it seeks to eradicate. One can
go through the Courts decision today and mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized by law and run by the
government, with the activity known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised, and regulated by the
government, in return for the substantial revenues it would yield the government to carry
out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all
forms of gambling, as a fundamental state policy, and the sooner the executive implements
such policy, the better it will be for the nation.
H.B. Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.
PARAS, J.:
A TV ad proudly announces:
The new PAGCORresponding through responsible gaming.
But the petitioners think otherwise, that is why, they filed the instant petition seeking
to annul the Philippine Amusement and Gaming Corporation (PAGCOR) CharterPD
1869, because it is allegedly contrary to morals, public policy and order, and because
1. A.It constitutes a waiver of a right prejudicial to a third person with a right
recognized by law. It waived the Manila City governments right to impose taxes
and license fees, which is recognized by law;
B.For the same reason stated in the immediately preceding paragraph, the law
has intruded into the local governments right to impose local taxes and license
fees. This, in contravention of the constitutionally enshrined principle of local
autonomy;
C.It violates the equal protection clause of the constitution in that it legalizes
PAGCORconducted gambling, while most other forms of gambling are
outlawed, together with prostitution, drug trafficking and other vices;
 C.It violates the avowed trend of the Cory government away from monopolistic and
crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition;
p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the
declared national policy of the new restored democracy and the peoples will as expressed
in the 1987 Constitution. The decree is said to have a gambling objective and therefore is
contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of
Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing lawyers
(petitioner Basco being also the Chairman of the Committee on Laws of the City Council of
Manila), can question and seek the annulment of PD 1869 on the alleged grounds
mentioned above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by
virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D 1067-
B also dated January 1, 1977 to establish, operate and maintain gambling casinos on land
or water within the territorial jurisdiction of the Philippines. Its operation was originally
conducted in the well known floating casino Philippine Tourist. The operation was
considered a success for it proved to be a potential source of revenue to fund infrastructure
and socioeconomic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to
fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the
Government to regulate and centralize all games of chance authorized by existing
franchise or permitted by law, under the following declared policy
Section 1 . Declaration of Policy.It is hereby declared to be the policy of the State to
centralize and integrate all games of chance not heretofore authorized by existing
franchises or permitted by law in order to attain the following objectives:
1. (a)To centralize and integrate the right and authority to operate and conduct
games of chance into one corporate entity to be controlled, administered and
supervised by the Government.
2. (b)To establish and operate clubs and casinos, for amusement and recreation,
including sports gaming pools, (basketball, football, lotteries, etc.) and such
other forms of amusement and recreation including games of chance, which may
be allowed by law within the territorial jurisdiction of the Philippines and which
will: (1) generate sources of additional revenue to fund infrastructure and socio-
civic projects, such as flood control programs, beautification, sewerage and
sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population
Control and such other essential public services; (2) create recreation and
integrated facilities which will expand and improve the countrys existing tourist
attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices
and corruptions that are normally prevalent on the conduct and operation of
gambling clubs and casinos without direct government involvement. (Section 1,
P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines.
Under its Charters repealing clause, all laws, decrees, executive orders, rules and
regulations, inconsistent therewith, are accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government revenue, next to
the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR
earned P3.43 Billion, and directly remitted to the National Government a total of P2.5
Billion in form of franchise tax, governments income share, the Presidents Social Fund
and Host Cities share. In addition, PAGCOR sponsored other sociocultural and charitable
projects on its own or in cooperation with various governmental agencies, and other
private associations and organizations. In its 3 1/2 years of operation under the present
administration, PAGCOR remitted to the government a total of P6.2 Billion. As of
December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos
nationwide, directly supporting the livelihood of Four Thousand Four HunREDd Ninety-
Four (4,494) families.
 But the petitioners, are questioning the validity of P.D No. 1869. They allege that the
same is null and void for being contrary to morals, public policy and public order, constitutionality of legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd 534,
monopolistic and tends toward crony economy, and is violative of the equal protection
clause and local autonomy as well as for running counter to the state policies enunciated
in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of
Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of
Article XIV of the 1987 Constitution.
This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the
most deliberate consideration by the Court, involving as it does the exercise of what has
been described as the highest and most delicate function which belongs to the judicial
department of the government. (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146
SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-equal and
coordinate branch of the government We need not be reminded of the time-honored
principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid.
Every presumption must be indulged in favor of its constitutionality. This is not to say that
We approach Our task with diffidence or timidity. Where it is clear that the legislature or
the executive for that matter, has over-stepped the limits of its authority under the
constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must,
on the offending statute (Lozano v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers Union, et al, 59 SCRA 54, the Court thru Mr.
Justice Zaldivar underscored the
x x x thoroughly established principle which must be followed in all cases where questions
of constitutionality as obtain in the instant cases are involved. All presumptions are
indulged in favor of constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may
work hardship does not render it unconstitutional; that if any reasonable basis may be
conceived which supports the statute, it will be upheld and the challenger must negate all
possible basis; that the courts are not concerned with the wisdom, justice, policy or
expediency of a statute and that a liberal interpretation of the constitution in favor of the
539; Spurbeck v. Statton, 106 N.W. 2 nd 660, 663; 59 SCRA 66; see also e.g. Salas v.
Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55
[1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540)
Of course, there is first, the procedural issue. The respondents are questioning the legal
personality of petitioners to file the instant petition.
Considering however the importance to the public of the case at bar, and in keeping
with the Courts duty, under the 1987 Constitution, to determine whether or not the other
branches of government have kept themselves within the limits of the Constitution and the
laws and that they have not abused the discretion given to them, the Court has brushed
aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
With particular regard to the requirement of proper party as applied in the cases before
us, We hold that the same is satisfied by the petitioners and intervenors because each of
them has sustained or is in danger of sustaining an immediate injury as a result of the
acts or measures complained of. And even if, strictly speaking they are not covered by the
definition, it is still within the wide discretion of the Court to waive the requirement and
so remove the impediment to its addressing and resolving the serious constitutional
questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to
question the constitutionality of several executive orders issued by President Quirino
although they were involving only an indirect and general interest shared in common with
the public. The Court dismissed the objection that they were not proper parties and ruled
that the transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must technicalities of procedure. We
have since then applied the exception in many other cases. (Association of Small
Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the
prohibition of gambling does not mean that the Government cannot regulate it in the
exercise of its police power.
The concept of police power is well-established in this jurisdiction. It has been defined
as the state authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare. (Edu v. Ericta, 35 SCRA 481, 487) As
defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to
foster the common good. It is not capable of an exact definition but has been, purposely,
veiled in general terms to underscore its all-comprehensive embrace. (Philippine
Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).
Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the
future where it could be done, provides enough room for an efficient and flexible response
to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta,
supra)
It finds no specific Constitutional grant for the plain reason that it does not owe its
origin to the charter. Along with the taxing power and eminent domain, it is inborn in the
very fact of statehood and sovereignty. It is a fundamental attribute of government that
has enabled it to perform the most vital functions of governance. Marshall, to whom the
expression has been credited, refers to it succinctly as the plenary power of the state to
govern its citizens. (Tribe, American Constitutional Law, 323, 1978). The police power of
the State is a power coextensive with self-protection and is most aptly termed the law of
overwhelming necessity. (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is the
most essential, insistent, and illimitable of powers. (Smith Bell & Co. v. National, 40 Phil.
136) It is a dynamic force that enables the state to meet the exigencies of the winds of
change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to regulate and
centralize thru an appropriate institution all games of chance authorized by existing
franchise or permitted by law (1st whereas clause, PD 1869). As was subsequently
proved, regulating and centralizing gambling operations in one corporate entitythe
PAGCOR, was beneficial not just to the Government but to society in general. It is a
reliable source of much needed revenue for the cash strapped Government. It provided
funds for social impact projects and subjected gambling to close scrutiny, regulation,
supervision and control of the Government (4th Whereas Clause, PD 1869). With the
creation of PAGCOR and the direct intervention of the Government, the evil practices and
corruptions that go with gambling will be minimized if not totally eradicated. Public
welfare, then, lies at the bottom of the enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of
Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of
the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869
which exempts PAGCOR, as the franchise holder from paying any tax of any kind or form,
income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local.
(2)Income and other taxes.(a) Franchise Holder: No tax of any kind or form,
income or otherwise as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%) percent of the gross revenues or
earnings derived by the Corporation from its operations under this franchise. Such tax
shall be due and payable quarterly to the National Government and shall be in lieu of
all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial or national government authority
(Section 13 [2]).
Their contention stated hereinabove is without merit for the following reasons:
 1. (a)The City of Manila, being a mere Municipal corporation has no inherent right
to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v.
Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643).
Thus, the Charter or statute must plainly show an intent to confer that power
or the municipality cannot assume it (Medina v. City of Baguio, 12 SCRA 62).
Its power to tax therefore must always yield to a legislative act which is
superior having been passed upon by the state itself which has the inherent
power to tax (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983
ed. p. 445).
1. (b)The Charter of the City of Manila is subject to control by Congress. It should be
stressed that municipal corporations are mere creatures of Congress (Unson v.
Lacson, G.R. No. 7909, January 18, 1957) which has the power to create and
abolish municipal corporations due to its general legislative powers (Asuncion
v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress,
therefore, has the power of control over Local governments (Hebron v.
Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of
Manila the power to tax certain matters, it can also provide for exemptions or
even take back the power.
2. (c)The City of Manilas power to impose license fees on gambling, has long been
revoked. As early as 1975, the power of local governments to regulate gambling
thru the grant of franchise, licenses or permits was withdrawn by P.D. No. 771
and was vested exclusively on the National Government, thus:
Section 1. Any provision of law to the contrary notwithstanding, the authority of
chartered cities and other local governments to issue license, permit or other form of
franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other
forms of gambling is hereby revoked.
Section 2. Hereafter, all permits or franchises to operate, maintain and establish,
horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the
national government upon proper application and verification of the qualification of the
applicant x x x.
Therefore, only the National Government has the power to issue licenses or permits for
the operation of gambling. Necessarily, the power to demand or collect license fees which is
a consequence of the issuance of licenses or permits is no longer vested in the City of
Manila.
1. (d)Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. In addition to its corporate powers (Sec. 3, Title II,PD 1869) it also exercises
regulatory powers, thus:
Sec. 9. Regulatory Power.The Corporation shall maintain a Registry of the affiliated
entities, and shall exercise all the powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating entities mentioned under the
preceding section, including, but not limited to amendments of Articles of Incorporation
and By-Laws, changes in corporate term, structure, capitalization and other matters
concerning the operation of the affiliated entities, the provisions of the Corporation Code of
the Philippines to the contrary notwithstanding, except only with respect to original
incorporation.
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Marland, 4 Wheat
316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local
governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such
a way as to prevent it from consummating its federal responsibilities, or even to seriously
burden it in the accmplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p.
140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as a tool for regulation (U.S. v. Sanchez, 340 US 42). The power to tax which
was called by Justice Marshall as the power to destroy (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it.
1. (e)Petitioners also argue that the Local Autonomy Clause of the Constitution will
be violated by P.D. 1869. This is a pointless argument. Article X of the 1987
Constitution (on Local Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create its own source of
revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation
as the congress may provide, consistent with the basic policy on local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local government. (italics supplied)
The power of local government to impose taxes and fees is always subject to limitations
which Congress may provide by law. Since PD 1869 remains an operative law until
amended, repealed or revoked (Sec. 3, Art. XVIII, 1987 Constitution), its exemption
clause remains as an exception to the exercise of the power of local governments to impose
taxes and fees. It cannot therefore be violative but rather is consistent with the principle of
local autonomy.
Besides, the principle of local autonomy under the 1987 Constitution simply means
decentralization (III Records of the 1987 Constitutional Commission, pp. 435-436, as
cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed.,
1988, p. 374). It does not make local governments sovereign within the state or an
imperium in imperio.
Local Government has been described as a political subdivision of a nation or state which
is constituted by law and has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local governments
can only be an intra sovereign subdivision of one sovereign nation, it cannot be
an imperium in imperio . Local government in such a system can only mean a measure of
decentralization of the function of government. (italics supplied) As to what state powers
should be decentralized and what may be delegated to local government units remains a
matter of policy, which concerns wisdom. It is therefore a political question. (Citizens
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing with
gambling is a State concern and hence, it is the sole prerogative of the State to retain it or
delegate it to local governments.
As gambling is usually an offense against the State, legislative grant or express charter
power is generally necessary to empower the local corporation to deal with the subject. x x x
In the absence of express grant of power to enact, ordinance provisions on this subject
which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So.
733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC
974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 ibid, p. 548, italics
supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of the
Constitution, because it legalized PAGCORconducted gambling, while most gambling
are outlawed together with prostitution, drug trafficking and other vices (p. 82, Rollo).
 We, likewise, find no valid ground to sustain this contention. The petitioners posture
ignores the well-accepted meaning of the clause equal protection of the laws. The clause
does not preclude classification of individuals who may be accorded different treatment
under the law as long as the classification is not unreasonable or arbitrary (Itchong v.
Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or
things to be conformable to Article III, Section 1 of the Constitution (DECS v. San
Diego, G.R. No. 89572, December 21, 1989).
The equal protection clause does not prohibit the Legislature from establishing
classes of individuals or objects upon which different rules shall operate (Laurel v. Misa,
43 O.G. 2847). The Constitution does not require situations which are different in fact or
opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA
827).
Just how P.D. 1869 in legalizing gambling conducted by
67
VOL. 197, MAY 14, 1991 67
Basco vs. Phil. Amusements and Gaming Corporation
PAGCOR is violative of the equal protection is not clearly explained in the petition. The
mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306
as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42)
are legalized under certain conditions, while others are prohibited, does not render the
applicable laws, P.D. 1869 for one, unconstitutional.
If the law presumably hits the evil where it is most felt, it is not to be overthrown because
there are other instances to which it might have been applied. (Gomez v. Palomar, 25
SCRA 827)
The equal protection clause of the 14th Amendment does not mean that all
occupations called by the same name must be treated the same way; the state may do what
it can to prevent which is deemed as evil and stop short of those cases in which harm to
the few concerned is not less than the harm to the public that would insure if the rule laid
down were made mathematically exact. (Dominican Hotel v. Arizana, 249 US 2651).
Anent petitioners claim that PD 1869 is contrary to the avowed trend of the Cory
Government away from monopolies and crony economy and toward free enterprise and
privatization suffice it to state that this is not a ground for this Court to nullify P.D. 1869.
If, indeed, PD 1869 runs counter to the governments policies then it is for the Executive
Department to recommend to Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only declare what the law is and
not what the law should be. Under our system of government, policy issues are within the
domain of the political branches of government and of the people themselves as the
repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256).
On the issue of monopoly, however, the Constitution provides that:
Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires.
No combinations in restraint of trade or unfair competition shall be allowed. (Art. XII,
National Economy and Patrimony)
It should be noted that, as the provision is worded, monopolies are not necessarily
prohibited by the Constitution. The state must still decide whether public interest
demands that monopolies be regulated or prohibited. Again, this is a matter of policy for
the Legislature to decide.
 On petitioners allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12
(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state
also that these are merely statements of principles and policies. As such, they are basically
not self-executing, meaning a law should be passed by Congress to clearly define and
effectuate such principles.
In general, therefore, the 1935 provisions were not intended to be self-executing principles
ready for enforcement through the courts. They were rather directives addressed to the
executive and the legislature. If the executive and the legislature failed to heed the
directives of the articles the available remedy was not judicial or political. The electorate
could express their displeasure with the failure of the executive and the legislature
through the language of the ballot. (Bernas, Vol. II, p. 2)
Every law has in its favor the presumption of constitutionality (Yu Cong Eng v.
Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA
30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be
shown that there is a clear and unequivocal breach of the Constitution, not merely a
doubtful and equivocal one. In other words, the grounds for nullity must be clear and
beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to
declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a
declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners
to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed
to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as
to whether P.D. 1869 remains a wise legislation considering the issues of morality,
monopoly, trend to free enterprise, privatization as well as the state principles on social
justice, role of youth and educational values being raised, i s u p for Congress to
determine.
As this Court held in Citizens Alliance for Consumer Protection v. Energy Regulatory
Board, 162 SCRA 521
Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in
its favor the presumption of validity and constitutionality which petitioners Valmonte and
the KMU have not overturned. Petitioners have not undertaken to identify the provisions
in the Constitution which they claim to have been violated by that statute. This Court,
however, is not compelled to speculate and to imagine how the assailed legislation may
possibly offend some provision of the Constitution. The Court notes, further, in this respect
that petitioners have in the main put in question the wisdom, justice and expediency of the
establishment of the OPSF, issues which are not properly addressed to this Court and
which this Court may not constitutionally pass upon. Those issues should be addressed
rather to the political departments of government: the President and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this is precisely
so when the gambling resorted to is excessive. This excessiveness necessarily depends not
only on the financial resources of the gambler and his family but also on his mental, social,
and spiritual outlook on life. However, the mere fact that some persons may have lost their
material fortunes, mental control, physical health, or even their lives does not necessarily
mean that the same are directly attributable to gambling. Gambling may have been the
antecedent, but certainly not necessarily the cause. For the same consequences could have
been preceded by an overdose of food, drink, exercise, work, and even sex.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
Fernan (C.J.), Narvasa Gutierrez,
Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grio-Aquino, Medialdea, Regalado and
Davide, Jr., JJ., concur.
Melencio-Herrera, J., concurring in the result with Justice Padilla.
Padilla, J., See separate Concurring Opinion.
CONCURRING IN THE RESULT One can go through the Courts decision today and mentally replace the activity
referred to therein as gambling, which is legal only because it is authorized by law and run
PADILLA, J.: by the

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This
means that I agree with the decision insofar as it holds that the prohibition, control, and
regulation of the entire activity known as gambling properly pertain to state policy. It is,
therefore, the political departments of government, namely, the legislative and the
executive that should decide on what government should do in the entire area of gambling,
and assume full responsibility to the people for such policy.
The courts, as the decision states, cannot inquire into the wisdom, morality or
expediency of policies adopted by the political departments of government in areas which
fall within their authority, except only when such policies pose a clear and present danger
to the life, liberty or property of the individual. This case does not involve such a factual
situation.
government, with the activity known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised, and regulated by the
government, in return for the substantial revenues it would yield the government to carry
out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all
forms of gambling, as a fundamental state policy, and the sooner the executive implements
such policy, the better it will be for the nation.
Petition dismissed.
Note.It is presumed that an act of the law-making body is valid and constitutional.
(National Housing Authority vs. Reyes, 123 SCRA 245.)

However, I hasten to make of record that I do not subscribe to gambling in any form. It o0o
demeans the human personality, destroys self-confidence and eviscerates ones self-respect,
which in the long run will corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck families and homes; it is an antithesis SUPREME COURT REPORTS ANNOTATED
to individual reliance and reliability as well as personal industry which are the
touchstones of real economic progress and national development. Gambling is
reprehensible whether maintained by government or privatized. The revenues realized by Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
the government out of legalized gambling will, in the long run, be more than offset and
negated by the irreparable damage to the peoples moral values.
No. L-31156. February 27, 1976.*
Also, the moral standing of the government in its repeated avowals against illegal
gambling is fatally flawed and becomes untenable when it itself engages in the very PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-
activity it seeks to eradicate. appellant, vs.MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendants-appellees.
 Taxation; Delegation of Powers; Power of taxation may be delegated to local
governments on matters of local concern.The power of taxation x x x may be delegated to
local governments in respect of matters of local concern. This is sanctioned by immoral
practice. By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local
governmental agencies the power to tax. x x x The plenary nature of the taxing power thus
delegated, contrary to plaintiff-appellants pretense, would not suffice to invalidate the
said law as confiscatory and oppressive. In delegating the authority, the State is not
limited to the exact meassure of that which is exercised by itself. When it is said that the
taxing power may be delegated to municipalities and the like, it is meant taxes there may
be delegated such measure of power to impose and collect taxes as the legislature may
deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons
of public policy the State has not deemed wise to tax for more general purposes.
Same; Due process; Taking of property without due process of law may not be passed
over under the guise of taxing power, except when the latter is exercised lawfully.This is
not to say though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing power, except
when the taking of the property is in the lawful exercise of the taxing power, as when (1)
the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either
the person or property taxed is within the jurisdiction of the government levying the tax;
and (4) in the assessment and collection of certain kinds of taxes notice and opportunity
for hearing are provided.
______________
*
EN BANC.
461
VOL. 69, FEBRUARY 27, 1976 461
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
Same; Same; Delegation of powers; Delegation of taxing power to local governments
may not be assailed on the ground of double taxation.There is no validity to the assertion
that the delegated authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. x x x Moreover,
double taxation, in general, is not forbidden by our fundamental law, since We have not
adopted as part thereof the injunction against double taxation found in the Constitution of
the United States and some states of the Union. Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same governmental entity or by the
same jurisdiction for the same purpose, but not in a case where one tax is imposed by the
State and the other by the city of municipality.
Taxation; A municipal ordinance which imposes a tax of P0.01 for every gallon of soft
drinks produced in the municipality does not partake of a percentage tax.The imposition
of a tax of one centavo (P0.01) on each gallon (128 flued ounces, U.S.) of volume capacity
on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of
the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax
is levied on the produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayers production of soft drinks is considered solely for purposes of determining
the tax rate on the products, but there is no set ratio between the volume of sales and the
amount of the tax.
Same; A municipal tax on soft drinks is not a specific tax.Nor can the tax levied be
treated as a specific tax. Specific taxes are those imposed on specified articles, such as
distilled spirits, wines, x x x cigars and cigarettes, matches, x x x bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
drugs. Soft drinks is not one of those specified.
 Same; A municipal tax of P0.01 on each gallon of soft drinks produced is not unfair
or oppressive.The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity on all soft drinks, produced or manufactured, or an equivalent of 1
centavos per case, cannot be considered unjust and unfair. An increase in the tax alone
would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the rates of imposable taxes. This
is in line with the constitutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in the Local
Tax Code (PD No. 231, July 1,
462
462 SUPREME COURT REPORTS ANNOTATED
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in
writing off an ordinance as unreasonable.
Same; Licenses; Municipalities are empowered to impose not only municipal license
but just and uniform taxes for public purposes.The municipal license tax of P1,000.00 per
corking machine with five but not more than ten crowners x x x imposed on
manufacturers, producers, importers and dealers of soft drinks and/or mineral waters x x
x appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons engaged in any
business or occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a municipality.
APPEAL from a decision of the Court of First Instance of Leyte. Garlitos, J.
The facts are stated in the opinion of the Court.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redoa & Assistant Provincial Fiscal Bonifacio B.
Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M.
Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case
No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as
involving only pure questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June
19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264,1 otherwise known as the Local Autonomy Act,
_______________
1
Sec. 2. Taxation.Any provision of law to the contrary notwithstanding, all
chartered cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities and municipal districts by
requiring them to secure licenses at rates fixed by the municipal
463
VOL. 69, FEBRUARY 27, 1976 463

Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the Municipality of Tanauan, Leyte, null and
void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions
of which state that, first, both
_______________
board or city council of the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect fees and charges for service
rendered by the city, municipality or municipal district; to regulate and impose reasonable
fees for services rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise to levy for
public purposes, just and uniform taxes, licenses or fees: Provided, That municipalities
and municipal districts shall, in no case, impose any percentage tax on sales or other taxes
in any form based thereon nor impose taxes on articles subject to specific tax, except
gasoline, under the provisions of the National Internal Revenue Code: Provided, however,
That no city, municipality or municipal district may levy or impose any of the following:
1. (a)Residence tax;
2. (b)Documentary stamp tax;
3. (c)Taxes on the business of any newspaper engaged in the printing and
publication of any newspaper, magazine, review or bulletin appearing at regular
intervals and having fixed prices for subscription and sale, and which is not
published primarily for the purpose of publishing advertisements;
4. (d)Taxes on persons operating waterworks, irrigation and other public utilities
except electric light, heat and power;
5. (e)Taxes on forest products and forest concessions;
6. (f)Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa;
7. (g)Taxes on income of any kind whatsoever;
8. (h)Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;
9. (i)Customs duties registration, wharfage on wharves owned by the national
government, tonnage and all other kinds of customs fees, charges and dues;
10. (j)Taxes of any kind on banks, insurance companies, and persons paying
franchise tax;
11. (k)Taxes on premiums paid by owners of property who obtain insurance directly
with foreign insurance companies; and
12. (l)Taxes, fees or levies, of any kind, which in effect impose a burden on exports of
Philippine finished, manufactured or processed products and products of
Philippine cottage industries.
464
464 SUPREME COURT REPORTS ANNOTATED
 From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary
Act of 1948, as amended.

Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production _______________
tax rates imposed therein are practically the same, and second, that on January 17, 1963,
the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the
2
Section 2.
Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce
compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.
3
Section 3.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
4
Section 2.
1962, levies and collects from soft drinks producers and manufacturers a tax of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked. 2 For the purpose of
5
Section 3.
computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report of the total number of bottles 465
produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, VOL. 69, FEBRUARY 27, 1976 465
1962, levies and collects on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity.4 For the purpose of computing the taxes due, the person, Pepsi-Cola Bottling Co. of the Philippines, Inc, vs. Municipality of Tanauan, Leyte
firm, company, partnership, corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month.5 There are three capital questions raised in this appeal;

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as municipal 1. 1.Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
production tax. and oppressive?

2. 2.Do Ordinances Nos. 23 and 27 constitute double taxation and impose

On October 7, 1963, the Court of First Instance of Leyte rendered judgment
percentage or specific taxes?
dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act
No. 2264]; declaring Ordinances Nos. 23 and 27 valid, legal and constitutional; ordering
3. 3.Are Ordinances Nos. 23 and 27 unjust and unfair?
the plaintiff to pay the taxes due under the oft-said Ordinances; and to pay the costs.
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as
a matter of right to every independent government, without being expressly conferred by
the people.6 It is a power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the case
of municipal corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. 7 This is sanctioned
by immemorial practice. By necessary implication, the legislative power to create political
8
corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides: Each local government unit shall have
the power to create its sources of revenue and to levy taxes, subject to such limitations as
may be provided by law. Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellants
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited to the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated such measure of
_______________
6
Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.
7
Pepsi-Cola Bottling Co. of the Phil, Inc. vs. City of Butuan, L-22814, August 28,
1968, 24 SCRA 793-96.
8
Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).
9
Cooley, ante, at 190.
466
466 SUPREME COURT REPORTS ANNOTATED
Pepsi-Cola Bottling Co. of the Philippines, Inc, vs. Municipality of Tanauan, Leyte
power to impose and collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons of public policy the
State has not deemed wise to tax for more general purposes. 10 This is not to say though
that the constitutional injunction against deprivation of property without due process of
law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public
purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or
property taxed is within the jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided.11 Due process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property outside the State, i.e.,
extra-territorial taxation; and arbitrary or oppressive methods are used in assessing and
collecting taxes. But, a tax does not violate the due process clause, as applied to a
particular taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property subject to the tax
or the amount of tax to be raised should be determined by judicial inquiry, and a notice
and hearing as to the amount of the tax and the manner in which it shall be apportioned
are generally not necessary to due process of law.12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised.13 The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance
taxation found in the Constitution of the United States and some states of the No. 23, which was approved on September 25, 1962, levies or collects from soft drinks
Union.14 Double taxation becomes obnoxious only where the producers or manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked,
irrespective of the volume contents of the bottle used. When it was discovered that the
_______________ producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on
10
Idem, at 198-200. October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax
11
Malcolm, Philippine Constitutional Law, 513-14. rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every
bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
12
Cooley, ante, at 334. ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in
enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
13
See footnote 1. Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect,18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking
14
Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, L-22814. August 28, to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact
1968, 24 SCRA 793-96. See Sec, 22, Art. VI, 1935 that the Acting Municipal Treasurer of Tanauan, Leyte sought to compel compliance by
the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
467 aforementioned admission shows that only Ordinance No. 27, series of 1962 is being
enforced by defendants-appellees. Even the Provincial Fiscal. Constitution and Sec. 17 (1),
Art. VIII, 1973 Constitution.
VOL. 69, FEBRUARY 27, 1976 467
_______________

Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte 15
Commissioner of Internal Revenue v. Lednicky, L-18169, July 31, 1964, 11 SCRA
609.

taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same 16
SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State
16

and the other by the city or municipality.17 17

Punzalan v. Mun. Bd. of City of Manila, 50 O.G. 2485; Manufacturers Life Ins. Co. v.
Meer, 89 Phil. 351 (1951).
2. The plaintiff-appellant submits that Ordinance Nos. 23 and 27 constitute double
taxation, because these two ordinances cover the same subject matter and impose 18
McQuillin, Municipal Corporations, 3rd. Ed., Vol. 6, at 206-210.
practically the same tax rate. The thesis proceeds from its assumption that both
 468
468 SUPREME COURT REPORTS ANNOTATED
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
counsel for defendants-appellees admits in his brief that Section 7 of Ordinance No. 27,
series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former.
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost everything, excepting those which are mentioned therein. As long as the tax
levied under the authority of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the general rule, pursuant to
the rules of expresio unius est exclucio alterius, and exceptio firmat regulum in casibus non
excepti.19 The limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose any percentage tax on sales or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code. For purposes of this particular
limitation, a municipal ordinance which prescribes a set ratio between the amount of the
tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for
being outside the power of the municipality to enact. 20 But, the imposition of a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft
drinks produced or manufactured under Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on
the produce (whether sold or not) and not on the sales. The volume capacity of the
taxpayers production of soft drinks is considered solely for purposes of determining the
tax rate on the products, but there is not set ratio between the volume of sales and the
amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled
_______________
19
Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay
Mining Co. v. Mun. of Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-64.
20
Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.
21
SMB, Inc. v. City of Cebu, ante, Footnote 16.
469
VOL. 69, FEBRUARY 27, 1976 469
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes,
matches, firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
drugs.22 Soft drink is not one of those specified.
3. The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all soft drinks, produced or manufactured, or an equivalent of 1-1/2 centavos
per case,23 cannot be considered unjust and unfair.24 An increase in the tax alone would not
support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the rates of imposable
taxes. This is in line with the constitutional policy of according the widest possible
25
autonomy to local governments in matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231, July 1, 1973).26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable,27 Reluctance should not deter compliance with an ordinance such as
Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be
realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not
more than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed
on manufacturers, producers, importers and dealers of soft drinks
_______________
22
Shell Co., of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No.
953, Narcotic Drugs Law, June 20, 1953.
23
Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains
8 oz., or 192 oz. per case of 24 bottles; a family-size contains 26 oz., or 312 oz. per case of 12
bottles.
24
See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14,
where tax rate is P.10 per case of 24 bottles; City of Bacolod v. Gruet, L-18290, January 31,
1983, 7 SCRA 168-69, where the tax is P.03 on every case of bottled Coca-Cola.
25
Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January
30, 1971, 31 SCRA 308.
26
William Lines, Inc. v. City of Ozamis, L-35048, April 23, 1974, 56 SCRA 593, Second
Division, per Fernando, J.
27
Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRA
205.
28
Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125,
January 31, 1973, 43 SCRA 133-34.
470
470 SUPREME COURT REPORTS ANNOTATED
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of
the validity of Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or occupation but also to
levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No.
27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise
known as the Local Autonomy Act, as amended, is hereby upheld and Municipal
Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, repealing
Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs
against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz
Palma, Aquino and Conception Jr., JJ., concur.
 Fernando, J., concurs in a separate opinion.
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and
comprehensive character. Insofar as it shows adherence to tried and tested concepts of the
law of municipal taxation, I am certainly in agreement. If I limit myself to concurrence in
the result, it is primarily because with the article on Local Autonomy found in the present
Constitution, I feel a sense of reluctance in restating doctrines that arose from a different
basic premise as to the scope of such power in accordance with the 1935 Charter.
Nonetheless, it is well-nigh unavoidable that I do so as I am unable to share fully what for
me are the nuances and implications that could arise from the approach taken by my
brethren. Likewise as to the constitutional aspect of the thorny question of double
taxation, I would limit myself to what has been set forth in City of Baguio
_______________
29
Subject of plaintiff-appellants Motion for Admission and Consideration of Essential
Newly Discovered Evidence, dated April 30, 1969.
471
VOL. 69, FEBRUARY 27, 1976 471
Pepsi-Cola Bottling Co. of the Philippines, Inc, vs. Municipality of Tanauan, Leyte
v. De Leon.1
1. The present Constitution is quite explicit as to the power of taxation vested in local
and municipal corporations. It is therein specifically provided: Each local government unit
shall have the power to create its own sources of revenue and to levy taxes, subject to such
limitations as may be provided by law2 That was not the case under the 1935 Charter, The
only limitation then on the authority, plenary in character of the national government, was
that while the President of the Philippines was vested with the power of control over all
executive departments, bureaus, or offices, he could only exercise general supervision over
all local governments as may be provided by law * * *. 3 As far as legislative power over
local government was concerned, no restriction whatsoever was placed on the Congress of
the Philippines. It would appear therefore that the extent of the taxing power was solely
for the legislative body to decide. It is true that in 1989, there was a statute that enlarged
the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was further
expanded in the Local Autonomy Act.5 Nevertheless, as late as December of 1964, five
years after its enactment of the Local Autonomy Act, this Court, through Justice Dizon,
in Golden Ribbon Lumber Co. v. City of Butuan,6 reaffirmed the traditional concept in
these words; The rule is well-settled that municipal corporations, unlike sovereign states,
are clothed with no power of taxation; that its charter or a statute must clearly show an
intent to confer that power or the municipal corporation cannot assume and exercise it,
and that any such power granted must be construed strictly, any doubt or ambiguity
arising from the terms of the grant to be resolved against the municipality.7
______________
1
L-24756, October 31, 1968, 25 SCRA 938.
2
Article XI, Section 5 of the present Constitution.
3
Article VII, Section 10 of the 1935 Constitution.
4
Commonwealth Act 472 entitled: An Act Revising the General Authority of
Municipal Councils and Municipal District Councils to Levy Taxes, Subject to Certain
Limitations.
5
Republic Act No. 2264.
 6
L-18534, December 24, 1964, 12 SCRA 611. its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision,
however, we quoted with approval this excerpt from a leading American decision: Where,
7
Ibid, 619. Cf. Cuunjieng v. Patstone, 42 Phil. 818 (1922); De Linan v. Municipal as here, Congress has clearly expressed its intention, the statute must be sustained even
Council of Daet, 44 Phil. 792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. though double taxation results. 12
748 (1927; Hercules Lumber Co. v. Zamboanga, 55 Phil. 653 (1931); Yeo Loby v.
Zamboanga, 55 _______________

472 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak Wing v. Municipal
Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso, 83 Phil. 852 (1949); De la
Rosa v. City of Baguio, 91 Phil 720 (1052); Medina v. City of Baguio, 91 Phil.
472 SUPREME COURT REPORTS ANNOTATED 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil. 909 (1955); Municipal
Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956); We Wa Yu v. City of Lipa, 99 Phil.
975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963 (1959).
Pepsi-Cola Bottling Co. of the Philippines, Inc, vs. Municipality of Tanauan, Leyte
8
L-14264, April 30, 1963, 7 SCRA 887.

Taxation, according to Justice Paredes in the earlier case of Tan v. Municipality of 9

Ibid, 892.
Pagbilao, is an attribute of sovereignty which municipal corporations do not enjoy. That
8 9

case left no doubt either as to weakness of a claim based merely by inferences, 10

Ibid.
implications and deductions, [as they] have no place in the interpretation of the power to
tax of a municipal corporation. 10 As the conclusion reached by the Court finds support in 11
L-24756, October 31, 1968, 25 SCRA 938.
such grant of the municipal taxing power, I concur in the result.
12
Ibid, 943-944.
2. As to any possible infirmity based on an alleged double taxation, I would prefer to
rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11Thus: As to 473
why double taxation is not violative of due process, Justice Holmes made clear in this
language: The objection to the taxation as double may be laid down on one side. * * * The
14th Amendment [the due process clause] no more forbids double taxation than it does VOL. 69, FEBRUARY 27, 1976 473
doubling the amount of a tax, short of confiscation or proceedings unconstitutional on
other grounds. With that decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a persuasive effect. To some, it Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of Tanauan, Leyte
delivered the coup de grace to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the United States, as with us,
So I would view the issues in this suit and accordingly concur in the result.
474 SUPREME COURT REPORTS ANNOTATED
Notes.A municipal ordinance imposing a tax for the selling and distribution of
refined and manufactured oils based on the monthly allocation of the taxpayer is a sales
tax ordinance. (Arabay vs. Court of First Instance of Zamboanga, 66 SCRA 617). People vs. Reyes

Pursuant to a proviso to Section 2 of R.A. 2264, municipalities shall, in no case,

impose any percentage tax on sales or other taxes on articles subject to specific tax, except of Laoag, Ilocos Norte, 37 SCRA 594; City of Naga vs. Court of Appeals, 24 SCRA 594).
gasoline, under the provisions of the National Internal Revenue Code. Under the
foregoing proviso, two courses of action in the exercise of their taxing powers are denied to o0o
municipalities, to wit, (1) to levy any sales tax in whatever form; and (2) to levy any tax on
articles subject to specific tax under the National Internal Revenue Code. It is not difficult Copyright 2017 Central Book Supply, Inc. All rights reserved.
to see that these two prohibitions overlap in the sense that while the first clause of the said
proviso forbids the levying of sales taxes of whatever form or guise, the second clause of
the same proviso forbids the levying of taxes without any distinction as to the kind of tax,
i.e., whether percentage tax, sales tax, specific tax or license tax, although this latter
prohibition applies only to a limited class of articles, viz, those subject to the specific tax
under the Tax Code, Such overlap would probably carry or connote no legal significance
but for the exclusion of gasoline from the prohibition contained in the second clause of the
mentioned proviso. A reasonable and practical interpretation of the terms of the proviso in
question results in the conclusion that Congress, in excluding gasoline from the general
disability imposed on municipalities to exact any kind of taxes on articles subject to
specific tax under the Tax Code, deliberately and intentionally meant to put it within, the
power of such local governments to impose whatever type or form of taxes the latter may
deem proper to levy on gasoline, including a sales tax or one in that form. (Arabay, Inc. vs.
Court of First Instance of Zamboanga, 66 SCRA 623).

Where a municipality which enacted a tax ordinance beyond its power is converted to a
city, the city becomes obligated to refund the tax illegally imposed by its predecessor, (San
Miguel Corporation vs. The Municipal Council of Mandaue, Cebu, 52 SCRA 43; Laoag
Producers Coop. Mktg. Assn, vs. Municipality

474
324 SUPREME COURT REPORTS ANNOTATED

Tan vs. Del Rosario, Jr.

G.R. No. 109289. October 3, 1994.*

RUFINO R. TAN, petitioner, vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF

FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE,
respondents.

G.R. No. 109446. October 3, 1994.*

CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,

MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA,
JR., petitioners, vs. RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF
FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.

Taxation; Simplified Net Income Taxation (SNIT); Republic Act No. 7496 did not
adopt a gross income, but have retained the net income, taxation scheme.On the basis of
the above language of the law, it would be difficult to accept petitioners view that the
amendatory law should be considered as having now adopted a gross income, instead of as
having still retained the net income, taxation scheme. The allowance for deductible items,
it is true, may have significantly been reduced by the questioned law in comparison with
that which has prevailed prior to the amendment; limiting, however, allowable deductions
from gross income is neither discordant with, nor opposed to, the net income tax concept.
The fact of the matter is still that various deductions, which are by no means
inconsequential, continue to be well provided under the new law.
 Same; Same; Constitutional Law; Titles of Bills; Objectives of the constitutional
provision on titles of bills.Article VI, Section 26(1), of the Constitution has been
envisioned so as (a) to prevent log-rolling legislation intended to unite the members of the
legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid
surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through
such publications of its proceedings as are usually made, of the subjects of legislation. The
above objectives of the fundamental law appear to us to have been sufficiently met.
Anything else would be to require a virtual compendium of the law which could not have
been the intendment of the constitutional mandate.
_______________
*
EN BANC.
325
VOL. 237, OCTOBER 3, 1994 325
Tan vs. Del Rosario, Jr.
Same; Same; Same; Uniformity of taxation merely requires that all subjects or objects
of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that
all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity
does not forfend classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both present and future conditions,
and (4) the classification applies equally well to all those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
Same; Same; Same; The legislative intent is to increasingly shift the income tax
system towards the schedular approach in the income taxation of individual taxpayers and
to maintain, by and large, the present global treatment on taxable corporations.What may
instead be perceived to be apparent from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the schedular approach in the income
taxation of individual taxpayers and to maintain, by and large, the present global
treatment on taxable corporations.
Same; Same; Same; Words and Phrases; Schedular Approach, Defined.Schedular
approach is a system employed where the income tax treatment varies and made to
depend on the kind or category of taxable income of the taxpayer.
Same; Same; Same; Same; Global Treatment, Defined.Global treatment is a
system where the tax treatment views indifferently the tax base and generally treats in
common all categories of taxable income of the taxpayer.
Same; Same; Same; Separation of Powers; With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects)
and situs (place) of taxation, and the Supreme Court cannot freely delve into those matters.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the
process, what he believes to be an imbalance between the tax liabilities of those covered by
the amendatory law and those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust
326
326 SUPREME COURT REPORTS ANNOTATED

Tan vs. Del Rosario, Jr.
as to amount to confiscation of property, courts will not hesitate to strike it down, for,
despite all its plenitude, the power to tax cannot override constitutional proscriptions. This
stage, however, has not been demonstrated to have been reached within any appreciable
distance in this controversy before us.
Same; Same; Same; Due Process; The due process clause may correctly be invoked
only when there is a clear contravention of inherent or constitutional limitations in the
exercise of the tax power.Having arrived at this conclusion, the plea of petitioner to have
the law declared unconstitutional for being violative of due process must perforce fail. The
due process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such
transgression is so evident to us.
Same; Same; Same; Partnerships; A general professional partnership, unlike an
ordinary business partnership, is not itself an income taxpayer, as the income tax is
imposed not on the professional partnership but on the partners themselves in their
individual capacity.The Court, first of all, should like to correct the apparent
misconception that general professional partnerships are subject to the payment of income
tax or that there is a difference in the tax treatment between individuals engaged in
business or in the practice of their respective professions and partners in general
professional partnerships. The fact of the matter is that a general professional
partnership, unlike an ordinary business partnership (which is treated as a corporation
for income tax purposes and so subject to the corporate income tax), is not itself an income
taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their
distributive shares of partnership profits.
Same; Same; Same; Same; Words and Phrases; Income Tax-payers, Defined; The
Tax Code, in levying the tax, adopts the most comprehensive tax situs of nationality and
residence of the taxpayer and of the generally accepted and internationally recognized
income taxable base.We can well appreciate the concern taken by petitioners if perhaps
we were to consider Republic Act No. 7496 as an entirely independent, not merely as an
amendatory, piece of legislation. The view can easily become myopic, however, when the
law is understood, as it should be, as only forming part of, and subject to, the whole income
tax concept and precepts long obtaining under the National Internal Revenue Code. To
elaborate a little, the phrase income taxpayers is an all embracing term used in the Tax
Code, and it practically covers all persons who derive taxable income. The law, in levying
the tax, adopts
327
VOL. 237, OCTOBER 3, 1994 327
Tan vs. Del Rosario, Jr.
the most comprehensive tax situs of nationality and residence of the taxpayer (that
renders citizens, regardless of residence, and resident aliens subject to income tax liability
on their income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources). In the process, the
Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations,
(3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as
to corpus and as to income).
Same; Same; Same; Same; Partnerships under the Tax Code, Classified; Ordinarily,
partnerships are subject to income tax which are by law assimilated to be within the context
of, and so legally contemplated as, corporations.Partnerships are, under the Code, either
taxable partnerships or exempt partnerships. Ordinarily, partnerships, no matter how
created or organized, are subject to income tax (and thus alluded to as taxable
partnerships) which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations. Except for few
variances, such as in the application of the constructive receipt rule in the derivation of
income, the income tax approach is alike to both juridical persons.
Same; Same; Same; Same; SNIT is not intended or envisioned to cover corporations
and partnerships which are independently subject to the payment of income tax.
Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the
discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to
cover corporations and partnerships which are independently subject to the payment of
income tax.
Same; Same; Same; Same; Exempt partnerships are not similarly identified as
corporations nor even considered as independent taxable entities for income tax purposes.
Exempt partnerships, upon the other hand, are not similarly identified as corporations
nor even considered as independent taxable entities for income tax purposes. A
general professional partnership is such an example. Here, the partners themselves, not
the partnership (although it is still obligated to file an income tax return [mainly for
administration and data]), are liable for the payment of income tax
their individual capacity computed on their respective and distributive shares of profits. In
the determination of the tax liability, a partner does so as an individual, and there is no
choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-
through entity in the generation of income
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328 SUPREME COURT REPORTS ANNOTATED
Tan vs. Del Rosario, Jr.
by, and the ultimate distribution of such income to, respectively, each of the
individual partners.
Same; Same; Same; Same; Section 6 of Revenue Regulation No. 2-93 consistent with
the Tax Code as modified by Republic Act No. 7496.Section 6 of Revenue Regulation No.
2-93 did not alter, but merely confirmed, the above standing rule as now so modified by
Republic Act No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation income. There is no evident
intention of the law, either before or after the amendatory legislation, to place in an
unequal footing or in significant variance the income tax treatment of professionals who
practice their respective professions individually and of those who do it through a general
professional partnership.
SPECIAL CIVIL ACTIONS in the Supreme Court. Prohibition.
The facts are stated in the opinion of the Court.
Rufino R. Tan for and in his own behalf.
in
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. No. 109446.
VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289,
the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net
Income Taxation Scheme (SNIT), amending certain provisions of the National Internal
Revenue Code and, in G.R. No. 109446, the validity of Section 6, Revenue Regulations No.
2-93, promulgated by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation
of the amendatory legislation.
 In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates
the following provisions of the Constitution:
Article VI, Section 26(1)Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
Article VI, Section 28(1)The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
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VOL. 237, OCTOBER 3, 1994 329
Tan vs. Del Rosario, Jr.
Article III, Section 1No person shall be deprived of x x x property without due process of
law, nor shall any person be denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue
that public respondents have exceeded their rule-making authority in applying SNIT to
general professional partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in compliance with the
Courts directive, have filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No.
7496, is a misnomer or, at least, deficient for being merely entitled, Simplified Net Income
Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their
Profession (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29
of the National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal
Revenue Code, as now amended, provide:
Section 21. Tax on citizens or residents.
x x x xxx
(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in
the Practice of Profession.A tax is hereby imposed upon the taxable net income as
determined in Section 27 received during each taxable year from all sources, other than
income covered by paragraphs (b), (c), (d) and (e) of this section by every individual
whether a citizen of the Philippines or an alien residing in the Philippines who is self-
employed or practices his profession herein, determined in accordance with the following
schedule:
330
330 SUPREME COURT REPORTS ANNOTATED
 4. (d)Business rentals;
Tan vs. Del Rosario, Jr.
5. (e)Depreciation;

6. (f)Contributions made to the Government and accredited relief organizations for

Not over P10,000 3%
the rehabilitation of calamity stricken areas declared by the President; and

7. (g)Interest paid or accrued within a taxable year on loans contracted from

Over P 10,000 but not over P 30,000 P 300 + 9% of excess over P 10,000
accredited financial institutions which must be proven to have been incurred in
connection with the conduct of a taxpayers profession, trade or business.

