You are on page 1of 54

POLICE POWER GENERAL WELFARE CLAUSE

CASE 1: ARRASTRE VS CA
ROBLE ARRASTRE, INC.,
VS
HON. ALTAGRACIA VILLAFLOR and THE HONORABLE COURT OF APPEALS,
DECISION
Before Us is a Petition for Review on Certiorari, assailing the 7 October 1996 Decision[1] and the 13
February 1997 Resolution[2] of the Court of Appeals in CA-G.R. SP No. 40621, which reversed and set aside
the 29 March 1995 Decision[3] of the Regional Trial Court (RTC), Branch XVIII, Hilongos, Leyte, in Special
Civil Action No. H-237.
The Antecedents
Petitioner Roble Arrastre, Inc. is a cargo handling service operator, authorized by the Philippine Ports
Authority (PPA) through Permit No. M92-005 to provide and render arrastre and stevedoring services at the
Municipal Port of Hilongos, Leyte, and on all vessels berthed thereat, from 7 September 1992 to 15
September 1993.[4] For the years 1992 and 1993, petitioner was granted Business Permits No. 349 and
No. 276, respectively, by respondent Altagracia Villaflor as Municipal Mayor of Hilongos, Leyte. On 14
December 1993, pending final consideration of petitioners application for renewal with the PPA Office,
Manila, the PPA through its Port Manager Salvador L. Reyna of the Tacloban Port Management Office issued
a 90-day hold-over authority to petitioner. Stated therein was the proviso that notwithstanding the 90-day
period aforementioned, the authority shall be deemed ipso facto revoked if an earlier permit/contract for
cargo handling services is granted or sooner withdrawn or cancelled for cause pursuant to PPA
Administrative Order No. 10-81. On 27 January 1994, while the 90-day hold-over authority was in effect,
petitioner filed with respondent mayor an application for the renewal of its Business Permit No. 276.
However, the same was denied.
Aggrieved by the denial, petitioner filed with the RTC, a Petition for Mandamus with Preliminary
Mandatory Injunction[5] against respondent mayor, raising the primary ground that the refusal to issue the
business license sought for was a neglect to perform an act which the law enjoins her to do, by virtue of
the office she occupies. According to petitioner, the source of the power of the municipal mayor to issue
licenses is Section 444(b)(3)(iv)[6] of Republic Act No. 7160, otherwise known as the Local Government
Code of 1991, which is merely for the purpose of revenue generation and not regulation, hence, the
municipal mayor has no discretion to refuse the issuance of a business license following the applicants
payment or satisfaction of the proper license fees.[7] Petitioner further alleged that it is the PPA which is
vested with the discretion to determine whether a party can render arrastre service in a particular port
area.[8]
In answer thereto, respondent mayor averred, inter alia, that the remedy of mandamus does not lie
as the issuance of the permit sought is not a ministerial function, but one that requires the exercise of
sound judgment and discretion.[9] In denying petitioners application, respondent mayor invoked
Municipal Resolution No. 93-27,[10] passed by the Sangguniang Bayan of Hilongos, Leyte, on 17 March
1993, which prohibits any party which likewise operates shipping lines plying the route of Cebu to Hilongos
and vice versa, from engaging in arrastre and stevedoring services at the port of Hilongos.[11]
Respondent mayor asserted that petitioner is owned and operated by Roble Shipping Lines, a shipping
company that operates along the routes specified in Municipal Resolution No. 93-27;[12] hence, effectively
rendering petitioner disqualified from operating an arrastre service therein.[13] Finally, by way of
counterclaim, respondent mayor sought moral and exemplary damages, attorneys fees and expenses of
litigation.[14]
On 16 May 1994, petitioner filed a Supplemental Petition,[15] contending that subsequent to the
filing of the Petition for Mandamus with the RTC, it was granted by the PPA a five-year contract[16] to
provide cargo handling and other related services at the Port of Hilongos, Leyte, effective 1 March 1994.
The aforesaid contract was indorsed by the District Manager for the Visayas to the Port Manager of
Tacloban. Moreover, petitioner sought to incorporate the five-year contract as an integral part of its
Petition. The Supplemental Petition was admitted by the RTC, in the Order[17] dated 19 July 1994.

On 19 September 1994, the RTC issued a Pre-Trial Order containing the following admitted
stipulations of facts, to wit:
1. That petitioner in 1993 was issued a Mayors Permit No. 276 on January 29, 1993, [as] shown by Annex
B of the petition;
2. [That petitioner paid] for Business and License Permit for the year 1994 in the amount of P9,789.48
under Official Receipt No. 7534455-C;
3. [That petitioner procured a] Barangay Clearance.[18]
In the same Order, the RTC denied the parties motion that the case be submitted on the pleadings since
no judgment on the pleadings could be had as there were controverted issues material to the case.[19]
The Ruling of the RTC
The RTC opined that the PPA has the sole authority to grant permits in the operation of cargo
handling services in all Philippine ports, whether public or private. Proceeding therefrom, it ruled that the
refusal of respondent mayor to approve petitioners application for renewal of the business permit was not
based on law nor upon her discretion.
The RTC ratiocinated in this wise, thus:
As can be read the resolution is to object to the approval of a five (5) year management contract for
Arrastre and Stevedoring Services in the port of Hilongos, Leyte, applied by the Roble Arrastre, Inc. with
the concomitant reason that the Sangguniang Bayan finds it logical and ethical not to grant any permit to
any group or corporation in the municipal port of Hilongos who are operators of Shipping Lines flying (sic)
the route from Cebu to Hilongos and vice-versa to protect the business interest of the shipping industry of
the municipality. This resolution is signed by the Municipal Vice Mayor as Presiding Officer of Sangguniang
Bayan and approved by the Mayor. To the mind of the court the approval of the Mayor in a resolution by
the Sangguniang Bayan is superfluous. This is not an ordinance that should be signed by the mayor in
order to become effective as a law but a resolution of that august body. The above resolution was
approved on March 17, 1993 not withstanding (sic) the fact that as shown by the wordings thereat there
was already a public hearing conducted by PPA Manila on March 9, 1993 at the Municipal Multi[-] Purpose
Center. The Municipal Mayor was present and complaints were entertained by the Hearing Officers from
several shippers of Hilongos, Leyte. As appearing also in the lower portion of the said resolution, the same
was furnished PPA Manila and the respondent admitted that she did not even know whether a copy had
been sent by the Sangguniang Bayan to the concerned offices. Granting that this resolution reached the
General Manager, PPA, Manila, she have (sic) not pursued any action on the matter nor the Office of the
Mayor and the Sangguniang Bayan received any information of what proper action was taken therein. It is
indeed unfortunate that whatever nature of the complaints which was heard during the public hearing by
the representative of the PPA, it is not shown whether PPA lend (sic) an ear to it. The fact remains that on
March 1, 1994[,] nearly 1 year after this resolution and public hearing, the petitioner, Roble Arrastre, Inc.,
was given a contract by PPA who has the authority under P.D. 875[20] (sic) to issue the same.
x x x The law is clear that under P.D. 875 the sole authority to authorize operation of cargo
handling services in all ports of the Philippines whether public or private is lodge (sic) with the Philippine
Ports Authority. Under the said law the granting of permits is through the PPA Board carried out by the
General Manager or his assistant. This Court has taken noticed (sic) also that no ordinance had been
passed by the Sangguniang Bayan and approved by the Municipal Mayor of Hilongos, Leyte, in accordance
with the Local Government with regards to the port operation in the port of Hilongos nor there was [a]
showing that the Executive Officer of the municipality has anything to say on the power and jurisdiction of
the PPA in the port of Hilongos, Leyte. This goes to show that even these public officers knows (sic) the
extent of their power as regards the authority of the PPA.
This Court is of the firmed (sic) belief and so holds that the refusal of the Municipal Mayor to
approve the application for renewal is not based on law nor upon her discretion. Under the milieu of the
case the PPA is authorized and have (sic) the exclusive jurisdiction over all ports of the Philippines and they
(sic) alone can issue cargo handling contracts.[21]
Finding for petitioner, the court a quo disposed as follows:

PREMISES CONSIDERED, by preponderance of evidence, this Court give (sic) due course to this
petition of Mandamus in favor of the Roble Arrastre, Inc. and against the respondent, the Honorable
Municipal Mayor of Hilongos sued in her capacity as a Public Officer and orders her forthwith:
a)
To approve the application of Roble Arrastre, Inc. for the year 1994 as he has already paid
the necessary payments in connection therewith albeit the same permit is now functous officio as this is
now 1995. Nevertheless, this approved permit to be issued by the Mayor shall be a basis for renewal of
the said 1994 permit for the year 1995 after payment of due fees required by her office.
Without pronouncement as to costs. The counterclaim of respondent is hereby dismissed.[22]
Respondent mayor filed a Motion for Reconsideration thereon, which was denied for lack of merit by
the RTC, in the Order[23] dated 25 October 1995.
The Ruling of the Appellate Court
Upon elevation of the case to the Court of Appeals, the appellate court rendered a Decision dated 7
October 1996, reversing and setting aside the RTC. Moreover, it entered a new judgment dismissing
Special Civil Action No. H-237.
The Court of Appeals ruled that the pursuit of the duty of respondent mayor under Section 444(b)(3)(iv)
[24] of the Local Government Code necessarily entails the exercise of official discretion. Hence, it held that
mandamus will not lie to control or review the exercise of her discretion. Moreover, the Court of Appeals
declared that petitioners main prayer, i.e., to compel respondent mayor to issue a business license for the
year 1994, by the passage of time had already become moot and academic. On this score, the appellate
court declared that the issue is academic. Courts will not adjudicate moot cases nor hear a case when the
object sought is no longer attainable.
The appellate court pronounced, thus:
Under Section 444(b)(3)(iv), all local chief executive officer (sic) or municipal mayors are vested with the
authority to issue licenses and permits within their jurisdiction. In the same provision, the mayor may
likewise suspend or revoke a permit for any violation of the conditions upon which the same had been
issued, pursuant to law or ordinance. In effect, under said Section 444(b)(3)(iv), the municipal
governments, thru its chief executive, are endowed with the authority to exercise police power.
Evidently, the pursuit of its duty under the (sic) police power necessarily entails exercise of official
discretion in order for any local officials to ascertain which will better serve their constituents who elected
them into office. Full discretion must necessarily be granted them to perform their functions and it will not
be sound logic to simply make them perform purely ministerial functions. And when the discharge of an
official duty requires the exercise of official discretion or judgment, it is never a ministerial one (Mateo vs.
CA, 196 SCRA 280 [1991]).
Furthermore, where the only power given to a municipal corporation or official is to issue license, as in
Section 444 of the Local Government Code, it is clearly regulatory in nature rather than a revenue raising
one. Conclusively, regulation being the object of the power to issue license and permits the exercise of
discretion by the issuing authority becomes an inescapable prerogative. This could be the very same
reason why business permits and licenses are renewed almost annually in order that the licensing officials
in carrying out their functions could examine and evaluate availing circumstances and conditions and with
the exercise of discretion determine whether to grant or deny the application or, to revoke a license or
permit already issued. It should also be understood that a municipal license is not a property such that it
is revocable when public interest so requires (Pedro vs. Provincial Board of Rizal, 56 Phil. 126).[25]
The dispositive portion of the assailed Decision reads:
IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby REVERSED AND SET ASIDE and a new
one entered dismissing Special Civil Action No. [H-]237. No pronouncement as to costs.[26]
Petitioner filed a Motion for Reconsideration but the same was denied by the Court of Appeals in its
Resolution dated 13 February 1997.
3

Hence, the instant Petition.


The Issues
Petitioner, in its Memorandum, presented the following statement of issues, to wit:
I

Whether or not it was valid for the Court of Appeals to have relied on the cases of Mateo v. Court of
Appeals and Pedro v. Provincial Board of Rizal, in ruling that respondent Mayor had full discretion in issuing
or renewing the Business Permit even after the petitioner duly complied with all documentary
requirements and fully paid the corresponding permit fees.
II
Whether or not the Court of Appeals validly interpreted Section 444, (3) (iv), R.A. 7160, otherwise known
as the Local Government Code of 1991, as a grant of police power and full discretion to the respondent
mayor to refuse the issuance of the permit despite due compliance of all documentary requirements and
full payment of the required permit fees by the petitioner.

III
Whether or not the Court of Appeals validly rendered its Decision when it refused to apply the precedent
in Symaco v. Aquino wherein this Honorable Supreme Court held that even in the absence of any ordinance
granting the respondent Mayor such discretion, she cannot refuse issuance of the permit if there is prior
compliance by the petitioner with all documentary requirement and full payment of the required permit
fees.
IV
Whether or not the Court of Appeals validly rendered its Decision when it dismissed the [Petition] allegedly
on the ground that it became (sic) moot and academic.[27]

The Ruling of the Court


At the outset, we state our concurrence with the Court of Appeals when it entered a new judgment
dismissing Special Civil Action No. H-237 on the ground of mootness. The appellate court ratiocinated, to
wit:
Lastly, it would seem that the main prayer of the complaint, that is, to compel the respondent
mayor to issue a business license for the year 1994, by the passage of time during which this case pends,
had already become moot and academic. A new application is necessary for the year 1995 and the year
1996 which is about to end. And in the grant or denial of such application for business permits or licenses,
the respondent mayor must examine closely the circumstances prevailing and again use her discretion in
the exercise of her official function. Accordingly, the issue at hand is already academic and it is well
established that courts will not adjudicate moot cases nor hear a case when the object sought is not
attainable (State vs. Lambert, 52 W. Va. 248, 43 S. E. 176) and it will decline jurisdiction over moot cases
which must involve only actual interests. (In re: Estate of Caballos, 12 Phil. 271; Beech vs. Crossfield, 12
Phil. 555).[28]
Indeed, Courts will not determine a moot question in a case in which no practical relief can be granted. It
is unnecessary to indulge in academic discussion of a case presenting a moot question as a judgment
thereon cannot have any practical legal effect or, in the nature of things, cannot be enforced.[29]
However, we are constrained to render judgment herein pursuant to our symbolic function of educating the
bench and the bar.[30] For another, this case comes within the rule that courts will decide a question
otherwise moot and academic if it is capable of repetition yet evading review.[31]

The crux of the instant controversy is whether respondent mayor can be compelled by a writ of mandamus
to grant petitioners application for a renewal of a business permit to operate an arrastre service at the
Municipal Port of Hilongos in Leyte.
Ostensibly, it is petitioners contention that respondent mayors power to issue permits as
contained in the aforesaid law is ministerial; hence, mandamus lies.
It bears to reiterate this Courts ruling on the nature of the writ of mandamus. The writ of
mandamus serves to compel a respondent who fails to perform a legal duty or unlawfully excludes another
from the enjoyment of an entitled right or office to do the act required to be done to protect the rights of
the petitioner.[32] Otherwise stated, mandamus is issued to command the performance of a ministerial,
but not a discretionary duty.
With that settled, we make a determination of the nature of the power of respondent mayor to grant
petitioner a permit to operate an arrastre service. Central to the resolution of the case at bar is a reading
of Section 444(b)(3)(iv) of the Local Government Code of 1991, which provides, thus:
SEC. 444. The Chief Executive: Powers, Duties, Functions and Compensation.
(b) For efficient, effective and economical governance the purpose of which is the general welfare of the
municipality and its inhabitants pursuant to Section 16 of this Code, the Municipal mayor shall:
(3) Initiate and maximize the generation of resources and revenues, and apply the same to the
implementation of development plans, program objectives and priorities as provided for under Section 18
of this Code, particularly those resources and revenues programmed for agro-industrial development and
country-wide growth and progress, and relative thereto, shall:
(iv) Issue licenses and permits and suspend or revoke the same for any violation of the conditions upon
which said licenses or permits had been issued, pursuant to law or ordinance. (Italics supplied.)
As Section 444(b)(3)(iv) so states, the power of the municipal mayor to issue licenses is pursuant to
Section 16 of the Local Government Code of 1991, which declares:
SEC. 16. General Welfare. - Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient
and effective governance, and those which are essential to the promotion of the general welfare. Within
their respective territorial jurisdictions, local government units shall ensure and support, among other
things, the preservation and enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of appropriate and self-reliant
scientific and technological capabilities, improve public morals, enhance economic prosperity and social
justice, promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.
Section 16, known as the general welfare clause, encapsulates the delegated police power to local
governments. Local government units exercise police power through their respective legislative bodies.
[33] Evidently, the Local Government Code of 1991 is unequivocal that the municipal mayor has the
power to issue licenses and permits and suspend or revoke the same for any violation of the conditions
upon which said licenses or permits had been issued, pursuant to law or ordinance. On this matter,
petitioner maintains that under the Local Government Code of 1991, a suspension or revocation of permits
shall be premised on a finding of violation of the conditions upon which the permits were issued pursuant
to a law or ordinance, which is independent of the Code itself. Petitioner asseverates further that there
was no law or ordinance that conferred upon the respondent mayor the power to refuse the issuance of the
permit despite compliance of petitioner with all documentary requirements and payment of all the fees.
First. On petitioners assertion that the power to issue license should be pursuant to law other than the
Local Government Code of 1991, we so hold that the language of the law did not find the need to
distinguish between other laws and that of the Local Government Code of 1991 itself. When the law does
not distinguish, we must not distinguish.[34] Ubi lex non distinguit nec nos distinguere debemus. Hence,
even the Local Government Code of 1991, specifically Section 16 thereof, can be utilized to determine the
bounds of the exercise of the municipal mayor in issuing licenses and permits.
5

Second. While we agree with petitioner that there is no ordinance conferring upon the respondent mayor
the power to refuse the issuance of the permit for the operation of an arrastre service, we are, as yet,
unprepared to declare that the power of the municipal mayor as enunciated under Section 444(b)(3)(iv) is
ministerial. What can be deduced from the aforesaid section is that the limits in the exercise of the power
of a municipal mayor to issue licenses, and permits and suspend or revoke the same can be contained in a
law or an ordinance. Otherwise stated, a law or an ordinance can provide the conditions upon which the
power of the municipal mayor under Section 444(b)(3)(iv) can be exercised. Section 444(b)(3)(iv) of the
Local Government Code of 1991 takes its cue from Section 16 thereof, which is largely an exercise of
delegated police power. We said:
The general welfare clause is the delegation in statutory form of the police power of the State to LGUs.
Through this, LGUs may prescribe regulations to protect the lives, health, and property of their
constituents and maintain peace and order within their respective territorial jurisdictions. Accordingly, we
have upheld enactments providing, for instance, the regulation of gambling, the occupation of rig drivers,
the installation and operation of pinball machines, the maintenance and operation of cockpits, the
exhumation and transfer of corpses from public burial grounds, and the operation of hotels, motels, and
lodging houses as valid exercises by local legislatures of the police power under the general welfare
clause.[35]
Section 444(b)(3)(iv) of the Local Government Code of 1991, whereby the power of the respondent mayor
to issue license and permits is circumscribed, is a manifestation of the delegated police power of a
municipal corporation.[36] Necessarily, the exercise thereof cannot be deemed ministerial. As to the
question of whether the power is validly exercised, the matter is within the province of a writ of certiorari,
but certainly, not of mandamus.
It may be true, as argued by petitioner, that Resolution No. 93-27, which was enacted by the Sangguniang
Bayan of Hilongos, is not an ordinance but merely a resolution. A municipal ordinance is different from a
resolution. An ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a
lawmaking body on a specific matter. An ordinance possesses a general and permanent character, but a
resolution is temporary in nature. Additionally, the two are enacted differently - a third reading is
necessary for an ordinance, but not for a resolution, unless decided otherwise by a majority of all the
Sanggunian members.[37]
However, the fact that Resolution No. 93-27 is a mere resolution can do nil to support petitioners cause.
As stated earlier, the proper action is certiorari to determine whether grave abuse of discretion had been
committed on the part of respondent mayor in the refusal to grant petitioners application. Petitioners
petition for mandamus is incompetent against respondent mayors discretionary power. Thus:
Discretion, when applied to public functionaries, means a power or right conferred upon them by law or
acting officially, under certain circumstances, uncontrolled by the judgment or conscience of others. A
purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal
performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal
authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the
act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when
the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only
when the discharge of the same requires neither the exercise of official discretion or judgment.[38]
The Fallo
WHEREFORE, the Petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CAG.R. SP No. 40621, dated 7 October 1996 and 13 February 1997, respectively, dismissing Special Civil
Action No. H-237 are AFFIRMED. Costs against petitioner.
SO ORDERED.
CASE 2: FERNANDO VS SCHOLASTICA
G.R. No. 161107