Over P 30,000 but not over P120,000 P 2,100 + 15% of excess over P 30,000 For individuals whose cost of goods sold and direct costs are difficult to determine, a
maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions to
answer for business or professional expenses as the case may be.
Over P120,000 but not over P350,000 P15,600 + 20% of excess over P120,000
On the basis of the above language of the law, it would be difficult to accept petitioners
view that the amendatory law should be considered as having now adopted a gross income,
Over P350,000 P61,600 + 30% of excess over P350,000 instead of as having still retained the net income, taxation scheme. The allowance for
deductible items, it is true, may have significantly been reduced by the questioned law in
comparison with that which has prevailed prior to the amendment; limiting, however,
SECTION 29. Deductions from gross income.In computing taxable income subject to tax
allowable deductions from gross income is neither discordant with, nor opposed to, the net
under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions
income tax concept. The fact of the matter is still that various deductions, which are by no
the items specified in paragraphs (a) to (i) of this section: Provided, however, That in
means inconsequential, continue to be well provided under the new law.
computing taxable income subject to tax under Section 21 (f) in the case of individuals
engaged in business or practice of profession, only the following direct costs shall be
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent
allowed as deductions:
log-rolling legislation intended to unite the

1. (a)Raw materials, supplies and direct labor; 331

2. (b)Salaries of employees directly engaged in activities in the course of or

pursuant to the business or practice of their profession;
VOL. 237, OCTOBER 3, 1994 331

3. (c)Telecommunications, electricity, fuel, light and water;


Tan vs. Del Rosario, Jr.
members of the legislature who favor any one of unrelated subjects in support of the whole
act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the
people, through such publications of its proceedings as are usually made, of the subjects of
legislation. The above objectives of the fundamental law appear to us to have been
1 treats in common all categories of taxable income of the taxpayer.
sufficiently met. Anything else would be to require a virtual compendium of the law which
could not have been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation shall be uniform and equitable in that the law would now
attempt to tax single proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. The contention clearly forgets, however,
that such a system of income taxation has long been the prevailing rule even prior to
Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity
does not forfend classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both present and future conditions,
and (4) the classification applies equally well to all those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the
legislative intent to increasingly shift the income tax system towards the schedular
approach2 in the income taxation of individual taxpayers and to maintain, by and large,
the present global treatment on taxable corporations. We certainly
3 before us.
_______________
1
Justice Isagani A. Cruz on Philippine Political Law 1993 edition, pp. 146-147, citing
with approval Cooley on Constitutional Limitations.
2
A system employed where the income tax treatment varies and made to depend on
the kind or category of taxable income of the taxpayer.
3
A system where the tax treatment views indifferently the tax base and generally
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332 SUPREME COURT REPORTS ANNOTATED
Tan vs. Del Rosario, Jr.
do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in
the process, what he believes to be an imbalance between the tax liabilities of those
covered by the amendatory law and those who are not. With the legislature primarily lies
the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust as to amount to confiscation of property,
courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax
cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached within any appreciable distance in this controversy
 Having arrived at this conclusion, the plea of petitioner to have the law declared
unconstitutional for being violative of due process must perforce fail. The due process
clause may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No such transgression is so
evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether or
not public respondents have exceeded their authority in promulgating Section 6, Revenue
Regulations No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional PartnershipThe general professional partnership (GPP)
and the partners comprising the GPP are covered by R.A. No. 7496. Thus, in determining
the net profit of the partnership, only the direct costs mentioned in said law are to be
deducted from partnership income. Also, the expenses paid or incurred by partners in
their individual capacities in the practice of their profession which are not reimbursed or
paid by the partnership but are not considered as direct cost, are not deductible from his
gross income.
The real objection of petitioners is focused on the administrative interpretation of public
respondents that would apply SNIT to partners in general professional partnerships.
Petitioners cite
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VOL. 237, OCTOBER 3, 1994 333
Tan vs. Del Rosario, Jr.
the pertinent deliberations in Congress during its enactment of Republic Act No. 7496,
also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of
Representatives, in the latters privilege speech by way of commenting on the questioned
implementing regulation of public respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression on this bill.
Do we speak here of individuals who are earning, I mean, who earn through business
enterprises and therefore, should file an income tax return? MR. PEREZ. That is correct,
Mr. Speaker. This does not apply to corporations. It applies only to individuals.
(See Deliberations on H.B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours)
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that
this bill is intended to increase collections as far as individuals are concerned and to make
collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours)
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version
of the SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or to partnerships; it
is only with respect to individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that general
professional partnerships are subject to the payment of income tax or that there is a
difference in the tax treatment between individuals engaged in business or in the practice
of their respective professions and partners in general professional partnerships. The fact
of the matter is that a general professional partnership, unlike an ordinary business
partnership (which is treated as a corporation for income tax purposes and so subject to
the corporate income tax), is not itself an income taxpayer. The income tax is imposed not
on the professional
334
334 SUPREME COURT REPORTS ANNOTATED
Tan vs. Del Rosario, Jr.
partnership, which is tax exempt, but on the partners themselves in their individual
capacity computed on their distributive shares of partnership profits. Section 23 of the Tax
Code, which has not been amended at all by Republic Act 7496, is explicit:
SECTION 23. Tax liability of members of general professional partnerships.(a) Persons
exercising a common profession in general partnership shall be liable for income tax only
in their individual capacity, and the share in the net profits of the general professional
partnership to which any taxable partner would be entitled whether distributed or
otherwise, shall be returned for taxation and the tax paid in accordance with the
provisions of this Title.
(b) In determining his distributive share in the net income of the partnership, each
partner
1. (1)Shall take into account separately his distributive share of the partnerships
income, gain, loss, deduction, or credit to the extent provided by the pertinent
provisions of this Code, and
2. (2)Shall be deemed to have elected the itemized deductions, unless he declares
his distributive share of the gross income undiminished by his share of the
deductions.
There is, then and now, no distinction in income tax liability between a person who
practices his profession alone or individually and one who does it through partnership
(whether registered or not) with others in the exercise of a common profession. Indeed,
outside of the gross compensation income tax and the final tax on passive investment
income, under the present income tax system all individuals deriving income from any
source whatsoever are treated in almost invariably the same manner and under a common
set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider
Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of
legislation. The view can easily become myopic, however, when the law is understood, as it
should be, as only forming part of, and subject to, the whole income tax concept and
precepts long obtaining under the National Internal Revenue Code. To elaborate a little,
the phrase income taxpayers is an all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable income. The law, in levying the tax,
adopts the most comprehensive tax situs of nationality and residence of the
335
VOL. 237, OCTOBER 3, 1994 335
Tan vs. Del Rosario, Jr.
taxpayer (that renders citizens, regardless of residence, and resident aliens subject to
income tax liability on their income from all sources) and of the generally accepted and
internationally recognized income taxable base (that can subject non-resident aliens and
foreign corporations to income tax on their income from Philippine sources). In the
process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable
both as to corpus and as to income).
Partnerships are, under the Code, either taxable partnerships or exempt
partnerships. Ordinarily, partnerships, no matter how created or organized, are subject to
income tax (and thus alluded to as taxable partnerships) which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally
contemplated as, corporations. Except for few variances, such as in the application of the
constructive receipt rule in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly
pointed out in the discussions in Congress during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.
Exempt partnerships, upon the other hand, are not similarly identified as
corporations nor even considered as independent taxable entities for income tax purposes.
A general professional partnership is such an example.4 Here, the partners themselves, not
the partnership (although it is still obligated to file an income tax return [mainly for
administration and data]), are liable for
_______________
4
A general professional partnership, in this context, must be formed for the sole
purpose of exercising a common profession, no part of the income of which is derived from
its engaging in any trade business; otherwise, it is subject to tax as an ordinary business
partnership or, which is to say, as a corporation and thereby subject to the corporate
income tax. The only other exempt partnership is a joint venture for undertaking
construction projects or engaging in petroleum operations pursuant to an operating
agreement under a service contract with the government (see Sections 20, 23 and 24,
National Internal Revenue Code).
336
336 SUPREME COURT REPORTS ANNOTATED
Tan vs. Del Rosario, Jr.
the payment of income tax in their individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax liability, a partner does so as
an individual, and there is no choice on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed to be no more than a mere
mechanism or a flow-through entity in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the
above standing rule as now so modified by Republic Act No. 7496 on basically the extent of
allowable deductions applicable to all individual income taxpayers on their
noncompensation income. There is no evident intention of the law, either before or after
the amendatory legislation, to place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their respective professions
individually and of those who do it through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.
Narvasa (C.J.), Cruz, Feliciano, Regalado, Davide,
Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ., concur.
 Padilla and Bidin, JJ., On leave.

Petitions dismissed.

Note.The law does not look with favor on tax exemptions and he who would seek to
be thus privileged must justify it by words too plain to be mistaken and too categorical to
be misinterpreted. (Reagan vs. Commissioner of Internal Revenue, 30 SCRA 968 [1969])
 [No. L-10405. December 29, 1960]

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,

petitioner and appellant vs.THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., respondents and appellees.

1. 1.CONSTITUTIONAL LAW; LEGISLATIVE POWERS; APPROPRIATION OF

PUBLIC REVENUES ONLY FOR PUBLIC PURPOSES; WHAT DETERMINES
VALIDITY OF A PUBLIC EXPENDITURE."It is a general rule that the
legislature is without power to appropriate public revenues for anything but a
public purpose. * * * It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax and

_______________

3
See also People vs. Gucor, 86 Phil., 157; 47 Off. Gaz., 6121; People vs. Manalo, et
al., 46 Phil., 572; and People vs. Wilson, et al., 52 Phil. 907.

332

332 PHILIPPINE REPORTS ANNOTATED


Pascual vs. Secretary of Public Works
1. not the magnitude of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental advantage to the public or to
the state, which results from the promotion of private interests, and the
prosperity of private enterprises or business, does not justify their aid by the use
of public money." (23 R. L. C. pp. 398-450).
1. 2.ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE.Generally, under the
express or implied provisions of the constitution, public funds may be used only
for a public purpose. The right of the legislature to appropriate public funds is
correlative with its right to tax, and, under constitutional provisions against
taxation except for public purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no appropriation of state
funds can be made for other than a public purpose. (81 C. J. S. p. 1147).
1. 3.ID.; ID.; ID.; TEST OF CONSTITUTIONALITY.The test of the
constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interests, as opposed to the
furtherance of the advantage of individuals, although such advantage to
individuals might incidentally serve the public. (81 C. J. S. p. 1147).
1. 4.ID.; ID.; ID.; ID.; POWERS OF CONGRESS AT THE TIME OF PASSAGE OF A
STATUTE SHOULD BE CONSIDERED.The validity of a statute depends
upon the powers of Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto, unless the latter
consist of an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute.
1. 5.ID.; ID.; ID.; APPROPRIATION FOR A PRIVATE PURPOSE NULL AND
VOID; SUBSEQUENT DONATION TO GOVERNMENT NOT CURATIVE OF
DEFECT.Where the land on which projected feeder roads are to be
constructed belongs to a private person, an appropriation made by Congress for
that purpose is null and void, and a donation to the Government, made over five
(5) months after the approval and effectivity of the Act for the purpose of giving
a "semblance of legality" to the appropriation, does not cure the basic defect.
Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
1. 6.ID.; ID.; ID.; ID.; RIGHT OF TAXPAYERS TO CONTEST
CONSTITUTIONALITY OF A LEGISLATION.The relation between the
people
333
VOL. 110, DECEMBER 29, 1960 333
Pascual vs. Secretary of Public Works
1. of the Philippines and its taxpayers, on the one hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people
and taxpayers of the U.S. and its Federal Government. It is closer, from a
domestic viewpoint, to that existing between the people and taxpayers of each
state and the government thereof, except that the authority of the Republic of
the Philippines over the people of the Philippines is more fully direct than that
of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the
Federal Constitution upon the states of the Union, and those imposed upon the
Federal Government in the interest of the states of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public fundswhich has been upheld by
the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601)has greater
 application in the Philippines than that adopted with respect to acts of Congress
of the United States appropriating federal funds.
1. 7.CONTRACTS; DEFENSE OF ILLEGALITY; EXCEPTIONS TO ARTICLE 1421
OF THE CIVIL CODE.Article 1421 of the Civil Code is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the rights and actions
of the latter, except only those which are inherent in his person, including his
right to the annulment of said contract, even though such creditors are not
affected by the same, except indirectly, in the manner indicated in said legal
provision.
APPEAL from a judgment of the Court of First Instance of Rizal (Pasig). Enriquez, J. The
facts are stated in the opinion of the Court.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCIN, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of
Rizal, dismissing
334
334 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal,
instituted this action for declaratory relief, with injunction, upon the ground that Republic
Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June
20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00, "for the
construction, reconstruction, repair, extension and improvement" of "Pasig feeder road
terminals (Gen. RoxasGen. AranetaGen. LucbanGen. CapinpinGen. Segundo
Gen. DelgadoGen. MalvarGen. Lim)"; that, at the time of the passage and approval of
said Act, the aforementioned feeder roads were "nothing but projected and planned
subdivision roads, not yet constructed, * * * within the Antonio Subdivision * * * situated
at * * * Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and
B, near Shaw Boulevard, not far away from the intersection between the latter and
Highway 54), which projected feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned Antonio Subdivision
(as well as the lands on which said feeder roads were to be constructed) were private
properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of
said Act, was a member of the Senate of the Philippines; that on May 29, 1953, respondent
Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said
projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer
was accepted by the council, subject to the condition "that the donor would submit a plan
of the said roads and agree to change the names of two of them"; that no deed of donation
in favor of the municipality of Pasig was, however, executed; that on July 10, 1953,
respondent Zulueta wrote another letter to said council, calling at-
335
VOL. 110, DECEMBER 29, 1960 335
Pascual vs. Secretary of Public Works
tention to the approval of Republic Act No. 920, and the sum of P85,000.00 appropriated
therein for the construction of the projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement thereon"; that inasmuch as
the projected feeder roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder
roads, was "illegal and, therefore, void ab initio"; that said appropriation of P85,000.00
was made by Congress because its members were made to believe that the projected feeder
roads in question were "public roads and not private streets of a private subdivision'"; that,
"in order to give a semblance of legality, when there is absolutely none, to the
aforementioned appropriation", respondent Zulueta executed, on December 12, 1953, while
he was a member of the Senate of the Philippines, an alleged deed of donationcopy of
which is annexed to the petitionof the four (4) parcels of land constituting said projected
feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation partook of the nature of a
contract; that, as such, said donation violated the provision of our fundamental law
prohibiting members of Congress from being directly or indirectly financially interested in
any contract with the Government, and, hence, is unconstitutional, as well as null and
void ab initio, for the construction of the projected feeder roads in question with public
funds would greatly enhance or increase the value of the aforementioned subdivision of
respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets
336
336 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
or roads at his own expense"; that the construction of said projected feeder roads was then
being undertaken by the Bureau of Public Highways; and that, unless restrained by the
court, the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment and
prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be
declared null and void; that the alleged deed of donation of the feeder roads in question be
"declared unconstitutional and, therefore, illegal"; that a writ of injunction be issued
enjoining the Secretary of Public Works and Communications, the Director of the Bureau
of Public Works, the Commissioner of the Bureau of Public Highways and Jose C. Zulueta
from ordering or allowing the continuance of the above-mentioned feeder roads project,
and from making and securing any new and further releases on the aforementioned item
of Republic Act No. 920, and the disbursing officers of the Department of Public Works and
Communications, the Bureau of Public Works and the Bureau of Public Highways from
making any further payments out of said funds provided for in Republic Act No. 920; and
that pending final hearing on the merits, a writ of preliminary injunction be issued
enjoining the aforementioned parties respondent f rom making and securing any new and
further releases on the aforesaid item of Republic Act No. 920 and from making any
further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no
legal capacity to sue", and that the petition did "not state a cause of action". In support to
this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its
provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the
Revised Administrative Code; that
 337
VOL. 110, DECEMBER 29, 1960 337
Pascual vs. Secretary of Public Works
said respondent is "not aware of any law which makes illegal the appropriation of public
funds for the improvement of * * * private property"; and that, the constitutional provision
invoked by petitioner is inapplicable to the donation in question, the same being a pure act
of liberality, not a contract. The other respondents, in turn, maintained that petitioner
could not assail the appropriation in question because "there is no actual bona, fide case *
* * in which the validity of Republic Act No. 920 is necessarily involved" and petitioner
"has not shown that he has a personal and substantial interest" in said Act "and that its
enforcement has caused or will cause him a direct injury".
Acting upon said motions to dismiss, the lower court rendered the aforementioned
decision, dated October 29, 1953, holding that, since public interest is involved in this case,
the Provincial Governor of Rizal and the provincial fiscal thereof who represents him
therein, "have the requisite personalities" to question the constitutionality of the disputed
item of Republic Act No. 920; that "the legislature is without power to appropriate public
revenues for anything but a public purpose", that the construction and improvement of the
feeder roads in question, if such roads were private property, would not be a public
purpose; that, being subject to the following condition:
"The within donation is hereby made upon the condition that the Government of the
Republic of the Philippines will use the parcels of land hereby donated for street purposes
only and for no other purposes whatsoever; it being expressly understood that should the
Government of the Republic of the Philippines violate the condition hereby imposed upon
it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA." (Italics supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of
the Civil Code of the Philippines, declares in-
338
338 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
existent and void from the very beginning contracts "whose cause, object or purpose is
contrary to law, morals * * * or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interests are not directly affected"
thereby; and that, accordingly, the appropriation in question "should be upheld" and the
case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as such, are deemed to have admitted
hypothetically the allegations of fact made in the petition of appellant herein. According to
said petition, respondent Zulueta is the owner of several parcels of residential land,
situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which
had been reserved for the projected feeder roads aforementioned, which, admittedly, were
private property of said respondent when Republic Act No. 920, appropriating P85,000.00
for the "construction, reconstruction, repair, extension and improvement" of said roads,
was passed by Congress, as well as when it was approved by the President on June 20,
1953. The petition further alleges that the construction of said feeder roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of
relieving respondent Zulueta of the burden of constructing his subdivision streets or roads
at his own expenses,1 and would "greatly enhance or increase the value of the subdivision"
of said respondent. The lower court held that under these circumstances, the _______________
appropriation in question was "clearly for a private, not a public purpose."
2
Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County vs. Allred. 68 S.W
_______________ 2d 164; State ex rel. Thomson vs. Giessel, 53-N.W. 2d. 726, Attorney General vs. City of
Eau Claire, 37 Wis. 400; State ex rel. Smith vs. Annuity Pension Board, 241 Wis. 625, 6
1
For, pursuant to section 19 (h) of the existing rules and regulations of the Urban N.W. 2d. 676; State vs. Smith, 293 N.W. 161; State vs. Dammann 280 N.W.
Planning Commission, the owner of a subdivision is under obligation "to improve, repair 698; Sjostrum vs. State Highway Commission 228 P. 2d. 238; Hutton vs. Webb, 126 N.C.
and maintain all streets, highways and other ways in his subdivision until their dedication 897, 36 S.E. 341; Michigan Sugar Co. vs. Auditor General, 124 Mich. 674, 83 N.W.
to public use is accepted by the government." 625 Oxnard Beet Sugar Co. vs. State, 105 N.W. 716.

339 3
Casanovas vs. Hord. 8 Phil., 125; McGirr vs. Hamilton, 30 Phil., 563; Compaia
General de Tabacos vs. Board of Public Utility, 34 Phil., 136; Central Capiz vs. Ramirez, 40
Phil., 883; Concepcion vs. Paredes, 42 Phil., 599; U.S. vs. Ang Tang Ho, 43 Phil.
VOL. 110, DECEMBER 29, 1960 339 6; McDaniel vs. Apacible, 44 Phil., 248; People vs. Pomar, 46 Phil., 440; Agcaoili vs.
Suguitan, 48 Phil., 676; Government of P.I. vs. Springer 50 Phil., 259; Manila Electric
Co. vs. Pasay Transp. Co., 57 Phil., 600; People vs. Linsangan, 62 Phil., 464; People and
Pascual vs. Secretary of Public Works Hongkong & Shanghai Banking Corp. vs. Jose O. Vera, 65 Phil. 56; People vs. Carlos, 78
Phil., 535; 44 Off. Gaz. 428; In re Cunanan, 94 Phil., 534; 50 Off. Gaz., 1602; City of
Baguio vs. Nawasa, 106 Phil., 144; City of Cebu vs. Nawasa, 107 Phil.,
Respondents do not deny the accuracy of this conclusion, which is self-evident. However,
2
1112; Rutter vs. Esteban, 93 Phil. 68; 49 Off. Gaz., [5] 1807.
respondent Zulueta contended, in his motion to dismiss that:
340
"A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws * * *. Aside from the fact that the movant is not aware of
any law which makes illegal the appropriation of public funds for the improvement of what 340 PHILIPPINE REPORTS ANNOTATED
we, in the meantime, may assume as private property * * *." (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the
nature of the Government established under the Constitution of the Philippines and the
system of checks and balances underlying our political structure. Moreover, it is refuted by
the decisions of this Court invalidating legislative enactments deemed violative of the
Constitution or organic laws.3
Pascual vs. Secretary of Public Works
As regards the legal feasibility of appropriating public funds for a private purpose, the
principle according to Ruling Case Law, is this:
"It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. * * * It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude
of the interests to be affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental advantage to the public or to the state, which results from the
promotion of private interests and the prosperity of private enterprises or business,
does not justify their aid by the use of public money." (25 R.L.C. pp. 398-400; Italics
supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
"In accordance with the rule that the taxing power must be exercised for public purposes
only, discussed supra sec. 14, money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals." (85 C.J.S. pp. 645-646; italics
supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
"Generally, under the express or implied provisions of the constitution, public funds may
be used only for a public purpose. The right of the legislature to appropriate funds
is correlative with its right to tax, and, under constitutional provisions against taxation
except for public purposes and prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of state funds can be made for other
than a public purpose. * * *
* * * * * * *
"The test of the constitutionality of a statute requiring the use of public funds is
whether the statute is designed to promote the public interests, as opposed to the
furtherance of the advantage of individuals, although each advantage to individuals
might incidentally serve the public. * * * ." (81 C.J.S. p. 1147; italics supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from
being patently sound,
341
VOL. 110, DECEMBER 29, 1960 341
Pascual vs. Secretary of Public Works
are a necessary corollary to our democratic system of government, which, as such, exists
primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has
been patterned, said views and jurisprudence are, likewise, part and parcel of our own
constitutional law.
This notwithstanding, the lower court felt constrained to uphold the appropriation in
question, upon the ground that petitioner may not contest the legality of the donation
above referred to because the same does not affect him directly. This conclusion is,
presumably, based upon the following premises, namely: (1) that, if valid, said donation
cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter
may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and
admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its
passage or approval, not upon events occurring, or acts performed, subsequently thereto,
unless the latter consist of an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute. Referring to the
P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which,
later on, became Republic Act No. 920, was passed by Congress, or, when said bill was State for the purpose of administering an unconstitutional act constitutes
approved by the President and the disbursement of said sum became effective, or on June a misapplication of such funds," which may be enjoined at the request of a tax-
20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder
roads were to be constructed belonged then to respondent Zulueta, the result is that said ______________
appropriation sought a
4
In the language of the Supreme Court of Nebraska, "An unconstitutional statute is a
342 legal still birth, which neither moves, nor breathes, nor holds out any sign of life. It is a
form without one vital spark. It is wholly dead from the moment of conception, and, no
right, either legal or equitable, arises from such inanimate thing." (Oxnard Beat Sugar
342 PHILIPPINE REPORTS ANNOTATED Co. vs. State, 102 N.W. 80.)

5
See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A. 312, 36 P.
Pascual vs. Secretary of Public Works 424; Crawford vs. Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs. American-Hawaiian
Engineering & Constr.

private purpose, and, hence, was null and void.4 The donation to the Government, over five 343
(5) months after the approval and effectivity of said Act, made, according to the petition,
for the purpose of giving a "semblance of legality", or legalizing, the appropriation in
question, did not cure its aforementioned basic defect. Consequently, a judicial nullification VOL. 110, DECEMBER 29, 1960 343
of said donation need not precede the declaration of unconstitutionality of said
appropriation.
Pascual vs. Secretary of Public Works
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject
to exceptions. For instance, the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the rights and actions of the payer.6 Although there are some decisions to the contrary, 7the prevailing view in the
latter, except only those which are inherent in his person, including, therefore, his right to United States is stated in the American Jurisprudence as follows:
the annulment of said contract, even though such creditors are not affected by the same,
except indirectly, in the manner indicated in said legal provision "In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute the general rule is that not only persons
Again, it is well settled that the validity of a statute may be contested only by one who individually affected, but also taxpayers, have sufficient interest in preventing the illegal
will sustain a direct injury in consequence of its enforcement. Yet, there are many expenditure of moneys raised by taxation and may therefore question the constitutionality of
decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of statutes requiring expenditure of public moneys." (11 Am. Jur. 761; italics supplied.)
public funds, upon the theory that "the expenditure of public funds by an officer of the
5
However, this view was not favored by the Supreme Court of the U.S. in
Frothingham vs. Mellon (262 U.S. 344 PHILIPPINE REPORTS ANNOTATED

_______________
Pascual vs. Secretary of Public Works
Co., 16 Haw. 80; Castle vs. Capena, 5 Haw. 27; Littler vs. Jayne. 124 111. 123, 16 N.E.
374; Burke vs. Snively, 208 111. 328, 70 N.E. 327; Ellingham vs. Dye, 178 Ind. 336, 99 N.E.
1; Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac. 3; State ex rel. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
Taylor vs. Pennoyer, 26 Or. 205, 37 Pac. 906; Carman vs. Woodruf, 10 Or. taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a
123; MacKinney vs. Watson, 145 Pac. 266; Sears vs. James, 47 Or. 50, 82 Pac. municipal corporation to its government. Indeed, under the composite system of
14; Mott vs. Pennsylvania R. Co., 30 Pa. 9, 72 Am. Dec. 664; Bradley vs. Power County, 37 government existing in the U.S., the states of the Union are integral part of the Federation
Am. Dec. 563; Frost vs. Thomas, 26 Colo. 227, 77 Am. St Rep. 259, 56 Pac. from an international viewpoint, but, each state enjoys internally a substantial measure of
899; Martin vs. Ingham, 38 Kan. 641, 17 Pac. 162; Martin vs. Lacy, 39 Kan. 703, 18 Pac sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the
951; Smith vs. Mageurich. 44 Ga. 163; Giddings vs. Blacker, 93 Mich. 1, 16 L.R.A. 402, 52 same was made by representatives of each state of the Union, not of the people of the U.S.,
N.W. 944; Rippe vs. Becker, 56 Minn. 100, 57 N.W. 331; Auditor vs. Treasurer, 4 S.C. except insofar as the former represented the people of the respective States, and the people
311; McCullough vs. Brown, 31 S.C. 220, 19 S.E. 458; State ex rel. of each State has, independently of that of the others, ratified said Constitution. In other
Lamb vs. Cummingham, 83 Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs. Frear, 138 words, the Federal Constitution and the Federal statutes have become binding upon the
Wis. 173. 119 N.W. 894. people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between
6
Rubs vs. Tompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 III. 147, 30 N.E. 2d. said people and the Federal Government of the U.S. is reflected in the election of its
908; Fergus vs. Russel, 270 111. 304, 110 N.E. 130; Burke vs. Snively, 208 111. President, who is chosen directly, not by the people of the U.S., but by electors chosen
328; Jones vs. Connell, 266 111. 443, 107 N.E. 731; Dudick vs. Baumann, 349 111. 46, 181 by each State, in such manner as the legislature thereof may direct (Article II, section 2, of
N.E. 690. the Federal Constitution).

7
Thompson vs. Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs. Komfort, 212 N.Y. The relation between the people of the Philippines and its taxpayers, on the one hand,
520, 106 N.E. 675; Hutchison vs. Skinmer, 21 Misc. 729, 49 N.Y. Supp. and the Republic of the Philippines, on the other, is not identical to that obtaining between
360; Long vs. Johnson, 70 Misc. 308; 127 N.Y. Supp. 756; Whiteback us. Hooker, 73 Misc. the people and taxpayers of the U.S. and its Federal Government. It is closer, from a
573, 133 N.Y. Supp. 534; State ex rel. Cranmer vs. Thorson, 9 S.D. 149, 68 N.W. domestic viewpoint, to that existing between the people and taxpayers of each state and
202; Davenport vs. Elrod, 20 S.D. 567, 107 N.W. 833; Jones vs. Reed, 3 Wash. 57, 27 Pac. the government thereof, except that the authority of the Republic of the Philippines over
1067; Birmingham vs. Cheetham, 19 Wash. 657, 54 Pac. 37; Tacoma vs. Bridges, 25 Wash. the people of the Philippines is more fully direct than that of the states of the Union,
221, 65 Pac. 186; Hilger vs. State, 63 Wash. 457, 116 Pac. 19. insofar as the simple and unitary type of our national government is not subject to
limitations analogous to those imposed by the
344
 345 Hence, it is our considered opinion that the circumstances surrounding this case
sufficiently justify peti-

VOL. 110, DECEMBER 29, 1960 345 _______________

7
It has 1,463,530 inhabitants.
Pascual vs. Secretary of Public Works
346

those imposed upon the Federal Government in the interest of the states of the Union. For
this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a 346 PHILIPPINE REPORTS ANNOTATED
legislation appropriating local or state public fundswhich has been upheld by the
Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601)has greater application in
the Philippines than that adopted with respect to acts of Congress of the United States Cariaga vs. Laguna Tayabas Bus Company
appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation
of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene
for the purpose of contesting the price being paid to the owner thereof, as unduly
exhorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a
taxpayer and employee of the Government was not permitted to question the
constitutionality of an appropriation for backpay of members of Congress. However,
in Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84
Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the
validity of certain appropriations of public funds, and invalidated the same. Moreover, the
reason that impelled this Court to take such position in said two (2) casesthe importance
of the issues therein raisedis present in the case at bar. Again, like the petitioners in the
Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of
Rizal, which he represents officially as its Provincial Governor, is our most populated
political subdivision.7 and, the taxpayers therein bear a substantial portion of the burden
of taxation, in the Philippines.
tioner's action in contesting the appropriation and donation in question; that this action
should not have been dismissed by the lower court; and that the writ of preliminary
injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are
remanded to the lower court for further proceedings not inconsistent with this decision,
with the costs of this instance against respondent Jose C. Zulueta. It is so ordered.
Pars, C. J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J. B.
L., Barrera, Gutirrez David, Paredes, and Dizon, JJ., concur.
Judgment reversed, records remanded to lower court for further proceedings.
938 SUPREME COURT REPORTS ANNOTATED

City of Baguio vs. De Leon

No. L-24756. October 31, 1968.

CITY OF BAGUIO, plaintiff-appellee, vs. FORTUNATO DE LEON, defendant-appellant.

Statutory construction; Ordinance passed pursuant to Republic Act 329 conferring

upon the City of Baguio the power to tax is valid.On July 15, 1948, Republic Act No. 329
was enacted amending the city charter of Baguio and adding to its power to license the
power to tax and regulate all business, trades and occupations therein. The ordinance
under consideration, therefore, cannot be considered ultra vires.
 Courts; Jurisdiction of city courts; When city court has jurisdiction to decide on the
constitutionality of an ordinance.Where the principal issue is collection for a sum of
money and the city court has already acquired jurisdiction over the suit, the mere fact that
the issue of constitutionality is raised does not suffice to oust the City Court of its
jurisdiction. Since the City Court is possessed of judicial power and it is likewise axiomatic
that the judicial power embraces the ascertainment of the facts and the application of the
law, the Constitution as the highest law superseding any statute or ordinance in conflict
therewith, it cannot be said that a City Court is bereft of competence to proceed on the
matter.
Taxation; Double taxation; When not violative of due process.The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is
imposed by the city, it being widely recognized that there is nothing inherently obnoxious
in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof.
Where Congress has clearly expressed its intention, the statute must be sustained even
though double taxation results.
Same; Rule on equality and uniformity in taxation.Equality and uniformity in
taxation means that all taxable articles or kind or property of the same class shall be
taxed at the same
939
VOL. 25, OCTOBER 31, 1968 939
City of Baguio vs. De Leon
rate. A tax is considered uniform when it operates with the same force and effect in
every place where the subject may be found. Where the statute or ordinance in question
applies equally to all persons, firms and corporations placed in similar situation there is
no infringement of the rule on equality. Inequalities which result from a singling out of one
particular class for taxation or exemption inf ringe no constitutional limitation.
Public officers; The act of the City Treasurer is the act of the mayor unless repudiated.
In much the same way that an act of a department head of the national government,
performed within the limits of his authority, is presumptively the act of the President
unless reprobated or disapproved, similarly the act of the City Treasurer may be assumed
to carry the seal of approval of the City Mayor unless repudiated or set aside.
APPEAL from a decision of the City Court of Baguio.
The facts are stated in the opinion of the Court.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing business in
the City of Baguio is assailed by defendantappellant Fortunato de Leon. He was held liable
as a real estate dealer with a property therein worth more than P10,000, but not in excess
of P50,000, and therefore obligated to pay under such ordinance the P50 annual f ee. That
is the principal question. In addition, there has been a firm and unyielding insistence by
defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit
originated, a complaint having been filed against him by the City Attorney of Baguio for
his failure to pay the amount of P300 as license fee covering the period from the first
quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendantappellant agreeable to such a suit being instituted by the City Treasurer
without the consent of the Mayor, which for
______________
1
Ordinance No. 218.
940
940 SUPREME COURT REPORTS ANNOTATED
City of Baguio vs. De Leon
him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid
and subsisting, and held def endant-appellant liable for the fees therein prescribed as a
real estate dealer. Hence, this appeal. Assume the validity of such ordinance, and there
would be no question about the liability of defendant-appellant for the above license fee, it
being shown in the partial stipulation of facts, that he was "engaged in the rental of his
property in Baguio" deriving income therefrom during the period covered by the first
quarter of 1958 to the fourth quarter of 1962.
The source of authority f or the challenged ordinance is supplied by Republic Act No.
329, amending the city charter of Baguio2 empowering it to fix the license f ee and regulate
"businesses, trades and occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to
justify the enactment of the ordinance now assailed, the decision appealed from must be
affirmed. The task confronting defendant-appellant, therefore, was far from easy. Why he
failed is understandable, considering that even a cursory reading of the above amendment
readily discloses that the enactment of the ordinance in question finds support in the
power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character.
In Medina v. City of Baguio,3 the effect of the amendatory section insofar as it would
expand the previous power vested by the city charter was clarified in these terms:
"Appellants apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to impose a license fee for
the purpose of regulating the business that may be established in the city. The power as
thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding
to its power to license the power to tax and to regulate. And it is precisely having in view
this amend-
________________
2
Section 2553, paragraph (c), Revised Administrative Code.
3
91 Phil. 854, 856-857 (1952).
941
VOL. 25, OCTOBER 31, 1968 941
City of Baguio vs. De Leon
ment that Ordinance No. 99 was approved in order to increase the revenues of the city. In
our opinion, the amendment above adverted to empowers the city council not only to
impose a license fee but also to levy a tax for purposes of revenue, more so when in
amending section 2553 (b), the phrase 'as provided by law' has been removed by section 2
of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to
license and to regulate provided that the subjects affected be one of those included in the
charter. In this sense, the ordinance under consideration cannot be considered ultra
vires whether its purpose be to levy a tax or impose a license fee. The terminology used is
of no consequence,"

It would be an undue and unwarranted emasculation of the above power thus granted
if defendant-appellant were to be sustained in his contention that no such statutory City of Baguio vs. De Leon
authority for the enactment of the challenged ordinance could be discerned f rom the
language used in the amendatory act. That is about all that needs to be said in upholding
the lower court, considering that the City of Baguio was not devoid of authority in enacting that case filed a claim for the payment of his salary before the Justice of the Peace Court of
this particular ordinance. As mentioned at the outset, however, defendant appellant Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the defendant
likewise alleged procedural missteps and asserted that the challenged ordinance suffered Mayor asserted that what was in issue was the enforcement of the decision of the
from certain constitutional infirmities. To such points raised by him, we shall now turn. Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction
to try the case. The above plea was curtly dismissed by us, as what was involved was "an
1. 1.Defendant-appellant makes much of the alleged lack of jurisdiction of the City ordinary money claim" and therefore "within the original jurisdiction of the Justice of the
Court of Baguio in the suit for the collection of the real estate dealer's fee from Peace Court where it was filed, considering the amount involved." Such is likewise the
him in the amount of P300. He contended before the lower court, and it is his situation here.
contention now, that while the amount of P300 sought was within the
jurisdiction of the City Court of Baguio where this action originated, since the
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant
principal issue was the legality and constitutionality of the challenged
this license fee corresponding to the years 1951 and 1952 was filed with the Municipal
ordinance, it is not such City Court but the Court of First Instance that has
Court of Manila, in view of the amount involved. The thought that the municipal court
original jurisdiction.
lacked jurisdiction apparently was not even in the minds of the parties and did not receive
any consideration by this Court.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction.
Only recently, on September 7, 1968 to be exact, we rejected a contention similar in
Evidently, the fear is entertained by defendant-appellant that whenever a
character in Nemenzo v. Sabillano.4 The plaintiff in
constitutional question is raised, it is the Court of First Instance that should have original
jurisdiction on the matter. It does not admit of doubt, however, that what confers
_______________
jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered
was clearly within the jurisdiction of the City Court of Baguio.
4
L-20977.

942 Nor could it be plausibly maintained that the validity of such ordinance being open to
question as a def ense against its enforcement from one adversely affected, the matter
should be elevated to the Court of First Instance. For the City Court could rely on the
presumption of the validity of such ordinance,6 and the mere fact, however, that in the
942 SUPREME COURT REPORTS ANNOTATED
answer to such a complaint a constitutional question was raised did not suffice to oust the
City Court of its jurisdiction. The suit remains one for collection, the lack of validity being
only a defense to such an attempt at recovery. Since the City Court is possessed of judicial
power and it is likewise axiomatic that the judicial power em-
_______________
1. 2.To repeat the challenged ordinance cannot be considered ultra vires as there is
more than ample statutory authority for the enactment thereof. Nonetheless, its
validity on constitutional grounds is challenged because of the allegation that it
imposed double taxation, which is repugnant to the due process clause, and that
it violated the requirement of uniformity. We do not view the matter thus.

5
101 Phil. 859 (1957). As 'to why double taxation is not violative of due process, Justice Holmes made clear in
this language: "The objection to the taxation as double may be laid down on one side. x x x
6
U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor The 14th Amendment [the due process clause] no more forbids double taxation than it does

of Manila, L-24693, July 31, 1967. doubling the amount of a tax, short of confiscation or proceedings unconstitutional on
other grounds."8 With that decision rendered at a time when American sovereignty in the
943 Philippines was recognized, it possesses more than just a persuasive effect. To some, it
delivered the coup de grace to the bogey of double taxation as a constitutional bar to the

VOL. 25, OCTOBER 31, 1968 943 ________________

7
Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927) 27).

City of Baguio vs. De Leon

8
Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 8 F (1920)

944
braces the ascertainment of facts and the application of the law, the Constitution as the
highest law superseding any statute or ordinance in conflict therewith, it cannot be said
that a City Court is bereft of competence to proceed on the matter. In the exercise of such
delicate power, however, the admonition of Cooley on inferior tribunals is well worth 944 SUPREME COURT REPORTS ANNOTATED

remembering. Thus: "It must be evident to any one that the power to declare a legislative
enactment void is one which the judge, conscious of the fallibility of the human judgment,
will shrink from exercising in any case where he can conscientiously and with due regard City of Baguio vs. De Leon
to duty and official oath decline the responsibility." While it remains undoubted that such
7

a power to pass on the validity of an ordinance alleged to infringe certain constitutional

rights of a litigant exists, still it should be exercised with due care and circumspection,
considering not only the presumption of validity but also the relatively modest rank of a
city court in the judicial hierarchy.
exercise of the taxing power. It would seem though that in the United States, as with us,
its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading American
decision: "Where, as here, Congress has clearly expressed its Intention, the statute must
10
be sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against
double taxation may not be invoked where one tax is imposed by the state and the other is
imposed by the city x x x, it being widely recognized that there is nothing inherently
obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on
double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by
the constitution. According to the challenged ordinance, a real estate dealer who leases
property worth P50 000 or above must pay an annual fee of P100. If the property is worth
P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than P10,000.
On its face, therefore, the above ordinance cannot be assailed as violative of the
constitutional requirement of uniformity In Philippine Trust Company v. Yatco,12 Justice
Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with
the same force and effect in every place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a
constitutional requirement where there is a classification. The opportunity came
in Eastern Theatrical Co. v. Alfonso. Thus: "Equality and unifor-mity in taxation means
13
that all taxable articles or kinds
_______________
9
Wise & Co. v. Meer, 78 Phil. 655.
10
Helmich v. Hellman, 276 US 233 (1928).
11
Punsalan v. Municipal Board of Manila, 95 Phil. 46, 43 (1954).
12
69 Phil. 420 (1940).
13
83 Phil. 862, 862 (1949).
945
VOL. 25, OCTOBER 31, 1968 945
City of Baguio vs. De Leon
of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation; x x x."
About two years later, Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. De la Fuente 14 incorporated the above excerpt in his opinion and
continued: "Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two
years later,15 is that the statute or ordinance in question "applies equally to all persons,
firms and corporations placed in similar situation." This Court is on record as accepting
the view in a leading American case16 that "inequalities which result from a singling out of
one particular class for taxation or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double
taxation is unavailing, the allegation that there was a violation of the principle of
uniformity is inherently lacking in persuasiveness. There is no need to pass upon the other
allegations to assail the validity of the above ordinance, it being maintained that the
license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a
failure to observe the mandate of equal protection. A reading of the ordinance will readily
disclose their inherent lack of plausibility.
1. 3.That would dispose of all the errors assigned, except the last two, which would
predicate a grievance on the complaint having been started by the City
Treasurer rather than the City Mayor of Baguio. These alleged errors, as was
the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government,
performed within the limits
_______________
14
88 Phil. 60, 65 (1951).
15
Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
16
Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).
of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous,
may be assumed to carry the seal of approval of the City Mayor unless repudiated or set
aside. This should be the case considering that such city official is called upon to see to it
that revenues due the City are collected. When administrative steps are futile and
unavailing, given the stubbornness and obduracy of a taxpayer, convinced in good faith
that no tax was due, judicial remedy may be resorted to by him, It would be a reflection on
the state of the law if such fidelity to duty would be met by condemnation rather than
commendation.
So much for the analytical approach. The conclusion thus reached has a reinforcement
that comes to it from the functional and pragmatic test. If a city treasurer has to await the
nod from the city mayor before a municipal ordinance is enforced, then opportunity exists
for favoritism and undue discrimination to come into play. Whatever valid reason may
exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is
unavoidable that such a manifestation of official favor could have been induced by
unnamed but not unknown consideration. It would not be going too far to assert that even
defendant-appellant would find no satisfaction in such a sad state of affairs. The more
desirable legal doctrine therefore, on the assumption that a choice exists, is one that would
do away with such temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed.
17
Lutz v. Araneta, 98 Phil. 148, 153 (1955). Costs against defendant-appellant.

946
Concepcion, C.J., Reyes,
J.B.L., Dizon, Makalintal,Sanchez, Castro, Angeles and Capistrano, JJ., concur.

946 SUPREME COURT REPORTS ANNOTATED Zaldivar, J., is on official leave.

Decision affirmed.
City of Baguio vs. De Leon
106 SUPREME COURT REPORTS ANNOTATED

Abra Valley College, Inc. vs. Aquino

No. L-39086. June 15, 1988.*

ABRA VALLEY COLLEGE, INC. represented by PEDRO V. BORGONIA,

petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M.
CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer,
Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.
Constitutional Law; Taxation; Test of exemption from taxation.The test of
exemption from taxation is the use of the property for purposes mentioned in the
Constitution.
Same; Same; Same; As held in YMCA of Manila vs. Collector of Internal Revenue, the
keeping of a lodging and a boarding house and
____________
*
SECOND DIVISION.
107
VOL. 162, JUNE 15, 1988 107
Abra Valley College, Inc. vs. Aquino
a restaurant for its members do not constitute business in the ordinary acceptance of
the word.As early as 1916, in YMCA of Manila vs. Collector of Internal Revenue, 33 Phil.
217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and
a boarding house and maintains a restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an institution used exclusively for
religious, charitable and educational purposes, and as such, it is entitled to be exempted
from taxation.
Same; Same; Same; In Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte,
the Court included in the exemption a vegetable garden in an adjacent lot and another lot
formerly used as a cemetery.In the case of Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden
in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the
term used exclusively considers incidental use also. Thus, the exemption from payment of
land tax in favor of the convent includes, not only the land actually occupied by the
building but also the adjacent garden devoted to the incidental use of the parish priest.
The lot which is not used for commercial purposes but serves solely as a sort of lodging
place, also qualifies for exemption because this constitutes incidental use in religious
functions.
Same; Same; Same; Phrase exclusively used for educational purposes clarified.
The phrase exclusively used for educational purposes was further clarified by this Court
in the cases of Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991
[1965], thusMoreover, the exemption in favor of property used exclusively for charitable
or educational purposes is not limited to property actually indispensable therefor (Cooley
on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes, such as in the case of
hospitals, a school for training nurses, a nurses home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members of the hospital
staff, and recreational facilities for student nurses, interns, and residents (84 CJS 6621),
such as athletic fields including a firm used for the inmates of the institution.
Same; Same; Same; Same; The exemption extends to facilities which are incidental to
and reasonably necessary for the accomplish-
108
108 SUPREME COURT REPORTS ANNOTATED
Abra Valley College, Inc. vs. Aquino

ment of the main purpose the lease of the first floor to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered incidental to the
purposes of education; Case at bar.It must be stressed however, that while this Court
allows a more liberal and non-restrictive interpretation of the phrase exclusively used for
educational purposes as provided for in Article VI, Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable emphasis has always been made that exemption
extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the use of the school building or
lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus,
while the use of the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary pur-poseeducational, the
lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch
of the imagination be considered incidental to the purposes of education.
Same; Same; Same; Same; Same; Trial Court correct in imposing the tax not because
the second floor is being used by the Director and his family for residential purposes but
because the first floor is being used for commercial purposes.Under the 1935
Constitution, the trial court correctly arrived at the conclusion that the school building as
well as the lot where it is built, should be taxed, not because the second floor of the same is
being used by the Director and his family for residential purposes, but because the first
floor thereof is being used for commercial purposes. However, since only a portion is used
for purposes of commerce, it is only fair that half of the assessed tax be returned to the
school involved.
Same; Same; Appeal; Fact of lease raised for the first time on appeal; Court is clothed
with ample authority to review palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision.Indeed it is axiomatic that facts
not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless,
as an exception to the rule, this Court has held that although a factual issue is not
squarely raised below, still in the interest of substantial justice, this Court is not prevented
from considering a pivotal factual matter. The Supreme Court is clothed with ample
authority to review palpable errors not assigned as such if it finds that their consideration
is necessary in arriving at a just decision.
109
VOL. 162, JUNE 15, 1988 109
Abra Valley College, Inc. vs. Aquino
PETITION for certiorari to review the decision of the Court of First Instance of Abra,
Aquino, J.
The facts are stated in the opinion of the Court.
PARAS, J.:
This is a petition for review on certiorari of the decision ** of the defunct Court of First
Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled
Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M.
Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of
Bangued, Abra and Paterno Millare, defendants, the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the
Provincial Treasurer of said province against the lot and building of the Abra Valley
Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is
valid;
That since the school is not exempt from paying taxes, it should therefore pay all back
taxes in the amount of P5,140.31 and back taxes and penalties from the promulgation of
this decision;
That the amount deposited by the plaintiff in the sum of P60,000.00 before the trial,
be confiscated to apply for the payment of the back taxes and for the redemption of the
property in question, if the amount is less than P6,000.00, the remainder must be
returned to the Director of Pedro Borgonia, who represents the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before
the trial must be returned to said Municipal Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated
with the Securities and Exchange Commission in 1948, filed a complaint (Annex 1 of
Answer by the respondents Heirs of Paterno Millare; Rollo, pp.
____________
**
Penned by the respondent Judge, Hon. Judge P. Aquino.
110
110 SUPREME COURT REPORTS ANNOTATED
Abra Valley College, Inc. vs. Aquino
95-97) on July 10, 1972 in the court a quo to annul and declare void the Notice of Seizure
and the Notice of Sale of its lot and building located at Bangued, Abra, for non-payment
of real estate taxes and penalties amounting to P5,140.31. Said Notice of Seizure of the
college lot and building covered by Original Certificate of Title No. Q-83 duly registered in
the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal
Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of
the said taxes thereon. The Notice of Sale was caused to be served upon the petitioner by
the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot
and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal
Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through
counsel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer,
through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex 2 of Answer
by the respondents Heirs of Paterno Millare; Rollo, pp. 98-100) to the complaint. this was
followed by an amended answer (Annex 3, ibid; Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972, the respondent Paterno Millare filed his answer (Annex
5, ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction,
the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch
I, ordered (Annex 6, ibid; Rollo, pp. 109-110) the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on
December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court
the sum of P6,000.00 evidenced by PNB Check No. 904369.
 On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied taxes thereon and the same was sold to defendant Paterno Millare who offered
by the trial court in its questioned decision. Said Stipulations reads: the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by
the defendant Municipal Treasurer.
111
5. 5.That all other matters not particularly and specially covered by this stipulation
of facts will be the subject of evidence by the parties.
VOL. 162, JUNE 15, 1988 111
WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit
this stipulation of facts on the point agreed upon by the parties.

Abra Valley College, Inc. vs. Aquino

Bangued, Abra, April 12, 1973.

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully Sgd. Agripino Brillantes
enter into the following agreed stipulation of facts:

1. 1.That the personal circumstances of the parties as stated in paragraph 1 of the Typ. AGRIPINO BRILLANTES
complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to
be substituted, however, by anyone who is actually holding the position of
Provincial Treasurer of the Province of Abra; Attorney for Plaintiff

2. 2.That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and
buildings thereon located in Bangued, Abra under Original Certificate of Title Sgd. Loreto Roldan
No. 0-83;

3. 3.That the defendant Gaspar V. Bosque, as Municipal Treasurer of Bangued,

Typ. LORETO ROLDAN
Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of
Seizure on the property of said school under Original Certificate of title No. 0-83
for the satisfaction of real property taxes thereon, amounting to P5,140.31; the
Provincial Fiscal
Notice of Seizure being the one attached to the complaint as Exhibit A;

4. 4.That on June 8, 1972 the above properties of the Abra Valley Junior College,
Inc. was sold at public auction for the satisfaction of the unpaid real property Counsel for Defendants
 (Rollo, pp. 17-18)

Provincial Treasurer of Aside from the Stipulation of Facts, the trial court among others, found the following: (a)
that the school is recognized by the government and is offering Primary, High School and
College Courses, and has a school population of more than one thousand students all in
Abra and the Municipal all; (b) that it is located right in the heart of the town of Bangued, a few meters from the
plaza and about 120 meters from the Court of First Instance building; (c) that the
elementary pupils are housed in a two-storey building across the street; (d) that the high
Treasurer of Bangued, Abra school and college students are housed in the main building; (e) that the Director with his
family is in the second floor of the main building; and (f) that the annual gross income of
the school reaches more than one hundred thousand pesos.
112
From all the foregoing, the only issue left for the Court to determine and as agreed by
the parties, is whether or not the lot and building in question are used exclusively for
112 SUPREME COURT REPORTS ANNOTATED educational purposes. (Rollo, p. 20)

Abra Valley College, Inc. vs. Aquino
Sgd. Demetrio V. Pre
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon.
Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a
Supplemental Memorandum on May 7, 1974, wherein they opined that based on the
evidence, the laws applicable, court decisions and jurisprudence, the school building and
school lot used for educational purposes of the Abra Valley College, Inc., are exempted from
the payment of taxes. (Annexes B, B-1 of Petition; Rollo, pp. 24-49; 44 and 49).

Typ. DEMETRIO V. PRE Nonetheless, the trial court disagreed because of the use of the second floor by the
Director of petitioner school for residential purposes. He thus ruled for the government
and rendered the assailed decision.
Attorney for Defendant
After having been granted by the trial court ten (10) days from August 6, 1974 within
which to perfect its appeal (Per Order dated August 6, 1974; Annex G of Petition; Rollo,
Paterno Millare p. 57) petitioner instead availed of the instant petition for review
 113 THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
VOL. 162, JUNE 15, 1988 113
IV

Abra Valley College, Inc. vs. Aquino
on certiorari with prayer for preliminary injunction before this Court, which petition was
filed on August 17, 1974 (Rollo, p. 2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to
the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:
I of subject college lot and building, which are contrary thereto as well as to the provision of
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE
OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF
THE PETITIONER.
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE
P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE
P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase used exclusively for
educational purposes.
Petitioner contends that the primary use of the lot and building for educational
purposes, and not the incidental use thereof, determines and exemption from property
taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal
basis and therefore void.
114

II
114 SUPREME COURT REPORTS ANNOTATED
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR
EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT Abra Valley College, Inc. vs. Aquino
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III On the other hand, private respondents maintain that the college lot and building in
question which were subjected to seizure and sale to answer for the unpaid tax are used:
(1) for the educational purposes of the college; (2) as the permanent residence of the
President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws
and grandchildren; and (3) for commercial purposes because the ground floor of the college
building is being used and rented by a commercial establishment, the Northern Marketing
Corporation (See photograph attached as Annex 8 [Comment; Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case
at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution,
which expressly grants exemption from realty taxes for Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes x x x.
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious, charitable, scientific or educational
purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the
basic and controlling guide, norm and standard to determine tax exemption, and not the
mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of Internal Revenue, 33 Phil.
217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and
a boarding house and maintains a restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an institution used exclusively for
religious, charitable and educational purposes, and as such, it is entitled to be exempted
from taxation.
115
VOL. 162, JUNE 15, 1988 115
Abra Valley College, Inc. vs. Aquino
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil.
352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and
another lot formerly used as a cemetery. It was clarified that the term used exclusively
considers incidental use also. Thus, the exemption from payment of land tax in favor of the
convent includes, not only the land actually occupied by the building but also the adjacent
garden devoted to the incidental use of the parish priest. The lot which is not used for
commercial purposes but serves solely as a sort of lodging place, also quali-fies for
exemption because this constitutes incidental use in religious functions.
The phrase exclusively used for educational purposes was further clarified by this
Court in the cases of Herrera vs. Quezon City Board of Assessment Appeals, 3 SCRA
186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14
SCRA 991 [1965], thus
Moreover, the exemption in favor of property used exclusively for charitable or educational
purposes is not limited to property actually indispensable therefor (Cooley on Taxation,
Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as in the case of hospitals, a school for
training nurses, a nurses home, property use to provide housing facilities for interns,
resident doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents (84 CJS 6621), such as
Athletic fields including a firm used for the inmates of the institution. (Cooley on
Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for purposes mentioned in
the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and non-
restrictive interpretation of the phrase exclusively used for educational purposes as
provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that exemption extends to facilities which are
incidental to and reasonably necessary for the accomplishment of the main purposes.
Otherwise stated, the use of the school building or lot for
116
116 SUPREME COURT REPORTS ANNOTATED
Abra Valley College, Inc. vs. Aquino
commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the
use of the second floor of the main building in the case at bar for residential purposes of
the Director and his family, may find justification under the concept of incidental use,
which is complimentary to the main or primary purposeeducational, the lease of the first
floor thereof to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for
the first time in this Court. That the matter was not taken up in the trial court is really
apparent in the decision of respondent Judge. No mention thereof was made in the
stipulation of facts, not even in the description of the school building by the trial judge,
both embodied in the decision nor as one of the issues to resolve in order to determine
whether or not said property may be exempted from payment of real estate taxes (Rollo,
pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it
was raised in this Court.
Indeed it is axiomatic that facts not raised in the lower court cannot be taken up for
the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that
although a factual issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual matter. The
Supreme Court is clothed with ample authority to review palpable errors not assigned as
such if it finds that their consideration is necessary in arriving at a just decision. (Perez
vs. Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that
the school building as well as the lot where it is built, should be taxed, not because the
second floor of the same is being used by the Director and his family for residential
purposes, but because the first floor thereof is being used for commercial purposes.
However, since only a portion is used for purposes of commerce, it is only fair that half of
the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch
I, is hereby AFFIRMED subject
117
VOL. 162, JUNE 15, 1988 117
 Flores vs. So

to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.

Yap (C.J.), Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Decision affirmed with modification.

Note.To be exempt from realty taxation there must be proof that the property of a
religious institution is actually and directly being used for religious purpose. (Province of
Abra vs. Hernando, 107 SCRA 104.)

SUPREME COURT REPORTS ANNOTATED
Herrera vs. Quezon City Board of Assessment Appeals
No. L-15270. September 30, 1961.
JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners, vs. THE QUEZON
CITY BOARD OF ASSESSMENT APPEALS, respondent.
Taxation; Real estate taxes; Charitable hospitals and educational institutions; When
benevolent character of hospitals not detracted by admission of pay patients.The
admission of paypatients does not detract from the charitable character of a hospital, if all
of its funds are devoted exclusively to the maintenance of the institution as a public
charity (84 C.J.S., 617; see, also, 51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144
A.L.R., 1489-1492). In other words, where rendering charity is its primary object, and the
funds derived from payments made by patients able to pay are devoted to the benevolent
purposes of the institution, the mere fact that a profit has been made will not deprive the
hospital of its benevolent character (Prairie Du Chian Sanitarium Co. vs. City of Prairie
Du Chian, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480). The fact, therefore, that in the
case at bar, St. Catherines Hospital, which is a charitable institution, admits pay-patients,
does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being
admitted that the income derived from paypatients is devoted to the improvement of the
charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital,
aside from out-charity patients who come only for consultation.
Same; Extent of exemption.The exemption in favor of property used exclusively for
charitable or educational purposes is not limited to property actually indispensable
therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental
to and reasonably necessary for the accomplishment of said purposes, such as, in the case
of hospitals, a school for training nurses, a nurses home, property used to provide
housing facilities for interns, resident doctors, superintendents, and other members of the
hospital staff, and re-
187
VOL. 3, SEPTEMBER 30, 1961 187

Herrera vs. Quezon City Board of Assessment Appeals
creational facilities for student nurses, interns and residents (84 C.J.S., 621), such
as athletic fields, including a farm used for the inmates of the institution (Cooley on
Taxation, Vol. 2, p. 1430).
Same; Same; Lands, buildings and improvements beyond the taxing power
irrespective of profits.The existence of St. Catherines School of Midwifery, with an
enrollment of about 200 students, who practice partly in St. Catherines Hospital and
partly in St. Marys Hospital, which, likewise, belongs to petitioners, does not, and cannot
affect the exemption to which St. Catherines Hospital is entitled under the Constitution.
The fact that the size of the enrollment and the students, aside from the amount they paid
for board and lodging, warrant the belief that a substantial profit is derived from the
operation of the said school, is immaterial to the issue of whether or not real estate taxes
should be paid, because all lands, buildings and improvements used exclusively for
religious, charitable or educational purposes shall be exempt from taxation, pursuant to
the Constitution, regardless of whether or not material profits are derived from the
operation of the institutions in question. In other words, Congress may, if it deems fit to do
so, impose taxes upon such profits, but said lands, buildings and improvements are
beyond its taxing power.
Same; Same; Factors that do not affect the charitable character of a hospital.The
fact that a garage located in the hospital was being used in the operation of the school of
midwifery because the students enrolled therein were entitled to transportation and that
the hospital directress who received no compensation, and her family, resided in the
building, were incidental to the operation of the hospital, and, accordingly, did not affect
the charitable character of the hospital and the educational nature of the school.
APPEAL from a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Angel A. Sison for petitioners.
Jaime Agloro for respondent.
CONCEPCION, J.:
Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a decision of the
Court of Tax Appeals affirming that of the Board of Assessment Appeals of Quezon City,
which held that certain properties of said petitioners are subject to assessment for
purposes of real estate tax.
188
188 SUPREME COURT REPORTS ANNOTATED
Herrera vs. Quezon City Board of Assessment Appeals
The facts and the issue are set forth in the aforementioned decision of the Court of Tax
Appeals, from which we quote:
On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to
establish and operate the St. Catherines Hospital, located at 58 D. Tuazon, Sta. Mesa
Heights, Quezon City (Exhibit F-1, p. 7, BIR rec.). On or about January 3, 1953, the
petitioners sent a letter to the Quezon City Assessor requesting exemption from payment
of real estate tax on the lot, building and other improvements comprising the hospital
stating that the same was established for charitable and humanitarian purposes and not
for commercial gain (Exhibit F-2, pp. 8-9, BIR rec.). After an inspection of the premises in
question and after a careful study of the case, the exemption from real property taxes was
granted effective the years 1953, 1954 and 1955.
 Subsequently, however, in a letter dated August 10, 1955 (Exhibit E, p. 65, CTA rec.)
the Quezon City Assessor notified the petitioners that the aforesaid properties were re-
classified from exempt to taxable and thus assessed for real property taxes effective 1956,
enclosing therewith copies of Tax Declarations Nos. 19321 to 19322 covering the said
properties. The petitioners appealed the assessment to the Quezon City Board of
Assessment Appeals, which, in a decision dated March 31, 1956 and received by the former
on May 17, 1956, affirmed the decision of the City Assessor. A motion for reconsideration
thereof was denied on March 8, 1957. From this decision, the petitioners instituted the
instant appeal.
The building involved in this case is principally used as a hospital. It is mainly a
surgical and orthopedic hospital with emphasis on obstetrical cases, the latter constituting
90% of the total number of cases registered therein. The hospital has thirty-two (32) beds,
of which twenty (20) are for charity-patients and twelve (12) for pay-patients. From the
evidence presented by petitioners, it is made to appear that there are two kinds of charity
patients(a) those who come for consultation only (out-charity patients); and (b) those
who remain in the hospital for treatment (lying-in-patients). The out-charity patients are
given free consultation and prescription, although sometimes they are furnished with free
medicines which are not costly like aspirin, sulfatiazole, etc. The charity lying-in-patients
are given free medical service and medicine although the food served to the pay-patients is
very much better than that given to the former. Although no condition is imposed by the
hospital on the admission of charity lying-in-patients, they however, usually give donations
to the hospital. On the other hand, the pay-patients are required to pay for hospital
services ranging from the minimum charge of P5.00 to the
189
VOL. 3, SEPTEMBER 30, 1961 189
Herrera vs. Quezon City Board of Assessment Appeals
maximum of P40.00 for each day of stay in the hospital. The income realized from pay-
patients is spent for the improvement of the charity wards. The hospital personnel is
composed of three nurses, two graduate midwives, a resident physician receiving a salary
of P170.00 a month and the petitioner, Dr. Ester Ochangco Herrera, as directress. As such
directress, the latter does not receive any salary.
Petitioners also operate within the premises of the hospital the St. Catherines School
of Midwifery which was granted government recognition by the Secretary of Education on
Feb-ruary 1, 1955 (Exhibit F-3, p. 10, BIR rec.). This school has an enrollment of about
two hundred students. The students are charged a matriculation fee of P300.00 for 1-1/2
years, plus P50.00 a month for board and lodging, which includes transportation to the St.
Marys Hospital. The students practice in the St. Catherines Hospital, as well as in the St.
Marys Hospital, which is also owned by the petitioners. A separate set of accounting books
is maintained by the school for midwifery distinct from that kept by the hospital. The
petitioners alleged that the accounts of the school are not included in Exhibits A, A-1, A-
2, B, B-1, B-2, C, C-1 and C-2 which relate to the hospital only. However, the
petitioners have refused to submit a separate statement of accounts of the school. A brief
tabulation indicating the amount of income of the hospital for the years 1954, 1955 and
1956, and its operational expenses, is as follows:
1954
Income Expenses Deficit
Charity Ward P 5,280.04 P1,303.80
Pay Ward P14,779.50 P10,803.26
 P16,083.30

(Exhibits A, A-1 and A-2)

1955

Income Expenses Deficit

Charity Ward P 6,859.32

Pay Ward P17,433.30 14,038.92 P3,464.94

P20,898.24

(Exhibits B, B-1 and B-2)

1956

Income Expenses Deficit

 properties are used exclusively for charitable or educational purposes. (Petitioners brief,
Charity Ward P 5,559.89 P 341.53 pp. 24-29).

The Court of Tax Appeals decided the issue in the negative, upon the ground that the St.
Pay Ward P21,467.40 16,249.04 Catherines Hospital has a pay ward for x x x pay-patients, who are charged for the use of
the private rooms, operating room, laboratory room, delivery room, etc., like other
hospitals operated for profit and that petitioners and their family occupy a portion of the
P21,808.93 building for their residence. With respect to petitioners claim for exemption based upon
the operation of the school of midwifery, the Court conceded that the proposition might be
proper if the property used for the school of midwifery were separate and distinct from the
(Exhibits C, C-1 and C-2) hospital. It added, however, that, in the instant case, the portions of the building used for
classrooms of the school of midwifery have not been shown to be exclusively for school
purposes; that said portions rather x x x have a dual use, i.e., for classroom and for
190 hospital use, the latter not being a purpose that renders the property tax exempt; that
part of the building and lot in question is used as a hospital, part as residence of the
petitioners, part as garage, part as dormitory and part as school; and that the portion
190 SUPREME COURT REPORTS ANNOTATED dedicated to educational and charitable purposes can not be identified from those destined
to other uses; and the building is itself an indivisible unit of property.

Herrera vs. Quezon City Board of Assessment Appeals It should be noted, however, that, according to the very statement of facts made in the
decision appealed from, of

Aside from the St. Catherine and St. Mary hospitals, the petitioners declared that 191
they also own lands and coconut plantations in Quezon Province, and other real estate in
the City of Manila consisting of apartments for rent. The petitioner, Jose V. Herrera, is an
architect, actively engaged in the practice of his profession, with office at Tuason Bulding, VOL. 3, SEPTEMBER 30, 1961 191
Escolta, Manila. He was formerly Chairman, Board of Examiners for Architects and
Chairman, Board of Architects connected with the United Nations. He was also connected
with the Allied Technologists which constructed the Veterans Hospital in Quezon City. Herrera vs. Quezon City Board of Assessment Appeals

The only issue raised, is whether or not the lot, building and other improvements
occupied by the St. Catherine Hospital are exempt from the real property tax. The the thirty-two (32) beds in the hospital, twenty (20) are for charity-patients; that the
resolution of this question boils down to the corollary issue as to whether or not the said income realized from paypatients is spent for improvement of the charity wards; and that
petitioners, Dr. Ester Ochangco Herrera, as directress of said hospital, does not receive
any salary, although its resident physician gets a monthly salary of P170.00. It is well
settled, in this connection, that the admission of pay-patients does not detract from the
charitable character of a hospital, if all its funds are devoted ex-clusively to the
maintenance of the institution as a public charity (84 C.J.S., 617; see, also, 51 Am. Jur.
607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). In other words, where
rendering charity is its primary object, and the funds derived from payments made by
patients able to pay are devoted to the benevolent purposes of the institution, the mere fact
that a profit has been made will not deprive the hospital of its benevolent character
(Prairie Du Chien Sanitarium Co. vs. City of Prairie Du Chien. 242 Wis. 262, 7 NW [2d]
832, 144 A.L.R. 1480).
Thus, we have held that the U.S.T. Hospital was not established for profit-making
purposes, although it had 140 paying beds maintained only to partly finance the expenses
of the free wards, containing 203 beds for charity patients (U.S.T. Hospital Employees
Association vs. Sto. Tomas University Hospital, L-6988, May 24, 1954), that St. Pauls
Hospital of Iloilo, a corporation organized for charitable educational and religious
purposes can not be considered as engaged in business merely because its pharmacy
department charges paying patients the cost of their medicine, plus 10% thereof, to partly
offset the cost of medicines supplied free of charge to charity patients (Collector of Internal
Revenue vs. St. Pauls Hospital of Iloilo, L-12127, May 25, 1959), and that the amendment
of the original articles of incorporation of the University of Visayas to convert it from a
non-stock to a stock corporation and the increase of its assets from P9,000 to P50,000,
distributed among the members of the original non-stock corporation in terms of shares of
stock, as well as the subsequent move of its board of trustees to double the stock
192
192 SUPREME COURT REPORTS ANNOTATED
Herrera vs. Quezon City Board of Assessment Appeals
000.00 in property, besides good-will, which was not carried out, does not justify the
inference that the corporation has become one for business and profit, none of its profits
having inured to the benefit of any stockholder or individual (Collector of Internal Revenue
vs. University of Visayas, L-13554, February 28, 1961).
Moreover, the exemption in favor of property used exclusively for charitable or
educational purposes is not limited to property actually indispensable therefor (Cooley
on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes, such as, In the case of
hospitals, a school for training nurses, a nurses home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members of the hospital
staff, and recreational facilities for student nurses, interns and residents (84 C.J.S., 621),
such as athletic fields, including a farm used for the inmates of the institution (Cooley
on Taxation, Vol. 2, p. 1430).
Within the purview of the Constitutional exemption from taxation, the St. Catherines
Hospital is, therefore, a charitable institution, and the fact that it admits paypatients does
not bar it from claiming that it is devoted exclusively to benevolent purposes, it being
admitted that the income derived from pay-patients is devoted to the improvement of the
charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital,
aside from out-charity patients who come only for consultation.
Again, the existence of St. Catherines School of Midwifery, with an enrollment of
about 200 students, who practice partly in St. Catherines Hospital and partly in St.
Marys Hospital, which, likewise, belongs to petitioners herein, does not, and cannot, affect
the exemption to which St. Catherines Hospital is entitled under our fundamental law. On
the contrary, it furnishes another ground for exemption. Seemingly, the Court of Tax
Appeals was impressed by the fact that the size of said enrollment and the matriculation
fee charged from the students of mid-
 193 Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Pa-redes and De Leon, JJ.,
concur.

VOL. 3, SEPTEMBER 30, 1961 193 Decision reversed and set aside.

Note.In its resolution of the issue whether St. Lukes Hospital is a charitable
Herrera vs. Quezon City Board of Assessment Appeals institution considering that it admits paying patients, the Supreme Court,
in Commissioner of Internal Revenue v. Bishop of the Missionery District, etc., L-19445,
Aug. 11, 1965, invoked the Herrera ruling,
wifery, aside from the amount they paid for board and lodging, including transportation to
St. Marys Hospital, warrants the belief that petitioners derive a substantial profit from 194
the operation of the school aforementioned. Such factor is, however, immaterial to the issue
in the case at bar, for all lands, building and improvements used exclusively for religious,
charitable or educational purposes shall be exempt from taxation, pursuant to the 194 SUPREME COURT REPORTS ANNOTATED
Constitution, regardless of whether or not material profits are derived from the operation
of the institutions in question. In other words, Congress may, if it deems fit to do so,
impose taxes upon such profits, but said lands, buildings and improvements Que Choc Gui vs. Republic
are beyond its taxing power.

Similarly, the garage in the building above referred towhich was obviously essential supra, that the admission of pay-patients does not detract from the charitable character of
to the operation of the school of midwifery, for the students therein enrolled practiced, not a hospital, if its funds are devoted exclusively to the maintenance of the institution.
only in St. Catherines Hospital, but, also, in St. Marys Hospital, and were entitled to
transportation theretofor Mrs. Herrera received no compensation as directress of St.
Catherines Hospitalwere incidental to the operation of the latter and of said school, and,
accord-ingly, did not affect the charitable character of said hospital and the educational
nature of said school.

WHEREFORE, the decision of the Court of Tax Appeals, as well as that of the
Assessment Board of Appeals of Quezon City, are hereby reversed and set aside, and
another one entered declaring that the lot, building and improvements constituting the St.
Catherines Hospital are exempt from taxation under the provisions of the Constitution,
without special pronouncement as to costs. It is so ordered.
 SUPREME COURT REPORTS ANNOTATED

Gaston vs. Republic Planters Bank

No. L-77194. March 15, 1988.*

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR

VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI,
MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO,
AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE
JAMANDRE, AURELIO GAMBOA, ET AL., petitioners, vs.REPUBLIC PLANTERS
BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY
ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA,
GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF
SUGARCANE PLANTERS, intervernors.

Civil Law; Trust; Doctrine of resulting trust is founded on the presumed intention of
the parties.Section 7 of P.D. No. 388 does provide that the stabilization fees collected
"shall be administered in trust by the Commission." However, while the element of an
intent to create a trust is present, a resulting trust in favor of the sugar producers, millers
and planters cannot be said to have ensued because the presumptive intention of the
parties is not reasonably ascertainable from the language of the statute itself. "The
doctrine of resulting trusts is founded on the presumed intention of the parties; and as a
general
_____________
*
EN BANC.
627
VOL. 158, MARCH 15, 1988 627
Gaston vs. Republic Planters Bank
rule, it arises where, and only where such may be reasonably presumed to be the
intention of the parties, as determined from the facts and circumstances existing at the
time of the transaction out of which it is sought to be established (89 C.J.S. 947)."
Same; Same; Implied Trust; No implied trust in favor of the sugar producers either
can be deduced from the imposition of the levy.No implied trust in favor of the sugar
producers either can be deduced from the imposition of the levy. "The essential idea of an
implied trust involves a certain antagonism between the cestui que trust and the trustee
even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent
or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the
PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the
benefit of the sugar producers, It must be categorically demonstrated that the very
administrative agency which is the source of such regulation would place a burden on
itself.
Taxation; Levy; The stabilization fees collected are in the nature of a tax which is
within the power of the state to impose for the promotion of the sugar industry; The levy is
primarily in the exercise of the police power of the state.The stabilization fees collected
are in the nature of a tax, which is within the power of the State to impose for the
promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar
liens (Sec. 7[b], P.D, No. 388). The collections made accrue to a "Special Fund," a
"Development and Stabilization Fund," almost identical to the "Sugar Adjustment and
Stabilization Fund" created under Section 6 of Commonwealth Act 567, The tax collected is
not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide
means for the stabilization of the sugar industry. The levy is primarily in the exercise of
the police power of the State (Lutz vs. Araneta, supra).
Same; Same; Same; The stabilization fees are levied by the state for the special
purpose of financing the growth and development of the sugar industry and all its
components, stabilization of the domestic market including the foreign market; Revenues
collected treated as special fund to be administered in trust for the purpose intended.The
stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purposethat of "financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market." The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a special
628
628 SUPREME COURT REPORTS ANNOTATED
Gaston vs. Republic Planters Bank
purpose (Lawrence vs. American Surety Co,, 263 Mich 586, 249 ALR 535, cited in 42
Am. Jur. Sec. 2, p. 718), Having been levied for a special purpose, the revenues collected
are to be treated as a special fund, to be , in the language of the statute, "administered in
trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the
balance, if any, is to be transferred to the general funds of the Government. That is the
essence of the trust intended.
Same; Same; Same; Revenues derived from tax cannot be used for purely private
purposes or for the exclusive benefit of private persons.To rule in petitioners' favor would
contravene the general principle that revenues derived from taxes cannot be used for
purely private purposes or for the exclusive benefit of private persons. The Stabilization
Fund is to be utilized for the benefit of the entire sugar industry, "and all its components,
stabilization of the domestic market including the foreign market," the industry being of
vital importance to the country's economy and to national interest.
MELENCIO-HERRERA, J.:
Petitioners are sugar producers, sugarcane planters and millers, who have come to this
Court in their individual capacities and in representation of other sugar producers,
planters and millers, said to be so numerous that it is impracticable to bring them all
before the Court although the subject matter of the present controversy is of common
interest to all sugar producers, whether parties in this action or not.
Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the
government office tasked with the function of regulating and supervising the sugar
industry until it was superseded by its co-respondent Sugar Regulatory Administration
(SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive
Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to
continue for three (3) more years "for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets."
Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking
corporation.
Angel H. Severino, Jr., et al., who are sugarcane planters
629
VOL. 158, MARCH 15, 1988 829
Gaston vs. Republic Planters Bank
planting and milling their sugarcane in different mill districts of Negros Occidental, were
allowed to intervene by the Court, since they have common cause with petitioners and
respondents having interposed no objection to their intervention. Subsequently, on
January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to
intervene, which the Court allowed on February 16,1988.
Petitioners and Intervenors have come to this Court praying for a Writ of Mandamus
commanding respondents:
"TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC
PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF
STOCK IN THE SAID BANK, NOW HELD BY AND STILL CARRIED IN THE NAME OF
THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, AND
MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761, 416 COMMON
SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A. B &
C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF
P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE
DEDUCTION OF P1.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR
PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS
STABILIZATION FUND PURSUANT TO P.D. # 388,"
Respondent Bank does not take issue with either petitioners or its co-respondents as it has
no beneficial or equitable interest that may be affected by the ruling in this Petition, but
welcomes the filing of the Petition since it will settle finally the issue of legal ownership of
the questioned shares of stock.
Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition
arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization fees
collected are considered government funds under the Government Auditing Code; that the
transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if
not illegal; and that this suit is barred by laches.
The Solicitor General aptly summarizes the basic issues thus: (1) whether the
stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D.
No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock
630
630 SUPREME COURT REPORTS ANNOTATED
Gaston vs. Republic Planters Bank
in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to
the different sugar planters and millers from whom the fees were collected or levied.
P.D. No. 388, promulgated on February 2, 1974, which created the PHILSUCOM,
provided for the collection of a Stabilization Fund as follows:
"SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization
Fund.There is hereby established a fund for the commission for the purpose of financing
the growth and development of the sugar industry and all its components, stabilization of
the domestic market including the foreign market to be administered in trust by the
Commission and deposited in the Philippine National Bank derived in the manner herein
below cited from the following sources:
1. a.Stabilization fund shall be collected as provided for in the various provisions of
this Decree.
2. b.Stabilization fees shall be collected from planters and millers in the amount of
Two (P2.00) Pesos for every picul produced and milled for a period of five years
from the approval of this Decree and One (P1 .00) Peso for every picul produced
and milled every year thereafter,
Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers
and traders under Section 4(c) of this Decree will be used for the payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees for the
purpose of accomplishing and employees for the purpose of accomplishing the efficient
performance of the duties of the Commission.
Provided, further: That said amount shall constitute a lien on the sugar quedan and/or
warehouse receipts and shall be paid immediately by the planters and mill companies,
sugar centrals and refineries to the Commission." (paragraphing and bold supplied),
Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be
administered in trust by the Commission." However, while the element of an intent to
create a trust is present, a resulting trust in favor of the sugar producers, millers and
planters cannot be said to have ensued because the presumptive intention of the parties is
not reasonably ascertainable from the language of the statute itself.
"The doctrine of resulting trusts is founded on the presumed intention of the parties; and
as a general rule, it arises where, and only where such may be reasonably presumed to be
the intention of the
631

VOL. 158, MARCH 15, 1988 631
Gaston vs. Republic Planters Bank
parties, as determined from the facts and circumstances existing at the time of the
transaction out of which it is sought to be established (89 C.J.S. 947)."
No implied trust in favor of the sugar producers either can be deduced from the imposition
of the levy. "The essential idea of an implied trust involves a certain antagonism between
the cestui que trust and the trustee even when the trust has not arisen o ut of fraud nor
out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly
shown from the statute itself that the PHILSUCOM imposed on itself the obligation of
holding the stabilization fund for the benefit of the sugar producers. It must be
categorically demonstrated that the very administrative agency which is the source of such
regulation would place a burden on itself (Batchelder v. Central Bank of the Philippines, L-
25071, July 29, 1972, 46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).
Neither can petitioners place reliance on the history of respondent Bank. They recite
that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it
underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of
the PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the
Bank. The Central Bank acted favorably on the proposal at the meeting of the Monetary
Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group.
Petitioners maintain that this infusion of fresh capital was accomplished, not by any
capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of
the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of
respondent Bank. It is petitioners' submission that all shares were placed in
PHILSUCOMs name only out of convenience and necessity and that they are the true and
beneficial owners thereof,
In point of fact, we cannot see our way clear to upholding petitioners' position that the
investment of the proceeds from the stabilization fund in subscriptions to the capital stock
of the Bank were being made for and on their behalf. That could have been clarified by the
Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as Trustor"
acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB-
632
632 SUPREME COURT REPORTS ANNOTATED
Gaston vs. Republic Planters Bank
Trust Department" as "Trustee," acknowledging that PHILSUCOM "holds said shares for
and in behalf of the sugar producers," the latter "being the true and beneficial owners
thereof." The Agreement, however, did not get off the ground because it failed to receive
the approval of the PHILSUCOM Board of Commissioners as required in the Agreement
itself.
The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of
the adverse opinion of the SRA Resident Auditor, dated June 25, 1986, which was affirmed
by the Chairman of the Commission on Audit, on January 26, 1987,
On February 19, 1987, the SRA resolved to revoke the Trust Agreement "in the light of
the ruling of the Commission on Audit that the aforementioned Agreement is of doubtful
validity.
From the legal standpoint, we find basis for the opinion of the Commission on Audit
reading:
"That the government. PHILSUCOM or its successor-in-interest, Sugar Regulatory
Administration, in particular, owns and stocks. While it is true that the collected
stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did not
collect said fees for the account of the sugar producers. That stabilization fees are
charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD
338, as amended. x x x"
The stabilization fees collected are in the nature of a tax, which is within the power of the
State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148).
They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a
"Special Fund," a "Development and Stabilization Fund," almost identical to the "Sugar
Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act
567.1 The tax collected is not in a pure exercise of the taxing power. It is levied with a
regulatory purpose, to provide means for the stabilization of the sugar industry. The levy
is primarily in the
____________
1
"Sec. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and
shall be paid out only for any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law.
x x x x"
633
VOL. 158, MARCH 15, 1988 633
Gaston vs. Republic Planters Bank
exercise of the police power of the State (Lutz vs. Araneta, supra.).
"The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign." (Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz
vs. Araneta, supra).
The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purposethat of "financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market." The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a special purpose
(Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec.
2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated
as a special fund, to be, in the language of the statute, "administered in trust" for the
purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of the trust
intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution.
Article VI. Sec. 23[1]).2
The character of the Stabilization Fund as a special fund is emphasized by the fact
that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation made
by law (1987) Constitution, Article VI, Sec. 29[1], 1973 Constitution, Article VIII, Sec.
18[1]).
That the fees were collected from sugar producers, planters and millers, and that the
funds were channeled to the purchase of shares of stock in respondent Bank do not convert
the funds
____________
 2
"(5) All money collected on any tax levied for a special purpose shall be treated as a WHEREFORE, the Writ of Mandamus is denied and the Petition hereby dismissed. No
special fund and paid out for such purpose only. If the purpose for which a special fund costs.
was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government." (1987 Constitution, Art. VI, See, 28[3]). This Decision is immediately executory.