March 12, 2013

HON. MA. LOURDES C. FERNANDO, in her capacity as City Mayor of Marikina City, JOSEPHINE C.
EVANGELIST A, in her capacity as Chief, Permit Division, Office of the City Engineer, and ALFONSO
ESPIRITU, in his capacity as City Engineer of Marikina City, Petitioners,
vs.
ST. SCHOLASTICA'S COLLEGE and ST. SCHOLASTICA'S ACADEMY-MARIKINA, INC., Respondents.
DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to
set aside the December 1, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 75691.
The Facts
Respondents St. Scholasticas College (SSC) and St. Scholasticas Academy-Marikina, Inc. (SSA-Marikina)
are educational institutions organized under the laws of the Republic of the Philippines, with principal
offices and business addresses at Leon Guinto Street, Malate, Manila, and at West Drive, Marikina Heights,
Marikina City, respectively.2
Respondent SSC is the owner of four (4) parcels of land measuring a total of 56,306.80 square meters,
located in Marikina Heights and covered by Transfer Certificate Title (TCT) No. 91537. Located within the
property are SSA-Marikina, the residence of the sisters of the Benedictine Order, the formation house of
the novices, and the retirement house for the elderly sisters. The property is enclosed by a tall concrete
perimeter fence built some thirty (30) years ago. Abutting the fence along the West Drive are buildings,
facilities, and other improvements.3
The petitioners are the officials of the City Government of Marikina. On September 30, 1994, the
Sangguniang Panlungsod of Marikina City enacted Ordinance No. 192,4 entitled "Regulating the
Construction of Fences and Walls in the Municipality of Marikina." In 1995 and 1998, Ordinance Nos. 2175
and 2006 were enacted to amend Sections 7 and 5, respectively. Ordinance No. 192, as amended, is
reproduced hereunder, as follows:
ORDINANCE No. 192
Series of 1994
ORDINANCE REGULATING THE CONSTRUCTION OF FENCES AND WALLS IN THE MUNICIPALITY OF
MARIKINA
WHEREAS, under Section 447.2 of Republic Act No. 7160 otherwise known as the Local Government
Code of 1991 empowers the Sangguniang Bayan as the local legislative body of the municipality to "x x x
Prescribe reasonable limits and restraints on the use of property within the jurisdiction of the municipality,
x x x";
WHEREAS the effort of the municipality to accelerate its economic and physical development, coupled
with urbanization and modernization, makes imperative the adoption of an ordinance which shall embody
up-to-date and modern technical design in the construction of fences of residential, commercial and
industrial buildings;
WHEREAS, Presidential Decree No. 1096, otherwise known as the National Building Code of the
Philippines, does not adequately provide technical guidelines for the construction of fences, in terms of
design, construction, and criteria;
WHEREAS, the adoption of such technical standards shall provide more efficient and effective
enforcement of laws on public safety and security;
WHEREAS, it has occurred in not just a few occasions that high fences or walls did not actually
discourage but, in fact, even protected burglars, robbers, and other lawless elements from the view of
outsiders once they have gained ingress into these walls, hence, fences not necessarily providing security,
but becomes itself a "security problem";
7

WHEREAS, to discourage, suppress or prevent the concealment of prohibited or unlawful acts earlier
enumerated, and as guardian of the people of Marikina, the municipal government seeks to enact and
implement rules and ordinances to protect and promote the health, safety and morals of its constituents;
WHEREAS, consistent too, with the "Clean and Green Program" of the government, lowering of fences
and walls shall encourage people to plant more trees and ornamental plants in their yards, and when
visible, such trees and ornamental plants are expected to create an aura of a clean, green and beautiful
environment for Marikeos;
WHEREAS, high fences are unsightly that, in the past, people planted on sidewalks to "beautify" the
faade of their residences but, however, become hazards and obstructions to pedestrians;
WHEREAS, high and solid walls as fences are considered "un-neighborly" preventing community
members to easily communicate and socialize and deemed to create "boxed-in" mentality among the
populace;
WHEREAS, to gather as wide-range of opinions and comments on this proposal, and as a requirement of
the Local Government Code of 1991 (R.A. 7160), the Sangguniang Bayan of Marikina invited presidents or
officers of homeowners associations, and commercial and industrial establishments in Marikina to two
public hearings held on July 28, 1994 and August 25, 1994;
WHEREAS, the rationale and mechanics of the proposed ordinance were fully presented to the attendees
and no vehement objection was presented to the municipal government;
NOW, THEREFORE, BE IT ORDAINED BY THE SANGGUINANG BAYAN OF MARIKINA IN SESSION DULY
ASSEMBLED:
Section 1. Coverage: This Ordinance regulates the construction of all fences, walls and gates on lots
classified or used for residential, commercial, industrial, or special purposes.
Section 2. Definition of Terms:
a. Front Yard refers to the area of the lot fronting a street, alley or public thoroughfare.
b. Back Yard the part of the lot at the rear of the structure constructed therein.
c. Open fence type of fence which allows a view of "thru-see" of the inner yard and the improvements
therein. (Examples: wrought iron, wooden lattice, cyclone wire)
d. Front gate refers to the gate which serves as a passage of persons or vehicles fronting a street,
alley, or public thoroughfare.
Section 3. The standard height of fences or walls allowed under this ordinance are as follows:
(1) Fences on the front yard shall be no more than one (1) meter in height. Fences in excess of one (1)
meter shall be of an open fence type, at least eighty percent (80%) see-thru; and
(2) Fences on the side and back yard shall be in accordance with the provisions of P.D. 1096 otherwise
known as the National Building Code.
Section 4. No fence of any kind shall be allowed in areas specifically reserved or classified as parks.
Section 5. In no case shall walls and fences be built within the five (5) meter parking area allowance
located between the front monument line and the building line of commercial and industrial
establishments and educational and religious institutions.7
Section 6. Exemption.
(1) The Ordinance does not cover perimeter walls of residential subdivisions.

(2) When public safety or public welfare requires, the Sangguniang Bayan may allow the construction
and/or maintenance of walls higher than as prescribed herein and shall issue a special permit or
exemption.
Section 7. Transitory Provision. Real property owners whose existing fences and walls do not conform to
the specifications herein are allowed adequate period of time from the passage of this Ordinance within
which to conform, as follows:
(1) Residential houses eight (8) years
(2) Commercial establishments five (5) years
(3) Industrial establishments three (3) years
(4) Educational institutions five (5) years8 (public and privately owned)
Section 8. Penalty. Walls found not conforming to the provisions of this Ordinance shall be demolished by
the municipal government at the expense of the owner of the lot or structure.
Section 9. The Municipal Engineering Office is tasked to strictly implement this ordinance, including the
issuance of the necessary implementing guidelines, issuance of building and fencing permits, and
demolition of non-conforming walls at the lapse of the grace period herein provided.
Section 10. Repealing Clause. All existing Ordinances and Resolutions, Rules and Regulations
inconsistent with the foregoing provisions are hereby repealed, amended or modified.
Section 11. Separability Clause. If for any reason or reasons, local executive orders, rules and
regulations or parts thereof in conflict with this Ordinance are hereby repealed and/or modified accordingly.
Section 12. Effectivity. This ordinance takes effect after publication.
APPROVED: September 30, 1994
(Emphases supplied)
On April 2, 2000, the City Government of Marikina sent a letter to the respondents ordering them to
demolish and replace the fence of their Marikina property to make it 80% see-thru, and, at the same time,
to move it back about six (6) meters to provide parking space for vehicles to park.9 On April 26, 2000, the
respondents requested for an extension of time to comply with the directive.10 In response, the
petitioners, through then City Mayor Bayani F. Fernando, insisted on the enforcement of the subject
ordinance.
Not in conformity, the respondents filed a petition for prohibition with an application for a writ of
preliminary injunction and temporary restraining order before the Regional Trial Court, Marikina, Branch
273 (RTC), docketed as SCA Case No. 2000-381-MK.11
The respondents argued that the petitioners were acting in excess of jurisdiction in enforcing Ordinance
No. 192, asserting that such contravenes Section 1, Article III of the 1987 Constitution. That demolishing
their fence and constructing it six (6) meters back would result in the loss of at least 1,808.34 square
meters, worth about P9,041,700.00, along West Drive, and at least 1,954.02 square meters, worth roughly
P9,770,100.00, along East Drive. It would also result in the destruction of the garbage house, covered
walk, electric house, storage house, comfort rooms, guards room, guards post, waiting area for visitors,
waiting area for students, Blessed Virgin Shrine, P.E. area, and the multi-purpose hall, resulting in the
permanent loss of their beneficial use. The respondents, thus, asserted that the implementation of the
ordinance on their property would be tantamount to an appropriation of property without due process of
law; and that the petitioners could only appropriate a portion of their property through eminent domain.
They also pointed out that the goal of the provisions to deter lawless elements and criminality did not exist
as the solid concrete walls of the school had served as sufficient protection for many years.12

The petitioners, on the other hand, countered that the ordinance was a valid exercise of police power, by
virtue of which, they could restrain property rights for the protection of public safety, health, morals, or the
promotion of public convenience and general prosperity.13
On June 30, 2000, the RTC issued a writ of preliminary injunction, enjoining the petitioners from
implementing the demolition of the fence at SSCs Marikina property.14
Ruling of the RTC
On the merits, the RTC rendered a Decision,15 dated October 2, 2002, granting the petition and ordering
the issuance of a writ of prohibition commanding the petitioners to permanently desist from enforcing or
implementing Ordinance No. 192 on the respondents property.
The RTC agreed with the respondents that the order of the petitioners to demolish the fence at the SSC
property in Marikina and to move it back six (6) meters would amount to an appropriation of property
which could only be done through the exercise of eminent domain. It held that the petitioners could not
take the respondents property under the guise of police power to evade the payment of just
compensation.
It did not give weight to the petitioners contention that the parking space was for the benefit of the
students and patrons of SSA-Marikina, considering that the respondents were already providing for
sufficient parking in compliance with the standards under Rule XIX of the National Building Code.
It further found that the 80% see-thru fence requirement could run counter to the respondents right to
privacy, considering that the property also served as a residence of the Benedictine sisters, who were
entitled to some sense of privacy in their affairs. It also found that the respondents were able to prove that
the danger to security had no basis in their case. Moreover, it held that the purpose of beautification could
not be used to justify the exercise of police power.
It also observed that Section 7 of Ordinance No. 192, as amended, provided for retroactive application. It
held, however, that such retroactive effect should not impair the respondents vested substantive rights
over the perimeter walls, the six-meter strips of land along the walls, and the building, structures, facilities,
and improvements, which would be destroyed by the demolition of the walls and the seizure of the strips of
land.
The RTC also found untenable the petitioners argument that Ordinance No. 192 was a remedial or curative
statute intended to correct the defects of buildings and structures, which were brought about by the
absence or insufficiency of laws. It ruled that the assailed ordinance was neither remedial nor curative in
nature, considering that at the time the respondents perimeter wall was built, the same was valid and
legal, and the ordinance did not refer to any previous legislation that it sought to correct.
The RTC noted that the petitioners could still take action to expropriate the subject property through
eminent domain.
The RTC, thus, disposed:
WHEREFORE, the petition is GRANTED. The writ of prohibition is hereby issued commanding the
respondents to permanently desist from enforcing or implementing Ordinance No. 192, Series of 1994, as
amended, on petitioners property in question located at Marikina Heights, Marikina, Metro Manila.
No pronouncement as to costs.
SO ORDERED.16
Ruling of the CA
In its December 1, 2003 Decision, the CA dismissed the petitioners appeal and affirmed the RTC decision.
The CA reasoned out that the objectives stated in Ordinance No. 192 did not justify the exercise of police
power, as it did not only seek to regulate, but also involved the taking of the respondents property without
due process of law. The respondents were bound to lose an unquantifiable sense of security, the beneficial
10

use of their structures, and a total of 3,762.36 square meters of property. It, thus, ruled that the assailed
ordinance could not be upheld as valid as it clearly invaded the personal and property rights of the
respondents and "[f]or being unreasonable, and undue restraint of trade."17
It noted that although the petitioners complied with procedural due process in enacting Ordinance No. 192,
they failed to comply with substantive due process. Hence, the failure of the respondents to attend the
public hearings in order to raise objections did not amount to a waiver of their right to question the validity
of the ordinance.
The CA also shot down the argument that the five-meter setback provision for parking was a legal
easement, the use and ownership of which would remain with, and inure to, the benefit of the respondents
for whom the easement was primarily intended. It found that the real intent of the setback provision was
to make the parking space free for use by the public, considering that such would cease to be for the
exclusive use of the school and its students as it would be situated outside school premises and beyond
the school administrations control.
In affirming the RTC ruling that the ordinance was not a curative statute, the CA found that the petitioner
failed to point out any irregularity or invalidity in the provisions of the National Building Code that required
correction or cure. It noted that any correction in the Code should be properly undertaken by the Congress
and not by the City Council of Marikina through an ordinance.
The CA, thus, disposed:
WHEREFORE, all foregoing premises considered, the instant appeal is DENIED.1wphi1 The October 2,
2002 Decision and the January 13, 2003 Order of the Regional Trial Court (RTC) of Marikina City, Branch
273, granting petitioners-appellees petition for Prohibition in SCA Case No. 2000-381-MK are hereby
AFFIRMED.
SO ORDERED.18
Aggrieved by the decision of the CA, the petitioners are now before this Court presenting the following
ASSIGNMENT OF ERRORS
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT CITY ORDINANCE
NO. 192, SERIES OF 1994 IS NOT A VALID EXERCISE OF POLICE POWER;
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE AFOREMENTIONED
ORDINANCE IS AN EXERCISE OF THE CITY OF THE POWER OF EMINENT DOMAIN;
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITY VIOLATED
THE DUE PROCESS CLAUSE IN IMPLEMENTING ORDINANCE NO. 192, SERIES OF 1994; AND
4. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE ABOVEMENTIONED ORDINANCE CANNOT BE GIVEN RETROACTIVE APPLICATION.19
In this case, the petitioners admit that Section 5 of the assailed ordinance, pertaining to the five-meter
setback requirement is, as held by the lower courts, invalid.20 Nonetheless, the petitioners argue that such
invalidity was subsequently cured by Zoning Ordinance No. 303, series of 2000. They also contend that
Section 3, relating to the 80% see-thru fence requirement, must be complied with, as it remains to be
valid.
Ruling of the Court
The ultimate question before the Court is whether Sections 3.1 and 5 of Ordinance No. 192 are valid
exercises of police power by the City Government of Marikina.
"Police power is the plenary power vested in the legislature to make statutes and ordinances to promote
the health, morals, peace, education, good order or safety and general welfare of the people."21 The
State, through the legislature, has delegated the exercise of police power to local government units, as
agencies of the State. This delegation of police power is embodied in Section 1622 of the Local
11

Government Code of 1991 (R.A. No. 7160), known as the General Welfare Clause,23 which has two
branches. "The first, known as the general legislative power, authorizes the municipal council to enact
ordinances and make regulations not repugnant to law, as may be necessary to carry into effect and
discharge the powers and duties conferred upon the municipal council by law. The second, known as the
police power proper, authorizes the municipality to enact ordinances as may be necessary and proper for
the health and safety, prosperity, morals, peace, good order, comfort, and convenience of the municipality
and its inhabitants, and for the protection of their property."24
White Light Corporation v. City of Manila,25 discusses the test of a valid ordinance:
The test of a valid ordinance is well established. A long line of decisions including City of Manila has held
that for an ordinance to be valid, it must not only be within the corporate powers of the local government
unit to enact and pass according to the procedure prescribed by law, it must also conform to the following
substantive requirements: (1) must not contravene the
Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be partial or discriminatory;
(4) must not prohibit but may regulate trade; (5) must be general and consistent with public policy; and (6)
must not be unreasonable.26
Ordinance No. 192 was passed by the City Council of Marikina in the apparent exercise of its police power.
To successfully invoke the exercise of police power as the rationale for the enactment of an ordinance and
to free it from the imputation of constitutional infirmity, two tests have been used by the Court the
rational relationship test and the strict scrutiny test:
We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges.
Using the rational basis examination, laws or ordinances are upheld if they rationally further a legitimate
governmental interest. Under intermediate review, governmental interest is extensively examined and the
availability of less restrictive measures is considered. Applying strict scrutiny, the focus is on the presence
of compelling, rather than substantial, governmental interest and on the absence of less restrictive means
for achieving that interest.27
Even without going to a discussion of the strict scrutiny test, Ordinance No. 192, series of 1994 must be
struck down for not being reasonably necessary to accomplish the Citys purpose. More importantly, it is
oppressive of private rights.
Under the rational relationship test, an ordinance must pass the following requisites as discussed in Social
Justice Society (SJS) v. Atienza, Jr.:28
As with the State, local governments may be considered as having properly exercised their police power
only if the following requisites are met: (1) the interests of the public generally, as distinguished from
those of a particular class, require its exercise and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals. In short, there must be a
concurrence of a lawful subject and lawful method.29
Lacking a concurrence of these two requisites, the police power measure shall be struck down as an
arbitrary intrusion into private rights and a violation of the due process clause.30
Section 3.1 and 5 of the assailed ordinance are pertinent to the issue at hand, to wit:
Section 3. The standard height of fences of walls allowed under this ordinance are as follows:
(1) Fences on the front yard shall be no more than one (1) meter in height. Fences in excess of one (1)
meter shall be an open fence type, at least eighty percent (80%) see-thru;
xxx

xxx

xxx

Section 5. In no case shall walls and fences be built within the five (5) meter parking area allowance
located between the front monument line and the building line of commercial and industrial
establishments and educational and religious institutions.