634 SO ORDERED.

Teehankee, (C.J.), Yap, Narvasa, Gutierrez,

634 SUPREME COURT REPORTS ANNOTATED Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Corts and Grio-Aquino,
JJ., concur.

Gaston vs. Republic Planters Bank Fernan, J., no part, formerly counsel for the Bogo-Medellin Planters Association.

Writ of mandamus denied. Petition dismissed.

into a trust fund for their benefit nor make them the beneficial owners of the shares so
purchased. It is but rational that the fees be collected from the m since it is also they who Note.Trust are either express or implied. Express trust are created by their
are to be benefited from the expenditure of the funds derived from it. The investment in intention of the trustor or of the parties. Implied trusts come into being by operation of
shares of respondent Bank is not alien to the purpose intended because of the Bank's law. (Mindanao Development Authority vs. Court of Appeals, 113 SCRA 429.)
character as a commodity bank for sugar conceived for the industry's growth and
development Furthermore, of note is the fact that one-half, (1/2) or P0.50 per picul, of the
amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages
of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM"
thereby immediately negating the claim that the entire amount levied is in trust for sugar,
producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private persons. The Stabilization Fund is to be utilised for the benefit of the entire sugar
industry, "and all its components, stabilization of the domestic market including the
foreign market," the industry being of vital importance to the country's economy and to
national interest.
 VOL. 433, JUNE 29, 2004 119

Lung Center of the Philippines vs. Quezon City

G.R. No. 144104. June 29, 2004.*

LUNG CENTER OF THE PHILIPPINES, petitioner, vs.QUEZON CITY and
CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon City, respondents.
Taxation; Lung Center of the Philippines; Charitable Institutions; Test of Charitable
Character; Words and Phrases; To determine whether an enterprise is a charitable
institution/entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purpose, its constitution and by-laws, the methods of
administration, the nature of the actual work performed, the character of the services
rendered, the indefiniteness of the beneficiaries, and the use and occupation of the
properties; In the legal sense, a charity may be fully defined as a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by assisting
them to establish themselves in life or otherwise lessening the burden of government. The
test whether an enterprise is charitable or not is whether it exists to carry out a purpose
recognized in law as charitable or whether it is maintained for gain, profit, or private
advantage.On the first issue, we hold that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitutions. To determine whether an
enterprise is a charitable institution/entity or not, the elements which should be
considered include the statute creating the enterprise, its corporate purposes, its
constitution and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties. In the legal sense, a charity may be fully
defined as a gift, to be applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or
otherwise lessening the burden of government. It may be applied to almost anything that
tend to promote
_______________
*
EN BANC.
120
120 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
the well-doing and well-being of social man. It embraces the improvement and
promotion of the happiness of man. The word charitable is not restricted to relief of the
poor or sick. The test of a charity and a charitable organization are in law the same. The
test whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.
Same; Same; Same; The Lung Center of the Philippines was organized for the welfare
and benefit of the Filipino people principally to help combat the high incidence of lung and
pulmonary diseases in the Philippines; Any person, the rich as well as the poor, may fall
sick or be injured or wounded and become a subject of charity.Under P.D. No. 1823, the
petitioner is a non-profit and non-stock corporation which, subject to the provisions of the
decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the
welfare and benefit of the Filipino people principally to help combat the high incidence of
lung and pulmonary diseases in the Philippines. The raison detre for the creation of the
petitioner is stated in the decree, viz: x x x Hence, the medical services of the petitioner
are to be rendered to the public in general in any and all walks of life including those who
are poor and the needy without discrimination. After all, any person, the rich as well as
the poor, may fall sick or be injured or wounded and become a subject of charity.
Same; Same; Same; As a general principle, a charitable institution does not lose its
character as such and its exemption from taxes simply because it derives income from
paying patients, whether out-patient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to the charitable
object which it is intended to achieve, and no money inures to the private benefit of the
persons managing or operating the institution.As a general principle, a charitable
institution does not lose its character as such and its exemption from taxes simply because
it derives income from paying patients, whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures to
the private benefit of the persons managing or operating the institution. In Congregational
Sunday School, etc. v. Board of Review, the State Supreme Court of Illinois held, thus:
[A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received
are applied in furthering its charitable purposes, and those benefits are refused to none on
account of inability to pay therefor. The fundamental ground upon which all exemptions in
favor of
121
VOL. 433, JUNE 29, 2004 121
Lung Center of the Philippines vs. Quezon City
charitable institutions are based is the benefit conferred upon the public by them,
and a consequent relief, to some extent, of the burden upon the state to care for and
advance the interests of its citizens.
Same; Same; Same; The Lung Center of the Philippines does not lose its character as
a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government.Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a charitable institution simply
because the gift or donation is in the form of subsidies granted by the government. As held
by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt
Lake County: Second, the government subsidy payments are provided to the project.
Thus, those payments are like a gift or donation of any other kind except they come from
the government. In both Intermountain Health Care and the present case, the crux is the
presence or absence of material reciprocity. It is entirely irrelevant to this analysis that
the government, rather than a private benefactor, chose to make up the deficit resulting
from the exchange between St. Marks Tower and the tenants by making a contribution to
the landlord, just as it would have been irrelevant in Intermountain Health Care if the
patients income supplements had come from private individuals rather than the
government. Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions does not dictate
the denial of a charitable exemption if the facts otherwise support such an exemption, as
they do here.
Same; Same; Same; Those portions of Lung Centers real property that are leased to
private entities are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes.Even as we find that the petitioner is a
charitable institution, we hold, anent the second issue, that those portions of its real
property that are leased to private entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for charitable purposes.
Same; Same; Same; Statutory Construction; Taxation is the rule and exemption is the
exceptionthe effect of an exemption is equivalent to an appropriation.The settled rule in
this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule
and exemption is the exception. The effect of an exemption is equivalent to an
appropriation. Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken. As held in Salvation Army v.
Hoehn: An intention on the part of the legislature to grant an exemption from the taxing
power of the state will never be implied from language which will admit of any other
reasonable construction.
122

122 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
Such an intention must be expressed in clear and unmistakable terms, or must
appear by necessary implication from the language used, for it is a well settled principle
that, when a special privilege or exemption is claimed under a statute, charter or act of
incorporation, it is to be construed strictly against the property owner and in favor of the
public. This principle applies with peculiar force to a claim of exemption from taxation .
Same; Same; Same; Same; It is plain as day that under P.D. 1823, the Lung Center of
the Philippines does not enjoy any property tax exemption privileges for its real properties
as well as the building constructed thereon.It is plain as day that under the decree (P.D.
1823), the petitioner does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If the intentions were otherwise, the
same should have been among the enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one person, thing,
or consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio
alterius is formulated in a number of ways. One variation of the rule is the principle that
what is expressed puts an end to that which is implied. Expressium facit cessare
tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may
not, by interpretation or construction, be extended to other matters. ... The rule
of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human
mind. They are predicated upon ones own voluntary act and not upon that of others. They
proceed from the premise that the legislature would not have made specified enumeration
in a statute had the intention been not to restrict its meaning and confine its terms to
those expressly mentioned.
Same; Same; Same; Same; The exemption must not be so enlarged by construction.
The exemption must not be so enlarged by construction since the reasonable presumption
is that the State has granted in express terms all it intended to grant at all, and that
unless the privilege is limited to the very terms of the statute the favor would be intended
beyond what was meant.
Same; Same; Same; Same; The tax exemption under Section 28 (3), Article VI of the
1987 Constitution covers property taxes only.Section 28(3), Article VI of the 1987
Philippine Constitution provides, thus: (3) Charitable institutions, churches and
parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from taxation. The tax
123
VOL. 433, JUNE 29, 2004 123
Lung Center of the Philippines vs. Quezon City
exemption under this constitutional provision covers property taxes only. As Chief
Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission,
explained: . . . what is exempted is not the institution itself . . .; those exempted from real
estate taxes are lands, buildings and improvements actually, directly and exclusively used
for religious, charitable or educational purposes.
Same; Same; Same; Same; Under the 1973 and the present Constitutions, for lands,
buildings, and improvements of the charitable institution to be considered exempt, the
same should not only be exclusively used for charitable purposesit is required that such
property be used actually and directly for such purposes.We note that under the 1935
Constitution, . . . all lands, buildings, and improvements used exclusively for . . .
charitable . . . purposes shall be exempt from taxation. However, under the 1973 and the
present Constitutions, for lands, buildings, and improvements of the charitable
institution to be considered exempt, the same should not only be exclusively used for
charitable purposes; it is required that such property be used actually and directly for
such purposes. In light of the foregoing substantial changes in the Constitution, the
petitioner cannot rely on our ruling in Herrera v. Quezon City Board of Assessment
Appeals which was promulgated on September 30, 1961 before the 1973 and 1987
Constitutions took effect.
Same; Same; Same; Same; Words and Phrases; If real property is used for one or
more commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxationthe words dominant use or principal use cannot be substituted for or non-paying, are exempt from real property taxes.
the words used exclusively without doing violence to the Constitutions and the law.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a)
it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. Exclusive
is defined as possessed and enjoyed to the exclusion of others; debarred from participation
or enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege
exclusively. If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. The words dominant
use or principal use cannot be substituted for the words used exclusively without doing This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended,
violence to the Constitutions and the law. Solely is synonymous with exclusively. What is
meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized. It is not the use of the income from the real
property that is determinative of whether the property is used for tax-exempt purposes.
124
124 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
Same; Same; Same; Portions of the land leased to private entities as well as those
parts of Lung Center leased to private individuals are not exempt from taxes but portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.We hold that the portions of
the land leased to private entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Government Corporate Counsel for petitioner.
CALLEJO, SR., J.:
of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No.
57014 which affirmed the decision of the Central Board of Assessment Appeals holding
that the lot owned by the petitioner and its hospital building constructed thereon are
subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823. 2 It is the
registered owner of a parcel
_______________
1
Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices
Fermin A. Martin, Jr. and Salvador J. Valdez, Jr. concurring.
2
SECTION 1.CREATION OF THE LUNG CENTER OF THE PHILIPPINES. There
is hereby created a trust, under the name and style of Lung Center of the Philippines,
which, subject to the provisions of this Decree, shall be administered, according to the
Articles of Incorporation, By-Laws and Objectives of the Lung Center of the Philippines,
Inc., duly registered (reg. No. 85886) with the Securities and Exchange Commission of the
Republic of the Philippines, by the Office of the President, in coordi-
125
VOL. 433, JUNE 29, 2004 125
Lung Center of the Philippines vs. Quezon City
of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at
Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area
of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320
of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small store spaces, and to medical or
professional practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the entire area on the
left side of the building along Quezon Avenue is vacant and idle, while a big portion on the
right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise known as the Elliptical Orchids and Garden
Center.
The petitioner accepts paying and non-paying patients. It also renders medical services
to out-patients, both paying and non-paying. Aside from its income from paying patients,
the petitioner receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were
assessed for real property taxes in the amount of P4,554,860 by the City Assessor of
Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231
(15-2518-A) were issued for the land and the hospital building, respectively. 4 On August
25, 1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The petitioners request
was denied, and a petition was, thereafter, filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the
City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. It averred that a minimum
of 60% of its hospital beds are exclusively used for charity patients and that the major
thrust of its hospital operation is to serve charity patients. The petitioner contends that
_______________
nation with the Ministry of Human Settlements and the Ministry of Health.
3
Annex C, Rollo, p. 49.
4
Annexes 2 & 2-A, id. at pp. 93-94.
5
Annex D, id., at pp. 50-52.
126
126 SUPREME COURT REPORTS ANNOTATED
 patients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170
Lung Center of the Philippines vs. Quezon City beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from
the government attests to its character as a charitable institution. It contends that the
exclusivity required in the Constitution does not necessarily
it is a charitable institution and, as such, is exempt from real property taxes. The QC-
LBAA rendered judgment dismissing the petition and holding the petitioner liable for real _______________
property taxes. 6

6
Annex E, id., at pp. 53-55.
The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity) 7 which ruled that the petitioner
7
Annexes 4 & 5, id., at pp. 100-109.
was not a charitable institution and that its real properties were not actually, directly and
exclusively used for charitable purposes; hence, it was not entitled to real property tax
8
Annex A, id., at pp. 33-41.
exemption under the constitution and the law. The petitioner sought relief from the Court
of Appeals, which rendered judgment affirming the decision of the CBAA.8 127

Undaunted, the petitioner filed its petition in this Court contending that:
VOL. 433, JUNE 29, 2004 127
1. A.THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT
ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS
LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, Lung Center of the Philippines vs. Quezon City
ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR
CHARITABLE PURPOSES.
mean solely. Hence, even if a portion of its real estate is leased out to private individuals
2. B.WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX from whom it derives income, it does not lose its character as a charitable institution, and
EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY its exemption from the payment of real estate taxes on its real property. The petitioner
NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION. cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends
that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not
The petitioner avers that it is a charitable institution within the context of Section 28(3),
precluded from seeking tax exemption under the 1987 Constitution.
Article VI of the 1987 Constitution. It asserts that its character as a charitable institution
is not altered by the fact that it admits paying patients and renders medical services to
In their comment on the petition, the respondents aver that the petitioner is not a
them, leases portions of the land to private parties, and rents out portions of the hospital
charitable entity. The petitioners real property is not exempt from the payment of real
to private medical practitioners from which it derives income to be used for operational
estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed to
expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-
prove that it is a charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in a newspaper
report, it appears that graft charges were filed with the Sandiganbayan against the
director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of
the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13
square meters of the property in 1990 for only P20,000 a month, when the monthly rental
should be P357,000 a month as determined by the Commission on Audit; and that instead
of complying with the directive of the COA for the cancellation of the contract for being
grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995
for a monthly rental of only P24,000. They assert that the petitioner uses the subsidies
granted by the government for charity patients and uses the rest of its income from the
property for the benefit of paying patients, among other purposes. They aver that the
petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds
in the hospital are reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its record of
service. That before a patient is admitted for treatment in the Center, first impression is
that it is pay-patient and required to pay a certain amount as deposit. That even if a
patient is living below the poverty line, he is charged with high hospital bills. And, without
these bills being first settled, the poor patient cannot be allowed to leave the
_______________
9
3 SCRA 187 (1961).
128
128 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
hospital or be discharged without first paying the hospital bills or issue a promissory note
guaranteed and indorsed by an influential agency or person known only to the Center; that
even the remains of deceased poor patients suffered the same fate. Moreover, before a
patient is admitted for treatment as free or charity patient, one must undergo a series of
interviews and must submit all the requirements needed by the Center, usually
accompanied by endorsement by an influential agency or person known only to the Center.
These facts were heard and admitted by the Petitioner LCP during the hearings before the
Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients,
instead of seeking treatment with the Center, they prefer to be treated at the Quezon
Institute. Can such practice by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real
properties of the petitioner are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a
charitable institution/entity or not, the elements which should be considered include the
statute creating the enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the character of the
services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the
properties.11
 In the legal sense, a charity may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons, either by bringing
their minds and hearts under the influence of education or religion, by assisting them to
establish themselves in life or otherwise lessening the burden of
_______________
10
Rollo, pp. 83-84.
11
See Workmens Circle Educational Center of Springfield v. Board of Assessors of City
of Springfield, 51 N.E.2d 313 (1943).
129
VOL. 433, JUNE 29, 2004 129
Lung Center of the Philippines vs. Quezon City
government. It may be applied to almost anything that tend to promote the well-doing
12
and well-being of social man. It embraces the improvement and promotion of the happiness
of man.13 The word charitable is not restricted to relief of the poor or sick. 14 The test of a
charity and a charitable organization are in law the same. The test whether an enterprise
is charitable or not is whether it exists to carry out a purpose reorganized in law as
charitable or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the President
of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It
was organized for the welfare and benefit of the Filipino people principally to help combat
the high incidence of lung and pulmonary diseases in the Philippines. The raison detre for
the creation of the petitioner is stated in the decree, viz.:
Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the
total annual deaths from all causes, thus, exacting a tremendous toll on human resources,
which ailments are likely to increase and degenerate into serious lung diseases on account
of unabated pollution, industrialization and unchecked cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great extent, preventable, and
curable with early and adequate medical care, immunization and through prompt and
intensive prevention and health education programs;
Whereas, there is an urgent need to consolidate and reinforce existing programs,
strategies and efforts at preventing, treating and rehabilitating people affected by lung
diseases, and to undertake research and training on the cure and prevention of lung
diseases, through a Lung Center which will house and nurture the above and related
activities and provide tertiary-level care for more difficult and problematical cases;
_______________
12
Congregational Sunday School & Publishing Society v. Board of Review, 125 N.E. 7
(1919), citing Jackson v. Philipps, 14 Allen (Mass.) 539.
13
Bader Realty & Investment Co. v. St. Louis Housing Authority, 217 S.W.2d 489
(1949).
14
Board of Assessors of Boston v. Garland School of Homemaking, 6 N.E.2d 379.
 130 lung or pulmonary diseases and their control; and to collect and publish the
findings of such research for public consumption;

130 SUPREME COURT REPORTS ANNOTATED 4. 4.To facilitate the dissemination of ideas and public acceptance of information on
lung consciousness or awareness, and the development of fact-finding,
information and reporting facilities for and in aid of the general purposes or
objects aforesaid, especially in human lung requirements, general health and
Lung Center of the Philippines vs. Quezon City
physical fitness, and other relevant or related fields;

5. 5.To encourage the training of physicians, nurses, health officers, social workers
Whereas, to achieve this purpose, the Government intends to provide material and
and medical and technical personnel in the practical and scientific
financial support towards the establishment and maintenance of a Lung Center for the
implementation of services to lung patients;
welfare and benefit of the Filipino people.15

6. 6.To assist universities and research institutions in their studies about lung
The purposes for which the petitioner was created are spelled out in its Articles of
diseases, to encourage advanced training in matters of the lung and related
Incorporation, thus: fields and to support educational programs of value to general health;

SECOND: That the purposes for which such corporation is formed are as follows: 7. 7.To encourage the formation of other organizations on the national, provincial
and/or city and local levels; and to coordinate their various efforts and activities
1. 1.To construct, establish, equip, maintain, administer and conduct an integrated for the purpose of achieving a more effective
medical institution which shall specialize in the treatment, care, rehabilitation
and/or relief of lung and allied diseases in line with the concern of the _______________
government to assist and provide material and financial support in the
establishment and maintenance of a lung center primarily to benefit the people 15
Rollo, pp. 119-120.
of the Philippines and in pursuance of the policy of the State to secure the well-
being of the people by providing them specialized health and medical services 131
and by minimizing the incidence of lung diseases in the country and elsewhere.

2. 2.To promote the noble undertaking of scientific research related to the

VOL. 433, JUNE 29, 2004 131
prevention of lung or pulmonary ailments and the care of lung patients,
including the holding of a series of relevant congresses, conventions, seminars
and conferences;
Lung Center of the Philippines vs. Quezon City
3. 3.To stimulate and, whenever possible, underwrite scientific researches on the
biological, demographic, social, economic, eugenic and physiological aspects of
1. programmatic approach on the common problems relative to the objectives
enumerated herein;
2. 8.To seek and obtain assistance in any form from both international and local
foundations and organizations; and to administer grants and funds that may be
given to the organization;
3. 9.To extend, whenever possible and expedient, medical services to the public and,
in general, to promote and protect the health of the masses of our people, which
has long been recognized as an economic asset and a social blessing;
4. 10.To help prevent, relieve and alleviate the lung or pulmonary afflictions and
maladies of the people in any and all walks of life, including those who are poor
and needy, all without regard to or discrimination, because of race, creed, color
or political belief of the persons helped; and to enable them to obtain treatment
when such disorders occur;
5. 11.To participate, as circumstances may warrant, in any activity designed and
carried on to promote the general health of the community;
6. 12.To acquire and/or borrow funds and to own all funds or equipment, educational
materials and supplies by purchase, donation, or otherwise and to dispose of and
distribute the same in such manner, and, on such basis as the Center shall, from
time to time, deem proper and best, under the particular circumstances, to serve
its general and non-profit purposes and objectives;
7. 13.To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose
of properties, whether real or personal, for purposes herein mentioned; and
8. 14.To do everything necessary, proper, advisable or convenient for the
accomplishment of any of the powers herein set forth and to do every other act
and thing incidental thereto or connected therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in general in
any and all walks of life including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the poor, may fall sick or be
injured or wounded and become a subject of charity.17
As a general principle, a charitable institution does not lose its character as such and
its exemption from taxes simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies from the government, so
_______________
16
Id., at pp. 123-125.
17
Scripps Memorial Hospital v. California Employment Commission, 24 Cal.2d 669,
151 P.2d 109 (1944).
132
132 SUPREME COURT REPORTS ANNOTATED
Lung Center of the Philippines vs. Quezon City
long as the money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons managing or
operating the institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the
State Supreme Court of Illinois held, thus:
. . . [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution and the amounts so received
are applied in furthering its charitable purposes, and those benefits are refused to none on
account of inability to pay therefor. The fundamental ground upon which all exemptions in
favor of charitable institutions are based is the benefit conferred upon the public by them,
and a consequent relief, to some extent, of the burden upon the state to care for and
advance the interests of its citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
21
Association of South Dakota v. Baker:
. . . [T]he fact that paying patients are taken, the profits derived from attendance upon
these patients being exclusively devoted to the maintenance of the charity, seems rather to
enhance the usefulness of the institution to the poor; for it is a matter of common
observation amongst those who have gone about at all amongst the suffering classes, that
the deserving poor can with difficulty be persuaded to enter an asylum of any kind
confined to the reception of objects of charity; and that their honest pride is much less
wounded by being placed in an institution in which paying patients are also received. The
fact of receiving money from some of the patients does not, we think, at all impair the
character of the charity, so long as the money thus received is devoted altogether to the
charitable object which the institution is intended to further.22
_______________
18
Sisters of Third Order of St. Frances v. Board of Review of Peoria County, 83 N.E.
272.
19
See note 12.
20
Id., at p. 10.
21
167 N.W. 148 (1918), citing State v. Powers, 10 Mo. App. 263, 74 Mo. 476.
22
Id., at p. 149.
133
VOL. 433, JUNE 29, 2004 133
Lung Center of the Philippines vs. Quezon City
The money received by the petitioner becomes a part of the trust fund and must be devoted
to public trust purposes and cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does
not lose its character as a charitable institution simply because the gift or donation is in
the form of subsidies granted by the government. As held by the State Supreme Court of
Utah in Yorgason v. County Board of Equalization of Salt Lake County:24
Second, the . . . government subsidy payments are provided to the project. Thus, those
payments are like a gift or donation of any other kind except they come from the
government. In both Intermountain Health Care and the present case, the crux is the
presence or absence of material reciprocity. It is entirely irrelevant to this analysis that
the government, rather than a private benefactor, chose to make up the deficit resulting
from the exchange between St. Marks Tower and the tenants by making a contribution to
the landlord, just as it would have been irrelevant in Intermountain Health Care if the
patients income supplements had come from private individuals rather than the
government.
Therefore, the fact that subsidization of part of the cost of furnishing such housing is
by the government rather than private charitable contributions does not dictate the denial
of a charitable exemption if the facts otherwise support such an exemption, as they do
here.25
In this case, the petitioner adduced substantial evidence that it spent its income, including
the subsidies from the government for 1991 and 1992 for its patients and for the operation
of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and exclusively used
for charitable purposes.
An intention on the part of the legislature to grant an exemption from the taxing power of
the state will never be implied from language which will admit of any other reasonable
construction. Such an intention must be expressed in clear and unmistakable terms, or
must appear by necessary implication from the language used, for it is a well settled
principle that, when a special privilege or exemption is claimed under a statute, charter or
act of incorporation, it is to be construed strictly against the property owner and in favor of
the public. This principle applies with peculiar force to a claim of exemption from
taxation . . . . 28

The settled rule in this jurisdiction is that laws granting exemption from tax are Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. provides that the petitioner shall enjoy the tax exemptions and privileges:
Taxation is the rule and
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES.Being a nonprofit, non-stock
_______________ corporation organized primarily to help combat the high incidence of lung and pulmonary
diseases in the Philippines, all donations, contributions, endowments and equipment and
23
See Obrien v. Physicians Hospital Association, 116 N.E. 975 (1917). supplies to be imported by authorized entities or persons and by the Board of Trustees of
the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung
24
714 P.2d 653 (1986). Center, shall be exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under Section 30, paragraph
25
Id., at pp. 660-661. (h), of the National Internal Revenue Code, as amended.

134 The Lung Center of the Philippines shall be exempt from the payment of taxes, charges
and fees imposed by the Government or any political subdivision or instrumentality thereof
with respect to equipment purchases made by, or for the Lung Center.29
134 SUPREME COURT REPORTS ANNOTATED
It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon. If the
Lung Center of the Philippines vs. Quezon City intentions were

_______________
exemption is the exception. The effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be clearly shown and based on 26
Commissioner of Internal Revenue v. Court of Appeals, 298 SCRA 83 (1998).
language in the law too plain to be mistaken. As held in Salvation Army v. Hoehn:
26 27
 27
188 S.W.2d. 826 (1945). others. They proceed from the premise that the legislature would not have made specified
enumeration in a statute had the intention been not to restrict its meaning and confine its
28
Id., at p. 829. terms to those expressly mentioned.30

29
Rollo, p. 120. (Italics supplied.) The exemption must not be so enlarged by construction since the reasonable presumption
is that the State has granted in express terms all it intended to grant at all, and that
135 unless the privilege is limited to the very terms of the statute the favor would be intended
beyond what was meant.31

VOL. 433, JUNE 29, 2004 135 Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto,

Lung Center of the Philippines vs. Quezon City mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation.32
otherwise, the same should have been among the enumeration of tax exempt privileges
under Section 2: The tax exemption under this constitutional provision covers property taxes only.33 As
Chief Justice Hilario G. Davide, Jr., then a
It is a settled rule of statutory construction that the express mention of one person, thing,
or consequence implies the exclusion of all others. The rule is expressed in the familiar _______________
maxim, expressio unius est exclusio alterius.
30
Malinias v. Commission on Elections, 390 SCRA 480 (2002).
The rule of expressio unius est exclusio alterius is formulated in a number of ways. One
variation of the rule is the principle that what is expressed puts an end to that which is 31
St. Louis Young Mens Christian Association v. Gehner, 47 S.W.2d 776 (1932).
implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by interpretation or construction, be extended to 32
Italics supplied.
other matters.
33
Commissioner of Internal Revenue v. Court of Appeals, supra.
...
136
The rule of expressio unius est exclusio alterius and its variations are canons of
restrictive interpretation. They are based on the rules of logic and the natural workings of
the human mind. They are predicated upon ones own voluntary act and not upon that of 136 SUPREME COURT REPORTS ANNOTATED
 In light of the foregoing substantial changes in the Constitution, the petitioner cannot
rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was
promulgated on Septem-

Lung Center of the Philippines vs. Quezon City _______________

34
Ibid. Citing II RECORDS OF THE CONSTITUTIONAL COMMISSION 90.
member of the 1986 Constitutional Commission, explained: . . . what is exempted is not
the institution itself . . .; those exempted from real estate taxes are lands, buildings and
35
Italics supplied.
improvements actually, directly and exclusively used for religious, charitable or
educational purposes.34
36
Article VI, Section 22, par. (3) of the 1935 Constitution provides that, Cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
Consequently, the constitutional provision is implemented by Section 234(b) of improvements used exclusively for religious, charitable, or educational purposes shall be
Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as exempt from taxation.
follows:
37
Article VIII, Section 17, par. (3) of the 1973 Constitution provides that, Charitable
SECTION 234. Exemptions from Real Property Tax.The following are exempted from institutions, churches, parsonages or convents appurtenant thereto, mosques, and non-
payment of the real property tax: profit cemeteries, and all lands, buildings, and improvements actually, directly, and
exclusively used for religious or charitable purposes shall be exempt from taxation.
...
137
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or VOL. 433, JUNE 29, 2004 137
educational purposes. 35

We note that under the 1935 Constitution, . . . all lands, buildings, and improvements Lung Center of the Philippines vs. Quezon City
used exclusively for charitable . . . purposes shall be exempt from taxation. However, 36

under the 1973 and the present Constitutions, for lands, buildings, and improvements of
the charitable institution to be considered exempt, the same should not only be ber 30, 1961 before the 1973 and 1987 Constitutions took effect. 38 As this Court held
exclusively used for charitable purposes; it is required that such property be used in Province of Abra v. Hernando:39
actually and directly for such purposes.37
. . . Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents 40
Young Mens Christian Association of Omaha v. Douglas County, 83 N.W. 924 (1900).
appurtenant thereto, and all lands, buildings, and improvements used exclusively for
41
religious, charitable, or educational purposes shall be exempt from taxation. The present St. Louis Young Mens Christian Association v. Gehner, supra.
Constitution added charitable institutions, mosques, and non-profit cemeteries and
required that for the exemption of lands, buildings, and improvements, they should not 42
See State ex rel Koeln v. St. Louis Y.M.C.A., 168 S.W. 589 (1914).
only be exclusively but also actually and directly used for religious or charitable
purposes. The Constitution is worded differently. The change should not be ignored. It
43
Lodge v. Nashville, 154 S.W. 141.
must be duly taken into consideration. Reliance on past decisions would have sufficed were
the words actually as well as directly not added. There must be proof therefore of 138
the actual and direct use of the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation . . .
138 SUPREME COURT REPORTS ANNOTATED
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a)
it is a charitable institution; and (b) its real properties Lung Center of the Philippines vs. Quezon City
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. Exclusive
is defined as possessed and enjoyed to the exclusion of others; debarred from participation
or enjoyment; and exclusively is defined, in a manner to exclude; as enjoying a privilege from the real property that is determinative of whether the property is used for tax-exempt
exclu-sively.40If real property is used for one or more commercial purposes, it is not purposes.44
exclusively used for the exempted purposes but is subject to taxation. 41 The words
dominant use or principal use cannot be substituted for the words used exclusively The petitioner failed to discharge its burden to prove that the entirety of its real
without doing violence to the Constitutions and the law. Solely is synonymous with
42
property is actually, directly and exclusively used for charitable purposes. While portions
exclusively. 43
of the hospital are used for the treatment of patients and the dispensation of medical
services to them, whether paying or non-paying, other portions thereof are being leased to
What is meant by actual, direct and exclusive use of the property for charitable private individuals for their clinics and a canteen. Further, a portion of the land is being
purposes is the direct and immediate and actual application of the property itself to the leased to a private individual for her business enterprise under the business name
purposes for which the charitable institution is organized. It is not the use of the income Elliptical Orchids and Garden Center. Indeed, the petitioners evidence shows that it
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said
_______________ lessees.

38
3 SCRA 186 (1961). Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
39
107 SCRA 105 (1981). taxes.45 On the other hand, the portions of the land occupied by the hospital and portions
of the hospital used for its patients, whether paying or non-paying, are exempt from real
property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing,
the precise portions of the land and the area thereof which are leased to private persons,
and to compute the real property taxes due thereon as provided for by law.
SO ORDERED.
.R. No. 181277.July 3, 2013.*
SWEDISH MATCH PHILIPPINES, INC., petitioner, vs. THE TREASURER OF THE
CITY OF MANILA, respondent.
Corporation Law; Board of Directors; The power of a corporation to sue and be sued is
lodged in the board of directors, which exercises its corporate powers.The power of a
corporation to sue and be sued is lodged in the board of directors, which exercises its
corporate powers. It necessarily follows that an individual corporate officer cannot solely
exercise any corporate power pertaining to the corporation without authority from the
board of directors. Thus, physical acts of the corporation, like the signing of documents,
can be performed only by natural persons duly authorized for the purpose by corporate by-
laws or by a specific act of the board of directors.
Remedial Law; Civil Procedure; Verification; The requirement of verification is simply
a condition affecting the form of the pleading and non-compliance does not necessarily
render the pleading fatally defective.A verification signed without an authority from the
board of directors is defective. However, the requirement of verification is simply a
condition affecting the form of the pleading and non-compliance does not necessarily
render the pleading fatally defective. The court may in fact order the correction of the
pleading if verification is lacking or, it may act on the pleading although it may not have
been verified, where it is made evident that strict compliance with the rules may be
dispensed with so that the ends of justice may be served.
Procedural Rules and Technicalities; Rules of procedure are not to be applied in a
very rigid, technical manner, but are used only to help secure substantial justice.
In Mediserv v. Court of Appeals, 617 SCRA 284 (2010), we said that a liberal construction
of the rules may be invoked in situations in which there may be some excusable formal
deficiency or error in a pleading, provided that the invocation thereof does not subvert the
essence of the proceeding, but at least connotes a reasonable attempt at compliance with
the rules. After
_______________
* FIRST DIVISION.
429
VOL. 700, JULY 3, 2013 429
 This is a Petition for Review on Certiorari1 filed by Swedish Match Philippines, Inc.
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila (petitioner) under Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax
Appeals En Banc (CTA En Banc) Decision2 dated 1 October 2007 and

all, rules of procedure are not to be applied in a very rigid, technical manner, but are _______________
used only to help secure substantial justice.
1 Rollo, pp. 26-75.
Taxation; Double Taxation; Words and Phrases; Double taxation means taxing the
same property twice when it should be taxed only once; that is, taxing the same person 2 Id., at pp. 76-87; penned by Associate Justice Juanito C. Castaeda, Jr. and
twice by the same jurisdiction for the same thing.At the outset, it must be pointed out concurred in by then Presiding Justice Ernesto D. Acosta, Associate Justices Lovell R.
that the issue of double taxation is not novel, as it has already been settled by this Court Bautista, Erlinda P. Uy, Caesar
in The City of Manila v. Coca-Cola Bottlers Philippines, Inc., 595 SCRA 299 (2009), in this
wise: Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance 430
No. 7794, to their own detriment. Said exempting proviso was precisely included in said
section so as to avoid double taxation. Double taxation means taxing the same property
twice when it should be taxed only once; that is, taxing the same person twice by the 430 SUPREME COURT REPORTS ANNOTATED
same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described as direct duplicate taxation, the two
taxes must be imposed on the same subject matter, for the same purpose, by the same Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
taxing authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character.
Resolution3 dated 14 January 2008 in C.T.A. EB No. 241.
PETITION for review on certiorari of the decision and resolution of the Court of Tax
Appeals. The Facts

The facts are stated in the opinion of the Court. On 20 October 2001, petitioner paid business taxes in the total amount of
P470,932.21.4 The assessed amount was based on Sections 145 and 216 of Ordinance No.
Siguion Reyna, Montecillo & Ongsiako for petitioner. 7794, otherwise known as the Manila Revenue Code, as amended by Ordi-

SERENO,CJ.: _______________

A. Casanova and Olga Palanca-Enriquez. The CTA En Banc affirmed the Decision
dated 8 August 2006 and Resolution dated 27 November 2006 rendered by the CTA Second
Division in C.T.A. AC No. 6, which affirmed the dismissal of petitioners claim for a refund.
The claim was dismissed by the Regional Trial Court (RTC) of Manila, Branch 21 on the
ground of lack of legal capacity to sue and failure to establish a cause of action.
3 Id., at pp. 88-90.
4 Id., at p. 269.
5 SEC.14.Tax on Manufacturers, Assemblers and other Processors.There is hereby
imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers,
distillers, rectifiers and compounders of liquors, distilled spirits, and wines on
manufacturers of any articles of commerce of whatever kind or nature in accordance with
the following schedule.
With gross receipts or sales for the preceding calendar year in the amount of:
xxx.
6 SEC.21.Tax on Business Subject to the Excise, Value-Added or Percentage Taxes
under the NIRCOn any of the following businesses and articles of commerce subject to
the excise, value-added or percentage taxes under the National Internal Revenue Code,
hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE
PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is
hereby imposed:
A)On person who sells goods and services in the course of trade or
businesses; xxx
PROVIDED, that all registered businesses in the City of Manila already paying
the aforementioned tax shall be exempted from payment thereof.
431
VOL. 700, JULY 3, 2013 431
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
nance Nos. 7988 and 8011. Out of that amount, P164,552.04 corresponded to the payment
under Section 21.7
Assenting that it was not liable to pay taxes under Section 21, petitioner wrote a
letter8 dated 17 September 2003 to herein respondent claiming a refund of business taxes
the former had paid pursuant to the said provision. Petitioner argued that payment under
Section 21 constituted double taxation in view of its payment under Section 14.
On 17 October 2003, for the alleged failure of respondent to act on its claim for a
refund, petitioner filed a Petition for Refund of Taxes9 with the RTC of Manila in
accordance with Section 196 of the Local Government Code of 1991. The Petition was
docketed as Civil Case No. 03-108163.
On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of Manila rendered a
Decision10 in Civil Case No. 03-108163 dismissing the Petition for the failure of petitioner
to plead the latters capacity to sue and to state the authority of Tiarra T. Batilaran-
Beleno (Ms. Beleno), who had executed the Verification and Certification of Non-Forum
Shopping.
In denying petitioners Motion for Reconsideration, the RTC went on to say that
Sections 14 and 21 pertained to taxes of a different nature and, thus, the elements of
double taxation were wanting in this case.
On appeal, the CTA Second Division affirmed the RTCs dismissal of the Petition for
Refund of Taxes on the ground that petitioner had failed to state the authority of Ms.
Beleno to institute the suit.
 The CTA En Banc likewise denied the Petition for Review, ruling as follows: SO ORDERED.11

_______________ Issues

7 Supra note 1, at pp. 190-191. In order to determine the entitlement of petitioner to a refund of taxes, the instant
Petition requires the resolution of two main issues, to wit:
8 Id., at pp. 263-268.
1)Whether Ms. Beleno was authorized to file the Petition for Refund of Taxes with
9 Id., at pp. 284-296. the RTC; and

10 Id., at pp. 254-257. 2)Whether the imposition of tax under Section 21 of the Manila Revenue Code
constitutes double taxation in view of the tax collected and paid under Section 14 of
432 the same code.12

The Courts Ruling

432 SUPREME COURT REPORTS ANNOTATED
Authority from the board to sign
the Verification and Certification
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila of Non-Forum Shopping

_______________
In this case, the plaintiff is the Swedish Match Philippines, Inc. However, as
found by the RTC as well as the Court in Division, the signatory of the verification
11 Id., at p. 86.
and/or certification of non-forum shopping is Ms. Beleno, the companys Finance
Manager, and that there was no board resolution or secretarys certificate showing
12 Id., at pp. 34-35.
proof of Ms. Belenos authority in acting in behalf of the corporation at the time the
initiatory pleading was filed in the RTC. It is therefore, correct that the case be
dismissed.
433
WHEREFORE, premises considered, the petition for review is hereby
DENIED. Accordingly, the assailed Decision and the Resolution dated August 8,
2006 and November 27, 2006, respectively, are hereby AFFIRMEDin toto. VOL. 700, JULY 3, 2013 433
 13 515 Phil. 579, 584; 479 SCRA 605, 609 (2006).
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
14 Cebu Metro Pharmacy, Inc. v. Euro-Med Laboratories, Philippines, Inc., G.R. No.
164757, 18 October 2010, 633 SCRA 320, 328.
Anent the procedural issue, petitioner argues that there can be no dispute that Ms.
Beleno was acting within her authority when she instituted the Petition for Refund before 15 Id., at p. 329.
the RTC, notwithstanding that the Petition was not accompanied by a Secretarys
Certificate. Her authority was ratified by the Board in its Resolution adopted on 19 May 434
2004. Thus, even if she was not authorized to execute the Verification and Certification at
the time of the filing of the Petition, the ratification by the board of directors retroactively
applied to the date of her signing. 434 SUPREME COURT REPORTS ANNOTATED

On the other hand, respondent contends that petitioner failed to establish the
authority of Ms. Beleno to institute the present action on behalf of the corporation. Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
Citing Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines
(PAL v. FASAP),13respondent avers that the required certification of non-forum shopping
should have been valid at the time of the filing of the Petition. The Petition, therefore, was documents, can be performed only by natural persons duly authorized for the purpose by
defective due to the flawed Verification and Certification of Non-Forum Shopping, which corporate by-laws or by a specific act of the board of directors.16
were insufficient in form and therefore a clear violation of Section 5, Rule 7 of the 1997
Rules of Civil Procedure. Consequently, a verification signed without an authority from the board of directors is
defective. However, the requirement of verification is simply a condition affecting the form
We rule for petitioner. of the pleading and noncompliance does not necessarily render the
pleading fatally defective.17 The court may in fact order the correction of the pleading if
Time and again, this Court has been faced with the issue of the validity of the verification is lacking or, it may act on the pleading although it may not have been verified,
verification and certification of non-forum shopping, absent any authority from the board where it is made evident that strict compliance with the rules may be dispensed with so
of directors. that the ends of justice may be served.18

The power of a corporation to sue and be sued is lodged in the board of directors, which
exercises its corporate powers.14 It necessarily follows that an individual corporate officer
cannot solely exercise any corporate power pertaining to the corporation without authority
from the board of directors. Thus, physical acts of the corporation, like the signing of
15
_______________
Respondent cites this Courts ruling in PAL v. FASAP,19where we held that only
individuals vested with authority by a valid board resolution may sign a certificate of non-
forum shopping on behalf of a corporation. The petition is subject to dismissal if a
certification was submitted unaccompanied by proof of the signatorys authority. 20 In a
number of cases, however, we have recognized exceptions to this rule. Cagayan Valley Drug
Corporation v. Commissioner of Internal Revenue21 provides:
 In a slew of cases, however, we have recognized the authority of some corporate authority to represent the company; in Novelty Philippines, Inc. v. CA, we ruled
officers to sign the verification and certification against forum shopping. that a personnel officer who signed the petition but did not attach the authority
In Mactan-Cebu International Airport Authority v. CA, we recognized the authority from the company is authorized to sign the verification and non-forum shopping
of a gen- certificate; and in Lepanto Consolidated Mining Company v. WMC Resources
International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and
_______________ President of the Company can sign the verification and certificate against non-
forum shopping even without the submission of the boards authorization.
16 Shipside Incorporated v. Court of Appeals, 404 Phil. 981, 994; 352 SCRA 334, 345
(2001). In sum, we have held that the following officials or employees of the
company can sign the verification and certification without need of a
17 Id., at pp. 994-995; pp. 345-346. board resolution: (1) the Chairperson of the Board of Directors, (2) the
President of a corporation, (3) the General Manager or Acting General
18 Id., at p. 995; p. 346. Manager, (4) Personnel Officer, and (5) an Employment Specialist in a
labor case.
19 Supra note 13, at p. 582; p. 608.