12

The respondents, thus, sought to prohibit the petitioners from requiring them to (1) demolish their existing
concrete wall, (2) build a fence (in excess of one meter) which must be 80% see-thru, and (3) build the
said fence six meters back in order to provide a parking area.
Setback Requirement
The Court first turns its attention to Section 5 which requires the five-meter setback of the fence to provide
for a parking area. The petitioners initially argued that the ownership of the parking area to be created
would remain with the respondents as it would primarily be for the use of its students and faculty, and that
its use by the public on non-school days would only be incidental. In their Reply, however, the petitioners
admitted that Section 5 was, in fact, invalid for being repugnant to the Constitution.31
The Court agrees with the latter position.
The Court joins the CA in finding that the real intent of the setback requirement was to make the parking
space free for use by the public, considering that it would no longer be for the exclusive use of the
respondents as it would also be available for use by the general public. Section 9 of Article III of the 1987
Constitution, a provision on eminent domain, provides that private property shall not be taken for public
use without just compensation.
The petitioners cannot justify the setback by arguing that the ownership of the property will continue to
remain with the respondents. It is a settled rule that neither the acquisition of title nor the total destruction
of value is essential to taking. In fact, it is usually in cases where the title remains with the private owner
that inquiry should be made to determine whether the impairment of a property is merely regulated or
amounts to a compensable taking.32 The Court is of the view that the implementation of the setback
requirement would be tantamount to a taking of a total of 3,762.36 square meters of the respondents
private property for public use without just compensation, in contravention to the Constitution.
Anent the objectives of prevention of concealment of unlawful acts and "un-neighborliness," it is obvious
that providing for a parking area has no logical connection to, and is not reasonably necessary for, the
accomplishment of these goals.
Regarding the beautification purpose of the setback requirement, it has long been settled that the State
may not, under the guise of police power, permanently divest owners of the beneficial use of their property
solely to preserve or enhance the aesthetic appearance of the community.33 The Court, thus, finds Section
5 to be unreasonable and oppressive as it will substantially divest the respondents of the beneficial use of
their property solely for aesthetic purposes. Accordingly, Section 5 of Ordinance No. 192 is invalid.
The petitioners, however, argue that the invalidity of Section 5 was properly cured by Zoning Ordinance
No. 303,34 Series of 2000, which classified the respondents property to be within an institutional zone,
under which a five-meter setback has been required.
The petitioners are mistaken. Ordinance No. 303, Series of 2000, has no bearing to the case at hand.
The Court notes with displeasure that this argument was only raised for the first time on appeal in this
Court in the petitioners Reply. Considering that Ordinance No. 303 was enacted on December 20, 2000,
the petitioners could very well have raised it in their defense before the RTC in 2002. The settled rule in
this jurisdiction is that a party cannot change the legal theory of this case under which the controversy was
heard and decided in the trial court. It should be the same theory under which the review on appeal is
conducted. Points of law, theories, issues, and arguments not adequately brought to the attention of the
lower court will not be ordinarily considered by a reviewing court, inasmuch as they cannot be raised for
the first time on appeal. This will be offensive to the basic rules of fair play, justice, and due process.35
Furthermore, the two ordinances have completely different purposes and subjects. Ordinance No. 192 aims
to regulate the construction of fences, while Ordinance No. 303 is a zoning ordinance which classifies the
city into specific land uses. In fact, the five-meter setback required by Ordinance No. 303 does not even
appear to be for the purpose of providing a parking area.
By no stretch of the imagination, therefore, can Ordinance No. 303, "cure" Section 5 of Ordinance No. 192.

13

In any case, the clear subject of the petition for prohibition filed by the respondents is Ordinance No. 192
and, as such, the precise issue to be determined is whether the petitioners can be prohibited from
enforcing the said ordinance, and no other, against the respondents.
80% See-Thru Fence Requirement
The petitioners argue that while Section 5 of Ordinance No. 192 may be invalid, Section 3.1 limiting the
height of fences to one meter and requiring fences in excess of one meter to be at least 80% see-thru,
should remain valid and enforceable against the respondents.
The Court cannot accommodate the petitioner.
For Section 3.1 to pass the rational relationship test, the petitioners must show the reasonable relation
between the purpose of the police power measure and the means employed for its accomplishment, for
even under the guise of protecting the public interest, personal rights and those pertaining to private
property will not be permitted to be arbitrarily invaded.36
The principal purpose of Section 3.1 is "to discourage, suppress or prevent the concealment of prohibited
or unlawful acts." The ultimate goal of this objective is clearly the prevention of crime to ensure public
safety and security. The means employed by the petitioners, however, is not reasonably necessary for the
accomplishment of this purpose and is unduly oppressive to private rights. The petitioners have not
adequately shown, and it does not appear obvious to this Court, that an 80% see-thru fence would provide
better protection and a higher level of security, or serve as a more satisfactory criminal deterrent, than a
tall solid concrete wall. It may even be argued that such exposed premises could entice and tempt wouldbe criminals to the property, and that a see-thru fence would be easier to bypass and breach. It also
appears that the respondents concrete wall has served as more than sufficient protection over the last 40
years. `
As to the beautification purpose of the assailed ordinance, as previously discussed, the State may not,
under the guise of police power, infringe on private rights solely for the sake of the aesthetic appearance
of the community. Similarly, the Court cannot perceive how a see-thru fence will foster "neighborliness"
between members of a community.
Compelling the respondents to construct their fence in accordance with the assailed ordinance is, thus, a
clear encroachment on their right to property, which necessarily includes their right to decide how best to
protect their property.
It also appears that requiring the exposure of their property via a see-thru fence is violative of their right to
privacy, considering that the residence of the Benedictine nuns is also located within the property. The
right to privacy has long been considered a fundamental right guaranteed by the Constitution that must be
protected from intrusion or constraint. The right to privacy is essentially the right to be let alone,37 as
governmental powers should stop short of certain intrusions into the personal life of its citizens.38 It is
inherent in the concept of liberty, enshrined in the Bill of Rights (Article III) in Sections 1, 2, 3(1), 6, 8, and
17, Article III of the 1987 Constitution.39
The enforcement of Section 3.1 would, therefore, result in an undue interference with the respondents
rights to property and privacy. Section 3.1 of Ordinance No. 192 is, thus, also invalid and cannot be
enforced against the respondents.
No Retroactivity
Ordinance No. 217 amended Section 7 of Ordinance No. 192 by including the regulation of educational
institutions which was unintentionally omitted, and giving said educational institutions five (5) years from
the passage of Ordinance No. 192 (and not Ordinance No. 217) to conform to its provisions.40 The
petitioners argued that the amendment could be retroactively applied because the assailed ordinance is a
curative statute which is retroactive in nature.
Considering that Sections 3.1 and 5 of Ordinance No. 192 cannot be enforced against the respondents, it is
no longer necessary to rule on the issue of retroactivity. The Court shall, nevertheless, pass upon the issue
for the sake of clarity.
14

"Curative statutes are enacted to cure defects in a prior law or to validate legal proceedings which would
otherwise be void for want of conformity with certain legal requirements. They are intended to supply
defects, abridge superfluities and curb certain evils. They are intended to enable persons to carry into
effect that which they have designed or intended, but has failed of expected legal consequence by reason
of some statutory disability or irregularity in their own action. They make valid that which, before the
enactment of the statute was invalid. Their purpose is to give validity to acts done that would have been
invalid under existing laws, as if existing laws have been complied with. Curative statutes, therefore, by
their very essence, are retroactive."41
The petitioners argue that Ordinance No. 192 is a curative statute as it aims to correct or cure a defect in
the National Building Code, namely, its failure to provide for adequate guidelines for the construction of
fences. They ultimately seek to remedy an insufficiency in the law. In aiming to cure this insufficiency, the
petitioners attempt to add lacking provisions to the National Building Code. This is not what is
contemplated by curative statutes, which intend to correct irregularities or invalidity in the law. The
petitioners fail to point out any irregular or invalid provision. As such, the assailed ordinance cannot qualify
as curative and retroactive in nature.
At any rate, there appears to be no insufficiency in the National Building Code with respect to parking
provisions in relation to the issue of the respondents. Paragraph 1.16.1, Rule XIX of the Rules and
Regulations of the said code requires an educational institution to provide one parking slot for every ten
classrooms. As found by the lower courts, the respondents provide a total of 76 parking slots for their 80
classrooms and, thus, had more than sufficiently complied with the law.
Ordinance No. 192, as amended, is, therefore, not a curative statute which may be applied retroactively.
Separability
Sections 3.1 and 5 of Ordinance No. 192, as amended, are, thus, invalid and cannot be enforced against
the respondents. Nonetheless, "the general rule is that where part of a statute is void as repugnant to the
Constitution, while another part is valid, the valid portion, if susceptible to being separated from the
invalid, may stand and be enforced."42 Thus, the other sections of the assailed ordinance remain valid and
enforceable.
Conclusion
Considering the invalidity of Sections 3.1 and 5, it is clear that the petitioners were acting in excess of their
jurisdiction in enforcing Ordinance No. 192 against the respondents. The CA was correct in affirming the
decision of the RTC in issuing the writ of prohibition. The petitioners must permanently desist from
enforcing Sections 3.1 and 5 of the assailed ordinance on the respondents' property in Marikina City.
WHEREFORE, the petition is DENIED. The October 2, 2002 Decision of the Regional Trial Court in SCA Case
No. 2000-381-MK is AFFIRMED but MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. The writ of prohibition is hereby issued commanding the
respondents to permanently desist from enforcing or implementing Sections 3.1 and 5 of Ordinance No.
192, Series of 1994, as amended, on the petitioners' property in question located in Marikina Heights,
Marikina, Metro Manila.
No pronouncement as to costs.
SO ORDERED.
CASE 3: CITY OF MANILA VS LAGUIO
CITY OF MANILA, HON. ALFREDO S. LIM as the Mayor of the City of Manila, HON. JOSELITO L. ATIENZA, in
his capacity as Vice-Mayor of the City of Manila and Presiding Officer of the City Council of Manila, HON.
ERNESTO A. NIEVA, HON. GONZALO P. GONZALES, HON. AVELINO S. CAILIAN, HON. ROBERTO C. OCAMPO,
HON. ALBERTO DOMINGO, HON. HONORIO U. LOPEZ, HON. FRANCISCO G. VARONA, JR., HON. ROMUALDO
S. MARANAN, HON. NESTOR C. PONCE, JR., HON. HUMBERTO B. BASCO, HON. FLAVIANO F. CONCEPCION,
JR., HON. ROMEO G. RIVERA, HON. MANUEL M. ZARCAL, HON. PEDRO S. DE JESUS, HON. BERNARDITO C.
ANG, HON. MANUEL L. QUIN, HON. JHOSEP Y. LOPEZ, HON. CHIKA G. GO, HON. VICTORIANO A. MELENDEZ,
15

HON. ERNESTO V.P. MACEDA, JR., HON. ROLANDO P. NIETO, HON. DANILO V. ROLEDA, HON. GERINO A.
TOLENTINO, JR., HON. MA. PAZ E. HERRERA, HON. JOEY D. HIZON, HON. FELIXBERTO D. ESPIRITU, HON.
KARLO Q. BUTIONG, HON. ROGELIO P. DELA PAZ, HON. BERNARDO D. RAGAZA, HON. MA. CORAZON R.
CABALLES, HON. CASIMIRO C. SISON, HON. BIENVINIDO M. ABANTE, JR., HON. MA. LOURDES M. ISIP, HON.
ALEXANDER S. RICAFORT, HON. ERNESTO F. RIVERA, HON. LEONARDO L. ANGAT, and HON. JOCELYN B.
DAWIS, in their capacity as councilors of the City of Manila, petitioners, vs. HON. PERFECTO A.S. LAGUIO,
JR., as Presiding Judge, RTC, Manila and MALATE TOURIST DEVELOPMENT CORPORATION, respondents.
DECISION
TINGA, J.:
I know only that what is moral is what you feel good after and what is immoral is what you feel bad after.
Ernest Hermingway
Death in the Afternoon, Ch. 1
It is a moral and political axiom that any dishonorable act, if performed by oneself, is less immoral than if
performed by someone else, who would be well-intentioned in his dishonesty.
J. Christopher Gerald
Bonaparte in Egypt, Ch. I
The Courts commitment to the protection of morals is secondary to its fealty to the fundamental law of
the land. It is foremost a guardian of the Constitution but not the conscience of individuals. And if it need
be, the Court will not hesitate to make the hammer fall, and heavily in the words of Justice Laurel, and
uphold the constitutional guarantees when faced with laws that, though not lacking in zeal to promote
morality, nevertheless fail to pass the test of constitutionality.
The pivotal issue in this Petition[1] under Rule 45 (then Rule 42) of the Revised Rules on Civil Procedure
seeking the reversal of the Decision[2] in Civil Case No. 93-66511 of the Regional Trial Court (RTC) of
Manila, Branch 18 (lower court),[3] is the validity of Ordinance No. 7783 (the Ordinance) of the City of
Manila.[4]
The antecedents are as follows:
Private respondent Malate Tourist Development Corporation (MTDC) is a corporation engaged in the
business of operating hotels, motels, hostels and lodging houses.[5] It built and opened Victoria Court in
Malate which was licensed as a motel although duly accredited with the Department of Tourism as a hotel.
[6] On 28 June 1993, MTDC filed a Petition for Declaratory Relief with Prayer for a Writ of Preliminary
Injunction and/or Temporary Restraining Order[7] (RTC Petition) with the lower court impleading as
defendants, herein petitioners City of Manila, Hon. Alfredo S. Lim (Lim), Hon. Joselito L. Atienza, and the
members of the City Council of Manila (City Council). MTDC prayed that the Ordinance, insofar as it
includes motels and inns as among its prohibited establishments, be declared invalid and unconstitutional.
[8]
Enacted by the City Council[9] on 9 March 1993 and approved by petitioner City Mayor on 30 March 1993,
the said Ordinance is entitled
AN ORDINANCE PROHIBITING THE ESTABLISHMENT OR OPERATION OF BUSINESSES PROVIDING CERTAIN
FORMS OF AMUSEMENT, ENTERTAINMENT, SERVICES AND FACILITIES IN THE ERMITA-MALATE AREA,
PRESCRIBING PENALTIES FOR VIOLATION THEREOF, AND FOR OTHER PURPOSES.[10]
The Ordinance is reproduced in full, hereunder:
SECTION 1. Any provision of existing laws and ordinances to the contrary notwithstanding, no person,
partnership, corporation or entity shall, in the Ermita-Malate area bounded by Teodoro M. Kalaw Sr. Street
in the North, Taft Avenue in the East, Vito Cruz Street in the South and Roxas Boulevard in the West,
pursuant to P.D. 499 be allowed or authorized to contract and engage in, any business providing certain
16

forms of amusement, entertainment, services and facilities where women are used as tools in
entertainment and which tend to disturb the community, annoy the inhabitants, and adversely affect the
social and moral welfare of the community, such as but not limited to:
1. Sauna Parlors
2. Massage Parlors
3. Karaoke Bars
4. Beerhouses
5. Night Clubs
6. Day Clubs
7. Super Clubs
8. Discotheques
9. Cabarets
10. Dance Halls
11. Motels
12. Inns
SEC. 2 The City Mayor, the City Treasurer or any person acting in behalf of the said officials are prohibited
from issuing permits, temporary or otherwise, or from granting licenses and accepting payments for the
operation of business enumerated in the preceding section.
SEC. 3. Owners and/or operator of establishments engaged in, or devoted to, the businesses enumerated
in Section 1 hereof are hereby given three (3) months from the date of approval of this ordinance within
which to wind up business operations or to transfer to any place outside of the Ermita-Malate area or
convert said businesses to other kinds of business allowable within the area, such as but not limited to:
1. Curio or antique shop
2. Souvenir Shops
3. Handicrafts display centers
4. Art galleries
5. Records and music shops
6. Restaurants
7. Coffee shops
8. Flower shops
9. Music lounge and sing-along restaurants, with well-defined activities for wholesome family
entertainment that cater to both local and foreign clientele.
10. Theaters engaged in the exhibition, not only of motion pictures but also of cultural shows, stage and
theatrical plays, art exhibitions, concerts and the like.

17

11. Businesses allowable within the law and medium intensity districts as provided for in the zoning
ordinances for Metropolitan Manila, except new warehouse or open-storage depot, dock or yard, motor
repair shop, gasoline service station, light industry with any machinery, or funeral establishments.
SEC. 4. Any person violating any provisions of this ordinance, shall upon conviction, be punished by
imprisonment of one (1) year or fine of FIVE THOUSAND (P5,000.00) PESOS, or both, at the discretion of
the Court, PROVIDED, that in case of juridical person, the President, the General Manager, or person-incharge of operation shall be liable thereof; PROVIDED FURTHER, that in case of subsequent violation and
conviction, the premises of the erring establishment shall be closed and padlocked permanently.
SEC. 5. This ordinance shall take effect upon approval.
Enacted by the City Council of Manila at its regular session today, March 9, 1993.
Approved by His Honor, the Mayor on March 30, 1993. (Emphasis supplied)
In the RTC Petition, MTDC argued that the Ordinance erroneously and improperly included in its
enumeration of prohibited establishments, motels and inns such as MTDCs Victoria Court considering that
these were not establishments for amusement or entertainment and they were not services or
facilities for entertainment, nor did they use women as tools for entertainment, and neither did they
disturb the community, annoy the inhabitants or adversely affect the social and moral welfare of the
community.[11]
MTDC further advanced that the Ordinance was invalid and unconstitutional for the following reasons: (1)
The City Council has no power to prohibit the operation of motels as Section 458 (a) 4 (iv)[12] of the Local
Government Code of 1991 (the Code) grants to the City Council only the power to regulate the
establishment, operation and maintenance of hotels, motels, inns, pension houses, lodging houses and
other similar establishments; (2) The Ordinance is void as it is violative of Presidential Decree (P.D.) No.
499[13] which specifically declared portions of the Ermita-Malate area as a commercial zone with certain
restrictions; (3) The Ordinance does not constitute a proper exercise of police power as the compulsory
closure of the motel business has no reasonable relation to the legitimate municipal interests sought to be
protected; (4) The Ordinance constitutes an ex post facto law by punishing the operation of Victoria Court
which was a legitimate business prior to its enactment; (5) The Ordinance violates MTDCs constitutional
rights in that: (a) it is confiscatory and constitutes an invasion of plaintiffs property rights; (b) the City
Council has no power to find as a fact that a particular thing is a nuisance per se nor does it have the
power to extrajudicially destroy it; and (6) The Ordinance constitutes a denial of equal protection under the
law as no reasonable basis exists for prohibiting the operation of motels and inns, but not pension houses,
hotels, lodging houses or other similar establishments, and for prohibiting said business in the ErmitaMalate area but not outside of this area.[14]
In their Answer[15] dated 23 July 1993, petitioners City of Manila and Lim maintained that the City Council
had the power to prohibit certain forms of entertainment in order to protect the social and moral welfare
of the community as provided for in Section 458 (a) 4 (vii) of the Local Government Code,[16] which
reads, thus:
Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the
legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:
....
(4) Regulate activities relative to the use of land, buildings and structures within the city in order to
promote the general welfare and for said purpose shall:
....
(vii) Regulate the establishment, operation, and maintenance of any entertainment or amusement
facilities, including theatrical performances, circuses, billiard pools, public dancing schools, public dance
halls, sauna baths, massage parlors, and other places for entertainment or amusement; regulate such
other events or activities for amusement or entertainment, particularly those which tend to disturb the
18