While the above cases do not provide a complete listing of authorized

20 Cosco Philippines Shipping, Inc. v. Kemper Insurance Company, G.R. No. 179488,
signatories to the verification and certification required by the rules, the
23 April 2012, 670 SCRA 343.
determination of the sufficiency of the authority was done on a case to case
basis. The rationale applied in the foregoing cases is to justify the
21 G.R. No. 151413, 13 February 2008, 545 SCRA 10, 18-19.
authority of corporate officers or representatives of the corporation to
sign the verification or certificate against forum shopping, being in a
435
position to verify the truthfulness and correctness of the allegations in
the petition. (Emphases supplied)

VOL. 700, JULY 3, 2013 435

Given the present factual circumstances, we find that the liberal jurisprudential
exception may be applied to this case.

Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila

A distinction between noncompliance and substantial compliance with the
requirements of a certificate of non-forum shopping and verification as provided in the
Rules of Court
eral manager or acting general manager to sign the verification and certificate
against forum shopping; in Pfizer v. Galan, we upheld the validity of a verification
436
signed by an employment specialist who had not even presented any proof of her
 RESOLVED, FURTHER, that the previous institution by Tiarra T.
436 SUPREME COURT REPORTS ANNOTATED Batilaran-Beleno of tax refund cases on behalf of the Corporation,
specifically Civil Cases Nos. 01-102074, 03-108163, and, 04-

Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila _______________

22 Mediserv, Inc. v. Court of Appeals (Special Former 13 th Division), G.R. No.

must be made. In this case, it is undisputed that the Petition filed with the RTC was
22
161368, 5 aPRIL 2010, 617 SCRA 284, 296.
accompanied by a Verification and Certification of Non-Forum Shopping signed by Ms.
Beleno, although without proof of authority from the board. However, this Court finds that 437
the belated submission of the Secretarys Certificate constitutes substantial compliance
with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure.
VOL. 700, JULY 3, 2013 437
A perusal of the Secretarys Certificate signed by petitioners Corporate Secretary
Rafael Khan and submitted to the RTC shows that not only did the corporation authorize
Ms. Beleno to execute the required Verifications and/or Certifications of Non-Forum Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
Shopping, but it likewise ratified her act of filing the Petition with the RTC. The Minutes
of the Special Meeting of the Board of Directors of petitioner-corporation on 19 May 2004
reads: 109044, all titled Swedish Match Philippines, Inc. v. The Treasurer of the
City of Manila and pending in the Regional Trial Court of Manila, as well
RESOLVED, that Tiarra T. Batilaran-Beleno, Finance Director of the as her execution of the Verifications and/or Certifications as to Non-Forum
Corporation, be authorized, as she is hereby authorized and empowered to Shopping in these tax refund cases, are hereby, approved and ratified in
represent, act, negotiate, sign, conclude and deliver, for and in the name of the all respects.(Emphasis supplied)
Corporation, any and all documents for the application, prosecution, defense,
arbitration, conciliation, execution, collection, compromise or settlement of all local Clearly, this is not an ordinary case of belated submission of proof of authority from
tax refund cases pertaining to payments made to the City of Manila pursuant to the board of directors. Petitioner-corporation ratified the authority of Ms. Beleno to
Section 21 of the Manila Revenue Code, as amended; represent it in the Petition filed before the RTC, particularly in Civil Case No. 03-108163,
and consequently to sign the verification and certification of non-forum shopping on behalf
RESOLVED, FURTHER, that Tiarra T. Batilaran-Beleno be authorized to of the corporation. This fact confirms and affirms her authority and gives this Court all the
execute Verifications and/or Certifications as to Non-Forum Shopping of more reason to uphold that authority.23
Complaints/
Petitions that may be filed by the Corporation in the above-mentioned tax-refund
cases;
 Additionally, it may be remembered that the Petition filed with the RTC was a claim
for a refund of business taxes. It should be noted that the nature of the position of Ms.
Beleno as the corporations finance director/manager is relevant to the determination of
her capability and sufficiency to verify the truthfulness and correctness of the allegations
in the Petition. A finance director/manager looks after the overall management of the
financial operations of the organization and is normally in charge of financial reports,
which necessarily include taxes assessed and paid by the corporation. Thus, for this
particular case, Ms. Beleno, as finance director, may be said to have been in a position to
verify the truthfulness and correctness of the allegations in the claim for a refund of the
corporations business taxes.
In Mediserv v. Court of Appeals, we said that a liberal construction of the rules may
24
be invoked in situations in which there may be some excusable formal deficiency or error in
a pleading, provided that the invocation thereof does not
_______________
23 Supra note 14, at pp. 330-331.
24 Supra note 22.
438
438 SUPREME COURT REPORTS ANNOTATED
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
subvert the essence of the proceeding, but at least connotes a reasonable attempt at
compliance with the rules. After all, rules of procedure are not to be applied in a very rigid,
technical manner, but are used only to help secure substantial justice.25
More importantly, taking into consideration the substantial issue of this case, we find a
special circumstance or compelling reason to justify the relaxation of the rule. Therefore,
we deem it more in accord with substantive justice that the case be decided on the merits.
Double taxation
As to the substantive issues, petitioner maintains that the enforcement of Section 21 of
the Manila Revenue Code constitutes double taxation in view of the taxes collected under
Section 14 of the same code. Petitioner points out that Section 21 is not in itself invalid,
but the enforcement of this provision would constitute double taxation if business taxes
have already been paid under Section 14 of the same revenue code. Petitioner further
argues that since Ordinance Nos. 7988 and 8011 have already been declared null and void
in Coca-Cola Bottlers Philippines, Inc. v. City of Manila,26 all taxes collected and paid on
the basis of these ordinances should be refunded.
In turn, respondent argues that Sections 14 and 21 pertain to two different objects of
tax; thus, they are not of the same kind and character so as to constitute double taxation.
Section 14 is a tax on manufacturers, assemblers, and other processors, while Section 21
applies to businesses subject to excise, value-added, or percentage tax. Respondent posits
that under Section 21, petitioner is merely a withholding tax agent of the City of Manila.
_______________
25 Id., at pp. 296-297.
26 526 Phil. 249; 493 SCRA 279 (2006).
439
VOL. 700, JULY 3, 2013 439

Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
At the outset, it must be pointed out that the issue of double taxation is not novel, as it
has already been settled by this Court in The City of Manila v. Coca-Cola Bottlers
Philippines, Inc., in this wise:
27
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax
Ordinance No. 7794, to their own detriment. Said exempting proviso was precisely
included in said section so as to avoid double taxation.
Double taxation means taxing the same property twice when it should be taxed
only once; that is, taxing the same person twice by the same jurisdiction for the
same thing. It is obnoxious when the taxpayer is taxed twice, when it should be
but once. Otherwise described as direct duplicate taxation, the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and the
taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14
and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on
the same subject matter the privilege of doing business in the City of
Manila; (2) for the same purpose to make persons conducting business
within the City of Manila contribute to city revenues; (3) by the same
taxing authority petitioner City of Manila; (4) within the same taxing
jurisdiction within the territorial jurisdiction of the City of Manila; (5)
for the same taxing periods per calendar year; and (6) of the same kind
or character a local business tax imposed on gross sales or receipts of
the business.
The distinction petitioners attempt to make between the taxes under Sections
14 and 21 of Tax Ordinance No. 7794 is specious. The Court revisits Section
_______________
27 G.R. No. 181845, 4 August 2009, 595 SCRA 299.
440
440 SUPREME COURT REPORTS ANNOTATED
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
143 of the LGC, the very source of the power of municipalities and cities to impose
a local business tax, and to which any local business tax imposed by petitioner City
of Manila must conform. It is apparent from a perusal thereof that when a
municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other
article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc. to
a business tax under Section 143(h) of the same Code. Section 143(h) may
be imposed only on businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are not otherwise specified in
preceding paragraphs. In the same way, businesses such as respondents,
already subject to a local business tax under Section 14 of Tax Ordinance
No. 7794 [which is based on Section 143(a) of the LGC], can no longer be
made liable for local business tax under Section 21 of the same Tax
Ordinance [which is based on Section 143(h) of the LGC].28 (Emphases
supplied)
 Based on the foregoing reasons, petitioner should not have been subjected to taxes
under Section 21 of the Manila Revenue Code for the fourth quarter of 2001, considering
that it had already been paying local business tax under Section 14 of the same ordinance.
Further, we agree with petitioner that Ordinance Nos. 7988 and 8011 cannot be the
basis for the collection of business taxes. In Coca-Cola, this Court had the occasion to
29
rule that Ordinance Nos. 7988 and 8011 were null and void for failure to comply with the
required publication for three (3) consecutive days. Pertinent portions of the ruling read:
_______________
28 Id., at pp. 320-322.
29 Supra note 26.
441
VOL. 700, JULY 3, 2013 441
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
It is undisputed from the facts of the case that Tax Ordinance No. 7988 has
already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as
null and void and without legal effect due to respondents failure to satisfy the
requirement that said ordinance be published for three consecutive days as
required by law. Neither is there quibbling on the fact that the said Order of the
DOJ was never appealed by the City of Manila, thus, it had attained finality after
the lapse of the period to appeal.
Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November
2001, reiterated the findings of the DOJ Secretary that respondents failed to follow
the procedure in the enactment of tax measures as mandated by Section 188 of the
Local Government Code of 1991, in that they failed to publish Tax Ordinance No.
7988 for three consecutive days in a newspaper of local circulation. From the
foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said
ordinance was published only for one day in the 22 May 2000 issue of the Philippine
Post in contravention of the unmistakable directive of the Local Government Code
of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed
Order, dated 8 May 2002, went on to dismiss petitioners case on the force of the
enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.
Significantly, said amending ordinance was likewise declared null and void by the
DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that [I]nstead of
amending Ordinance No. 7988, [herein] respondent should have enacted another tax
measure which strictly complies with the requirements of law, both procedural and
substantive. The passage of the assailed ordinance did not have the effect of
curing the defects of Ordinance No. 7988 which, any way, does not legally
exist. Said Resolution of the DOJ Secretary had, as well, attained finality by
virtue of the dismissal with finality by this Court of respondents Petition for
Review on Certiorari in G.R. No. 157490 assailing the dismissal by the RTC of
Manila, Branch 17, of its appeal
442
442 SUPREME COURT REPORTS ANNOTATED
Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
 due to lack of jurisdiction in its Order, dated 11 August 2003. 30 (Emphasis in the 31 Respondents Answer filed with the RTC of Manila in Civil Case No.
original) 03108163, supra note 1, at p. 148.

Accordingly, respondents assessment under both Sections 14 and 21 had no basis. 32 Annex C of the Petition, id., at p. 91.
Petitioner is indeed liable to pay business taxes to the City of Manila; nevertheless,
considering that the former has already paid these taxes under Section 14 of the Manila 443
Revenue Code, it is exempt from the same payments under Section 21 of the same code.
Hence, payments made under Section 21 must be refunded in favor of petitioner.
VOL. 700, JULY 3, 2013 443
It is undisputed that petitioner paid business taxes based on Sections 14 and 21 for the
fourth quarter of 2001 in the total amount of P470,932.21. 31 Therefore, it is entitled to a
refund of P164,552.0432 corresponding to the payment under Section 21 of the Manila Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
Revenue Code.

WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, like the signing of documents, can be performed only by natural persons duly authorized
the Court of Tax Appeals En Banc Decision dated 1 October 2007 and Resolution dated 14 for the purpose by corporate by-laws or by a specific act of the board of directors. ( Cosco
January 2008 are REVERSED and SET ASIDE. Philippines Shipping, Inc. vs. Kemper Insurance Company, 670 SCRA 343 [2012])

SO ORDERED.
Leonardo-De Castro, Bersamin, Villarama, Jr. and Reyes, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
The Supreme Court will not condone a cavalier attitude towards procedural rules. It is
the duty of every member of the bar to comply with these rules. They are not at liberty to
seek exceptions should they fail to observe these rules and rationalize their omission by
harking on liberal construction. (Rivera-Pascual vs. Lim, 681 SCRA 429 [2012])

Notes.The power of a corporation to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers. In turn, physical acts of the
corporation,

_______________

30 Id., at pp. 260-261; pp. 290-291.

 G.R. No. 189999.June 27, 2012.* refers to the basic permit fee and other charges imposed under the National Building
ANGELES UNIVERSITY FOUNDATION, petitioner, vs. CITY OF ANGELES, JULIET G. Code.
QUINSAAT, in her capacity as Treasurer of Angeles City and ENGR. DONATO N. DIZON, Same; Building Permits; Exempted from the payment of building permit fees are: (1)
in his capacity as Acting Angeles City Building Official, respondents. public buildings and (2) traditional indigenous family dwellings.Exempted from the
payment of building permit fees are: (1) public buildings and (2) traditional indigenous
Taxation; Tax Exemptions; R.A. No. 6055 granted tax exemptions to educational
family dwellings. Not being expressly included in the enumeration of structures to which
institutions like petitioner which converted to non-stock, non-profit educational
the building permit fees do not apply, petitioners claim for exemption rests solely on its
foundations.R.A. No. 6055 granted tax exemptions to educational institutions like
interpretation of the term other charges imposed by the National Government in the tax
petitioner which converted to non-stock, non-profit educational foundations. Section 8 of
exemption clause of R.A. No. 6055.
said law provides: SECTION 8. The Foundation shall be exempt from the payment of all
Same; Same; That a building permit fee is a regulatory imposition is highlighted by
taxes, import duties, assessments,
the fact that in processing an application for a building permit, the Building Official shall
_______________
see to it that the applicant satisfies and conforms with approved standard requirements on
* FIRST DIVISION.
zoning and land use, lines and grades, structural design, sanitary and sewerage,
360 environmental health, electrical and mechanical safety
361
360 SUPREME COURT REPORTS ANNOTATED
VOL. 675, JUNE 27, 2012 361
Angeles University Foundation vs. City of Angeles
and other charges imposed by the Government on all income derived from Angeles University Foundation vs. City of Angeles
or property, real or personal, used exclusively for the educational activities of as well as with other rules and regulations implementing the National Building
Code.That a building permit fee is a regulatory imposition is highlighted by the fact that
the Foundation.
in processing an application for a building permit, the Building Official shall see to it that
National Building Code (P.D. No. 1096); The National Building Code requires every
the applicant satisfies and conforms with approved standard requirements on zoning and
person, firm or corporation, including any agency or instrumentality of the government to
land use, lines and grades, structural design, sanitary and sewerage, environmental
obtain a building permit for any construction, alteration or repair of any building or
health, electrical and mechanical safety as well as with other rules and regulations
structure.On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting
implementing the National Building Code. Thus, ancillary permits such as electrical
the National Building Code of the Philippines. The said Code requires every person, firm
permit, sanitary permit and zoning clearance must also be secured and the corresponding
or corporation, including any agency or instrumentality of the government to obtain a
fees paid before a building permit may be issued. And as can be gleaned from the
building permit for any construction, alteration or repair of any building or structure.
implementing rules and regulations of the National Building Code, clearances from
Building permit refers to a document issued by the Building Official x x x to an
various government authorities exercising and enforcing regulatory functions affecting
owner/applicant to proceed with the construction, installation, addition, alteration,
buildings/structures, like local government units, may be further required before a
renovation, conversion, repair, moving, demolition or other work activity of a specific
building permit may be issued.
project/building/structure or portions thereof after the accompanying principal plans,
Same; Same; A charge of a fixed sum which bears no relation at all to the cost of
specifications and other pertinent documents with the duly notarized application are found
inspection and regulation may be held to be a tax rather than an exercise of the
satisfactory and substantially conforming with the National Building Code of the
police power.A charge of a fixed sum which bears no relation at all to the cost of
Philippines x x x and its Implementing Rules and Regulations (IRR). Building permit fees
inspection and regulation may be held to be a tax rather than an exercise of the police
power. In this case, the Secretary of Public Works and Highways who is mandated to PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
prescribe and fix the amount of fees and other charges that the Building Official shall The facts are stated in the opinion of the Court.
collect in connection with the performance of regulatory functions, has promulgated and Jimeno, Cope & David Law Offices for petitioner.
issued the Implementing Rules and Regulations which provide for the bases of assessment Romeo L. Yusi, Jr. for respondents.
of such fees, as follows: 1. Character of occupancy or use of building 2. Cost of construction Eduardo G. Pineda collaborating counsel for respondents.
10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J) 3. Floor area 4. Height
VILLARAMA, JR.,J.:
Tax Exemption; Real Property Taxes; Hospitals; In Lung Center of the Philippines v.
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Quezon City, 433 SCRA 119 (2004), the Supreme Court held that only portions of the
Procedure, as amended, which seeks to reverse and set aside the Decision1 dated July 28,
hospital actually, directly and exclusively used for charitable purposes are exempt from real
_______________
property taxes, while those portions leased to private entities and individuals are not
1 Rollo, pp. 45-59. Penned by Associate Justice Rosmari D. Carandang with Associate
exempt from such taxes.In Lung Center of the Philippines v. Quezon City, 433 SCRA 119
Justices Mariflor P. Punzalan Castillo and Ramon M. Bato, Jr. concurring.
(2004),this Court held that only portions of the hospital actually, directly and exclusively
used for charitable purposes are exempt from real property taxes, while those portions 363
leased to private entities and individuals are VOL. 675, JUNE 27, 2012 363
362
Angeles University Foundation vs. City of Angeles
362 SUPREME COURT REPORTS ANNOTATED 2009 and Resolution2 dated October 12, 2009 of the Court of Appeals (CA) in CA-G.R. CV
No. 90591. The CA reversed the Decision3 dated September 21, 2007 of the Regional Trial
Angeles University Foundation vs. City of Angeles
Court of Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from
not exempt from such taxes. We explained the condition for the tax exemption
the payment of building permit and other fees and ordering respondents to refund the
privilege of charitable and educational institutions, as follows: Under the 1973 and 1987
same with interest at the legal rate.
Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner
The factual antecedents:
is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution;
Petitioner Angeles University Foundation (AUF) is an educational institution
and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
established on May 25, 1962 and was converted into a non-stock, non-profit education
charitable purposes. Exclusive is defined as possessed and enjoyed to the
foundation under the provisions of Republic Act (R.A.) No. 60554 on December 4, 1975.
exclusion of others; debarred from participation or enjoyment; and exclusively is
Sometime in August 2005, petitioner filed with the Office of the City Building Official
defined, in a manner to exclude; as enjoying a privilege exclusively. If real property is
an application for a building permit for the construction of an 11-storey building of the
used for one or more commercial purposes, it is not exclusively used for the exempted
Angeles University Foundation Medical Center in its main campus located at MacArthur
purposes but is subject to taxation. The words dominant use or principal use cannot be
Highway, Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in
substituted for the words used exclusively without doing violence to the Constitutions
the amount of P126,839.20. An Order of Payment was also issued by the City Planning
and the law. Solely is synonymous with exclusively. What is meant by actual, direct
and Development Office, Zoning Administration Unit requiring petitioner to pay the sum
and exclusive use of the property for charitable purposes is the direct and
of P238,741.64 as Locational Clearance Fee.5
immediate and actual application of the property itself to the purposes for which
In separate letters dated November 15, 2005 addressed to respondents City Treasurer
the charitable institution is organized. It is not the use of the income from the real
Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon, petitioner claimed
property that is determinative of whether the property is used for tax-exempt purposes. _______________
2 Id., at pp. 61-62.
 3 Records, pp. 184-194. Penned by Judge Omar T. Viola. 7 Id., at pp. 30-37.
4 AN ACT TO PROVIDE FOR THE CONVERSION OF EDUCATIONAL INSTITUTIONS FROM 8 Id., at pp. 38-49.
STOCK CORPORATIONS TO NON-PROFIT FOUNDATIONS, DIRECTING THE GOVERNMENT 9 Id., at pp. 48-56, 66-74, 87-89.
SERVICE INSURANCE SYSTEM, THE SOCIAL SECURITY SYSTEM AND THE DEVELOPMENT BANK
365
OF THE PHILIPPINES TO ASSIST IN SUCH CONVERSION, AND FOR OTHER
VOL. 675, JUNE 27, 2012 365
PURPOSES. Approved on August 4, 1969.
5 Records, pp. 19-20. Angeles University Foundation vs. City of Angeles
Medical Center (new construction)
364
364 SUPREME COURT REPORTS ANNOTATED
Building Permit and Electrical Fee P 217,475.20
Angeles University Foundation vs. City of Angeles
Locational Clearance Fee 283,741.64
that it is exempt from the payment of the building permit and locational clearance fees,
Fire Code Fee 144,690.00
citing legal opinions rendered by the Department of Justice (DOJ). Petitioner also
Total P 645,906.84
reminded the respondents that they have previously issued building permits
acknowledging such exemption from payment of building permit fees on the construction of
petitioners 4-storey AUF Information Technology Center building and the AUF School Building (renovation)
Professional Schools building on July 27, 2000 and March 15, 2004, respectively.6
Respondent City Treasurer referred the matter to the Bureau of Local Government Building Permit and Electrical Fee P 37,857.20
Finance (BLGF) of the Department of Finance, which in turn endorsed the query to the Locational Clearance Fee 6,000.57
DOJ. Then Justice Secretary Raul M. Gonzalez, in his letter-reply dated December 6, Fire Code Fee 5,967.74
2005, cited previous issuances of his office (Opinion No. 157, s. 1981 and Opinion No. 147, Total P 49,825.51
s. 1982) declaring petitioner to be exempt from the payment of building permit fees. Under Petitioner likewise paid the following sums as required by the City Assessors Office:
the 1st Indorsement dated January 6, 2006, BLGF reiterated the aforesaid opinion of the
Real Property Tax Basic Fee P 86,531.10
DOJ stating further that xxx the Department of Finance, thru this Bureau, has no
SEF 43,274.54
authority to review the resolution or the decision of the DOJ.7
Locational Clearance Fee 1, 125.00
Petitioner wrote the respondents reiterating its request to reverse the disputed
assessments and invoking the DOJ legal opinions which have been affirmed by Secretary Total P130,930.6410
Gonzalez. Despite petitioners plea, however, respondents refused to issue the building [GRAND TOTALP 826,662.99]
permits for the construction of the AUF Medical Center in the main campus and By reason of the above payments, petitioner was issued the corresponding Building
renovation of a school building located at Marisol Village. Petitioner then appealed the Permit, Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006,
matter to City Mayor Carmelo F. Lazatin but no written response was received by petitioner formally requested the respondents to refund the fees it paid under protest.
petitioner.8 Under letters dated June 15, 2006 and August 7, 2006, respondent City Treasurer denied
Consequently, petitioner paid under protest9 the following: the claim for refund.11
_______________ _______________
6 Id., at pp. 26-29. 10 Id., at pp. 75-80, 90.
 11 Id., at pp. 57-64, 81-97.
366
366 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
On August 31, 2006, petitioner filed a Complaint12before the trial court seeking the
refund of P826,662.99 plus interest at the rate of 12% per annum, and also praying for the
award of attorneys fees in the amount of P300,000.00 and litigation expenses.
In its Answer,13 respondents asserted that the claim of petitioner cannot be granted
because its structures are not among those mentioned in Sec. 209 of the National Building
Code as exempted from the building permit fee. Respondents argued that R.A. No. 6055
should be considered repealed on the basis of Sec. 2104 of the National Building Code.
Since the disputed assessments are regulatory in nature, they are not taxes from which
petitioner is exempt. As to the real property taxes imposed on petitioners property located
in Marisol Village, respondents pointed out that said premises will be used as a school
dormitory which cannot be considered as a use exclusively for educational activities.
Petitioner countered that the subject building permit are being collected on the basis of
Art. 244 of the Implementing Rules and Regulations of the Local Government Code, which
impositions are really taxes considering that they are provided under the chapter on Local
Government Taxation in reference to the revenue raising power of local government
units (LGUs). Moreover, petitioner contended that, as held in Philippine Airlines, Inc. v.
Edu,14 fees may be regarded as taxes depending on the purpose of its exaction. In any case,
petitioner pointed out that the Local Government Code of 1991 provides in Sec. 193 that
non-stock and non-profit educational institutions like petitioner retained the tax
exemptions or incentives which have been granted to them. Under Sec. 8 of R.A. No. 6055
and applicable jurisprudence and DOJ
_______________
12 Id., at pp. 2-16.
13 Id., at pp. 105-110.
14 No. L-41383, August 15, 1988, 164 SCRA 320.
367
VOL. 675, JUNE 27, 2012 367
Angeles University Foundation vs. City of Angeles
rulings, petitioner is clearly exempt from the payment of building permit fees.15
On September 21, 2007, the trial court rendered judgment in favor of the petitioner
and against the respondents. The dispositive portion of the trial courts decision16 reads:
WHEREFORE, premises considered, judgment is rendered as follows:
a.Plaintiff is exempt from the payment of building permit and other fees
Ordering the Defendants to refund the total amount of Eight Hundred Twenty-Six
Thousand Six Hundred Sixty-Two Pesos and 99/100 Centavos (P826,662.99) plus
legal interest thereon at the rate of twelve percent (12%) per annum commencing
on the date of extrajudicial demand or June 14, 2006, until the aforesaid amount is
fully paid.
b. Finding the Defendants liable for attorneys fees in the amount of Seventy
Thousand Pesos (Php70,000.00), plus litigation expenses.
c.Ordering the Defendants to pay the costs of the suit.
SO ORDERED.17
Respondents appealed to the CA which reversed the trial court, holding that while
petitioner is a tax-free entity, it is not exempt from the payment of regulatory fees. The CA
noted that under R.A. No. 6055, petitioner was granted exemption only from income tax
derived from its educational activities and real property used exclusively for educational
purposes. Regardless of the repealing clause in the National Building Code, the CA held
that petitioner is still not exempt because a building permit cannot be considered as the
other charges mentioned in Sec. 8 of R.A. No. 6055 which refers to impositions in the
nature of tax, import duties, assessments
_______________
15 Supra note 5.
16 Id., at pp. 184-194.
17 Id., at p. 194.
368
368 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
and other collections for revenue purposes, following the ejusdem generic rule. The CA
further stated that petitioner has not shown that the fees collected were excessive and
more than the cost of surveillance, inspection and regulation. And while petitioner may be
exempt from the payment of real property tax, petitioner in this case merely alleged that
the subject property is to be used actually, directly and exclusively for educational
purposes, declaring merely that such premises is intended to house the sports and other
facilities of the university but by reason of the occupancy of informal settlers on the area,
it cannot yet utilize the same for its intended use. Thus, the CA concluded that petitioner
is not entitled to the refund of building permit and related fees, as well as real property
tax it paid under protest.
Petitioner filed a motion for reconsideration which was denied by the CA.
Hence, this petition raising the following grounds:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A
QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS
NECESSITATING THE HONORABLE COURTS EXERCISE OF ITS POWER OF
SUPERVISION CONSIDERING THAT:
I.IN REVERSING THE TRIAL COURTS DECISION DATED 21 SEPTEMBER
2007, THE COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE
OF EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL
FOUNDATIONS BY VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND
THE AUTHORITY OF THE COURT OF APPEALS TO DO.
A.INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND
EFFECT. HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED
IN THE QUESTIONED DECISION THAT NON-STOCK, NON-
369
VOL. 675, JUNE 27, 2012 369
Angeles University Foundation vs. City of Angeles
PROFIT EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT.
B.THE COURT OF APPEALS APPLICATION OF THE PRINCIPLE
OF EJUSDEM GENERIS IN RULING IN THE QUESTIONED DECISION
THAT THE TERM OTHER CHARGES IMPOSED BY THE
GOVERNMENT UNDER SECTION 8 OF RA 6055 DOES NOT INCLUDE
BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES
IS BASED ON ITS ERRONEOUS AND UNWARRANTED ASSUMPTION
THAT THE TAXES, IMPORT DUTIES AND ASSESSMENTS AS PART OF
THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK, NON-
PROFIT EDUCATIONAL FOUNDATIONS ARE LIMITED TO
COLLECTIONS FOR REVENUE PURPOSES.
C.EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER
RELATED FEES AND/OR CHARGES ARE NOT INCLUDED IN THE
TERM OTHER CHARGES IMPOSED BY THE GOVERNMENT UNDER
SECTION 8 OF RA 6055, ITS IMPOSITION IS GENERALLY A TAX
MEASURE AND THEREFORE, STILL COVERED UNDER THE
PRIVILEGE OF EXEMPTION.
II.THE COURT OF APPEALS DENIAL OF PETITIONER AUFS EXEMPTION
FROM REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED
DECISION AND QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE
LAW AND JURISPRUDENCE.18
Petitioner stresses that the tax exemption granted to educational stock corporations
which have converted into non-profit foundations was broadened to include any other
charges imposed by the Government as one of the incentives for such conversion. These
incentives necessarily included exemption from payment of building permit and related
fees as otherwise there would have been no incentives for educa-
_______________
18 Rollo, pp. 19-21.
370
370 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
tional foundations if the privilege were only limited to exemption from taxation, which is
already provided under the Constitution.
Petitioner further contends that this Court has consistently held in several cases that
the primary purpose of the exaction determines its nature. Thus, a charge of a fixed sum
which bears no relation to the cost of inspection and which is payable into the general
revenue of the state is a tax rather than an exercise of the police power. The standard set
by law in the determination of the amount that may be imposed as license fees is such that
is commensurate with the cost of regulation, inspection and licensing. But in this case, the
amount representing the building permit and related fees and/or charges is such an
exorbitant amount as to warrant a valid imposition; such amount exceeds the probable cost
of regulation. Even with the alleged criteria submitted by the respondents (e.g., character
of occupancy or use of building/structure, cost of construction, floor area and height), and
the construction by petitioner of an 11-storey building, the costs of inspection will not
amount to P645,906.84, presumably for the salary of inspectors or employees, the expenses
of transportation for inspection and the preparation and reproduction of documents.
Petitioner thus concludes that the disputed fees are substantially and mainly for purposes
of revenue rather than regulation, so that even these fees cannot be deemed charges
mentioned in Sec. 8 of R.A. No. 6055, they should properly be treated as tax from which
petitioner is exempt.
In their Comment, respondents maintain that petitioner is not exempt from the
payment of building permit and related fees since the only exemptions provided in
the National Building Code are public buildings and traditional indigenous family
dwellings. Inclusio unius est exclusio alterius. Because the law did not include petitioners
buildings from those structures exempt from the payment of building permit fee, it is
therefore subject to the regulatory fees imposed under the National Building Code.371
VOL. 675, JUNE 27, 2012 371
Angeles University Foundation vs. City of Angeles
Respondents assert that the CA correctly distinguished a building permit fee from
those other charges mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner itself,
charges refer to pecuniary liability, as rents, and fees against persons or property.
Respondents point out that a building permit is classified under the term fee. A fee is
generally imposed to cover the cost of regulation as activity or privilege and is essentially
derived from the exercise of police power; on the other hand, impositions for services
rendered by the local government units or for conveniences furnished, are referred to as
service charges.
Respondents also disagreed with petitioners contention that the fees imposed and
collected are exorbitant and exceeded the probable expenses of regulation. These fees are
based on computations and assessments made by the responsible officials of the City
Engineers Office in accordance with the Schedule of Fees and criteria provided in
the National Building Code. The bases of assessment cited by petitioner (e.g. salary of
employees, expenses of transportation and preparation and reproduction of documents)
refer to charges and fees on business and occupation under Sec. 147 of the Local
Government Code, which do not apply to building permit fees. The parameters set by
the National Building Code can be considered as complying with the reasonable cost of
regulation in the assessment and collection of building permit fees. Respondents likewise
contend that the presumption of regularity in the performance of official duty applies in
this case. Petitioner should have presented evidence to prove its allegations that the
amounts collected are exorbitant or unreasonable.
For resolution are the following issues: (1) whether petitioner is exempt from the
payment of building permit and related fees imposed under the National Building Code;
and (2) whether the parcel of land owned by petitioner which has been assessed for real
property tax is likewise exempt.372
372 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which
converted to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION8.The Foundation shall be exempt from the payment of all taxes, import
duties, assessments, and other charges imposed by the Government on all income
derived from or property, real or personal, used exclusively for the educational
activities of the Foundation. (Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting
the National Building Code of the Philippines. The said Code requires every person, firm
or corporation, including any agency or instrumentality of the government to obtain a
building permit for any construction, alteration or repair of any building or
structure.19 Building permit refers to a document issued by the Building Official x x x to
an owner/applicant to proceed with the construction, installation, addition, alteration,
renovation, conversion, repair, moving, demolition or other work activity of a specific
project/building/structure or portions thereof after the accompanying principal plans,
specifications and other pertinent documents with the duly notarized application are found
satisfactory and substantially conforming with the National Building Code of the
Philippines x x x and its Implementing Rules and Regulations (IRR).20 Building permit
fees refers to the basic permit fee and other charges imposed under the National Building
Code.
Exempted from the payment of building permit fees are: (1) public buildings and (2)
traditional indigenous family dwellings.21 Not being expressly included in the enumeration
of
_______________
19 Sec. 301, P.D. No. 1096.
20 Rule I, Sec. 106, 2004 Revised Implementing Rules and Regulations of the National
Building Code of the Philippines (P.D. 1096). Italics supplied.
21 Sec. 209, P.D. 1096.
373
VOL. 675, JUNE 27, 2012 373
Angeles University Foundation vs. City of Angeles
structures to which the building permit fees do not apply, petitioners claim for exemption
rests solely on its interpretation of the term other charges imposed by the National
Government in the tax exemption clause of R.A. No. 6055.
A charge is broadly defined as the price of, or rate for, something, while the word
fee pertains to a charge fixed by law for services of public officers or for use of a privilege
under control of government.22 As used in the Local Government Code of 1991 (R.A. No.
7160), charges refers to pecuniary liability, as rents or fees against persons or property,
while fee means a charge fixed by law or ordinance for the regulation or inspection of a
business or activity.23
That charges in its ordinary meaning appears to be a general term which could cover
a specific fee does not support petitioners position that building permit fees are among
those other charges from which it was expressly exempted. Note that the other charges
mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words imposed by the
Government on all x x x property used exclusively for the educational activities of the
foundation. Building permit fees are not impositions on property but on the activity
subject of government regulation. While it may be argued that the fees relate to particular
properties, i.e., buildings and structures, they are actually imposed on certain activities
the owner may conduct either to build such structures or to repair, alter, renovate or
demolish the same. This is evident from the following provisions of the National Building
Code:
Section102.Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health, property, and
public welfare, consistent with the principles of sound environmental management and
control; and to this end, make it the purpose of this Code to provide for all buildings and
_______________
22 Blacks Law Dictionary, Fifth Edition, pp. 211 and 553.
23 Sec. 131 (g) and (l), Local Government Code of 1991.
374
374 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
structures, a framework of minimum standards and requirements to regulate and
control their location, site, design quality of materials, construction, use, occupancy, and
maintenance.
Section103.Scope and Application
(a) The provisions of this Code shall apply to the design, location, sitting,
construction, alteration, repair, conversion, use, occupancy, maintenance, moving,
demolition of, and addition to public and private buildings and structures, except
traditional indigenous family dwellings as defined herein.
xxxx
Section301.Building Permits
No person, firm or corporation, including any agency or instrumentality of the
government shall erect, construct, alter, repair, move, convert or demolish any building or
structure or cause the same to be done without first obtaining a building permit therefor
from the Building Official assigned in the place where the subject building is located or the
building work is to be done. (Italics supplied.)
That a building permit fee is a regulatory imposition is highlighted by the fact that in
processing an application for a building permit, the Building Official shall see to it that the
applicant satisfies and conforms with approved standard requirements on zoning and land
use, lines and grades, structural design, sanitary and sewerage, environmental health,
electrical and mechanical safety as well as with other rules and regulations implementing
the National Building Code.24 Thus, ancillary permits such as electrical permit, sanitary
permit and zoning clearance must also be secured and the corresponding fees paid before a
building permit may be issued. And as can be gleaned from the implementing rules and
regulations of the National Building Code, clearances from various government authorities
exercising and enforcing regulatory functions affecting buildings/structures, like local
_______________
24 Sec. 303, P.D. No. 1096.
375
VOL. 675, JUNE 27, 2012 375
Angeles University Foundation vs. City of Angeles
government units, may be further required before a building permit may be issued.25
Since building permit fees are not charges on property, they are not impositions from
which petitioner is exempt.
 As to petitioners argument that the building permit fees collected by respondents are
in reality taxes because the primary purpose is to raise revenues for the local government
unit, the same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power. 26 In this
case, the Secretary of Public Works and Highways who is mandated to prescribe and fix
the amount of fees and other charges that the Building Official shall collect in connection
with the performance of regulatory functions, 27has promulgated and issued the
Implementing Rules and Regulations28 which provide for the bases of assessment of such
fees, as follows:
1.Character of occupancy or use of building
2.Cost of construction 10,000/sq.m (A, B, C, D, E, G, H, I), 8,000 (F), 6,000 (J)
3.Floor area
4.Height
Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
determined or unrelated to the activity being regulated. Neither has petitioner adduced
evidence to show that the rates of building permit fees imposed
_______________
25 Office of the Ombudsman v. Espiritu, G.R. No. 174826, April 8, 2008, 550 SCRA 695,
705.
26 Progressive Development Corporation v. Quezon City, G.R. No. 36081, April 24,
1989, 172 SCRA 629, 636, citing Saldaa v. City of Iloilo, 104 Phil. 28, 33 (1958).
27 Sec. 203 (4), P.D. No. 1096.
28 Rule 11, No. 3 (1), IRR of P.D. No. 1096.
376
376 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
and collected by the respondents were unreasonable or in excess of the cost of regulation
and inspection.
In Chevron Philippines, Inc. v. Bases Conversion Development Authority,29 this Court
explained:
In distinguishing tax and regulation as a form of police power, the determining factor
is the purpose of the implemented measure. If the purpose is primarily to raise revenue,
then it will be deemed a tax even though the measure results in some form of regulation.
On the other hand, if the purpose is primarily to regulate, then it is deemed a
regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated. Thus, in Gerochi v. Department of Energy, the
Court stated:
The conservative and pivotal distinction between these two (2) powers rests in
the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that revenue is incidentally raised
does not make the imposition a tax.30 (Emphasis supplied.)
Concededly, in the case of building permit fees imposed by the National Government
under the National Building Code, revenue is incidentally generated for the benefit of local
government units. Thus:
Section208.Fees
Every Building Official shall keep a permanent record and accurate account of all fees
and other charges fixed and authorized by the Secretary to be collected and received under
this Code.
Subject to existing budgetary, accounting and auditing rules and regulations, the
Building Official is hereby authorized to retain not more than twenty percent of his
collection for the operating expenses of his office.
_______________
29 G.R. No. 173863, September 15, 2010, 630 SCRA 519.
30 Id., at p. 526.
377
VOL. 675, JUNE 27, 2012 377
Angeles University Foundation vs. City of Angeles
The remaining eighty percent shall be deposited with the provincial, city or municipal
treasurer and shall accrue to the General Fund of the province, city or municipality
concerned.
Petitioners reliance on Sec. 193 of the Local Government Code of 1991 is likewise
misplaced. Said provision states:
SECTION193.Withdrawal of Tax Exemption Privileges.Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Emphasis supplied.)
Considering that exemption from payment of regulatory fees was not among those
incentives granted to petitioner under R.A. No. 6055, there is no such incentive that is
retained under the Local Government Code of 1991. Consequently, no reversible error was
committed by the CA in ruling that petitioner is liable to pay the subject building permit
and related fees.
Now, on petitioners claim that it is exempted from the payment of real property tax
assessed against its real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:
x x x x
(3)Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable
or educational purposes shall be exempt from taxation.
x x x x (Emphasis supplied.)
378
378 SUPREME COURT REPORTS ANNOTATED
Angeles University Foundation vs. City of Angeles
Section 234(b) of the Local Government Code of 1991 implements the foregoing
constitutional provision by declaring that
SECTION234.Exemptions from Real Property Tax.The following are exempted
from payment of the real property tax:
xxxx
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable
or educational purposes;
x x x x (Emphasis supplied.)
In Lung Center of the Philippines v. Quezon City,31 this Court held that only portions of
the hospital actually, directly and exclusively used for charitable purposes are exempt from
real property taxes, while those portions leased to private entities and individuals are not
exempt from such taxes. We explained the condition for the tax exemption privilege of
charitable and educational institutions, as follows:
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled
to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that
(a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. Exclusive is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and exclusively is defined, in a manner to
exclude; as enjoying a privilege exclusively. If real property is used for one or more
commercial purposes, it is not exclusively used for the exempted purposes but is subject to
taxation. The words dominant use or principal use cannot be substituted for the words
used exclusively without doing violence to the Constitutions and the law. Solely is
synonymous with exclusively.
_______________
31 G.R. No. 144104, June 29, 2004, 433 SCRA 119, 138.
379
VOL. 675, JUNE 27, 2012 379
Angeles University Foundation vs. City of Angeles
What is meant by actual, direct and exclusive use of the property for
charitable purposes is the direct and immediate and actual application of the
property itself to the purposes for which the charitable institution is organized. It
is not the use of the income from the real property that is determinative of whether the
property is used for tax-exempt purposes.32 (Emphasis and underscoring supplied.)
Petitioner failed to discharge its burden to prove that its real property is actually,
directly and exclusively used for educational purposes. While there is no allegation or proof
that petitioner leases the land to its present occupants, still there is no compliance with
the constitutional and statutory requirement that said real property is actually, directly
and exclusively used for educational purposes. The respondents correctly assessed the land
for real property taxes for the taxable period during which the land is not being devoted
solely to petitioners educational activities. Accordingly, the CA did not err in ruling that
petitioner is likewise not entitled to a refund of the real property tax it paid under protest.
 WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and
Resolution dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 are
AFFIRMED.
No pronouncement as to costs. 462 SUPREME COURT REPORTS ANNOTATED
SO ORDERED.
Leonardo-De Castro (Acting Chairperson),** Bersamin, Perez*** and Perlas-
Bernabe,**** JJ., concur. Republic vs. COCOFED