community or annoy the inhabitants, or require the suspension or suppression of the same; or, prohibit
certain forms of amusement or entertainment in order to protect the social and moral welfare of the
community.
Citing Kwong Sing v. City of Manila,[17] petitioners insisted that the power of regulation spoken of in the
above-quoted provision included the power to control, to govern and to restrain places of exhibition and
amusement.[18]
Petitioners likewise asserted that the Ordinance was enacted by the City Council of Manila to protect the
social and moral welfare of the community in conjunction with its police power as found in Article III,
Section 18(kk) of Republic Act No. 409,[19] otherwise known as the Revised Charter of the City of Manila
(Revised Charter of Manila)[20] which reads, thus:
ARTICLE III
THE MUNICIPAL BOARD
. . .
Section 18. Legislative powers. The Municipal Board shall have the following legislative powers:
. . .
(kk) To enact all ordinances it may deem necessary and proper for the sanitation and safety, the
furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort, convenience,
and general welfare of the city and its inhabitants, and such others as may be necessary to carry into
effect and discharge the powers and duties conferred by this chapter; and to fix penalties for the violation
of ordinances which shall not exceed two hundred pesos fine or six months imprisonment, or both such
fine and imprisonment, for a single offense.
Further, the petitioners noted, the Ordinance had the presumption of validity; hence, private respondent
had the burden to prove its illegality or unconstitutionality.[21]
Petitioners also maintained that there was no inconsistency between P.D. 499 and the Ordinance as the
latter simply disauthorized certain forms of businesses and allowed the Ermita-Malate area to remain a
commercial zone.[22] The Ordinance, the petitioners likewise claimed, cannot be assailed as ex post facto
as it was prospective in operation.[23] The Ordinance also did not infringe the equal protection clause and
cannot be denounced as class legislation as there existed substantial and real differences between the
Ermita-Malate area and other places in the City of Manila.[24]
On 28 June 1993, respondent Judge Perfecto A.S. Laguio, Jr. (Judge Laguio) issued an ex-parte temporary
restraining order against the enforcement of the Ordinance.[25] And on 16 July 1993, again in an intrepid
gesture, he granted the writ of preliminary injunction prayed for by MTDC.[26]
After trial, on 25 November 1994, Judge Laguio rendered the assailed Decision, enjoining the petitioners
from implementing the Ordinance. The dispositive portion of said Decision reads:[27]
WHEREFORE, judgment is hereby rendered declaring Ordinance No. 778[3], Series of 1993, of the City of
Manila null and void, and making permanent the writ of preliminary injunction that had been issued by this
Court against the defendant. No costs.
SO ORDERED.[28]
Petitioners filed with the lower court a Notice of Appeal[29] on 12 December 1994, manifesting that they
are elevating the case to this Court under then Rule 42 on pure questions of law.[30]
On 11 January 1995, petitioners filed the present Petition, alleging that the following errors were
committed by the lower court in its ruling: (1) It erred in concluding that the subject ordinance is ultra
vires, or otherwise, unfair, unreasonable and oppressive exercise of police power; (2) It erred in holding
that the questioned Ordinance contravenes P.D. 499[31] which allows operators of all kinds of commercial
19

establishments, except those specified therein; and (3) It erred in declaring the Ordinance void and
unconstitutional.[32]
In the Petition and in its Memorandum,[33] petitioners in essence repeat the assertions they made before
the lower court. They contend that the assailed Ordinance was enacted in the exercise of the inherent and
plenary power of the State and the general welfare clause exercised by local government units provided
for in Art. 3, Sec. 18 (kk) of the Revised Charter of Manila and conjunctively, Section 458 (a) 4 (vii) of the
Code.[34] They allege that the Ordinance is a valid exercise of police power; it does not contravene P.D.
499; and that it enjoys the presumption of validity.[35]
In its Memorandum[36] dated 27 May 1996, private respondent maintains that the Ordinance is ultra vires
and that it is void for being repugnant to the general law. It reiterates that the questioned Ordinance is not
a valid exercise of police power; that it is violative of due process, confiscatory and amounts to an arbitrary
interference with its lawful business; that it is violative of the equal protection clause; and that it confers
on petitioner City Mayor or any officer unregulated discretion in the execution of the Ordinance absent
rules to guide and control his actions.
This is an opportune time to express the Courts deep sentiment and tenderness for the Ermita-Malate area
being its home for several decades. A long-time resident, the Court witnessed the areas many turn of
events. It relished its glory days and endured its days of infamy. Much as the Court harks back to the
resplendent era of the Old Manila and yearns to restore its lost grandeur, it believes that the Ordinance is
not the fitting means to that end. The Court is of the opinion, and so holds, that the lower court did not err
in declaring the Ordinance, as it did, ultra vires and therefore null and void.
The Ordinance is so replete with constitutional infirmities that almost every sentence thereof violates a
constitutional provision. The prohibitions and sanctions therein transgress the cardinal rights of persons
enshrined by the Constitution. The Court is called upon to shelter these rights from attempts at rendering
them worthless.
The tests of a valid ordinance are well established. A long line of decisions has held that for an ordinance
to be valid, it must not only be within the corporate powers of the local government unit to enact and must
be passed according to the procedure prescribed by law, it must also conform to the following substantive
requirements: (1) must not contravene the Constitution or any statute; (2) must not be unfair or
oppressive; (3) must not be partial or discriminatory; (4) must not prohibit but may regulate trade; (5)
must be general and consistent with public policy; and (6) must not be unreasonable.[37]
Anent the first criterion, ordinances shall only be valid when they are not contrary to the Constitution and
to the laws.[38] The Ordinance must satisfy two requirements: it must pass muster under the test of
constitutionality and the test of consistency with the prevailing laws. That ordinances should be
constitutional uphold the principle of the supremacy of the Constitution. The requirement that the
enactment must not violate existing law gives stress to the precept that local government units are able to
legislate only by virtue of their derivative legislative power, a delegation of legislative power from the
national legislature. The delegate cannot be superior to the principal or exercise powers higher than those
of the latter.[39]
This relationship between the national legislature and the local government units has not been enfeebled
by the new provisions in the Constitution strengthening the policy of local autonomy. The national
legislature is still the principal of the local government units, which cannot defy its will or modify or violate
it.[40]
The Ordinance was passed by the City Council in the exercise of its police power, an enactment of the City
Council acting as agent of Congress. Local government units, as agencies of the State, are endowed with
police power in order to effectively accomplish and carry out the declared objects of their creation.[41]
This delegated police power is found in Section 16 of the Code, known as the general welfare clause, viz:
SECTION 16. General Welfare.Every local government unit shall exercise the powers expressly granted,
those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient
and effective governance, and those which are essential to the promotion of the general welfare. Within
their respective territorial jurisdictions, local government units shall ensure and support, among other
things, the preservation and enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of appropriate and self-reliant
20

scientific and technological capabilities, improve public morals, enhance economic prosperity and social
justice, promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.
Local government units exercise police power through their respective legislative bodies; in this case, the
sangguniang panlungsod or the city council. The Code empowers the legislative bodies to enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
province/city/municipality and its inhabitants pursuant to Section 16 of the Code and in the proper exercise
of the corporate powers of the province/city/ municipality provided under the Code.[42] The inquiry in this
Petition is concerned with the validity of the exercise of such delegated power.
The Ordinance contravenes
the Constitution
The police power of the City Council, however broad and far-reaching, is subordinate to the constitutional
limitations thereon; and is subject to the limitation that its exercise must be reasonable and for the public
good.[43] In the case at bar, the enactment of the Ordinance was an invalid exercise of delegated power
as it is unconstitutional and repugnant to general laws.
The relevant constitutional provisions are the following:
SEC. 5. The maintenance of peace and order, the protection of life, liberty, and property, and the
promotion of the general welfare are essential for the enjoyment by all the people of the blessings of
democracy.[44]
SEC. 14. The State recognizes the role of women in nation-building, and shall ensure the fundamental
equality before the law of women and men.[45]
SEC. 1. No person shall be deprived of life, liberty or property without due process of law, nor shall any
person be denied the equal protection of laws.[46]
Sec. 9. Private property shall not be taken for public use without just compensation.[47]
A. The Ordinance infringes
the Due Process Clause
The constitutional safeguard of due process is embodied in the fiat (N)o person shall be deprived of life,
liberty or property without due process of law. . . .[48]
There is no controlling and precise definition of due process. It furnishes though a standard to which
governmental action should conform in order that deprivation of life, liberty or property, in each
appropriate case, be valid. This standard is aptly described as a responsiveness to the supremacy of
reason, obedience to the dictates of justice,[49] and as such it is a limitation upon the exercise of the
police power.[50]
The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and
property of individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and distributive justice; to protect
property from confiscation by legislative enactments, from seizure, forfeiture, and destruction without a
trial and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law.[51]
The guaranty serves as a protection against arbitrary regulation, and private corporations and partnerships
are persons within the scope of the guaranty insofar as their property is concerned.[52]
This clause has been interpreted as imposing two separate limits on government, usually called
procedural due process and substantive due process.

21

Procedural due process, as the phrase implies, refers to the procedures that the government must follow
before it deprives a person of life, liberty, or property. Classic procedural due process issues are concerned
with what kind of notice and what form of hearing the government must provide when it takes a particular
action.[53]
Substantive due process, as that phrase connotes, asks whether the government has an adequate reason
for taking away a persons life, liberty, or property. In other words, substantive due process looks to
whether there is a sufficient justification for the governments action.[54] Case law in the United States
(U.S.) tells us that whether there is such a justification depends very much on the level of scrutiny used.
[55] For example, if a law is in an area where only rational basis review is applied, substantive due process
is met so long as the law is rationally related to a legitimate government purpose. But if it is an area
where strict scrutiny is used, such as for protecting fundamental rights, then the government will meet
substantive due process only if it can prove that the law is necessary to achieve a compelling government
purpose.[56]
The police power granted to local government units must always be exercised with utmost observance of
the rights of the people to due process and equal protection of the law. Such power cannot be exercised
whimsically, arbitrarily or despotically[57] as its exercise is subject to a qualification, limitation or
restriction demanded by the respect and regard due to the prescription of the fundamental law,
particularly those forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely
affected only to the extent that may fairly be required by the legitimate demands of public interest or
public welfare.[58] Due process requires the intrinsic validity of the law in interfering with the rights of the
person to his life, liberty and property.[59]
Requisites for the valid exercise
of Police Power are not met
To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance,
and to free it from the imputation of constitutional infirmity, not only must it appear that the interests of
the public generally, as distinguished from those of a particular class, require an interference with private
rights, but the means adopted must be reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals.[60] It must be evident that no other alternative for the
accomplishment of the purpose less intrusive of private rights can work. A reasonable relation must exist
between the purposes of the police measure and the means employed for its accomplishment, for even
under the guise of protecting the public interest, personal rights and those pertaining to private property
will not be permitted to be arbitrarily invaded.[61]
Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary
intrusion into private rights[62] a violation of the due process clause.
The Ordinance was enacted to address and arrest the social ills purportedly spawned by the
establishments in the Ermita-Malate area which are allegedly operated under the deceptive veneer of
legitimate, licensed and tax-paying nightclubs, bars, karaoke bars, girlie houses, cocktail lounges, hotels
and motels. Petitioners insist that even the Court in the case of Ermita-Malate Hotel and Motel Operators
Association, Inc. v. City Mayor of Manila[63] had already taken judicial notice of the alarming increase in
the rate of prostitution, adultery and fornication in Manila traceable in great part to existence of motels,
which provide a necessary atmosphere for clandestine entry, presence and exit and thus become the ideal
haven for prostitutes and thrill-seekers.[64]
The object of the Ordinance was, accordingly, the promotion and protection of the social and moral values
of the community. Granting for the sake of argument that the objectives of the Ordinance are within the
scope of the City Councils police powers, the means employed for the accomplishment thereof were
unreasonable and unduly oppressive.
It is undoubtedly one of the fundamental duties of the City of Manila to make all reasonable regulations
looking to the promotion of the moral and social values of the community. However, the worthy aim of
fostering public morals and the eradication of the communitys social ills can be achieved through means
less restrictive of private rights; it can be attained by reasonable restrictions rather than by an absolute
prohibition. The closing down and transfer of businesses or their conversion into businesses allowed
under the Ordinance have no reasonable relation to the accomplishment of its purposes. Otherwise stated,
22

the prohibition of the enumerated establishments will not per se protect and promote the social and moral
welfare of the community; it will not in itself eradicate the alluded social ills of prostitution, adultery,
fornication nor will it arrest the spread of sexual disease in Manila.
Conceding for the nonce that the Ermita-Malate area teems with houses of ill-repute and establishments of
the like which the City Council may lawfully prohibit,[65] it is baseless and insupportable to bring within
that classification sauna parlors, massage parlors, karaoke bars, night clubs, day clubs, super clubs,
discotheques, cabarets, dance halls, motels and inns. This is not warranted under the accepted definitions
of these terms. The enumerated establishments are lawful pursuits which are not per se offensive to the
moral welfare of the community.
That these are used as arenas to consummate illicit sexual affairs and as venues to further the illegal
prostitution is of no moment. We lay stress on the acrid truth that sexual immorality, being a human frailty,
may take place in the most innocent of places that it may even take place in the substitute establishments
enumerated under Section 3 of the Ordinance. If the flawed logic of the Ordinance were to be followed, in
the remote instance that an immoral sexual act transpires in a church cloister or a court chamber, we
would behold the spectacle of the City of Manila ordering the closure of the church or court concerned.
Every house, building, park, curb, street or even vehicles for that matter will not be exempt from the
prohibition. Simply because there are no pure places where there are impure men. Indeed, even the
Scripture and the Tradition of Christians churches continually recall the presence and universality of sin in
mans history.[66]
The problem, it needs to be pointed out, is not the establishment, which by its nature cannot be said to be
injurious to the health or comfort of the community and which in itself is amoral, but the deplorable human
activity that may occur within its premises. While a motel may be used as a venue for immoral sexual
activity, it cannot for that reason alone be punished. It cannot be classified as a house of ill-repute or as a
nuisance per se on a mere likelihood or a naked assumption. If that were so and if that were allowed, then
the Ermita-Malate area would not only be purged of its supposed social ills, it would be extinguished of its
soul as well as every human activity, reprehensible or not, in its every nook and cranny would be laid bare
to the estimation of the authorities.
The Ordinance seeks to legislate morality but fails to address the core issues of morality. Try as the
Ordinance may to shape morality, it should not foster the illusion that it can make a moral man out of it
because immorality is not a thing, a building or establishment; it is in the hearts of men. The City Council
instead should regulate human conduct that occurs inside the establishments, but not to the detriment of
liberty and privacy which are covenants, premiums and blessings of democracy.
While petitioners earnestness at curbing clearly objectionable social ills is commendable, they unwittingly
punish even the proprietors and operators of wholesome, innocent establishments. In the instant case,
there is a clear invasion of personal or property rights, personal in the case of those individuals desirous of
owning, operating and patronizing those motels and property in terms of the investments made and the
salaries to be paid to those therein employed. If the City of Manila so desires to put an end to prostitution,
fornication and other social ills, it can instead impose reasonable regulations such as daily inspections of
the establishments for any violation of the conditions of their licenses or permits; it may exercise its
authority to suspend or revoke their licenses for these violations;[67] and it may even impose increased
license fees. In other words, there are other means to reasonably accomplish the desired end.
Means employed are
constitutionally infirm
The Ordinance disallows the operation of sauna parlors, massage parlors, karaoke bars, beerhouses, night
clubs, day clubs, super clubs, discotheques, cabarets, dance halls, motels and inns in the Ermita-Malate
area. In Section 3 thereof, owners and/or operators of the enumerated establishments are given three (3)
months from the date of approval of the Ordinance within which to wind up business operations or to
transfer to any place outside the Ermita-Malate area or convert said businesses to other kinds of business
allowable within the area. Further, it states in Section 4 that in cases of subsequent violations of the
provisions of the Ordinance, the premises of the erring establishment shall be closed and padlocked
permanently.

23

It is readily apparent that the means employed by the Ordinance for the achievement of its purposes, the
governmental interference itself, infringes on the constitutional guarantees of a persons fundamental right
to liberty and property.
Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include the right to exist and
the right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere freedom
from physical restraint of the person of the citizen, but is deemed to embrace the right of man to enjoy the
facilities with which he has been endowed by his Creator, subject only to such restraint as are necessary
for the common welfare.[68] In accordance with this case, the rights of the citizen to be free to use his
faculties in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; and
to pursue any avocation are all deemed embraced in the concept of liberty.[69]
The U.S. Supreme Court in the case of Roth v. Board of Regents,[70] sought to clarify the meaning of
liberty. It said:
While the Court has not attempted to define with exactness the liberty. . . guaranteed [by the Fifth and
Fourteenth Amendments], the term denotes not merely freedom from bodily restraint but also the right of
the individual to contract, to engage in any of the common occupations of life, to acquire useful
knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of
his own conscience, and generally to enjoy those privileges long recognizedas essential to the orderly
pursuit of happiness by free men. In a Constitution for a free people, there can be no doubt that the
meaning of liberty must be broad indeed.
In another case, it also confirmed that liberty protected by the due process clause includes personal
decisions relating to marriage, procreation, contraception, family relationships, child rearing, and
education. In explaining the respect the Constitution demands for the autonomy of the person in making
these choices, the U.S. Supreme Court explained:
These matters, involving the most intimate and personal choices a person may make in a lifetime, choices
central to personal dignity and autonomy, are central to the liberty protected by the Fourteenth
Amendment. At the heart of liberty is the right to define ones own concept of existence, of meaning, of
universe, and of the mystery of human life. Beliefs about these matters could not define the attributes of
personhood where they formed under compulsion of the State.[71]
Persons desirous to own, operate and patronize the enumerated establishments under Section 1 of the
Ordinance may seek autonomy for these purposes.
Motel patrons who are single and unmarried may invoke this right to autonomy to consummate their bonds
in intimate sexual conduct within the motels premisesbe it stressed that their consensual sexual
behavior does not contravene any fundamental state policy as contained in the Constitution.[72] Adults
have a right to choose to forge such relationships with others in the confines of their own private lives and
still retain their dignity as free persons. The liberty protected by the Constitution allows persons the right
to make this choice.[73] Their right to liberty under the due process clause gives them the full right to
engage in their conduct without intervention of the government, as long as they do not run afoul of the
law. Liberty should be the rule and restraint the exception.
Liberty in the constitutional sense not only means freedom from unlawful government restraint; it must
include privacy as well, if it is to be a repository of freedom. The right to be let alone is the beginning of all
freedomit is the most comprehensive of rights and the right most valued by civilized men.[74]
The concept of liberty compels respect for the individual whose claim to privacy and interference demands
respect. As the case of Morfe v. Mutuc,[75] borrowing the words of Laski, so very aptly stated:
Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation, are
indefeasible; indeed, they are so fundamental that they are the basis on which his civic obligations are
built. He cannot abandon the consequences of his isolation, which are, broadly speaking, that his
experience is private, and the will built out of that experience personal to himself. If he surrenders his will
to others, he surrenders himself. If his will is set by the will of others, he ceases to be a master of himself. I
cannot believe that a man no longer a master of himself is in any real sense free.

24

Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of which should
be justified by a compelling state interest. Morfe accorded recognition to the right to privacy independently
of its identification with liberty; in itself it is fully deserving of constitutional protection. Governmental
powers should stop short of certain intrusions into the personal life of the citizen.[76]
There is a great temptation to have an extended discussion on these civil liberties but the Court chooses to
exercise restraint and restrict itself to the issues presented when it should. The previous pronouncements
of the Court are not to be interpreted as a license for adults to engage in criminal conduct. The
reprehensibility of such conduct is not diminished. The Court only reaffirms and guarantees their right to
make this choice. Should they be prosecuted for their illegal conduct, they should suffer the consequences
of the choice they have made. That, ultimately, is their choice.
Modality employed is
unlawful taking
In addition, the Ordinance is unreasonable and oppressive as it substantially divests the respondent of the
beneficial use of its property.[77] The Ordinance in Section 1 thereof forbids the running of the enumerated
businesses in the Ermita-Malate area and in Section 3 instructs its owners/operators to wind up business
operations or to transfer outside the area or convert said businesses into allowed businesses. An ordinance
which permanently restricts the use of property that it can not be used for any reasonable purpose goes
beyond regulation and must be recognized as a taking of the property without just compensation.[78] It is
intrusive and violative of the private property rights of individuals.
The Constitution expressly provides in Article III, Section 9, that private property shall not be taken for
public use without just compensation. The provision is the most important protection of property rights in
the Constitution. This is a restriction on the general power of the government to take property. The
constitutional provision is about ensuring that the government does not confiscate the property of some to
give it to others. In part too, it is about loss spreading. If the government takes away a persons property to
benefit society, then society should pay. The principal purpose of the guarantee is to bar the Government
from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne
by the public as a whole.[79]
There are two different types of taking that can be identified. A possessory taking occurs when the
government confiscates or physically occupies property. A regulatory taking occurs when the
governments regulation leaves no reasonable economically viable use of the property.[80]
In the landmark case of Pennsylvania Coal v. Mahon,[81] it was held that a taking also could be found if
government regulation of the use of property went too far. When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to
support the act. While property may be regulated to a certain extent, if regulation goes too far it will be
recognized as a taking.[82]
No formula or rule can be devised to answer the questions of what is too far and when regulation becomes
a taking. In Mahon, Justice Holmes recognized that it was a question of degree and therefore cannot be
disposed of by general propositions. On many other occasions as well, the U.S. Supreme Court has said
that the issue of when regulation constitutes a taking is a matter of considering the facts in each case. The
Court asks whether justice and fairness require that the economic loss caused by public action must be
compensated by the government and thus borne by the public as a whole, or whether the loss should
remain concentrated on those few persons subject to the public action.[83]
What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it
leaves no reasonable economically viable use of property in a manner that interferes with reasonable
expectations for use.[84] A regulation that permanently denies all economically beneficial or productive
use of land is, from the owners point of view, equivalent to a taking unless principles of nuisance or
property law that existed when the owner acquired the land make the use prohibitable.[85] When the
owner of real property has been called upon to sacrifice all economically beneficial uses in the name of the
common good, that is, to leave his property economically idle, he has suffered a taking.[86]
A regulation which denies all economically beneficial or productive use of land will require compensation
under the takings clause. Where a regulation places limitations on land that fall short of eliminating all
25

economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors
including the regulations economic effect on the landowner, the extent to which the regulation interferes
with reasonable investment-backed expectations and the character of government action. These inquiries
are informed by the purpose of the takings clause which is to prevent the government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a
whole.[87]
A restriction on use of property may also constitute a taking if not reasonably necessary to the
effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct investmentbacked expectations of the owner.[88]
The Ordinance gives the owners and operators of the prohibited establishments three (3) months from
its approval within which to wind up business operations or to transfer to any place outside of the ErmitaMalate area or convert said businesses to other kinds of business allowable within the area. The directive
to wind up business operations amounts to a closure of the establishment, a permanent deprivation of
property, and is practically confiscatory. Unless the owner converts his establishment to accommodate an
allowed business, the structure which housed the previous business will be left empty and gathering
dust. Suppose he transfers it to another area, he will likewise leave the entire establishment idle.
Consideration must be given to the substantial amount of money invested to build the edifices which the
owner reasonably expects to be returned within a period of time. It is apparent that the Ordinance leaves
no reasonable economically viable use of property in a manner that interferes with reasonable
expectations for use.
The second and third options to transfer to any place outside of the Ermita-Malate area or to convert into
allowed businessesare confiscatory as well. The penalty of permanent closure in cases of subsequent
violations found in Section 4 of the Ordinance is also equivalent to a taking of private property.
The second option instructs the owners to abandon their property and build another one outside the
Ermita-Malate area. In every sense, it qualifies as a taking without just compensation with an additional
burden imposed on the owner to build another establishment solely from his coffers. The proffered solution
does not put an end to the problem, it merely relocates it. Not only is this impractical, it is unreasonable,
onerous and oppressive. The conversion into allowed enterprises is just as ridiculous. How may the
respondent convert a motel into a restaurant or a coffee shop, art gallery or music lounge without
essentially destroying its property? This is a taking of private property without due process of law, nay,
even without compensation.
The penalty of closure likewise constitutes unlawful taking that should be compensated by the
government. The burden on the owner to convert or transfer his business, otherwise it will be closed
permanently after a subsequent violation should be borne by the public as this end benefits them as a
whole.
Petitioners cannot take refuge in classifying the measure as a zoning ordinance. A zoning ordinance,
although a valid exercise of police power, which limits a wholesome property to a use which can not
reasonably be made of it constitutes the taking of such property without just compensation. Private
property which is not noxious nor intended for noxious purposes may not, by zoning, be destroyed without
compensation. Such principle finds no support in the principles of justice as we know them. The police
powers of local government units which have always received broad and liberal interpretation cannot be
stretched to cover this particular taking.
Distinction should be made between destruction from necessity and eminent domain. It needs restating
that the property taken in the exercise of police power is destroyed because it is noxious or intended for a
noxious purpose while the property taken under the power of eminent domain is intended for a public use
or purpose and is therefore wholesome.[89] If it be of public benefit that a wholesome property remain
unused or relegated to a particular purpose, then certainly the public should bear the cost of reasonable
compensation for the condemnation of private property for public use.[90]
Further, the Ordinance fails to set up any standard to guide or limit the petitioners actions. It in no way
controls or guides the discretion vested in them. It provides no definition of the establishments covered by
it and it fails to set forth the conditions when the establishments come within its ambit of prohibition. The
Ordinance confers upon the mayor arbitrary and unrestricted power to close down establishments.
Ordinances such as this, which make possible abuses in its execution, depending upon no conditions or
26

qualifications whatsoever other than the unregulated arbitrary will of the city authorities as the touchstone
by which its validity is to be tested, are unreasonable and invalid. The Ordinance should have established a
rule by which its impartial enforcement could be secured.[91]
Ordinances placing restrictions upon the lawful use of property must, in order to be valid and
constitutional, specify the rules and conditions to be observed and conduct to avoid; and must not admit of
the exercise, or of an opportunity for the exercise, of unbridled discretion by the law enforcers in carrying
out its provisions.[92]
Thus, in Coates v. City of Cincinnati,[93] as cited in People v. Nazario,[94]
the U.S. Supreme Court struck
down an ordinance that had made it illegal for three or more persons to assemble on any sidewalk and
there conduct themselves in a manner annoying to persons passing by. The ordinance was nullified as it
imposed no standard at all because one may never know in advance what annoys some people but does
not annoy others.
Similarly, the Ordinance does not specify the standards to ascertain which establishments tend to disturb
the community, annoy the inhabitants, and adversely affect the social and moral welfare of the
community. The cited case supports the nullification of the Ordinance for lack of comprehensible
standards to guide the law enforcers in carrying out its provisions.
Petitioners cannot therefore order the closure of the enumerated establishments without infringing the due
process clause. These lawful establishments may be regulated, but not prevented from carrying on their
business. This is a sweeping exercise of police power that is a result of a lack of imagination on the part of
the City Council and which amounts to an interference into personal and private rights which the Court will
not countenance. In this regard, we take a resolute stand to uphold the constitutional guarantee of the
right to liberty and property.
Worthy of note is an example derived from the U.S. of a reasonable regulation which is a far cry from the
ill-considered Ordinance enacted by the City Council.
In FW/PBS, INC. v. Dallas,[95] the city of Dallas adopted a comprehensive ordinance regulating sexually
oriented businesses, which are defined to include adult arcades, bookstores, video stores, cabarets,
motels, and theaters as well as escort agencies, nude model studio and sexual encounter centers. Among
other things, the ordinance required that such businesses be licensed. A group of motel owners were
among the three groups of businesses that filed separate suits challenging the ordinance. The motel
owners asserted that the city violated the due process clause by failing to produce adequate support for its
supposition that renting room for fewer than ten (10) hours resulted in increased crime and other
secondary effects. They likewise argued than the ten (10)-hour limitation on the rental of motel rooms
placed an unconstitutional burden on the right to freedom of association. Anent the first contention, the
U.S. Supreme Court held that the reasonableness of the legislative judgment combined with a study which
the city considered, was adequate to support the citys determination that motels permitting room rentals
for fewer than ten (10 ) hours should be included within the licensing scheme. As regards the second point,
the Court held that limiting motel room rentals to ten (10) hours will have no discernible effect on personal
bonds as those bonds that are formed from the use of a motel room for fewer than ten (10) hours are not
those that have played a critical role in the culture and traditions of the nation by cultivating and
transmitting shared ideals and beliefs.
The ordinance challenged in the above-cited case merely regulated the targeted businesses. It imposed
reasonable restrictions; hence, its validity was upheld.
The case of Ermita Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila,[96] it needs
pointing out, is also different from this case in that what was involved therein was a measure which
regulated the mode in which motels may conduct business in order to put an end to practices which could
encourage vice and immorality. Necessarily, there was no valid objection on due process or equal
protection grounds as the ordinance did not prohibit motels. The Ordinance in this case however is not a
regulatory measure but is an exercise of an assumed power to prohibit.[97]
The foregoing premises show that the Ordinance is an unwarranted and unlawful curtailment of property
and personal rights of citizens. For being unreasonable and an undue restraint of trade, it cannot, even
under the guise of exercising police power, be upheld as valid.
27

B. The Ordinance violates Equal


Protection Clause
Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate against others.[98] The guarantee
means that no person or class of persons shall be denied the same protection of laws which is enjoyed by
other persons or other classes in like circumstances.[99] The equal protection of the laws is a pledge of
the protection of equal laws.[100] It limits governmental discrimination. The equal protection clause
extends to artificial persons but only insofar as their property is concerned.[101]
The Court has explained the scope of the equal protection clause in this wise:
What does it signify? To quote from J.M. Tuason & Co. v. Land Tenure Administration: The ideal situation
is for the laws benefits to be available to all, that none be placed outside the sphere of its coverage. Only
thus could chance and favor be excluded and the affairs of men governed by that serene and impartial
uniformity, which is of the very essence of the idea of law. There is recognition, however, in the opinion
that what in fact exists cannot approximate the ideal. Nor is the law susceptible to the reproach that it
does not take into account the realities of the situation. The constitutional guarantee then is not to be
given a meaning that disregards what is, what does in fact exist. To assure that the general welfare be
promoted, which is the end of law, a regulatory measure may cut into the rights to liberty and property.
Those adversely affected may under such circumstances invoke the equal protection clause only if they
can show that the governmental act assailed, far from being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. Classification is thus not ruled out, it being sufficient to quote from the Tuason decision anew
that the laws operate equally and uniformly on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that
equal protection and security shall be given to every person under circumstances which, if not identical,
are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be
treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest.
[102]
Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the
law may operate only on some and not all of the people without violating the equal protection clause.[103]
The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the
following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.[104]
In the Courts view, there are no substantial distinctions between motels, inns, pension houses, hotels,
lodging houses or other similar establishments. By definition, all are commercial establishments providing
lodging and usually meals and other services for the public. No reason exists for prohibiting motels and
inns but not pension houses, hotels, lodging houses or other similar establishments. The classification in
the instant case is invalid as similar subjects are not similarly treated, both as to rights conferred and
obligations imposed. It is arbitrary as it does not rest on substantial distinctions bearing a just and fair
relation to the purpose of the Ordinance.
The Court likewise cannot see the logic for prohibiting the business and operation of motels in the ErmitaMalate area but not outside of this area. A noxious establishment does not become any less noxious if
located outside the area.
The standard where women are used as tools for entertainment is also discriminatory as
prostitutionone of the hinted ills the Ordinance aims to banishis not a profession exclusive to women.
28

Both men and women have an equal propensity to engage in prostitution. It is not any less grave a sin
when men engage in it. And why would the assumption that there is an ongoing immoral activity apply
only when women are employed and be inapposite when men are in harness? This discrimination based on
gender violates equal protection as it is not substantially related to important government objectives.[105]
Thus, the discrimination is invalid.
Failing the test of constitutionality, the Ordinance likewise failed to pass the test of consistency with
prevailing laws.
C.

The Ordinance is repugnant

to general laws; it is ultra vires


The Ordinance is in contravention of the Code as the latter merely empowers local government units to
regulate, and not prohibit, the establishments enumerated in Section 1 thereof.
The power of the City Council to regulate by ordinances the establishment, operation, and maintenance of
motels, hotels and other similar establishments is found in Section 458 (a) 4 (iv), which provides that:
Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the
legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:
. . .
(4) Regulate activities relative to the use of land, buildings and structures within the city in order to
promote the general welfare and for said purpose shall:
. . .
(iv) Regulate the establishment, operation and maintenance of cafes, restaurants, beerhouses, hotels,
motels, inns, pension houses, lodging houses, and other similar establishments, including tourist guides
and transports . . . .
While its power to regulate the establishment, operation and maintenance of any entertainment or
amusement facilities, and to prohibit certain forms of amusement or entertainment is provided under
Section 458 (a) 4 (vii) of the Code, which reads as follows:
Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the
legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:
. . .
(4) Regulate activities relative to the use of land, buildings and structures within the city in order to
promote the general welfare and for said purpose shall:
. . .
(vii) Regulate the establishment, operation, and maintenance of any entertainment or amusement
facilities, including theatrical performances, circuses, billiard pools, public dancing schools, public dance
halls, sauna baths, massage parlors, and other places for entertainment or amusement; regulate such
other events or activities for amusement or entertainment, particularly those which tend to disturb the
community or annoy the inhabitants, or require the suspension or suppression of the same; or, prohibit
certain forms of amusement or entertainment in order to protect the social and moral welfare of the
community.
Clearly, with respect to cafes, restaurants, beerhouses, hotels, motels, inns, pension houses, lodging
houses, and other similar establishments, the only power of the City Council to legislate relative thereto is
29

to regulate them to promote the general welfare. The Code still withholds from cities the power to suppress
and prohibit altogether the establishment, operation and maintenance of such establishments. It is well to
recall the rulings of the Court in Kwong Sing v. City of Manila[106] that:
The word regulate, as used in subsection (l), section 2444 of the Administrative Code, means and
includes the power to control, to govern, and to restrain; but regulate should not be construed as
synonymous with suppress or prohibit. Consequently, under the power to regulate laundries, the
municipal authorities could make proper police regulations as to the mode in which the employment or
business shall be exercised.[107]
And in People v. Esguerra,[108] wherein the Court nullified an ordinance of the Municipality of Tacloban
which prohibited the selling, giving and dispensing of liquor ratiocinating that the municipality is
empowered only to regulate the same and not prohibit. The Court therein declared that:
(A)s a general rule when a municipal corporation is specifically given authority or power to regulate or to
license and regulate the liquor traffic, power to prohibit is impliedly withheld.[109]
These doctrines still hold contrary to petitioners assertion[110] that they were modified by the Code
vesting upon City Councils prohibitory powers.
Similarly, the City Council exercises regulatory powers over public dancing schools, public dance halls,
sauna baths, massage parlors, and other places for entertainment or amusement as found in the first
clause of Section 458 (a) 4 (vii). Its powers to regulate, suppress and suspend such other events or
activities for amusement or entertainment, particularly those which tend to disturb the community or
annoy the inhabitants and to prohibit certain forms of amusement or entertainment in order to protect
the social and moral welfare of the community are stated in the second and third clauses, respectively of
the same Section. The several powers of the City Council as provided in Section 458 (a) 4 (vii) of the Code,
it is pertinent to emphasize, are separated by semi-colons (;), the use of which indicates that the clauses in
which these powers are set forth are independent of each other albeit closely related to justify being put
together in a single enumeration or paragraph.[111] These powers, therefore, should not be confused,
commingled or consolidated as to create a conglomerated and unified power of regulation, suppression
and prohibition.[112]
The Congress unequivocably specified the establishments and forms of amusement or entertainment
subject to regulation among which are beerhouses, hotels, motels, inns, pension houses, lodging houses,
and other similar establishments (Section 458 (a) 4 (iv)), public dancing schools, public dance halls, sauna
baths, massage parlors, and other places for entertainment or amusement (Section 458 (a) 4 (vii)). This
enumeration therefore cannot be included as among other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the inhabitants or
certain forms of amusement or entertainment which the City Council may suspend, suppress or prohibit.
The rule is that the City Council has only such powers as are expressly granted to it and those which are
necessarily implied or incidental to the exercise thereof. By reason of its limited powers and the nature
thereof, said powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the
terms used in granting said powers must be construed against the City Council.[113] Moreover, it is a
general rule in statutory construction that the express mention of one person, thing, or consequence is
tantamount to an express exclusion of all others. Expressio unius est exclusio alterium. This maxim is
based upon the rules of logic and the natural workings of human mind. It is particularly applicable in the
construction of such statutes as create new rights or remedies, impose penalties or punishments, or
otherwise come under the rule of strict construction.[114]
The argument that the City Council is empowered to enact the Ordinance by virtue of the general welfare
clause of the Code and of Art. 3, Sec. 18 (kk) of the Revised Charter of Manila is likewise without merit. On
the first point, the ruling of the Court in People v. Esguerra,[115] is instructive. It held that:
The powers conferred upon a municipal council in the general welfare clause, or section 2238 of the
Revised Administrative Code, refers to matters not covered by the other provisions of the same Code, and
therefore it can not be applied to intoxicating liquors, for the power to regulate the selling, giving away and
dispensing thereof is granted specifically by section 2242 (g) to municipal councils. To hold that, under the
general power granted by section 2238, a municipal council may enact the ordinance in question,
notwithstanding the provision of section 2242 (g), would be to make the latter superfluous and nugatory,
30