_______________
32 Id., at pp. 137-138.
** Designated Acting Chairperson of the First Division per Special Order No. 1226 G.R. Nos. 147062-64. December 14, 2001.*
dated May 30, 2012.
*** Designated Additional Member per Raffle dated June 25, 2012 vice Associate REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION
Justice Mariano C. Del Castillo who recused himself from the case due to close association ON GOOD GOVERNMENT (PCGG), petitioner, vs. COCOFED, et al. and BALLARES, et
to one of the parties. al.,1 EDUARDO M. COJUANGCO, JR. and the SANDIGANBAYAN (First Division),
**** Designated Acting Member of the First Division per Special Order No. 1227 respondents.
dated May 30, 2012.
Presidential Commission on Good Government; The government should be allowed to
380
continue voting the sequestered UCPB shares inasmuch as they were purchased with
380 SUPREME COURT REPORTS ANNOTATED
coconut levy fundsfunds that are prima facie public in character or, at the very least, are
Angeles University Foundation vs. City of Angeles
clearly affected with public interest.Simply stated, the gut substantive issue to be
Petition denied, judgment and resolution affirmed.
resolved in the present Petition is: Who may vote the sequestered UCPB shares while the
Notes.A tax exemption cannot arise from vague inferencetax exemptions must be main case for their reversion to the State is pending in
clear and unequivocal; A taxpayer claiming a tax exemption must point to a specific
provision of law conferring on the taxpayer, in clear and plain terms, exemption from a _______________
common burden. (City of Iloilo vs. SMART Communications, Inc., 580 SCRA 332 [2009])
A claim for tax exemption whether full or partial does not question the authority of *
EN BANC.
local assessor to assess real property tax. (National Power Corporation vs. Province of
Quezon and Municipality of Pagbilao, 611 SCRA 71 [2010]) 1
According to Section 1, Rule 7 of the 1997 Rules of Court, [t]he title of the action
Court had already settled the issue of whether or not there was a need for the actual
indicates the names of the parties. They shall all be named in the original complaint or
payment of tax, either the basic corporate income tax or the 2% franchise tax, before
petition; x x x. Furthermore, Section 2, Rule 3 of the same Rules, states that [e]very
therein respondent Philippine Airlines (PAL) could avail itself of the in lieu of all other
action must be prosecuted or defended in the name of the real party in interest. The said
taxes provision under its Charter. (Republic vs. Philippine Airlines, Inc. [PAL], 611
SCRA 624 [2010]) Rule defines a real party in interest as the party who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of the suit. The Court however
notes that the names of all the private respondents have never been specifically stated or
identified. Often, they are merely referred to as the one million coconut farmers, but no
names have been listed here or in the Sandiganbayan pleadings submitted as annexes to
the submissions in this case.
463
VOL. 372, DECEMBER 14, 2001 463
Republic vs. COCOFED
the Sandiganbayan? This Court holds that the government should be allowed to
continue voting those shares inasmuch as they were purchased with coconut levy funds
funds that are prima facie public in character or, at the very least, are clearly affected
with public interest.
Same; The general rule is that the registered owner of the shares of a corporation
exercises the right and the privilege of votingPrinciple applies even to shares that are
sequestered by the government, over which the PCGG as a mere conservator cannot, as a
general rule, exercise acts of dominion.At the outset, it is necessary to restate the general
rule that the registered owner of the shares of a corporation exercises the right and the
privilege of voting. This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a general rule,
exercise acts of dominion. On the other hand, it is authorized to vote these sequestered
shares registered in the names of private persons and acquired with allegedly ill-gotten
wealth, if it is able to satisfy the two-tiered test devised by the Court in Cojuangco v.
Calpo and PCGG v. Cojuangco, Jr.
Same; Two clear public character exceptions under which the government is granted
the authority to vote the shares.From the foregoing general principle, the Court in Baseco
v. PCGG (hereinafter Baseco) and Cojuangco, Jr. v. Roxas (Cojuangco-Roxas) has
provided two clear public character exceptions under which the government is granted
the authority to vote the shares: (1) Where government shares are taken over by private
persons or entities who/which registered them in their own names, and (2) Where the
capitalization or shares that were acquired with public funds somehow landed in private
hands.
Same; The sequestered UCPB shares having been conclusively shown to have been
purchased with coconut levies Court holds that these funds and shares are, at the very least,
affected with public interest; Private respondents even if they are the registered
shareholders cannot be accorded voting rights.Having conclusively shown that the
sequestered UCPB shares were purchased with coconut levies, we hold that these funds
and shares are, at the very least, affected with public interest. The Resolution issued by
the Court on February 16, 1993 in Republic v. Sandiganbayan stated that coconut levy
funds were clearly affected with public interest; thus, herein private respondentseven
if they are the registered shareholderscannot be accorded the right to vote them.
464
464 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
Same; The right to vote the UCPB shares is not subject to the two-tiered test but to
the public character of their acquisition which per Antiporda v. Sandiganbayan must first
be determined.In the present case, the sequestered UCPB shares are confirmed to have
been acquired with coco levies, not with alleged ill-gotten wealth. Hence, by parity of
reasoning, the right to vote them is not subject to the two-tiered test but to the public
character of their acquisition, which per Antiporda v. Sandiganbayan cited earlier,
must first be determined.
 Same; The coconut levy funds are not only affected with public interest they are in fact
prima facie public funds.To avoid misunderstanding and confusion, this Court will even
be more categorical and positive than its earlier pronouncements: the coconut levy funds
are not only affected with public interest; they are, in fact, prima facie public funds.
Republic vs. COCOFED
Same; Coconut levy funds partake of the nature of taxes.Indeed, coconut levy funds
partake of the nature of taxes which, in general, are enforced proportional contributions
from persons and properties, exacted by the State by virtue of its sovereignty for the Same; It would be absurd to hold that the Sandiganbayan gravely abused its
support of government and for all public needs. discretion in not holding that the sequestered shares belong prima facie to the government,
the issue of whether or not coconut levy funds are public funds not having been raised
MELO, J., Dissenting Opinion: before it.Too, the argument that the coconut levy funds used to purchase the sequestered
UCPB shares of stock are public funds does not appear to have been raised before
Presidential Commission on Good Government; The PCGG cannot perform acts of the Sandiganbayan; consequently, the Sandiganbayan did not rule on the nature of the
strict ownership of sequestered property; The only instance when PCGG can vote the shares fund. It would be absurd to hold that the Sandiganbayan gravely abused its discretion in
in a sequestered corporation is in case of a takeover of a business belonging to the not holding that the sequestered shares belong prima facie to the government, the issue of
government or whose capitalization comes from public funds, but which landed in private whether or not coconut levy funds are public funds not having been raised before it.
hands.As stated earlier, the Court, in Cojuangco vs. Roxas, unequivocally declared that
[t]he rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict PETITION for review on certiorari of a decision of the Sandiganbayan.
ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The only conceivable The facts are stated in the opinion of the Court.
exception is in a case of a takeover of a business belonging to the government or whose
capitalization comes from public funds, but which landed in private hands as in BASECO. The Solicitor General for petitioner.
Thus, it is well-settled that the only instance when PCGG can vote the shares in a
sequestered corporation is in case of a takeover of a business belonging to the government Mario E. Ongkiko for petitioners-intervenors.
or whose capitalization comes from public funds, but which landed in private hands. The
foregoing principle, as stated in the majority opinion, has been reiterated in many Abello, Concepcion, Regala & Cruz for COCOFED, et al. and Ballares, et al.
subsequent cases, most recently in Antiporda vs. Sandiganbayan (G.R. No. 116941, May
31, 2001). Estelito P. Mendoza for E. M. Cojuangco, Jr.

465 Catapang, Guzman, Tiongco & Torres for UCPB and 14 CIIF Holding Co.

Sycip, Salazar, Hernandez & Gatmaitan for UCPB.

VOL. 372, DECEMBER 14, 2001 465
PANGANIBAN, J.:
The right to vote sequestered shares of stock registered in the names of private individuals
or entities and alleged to have been acquired with ill-gotten wealth shall, as a rule, be
exercised by the registered owner. The PCGG may, however, be granted such voting right
provided it can (1) show prima facie evidence that the wealth and/or the shares are indeed
ill-gotten; and (2) demonstrate imminent danger of dissipation of the assets, thus
necessitating their continued sequestration and voting by the government until a decision,
ruling with finality on their ownership, is promulgated by the proper court.
466
466 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
However, the foregoing two-tiered test does not apply when the sequestered stocks are
acquired with funds that are prima facie public in character or, at least, are affected with
public interest. Inasmuch as the subject UCPB shares in the present case were
undisputably acquired with coco levy funds which are public in character, then the right to
vote them shall be exercised by the PCGG. In sum, the public character test, not the
two-tiered one, applies in the instant controversy.
The Case
Before us is a Petition for Certiorari with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction under Rule 65 of the Rules of
Court, seeking to set aside the February 28, 2001 Order 2 of the First Division of the
Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent portions of
the assailed Order read as follows:
In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo
Cojuangco, et al., who were acknowledged to be registered stockholders of the UCPB are
authorized, as are all other registered stockholders of the United Coconut Planters Bank,
until further orders from this Court, to exercise their rights to vote their shares of stock
and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the
scheduled Stockholders Meeting on March 6, 2001 or on any subsequent continuation or
resetting thereof, and to perform such acts as will normally follow in the exercise of these
rights as registered stockholders.
Since by way of form, the pleadings herein had been labeled as praying for an
injunction, the right of the movants to exercise their right as abovementioned will be
subject to the posting of a nominal bond in the amount of FIFTY THOUSAND PESOS
(P50,000.00) jointly for the defendants COCOFED, et al. and Ballares, et al., as well as all
other registered stockholders of sequestered shares in that bank, and FIFTY THOUSAND
PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any undue damage or
injury to the United Coconut Planters Bank as may be attributed to their exercise of their
rights as registered stockholders.4
_______________
2
Rollo, pp. 34-41.
3
Signed by Presiding Justice Francis E. Garchitorena and Associate Justices Catalino
R. Castaeda, Jr. and Gregory S. Ong.
4
Assailed Order, p. 6; rollo, p. 39.
467
VOL. 372, DECEMBER 14, 2001 467
 5
See Vital Legal Documents in the New Peoples Government, Vol. 99, pp. 23-25.
Republic vs. COCOFED
6
Ibid., pp. 30-32.
The Antecedents
7
Id., pp. 49-52.
The very roots of this case are anchored on the historic events that transpired during the
change of government in 1986. Immediately after the 1986 EDSA Revolution, then
8
Republic v. Sandiganbayan, 310 Phil. 401, 415-416; 240 SCRA 376, January 23, 1995,
President Corazon C. Aquino issued Executive Order (EO) Nos. 1, 2 and 14.
5 6 7 per Narvasa, CJ.

On the explicit premise that vast resources of the government have been amassed by
9
Second Whereas Clause, Executive Order No. 2.
former President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad, the Presidential Commission on Good Government
10
Republic v. Sandiganbayan, supra, note 8, p. 418.
(PCGG) was created by Executive Order No. 1 to assist the President in the recovery of the
ill-gotten wealth thus accumulated whether located in the Philippines or abroad.8 468

Executive Order No. 2 states that the ill-gotten assets and properties are in the form of
bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the world.9
Executive Order No. 14, on the other hand, empowered the PCGG, with the assistance
of the Office of the Solicitor General and other government agencies, inter alia, to file and
prosecute all cases investigated by it under EO Nos. 1 and 2.
Pursuant to these laws, the PCGG issued and implemented numerous sequestrations,
freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and
properties, real or personal. 10
Among the properties sequestered by the Commission were shares of stock in the
United Coconut Planters Bank (UCPB) registered in the names of the alleged one million
coconut farmers, the
_______________
468 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
so-called Coconut Industry Investment Fund companies (CIIF companies) and Private
Respondent Eduardo Cojuangco, Jr. (hereinafter Cojuangco).
In connection with the sequestration of the said UCPB shares, the PCGG, on July 31,
1987, instituted an action for reconveyance, reversion, accounting, restitution and damages
docketed as Case No. 0033 in the Sandiganbayan.
On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the
Sandiganbayan issued a Resolution 12 lifting the sequestration of the subject UCPB shares
on the ground that herein private respondentsin particular, COCOFED and the so-
called CIIF companieshad not been impleaded by the PCGG as parties-defendants in its
July 31, 1987 Complaint for reconveyance, reversion, accounting, restitution and damages.
The Sandiganbayan ruled that the Writ of Sequestration issued by the Commission was
automatically lifted for PCGGs failure to commence the corresponding judicial action
within the six-month period ending on August 2, 1987 provided under Section 26, Article
XVIII of the 1987 Constitution. The anti-graft court noted that though these entities were
listed in an annex appended to the Complaint, they had not been named as parties-
respondents.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for
Certiorari docketed as GR No. 96073 in this Court. Meanwhile, upon motion of Cojuangco,
the anti-graft court ordered the holding of elections for the Board of Directors of UCPB.
However, the PCGG applied for and was granted by this Court a Restraining Order
enjoining the holding of the election. Subsequently, the Court lifted the Restraining Order
and ordered the UCPB to proceed with the election of its board of directors. Furthermore,
it allowed the sequestered shares to be voted by their registered owners.
The victory of the registered shareholders was fleeting because the Court, acting on
the solicitor generals Motion for Clarification/Manifestation, issued a Resolution on
February 16, 1993,
_______________
11
Entitled Class Action Omnibus Motion, rollo, pp. 418-446.
12
Resolution dated November 15, 1990; rollo, pp. 448-465.
469
VOL. 372, DECEMBER 14, 2001 469
Republic vs. COCOFED
declaring that the right of petitioners [herein private respondents] to vote stock in their
names at the meetings of the UCPB cannot be conceded at this time. That right still has to
be established by them before the Sandiganbayan. Until that is done, they cannot be
deemed legitimate owners of UCPB stock and cannot be accorded the right to vote
them.13 The dispositive portion of the said Resolution reads as follows:
IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated
March 3, 1992 and, pending resolution on the merits of the action at bar, and until further
orders, suspends the effectivity of the lifting of the sequestration decreed by the
Sandiganbayan on November 15, 1990, and directs the restoration of the status quo ante,
so as to allow the PCGG to continue voting the shares of stock under sequestration at the
meetings of the United Coconut Planters Bank.14
On January 23, 1995, the Court rendered its final Decision in GR No. 96073, nullifying
and setting aside the November 15, 1990 Resolution of the Sandiganbayan which, as
earlier stated, lifted the sequestration of the subject UCPB shares. The express impleading
of herein Respondents COCOFED, et al. was deemed unnecessary because the judgment
may simply be directed against the shares of stock shown to have been issued in
consideration of ill-gotten wealth.15 Furthermore, the companies are simply the res in the
actions for the recovery of illegally acquired wealth, and there is, in principle, no cause of
action against them and no ground to implead them as defendants in said case.16
A month thereafter, the PCGGpursuant to an Order of the Sandiganbayan
subdivided Case No. 0033 into eight Complaints and docketed them as Case Nos. 0033-A to
0033-H.
Six years later, on February 13, 2001, the Board of Directors of UCPB received from
the ACCRA Law Office a letter written on behalf of the COCOFED and the alleged
nameless one million coconut farmers, demanding the holding of a stockholders meeting
_______________ On February 28, 2001, respondent court, after hearing the parties on oral argument,
issued the assailed Order.
13
Resolution dated February 16, 1993, pp. 5-6; rollo, pp. 72-73.
Hence, this Petition by the Republic of the Philippines represented by the PCGG.19
14
Ibid., p. 6 ; rollo, p. 73.
The case had initially been raffled to this Courts Third Division which, by a vote of 3-
15
Republic v. Sandiganbayan, supra, per Narvasa, CJ. 2,20 issued a Resolution21requiring the parties to maintain the status quo existing before
the issuance of the questioned Sandiganbayan Order dated February 28, 2001. On March
16
Ibid. 7, 2001, Respondent COCOFED, et al. moved that the instant Petition be heard by the
Court en banc.22 The Motion was unanimously granted by the Third Division.
470
_______________

470 SUPREME COURT REPORTS ANNOTATED 17

Rollo, pp. 42-67.

Republic vs. COCOFED
for the purpose of, among others, electing the board of directors. In response, the board
approved a Resolution calling for a stockholders meeting on March 6, 2001 at three oclock
in the afternoon.
18
Ibid., p. 42; original in upper case.
19
Pursuant to this Courts Resolution dated April 17, 2001, the parties submitted their
respective Memoranda: on May 2, 2001, the Court received those of the main parties and
on May 8, 2001, the Memorandum for the intervenors. Finally, on May 21, 2001,
intervenors filed their Manifestation (In Aid of Memorandum). The case was deemed
submitted for decision on the last-mentioned date.

On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the Class Action 20
Justices Vitug, Panganiban and Gonzaga-Reyes voted in favor and Justices Melo and
Omnibus Motion referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B
17
Sandoval-Gutierrez voted against.
and 0033-F, asking the court a quo:
21
Resolution dated March 6, 2001; rollo, p. 221.
1. 1.To enjoin the PCGG from voting the UCPB shares of stock registered in the
respective names of the more than one million coconut farmers; and 22
Urgent Motion dated March 7, 2001; rollo, pp. 224-230.

2. 2.To enjoin the PCGG from voting the SMC shares registered in the names of the 471
14 CIIF holding companies including those registered in the name of the
PCGG.18
 The Respondent Sandiganbayan violated petitioners right to due process by taking
VOL. 372, DECEMBER 14, 2001 471 cognizance of the Class Action Omnibus Motion dated 23 February 2001 despite gross lack
of sufficient notice and by issuing the writ of preliminary injunction despite the obvious
fact that there was no actual pressing necessity or urgency to do so.
Republic vs. COCOFED
In its Resolution dated April 17, 2001, the Court defined the issue to be resolved in the
instant case simply as follows:
On March 13, 2001, the Court en banc resolved to accept the Third Divisions referral. It 23

heard the case on Oral Argument in Baguio City on April 17, 2001. During the hearing, it Did the Sandiganbayan commit grave abuse of discretion when it issued the disputed
admitted the intervention of a group of coconut farmers and farm worker organizations, Order allowing respondents to vote UCPB shares of stock registered in the name of
the Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa ng respondents?
Niyugan (PKSMMN). The coalition claims that its members have been excluded from the
benefits of the coconut levy fund. Inter alia, it joined petitioner in praying for the exclusion _______________
of private respondents in voting the sequestered shares.
23
Resolution dated March 12, 2001; rollo, p. 728-A.
Issues
24
Urgent Petition, pp. 12-13; rollo, pp. 13-14. Original in upper case.
Petitioner submits the following issues for our consideration: 24

472
A.

Despite the fact that the subject sequestered shares were purchased with coconut levy 472 SUPREME COURT REPORTS ANNOTATED
funds (which were declared public in character) and the continuing effectivity of
Resolution dated February 16, 1993 in G.R. No. 96073 which allows the PCGG to vote said
sequestered shares, Respondent Sandiganbayan, with grave abuse of discretion, issued its Republic vs. COCOFED
Order dated February 28, 2001 enjoining PCGG from voting the sequestered shares of
stock in UCPB. This Courts Ruling

B. The Petition is impressed with merit.

Main Issue: SEC. 24. Election of directors or trustees.At all elections of directors or trustees, there
Who May Vote the Sequestered Shares of Stock? must be present, either in person or by representative authorized to act by written proxy,
the owners of the majority of the outstanding capital stock, or if there be no capital stock, a
Simply stated, the gut substantive issue to be resolved in the present Petition is: Who majority of the members entitled to vote. The election must be by ballot if requested by any
may vote the sequestered UCPB shares while the main case for their reversion to the State voting stockholder or member. In stock corporations, every stockholder entitled to vote
is pending in the Sandiganbayan? shall have the right to vote in person or by proxy the number of shares of stock standing,
at the time fixed in the by-laws, in his own name on the stock books of the corporation, or
This Court holds that the government should be allowed to continue voting those where the by-laws are silent, at the time of the election; and said stockholder may vote
shares inasmuch as they were purchased with coconut levy fundsfunds that are prima such number of shares for as many persons as there are directors to be elected or he may
facie public in character or, at the very least, are clearly affected with public interest. cumulate said shares and give one candidate as many votes as the number of directors to
be elected multiplied by the number of his shares shall equal, or he may distribute them
General Rule: Sequestered Shares on the same principle
Are Voted by the Registered Holder
473
At the outset, it is necessary to restate the general rule that the registered owner of the
shares of a corporation exercises the right and the privilege of voting. 25 This principle
applies even to shares VOL. 372, DECEMBER 14, 2001 473

_______________
Republic vs. COCOFED
25
Sec. 24 of the Corporation Code (Batas Pambansa Blg. 68) provides as follows:

that are sequestered by the government, over which the PCGG as a mere conservator
cannot, as a general rule, exercise acts of dominion. 26 On the other hand, it is authorized to
vote these sequestered shares registered in the names of private persons and acquired
with allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the
Court in Cojuangco v. Calpo 27 and PCGG v. Cojuangco, Jr.,28 as follows:

1. (1)Is there prima facie evidence showing that the said shares are ill-gotten and
thus belong to the State?
 2. (2)Is there an imminent danger of dissipation, thus necessitating their continued
sequestration and voting by the PCGG, while the main issue is pending with the Republic vs. COCOFED
Sandiganbayan?

Sequestered Shares Acquired with

_______________
Public Funds Are an Exception

among as many candidates as he shall see fit: Provided, That the total number of votes
From the foregoing general principle, the Court in Baseco v.
cast by him shall not exceed the number of shares owned by him as shown in the books of
PCGG 29 (hereinafter Baseco) and Cojuangco, Jr. v. Roxas 30 (Cojuangco-Roxas) has
the corporation multiplied by the whole number of directors to be elected: Provided,
provided two clear public character exceptions under which the government is granted
however, That no delinquent stock shall be voted. Unless otherwise provided in the articles
the authority to vote the shares:
of incorporation or in the by-laws, members of corporations which have no capital stock
may cast as many votes as there are trustees to be elected but may not cast more than one
1. (1)Where government shares are taken over by private persons or entities
vote for one candidate. Candidates receiving the highest number of votes shall be declared who/which registered them in their own names, and
elected. Any meeting of the stockholders or members called for an election may adjourn
from day to day or from time to time but not sine die or indefinitely if, for any reason, no 2. (2)Where the capitalization or shares that were acquired with public funds
election is held, or if there are not present or represented by proxy, at the meeting, the somehow landed in private hands.
owners of a majority of the outstanding capital stock, or if there be no capital stock, a
majority of the members entitled to vote. The exceptions are based on the common-sense principle that legal fiction must yield to
truth; that public property registered in the names of non-owners is affected with trust
Under this Section, a director must own at least one share in his name. relations; and that the prima facie beneficial owner should be given the privilege of
enjoying the rights flowing from the prima facie fact of ownership.
26
Baseco v. PCGG, infra; and Cojuangco, Jr. v. Roxas, infra.
In Baseco, a private corporation known as the Bataan Shipyard and Engineering Co.
27
G.R. No. 115352, June 10, 1993. was placed under sequestration by the PCGG. Explained the Court:

28
302 SCRA 217, GR No. 133197, January 27, 1999. The facts show that the corporation known as BASECO was owned and controlled by
President Marcos during his administration, through nominees, by taking undue
474 advantage of his public office and/or using his powers, authority, or influence, and that it
was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
474 SUPREME COURT REPORTS ANNOTATED controlled entities.31
Given this factual background, the Court discussed PCGGs right over BASECO in the Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
following manner: respondents calling and holding of a stockholders meeting for the election of directors as
authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986,
Now, in the special instance of a business enterprise shown by evidence to have been particularly, where as in this case, the government can, through its designated directors,
taken over by the government of the Marcos Admini- properly exercise control and management over what appear to be properties and assets
owned and belonging to the government itself and over which the persons who appear in
_______________ this case on behalf of BASECO have failed to show any right or even any shareholding in
said corporation.33 (Italics supplied)
29
150 SCRA 181, L-75885, May 27, 1987.
The Court granted PCGG the right to vote the sequestered shares because they appeared
30
195 SCRA 797, GR No. 91925, April 16, 1991. to be assets belonging to the government itself. The Concurring Opinion of Justice
Ameurfina A. Melencio-Herrera, in which she was joined by Justice Florentino P.
31
Baseco v. PCGG, supra, p. 219, per Narvasa, J. (later CJ). Feliciano, explained this principle as follows:

475 I have no objection to according the right to vote sequestered stock in case of a take-over
of business actually belonging to the government or whose capitalization comes from
public funds but which, somehow, landed in the hands of private persons, as in the case of
VOL. 372, DECEMBER 14, 2001 475 BASECO. To my mind, however, caution and prudence should be exercised in the case of
sequestered shares of an on-going private business enterprise, specially the sensitive ones,
since the true and real ownership of said shares is yet to be determined and proven more
Republic vs. COCOFED conclusively by the Courts.34 (Italics supplied)

_______________
stration or by entities or persons close to former President Marcos, the PCGG is given
power and authority, as already adverted to, to provisionally take (it) over in the public 32
Ibid., p. 237.
interest or to prevent * * (its) disposal or dissipation; and since the term is obviously
employed in reference to going concerns, or business enterprises in operation, something 33
Id., p. 239.
more than mere physical custody is connoted; the PCGG may in this case exercise some
measure of control in the operation, running, or management of the business itself.32 34
Id., p. 253.

Citing an earlier Resolution, it ruled further: 476

 _______________
476 SUPREME COURT REPORTS ANNOTATED
35
Supra.

Republic vs. COCOFED

36
Ibid., p. 813, per Gancayco, J.

37
G.R. No. 116941, May 31, 2001, 358 SCRA 335.
The exception was cited again by the Court in Cojuangco-Roxas in this wise:
35

38
Supra.
The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict
ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
39
G.R. No. 116941, May 31, 2001, p. 16, 358 SCRA 335, 351, per Ynares-Santiago, J.
corporation and elect the members of the board of directors. The only conceivable exception
is in a case of a takeover of a business belonging to the government or whose capitalization 477
comes from public funds, but which landed in private hands as in BASECO. (Italics 36

supplied)
VOL. 372, DECEMBER 14, 2001 477
The public character test was reiterated in many subsequent cases, most recently,
in Antiporda v. Sandiganbayan.37 Expressly citing Cujuangco-Roxas,38 this Court said that
in determining the issue of whether the PCGG should be allowed to vote sequestered Republic vs. COCOFED
shares, it was crucial to find out first whether these were purchased with public funds, as
follows: UCPB Shares Were Acquired
With Coconut Levy Funds
It is thus important to determine first if the sequestered corporate shares came from
public funds that landed in private hands.39 In the present case before the Court, it is not disputed that the money used to purchase
the sequestered UCPB shares came from the Coconut Consumer Stabilization Fund
In short, when sequestered shares registered in the names of private individuals or (CCSF), otherwise known, as the coconut levy funds.
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered test is
applied. However, when the sequestered shares in the name of private individuals or This fact was plainly admitted by private respondents counsel, Atty. Teresita J.
entities are shown, prima facie, to have been (1) originally government shares, or (2) Herbosa, during the Oral Arguments held on April 17, 2001 in Baguio City, as follows:
purchased with public funds or those affected with public interest, then the two-tiered test
does not apply. Rather, the public character exceptions in Baseco v. PCGG and Cojuangco,
Jr. v. Roxas prevail; that is, the government shall vote the shares. Justice Panganiban:

In regard to the theory of the Solicitor General that the funds used to purchase
[both] the original 28 million and the subsequent 80 million came from the CCSF,
Coconut Consumers Stabilization Fund, do you agree with that?
_______________
40
Transcript of Oral Arguments, April 17, 2001, pp. 171, 173. During the same Oral
Argument, Private Respondent Cojuangco similarly admitted that the entire amount
paid for the shares had come from the Philippine Coconut Authority. TSN, p. 115.

Atty. Herbosa:
41
178 SCRA 236, 245-246, October 2, 1989, per Narvasa, J. (later CJ).

478

Yes, Your Honor.

478 SUPREME COURT REPORTS ANNOTATED

xxx xxx xxx

Republic vs. COCOFED

Justice Panganiban:
Coconut Levy Funds Are
Affected With Public Interest
So it seems that the parties [have] agreed up to that point that the funds used to
purchase 72% of the former First United Bank came from the Coconut Consumer Having conclusively shown that the sequestered UCPB shares were purchased with
coconut levies, we hold that these funds and shares are, at the very least, affected with
Stabilization Fund?
public interest.

The Resolution issued by the Court on February 16, 1993 in Republic v.

Atty. Herbosa:
Sandiganbayan 42 stated that coconut levy funds were clearly affected with public
interest; thus, herein private respondentseven if they are the registered shareholders
cannot be accorded the right to vote them. We quote the said Resolution in part, as follows:
Yes, Your Honor.40

The coconut levy funds being clearly affected with public interest, it follows that the
Indeed in Cocofed v. PCGG, this Court categorically declared that the UCPB was
41 corporations formed and organized from those funds, and all assets acquired therefrom
acquired with the use of the Coconut Consumers Stabilization Fund in virtue of should also be regarded as clearly affected with public interest. 43
Presidential Decree No. 755, promulgated on July 29, 1975.
xxx xxx xxx
 Assuming, however, for purposes of argument merely, the lifting of sequestration to be
correct, may it also be assumed that the lifting of sequestration removed the character of
the coconut levy companies of being affected with public interest, so that they and their
stock and assets may now be considered to be of private ownership? May it be assumed
that the lifting of sequestration operated to relieve the holders of stock in the coconut levy
companiesaffected with public interestof the obligation of proving how that stock had
been legitimately transferred to private ownership, or that those stockholders who had
had some part in the collection, administration, or disposition of the coconut levy funds are
now deemed qualified to acquire said stock, and freed from any doubt or suspicion that
they had taken advantage of their special or fiduciary relation with the agencies in charge
of the coconut levies and the funds thereby accumulated? The obvious answer to each of
the questions is a negative one. It seems plain that the lifting of sequestration has no
relevance to the nature of the coconut levy companies or their stock or property, or to the
legality of the acquisition by private persons of their interest therein, or to the latters
capacity or disqualification to acquire stock in the companies or any property acquired
from coconut levy funds.
_______________
42
Resolution dated February 16, 1993, G.R. No. 96073.
43
Ibid., p. 3.
479
VOL. 372, DECEMBER 14, 2001 479
Republic vs. COCOFED
This being so, the right of the [petitioners] to vote stock in their names at the meetings of
the UCPB cannot be conceded at this time. That right still has to be established by them
before the Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of
UCPB stock and cannot be accorded the right to vote them.44 (Italics supplied)
It is, however, contended by respondents that this Resolution was in the nature of a
temporary restraining order. As such, it was supposedly interlocutory in character and
became functus oficio when this Court decided GR No. 96073 on January 23, 1995.
This argument is aptly answered by petitioner in its Memorandum, which we quote:
The ruling made in the Resolution dated 16 February 1993 confirming the public nature
of the coconut levy funds and denying claimants their purported right to vote is an
affirmation of doctrines laid down in the cases of COCOFED v. PCGG, supra, Baseco v.
PCGG, supra, and Cojuangco v. Roxas, supra. Therefore it is of no moment that the
Resolution dated 16 February 1993 has not been ratified. Its jurisprudential bases
remain.45 (Italics supplied)
Granting arguendo that the Resolution is interlocutory, the truth remains: the coconut
levy funds are still clearly affected with public interest. That was the truth in 1989 as
quoted by this Court in its February 16, 1993 Resolution, and so it is today. Said the Court
in 1989:
The utilization and proper management of the coconut levy funds, raised as they were by
the States police and taxing powers, are certainly the concern of the Government. It
cannot be denied that it was the welfare of the entire nation that provided the prime
moving factor for the imposition of the levy. It cannot be denied that the coconut industry
is one of the major industries supporting the national economy. It is, therefore, the States
concern to make it a strong and secure source not only of the livelihood of a significant
segment of the population but also of export earnings the sustained growth of which is one
of the imperatives of economic stability. The coconut levy funds are clearly affected with
public interest. Until it is demonstrated satisfactorily that they have legitimately become
private
_______________ they already had such right in 1995why are they suddenly and imperiously claiming
it only now?
44
Id., pp. 5-6.
It should be stressed at this point that the assailed Sandiganbayan Order dated
45
Memorandum for Petitioner, pp. 56-57. February 28, 2001allowing private respondents to vote the sequestered sharesis not
based on any finding that the coconut levies and the shares have legitimately become
480 private funds. Neither is it based on the alleged lifting of the TRO issued by this Court on
February 16, 1993. Rather, it is anchored on the grossly mistaken application of the two-
tiered test mentioned earlier in this Decision.
480 SUPREME COURT REPORTS ANNOTATED
To stress, the two-tiered test is applied only when the sequestered asset in the hands of
a private person is alleged to have been acquired with ill-gotten wealth. Hence, in PCGG v.
Republic vs. COCOFED Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote the sequestered shares of

_______________
funds, they must prima facie and by reason of the circumstances in which they were raised
and accumulated be accounted subject to the measures prescribed in E.O. Nos. 1, 2, and 14 46
Cocofed v. PCGG, supra, pp. 252-253.
to prevent their concealment, dissipation, etc., which measures include the sequestration
and other orders of the PCGG complained of.46(Italics supplied) 47
Supra.

To repeat, the foregoing juridical situation has not changed. It is still the truth today: the 481
coconut levy funds are clearly affected with public interest. Private respondents have not
demonstrated satisfactorily that they have legitimately become private funds.
VOL. 372, DECEMBER 14, 2001 481
If private respondents really and sincerely believed that the final Decision of the Court
in Republic v. Sandiganbayan (GR No. 96073, promulgated on January 23, 1995) granted
them the right to vote, why did they wait for the lapse of six long years before definitively Republic vs. COCOFED
asserting it (1) through their letter dated February 13, 2001, addressed to the UCPB
Board of Directors, demanding the holding of a shareholders meeting on March 6, 2001;
and (2) through their Omnibus Motion dated February 23, 2001 filed in the court a quo, the San Miguel Corporation (SMC) registered in his name but alleged to have been
seeking to enjoin PCGG from voting the subject sequestered shares during the said acquired with ill-gotten wealth. We did so on his representation that he had acquired them
stockholders meeting? Certainly, if they even half believed their submission nowthat with borrowed funds and upon failure of the PCGG to satisfy the two-tiered test. This
test was, however, not applied to sequestered SMC shares that were purchased with coco 48
Beckner v. Commonwealth, 5 SE2d 525, November 20, 1939.
levy funds.
482
In the present case, the sequestered UCPB shares are confirmed to have been acquired
with coco levies, not with alleged ill-gotten wealth. Hence, by parity of reasoning, the right
to vote them is not subject to the two-tiered test but to the public character of their 482 SUPREME COURT REPORTS ANNOTATED
acquisition, which per Antiporda v. Sandiganbayan cited earlier, must first be determined.

Coconut Levy Funds Are Republic vs. COCOFED

Prima Facie Public Funds

To avoid misunderstanding and confusion, this Court will even be more categorical and
positive than its earlier pronouncements: the coconut levy funds are not only affected with
public interest; they are, in fact, prima facie public funds.
Public funds are those moneys belonging to the State or to any political subdivision of
the State; more specifically, taxes, customs duties and moneys raised by operation of law
1. 5.The Bureau of Internal Revenue (BIR), with the acquiescence of private
respondents, has treated them as public funds.
2. 6.The very laws governing coconut levies recognize their public character.
We shall now discuss each of the foregoing reasons, any one of which is enough to show

for the support of the government or for the discharge of its their public character.

obligations. Undeniably, coconut levy funds satisfy this general definition of public funds,
48

because of the following reasons: 1. Coconut Levy Funds Are Raised Through
the States Police and Taxing Powers.
1. 1.Coconut levy funds are raised with the use of the police and taxing powers of the
State. Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced
proportional contributions from persons and properties, exacted by the State by virtue of
2. 2.They are levies imposed by the State for the benefit of the coconut industry and its sovereignty for the support of government and for all public needs.49 Based on this
its farmers. definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and
3. 3.Respondents have judicially admitted that the sequestered shares were c) it is levied for the support of the government. The coconut levy funds fall squarely into
purchased with public funds. these elements for the following reasons:

4. 4.The Commission on Audit (COA) reviews the use of coconut levy funds. (a) They were generated by virtue of statutory enactments imposed on the coconut
farmers requiring the payment of prescribed amounts. Thus, PD No. 276, which created
_______________ the Coconut Consumer Stabilization Fund (CCSF), mandated the following:
a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other oil millers, desiccators and other end-users of copra or its equivalent in other coconut
coconut products, shall be imposed on every first sale, in accordance with the mechanics products under such rules and regulations as the Authority may prescribe. Until otherwise
established under RA 6260, effective at the start of business hours on August 10, 1973. prescribed by the Authority, the current levy being collected shall be continued.53

The proceeds from the levy shall be deposited with the Philippine National Bank or Like other tax measures, they were not voluntary payments or donations by the people.
any other government bank to the account of the Coconut Consumers Stabilization Fund, They were enforced contributions exacted on pain of penal sanctions, as provided under PD
as a separate trust fund which shall not form part of the general fund of the No. 276:
government. 50

3. Any person or firm who violates any provision of this Decree or the rules and
_______________ regulations promulgated thereunder, shall, in addition to penalties already prescribed
under existing administrative and special law, pay a fine of not less than P2,500 or more
49
Fitch v. Wisconsin Tax Commission, 230 NW 37, April 1, 1930, citing Cooley than P10,000, or suffer cancellation of licenses to operate, or both, at the discretion of the
on Taxation (3rd ed.). Court.54

50
Par. 1(a), PD No. 276, August 20, 1973. Such penalties were later amended thus:

483 Whenever any person or entity willfully and deliberately violates any of the provisions of
this Act, or any rule or regulation legally promulgated hereunder by the Authority, the
person or persons responsible for such violation shall be punished by a fine of not more
VOL. 372, DECEMBER 14, 2001 483 than P20,000.00 and by imprisonment of not more than five years. If the offender be a
corporation, partnership or a juridical person, the penalty shall be imposed on the officer
or officers authorizing, permitting or tolerating the violation. Aliens found guilty of any
Republic vs. COCOFED offenses shall, after having served his sentence, be

_______________
The coco levies were further clarified in amendatory laws, specifically PD No. 961 51 and PD
No. 146852in this wise: 51
July 14, 1976.

The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect 52
June 11, 1978.
a levy, to be known as the Coconut Consumers Stabilization Fund Levy, on every one
hundred kilos of copra resecada, or its equivalent in other coconut products delivered to, 53
Art. III, 1, PD No. 961, July 14, 1976; and Art. III, 1, PD No. 1468, June 11, 1978.
and/or purchased by, copra exporters, oil millers, desiccators and other end-users of copra
or its equivalent in other coconut products. The levy shall be paid by such copra exporters, 54
Par. 3, PD No. 276, August 20, 1973.
 484 Taxation is done not merely to raise revenues to support the government, but also to
provide means for the rehabilitation and the stabilization of a threatened industry, which
is so affected with public interest as to be within the police power of the State, as held
484 SUPREME COURT REPORTS ANNOTATED in Caltex Philippines v. COA 57 and Osmea v. Orbos.58 Even if the money is allocated for a
special purpose and raised by special means, it is still public in character. In the case
before us, the funds were even used to organize and finance State offices. In Cocofed v.
Republic vs. COCOFED PCGG,59 the Court observed that certain agencies or enterprises were organized and
financed with revenues derived from coconut levies imposed under a succession of laws of
the late dictatorship x x x with deposed Ferdinand Marcos and his cronies
immediately deported and, in the case of a naturalized citizen, his certificate of
naturalization shall be cancelled.55 _______________

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative 55
Art. IV, 1, PD No. 961, July 14, 1976; and Art. IV, 1, PD No. 1468, June 11, 1978. It
authorities of the State. Indeed, the CCSF was collected under PD No. 276, issued by should be noted that in PD No. 1468, the last sentence reads, Aliens found guilty of any
former President Ferdinand E. Marcos who was then exercising legislative powers.56 offense shall, after having served his sentence, be immediately deported x x x.

(c) They were clearly imposed for a public purpose. There is absolutely no question that 56
Memorandum for Petitioner, supra, p. 23.
they were collected to advance the governments avowed policy of protecting the coconut
industry. This Court takes judicial notice of the fact that the coconut industry is one of the 57
208 SCRA 726, May 8, 1992.
great economic pillars of our nation, and coconuts and their byproducts occupy a leading
position among the countrys export products; that it gives employment to thousands of 58
220 SCRA 703, March 31, 1993.
Filipinos; that it is a great source of the States wealth; and that it is one of the important
sources of foreign exchange needed by our country and, thus, pivotal in the plans of a 59
Supra.
government committed to a policy of currency stability.
485

VOL. 372, DECEMBER 14, 2001 485

Republic vs. COCOFED

as the suspected authors and chief beneficiaries of the resulting coconut industry
monopoly. The Court continued: x x x. It cannot be denied that the coconut industry is
60
one of the major industries supporting the national economy. It is, therefore, the States
concern to make it a strong and secure source not only of the livelihood of a significant
segment of the population, but also of export earnings the sustained growth of which is
one of the imperatives of economic stability. x x x. 61
2. Coconut Funds Are Levied for the Benefit
of the Coconut Industry and Its Farmers.
Just like the sugar levy funds, the coconut levy funds constitute state funds even though
they may be held for a special public purpose.
In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut levy
funds to the sugar levy funds, both being special public funds acquired through the taxing
and police powers of the State. The sugar levy funds, which are strikingly similar to the
coconut levies in their imposition and purpose, were declared public funds by this Court
in Gaston v. Republic Planters Bank, from which we quote:
62
The stabilization fees collected are in the nature of a tax which is within the power of the
State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148).
They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a
Special Fund, a Development and Stabilization Fund, almost identical to the Sugar as a special fund, to be, in the language of the statute, administered in trust for the
Adjustment and Stabilization Fund created under Section 6 of Commonwealth Act 567.
The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory
purpose, to provide means for the stabilization of the sugar industry. The levy is primarily
in the exercise of the police power of the State. (Lutz vs. Araneta, supra) 63
_______________
60
Ibid., p. 239.
61
Id., p. 252.
62
158 SCRA 626, March 15, 1988, per Melencio-Herrera, J.
63
Ibid., pp. 632-633.
486
486 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
The Court further explained:64
The stabilization fees in question are levied by the State upon sugar millers, planters and
producers for a special purposethat of financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the
foreign market. The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them as state funds, even though they are held for a special purpose
(Lawrence v. American Surety Co., 263 Mich 586, 294 ALR 535, cited in 42 Am. Jur., Sec.
2., p. 718). Having been levied for a special purpose, the revenues collected are to be treated
purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That is the essence of the trust
intended (see 1987 Constitution, Art. VI, Sec. 29[3], lifted from the 1935 Constitution,
Article VI, Sec. 23[1]). (Italics supplied)
The character of the Stabilization Fund as a special fund is emphasized by the fact
that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation made
by law (1987 Constitution, Article VI, Sec. 29[1], 1973 Constitution, Article VIII, Sec.
18[1]).
 That the fees were collected from sugar producers, planters and millers, and that the
funds were channeled to the purchase of shares of stock in respondent Bank do not convert
the funds into a trust fund for their benefit nor make them the beneficial owners of the
shares so purchased. It is but rational that the fees be collected from them since it is also
they who are to be benefited from the expenditure of the funds derived from it. The
investment in shares of respondent Bank is not alien to the purpose intended because of
the Banks character as a commodity bank for sugar conceived for the industrys growth
and development. Furthermore, of note is the fact that one-half (1/2) or P0.50 per picul, of
the amount levied under P.D. No. 388 is to be utilized for the payment of salaries and
wages of personnel, fringe benefits and allowances of officers and employees of
PHILSUCOM thereby immediately negating the claim that the entire amount levied is in
trust for sugar, producers, planters and millers.
To rule in petitioners favor would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar
industry, and all
_______________
64
Id., pp. 633-634.
487
VOL. 372, DECEMBER 14, 2001 487
Republic vs. COCOFED
its components, stabilization of the domestic market including the foreign market, the
industry being of vital importance to the countrys economy and to national interest.
In the same manner, this Court has also ruled that the oil stabilization funds were public
in character and subject to audit by COA. It ruled in this wise:
Hence, it seems clear that while the funds collected may be referred to as taxes, they are
exacted in the exercise of the police power of the State. Moreover, that the OPSF is a
special fund is plain from the special treatment given it by E.O. 137. It is segregated from
the general fund; and while it is placed in what the law refers to as a trust liability
account, the fund nonetheless remains subject to the scrutiny and review of the COA. The
Court is satisfied that these measures comply with the constitutional description of a
special fund. Indeed, the practice is not without precedent.65
In his Concurring Opinion in Kilosbayan v. Guingona,66Justice Florentino P. Feliciano
explained that the funds raised by the Online Lottery System were also public in nature.
In his words:
x x x. In the case presently before the Court, the funds involved are clearly public in
nature. The funds to be generated by the proposed lottery are to be raised from the
population at large. Should the proposed operation be as successful as its proponents
project, those funds will come from well-nigh every town and barrio of Luzon. The funds
here involved are public in another very real sense: they will belong to the PCSO, a
government owned or controlled corporation and an instrumentality of the government
and are destined for utilization in social development projects which, at least in principle,
are designed to benefit the general public. x x x. The interest of a private citizen in seeing
to it that public funds, from whatever source they may have been derived, go only to the
uses directed and permitted by law is as real and personal and substantial as the interest
of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the
public treasury or otherwise diverted from uses prescribed or allowed by law. It is also
pertinent to note that the more successful the government is in raising revenues by non-
traditional meth-
_______________
65
Osmea v. Orbos, 220 SCRA 703, 711, March 31, 1993, per Narvasa, CJ.
 66
232 SCRA 110,155, May 5, 1994. collections on the CCSF levy should be spent for the benefit of the coconut farmers. And in
respect of the collections on the CIDF levy, P.D. 582 mandatorily requires that the same
488 should be spent exclusively for the establishment, operation and maintenance of a hybrid
coconut seed garden and the distribution, for free, to the coconut farmers of the hybrid
coconut seednuts produced from that seed garden.
488 SUPREME COURT REPORTS ANNOTATED
On the other hand, the laws which impose special levies on specific industries, for
example on the mining industry, sugar industry, timber industry, etc., do not, by their
Republic vs. COCOFED terms, expressly require that the collections

_______________
ods such as PAGCOR operations and privatization measures, the lesser will be the
pressure upon the traditional sources of public revenues, i.e., the pocket books of 67
Ibid., pp. 155-156.
individual taxpayers and importers. 67

68
Exh. 196. This Exhibit is the July 18, 1975 letter of Rolando de la Cuesta, acting
Thus, the coconut levy fundslike the sugar levy and the oil stabilization funds, as well as corporate secretary of the Philippine Coconut Authority, to Finance Secretary Cesar
the monies generated by the On-line Lottery Systemare funds exacted by the State. Virata, submitted as part of the Class Action Omnibus Motion for Respondents
Being enforced contributions, they are prima facie public funds. COCOFED, et al. (which was adopted by Private Respondent Cojuangco), found in Folder
6.
3. Respondents Judicially Admit That
the Levies Are Government Funds. 489

Equally important as the fact that the coconut levy funds were raised through the taxing
and police powers of the State is respondents effective judicial admission that these levies VOL. 372, DECEMBER 14, 2001 489
are government funds. As shown by the attachments to their pleadings, 68 respondents
concede that the Coconut Consumers Stabilization Fund (CCSF) and the Coconut
Investment Development Fund constitute government funds x x x for the benefit of Republic vs. COCOFED
coconut farmers.