because the power to prohibit, includes the power to regulate, the selling, giving away and dispensing of
intoxicating liquors.
On the second point, it suffices to say that the Code being a later expression of the legislative will must
necessarily prevail and override the earlier law, the Revised Charter of Manila. Legis posteriores priores
contrarias abrogant, or later statute repeals prior ones which are repugnant thereto. As between two laws
on the same subject matter, which are irreconcilably inconsistent, that which is passed later prevails, since
it is the latest expression of legislative will.[116] If there is an inconsistency or repugnance between two
statutes, both relating to the same subject matter, which cannot be removed by any fair and reasonable
method of interpretation, it is the latest expression of the legislative will which must prevail and override
the earlier.[117]
Implied repeals are those which take place when a subsequently enacted law contains provisions contrary
to those of an existing law but no provisions expressly repealing them. Such repeals have been divided
into two general classes: those which occur where an act is so inconsistent or irreconcilable with an
existing prior act that only one of the two can remain in force and those which occur when an act covers
the whole subject of an earlier act and is intended to be a substitute therefor. The validity of such a repeal
is sustained on the ground that the latest expression of the legislative will should prevail.[118]
In addition, Section 534(f) of the Code states that All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. Thus,
submitting to petitioners interpretation that the Revised Charter of Manila empowers the City Council to
prohibit motels, that portion of the Charter stating such must be considered repealed by the Code as it is
at variance with the latters provisions granting the City Council mere regulatory powers.
It is well to point out that petitioners also cannot seek cover under the general welfare clause authorizing
the abatement of nuisances without judicial proceedings. That tenet applies to a nuisance per se, or one
which affects the immediate safety of persons and property and may be summarily abated under the
undefined law of necessity. It can not be said that motels are injurious to the rights of property, health or
comfort of the community. It is a legitimate business. If it be a nuisance per accidens it may be so proven
in a hearing conducted for that purpose. A motel is not per se a nuisance warranting its summary
abatement without judicial intervention.[119]
Notably, the City Council was conferred powers to prevent and prohibit certain activities and
establishments in another section of the Code which is reproduced as follows:
Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as the
legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient and effective city government, and
in this connection, shall:
. . .
(v) Enact ordinances intended to prevent, suppress and impose appropriate penalties for habitual
drunkenness in public places, vagrancy, mendicancy, prostitution, establishment and maintenance of
houses of ill repute, gambling and other prohibited games of chance, fraudulent devices and ways to
obtain money or property, drug addiction, maintenance of drug dens, drug pushing, juvenile delinquency,
the printing, distribution or exhibition of obscene or pornographic materials or publications, and such other
activities inimical to the welfare and morals of the inhabitants of the city;
. . .
If it were the intention of Congress to confer upon the City Council the power to prohibit the establishments
enumerated in Section 1 of the Ordinance, it would have so declared in uncertain terms by adding them to
the list of the matters it may prohibit under the above-quoted Section. The Ordinance now vainly attempts
to lump these establishments with houses of ill-repute and expand the City Councils powers in the second
and third clauses of Section 458 (a) 4 (vii) of the Code in an effort to overreach its prohibitory powers. It is
31

evident that these establishments may only be regulated in their establishment, operation and
maintenance.
It is important to distinguish the punishable activities from the establishments themselves. That these
establishments are recognized legitimate enterprises can be gleaned from another Section of the Code.
Section 131 under the Title on Local Government Taxation expressly mentioned proprietors or operators of
massage clinics, sauna, Turkish and Swedish baths, hotels, motels and lodging houses as among the
contractors defined in paragraph (h) thereof. The same Section also defined amusement as a
pleasurable diversion and entertainment, synonymous to relaxation, avocation, pastime or fun; and
amusement places to include theaters, cinemas, concert halls, circuses and other places of amusement
where one seeks admission to entertain oneself by seeing or viewing the show or performances. Thus, it
can be inferred that the Code considers these establishments as legitimate enterprises and activities. It is
well to recall the maxim reddendo singula singulis which means that words in different parts of a statute
must be referred to their appropriate connection, giving to each in its place, its proper force and effect,
and, if possible, rendering none of them useless or superfluous, even if strict grammatical construction
demands otherwise. Likewise, where words under consideration appear in different sections or are widely
dispersed throughout an act the same principle applies.[120]
Not only does the Ordinance contravene the Code, it likewise runs counter to the provisions of P.D. 499. As
correctly argued by MTDC, the statute had already converted the residential Ermita-Malate area into a
commercial area. The decree allowed the establishment and operation of all kinds of commercial
establishments except warehouse or open storage depot, dump or yard, motor repair shop, gasoline
service station, light industry with any machinery or funeral establishment. The rule is that for an
ordinance to be valid and to have force and effect, it must not only be within the powers of the council to
enact but the same must not be in conflict with or repugnant to the general law.[121] As succinctly
illustrated in Solicitor General v. Metropolitan Manila Authority:[122]
The requirement that the enactment must not violate existing law explains itself. Local political
subdivisions are able to legislate only by virtue of a valid delegation of legislative power from the national
legislature (except only that the power to create their own sources of revenue and to levy taxes is
conferred by the Constitution itself). They are mere agents vested with what is called the power of
subordinate legislation. As delegates of the Congress, the local government units cannot contravene but
must obey at all times the will of their principal. In the case before us, the enactment in question, which
are merely local in origin cannot prevail against the decree, which has the force and effect of a statute.
[123]
Petitioners contend that the Ordinance enjoys the presumption of validity. While this may be the rule, it has
already been held that although the presumption is always in favor of the validity or reasonableness of the
ordinance, such presumption must nevertheless be set aside when the invalidity or unreasonableness
appears on the face of the ordinance itself or is established by proper evidence. The exercise of police
power by the local government is valid unless it contravenes the fundamental law of the land, or an act of
the legislature, or unless it is against public policy or is unreasonable, oppressive, partial, discriminating or
in derogation of a common right.[124]
Conclusion
All considered, the Ordinance invades fundamental personal and property rights and impairs personal
privileges. It is constitutionally infirm. The Ordinance contravenes statutes; it is discriminatory and
unreasonable in its operation; it is not sufficiently detailed and explicit that abuses may attend the
enforcement of its sanctions. And not to be forgotten, the City Council under the Code had no power to
enact the Ordinance and is therefore ultra vires, null and void.
Concededly, the challenged Ordinance was enacted with the best of motives and shares the concern of the
public for the cleansing of the Ermita-Malate area of its social sins. Police power legislation of such
character deserves the full endorsement of the judiciary we reiterate our support for it. But inspite of its
virtuous aims, the enactment of the Ordinance has no statutory or constitutional authority to stand on.
Local legislative bodies, in this case, the City Council, cannot prohibit the operation of the enumerated
establishments under Section 1 thereof or order their transfer or conversion without infringing the
constitutional guarantees of due process and equal protection of laws not even under the guise of police
power.
32

WHEREFORE, the Petition is hereby DENIED and the decision of the Regional Trial Court declaring the
Ordinance void is AFFIRMED. Costs against petitioners.
SO ORDERED.

EMINENT DOMAIN
CASE: MUNICIPALITY OF PARAAQUE VS VM REALTY CORP
MUNICIPALITY OF PARAAQUE, petitioner, vs. V.M. REALTY CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
A local government unit (LGU), like the Municipality of Paraaque, cannot authorize an expropriation of
private property through a mere resolution of its lawmaking body. The Local Government Code expressly
and clearly requires an ordinance or a local law for the purpose. A resolution that merely expresses the
sentiment or opinion of the Municipal Council will not suffice. On the other hand, the principle of res
judicata does not bar subsequent proceedings for the expropriation of the same property when all the legal
requirements for its valid exercise are complied with.
Statement of the Case
These principles are applied by this Court in resolving this petition for review on certiorari of the July 22,
1996 Decision[1] of the Court of Appeals[2] in CA GR CV No. 48048, which affirmed in toto[3] the Regional
Trial Courts August 9, 1994 Resolution.[4] The trial court dismissed the expropriation suit as follows:
The right of the plaintiff to exercise the power of eminent domain is not disputed. However, such right
may be exercised only pursuant to an Ordinance (Sec. 19, R.A. No. 7160). In the instant case, there is no
such ordinance passed by the Municipal Council of Paraaque enabling the Municipality, thru its Chief
Executive, to exercise the power of eminent domain. The complaint, therefore, states no cause of action.
Assuming that plaintiff has a cause of action, the same is barred by a prior judgment. On September 29,
1987, the plaintiff filed a complaint for expropriation involving the same parcels of land which was
docketed as Civil Case No. 17939 of this Court (page 26, record). Said case was dismissed with prejudice
on May 18, 1988 (page 39, record). The order of dismissal was not appealed, hence, the same became
final. The plaintiff can not be allowed to pursue the present action without violating the principle of [r]es
[j]udicata. While defendant in Civil Case No. 17939 was Limpan Investment Corporation, the doctrine of
res judicata still applies because the judgment in said case (C.C. No. 17939) is conclusive between the
parties and their successors-in-interest (Vda. de Buncio vs. Estate of the late Anita de Leon). The herein
defendant is the successor-in-interest of Limpan Investment Corporation as shown by the Deed of
Assignment Exchange executed on June 13, 1990.
WHEREFORE, defendants motion for reconsideration is hereby granted. The order dated February 4, 1994
is vacated and set aside.
This case is hereby dismissed. No pronouncement as to costs.
SO ORDERED.[5]
33

Factual Antecedents
Pursuant to Sangguniang Bayan Resolution No. 93-95, Series of 1993,[6] the Municipality of Paraaque
filed on September 20, 1993, a Complaint for expropriation[7] against Private Respondent V.M. Realty
Corporation over two parcels of land (Lots 2-A-2 and 2-B-1 of Subdivision Plan Psd-17917), with a
combined area of about 10,000 square meters, located at Wakas, San Dionisio, Paraaque, Metro Manila,
and covered by Torrens Certificate of Title No. 48700. Allegedly, the complaint was filed for the
purpose of alleviating the living conditions of the underprivileged by providing homes for the homeless
through a socialized housing project.[8] Parenthetically, it was also for this stated purpose that petitioner,
pursuant to its Sangguniang Bayan Resolution No. 577, Series of 1991,[9] previously made an offer to
enter into a negotiated sale of the property with private respondent, which the latter did not accept.[10]
Finding the Complaint sufficient in form and substance, the Regional Trial Court of Makati, Branch 134,
issued an Order dated January 10, 1994,[11] giving it due course. Acting on petitioners motion, said court
issued an Order dated February 4, 1994,[12] authorizing petitioner to take possession of the subject
property upon deposit with its clerk of court of an amount equivalent to 15 percent of its fair market value
based on its current tax declaration.
On February 21, 1994, private respondent filed its Answer containing affirmative defenses and a
counterclaim,[13] alleging in the main that (a) the complaint failed to state a cause of action because it
was filed pursuant to a resolution and not to an ordinance as required by RA 7160 (the Local Government
Code); and (b) the cause of action, if any, was barred by a prior judgment or res judicata. On private
respondents motion, its Answer was treated as a motion to dismiss.[14] On March 24, 1994,[15] petitioner
filed its opposition, stressing that the trial courts Order dated February 4, 1994 was in accord with Section
19 of RA 7160, and that the principle of res judicata was not applicable.
Thereafter, the trial court issued its August 9, 1994 Resolution[16] nullifying its February 4, 1994 Order and
dismissing the case. Petitioners motions for reconsideration and transfer of venue were denied by the trial
court in a Resolution dated December 2, 1994.[17] Petitioner then appealed to Respondent Court, raising
the following issues:
1.
Whether or not the Resolution of the Paraaque Municipal Council No. 93-95, Series of 1993 is a
substantial compliance of the statutory requirement of Section 19, R.A. 7180 [sic] in the exercise of the
power of eminent domain by the plaintiff-appellant.
2.

Whether or not the complaint in this case states no cause of action.

3.
Whether or not the strict adherence to the literal observance to the rule of procedure resulted in
technicality standing in the way of substantial justice.
4.

Whether or not the principle of res judicata is applicable to the present case.[18]

As previously mentioned, the Court of Appeals affirmed in toto the trial courts Decision. Respondent
Court, in its assailed Resolution promulgated on January 8, 1997,[19] denied petitioners Motion for
Reconsideration for lack of merit.
Hence, this appeal.[20]
The Issues
Before this Court, petitioner posits two issues, viz.:
1.
A resolution duly approved by the municipal council has the same force and effect of an ordinance
and will not deprive an expropriation case of a valid cause of action.
2.
The principle of res judicata as a ground for dismissal of case is not applicable when public interest is
primarily involved.[21]
The Courts Ruling
34

The petition is not meritorious.


First Issue:
Resolution Different from an Ordinance
Petitioner contends that a resolution approved by the municipal council for the purpose of initiating an
expropriation case substantially complies with the requirements of the law[22] because the terms
ordinance and resolution are synonymous for the purpose of bestowing authority [on] the local
government unit through its chief executive to initiate the expropriation proceedings in court in the
exercise of the power of eminent domain.[23] Petitioner seeks to bolster this contention by citing Article
36, Rule VI of the Rules and Regulations Implementing the Local Government Code, which provides: If the
LGU fails to acquire a private property for public use, purpose, or welfare through purchase, the LGU may
expropriate said property through a resolution of the Sanggunian authorizing its chief executive to initiate
expropriation proceedings.[24] (Italics supplied.)
The Court disagrees. The power of eminent domain is lodged in the legislative branch of government,
which may delegate the exercise thereof to LGUs, other public entities and public utilities.[25] An LGU may
therefore exercise the power to expropriate private property only when authorized by Congress and
subject to the latters control and restraints, imposed through the law conferring the power or in other
legislations.[26] In this case, Section 19 of RA 7160, which delegates to LGUs the power of eminent
domain, also lays down the parameters for its exercise. It provides as follows:
Section 19. Eminent Domain. A local government unit may, through its chief executive and acting
pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose, or welfare for
the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of
the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be
exercised unless a valid and definite offer has been previously made to the owner, and such offer was not
accepted: Provided, further, That the local government unit may immediately take possession of the
property upon the filing of the expropriation proceedings and upon making a deposit with the proper court
of at least fifteen percent (15%) of the fair market value of the property based on the current tax
declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the
expropriated property shall be determined by the proper court, based on the fair market value at the time
of the taking of the property. (Emphasis supplied)
Thus, the following essential requisites must concur before an LGU can exercise the power of eminent
domain:
1. An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of
the LGU, to exercise the power of eminent domain or pursue expropriation proceedings over a particular
private property.
2. The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the
poor and the landless.
3. There is payment of just compensation, as required under Section 9, Article III of the Constitution, and
other pertinent laws.
4. A valid and definite offer has been previously made to the owner of the property sought to be
expropriated, but said offer was not accepted.[27]
In the case at bar, the local chief executive sought to exercise the power of eminent domain pursuant to a
resolution of the municipal council. Thus, there was no compliance with the first requisite that the mayor
be authorized through an ordinance. Petitioner cites Camarines Sur vs. Court of Appeals[28] to show that
a resolution may suffice to support the exercise of eminent domain by an LGU.[29] This case, however, is
not in point because the applicable law at that time was BP 337,[30] the previous Local Government Code,
which had provided that a mere resolution would enable an LGU to exercise eminent domain. In contrast,
RA 7160,[31] the present Local Government Code which was already in force when the Complaint for
expropriation was filed, explicitly required an ordinance for this purpose.

35

We are not convinced by petitioners insistence that the terms resolution and ordinance are
synonymous. A municipal ordinance is different from a resolution. An ordinance is a law, but a resolution
is merely a declaration of the sentiment or opinion of a lawmaking body on a specific matter.[32] An
ordinance possesses a general and permanent character, but a resolution is temporary in nature.
Additionally, the two are enacted differently -- a third reading is necessary for an ordinance, but not for a
resolution, unless decided otherwise by a majority of all the Sanggunian members.[33]
If Congress intended to allow LGUs to exercise eminent domain through a mere resolution, it would have
simply adopted the language of the previous Local Government Code. But Congress did not. In a clear
divergence from the previous Local Government Code, Section 19 of RA 7160 categorically requires that
the local chief executive act pursuant to an ordinance. Indeed, [l]egislative intent is determined
principally from the language of a statute. Where the language of a statute is clear and unambiguous, the
law is applied according to its express terms, and interpretation would be resorted to only where a literal
interpretation would be either impossible or absurd or would lead to an injustice.[34] In the instant case,
there is no reason to depart from this rule, since the law requiring an ordinance is not at all impossible,
absurd, or unjust.
Moreover, the power of eminent domain necessarily involves a derogation of a fundamental or private right
of the people.[35] Accordingly, the manifest change in the legislative language -- from resolution under
BP 337 to ordinance under RA 7160 -- demands a strict construction. No species of property is held by
individuals with greater tenacity, and is guarded by the Constitution and laws more sedulously, than the
right to the freehold of inhabitants. When the legislature interferes with that right and, for greater public
purposes, appropriates the land of an individual without his consent, the plain meaning of the law should
not be enlarged by doubtful interpretation.[36]
Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a resolution to
authorize an LGU to exercise eminent domain. This is clearly misplaced, because Section 19 of RA 7160,
the law itself, surely prevails over said rule which merely seeks to implement it.[37] It is axiomatic that the
clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its
implementation. Besides, what the discrepancy seems to indicate is a mere oversight in the wording of
the implementing rules, since Article 32, Rule VI thereof, also requires that, in exercising the power of
eminent domain, the chief executive of the LGU must act pursuant to an ordinance.
In this ruling, the Court does not diminish the policy embodied in Section 2, Article X of the Constitution,
which provides that territorial and political subdivisions shall enjoy local autonomy. It merely upholds the
law as worded in RA 7160. We stress that an LGU is created by law and all its powers and rights are
sourced therefrom. It has therefore no power to amend or act beyond the authority given and the
limitations imposed on it by law. Strictly speaking, the power of eminent domain delegated to an LGU is in
reality not eminent but inferior domain, since it must conform to the limits imposed by the delegation,
and thus partakes only of a share in eminent domain.[38] Indeed, the national legislature is still the
principal of the local government units, which cannot defy its will or modify or violate it.[39]
Complaint Does Not State a Cause of Action
In its Brief filed before Respondent Court, petitioner argues that its Sanguniang Bayan passed an ordinance
on October 11, 1994 which reiterated its Resolution No. 93-35, Series of 1993, and ratified all the acts of its
mayor regarding the subject expropriation.[40]
This argument is bereft of merit. In the first place, petitioner merely alleged the existence of such an
ordinance, but it did not present any certified true copy thereof. In the second place, petitioner did not
raise this point before this Court. In fact, it was mentioned by private respondent, and only in passing.[41]
In any event, this allegation does not cure the inherent defect of petitioners Complaint for expropriation
filed on September 23, 1993. It is hornbook doctrine that:
x x x in a motion to dismiss based on the ground that the complaint fails to state a cause of action, the
question submitted before the court for determination is the sufficiency of the allegations in the complaint
itself. Whether those allegations are true or not is beside the point, for their truth is hypothetically
admitted by the motion. The issue rather is: admitting them to be true, may the court render a valid
judgment in accordance with the prayer of the complaint?[42]

36

The fact that there is no cause of action is evident from the face of the Complaint for expropriation which
was based on a mere resolution. The absence of an ordinance authorizing the same is equivalent to lack of
cause of action. Consequently, the Court of Appeals committed no reversible error in affirming the trial
courts Decision which dismissed the expropriation suit.
Second Issue:
Eminent Domain Not Barred by Res Judicata
As correctly found by the Court of Appeals[43] and the trial court,[44] all the requisites for the application
of res judicata are present in this case. There is a previous final judgment on the merits in a prior
expropriation case involving identical interests, subject matter and cause of action, which has been
rendered by a court having jurisdiction over it.
Be that as it may, the Court holds that the principle of res judicata, which finds application in generally all
cases and proceedings,[45] cannot bar the right of the State or its agent to expropriate private property.
The very nature of eminent domain, as an inherent power of the State, dictates that the right to exercise
the power be absolute and unfettered even by a prior judgment or res judicata. The scope of eminent
domain is plenary and, like police power, can reach every form of property which the State might need for
public use.[46] All separate interests of individuals in property are held of the government under this
tacit agreement or implied reservation. Notwithstanding the grant to individuals, the eminent domain, the
highest and most exact idea of property, remains in the government, or in the aggregate body of the
people in their sovereign capacity; and they have the right to resume the possession of the property
whenever the public interest requires it.[47] Thus, the State or its authorized agent cannot be forever
barred from exercising said right by reason alone of previous non-compliance with any legal requirement.
While the principle of res judicata does not denigrate the right of the State to exercise eminent domain, it
does apply to specific issues decided in a previous case. For example, a final judgment dismissing an
expropriation suit on the ground that there was no prior offer precludes another suit raising the same
issue; it cannot, however, bar the State or its agent from thereafter complying with this requirement, as
prescribed by law, and subsequently exercising its power of eminent domain over the same property.[48]
By the same token, our ruling that petitioner cannot exercise its delegated power of eminent domain
through a mere resolution will not bar it from reinstituting similar proceedings, once the said legal
requirement and, for that matter, all others are properly complied with. Parenthetically and by parity of
reasoning, the same is also true of the principle of law of the case. In Republic vs De Knecht,[49] the
Court ruled that the power of the State or its agent to exercise eminent domain is not diminished by the
mere fact that a prior final judgment over the property to be expropriated has become the law of the case
as to the parties. The State or its authorized agent may still subsequently exercise its right to expropriate
the same property, once all legal requirements are complied with. To rule otherwise will not only
improperly diminish the power of eminent domain, but also clearly defeat social justice.
WHEREFORE, the petition is hereby DENIED without prejudice to petitioners proper exercise of its power of
eminent domain over subject property. Costs against petitioner.
SO ORDERED.
TAXING POWER
CASE 1: MMSMC VS TOLEDO
G.R. No. 190818

June 5, 2013

METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME HOLDINGS, INC., STAR APPLIANCES
CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC., HEALTH AND BEAUTY, INC., JOLLIMART
PHILS. CORP., and SURPLUS MARKETING CORPORATION, Petitioners,
vs.
MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila, and THE CITY OF MANILA,
Respondents.
DECISION
37

PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the September 8, 2009 Decision2 and January 4, 2010
Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA E.B. No. 480 which affirmed the October 31,
2008 Decision4 of the CTA Second Division (CTA Division), denying petitioners Metro Manila Shopping
Mecca Corp., Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Super Value, Inc., Ace
Hardware Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus Marketing
Corporations claim for refund of local business taxes.
The Facts
Sometime in October 2001, respondent Liberty M. Toledo, as Treasurer of respondent City of Manila (City),
assessed petitioners for their fourth quarter local business taxes pursuant to Section 21 of City Ordinance
No. 7794, as amended by City Ordinance Nos. 7807, 7988, and 8011, otherwise known as the "Revenue
Code of the City of Manila" (Manila Revenue Code).5 Consequently, on October 20, 2001, petitioners paid
thetotal assessed amount of P5,104,281.26 under protest.6
In a letter7 dated October 19, 2001, petitioners informed the Office of the City Treasurer of Manila of the
nature of the foregoing payment, assailing as well the unconstitutionality of Section 21 of the Manila
Revenue Code. Petitioners protest was however denied8 on October 25, 2001.
On October 20, 2003, petitioners filed a case with the Regional Trial Court of Manila (RTC) against
respondents, reiterating their claim that Section 21 of the Manila Revenue Code is null and void.
Accordingly, they sought the refund of the amount of local business taxes they previously paid to the City,
plus interest. On November 14, 2003, petitioners filed an Amended Complaint which in essence, reprised
their previous claims.9
For their part, respondents filed a Motion to Dismiss10 dated November 6, 2003 (Motion to Dismiss). In an
Order11 dated December 10 2003, the RTC did not address the arguments raised in the aforesaid Motion
to Dismiss but merely admitted petitioners amended complaint.
Consequently, respondents filed their Answer12 on December 16, 2003 (Answer). Notably, in their Motion
to Dismiss and Answer, respondents averred that petitioners failed to file any written claim for tax refund
or credit with the Office of the City Treasurer of Manila.13
On July 8, 2004, petitioners sent respondents a Request for Admissions & Interrogatories14 dated July 7,
2004 (Request for Admission), which inter alia requested the admission of the fact that the former filed a
written protest with the latter. Respondents did not respond to the said Request for Admission.
During pre-trial, the parties stipulated on the following issues: (1) whether petitioners were invalidly
assessed local business taxes due to the unconstitutionality of Section 21 of the Manila Revenue Code; and
(2) whether petitioners are entitled to a tax refund/credit in the amount of
P5,104,281.26.
The Ruling of the RTC
In its Decision15 dated December 7, 2006, the RTC held that respondents assessment of local business
tax under Section 21 of the Manila Revenue Code is null and void thereby, warranting the issuance of a tax
refund, or tax credit in the alternative, in the amount of P5,104,281.26 in favor of petitioners.16
In arriving at the same, it noted the case of Coca-Cola Bottlers Philippines, Inc. v. City of Manila (Coca-Cola
Bottlers)17 where the Court declared the nullity of City Ordinance Nos. 7988 and 8011. Incidentally, these
are the amendatory ordinances which made petitioners liable for local business taxes under the present
Manila Revenue Code. Thus, the RTC opined that pursuant to the pronouncement in Coca-Cola Bottlers, it
had no alternative but to declare the assessments made in the present case null and void as well.18
Respondents filed a Motion for Reconsideration19 dated January 16, 2007 which the RTC, however, denied
in its Order20 dated April 17, 2007. Respondents received a copy of the said order on April 27, 2007.
Thereafter, they filed two (2) Motions for Extension to File Petition for Review with the CTA, effectively
38

requesting for a period of thirty (30) days from May 27, 2007, or until June 26, 2007, to file their petition
for review.21
On June 26, 2007, respondents filed their Petition for Review22 dated June 22, 2007 via registered mail. On
June 28, 2007, respondents likewise filed a Manifestation23 dated June 27, 2007 via personal filing,
alleging that they have previously filed their Petition for Review via registered mail on June 26, 2007 and
that they are attaching another copy of the same in the Manifestation. In its Resolution dated July 6, 2007,
the CTA Division granted respondents Motions for Extension, noted their Manifestation, and admitted their
Petition for Review.24
The Ruling of the CTA Division
In its Decision dated October 31, 2008, the CTA Division reversed and set aside the RTCs ruling and in
effect, denied petitioners request for tax refund/credit.25
It held that petitioners failed to contest the denial of their protest before a court of competent jurisdiction
within the period provided for under Section 19526 of Republic Act No. 7160, otherwise known as the
"Local Government Code of 1991" (LGC), and thus, the assessment became conclusive and unappealable.
In this regard, petitioners could no longer contest the validity of such assessment when they filed their
Complaint and Amended Complaint on October 20, 2003 and November 14, 2003, respectively.27
It likewise ruled that petitioners failed to comply with Section 19628 of the LGC, considering that their
letter dated October 19, 2001 to respondents was a mere protest letter and as such, could not be treated
as a written claim for refund.29
On November 19, 2008, petitioners moved for reconsideration, averring that respondents failed to file their
Petition for Review within the reglementary period thus, making the RTC decision already final and
executory. On March 16, 2009, the CTA Division issued a Resolution30 denying petitioners motion.
Aggrieved, petitioners elevated the matter to the CTA En Banc.
The Ruling of the CTA En Banc
In its Decision dated September 8, 2009, the CTA En Banc upheld the CTA Divisions ruling and found that:
(1) respondents were able to file their Petition for Review within the reglementary period; (2) the
assessment of local business taxes against petitioners had become conclusive and unappealable; and (3)
petitioners claim for refund should be denied for their failure to comply with the requisites provided for by
law.31
On October 1, 2009, petitioners moved for reconsideration but the CTA En Banc denied the same in its
Resolution32 dated January 4, 2010.
Hence, this petition.
The Issues Before the Court
The following issues have been raised for the Courts resolution: (1) whether the CTA Division correctly
gave due course to respondents Petition for Review; and (2) whether petitioners are entitled to a tax
refund/credit.
The Courts Ruling
The petition is bereft of merit.
A. Respondents Petition for
Review with the CTA Division
Petitioners argue that the CTA Division erred in extending the reglementary period within which
respondents may file their Petition for Review, considering that Section 3, Rule 833 of the Revised Rules of
the CTA (RRCTA) is silent on such matter. Further, even if it is assumed that an extension is allowed, the
CTA Division should not have entertained respondents Petition for Review for their failure to comply with
the filing requisites set forth in Section 4, Rule 534 and Section 2, Rule 635 of the RRCTA.
39

Petitioners arguments fail to persuade.


Although the RRCTA does not explicitly sanction extensions to file a petition for review with the CTA,
Section 1, Rule 736 thereof reads that in the absence of any express provision in the RRCTA, Rules 42, 43,
44 and 46 of the Rules of Court may be applied in a suppletory manner. In particular, Section 937 of
Republic Act No. 9282 makes reference to the procedure under Rule 42 of the Rules of Court. In this light,
Section 1 of Rule 4238 states that the period for filing a petition for review may be extended upon motion
of the concerned party. Thus, in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,39 the Court held that
the original period for filing the petition for review may be extended for a period of fifteen (15) days, which
for the most compelling reasons, may be extended for another period not exceeding fifteen (15) days.40 In
other words, the reglementary period provided under Section 3, Rule 8 of the RRCTA is extendible and as
such, CTA Divisions grant of respondents motion for extension falls squarely within the law.
Neither did respondents failure to comply with Section 4, Rule 5 and Section 2, Rule 6 of the RRCTA
militate against giving due course to their Petition for Review. Respondents submission of only one copy of
the said petition and their failure to attach therewith a certified true copy of the RTCs decision constitute
mere formal defects which may be relaxed in the interest of substantial justice. It is well-settled that
dismissal of appeals based purely on technical grounds is frowned upon as every party litigant must be
afforded the amplest opportunity for the proper and just determination of his cause, free from the
unacceptable plea of technicalities.41 In this regard, the CTA Division did not overstep its boundaries when
it admitted respondents Petition for Review despite the aforementioned defects "in the broader interest of
justice."
Having resolved the foregoing procedural matter, the Court proceeds to the main issue in this case.
B. Petitioners claim for tax
refund/credit
A perusal of Section 19642 of the LGC reveals that in order to be entitled to a refund/credit of local taxes,
the following procedural requirements must concur: first, the taxpayer concerned must file a written claim
for refund/credit with the local treasurer; and second, the case or proceeding for refund has to be filed
within two (2) years from the date of the payment of the tax, fee, or charge or from the date the taxpayer
is entitled to a refund or credit.
Records disclose that while the case or proceeding for refund was filed by petitioners within two (2) years
from the time of payment,43 they, however, failed to prove that they have filed a written claim for refund
with the local treasurer considering that such fact although subject of their Request for Admission which
respondents did not reply to had already been controverted by the latter in their Motion to Dismiss and
Answer.
To elucidate, the scope of a request for admission filed pursuant to Rule 26 of the Rules of Court and a
partys failure to comply with the same are respectively detailed in Sections 1 and 2 thereof, to wit:
SEC. 1. Request for admission. At any time after issues have been joined, a party may file and serve upon
any other party a written request for the admission by the latter of the genuineness of any material and
relevant document described in and exhibited with the request or of the truth of any material and relevant
matter of fact set forth in the request. Copies of the documents shall be delivered with the request unless
copies have already been furnished.
SEC. 2. Implied admission. Each of the matters of which an admission is requested shall be deemed
admitted unless, within a period designated in the request, which shall not be less than fifteen (15) days
after service thereof, or within such further time as the court may allow on motion, the party to whom the
request is directed files and serves upon the party requesting the admission a sworn statement either
denying specifically the matters of which an admission is requested or setting forth in detail the reasons
why he cannot truthfully either admit or deny those matters.
Objections to any request for admission shall be submitted to the court by the party requested within the
period for and prior to the filing of his sworn statement as contemplated in the preceding paragraph and
40

his compliance therewith shall be deferred until such objections are resolved, which resolution shall be
made as early as practicable. (Emphasis and underscoring supplied)
Based on the foregoing, once a party serves a request for admission regarding the truth of any material
and relevant matter of fact, the party to whom such request is served is given a period of fifteen (15) days
within which to file a sworn statement answering the same. Should the latter fail to file and serve such
answer, each of the matters of which admission is requested shall be deemed admitted.44
The exception to this rule is when the party to whom such request for admission is served had already
controverted the matters subject of such request in an earlier pleading. Otherwise stated, if the matters in
a request for admission have already been admitted or denied in previous pleadings by the requested
party, the latter cannot be compelled to admit or deny them anew. In turn, the requesting party cannot
reasonably expect a response to the request and thereafter, assume or even demand the application of the
implied admission rule in Section 2, Rule 26.45 The rationale behind this exception had been discussed in
the case of CIR v. Manila Mining Corporation,46 citing Concrete Aggregates Corporation v. CA,47 where the
Court held as follows:
As Concrete Aggregates Corporation v. Court of Appeals holds, admissions by an adverse party as a mode
of discovery contemplates of interrogatories that would clarify and tend to shed light on the truth or falsity
of the allegations in a pleading, and does not refer to a mere reiteration of what has already been alleged
in the pleadings; otherwise, it constitutes an utter redundancy and will be a useless, pointless process
which petitioner should not be subjected to.
Petitioner controverted in its Answers the matters set forth in respondents Petitions for Review before the
CTA the requests for admission being mere reproductions of the matters already stated in the petitions.
Thus, petitioner should not be required to make a second denial of those matters it already denied in its
Answers.1wphi1 (Emphasis and underscoring supplied; citations omitted)
Likewise, in the case of Limos v. Odones,48 the Court explained:
A request for admission is not intended to merely reproduce or reiterate the allegations of the requesting
partys pleading but should set forth relevant evidentiary matters of fact described in the request, whose
purpose is to establish said partys cause of action or defense. Unless it serves that purpose, it is pointless,
useless and a mere redundancy. (Emphasis and underscoring supplied)
Records show that petitioners filed their Request for Admission with the RTC and also served the same on
respondents, requesting that the fact that they filed a written claim for refund with the City Treasurer of
Manila be admitted.49 Respondents, however, did not and in fact, need not reply to the same
considering that they have already stated in their Motion to Dismiss and Answer that petitioners failed to
file any written claim for tax refund or credit.50 In this regard, respondents are not deemed to have
admitted the truth and veracity of petitioners requested fact.
Indeed, it is hornbook principle that a claim for a tax refund/credit is in the nature of a claim for an
exemption and the law is construed in strictissimi juris against the one claiming it and in favor of the
taxing authority.51 Consequently, as petitioners have failed to prove that they have complied with the
procedural requisites stated under Section 196 of the LGC, their claim for local tax refund/credit must be
denied.
WHEREFORE, the petition is DENIED. The September 8, 2009 Decision and January 4, 2010 Resolution of
the Court of Tax Appeals En Bane in CT A E.B. No. 480 are hereby AFFIRMED.
SO ORDERED.
CASE 2: PELIZLOY CORP VS PROVINCE OF BENGUET
G.R. No. 183137

April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY, Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.
41

DECISION
LEONEN, J.:
The principal issue in this case is the scope of authority of a province to impose an amusement tax.
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the December
10, 2007 decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232
be reversed and set aside and a new one issued in which: ( 1) respondent Province of Benguet is declared
as having no authority to levy amusement taxes on admission fees for resorts, swimming pools, bath
houses, hot springs, tourist spots, and other places for recreation; (2) Section 59, Article X of the Benguet
Provincial Revenue Code of 2005 is declared null and void; and (3) the respondent Province of Benguet is
permanently enjoined from enforcing Section 59, Article X of the Benguet Provincial Revenue Code of
2005.
Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed for recreation
and which has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan,
Municipality of Tuba, Province of Benguet.
On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax Ordinance
No. 05-107, otherwise known as the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59, Article
X of the Tax Ordinance levied a ten percent (10%) amusement tax on gross receipts from admissions to
"resorts, swimming pools, bath houses, hot springs and tourist spots." Specifically, it provides the
following:
Article Ten: Amusement Tax on Admission
Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or
day clubs, and other places of amusement at the rate of thirty percent (30%) of the gross receipts from
admission fees; and
A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath
houses, hot springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied]
Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January 1, 2006.
It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross receipts
from admission fees for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra
vires act on the part of the Province of Benguet. Thus, it filed an appeal/petition before the Secretary of
Justice on January 27, 2006.
The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax ordinance
allowed by Section 187 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC).1
The appeal/petition was docketed as MSO-OSJ Case No. 03-2006.
Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the appeal to
render a decision. After the lapse of which, the aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.
Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60) days provided
by Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy filed a Petition for
Declaratory Relief and Injunction before the Regional Trial Court, Branch 62, La Trinidad, Benguet. The
petition was docketed as Civil Case No. 06-CV-2232.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in violation of the
limitation on the taxing powers of local government units (LGUs) under Section 133 (i) of the LGC. Thus, it
was null and void ab initio. Section 133 (i) of the LGC provides:

42

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxx
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein
The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper remedy.
It alleged that once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue
for recovery after exhausting administrative remedies.2
On substantive grounds, the Province of Benguet argued that the phrase other places of amusement in
Section 140 (a) of the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist
spots since "Article 220 (b) (sic)" of the LGC defines "amusement" as "pleasurable diversion and
entertainment x x x synonymous to relaxation, avocation, pastime, or fun."4 However, the Province of
Benguet erroneously cited Section 220 (b) of the LGC. Section 220 of the LGC refers to valuation of real
property for real estate tax purposes. Section 131 (b) of the LGC, the provision which actually defines
"amusement", states:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation,
pastime, or fun On December 10, 2007, the RTC rendered the assailed Decision dismissing the Petition for
Declaratory Relief and Injunction for lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59,
Article X of the Tax Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax,
Section 133 (i) of the LGC itself allowed for exceptions. It noted that what the LGC prohibits is not the
imposition by LGUs of percentage taxes in general but the "imposition and levy of percentage tax on sales,
barters, etc., on goods and services only."5 It further gave credence to the Province of Benguet's assertion
that resorts, swimming pools, bath houses, hot springs, and tourist spots are encompassed by the phrase
other places of amusement in Section 140 of the LGC.
On May 21, 2008, the RTC denied Pelizloys Motion for Reconsideration.
Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the
legality of Section 59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per
Section 133 (i) of the LGC.
In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that Section 59,
Article X of the Tax Ordinance does not levy a percentage tax "because the imposition is not based on the
total gross receipts of services of the petitioner but solely and actually limited on the gross receipts of the
admission fees collected."6 In addition, it argued that provinces can validly impose amusement taxes on
resorts, swimming pools, bath houses, hot springs, and tourist spots, these being amusement places.
For resolution in this petition are the following issues:
1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the
Benguet Revenue Code of 2005, levies a percentage tax.
2. Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the Local
Government Code.
The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State. Such, however, is not
true for provinces, cities, municipalities and barangays as they are not the sovereign;8 rather, they are
mere "territorial and political subdivisions of the Republic of the Philippines".9
43