Collections on both levies constitute government funds. However, unlike other taxes that on those levies be spent exclusively for the benefit of the industry concerned. And if the
the Government levies and collects such as income tax, tariff and customs duties, etc., the enabling law thus so provide, the fact remains that the governmental agency entrusted
collections on the CCSF and CIDF are, by express provision of the laws imposing them, for with the duty of implementing the purpose for which the levy is imposed is vested with the
a definite purpose, not just for any governmental purpose. As stated above part of the discretionary power to determine when and how the collections should be appropriated.69
4. The COA Audit Shows the
72
Art. IX-D, 2(1).
Public Nature of the Funds.
490
Under COA Office Order No. 86-9470 dated April 15, 1986, the COA reviewed the
70

expenditure and use of the coconut levies allocated for the acquisition of the UCPB. The
audit was aimed at ascertaining whether these were utilized for the purpose for which 490 SUPREME COURT REPORTS ANNOTATED
they had been intended.71Under the 1987 Constitution, the powers of the COA are as
follows:
Republic vs. COCOFED
The Commission on Audit shall have the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses
of funds and property, owned or held in trust by, or pertaining to, the Government, or any is in the nature of a tax and, therefore, x x x public funds that are subject to government
of its subdivisions, agencies, or instrumentalities x x x.72 administration and disposition.73

Because these funds have been subjected to COA audit, there can be no other conclusion Furthermore, the executive branch treats the coconut levies as public funds. Thus,
than, that they are prima facie public in character. Executive Order No. 277, issued on September 24, 1995, directed the mode of treatment,
utilization, administration and management of the coconut levy funds. It provided as
5. The BIR Has Pronounced That the follows:
Coconut Levy Funds Are Taxes.
(a) The coconut levy funds, which include all income, interests, proceeds or profits derived
In response to a query posed by the administrator of the Philippine Coconut Authority therefrom, as well as all assets, properties and shares of stocks procured or obtained with
regarding the character of the coconut levy funds, the Bureau of Internal Revenue has the use of such funds, shall be treated, utilized, administered and managed as public
affirmed that these funds are public in character. It held as follows: [T]he coconut levy is funds consistent with the uses and purposes under the laws which constituted them and
not a public trust fund for the benefit of the coconut farmers, but the development priorities of the government, including the governments coconut
productivity, rehabilitation, research extension, farmers organizations, and market
_______________ promotions programs, which are designed to advance the development of the coconut
industry and the welfare of the coconut farmers.74 (Italics supplied)
69
Ibid.
Doctrinally, acts of the executive branch are prima facie valid and binding, unless declared
70
Attachment M of the Memorandum for Petitioner. unconstitutional or contrary to law.

71
Ibid. 6. Laws Governing Coconut Levies
Recognize Their Public Nature.
Finally and tellingly, the very laws governing the coconut levies recognize their public The phrase in bold facewhich is the private fund of the coconut farmerswas crossed out
character. Thus, the third Whereas clause of PD No. 276 treats them as special funds for a and duly initialed by its author, former President Marcos. This deletion, clearly visible in
specific public purpose. Furthermore, PD No. 711 transferred to the general funds of the Attachment C of petitioners Memorandum,75was a categorical legislative intent to regard
State all existing special and fiduciary funds including the CCSF. On the other hand, PD the CCSF as public, not private, funds.
No. 1234 specifically declared the CCSF as a special fund for a special purpose, which
should be treated as a special account in the National Treasury. Having Been Acquired With Public
Funds, UCPB Shares Belong, Prima
Moreover, even President Marcos himself, as the sole legislative/executive authority Facie, to the Government
during the martial law years, struck off the phrase which is a private fund of the coconut
farmers from the Having shown that the coconut levy funds are not only affected with public interest, but
are in fact prima facie public funds, this Court believes that the government should be
_______________ allowed to vote the questioned shares, because they belong to it as the prima
facie beneficial and true owner.
73
BIR Ruling No. 354-92, December 15, 1992.
As stated at the beginning, voting is an act of dominion that should be exercised by the
74
Vital Legal Documents, pp. 329-330. share owner. One of the recognized rights of an owner is the right to vote at meetings of
the corporation. The right to vote is classified as the right to control. 76 Voting rights may be
491 for the purpose of, among others, electing or removing directors, amending a charter, or
making or amending bylaws. 77Because the subject UCPB shares were acquired with
government funds, the government becomes their prima facie beneficial and true owner.
VOL. 372, DECEMBER 14, 2001 491
_______________

Republic vs. COCOFED 75

EO No. 504 directed the COA to make an examination into the x x x Coconut
Consumers Stabilization Fund Levy.

original copy of Executive Order No. 504 dated May 31, 1978, and we quote: 76
Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1996 ed., p. 535.
WHEREAS, by means of the Coconut Consumers Stabilization Fund (CCSF), which is
the private fund of the coconut farmers (deleted), essential coconut-based products are 77
Ibid.
made available to household consumers at socialized prices. (Emphasis supplied)
492
 78
Vitug, Compendium of Civil Law and Jurisprudence, 1993 ed., p. 283.
492 SUPREME COURT REPORTS ANNOTATED
79
Ibid.

Republic vs. COCOFED

Ownership includes the right to enjoy, dispose of, exclude and recover a thing without
limitations other than those established by law or by the owner. Ownership has been
78
aptly described as the most comprehensive of all real rights. And the right to vote shares
79
is a mere incident of ownership. In the present case, the government has been shown to be
the prima facie owner of the funds used to purchase the shares. Hence, it should be
allowed the rights and privileges flowing from such fact.
And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should
continue to vote those shares until and unless private respondents are able to
demonstrate, in the main cases pending before the Sandiganbayan, that they [the
sequestered UCPB shares] have legitimately become private.
80
SECTION 1. Petition for certiorariWhen any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction,
or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require.
493
VOL. 372, DECEMBER 14, 2001 493

Procedural and Incidental Issues: Republic vs. COCOFED

Grave Abuse of Discretion,
Improper Arguments
and arbitrarily depriving the government of its right to vote sequestered shares purchased
and Intervenors Relief
with coconut levy funds which are prima facie public funds.
Procedurally, respondents argue that petitioner has failed to demonstrate that the
Sandiganbayan committed grave abuse of discretion, a demonstration required in every Indeed, grave abuse of discretion may arise when a lower court or tribunal violates or
petition under Rule 65. 80 contravenes the Constitution, the law or existing jurisprudence. In one case, 81 this Court
ruled that the lower courts resolution was tantamount to overruling a judicial
We disagree. We hold that the Sandiganbayan gravely abused its discretion when it pronouncement of the highest Court x x x and unmistakably a very grave abuse of
contravened the rulings of this Court in Baseco and Cojuangco-Roxasthereby unlawfully, discretion.82
capriciously

_______________
The Public Character of
Shares Is a Valid Issue 494 SUPREME COURT REPORTS ANNOTATED

Private respondents also contend that the public nature of the coconut levy funds was not
raised as an issue before the Sandiganbayan. Hence, it could not be taken up before this Republic vs. COCOFED
Court.

Again we disagree. By ruling that the two-tiered test should be applied in evaluating
private respondents claim of exercising voting rights over the sequestered shares, the assigned depend.83
Sandiganbayan effectively held that the subject assets were private in character. Thus, to
meet this issue, the Office of the Solicitor General countered that the shares were not
private in character, and that quite the contrary, they were and are public in nature
because they were acquired with coco levy funds which are public in character. In short,
the main issue of who may vote the shares cannot be determined without passing upon the
question of the public/private character of the shares and the funds used to acquire them.
The latter issue, although not specifically raised in the Court a quo, should still be resolved
in order to fully adjudicate the main issue.
matters upon which the determination of the questions raised by the errors properly
Therefore, where the issues already raised also rest on other issues not specifically
presented as long as the latter issues bear relevance and close relation to the former and
as long as they arise from matters on record, the Court has the authority to include them
in its discussion of the controversy as well as to pass upon them.84
No Positive Relief
For Intervenors

Indeed, this Court has the authority to waive the lack of proper assignment of errors Intervenors anchor their interest in this case on an alleged right that they are trying to
if the unassigned errors closely relate to errors properly pinpointed out or if the enforce in another Sandiganbayan case docketed as SB Case No. 0187.85 In that case, they
unassigned errors refer to seek the recovery of the subject UCPB shares from herein private respondents and the
corporations controlled by them. Therefore, the rights sought to be protected and the
_______________ reliefs prayed for by intervenors are still being litigated in the said case. The purported
rights they are invoking are mere expectancies wholly dependent on the outcome of that
81
Cuison v. Court of Appeals, 289 SCRA 161, April 15, 1998, per case in the Sandiganbayan.
Panganiban, J., citing People v. Court of Appeals, 101 SCRA 450, 465, per Melencio-
Herrera, J. Clearly, we cannot rule on intervenors alleged right to vote at this time and in this
case. That right is dependent upon the Sandiganbayans resolution of their action for the
82
Ibid., p. 173. recovery of said sequestered shares. Given the patent fact that intervenors are not
registered stockholders of UCPB as of the moment, their asserted rights cannot be ruled
494 upon in the present proceedings. Hence, no positive relief can be given them now, except
insofar as they join petitioner in barring private respondents from voting the subject
shares.
_______________ We also lay down the caveat that, in declaring the coco levy funds to be prima
facie public in character, we are not ruling in any final manner on their classification
83
Diamante v. CA, 206 SCRA 52, 63-64, February 7, 1992, per Davide, Jr., J. (now CJ), whether they are general or trust or special fundssince such classification is not at issue
citing Insular Life Assurance Co. Ltd. Employees AssociationNATU v. Insular Life here. Suffice it to say that the public nature of the coco levy funds is decreed by the Court
Assurance Co. Ltd., 76 SCRA 50, 61-62, March 10, 1997, per Castro, CJ. only for the purpose of determining the right to vote the shares, pending the final outcome
of the said civil cases.
84
Ibid.
Neither are we resolving in the present case the question of whether the shares held by
85
Rollo, pp. 779-797. Respondent Cojuangco are, as he claims, the result of private enterprise. This factual
matter should also be taken up in the final decision in the cited cases that are pending in
495 the court a quo. Again, suffice it to say that the only issue settled here is the right of PCGG
to vote the sequestered shares, pending the final outcome of said cases.

VOL. 372, DECEMBER 14, 2001 495 This matter involving the coconut levy funds and the sequestered UCPB shares has
been straddling the courts for about 15 years. What we are discussing in the present
Petition, we stress, is just an incident of the main cases which are pending in the antigraft
Republic vs. COCOFED courtthe cases for the reconveyance, reversion and restitution to the State of these
UCPB shares.
Epilogue
496
In sum, we hold that the Sandiganbayan committed grave abuse of discretion in grossly
contradicting and effectively reversing existing jurisprudence, and in depriving the
government of its right to vote the sequestered UCPB shares which are prima facie public 496 SUPREME COURT REPORTS ANNOTATED
in character.

In making tins ruling, we are in no way preempting the proceedings the
Sandiganbayan may conduct or the final judgment it may promulgate in Civil Case Nos.
0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and should not
bar the anti-graft court from making a final ruling, after proper trial and hearing, on the
issues and prayers in the said civil cases, particularly in reference to the ownership of the
subject shares.
Republic vs. COCOFED
The resolution of the main cases has indeed been long overdue. Every effort, both by the
parties and the Sandiganbayan, should be exerted to finally settle this controversy.
WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET ASIDE.
The PCGG shall continue voting the sequestered shares until Sandiganbayan Civil Case
Nos. 0033-A, 0033-B and 0033-F are finally and completely resolved. Furthermore, the
Sandiganbayan is ORDERED to decide with finality the aforesaid civil cases within a
period of six (6) months from notice. It shall report to this Court on the progress of the said
cases every three (3) months, on pain of contempt. The Petition in Intervention is
DISMISSED inasmuch as the reliefs prayed for are not covered by the main issues in this Republic vs. COCOFED
case. No costs.
DISSENTING OPINION
SO ORDERED.
MELO, J.:
Davide, Jr. (C.J.), Bellosillo, Mendoza, Quisumbing, De Leon, Jr. and Carpio,
JJ., concur. I respectfully dissent from the majority opinion, penned by Mr. Justice Panganiban,
upholding the right of the PCGG to vote the sequestered UCPB shares of stock.
Melo, J., Please see dissenting opinion.
The petition sprung from the following factual antecedents:
Puno, J., I join the Separate Opinion of J. Vitug.
In 1986 and 1987, numerous business enterprises, entities, and pieces of property, real
Vitug, J., Please see Separate Opinion. and personal, were sequestered or taken over by the PCGG on the ground that these were
ill-gotten property of former President Marcos, his family, and close associates. Among
Kapunan, J., Concur with the dissenting opinion of Justice Melo. these sequestered property were shares of stock in the United Coconut Planters Bank
(UCPB) registered in the name of 1,405,366 coconut farmers and of the so-called Coconut
Pardo, J., I join the result of the dissent. Industry Investment Fund (CIIF) companies.

Buena, J. This is to certify that Justice Buena voted with the majority in granting In connection with the sequestration and take-over of said UCPB shares of stock, the
the petition. Davide, Jr., C.J. PCGG, on July 31, 1987, instituted an action for reconveyance, reversion, accounting,
restitution, and damages against Eduardo Cojuangco, Jr. and sixty others with
Ynares-Santiago, J., I concur with the dissenting opinion of J. Melo. the Sandiganbayan, docketed therein as Case No. 0033.

Sandoval-Gutierrez, J., I join Justice Melo in his Dissent. On November 19, 1990, and during the pendency of the case,
the Sandiganbayan issued a resolution lifting the sequestration of the UCPB shares of
497 stock registered in the name of 1 million coconut farmers and the CIIF companies, on the
ground that these entities were not impleaded by the PCGG as party-defendants within
the 6-month periodending on August 2, 1987fixed by the Constitution, having merely
VOL. 372, DECEMBER 14, 2001 497 been listed in an annex appended to the complaint in Case No. 0033.
 This Resolution was challenged by the PCGG in a petition for certiorari filed with the IN VIEW OF THE FOREGOING, the Court recalls and sets aside the Resolution dated
Court, docketed herein as G.R. No. 96073. Pending resolution of the case, March 3, 1992 and, pending resolution on the merits of the action at bar, and until further
the Sandiganbayan, on March 4, 1991, ordered the holding of elections for members of the orders, suspends the effectivity of the lifting of the sequestration decreed by
Board of Directors of UCPB. Opposing the holding of elections, PCGG applied for, and was the Sandiganbayan on November 15, 1990, and directs the restoration of the status quo
granted by the Court a restraining order enjoining the holding of a stockholders meeting ante, so as to allow the PCGG to continue voting the shares of stock under sequestration at
for the election of the Board of Directors of UCPB. the meetings of the United Coconut Planters Bank.

498 IT IS SO ORDERED.

498 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
However, on March 3, 1992, acting on a petition filed by Eduardo Cojuangco, Jr., the Court
lifted the restraining order it had issued and ordered instead that UCPB elect its Board of
Directors. Furthermore, the Court allowed the sequestered shares of UCPB to be voted by
the registered owners thereof. The shareholders victory would, however, be fleeting. On
February 17, 1993, acting on the Solicitor Generals Clarification/Manifestation with
Motion, the Court issued a subsequent Resolution declaring that the right of the
petitioners to vote stock in their names at the meetings of the UCPB cannot be conceded at
this time. That right still has to be established by them before the Sandiganbayan. Until
that is done, they cannot be deemed legitimate owners of UCPB stock and cannot be
accorded the right to vote them. Accordingly, the dispositive portion of said Resolution
provided:
(Rollo, p. 73.)
Two years thereafter, on January 23, 1995, the Court rendered a decision in G.R. No.
96073 (240 SCRA 376) nullifying and setting aside the November 19, 1990 Resolution of
the Sandiganbayan lifting the sequestration of the shares of stock of UCPB registered in
the name of 1 million coconut farmers and of the CIIF companies on the ground that as
regards actions in which the complaints seek recovery of defendants shares of stock in
existing corporations (e.g., San Miguel Corporation, Benguet Corporation, Meralco, etc.)
because allegedly purchased with misappropriated public funds, in breach of fiduciary
duty, or otherwise under illicit or anomalous conditions, the impleading of said firms
would clearly appear to be unnecessary since, if warranted by the evidence, judgments
could be handed down against the defendants divesting them of their ownership of said
stock and imposing upon
499
VOL. 372, DECEMBER 14, 2001 499

Republic vs. COCOFED

them the obligation of surrendering said stock to the Government. It may be noted that in a class action omnibus motion dated February 23, 2001, seeking to enjoin the PCGG from
said decision, the Court did not reaffirm and maintain its Resolution dated February 17, voting in the announced stockholders meeting of March 6, 2001 (a) the UCPB shares of
1993. stock registered in the names of the more than one million coconut farmers; (b) the San
Miguel Corporation (SMC) shares registered in the names of the 14 CIIF Holding
A month thereafter, the PCGG, pursuant to the order of Companies and beneficially owned by COCO-
the Sandiganbayan, subdivided Case No. 0033 into eight complaints, docketed as Cases
No. 0033-A to 0033-H. 500

Six years thereafter, on February 13, 2001, the Board of Directors of UCPB, received a
letter from the ACCRA Law Office. Written on behalf of the Philippine Coconut Producers 500 SUPREME COURT REPORTS ANNOTATED
Federation (COCOFED), et al. and the more than one million coconut farmers who are
registered stockholders of UCPB, the letter demanded of UCPB, which had not held any
stockholders meeting since 1986, to call such a meeting on March 6, 2001, at 3 oclock in Republic vs. COCOFED
the afternoon, for the purpose of, among other things, electing the Board of Directors. In
the same letter, COCOFED also requested information as to whether UCPB had
investigated and reported to the Bangko Sentral ng Pilipinas the large scale estafa FED; and (c) the shares of stock registered in the name of PCGG itself.
allegedly committed by the previous members of the board and other responsible officials
of UCPB. Because of the motions extreme urgency, and as prayed for by the movants themselves,
the Sandiganbayan (1st Division) heard the motion on February 28, 2001. Lorenzo V. Tan,
On February 26, 2001, the UCPB Board of Directors, by way of response to the President of UCPB, was present during this hearing and in a manifestation, he asked to be
aforementioned letter, passed and approved a resolution calling for a stockholders meeting heard therein.
of the bank on March 6, 2001 at 3 oclock in the afternoon, the date fixed in the banks By-
Laws. The Sandiganbayan noted the manifestation of Mr. Lorenzo V. Tan, as follows:

In anticipation of the announced stockholders meeting, COCOFED, et al. and At a certain state of the argument on this matter, the UCPB sought to be heard in
Ballares, et al., filed, in the following Sandiganbayan cases: executive session upon the alleged significant matters of fact to be conveyed by the UCPB
to this Court. Duly warned by the engaged counsel for the UCPB, Atty. Roberto San Juan,
Civil Case No. 0033-A; the Court excluded all private individuals and all counsel not related to these cases so that
whatever matters of a restricted or confidential character of significance to banks in the
Civil Case No. 0033-B; and business community, and of the UCPB in particular, could be heard in confidence.

Civil Case No. 0033-F, The banks President in the person of Mr. Lorenzo V. Tan was heard.
 While the matters he put forth might be relevant to the bank, the entire thrust of the
clarification made by the president was the need to dispose of this case expeditiously so
that question of ownership of the shares and therefore of the bank, would be resolved with
finality; this apparently is a desirable element in the business world and in the market in
which banks operate, as much for drawing investments as for acceptability of other
transactions and products of banks in the market. It must be stated that the matter,
while important in itself, is of minor relevance to the issue at bar.
(p. 3, Order dated February 28, 2001.)
Following the conclusion of the hearing, the Sandiganbayan issued in open court on the
same dateFebruary 28, 2001the Order authorizing COCOFED, et al., Ballares, et al.
and Eduardo Cojuangco, Jr., et al. and all other registered stockholders of UCPB to vote
their shares of stock and themselves to be voted upon at the UCPB announced
stockholders meeting of March 6, 2001 or in any subsequent continuation or resetting
thereof, and to perform such acts as will normally follow in the exercise of their rights as
registered stockholders. More specifically, the pertinent portion of the Order declared:
501
VOL. 372, DECEMBER 14, 2001 501
Republic vs. COCOFED
In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as Eduardo
Cojuangco, et al. who were acknowledged to be registered stockholders of the UCPB are
authorized, as are all other registered stockholders of the United Coconut Planters Bank,
until further orders from this Court, to exercise their rights to vote their shares of stock
and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at the
scheduled Stockholders Meeting on May 6, 2001 or on any subsequent continuation or
resetting thereof, and to perform such acts as will normally follow in the exercise of these
rights as registered stockholders.
On March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction enjoining
PCGG or any person acting in its behalf from voting the sequestered shares of UCPB at its
scheduled stockholders meeting of March 6, 2001, or at anytime at which the meeting may
be continued or reset until otherwise ordered by the same court. In the same writ,
the Sandiganbayan also directed the chairman and the secretary of the stockholders
meeting of UCPB on the above scheduled date and other dates to which the meeting may
be reset, to acknowledge the right of Eduardo M. Cojuangco, Jr., et al. to vote the shares of
stock registered in their names on all matters that may be properly considered before said
stockholders meeting.
Such was the state of things when, on March 5, 2001, herein petitioner Republic of the
Philippines, represented by the PCGG, filed the instant petition premised on the fact that
at all times prior to the questioned order, PCGG had been voting the sequestered UCPB
shares registered in the names of private respondents under the authority of the Courts
pronouncement in G.R. No. 96073 and 104850. PCGG claimed that the right granted to it
to vote the sequestered shares was the status quo and for this status quo to be disturbed,
there must be a clear showing that this Court has reversed or, at the very least, modified
its prior pronouncements on the matter. Since there was none, petitioner contended that
respondent Sandiganbayan gravely abused its discretion, tantamount to lack or excess of
jurisdiction, when it granted the right to vote said sequestered shares to private
respondents COCOFED, Ballares, and Cojuangco, Jr., et al. PCGG likewise insisted that
the subject sequestered shares were purchased with coconut levy funds, funds declared
public in character, and that the
502
502 SUPREME COURT REPORTS ANNOTATED

Republic vs. COCOFED
Resolution issued by this Court dated February 13, 1993 in G.R. No. 96073 remains
effective.
In its Resolution of April 17, 2001, the Court defined the issue to be resolved in the
instant case in this fashion:
Did the Sandiganbayan commit grave abuse of discretion when it issued the disputed
order allowing respondents to vote UCPB shares of stock registered in the name of
respondents?
While the majority declares that, indeed, the Sandiganbayan acted with grave abuse of
discretion in allowing respondents to vote their UCPB shares of stock registered in their
names, I respectfully submit that it did not.
In determining whether there has been grave abuse of discretion, under Rule 65, the
unyielding yardstick is whether the abuse of discretion is so patent and gross as to
amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by
law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary
and despotic manner by reason of passion or hostility (Sinon vs. Civil Service
Commission, 215 SCRA 410 [1992]; Planters Products, Inc. vs. Court of Appeals, 193 SCRA
563 [1991]; Litton Mills, Inc. vs. Galleon Trader, Inc., 163 SCRA 489 [1988]; Esguerra vs.
Court of Appeals,267 SCRA 380 [1997]; Republic vs. Villarama, 278 SCRA 736 [1997]).
To discharge its burden of showing that the Sandiganbayan acted with grave abuse of
discretion, the PCGG relies principally on the Courts February 16, 1993 Resolution
in Republic vs. Sandiganbayan, et al., G.R. No. 96073 where we ordered the restoration of
the status quo ante so as to allow PCGG to continue voting the shares of stock under
sequestration at the meetings of the UCPB.
As correctly pointed out by respondents, the February 16, 1993 Resolution, is in the
nature of a temporary restraining order, having been issued to recall the March 3, 1992
Resolution lifting of the temporary restraining order previously issued by the Court on
March 5, 1991. In other words, the subject resolution merely reinstated the temporary
restraining order which the Court had earlier issued enjoining private respondents from
voting the sequestered shares registered in their names. Being in the nature of a re-
503
VOL. 372, DECEMBER 14, 2001 503
Republic vs. COCOFED
straining order, the same is interlocutory in character and it became functus oficio when
this Court decided the PCGG Sequestration Cases, including G.R. No. 96073, on January
23, 1995. A restraining order is but a provisional remedy to which parties may resort for
the preservation or protection of their rights or interests, and for no other purpose, during
the pendency of the principal action (Commissioner of Customs vs. Cloribel, 19 SCRA
234 [1967]). Moreover, the Resolution of February 16, 1993 explicitly provided that it shall
be effective only pending resolution on the merits of the action at bar. G.R. No. 96073, the
action at bar referred to, was decided on the merits on January 23, 1995. The dispositive
portion of the decision in the aforementioned PCGG Sequestration Cases, including G.R.
No. 96073, provided:
WHEREFORE, judgment is hereby rendered:
A. NULLIFYING AND SETTING ASIDE:
xxx xxx xxx
 B. CONFIRMING AND MAINTAINING the temporary restraining orders issued
in G.R. Nos. 104883, 105170, 105206, 105808, 105809, 107233, and 107908, which shall
continue in force and effect during the continuation of the proceedings in the
corresponding civil actions in the Sandiganbayan, subject to the latters power to modify or
terminate the same in the exercise of its sound discretion in light of such evidence as may
be subsequently adduced; and
C. DISMISSING the petitions in G.R. Nos. 107908 and 109592, for lack of merit
(Republic v. Sandiganbayan [First Division, 240 SCRA 376 [1995], at pp. 474-476.)
Even a casual study of the above dispositive portion would show that the Courts
Resolution dated February 16, 1993 is not among the temporary restraining orders
confirmed and maintained in the January 23, 1995 decision.
In fact, in Calpo vs. Sandiganbayan (Third Division) (265 SCRA 380 [1996]), the Court
clarified that the PCGG Sequestration Cases, including G.R. No. 96073, did not involve
the issue of PCGGs right to vote sequestered corporate shares. The Court held thus:
504
504 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
The crucial question in The PCGG Sequestration Cases, capsulized by the Court in its
resolution of 23 January 1995, is this:
DOES INCLUSION IN THE COMPLAINTS FILED BY THE PCGG BEFORE THE
SANDIGANBAYAN OF SPECIFIC ALLEGATIONS OF CORPORATIONS BEING
DUMMIES OR UNDER THE CONTROL OF ONE OR ANOTHER OF THE
DEFENDANTS NAMED THEREIN AND USED AS INSTRUMENTS FOR
ACQUISITION, OR AS BEING DEPOSITARIES OR PRODUCTS, OF ILLGOTTEN
WEALTH; OR THE ANNEXING TO SAID COMPLAINTS OF A LIST OF SAID FIRMS,
BUT WITHOUT ACTUALLY IMPLEADING THEM AS DEFENDANTS, SATISFY THE
CONSTITUTIONAL REQUIREMENT THAT IN ORDER TO MAINTAIN A SEIZURE
EFFECTED IN ACCORDANCE WITH EXECUTIVE ORDER NO. 1, s. 1986, THE
CORRESPONDING JUDICIAL ACTION OR PROCEEDING SHOULD BE FILED
WITHIN THE SIX-MONTH PERIOD PRESCRIBED IN SECTION 26, ARTICLE XVIII,
OF THE (1987) CONSTITUTION?
xxx xxx xxx
Neither the qualifications of the PCGG nominees to sit in the SMC Board of
Directors nor the right of the PCGG to vote the sequestered corporate shares have been
mentioned, even in passing, by the Court. In fact, the promulgation of the Courts
resolution in the PCGG sequestration cases should now pave the way for the cognizance by
the Sandiganbayan of the quo warranto proceedings.
(pp. 386-387; italics supplied.)
The issue being limited to the propriety of impleading the firms and corporations subject of
sequestration, the Courts failure to confirm and maintain the February 16, 1993
Resolution only means that it became functus oficio upon resolution of the main action on
January 23, 1995. The PCGG cannot, therefore, claim the continuing effectivity of said
Resolution so as to authorize it to continue voting the sequestered UCPB shares.
The majority opinion, however, claims that PCGGs right to vote said shares remains
on the ground that the jurisprudential bases for the Courts Resolution dated February 16,
1993 still remain. In Buayan Cattle Co. vs. Quintillan (128 SCRA 276 [1984]), the Court
categorically declared that a complaint for injunctive relief must be construed strictly
against the pleader. Even if the jurisprudential bases for the Resolution are still extant,
the fact that said Resolu-
 505 Significantly, even the Resolution in dispute recognizes that it is the Sandiganbayan which
should determine who has the right to vote said shares, the same stating that the right of
the petitioners to vote stock in their names at the meetings of the UCPB cannot be
VOL. 372, DECEMBER 14, 2001 505 conceded at this time. That right still has to be established by them before the
Sandiganbayan.

Republic vs. COCOFED
tion was not confirmed and maintained by the Court after it decided the main action
militates against its continuing effectivity, otherwise a temporary restraining order would
no longer be temporary.
It must also be pointed out that even the temporary restraining orders confirmed and
maintained by the Court in the Sequestration Cases were made subject to
the Sandiganbayans powers to modify or terminate the same in the exercise of its sound
discretion, thereby reinforcing the conclusion that the February 16, 1993 Resolution
relied upon by PCGG (which was not confirmed and maintained by the Court) was, in
any event, subject to modification or termination by the Sandiganbayan.

With the February 16, 1993 Resolution having lost effectivity, the question as to who 506
could then vote the sequestered shares should then revert to the Sandiganbayan, in
accordance with our ruling in Philippine Coconut Producers Federation, Inc. (COCOFED)
vs. Presidential Commission on Good Government (178 SCRA 236 [1989]), where we 506 SUPREME COURT REPORTS ANNOTATED
directed:

3. The incidents concerning the voting of the sequestered shares, the COCOFED elections, Republic vs. COCOFED
and the replacement of directors, being matters incidental to the sequestration, should be
addressed to the Sandiganbayan in accordance with the doctrine laid down in PCGG vs.
Pea, 159 SCRA 556, reiterated in G.R. No. 74910, Andres Soriano III vs. Hon. Manuel And in the exercise of its power to determine who should vote the sequestered shares,
Yuzon; G.R. No. 75075, Eduardo Cojuangco, Jr. vs. Securities and Exchange the Sandiganbayan must be guided by the principles first enunciated in BASECO vs.
Commission; G.R. No. 75094, Clifton Ganay vs. Presidential Commission on Good PCGG (150 SCRA 181 [1987]), and further elucidated by the Court in Cojuangco, Jr. vs.
Government; G.R. No. 76397, Board of Directors of San Miguel Corporation vs. Securities Roxas (195 SCRA 797 [1991]), where we stated that:
and Exchange Commission; G.R. No. 79459, Eduardo Cojuangco, Jr. vs. Hon. Pedro N.
Laggui;G.R. No. 79520, Neptunia Corporation, Ltd. vs. Presidential Commission on Good Nothing is more settled than the ruling of this Court in BASECO vs. PCGG, that the
Government, August 10, 1988. PCGG cannot exercise acts of dominion over property sequestered. It may not vote
sequestered shares of stock or elect the members of the board of directors of the corporation
(p. 253.) concerned

1. a.PCGG May Not Exercise Acts of Ownership

 One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally taken over. As already
stressed with no little insistence, the act of sequestration, freezing or provisional takeover
of property does not import or bring about a divestment of title over said property; does not
make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the situations contemplated
by the sequestration rules where, unlike cases of receivership, for example, no court
exercises effective supervision or can upon due application and hearing, grant authority
for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question shall entail
the least possible interference with business operations or activities so that, in the event
that the accusation of the business enterprise being ill-gotten be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time
of sequestration.
1. b.PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or
business sequestered provisionally taken over, much like a court-appointed receiver, such as
to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition
enjoin or restrain any actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make ineffectual its efforts to
carry out its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the
507
VOL. 372, DECEMBER 14, 2001 507
Republic vs. COCOFED
assistance of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally, (i.e., going concerns, businesses in current operation), as
in the case of sequestered objects, its essential role, as already discussed, is that of
conservator, watchdog or overseer, it is not that of manager, or innovator, much less an
owner.
xxx xxx xxx
1. d.Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the
PCGG may properly exercise the prerogative to vote sequestered stock of corporations,
granted to it by the President of the Philippines through a memorandum dated June 26,
1986. That memorandum authorizes the PCGG, pending the outcome of proceedings to
determine the ownership of x x (sequestered) shares of stock, to vote such shares of stock
as it may have sequestered in corporations at all stockholders meetings called for the
election of directors, declaration of dividends, amendment of the Articles of Incorporation,
etc. The Memorandum should be construed in such a manner as to be consistent with, and
not contradictory of the Executive Orders earlier promulgated on the same matter. There
should be no exercise of the right to vote simply because the right exists, or because the
stocks sequestered constitute the controlling or a substantial part of the corporate voting
power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program or practice of the corporation
except for demonstrably weighty and defensible grounds, and always in the context of the
stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or
undue disposal of the corporate assets. Directors are not to be voted out simply because the
power to do so exists. Substitution of directors is not to be done without reason or rhyme,
should indeed be shunned if at all possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as to
assure that the replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out
of office and elect others in their stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; this Court
declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents calling and holding of a stockholders meeting for the election of directors as
authorized by the Memorandum of the President x x (to the PCGG) dated June 26, 1986,
particularly, where as in
508
508 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
this case, the government can, through its designated directors, properly exercise control
and management over what appear to be properties and assets owned and belonging to the
government itself and over which the persons who appear in this case on behalf of
BASECO have failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the
BASECO Board in the management of the companys affairs should be henceforth be
guided and governed by the norms herein laid down. They should never for a moment
allow themselves to forget that they are conservators, not owners of the business; they are
fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the
premises, required.
xxx xxx xxx
The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict
ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The only conceivable exception
is in a case of a takeover of a business belonging to the government or whose capitalization
comes from public funds, but which landed in private hands as in BASECO.
The constitutional right against deprivation of life, liberty and property without due
process of law is so well-known and too precious so that the hand of the PCGG must be
stayed in its indiscriminate takeover of and voting of shares allegedly ill-gotten in these
cases. It is only after appropriate judicial proceedings when a clear determination is made
that said shares are truly ill-gotten when such a takeover and exercise of acts of strict
ownership by the PCGG are justified.
(pp. 808-813.)
These principles were subsequently refined in the cases of Eduardo Cojuangco, Jr. vs.
Calpo (G.R. No. 115352, June 10, 1997) and PCGG vs. Eduardo Cojuangco, Jr. (G.R. No.
133197, January 27, 1999) where we held that:
The issue of whether PCGG may vote the sequestered shares in SMC necessitates a
determination of at least two factual matters:
1. 1.whether there is prima facie evidence showing that the said shares are ill-gotten
and thus belong to the State; and
 2. 2.whether there is an imminent danger of dissipation thus necessitating their In fine, the majority points out that since the instant case involves shares that were
continued sequestration and voting by the PCGG while the main issue pends acquired with public funds which somehow landed in private hands, there is no more need
with the Sandiganbayan. to apply the two-tiered test, the right to vote said shares automatically vesting in the
government, acting through the PCGG.
509
As stated earlier, the Court, in Cojuangco vs. Roxas, unequivocally declared that [t]he
rule in this jurisdiction is, therefore, clear. The PCGG cannot perform acts of strict
VOL. 372, DECEMBER 14, 2001 509 ownership of sequestered property. It is a mere conservator. It may not vote the shares in a
corporation and elect the members of the board of directors. The only conceivable
exception is in a case of a takeover of a business belonging to the government or whose
Republic vs. COCOFED capitalization comes from public funds, but which landed in private hands as in BASECO.

Thus, it is well-settled that the only instance when PCGG can vote the shares in a
The foregoing two points require presentation of evidence which can only be done before sequestered corporation is in case of a takeover of a business belonging to the government
the Sandiganbayan, it being settled that the Supreme Court is not a trier of facts. or whose capitalization comes from public funds, but which landed in private hands. The
foregoing principle, as stated in the majority opinion, has been reiterated in many
(p. 2, Resolution, June 10, 1997.) subsequent cases, most recently in Antiporda vs. Sandiganbayan (G.R. No. 116941, May
31, 2001).
However, the majority opinion holds that the two-tiered test above-enunciated finds no
application to the case of a take-over of a business belonging to government or whose 510
capitalization comes from public funds, but which landed in private hands,
citing Cojuangco vs. Roxas and BASECO as authority therefor. The majority opinion
asserts that the government is granted authority to vote sequestered shares: 510 SUPREME COURT REPORTS ANNOTATED

1. 1.Where government shares are taken over by private persons or entities

who/which registered them in their own names; and
Republic vs. COCOFED

2. 2.Where the capitalization or shares that were acquired with public funds
somehow landed in private hands.
On the other hand, the two-tiered test, first enunciated in Cojuangco vs. Calpo and
subsequently in PCGG vs. Cojuangco, Jr., provides the guidelines or requisites to be
fulfilled in determining whether or not PCGG can vote shares in a sequestered
corporation. Since PCGG can vote the shares in a sequestered corporation only in case of a
takeover of a business belonging to the government or whose capitalization comes from
public funds, but which landed in private hands, plainly the two-tiered test is applicable
only in this instance. In other words, the two-tiered test is designed precisely to verify
whether or not the sequestered corporation is a business belonging to the government or
whose capitalization comes from public funds, but which landed in private hands! Thus, I
submit that the Sandiganbayan did not err when it applied the two-tiered test in
disallowing the PCGG to vote the sequestered shares.
In authorizing COCOFED, Ballares, and Eduardo Cojuangco, Jr. to exercise their right
to vote their shares of stock, the Sandiganbayan stated:
Jurisprudence, from as far back as the leading case of Baseco (150 SCRA 181), has clearly
defined the functions and authority of the PCGG in relation to sequestered property. Be it
noted by way of footnote that government agencies as well as government officials, do not
have rights in the exercise of the functions of the office. They have only duties to perform
and authority by means of which they may comply with those duties under the law.
In this instance, the issue is whether or not the authority of the PCGG exists to remain
in control of the voting rights of sequestered shares of stock in general, and whether or not
the sequestered shares of stock in the UCPB in particular may be voted by it as part of its
functions as sequestor of these shares of stock; corollarily, may the moving stockholders
exercise of their proprietary rights over the shares of stock, save for the limitations of free
disposal, until judgment shall have been rendered against them thereon.
It may be stated that jurisprudence has evolved from certain categorical positions
originally enunciated to more refinements as time and events demonstrated to be
appropriate. Let it also be noted that jurisprudence has not reversed itself; rather,
jurisprudence has re-stated the rules as the circumstances and the facts presented before
the courts had required in order to put in proper perspective the earlier assertions of
jurisprudence.
511
VOL. 372, DECEMBER 14, 2001 511
Republic vs. COCOFED
In this light, the Court is faced now with the question: Who may vote sequestered shares of
stock in general, and who may vote them in the particular instance of the UCPB shares of
stock at its scheduled Stockholders Meeting on March 5, 2001?
xxx xxx xxx
In the light of all of the above, the Court submits itself to jurisprudence and with the
statements of the Supreme Court in G.R. No. 115352 entitled Enrique Cojuangco, Jr., et
al. vs. Jaime Calpo, et al. dated June 10, 1997, as well as the resolution of the Supreme
Court promulgated on January 27, 1999 in the case of PCGG vs. Eduardo Cojuangco, Jr.,
et al., G.R. No. 13319 which included the Sandiganbayan as one of the respondents. In
these two cases, the Supreme Court ruled that the voting of sequestered shares of stock is
governed by two considerations, namely,
1. 1.whether there is prima facie evidence showing that the said shares are ill-gotten
and thus belong to the State; and
2. 2.whether there is an imminent danger of dissipation thus necessitating their
continued sequestration and voting by the PCGG while the main issue pends
with the Sandiganbayan.
(p. 5, Presidential Commission on Good Government vs. Eduardo M. Cojuangco, Jr.,
et al, supra)
This ruling does not state where, what or who the cause of the dissipation might be to
justify the vote by the PCGG of the shares under sequestration. If the registered
stockholders, however, have not participated in the management of the corporation, and Additionally, Cojuangco, Jr. vs. Roxas is cited by the other side as authority for the
the dissipation has not been demonstrated to have been caused either by the stockholders proposition that PCGG should be the one to vote the sequestered shares, the Court having
action in the past, nor by action independent of the management during sequestration, declared in Roxas that: [t]he only conceivable exception (to the rule that PCGG may not
then whatever imminent danger of dissipation necessitating their continued vote the shares in a corporation and elect the members of the board of directors) is in a
sequestration and voting by the PCGG... could not be raised against the voting rights of case of a takeover of a business belonging to the government or whose capitalization comes
the asserting stockholders. from public funds, but which landed in private hands as in BASECO. PCGG thus, likens
the facts of the instant petition to the BASECO case.
The Court has sought to obtain by all means any form of reinforcement from the PCGG
on this matter, not only this morning but over the months that go as far back as July of the The BASECO case does not support petitioners position. It was proven in
year 2000. Much to the impatience of this Court, the matter has not been responded to in the BASECO case that 95.82% of the outstanding stock of BASECO, endorsed in blank by
any satisfactory manner. the owners thereof, were inexplicably in the possession of then President Marcos. More,
deeds of assignment of practically all the stock of the corporations owning the
(pp. 2-5, Order dated February 28, 2001.) aforementioned 95.82% were also inexplicably in the possession of President Marcos. Thus,
in the case of BASECO, the directors thereof were merely Marcos nominees or dummies, it
A perusal of the above order would show that the Sandiganbayan, in allowing private having been proven that President Marcos not only exercised control over BASECO but
respondents to vote their shares, merely followed judicial precedents laid down by the also that he actually owned almost 100% of BASECOs outstanding stock. Then too, it was
Court. These decisions have not been challenged by the PCGG. Their review, much proven that BASECO had been able to take-over and acquire the business and assets of
the National Shipyard and Steel Corporation and other government-owned or controlled
512 entities through the undue exercise by then President Marcos of his powers, authority, and
influence. Upon these premises, the Court held that the government could properly
exercise control and management over what appeared to be properties and assets owned
512 SUPREME COURT REPORTS ANNOTATED and belonging to the government itself. Hereunder are the pertinent observations of the
Court in said case:

Republic vs. COCOFED 513

less reversal, has not been sought. They continue to express good law. I find no patent or VOL. 372, DECEMBER 14, 2001 513
gross arbitrariness or despotism by reason of passion or personal hostility in
the Sandiganbayans adherence to these precedents. I thus submit that one can hardly
characterize the Sandiganbayans order authorizing private respondents to vote their Republic vs. COCOFED
sequestered shares of stock as having been issued with grave abuse of discretion.
The facts show that the corporation known as BASECO was owned or controlled by
President Marcos during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence, and that it
was by and through the same means, that BASECO had taken over the business and/or
assets of the National Shipyard and Engineering Co., Inc., and other government-owned or
controlled entities.
xxx xxx xxx
In the case at bar, there was adequate justification to vote the incumbent directors out
of office and elect others in their stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; this Court
declared that
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in
respondents calling and holding of a stockholders meeting for the election of directors as
authorized by the memorandum of the President (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can, though its designated directors,
properly exercise control and management over what appear to be properties and assets
owned and belonging to the government itself and over which the persons who appear in
this case on behalf of BASECO have failed to show any right or even any shareholding in
said corporation.
In contrast, respondents in the instant case are the registered stockholders. No evidence
was presented before the Sandiganbayan showing that respondents are mere tools of
President Marcos and were no longer owners of any stock in the firm if they ever were at
all.
Nor has it been shown that the sequestered UCPB shares of stock were inexplicably
acquired by respondents. Respondent Cojuangco, Jr. obtained his shares by virtue of an
agreement with the Philippine Coconut Authority (PCA) whereby, as compensation for
exercising his personal and exclusive option to acquire UCPB shares, Cojuangco, Jr. would
receive 1 share for every 9 acquired by PCA. The UCPB shares of stock in the name of the
1,405,366 coconut-farmers, on the other hand, were distributed to them by virtue of
Presidential Decree No. 755, which authorized the distribution of UCPBs shares of stock,
free, to coconut farmers. Other
514
514 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
UCPB shares were acquired by the CIIF companies. It is precisely the validity of these
acquisitions which is under litigation in the main case pending with the Sandiganbayan.
The view expressed by the majority that the UCPB shares, having been acquired with
the use of coconut levy funds, and, therefore belong to the government, may very well turn
out to be correct. However, since these issues are still pending litigation at
the Sandiganbayan, it would be premature, I submit, to rule on this point at this time.
Verily, the validity of the acquisition by Cojuangco, Jr., et al. of their UCPB shares is the
very lis mota of the action for reconveyance, accounting, reversion, and restitution filed by
the PCGG with the Sandiganbayan. To rule on this matter would be to preempt said court.
Too, the argument that the coconut levy funds used to purchase the sequestered UCPB
shares of stock are public funds does not appear to have been raised before
the Sandiganbayan; consequently, the Sandiganbayan did not rule on the nature of the
fund. It would be absurd to hold that the Sandiganbayan gravely abused its discretion in
not holding that the sequestered shares belong prima facie to the government, the issue of
whether or not coconut levy funds are public funds not having been raised before it.
 Moreover, and as mentioned earlier, the nature of the funds used is a matter which
should be decided first-hand by the Sandiganbayan when it resolves the merits of Civil
Case No. 0033-A. Note should also be taken of the fact that the determination of whether
the coconut levy funds are public funds involves the ascertainment of the constitutionality
of Section 5, Article III of Presidential Decree No. 961 and Section 5, Article III of
Presidential Decree No. 1468, both of which contain the following identical provisions:
Section 5. Exemptions.The Coconut Consumers Stabilization Fund and the Coconut
Industry Development Fund as well as all disbursements of said Funds for the benefit of
the coconut farmers as herein authorized shall not be construed or interpreted, under any
law or regulation, as special or fiduciary funds, or as part of the general funds of the
national government within the contemplation of P.D. 771; nor as a subsidy, donation, levy,
government funded investment or government share within the contemplation of P.D. 898,
the intention being that said Fund
515
VOL. 372, DECEMBER 14, 2001 515
Republic vs. COCOFED
and the disbursements thereof as herein authorized for the benefit of the coconut farmers
shall be owned by them in their own private capacities.
Presidential Decrees No. 961 and 1468 have not been repealed, revoked, or declared
unconstitutional, hence they are presumed valid and binding. Without a previous
declaration of unconstitutionality, the coconut levy funds may not thus be characterized
as prima facie belonging to the government. That issue must first be resolved by
the Sandiganbayan. In fact, when the Solicitor General, in G.R. No. 96073, filed a motion
to declare the coconut levies collected pursuant to the various issuances as public funds
and to declare Section 5, Article III of Presidential Decree No. 1468 as unconstitutional,
the Court denied the same in a Resolution dated March 26, 1996.
Parenthetically, in Philippine Coconut Producers Federation, Inc. vs.
PCGG (supra), the Court ruled that the fund is affected with public interest, implying
that the fund is private in character. If the coconut levy funds were public funds, then the
Court would have so held and there would be no reason to describe the same as funds
affected with public interest. It may not, thus, be immediately said that the coconut levy
funds are public funds, the resolution of the issue being left, at the first instance, with
the Sandiganbayan.
And if it is to be recalled, the issue involved herein is whether or not
the Sandiganbayan committed grave abuse of discretion when it issued the disputed order
allowing respondents to vote the UCPB shares of stock registered in their names. The
question of whether the coconut levy funds are public funds is not in issue here. In fact,
the constitutionality of Presidential Decrees Nos. 961 and 1468 have not been raised by the
PCGG during the proceedings before the Sandiganbayan.
Moreover, it should be pointed out that the avowed purpose of sequestration is to
preserve the assets sequestered to assure that if, and when, judgment is rendered in favor
of the petitioner, the judgment may be implemented. Preservation, not deprivation
before judgment, is its essence. That is why in BASECO, we emphasized:
516
516 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
d. No Divestment of Title Over Property Seized
 It may perhaps be well at this point to stress once again the provisional, contingent
character of the remedies just described. Indeed the law plainly qualifies the remedy of
takeover by the adjective, provisional. These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings of
the primary issue of whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the remedies is meant to
deprive the owner or possessor of his title or any right to the property sequestered, frozen
or taken over and vest it in the sequestering agency, the Government or other person. This
can be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over
is to be understood and exercised, the language of the executive orders in question leaves
no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition
of which is suspect shall last until the transactions leading to such acquisition . . . can be
disposed of by the appropriate authorities. Executive Order No. 2 declares that the assets
or properties therein mentioned shall remain frozen pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties were
acquired by illegal means. Executive Order No. 14 makes clear that judicial proceedings
are essential for the resolution of the basic issue of whether or not particular assets are
ill-gotten, and resultant recovery thereof by the Government is warranted.
(pp. 211-212.)
In the instant case, however, the actuations of PCGG with regard to the sequestered
shares partake more of deprivation rather than preservation. As pointed out by
respondents, since 1986, only one (1) stockholders meeting of UCPB has been held. At this
meeting, PCGG voted all of the shares, as a result of which all members of the Board of
UCPB, since 1986 to the present, have been PCGG nominees. When vacancies in the
Board occur because of resignation, replacements are installed by the remaining members
of the Boardon nomination of the PCGG. The stockholders meeting scheduled on March
6, 2001 would have been the first stockholders meeting since 1986 at which registered
stockholders would exercise their right to vote and by their vote elect the members of the
Board of Directors.
517
VOL. 372, DECEMBER 14, 2001 517
Republic vs. COCOFED
Also, the shares of stock in UCPB were sequestered in 1986. The civil action Republic of
the Philippines v. Eduardo M. Cojuangco, Jr., Civil Case No. 033 was instituted before
the Sandiganbayan on July 30, 1987. This action included, among other things, the UCPB
shares of stock and was filed to maintain the effectivity of the writs of sequestration
pursuant to Section 26, Article XVIII of the Constitution. Notwithstanding the lapse of
more than 14 years, the proceedings have barely gone beyond the pre-trial stage. PCGGs
exercise of the right to vote the sequestered shares of stock for a period of 14 years
constitutes effectively a deprivation of a property right belonging to the registered
stockholders (18 Am. Jur. 2d, Corporations 2d Section 1065, p. 859, citing cases), a state of
affairs not within the contemplation of sequestration as a means of preservation of
assets.
 To recapitulate, evaluated in accordance with applicable jurisprudence, I hold that the
issuance by respondent Sandiganbayan of its impugned Order dated February 28, 2001, is
clearly not an act committed in grave abuse of discretion. Simply put, petitioner PCGG
failed to persuade the Sandiganbayanon the basis of the two-tiered test enunciated by
this Court in the San Miguel case, suprathat it is entitled to vote the UCPB sequestered
shares. Verily, the Sandiganbayan was duty-bound to comply with the jurisprudence laid
down by the Court on the matter. This is certainly not a case of abuse, much more grave
abuse of discretion, on the part of respondent Sandiganbayan.
I regret to say that I find unacceptable the contention that the law of the case herein
should be the Resolution dated February 16, 1993 in Republic of the Philippines vs.
Sandiganbayan, et al. For one, the UCPB shares of stock of respondents COCOFED, et al.
and Ballares, et al. are not the subject of the case relied upon. Hence, the Resolution
therein could not have referred to or covered said shares. For another, and more
importantly, what is invoked by petitioner is, in effect, merely a restraining order which
was not re-affirmed by the Court when we rendered the main decision in the said
consolidated sequestration cases.
Rather, what I believe is truly applicable herein is the Courts decision in COCOFED
vs. PCGG (178 SCRA 236 [1989]) wherein it was held that the incidents concerning the
voting of the seques-
518
518 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
tered shares, the COCOFED elections, and the replacement of directors, being matters
incidental to the sequestration, should be addressed to the Sandiganbayan. Thus,
the Sandiganbayan has been given by the Court full discretion to evaluate and to allow or
disallow the duly registered stockholders of the UCPB shares to exercise the right to vote
the said shares in the UCPB elections and/or appointment/replacement of its directors. If,
as in the case at hand, the Sandiganbayan, in the exercise of its sound discretion and for
justifiable reasons cited in its assailed Order of February 28, 2001, allowed herein private
respondents to vote the sequestered shares in question, one would simply be at a loss to
understand how such action could be said to be tainted with grave abuse of discretion.
FOR THE FOREGOING REASONS, I vote to DISMISS the instant petition for lack of
merit.
SEPARATE OPINION
VITUG, J.:
The Presidential Commission on Good Government (PCGG), representing the Republic of
the Philippines, assails in the instant special action for certiorari under Rule 65 of the
Rules of Court, the order, dated 28 February 2001, of public respondent Sandiganbayan
(First Division) in Civil Cases No. 0033-A, 0033-B, and 0033-F, entitled Republic of the
Philippines vs. Eduardo Cojuangco, Jr., et al. on the ground of grave abuse of discretion
amounting to lack of jurisdiction. In the order, the Sandiganbayan enjoined the PCGG
from voting the sequestered shares of stock of the United Coconut Planters Bank
(UCPB) and authorized private respondents Philippines Coconut Producers Federation,
Inc. (COCOFED), et al., Ballares, et al., and Eduardo Cojuangco, Jr., et al., to vote the
UCPB shares registered in their names and themselves be voted upon at the stockholders
meeting of the bank.
The institution of sequestration proceedings by the PCGG against the shares of stock
of the UCPB claimed to be owned by one million coconut farmers and the Coconut
Industry Investment Fund (CIIF) companies, was among the measures undertaken by
the Aquino Government shortly after the February 1986 Revolution for the recovery of ill-
gotten wealth said to have been
 519
VOL. 372, DECEMBER 14, 2001 519
Republic vs. COCOFED
amassed by former President and Mrs. Ferdinand E. Marcos, their relatives, friends and
business associates. Among the initial cases filed with the Sandiganbayan was Case No.
003 against private respondent Eduardo Cojuangco, Jr., and sixty others, for reconveyance,
reversion, accounting, restitution and damages. Sequestration orders were later issued by
the Sandiganbayan.
Subsequently, however, Sandiganbayan issued a resolution lifting the sequestration of
the UCPB shares of stock registered in the name of the coconut farmers and the CIIF
companies on the thesis that these entities were not so impleaded by the PCGG as party-
defendants, having merely been listed in an annex appended to the complaint in Case No.
003. The PCGG questioned, via a petition for certiorari, docketed G.R. No. 96073, that
resolution before this Court. In the interim, the Sandiganbayan authorized the holding of
a stockholders meeting for the election of the members of the Board of Directors of the
UCPB. Ruling in favor of a petition filed by Eduardo Cojuangco, Jr., this Court lifted the
temporary restraining order it issued against the holding of said meeting and allowed
private respondents to vote the sequestered shares of stock. On 16 February 1993, the
Court recalled this order by issuing another resolution, directing the restoration of
the status quo ante in G.R. No. 96073. The resolution allowed the PCGG to continue voting
the sequestered shares of stock of the UCPB at the banks meetings, pending
determination of the validity of the Sandiganbayan resolution lifting the sequestration of
said shares. Justifying the new order, the Court adverted to its earlier decision
in COCOFED vs. PCGG which dismissed the petition of private respondent COCOFED to
1
nullify the sequestration order against, inter alia, the UCPB shares of stock. The
acquisition of the UCPB shares was explained thusly:
The United Coconut Planters Bank (or the UCPB) is a commercial bank acquired for the
benefit of the coconut farmers (Section 1, PD 755) with the use of the Coconut Consumers
Stabilization Fund (CCSF) in virtue of P.D. 755, promulgated on 29 July 1975. The Decree
authorized the Bank to provide the intended beneficiaries with readily available credit
facilities at preferential rates (Ibid.). It also authorized the distri-
_______________
1
178 SCRA 236 (1989).
520
520 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
bution of the Banks shares of stock, free, to the coconut farmers; and some 1,405,366
purported recipients have been listed as UCPB stockholders as of 10 April 1986 (Item A.
1.1. Of the UCPB List of Stockholders.)
The Coconut Consumers Stabilization Fund (CCSF) was established by P.D. 276 on 29
August 1973. Its funds, used in acquiring UCPB, were derived from the collection of a
Stabilization Fund Levy of fifteen pesos (P15.00) on the first sale of every 100 kilograms
of copra resecada or equivalent product. The CCSF, later firmed up by amendatory
decrees, was intended to subsidize the sale of coconut-based products at prices set by the
Price Control Council in order to stabilize the price of edible oil and other coconut oil-based
products for the benefit of consumers.2
Relying on these pronouncements, the Court, in its 16th February 1993 resolution,
raised the following relevant questions: How is it that shares of stock in such entities
which were organized and financed by revenues derived from coconut levy funds which were
imbued with public interest ended up in private hands who are not farmers or beneficiaries;
and whether or not the holders of said stock, who in one way or another had had some part
in the collection, administration, disbursement or other disposition of the coconut levy
funds, were qualified to acquire stock, in the corporations formed and operated from those
funds. These issues, the Court noted, were still unresolved and, in fact, unaffected by the
issue of the automatic lifting of the sequestration. Thus, the resolution declared: The
right of the petitioners to vote stock in their names at the meetings of the UCPB cannot be
conceded at this time. That right still has to be established by them before the
Sandiganbayan. Until that is done, they cannot be deemed legitimate owners of UCPB stock
and cannot be accorded the right to vote them.
On 23 January 1995, the Court, in a consolidated decision which, among other cases,
included G.R. No. 96073, nullified and set aside the disputed Sandiganbayan resolution
and upheld the sequestration of the UCPB shares of stock on the ground that the
impleading of the subject firms would be unnecessary since, if warranted by the evidence,
judgments could be handed down
_______________
2
Id., p. 242.
521
VOL. 372, DECEMBER 14, 2001 521
Republic vs. COCOFED
against the defendants divesting them of their ownership of said shares and imposing
upon them the obligation of surrendering the shares of stock to the Government. The
decision, while not expressly ratifying the 16th February 1993 resolution, was a mandate,
nevertheless, for the maintenance of the status quo ante that embraced the exercise by the
PCGG of its voting rights on the sequestered shares of stock of the UCPB.
Since 1986, the PCGG had been able to effectively install its nominees to the Board of
Directors of the UCPB. Such was the state of affairs when the Sandiganbayan so issued
the challenged resolution on 28 February 2001, authorizing COCOFED, et al., Ballares, et
al., and Eduardo Cojuangco, Jr., et al., along with all other registered stockholders of
UCPB, to vote the shares of stock and themselves be voted upon at stockholders meetings
of the UCPB. In support of this order, preempting the final disposition of the main case in
Case No. 003, Sandiganbayan applied the two-tiered test enunciated in Eduardo
Cojuangco, Jr., vs. Calpo 3 and PCGG vs. Eduardo Cojuangco, Jr. 4 As so aptly argued by
petitioner, however, the test would find no application to a case of the takeover of a
business belonging to the government or whose capitalization comes from public funds, but
which landed in private hands. 5 The Court acknowledged to be a fact that the money used
to purchase and capitalize the UCPB had come from the CCSF, 6 a fund raised from the
exercise by the State of its inherent police and taxing powers.
To account for their equity holdings in the bank, COCOFED, et al., in their
Memorandum,7 would advance that, in 1975, COCOFED, a private national association of
coconut producers, was designated by the Philippine Coconut Authority (PCA) as being
the implementing agency for the free distribution of the shares of stock
_______________
3
G.R. No. 115352, 10 June 1997.
4
302 SCRA 217 (1999).
5
Cojuangco vs. Roxas, 195 SCRA 797 (1991); BASECO vs. PCGG, 150 SCRA
181 (1987).
6
COCOFED vs. PCGG, supra.
 7
Memorandum for Respondents COCOFED, et al. and Bajlares, et al., p. 4-6.
522
522 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
of the UCPB to the coconut farmers. By 02 May 1981, 232,805,852.16 of said shares were
distributed to the farmers. Still there remained 15,619,419.84 shares registered in the
name of COCOFED which, according to it, were ultimately given to the farmers. Prior to
June 1986, a substantial number of the coconut farmers sold their shares in the bank at
prices below par value. By way of a financial assistance to the selling coconut farmers, the
UCPB Board of Directors authorized the CIIF companies to purchase their holdings in the
bank at par value. These transactions, nevertheless, did not change the character of the
UCPB shares, these having been bought with coconut levy funds which the Court
distinctly characterized to be clearly affected with public interest and raised such as
they were by the States police and taxing powers.8
The fundamental rule is that tax proceeds may only be used for a public purpose,
which may either be a general public purpose to support the existence of the state or a
special public purpose to pursue certain legitimate objects of government in the exercise of
police power, and none other. As a measure to ensure the proper utilization of money
collected for a specified public purpose, the 1987 Constitution, restating another general
principle, treats the proceeds as a special fund to be paid out for such purpose. If, however,
that purpose has been fulfilled or is no longer forthcoming, the balance, if any, shall then
be transferred to the general funds of the government, which may thereafter be
9
appropriated by Congress and expended for any legitimate purpose within the scope of the
general fund. An entity, whether public or private, which holds the tax money has no
authority to disburse it or to pay any of it to anyone, the power to dispose of such money
being vested in the legislature. 10 Thus, the 1987 Constitution, like its counterparts in the
1935 and the 1973 Constitution, mandates that no money shall
_______________
8
COCOFED vs. PCGG, supra.
9
Article VI, Section 29, par. 3, 1987 Constitution.
10
Corpus Juris Secundum, 1057-1059; State ex rel. Sathre vs. Hopton, 265 N.W. 395,
66 N.D. 313; citing Glendale Union High School Dist. No. 11, 99 P. 2d 482, 55 Ariz. 151.
523
VOL. 372, DECEMBER 14, 2001 523
Republic vs. COCOFED
be paid out of the national treasury except in pursuance of an appropriation made by law.11
Respondent Eduardo Cojuangco, Jr., upon the other hand, in claiming ownership over
a portion of the sequestered UCPB shares, advanced two documentsan agreement in
May 1975, where he appeared to have exercised his option to acquire the UCPB shares of
stock owned by the family of the late Don Jose Cojuangco, Sr., amounting to 72.2% equity
holding in the bank, at two hundred pesos (Php 200.00) per share, and the Agreement for
the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of the
Philippines, dated 25 May 1975, whereby the PCA purchased with funds from the CCSF
the aforesaid UCPB shares from Eduardo Cojuangco, Jr., also at two hundred pesos (Php
200.00) per share.12 In the latter agreement, it was stipulated that as compensation for
exercising his personal and exclusive option to acquire the UCPB shares and for
transferring such shares to the PCA, Eduardo Cojuangco, Jr., would receive one (1) share
for every nine (9) shares acquired by the PCA and additional equity in the bank. In sum,
correlating the two agreements, Eduardo Cojuangco, Jr., would contend, in effect, that he
retained title over roughly 10% equity holding in the bank and established his prima
facie right over the corresponding shares independently sourced from the coconut levy
funds. Even if it were to be conceded that the said 10% holding in UCPB of Eduardo
Cojuangco, Jr., could be assailed, pending a conclusive determination on the legality of
such a retention, however, it would neither be right nor just to deprive him from
meanwhile exercising his right to at least vote the same.
For the foregoing reasons, I vote to grant the petition in part and to deny it insofar as
the shares of stock pertaining to the 10% of the 72% equity retention standing in the name
of Eduardo Cojuangco, Jr., are concerned.
In passing, I should like to state my understanding of the ruling of the Court. I must
first clarify, however, that sequestration does
_______________
11
Art. VI, Sec. 29 (1), 1987 Constitution.
12
Memorandum for Respondent Eduardo Cojuangco, Jr., p. 3; Comment on the
Petition, Annex A and B.
524
524 SUPREME COURT REPORTS ANNOTATED
Republic vs. COCOFED
not mean the vesting of title in the hands of the sequestering authority; rather, the term
implies the preservation of assets. Neither ownership nor rights thereover are acquired or
lost by virtue alone of sequestrationa mere ancillary remedy to secure a disputed asset.
(a) By a vote of ten justices, namely, Chief Justice Davide and Justices Bellosillo, Puno,
Vitug, Mendoza, Panganiban, Quisumbing, Buena, de Leon and Carpio, the coconut levy
funds have been declared prima facie to be public funds.
Justices Melo, Kapunan, Pardo, Ynares-Santiago and Sandoval-Gutierrez have
dissented from the view of the majority.
(b) The Sandiganbayan must now determine conclusively and with deliberate dispatch
the status of sequestered shares of stock, as well as whether or not the shares have been
acquired utilizing the coconut levy funds, and, ultimately, the ownership thereof.
(c) Meanwhile, the right to vote the disputed shares belongs to whoever or whichever
can show prima facie ownership or a better right thereover. Chief Justice Davide and
Justices Bellosillo, Mendoza, Panganiban, Quisumbing, Buena, de Leon and Carpio hold
that such prima facie showing exists in favor of the government on all the disputed shares.
Justices Puno and Vitug concur except for the 10% of the 72% disputed shares in the name
of respondent Cojuangco over which the PCGG will yet have to establish a prima
facie right of ownership.
Justice Melo, Kapunan, Pardo, Ynares-Santiago and Sandoval-Gutierrez maintain the
view that, the coconut levy funds not being public funds and the government not having
been able to satisfactorily establish to date its title over the sequestered shares, the PCGG
has no right to vote any of the disputed shares.
Petition granted, Order set aside.
Note.It is elementary that before a person can be deprived of his right or property
he should first be informed of the claim against him and the theory on which such claim is
premised. (Republic vs. Sandiganbayan, 266 SCRA 515 [1997])
 mitted that for all its plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely affecting as it does property
rights, both the due process and equal protection clauses may properly be invoked, as
SUPREME COURT REPORTS ANNOTATED
petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise,
there would be truth to the 1803 dictum of Chief Justice Marshall that the power to tax
involves the power to destroy. In a separate opinion in Graves v. New York, Justice
Sison, Jr. vs. Ancheta Frankfurter, after referring to it as an unfortunate remark, characterized it as a
flourish of rhetoric [attributable to] the intellectual fashion of the times [allowing] a free
use of absolutes. This is merely to emphasize that it is not and there cannot be such a
No. L-59431. July 25, 1984.* constitutional mandate. Justice Frankfurter could rightfully conclude: The web of
unreality spun from Marshalls famous dictum was brushed away by one stroke of Mr.
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner,
Justice Holmess pen: The power to tax is not the power to destroy while this Court sits.
Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal
So it is in the Philippines.
Revenue; TOMAS TOLEDO, Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Same; Same; A bare allegation that Batas 135, which sets different income tax
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
schedules for fixed income earners and business or professional income earners, is arbitrary
does not suffice to invalidate said tax statute.The difficulty confronting petitioner is thus
Taxation; Constitutional Law; The Constitution sets forth the restrictions to the power
apparent. He alleges arbitrariness. A mere allegation, as here, does not suffice. There must
to tax.The power to tax moreover, to borrow from Justice Malcolm, is an attribute of
be a factual foundation of such unconstitutional taint. Considering that petitioner here
sovereignty. It is the strongest of all the powers of government. It is, of course, to be ad-
would condemn such a provision as void on its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that where the due process and equal
_______________
protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a
*
EN BANC.
conclusion. Absent such a showing, the presumption of validity must prevail.

655
Same; Same; Due process clause may be invoked where a tax statute is so arbitrary as
to find no support in Constitution.It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds no support in the Constitution.
VOL. 130, JULY 25, 1984 655
An obvious example is where it can be shown to amount to the confiscation of property.
That would be a clear abuse of power. It then becomes the duty of this Court to say that
such an arbitrary act amounted to the exercise of an authority not conferred. That properly
Sison, Jr. vs. Ancheta
calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose,
or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on
due process grounds.
656
656 SUPREME COURT REPORTS ANNOTATED
Sison, Jr. vs. Ancheta
Same; Same; The State is free to select the subjects of taxation and inequalities
consequent to its exercise infringe no constitutional limitation.The equal protection
clause is, of course, inspired by the noble concept of approximating the ideal of the lawss
benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of Justice Frankfurter: The equality at which
the equal protection clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins the equal protection of the laws, and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or
opinion to be treated in law as though they were the same. Hence the constant reiteration
of the view that classification if rational in character is allowable. As a matter of fact, in a
leading case of Lutz V. Araneta, this Court, through Justice J.B.L. Reyes, went so far as to
hold at any rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.
Same; Same; Uniformity in taxation quite similar to the standard of equal protection.
Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: The rule of taxation shall be uniform and equitable. This requirement is
met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940,
when the tax operates with the same force and effect in every place where the subject may
be found. He likewise added: The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable. The problem of classification did not
present itself in that case. It did not arise until nine years later, when the Supreme Court
held: Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation, * * *. As
clarified by Justice Tuason, where the differentiation complained of conforms to the
practical dictates of justice and equity it is not discriminatory within the meaning of this
clause and is therefore uniform. There is quite a similarity then to the standard of equal
protection for all that is required is that the tax applies equally to all persons, firms and
cor-
657
VOL. 130, JULY 25, 1984 657
Sison, Jr. vs. Ancheta
porations placed in similar situation.
Same; Same; Taxpayers may be classified into different categories where it rests on
real differences.Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal objection
to a broader tax base or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate. Taxpayers may be classified into different
categories. To repeat, it is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income taxation embodied
in Batas Pambansa Blg. 135, the discernible basis of classification is the susceptibility of
the income to the application of generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other
hand, in the case of professionals in the practice of their calling and businessmen, there is
no uniformity in the costs or expenses necessary to produce their income. It would not be
just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross income. There
is ample justification then for the Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.
PETITION to review the decision of the Acting Commissioner of Internal Revenue.
The facts are stated in the opinion of the Court.
Antero M. Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding1 on the validity of
_______________
1
Petitioner must have realized that a suit for declaratory relief must be filed with
Regional Trial Courts.
658
658 SUPREME COURT REPORTS ANNOTATED
Sison, Jr. vs. Ancheta
Section 1 of Batas Pambansa Blg. 135 depends upon a showing of its constitutional
infirmity. The assailed provision further amends Section 21 of the National Internal
Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other
winnings, (d) interest from bank deposits and yield or any other monetary benefit from
deposit substitutes and from trust fund and similar arrangements, (e) dividends and share
of individual partner in the net profits of taxable partnership, (f) adjusted gross
income.2 Petitioner3 as taxpayer alleges that by virtue thereof, he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-a-vis those which are imposed upon fixed income or
salaried individual taxpayers.4 He characterizes the above section as ar-
_______________
2
Batas Pambansa Blg. 135, Section 21 (1981).
3
The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal
Revenue; Romulo Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas Toledo,
Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of Budget;
Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A. Virata, Minister
of Finance.
4
Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of
Section 1 further Amending Section 21 of the National Internal Revenue Code of 1977. Par.
(a) reads: (a) On taxable compensation income.A tax is hereby imposed upon the taxable
compensation income as determined in Section 28 (a) received during each taxable year
from all sources by every individual, whether a citizen of the Philippines, determined in
accordance with the following schedule:
Not over P2.500
Over P 2,500 but not overP 5,000
Over P 5,000 but not over 10,000
Over P 10,000 but not over P 20,000
Over P 20,000 but not over P 40,000
Over P 40,000 but not over P 60,000
Over P 60,000 but not over P100,000
Over P100,000 but not over P250,000
Over P250,000 but not over P500,000
0%
1%
P 25 + 3% of excess over P 5,000
P 175 + 7% of excess over P 10,000
P 875 + 11% of excess over P 20,000
P 3,075 + 15% of excess over P 40,000
P 6,075 + 19% of excess over P 60,000
P 13,675 + 24% of excess over P 100,000
P 49,675 + 29% of excess over P 250,000
Over P500,000 P 122,175 + 35% of excess over P 500,000
Par. (b) reads: (b) On taxable net income.A tax is hereby imposed upon the taxable net
income as determined in Section 29 (a) received
659
VOL. 130, JULY 25, 1984 659
Sison, Jr. vs. Ancheta
bitrary amounting to class legislation, oppressive and capricious in character. 5 For
petitioner, therefore, there is a transgression of both the equal protection and due process
clauses6 of the Constitution as well as of the rule requiring uniformity in taxation.7
The Court, in a resolution of January 26, 1982, required respondents to file an answer
within 10 days from notice. Such an answer, after two extensions were granted the Office
of the Solicitor General, was filed on May 28, 1982. 8The facts as alleged were admitted but
not the allegations which to their mind are mere arguments, opinions or conclusions on
the part of the petitioner, the truth [for them] being those stated [in their] Special and
Affirmative Defenses.9 The answer then affirmed: Batas Pambansa Big. 135 is a valid
exercise of the States power to tax. The authorities and cases cited, while correctly quoted
or paraphrased, do not support petitioners stand.10 The prayer is for the dismissal of the
petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
_______________
 during each taxable year from all sources by every individual, whether a citizen of the 9
Answer, pars. 1-6.
Philippines, or an alien residing in the Philippines determined in accordance with the
following schedule: 10
Ibid, par. 6.

660
Not over P10,000 5%

660 SUPREME COURT REPORTS ANNOTATED

Over P 10,000 but not over P 30,000 P 500 + 15% of excess over P 10,000

Sison, Jr. vs. Ancheta

Over P 30,000 but not over P150,000 P 3,500 + 30% of excess over P 30,000

1. 1.It is manifest that the field of state activity has assumed a much wider scope.
Over P150,000 but not over P500,000 P 39,500 + 45% of excess over P150,000 The reason was so clearly set forth by retired Chief Justice Makalintal thus:
The areas which used to be left to private enterprise and initiative and which
the government was called upon to enter optionally, and only because it was
better equipped to administer for the public welfare than is any private
Over P500,000 P197,000 + 60% of excess over P500,000
individual or group of individuals, continue to lose their well-defined boundaries
and to be absorbed within activities that the government must undertake in its
sovereign capacity if it is to meet the increasing social challenges of the
5
Ibid, Statement, par. 4.
times.11 Hence the need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of vital state
6
Article IV, Section 1 of the Constitution reads: No person shall be deprived of life, functions. It is the source of the bulk of public funds. To paraphrase a recent
liberty or property without due process of law, nor shall any person be denied the equal decision, taxes being the lifeblood of the government, their prompt and certain
protection of the laws. availability is of the essence.12

7
Article VII, Section 7, par. (1) of the Constitution reads: The rule of taxation shall be
uniform and equitable. The Batasang Pambansa shall evolve a progressive system of
taxation.
8
It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant
Solicitor General Eduardo D. Montenegro and Solicitor Erlinda B. Masakayan.
2. 2.The power to tax moreover, to borrow from Justice Malcolm, is an attribute of
sovereignty. It is the strongest of all the powers of government.13 It is, of course,
to be admitted that for all its plenitude, the power to tax is not unconfined.
There are restrictions. The Constitution sets forth such limits. Adversely
affecting as it does property rights, both the due process and equal protection
clauses may properly be invoked, as petitioner does, to invalidate in appropriate
cases a revenue measure. If it were otherwise, there would be truth to the 1803
 dictum of Chief Justice Marshall that the power to tax involves the power to
destroy.14 In a separate opinion in Graves v. New York,15 Justice Frankfurter,
after referring to it as an unfortunate remark, characterized it as a flourish of
rhetoric [attributable to] the intellectual fashion of the times [allowing] a free
use of absolutes.16 This is merely to em-
_______________
11
Agricultural Credit and Cooperative Financing Administration v. Confederation of
Unions in Government Corporation and Offices, L-21484, November 29, 1969, 30 SCRA
649, 662.
Marshalls famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: The power to tax is not the power to destroy while this Court sits.
17 So it is in the Philippines.
2. 3.This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision
as petitioner here allegesfails to abide by its command, then this Court
must so declare and adjudge it null. The inquiry thus is centered on the question
of whether the imposition of a higher tax rate on taxable net income derived
from business or profession than on compensation is constitutionally infirm.

12
Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J. 3. 4.The difficulty confronting petitioner is thus apparent. He alleges arbitrariness.
A mere allegation, as here, does not suffice. There must be a factual foundation
of such unconstitutional taint. Considering that petitioner here would condemn
13
Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
such a provision as void on its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that where the due process and equal
14
McCulloch v. Maryland, 4 Wheaton 316.
protection clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive character as
15
306 US 466 (1938). would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.18
16
Ibid, 489.
4. 5.It is undoubted that the due process clause may be invoked where a taxing
661 statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court to say
VOL. 130, JULY 25, 1984 661 that such an arbitrary act amounted to the

_______________
Sison, Jr. vs. Ancheta
17
Ibid, 490.

1. phasize that it is not and there cannot be such a constitutional mandate. Justice
18
Cf. Ermita-Malate Hotel and Motel Operators Association v. Hon. City Mayor, 127
Frankfurter could rightfully conclude: The web of unreality spun from Phil. 306, 315 (1967); U.S. v. Salaveria, 39 Phil. 102, 111 (1918) and Eboa v. Daet, 85 Phil.
369 (1950). Likewise referred to is OGorman and Young v. Hartford Fire Insurance the ideal of the lawss benefits being available to all and the affairs of men being
Co., 282 US 251, 328 (1931). governed by that serene and impartial uniformity, which is of the very essence of

662 _______________

19
Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo
662 SUPREME COURT REPORTS ANNOTATED Bank and Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan Vda. de
Fernandez, 99 Phil. 934 (1956).

Sison, Jr. vs. Ancheta

1. exercise of an authority not conferred That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is subject to attack on due
process grounds.19
20
The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure
Administration, L-21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in Bautista
v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The former deals with an
eminent domain proceeding and the latter with a suit contesting the validity of a police
power measure.
663

2. 6.Now for equal protection. The applicable standard to avoid the charge that there VOL. 130, JULY 25, 1984 663
is a denial of this constitutional mandate whether the assailed act is in the
exercise of the police power or the power of eminent domain is to demonstrate
that the governmental act assailed, far from being inspired by the attainment of
Sison, Jr. vs. Ancheta
the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or
1. the idea of law. There is, however, wisdom, as well as realism, in these words of
that all persons must be treated in the same manner, the conditions not being
Justice Frankfurter: The equality at which the equal protection clause aims is
different, both in the privileges conferred and the liabilities imposed. Favoritism
not a disembodied equality. The Fourteenth Amendment enjoins the equal
and undue preference cannot be allowed. For the principle is that equal
protection of the laws, and laws are not abstract propositions. They do not relate
protection and security shall be given to every person under circumstances,
to abstract units A, B and C, but are expressions of policy arising out of specific
which if not identical are analogous. If law be looked upon in terms of burden or
difficulties, addressed to the attainment of specific ends by the use of specific
charges, those that fall within a class should be treated in the same fashion,
remedies. The Constitution does not require things which are different in fact or
whatever restrictions cast on some in the group equally binding on the
opinion to be treated in law as though they were the same. 21 Hence the constant
rest.20 That same formulation applies as well to taxation measures. The equal
reiteration of the view that classification if rational in character is allowable. As
protection clause is, of course, inspired by the noble concept of approximating
a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through
 Justice J.B.L. Reyes, went so far as to hold at any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has 664 SUPREME COURT REPORTS ANNOTATED
been repeatedly held that inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.
23
Sison, Jr. vs. Ancheta

2. 7.Petitioner likewise invoked the kindred concept of uniformity. According to the

Constitution: The rule of taxation shall be uniform and equitable.24 This
1. the same class shall be taxed at the same rate. The taxing power has the
requirement is met according to Justice Laurel in Philippine Trust Company v.
authority to make reasonable and natural classifications for purposes of
Yatco,25 decided in 1940, when the tax operates with the same force and effect
taxation, * * *.28 As clarified by Justice Tuason, where the differentiation
in every place where the subject may be found. 26 He likewise added: The rule of
complained of conforms to the practical dictates of justice and equity it is not
uniformity does not call for perfect uniformity or perfect equality, because this is
discriminatory within the meaning of this clause and is therefore
hardly attainable.27 The problem of classification did not present itself in that
uniform.29 There is quite a similarity then to the standard of equal protection
case. It did not arise until nine years later, when the Supreme Court held:
for all that is required is that the tax applies equally to all persons, firms and
Equality and uniformity in taxation means that all taxable articles or kinds of
corporations placed in similar situation.30
property of

2. 8.Further on this point. Apparently, what misled petitioner is his failure to take
_______________
into consideration the distinction between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all
21
Tigner v. Texas, 310 US 141, 147 (1940).
deductible items and at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. To repeat, it is enough that
22
98 Phil. 148 (1955). the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas
23
Ibid, 153. Pambansa Blg. 135, the discernible basis of classification is the susceptibility of
the income to the application of generalized rules removing all deductible items
24
Article VIII, Section 17, par. 1, first sentence of the Constitution. for all taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. Taxpayers who are recipients of compensation income are
25
69 Phil. 420 (1940). set apart as a class. As there is practically no overhead expense, these taxpayers
are not entitled to make deductions for income tax purposes because they are in
26
Ibid, 426. the same situation more or less. On the other hand, in the case of professionals
in the practice of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It would not be just then to
27
Ibid, 424.
disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross
664
 income. There is ample justification then for the Batasang Pambansa to adopt Teehankee, J., in the result.
the gross system of income taxation to compen-
Aquino, J., In the result. The petitioner has no cause of action for prohibition.
_______________
Plana, J., did not take part.
28
Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
Abad Santos, J., This is a frivolous suit. While the tax rates for compensation
29
Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60, 65 (1951). income are lower than those for net income such circumstance does not necessarily result
in lower tax payments for those receiving compensation income. In fact, the reverse will
30
Uy Matias v. City of Cebu, 93 Phil. 300 (1953). most likely be the case; those who file returns on the basis of net income will pay less taxes
because they can claim all sorts of deductions justified or not. I vote for dismissal.
665
Petition dismissed.

VOL. 130, JULY 25, 1984 665 Notes.Taxes being the chief source of revenue for the Government to keep it running
must be paid immediately and

Sison, Jr. vs. Ancheta _______________

31
While petitioner cited figures to sustain his assertion, public respondents refuted
1. sation income, while continuing the system of net income taxation as regards with other figures that argue against his submission. One reason for requiring declaratory
professional and business income. relief proceedings to start in regional trial courts is precisely to enable petitioner to prove
his allegation, absent an admission in the answer.
2. 9.Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character of
666
the assailed provision;31 (2) the force of controlling doctrines on due process,
equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and
666 SUPREME COURT REPORTS ANNOTATED
businessmencertainly not a suspect classification.

WHEREFORE, the petition is dismissed. Costs against petitioner.

De la Cruz vs. De la Cruz
Makasiar, Concepcion, Jr., Guerrero, Melencio-
Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.
without delay. (Collector of Internal Revenue vs. Yuseco, 3 SCRA 313.) The power of taxation should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. (Roxas vs. Court of Tax Appeals, 23 SCRA 276.)
Taxes are the lifeblood of government and their prompt and certain availability is an
imperious need. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105.)