The rule governing the taxing power of provinces, cities, muncipalities and barangays is summarized in
Icard v. City Council of Baguio:10
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the interpretation of the taxing power of
a municipal corporation.11 [Underscoring supplied]
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either
by the Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:
Section 5. Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to
the local governments. [Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges."12
Nevertheless, such authority is "subject to such guidelines and limitations as the Congress may
provide".13
In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and
fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found
below.
First, Section 130 provides for the following fundamental principles governing the taxing powers of
LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Second, Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically,
Section 133 (i) prohibits the levy by LGUs of percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as otherwise provided by the LGC.
As it is Pelizloys contention that Section 59, Article X of the Tax Ordinance levies a prohibited percentage
tax, it is crucial to understand first the concept of a percentage tax.
44

In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc.,15 the Supreme Court defined
percentage tax as a "tax measured by a certain percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person
engaged in the sale of services." Also, Republic Act No. 8424, otherwise known as the National Internal
Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes as among the (other) percentage
taxes which are levied regardless of whether or not a taxpayer is already liable to pay value-added tax
(VAT).
Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified
establishments.
Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement taxes by the
NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.
However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of
percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes "except as otherwise
provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other
places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission
fees.
(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between
said proprietors, lessees, or operators and the distributors of the cinematographic films.
(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from
the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment
of tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such
surcharges, interests and penalties.
(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality
where such amusement places are located. [Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section
140 expressly allows for the imposition by provinces of amusement taxes on "the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement."
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places
expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the
determination of whether amusement taxes may be levied on admissions to resorts, swimming pools, bath
houses, hot springs, and tourist spots hinges on whether the phrase other places of amusement
encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of
particular and specific words of the same class or where the latter follow the former, the general word or
phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or
of the same kind or class as those specifically mentioned."17
The purpose and rationale of the principle was explained by the Court in National Power Corporation v.
Angas18 as follows:
The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by
treating the particular words as indicating the class and the general words as including all that is embraced
45

in said class, although not specifically named by the particular words. This is justified on the ground that if
the lawmaking body intended the general terms to be used in their unrestricted sense, it would have not
made an enumeration of particular subjects but would have used only general terms. [2 Sutherland,
Statutory Construction, 3rd ed., pp. 395-400].19
In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an opportunity to
interpret a starkly similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax
Code then in effect. Petitioner Philippine Basketball Association (PBA) contended that it was subject to the
imposition by LGUs of amusement taxes (as opposed to amusement taxes imposed by the national
government).1wphi1 In support of its contentions, it cited Section 13 of Presidential Decree No. 231,
otherwise known as the Local Tax Code of 1973, (which is analogous to Section 140 of the LGC) providing
the following:
Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be collected
from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other
places of amusement xxx.
Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and noted that:
In determining the meaning of the phrase 'other places of amusement', one must refer to the prior
enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their
common characteristic. Professional basketball games do not fall under the same category as theaters,
cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment
while the former caters to sports and gaming.21 [Underscoring supplied]
However, even as the phrase other places of amusement was already clarified in Philippine Basketball
Association, Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly
be subject to amusement tax. Section 140 specifically mentions 'boxing stadia' in addition to "theaters,
cinematographs, concert halls and circuses" which were already mentioned in PD No. 231. Also, 'artistic
expression' as a characteristic does not pertain to 'boxing stadia'.
In the present case, the Court need not embark on a laborious effort at statutory construction. Section 131
(c) of the LGC already provides a clear definition of amusement places:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement
where one seeks admission to entertain oneself by seeing or viewing the show or performances
[Underscoring supplied]
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common typifying
characteristic in that they are all venues primarily for the staging of spectacles or the holding of public
shows, exhibitions, performances, and other events meant to be viewed by an audience. Accordingly,
other places of amusement must be interpreted in light of the typifying characteristic of being venues
"where one seeks admission to entertain oneself by seeing or viewing the show or performances" or being
venues primarily used to stage spectacles or hold public shows, exhibitions, performances, and other
events meant to be viewed by an audience.
As defined in The New Oxford American Dictionary,22 show means "a spectacle or display of something,
typically an impressive one";23 while performance means "an act of staging or presenting a play, a
concert, or other form of entertainment."24 As such, the ordinary definitions of the words show and
performance denote not only visual engagement (i.e., the seeing or viewing of things) but also active
doing (e.g., displaying, staging or presenting) such that actions are manifested to, and (correspondingly)
perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots
cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing or
viewing the show or performances". While it is true that they may be venues where people are visually
46

engaged, they are not primarily venues for their proprietors or operators to actively display, stage or
present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same
category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they
cannot be considered as among the other places of amusement contemplated by Section 140 of the LGC
and which may properly be subject to amusement taxes.
At this juncture, it is helpful to recall this Courts pronouncements in Icard:
The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or ambiguity
arising out of the term used in granting that power must be resolved against the province. Inferences,
implications, deductions all these have no place in the interpretation of the taxing power of a
province.25
In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for
determining what constitutes the 'other places of amusement' which may properly be subject to
amusement tax impositions by provinces. There is no reason for going beyond such basis. To do otherwise
would be to countenance an arbitrary interpretation/application of a tax law and to inflict an injustice on
unassuming taxpayers.
The previous pronouncements notwithstanding, it will be noted that it is only the second paragraph of
Section 59, Article X of the Tax Ordinance which imposes amusement taxes on "resorts, swimming pools,
bath houses, hot springs, and tourist spots". The first paragraph of Section 59, Article X of the Tax
Ordinance refers to "theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools,
night or day clubs, and other places of amusement".1wphi1 In any case, the issues raised by Pelizloy are
pertinent only with respect to the second paragraph of Section 59, Article X of the Tax Ordinance. Thus,
there is no reason to invalidate the first paragraph of Section 59, Article X of the Tax Ordinance. Any
declaration as to the Province of Benguet's lack of authority to levy amusement taxes must be limited to
admission fees to resorts, swimming pools, bath houses, hot springs and tourist spots.
Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to resorts,
swimming pools, bath houses, hot springs, and tourist spots but also covers admission fees for boxing. As
Section 140 of the LGC allows for the imposition of amusement taxes on gross receipts from admission
fees to boxing stadia, Section 59, Article X of the Tax Ordinance must be sustained with respect to
admission fees from boxing stadia.
WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of Section 59, Article
X of the Benguet Provincial Revenue Code of 2005, in so far as it imposes amusement taxes on admission
fees to resorts, swimming pools, bath houses, hot springs and tourist spots, is declared null and void.
Respondent Province of Benguet is permanently enjoined from enforcing the second paragraph of Section
59, Article X of the Benguet Provincial Revenue Code of 2005 with respect to resorts, swimming pools, bath
houses, hot springs and tourist spots.
SO ORDERED.
CASE 3: NAPOCOR VS PROVINCE OF QUEZON
G.R. No. 171586

July 15, 2009

NATIONAL POWER CORPORATION, Petitioner,


vs.
PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondents.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari the question of whether the National Power Corporation
(NPC), as a government-owned and controlled corporation, can claim tax exemption under Section 234 of
the Local Government Code (LGC) for the taxes due from the Mirant Pagbilao Corporation (Mirant)1 whose
tax liabilities the NPC has contractually assumed.
47

BACKGROUND FACTS
The NPC is a government-owned and controlled corporation mandated by law to undertake, among others,
the production of electricity from nuclear, geothermal, and other sources, and the transmission of electric
power on a nationwide basis.2 To pursue this mandate, the NPC entered into an Energy Conversion
Agreement (ECA) with Mirant on November 9, 1991. The ECA provided for a build-operate-transfer (BOT)
arrangement between Mirant and the NPC. Mirant will build and finance a coal-fired thermal power plant on
the lots owned by the NPC in Pagbilao, Quezon for the purpose of converting fuel into electricity, and
thereafter, operate and maintain the power plant for a period of 25 years. The NPC, in turn, will supply the
necessary fuel to be converted by Mirant into electric power, take the power generated, and use it to
supply the electric power needs of the country. At the end of the 25-year term, Mirant will transfer the
power plant to the NPC without compensation. According to the NPC, the power plant is currently
operational and is one of the largest sources of electric power in the country.3
Among the obligations undertaken by the NPC under the ECA was the payment of all taxes that the
government may impose on Mirant; Article 11.1 of the ECA4 specifically provides:
11.1 RESPONSIBILITY. [NPC] shall be responsible for the payment of (a) all taxes, import duties, fees,
charges and other levies imposed by the National Government of the Republic of the Philippines or any
agency or instrumentality thereof to which [Mirant] may at any time be or become subject in or in relation
to the performance of their obligations under this Agreement (other than (i) taxes imposed or calculated on
the basis of the net income [of Mirant] and (ii) construction permit fees, environmental permit fees and
other similar fees and charges), and (b) all real estate taxes and assessments, rates and other charges in
respect of the Site, the buildings and improvements thereon and the Power Station. [Emphasis supplied.]
In a letter dated March 2, 2000, the Municipality of Pagbilao assessed Mirants real property taxes on the
power plant and its machineries in the total amount of P1,538,076,000.00 for the period of 1997 to 2000.
The Municipality of Pagbilao furnished the NPC a copy of the assessment letter.
To protect its interests, the NPC filed a petition before the Local Board of Assessment Appeals (LBAA)
entitled "In Re: Petition to Declare Exempt from Payment of Property Tax on Machineries and Equipment
Used for Generation and Transmission of Power, under Section 234(c) of RA 7160 [LGC], located at
Pagbilao, Quezon xxx"5 on April 14, 2000. The NPC objected to the assessment against Mirant on the claim
that it (the NPC) is entitled to the tax exemptions provided in Section 234, paragraphs (c) and (e) of the
LGC. These provisions state:
Section 234. Exemptions from Real Property Tax. The following are exempted from payment for the
real property tax:
xxx

xxx

xxx

(c) All machineries and equipment that are actually, directly, and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
xxx

xxx

xxx

(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including government-owned or controlled
corporations are hereby withdrawn upon the effectivity of the Code.
Assuming that it cannot claim the exemptions stated in these provisions, the NPC alternatively asserted
that it is entitled to:
a. the lower assessment level of 10% under Section 218(d) of the LGC for government-owned and
controlled corporations engaged in the generation and transmission of electric power, instead of the 80%
assessment level for commercial properties as imposed in the assessment letter; and
48

b. an allowance for depreciation of the subject machineries under Section 225 of the LGC.
The LBAA dismissed the NPCs petition on the Municipality of Pagbilaos motion, through a one-page Order
dated November 13, 2000.6
The NPC appealed the denial of its petition with the Central Board of Assessment Appeals (CBAA). Although
it noted the incompleteness of the LBAA decision for failing to state the factual basis of its ruling, the CBAA
nevertheless affirmed, in its decision of August 18, 2003, the denial of the NPCs claim for exemption. The
CBAA likewise denied the NPCs subsequent motion for reconsideration, prompting the NPC to institute an
appeal before the Court of Tax Appeals (CTA).
Before the CTA, the NPC claimed it was procedurally erroneous for the CBAA to exercise jurisdiction over its
appeal because the LBAA issued a sin perjuicio7 decision, that is, the LBAA pronounced a judgment
without any finding of fact. It argued that the CBAA should have remanded the case to the LBAA. On
substantive issues, the NPC asserted the same grounds it relied upon to support its claimed tax
exemptions.
The CTA en banc resolved to dismiss the NPCs petition on February 21, 2006. From this ruling, the NPC
filed the present petition seeking the reversal of the CTA en bancs decision.
THE PETITION
The NPC contends that the CTA en banc erred in ruling that the NPC is estopped from questioning the
LBAAs sin perjuicio judgment; the LBAA decision, it posits, cannot serve as an appealable decision that
would vest the CBAA with appellate jurisdiction; a sin perjuicio decision, by its nature, is null and void.
The NPC likewise assails the CTA en banc ruling that the NPC was not the proper party to protest the real
property tax assessment, as it did not have the requisite "legal interest." The NPC claims that it has legal
interest because of its beneficial ownership of the power plant and its machineries; what Mirant holds is
merely a naked title. Under the terms of the ECA, the NPC also claims that it possesses all the attributes of
ownership, namely, the rights to enjoy, to dispose of, and to recover against the holder and possessor of
the thing owned. That it will acquire and fully own the power plant after the lapse of 25 years further
underscores its "legal interest" in protesting the assessment.
The NPCs assertion of beneficial ownership of the power plant also supports its claim for tax exemptions
under Section 234(c) of the LGC. The NPC alleges that it has the right to control and supervise the entire
output and operation of the power plant. This arrangement, to the NPC, proves that it is the entity actually,
directly, and exclusively using the subject machineries. Mirants possession of the power plant is irrelevant
since all of Mirant activities relating to power generation are undertaken for and in behalf of the NPC.
Additionally, all the electricity Mirant generates is utilized by the NPC in supplying the power needs of the
country; Mirant therefore operates the power plant for the exclusive and direct benefit of the NPC. Lastly,
the NPC posits that the machineries taxed by the local government include anti-pollution devices which
should have been excluded from the assessment under Section 234(e) of the LGC.
Assuming that the NPC is liable to pay the assessed real property tax, it asserts that a reassessment is
necessary as it is entitled to depreciation allowance on the machineries and to the lower 10% assessment
level under Sections 225 and 218(d) of the LGC, respectively. This position is complemented by its prayer
to have the case remanded to the LBAA for the proper determination of its tax liabilities.
THE COURTS RULING
This case is not one of first impression. We have previously ruled against the NPCs claimed exemptions
under the LGC in the cases of FELS Energy, Inc. v. Province of Batangas8 and NPC v. CBAA.9 Based on the
principles we declared in those cases, as well as the defects we found in the NPCs tax assessment protest,
we conclude that the petition lacks merit.
The NPC is estopped from questioning the CBAAs jurisdiction
The assailed CTA en banc decision brushed aside the NPCs sin perjuicio arguments by declaring that:

49

The court finds merit in [NPCs] claim that the Order of the LBAA of the Province of Quezon is a sin
perjuicio decision. A perusal thereof shows that the assailed Order does not contain findings of facts in
support of the dismissal of the case. It merely stated a finding of merit in the contention of the Municipality
of Pagbilao xxx.
However, on appeal before the CBAA, [NPC] assigned several errors, both in fact and in law, pertaining to
the LBAAs decision. Thus, petitioner is bound by the appellate jurisdiction of the CBAA under the principle
of equitable estoppel. In this regard, [NPC] is in no position to question the appellate jurisdiction of the
CBAA as it is the same party which sought its jurisdiction and participated in the proceedings therein.10
[Emphasis supplied.]
We agree that the NPC can no longer divest the CBAA of the power to decide the appeal after invoking and
submitting itself to the boards jurisdiction. We note that even the NPC itself found nothing objectionable in
the LBAAs sin perjuicio decision when it filed its appeal before the CBAA; the NPC did not cite this ground
as basis for its appeal. What it cited were grounds that went into the merits of its case. In fact, its appeal
contained no prayer for the remand of the case to the LBAA.
A basic jurisdictional rule, essentially based on fairness, is that a party cannot invoke a courts jurisdiction
to secure affirmative relief and, after failing to obtain the requested relief, repudiate or question that same
jurisdiction.11 Moreover, a remand would be unnecessary, as we find the CBAAs and the CTA en bancs
denial of NPCs claims entirely in accord with the law and with jurisprudence.
The entity liable for tax has the right to protest the assessment
Before we resolve the question of the NPC's entitlement to tax exemption, we find it necessary to
determine first whether the NPC initiated a valid protest against the assessment. A taxpayer's failure to
question the assessment before the LBAA renders the assessment of the local assessor final, executory,
and demandable, thus precluding the taxpayer from questioning the correctness of the assessment, or
from invoking any defense that would reopen the question of its liability on the merits.12
Section 226 of the LGC lists down the two entities vested with the personality to contest an assessment:
the owner and the person with legal interest in the property.
A person legally burdened with the obligation to pay for the tax imposed on a property has legal interest in
the property and the personality to protest a tax assessment on the property. This is the logical and legal
conclusion when Section 226, on the rules governing an assessment protest, is placed side by side with
Section 250 on the payment of real property tax; both provisions refer to the same parties who may
protest and pay the tax:
SECTION 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment
of his property may, within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city xxx.
SECTION 250. Payment of Real Property Taxes in Instalments. - The owner of the real property or the
person having legal interest therein may pay the basic real property tax xxx due thereon without interest
in four (4) equal instalments xxx.
The liability for taxes generally rests on the owner of the real property at the time the tax accrues. This is a
necessary consequence that proceeds from the fact of ownership.13 However, personal liability for realty
taxes may also expressly rest on the entity with the beneficial use of the real property, such as the tax on
property owned by the government but leased to private persons or entities, or when the tax assessment
is made on the basis of the actual use of the property.14 In either case, the unpaid realty tax attaches to
the property15 but is directly chargeable against the taxable person who has actual and beneficial use and
possession of the property regardless of whether or not that person is the owner.16
In the present case, the NPC, contrary to its claims, is neither the owner nor the possessor/user of the
subject machineries.

50

The ECAs terms regarding the power plants machineries clearly vest their ownership with Mirant. Article
2.12 of the ECA17 states:
2.12 OWNERSHIP OF POWER STATION. From the Effective Date until the Transfer Date [that is, the day
following the last day of the 25-year period], [Mirant] shall, directly or indirectly, own the Power Station and
all the fixtures, fittings, machinery and equipment on the Site or used in connection with the Power Station
which have been supplied by it or at its cost. [Mirant] shall operate, manage, and maintain the Power
Station for the purpose of converting fuel of [NPC] into electricity. [Emphasis supplied.]
The NPC contends that it should nevertheless be regarded as the beneficial owner of the plant, since it will
acquire ownership thereof at the end of 25 years. The NPC also asserts, by quoting portions of the ECA,
that it has the right to control and supervise the construction and operation of the plant, and that Mirant
has retained only naked title to it. These contentions, unfortunately, are not sufficient to vest the NPC the
personality to protest the assessment.
In Cario v. Ofilado,18 we declared that legal interest should be an interest that is actual and material,
direct and immediate, not simply contingent or expectant. The concept of the directness and immediacy
involved is no different from that required in motions for intervention under Rule 19 of the Rules of Court
that allow one who is not a party to the case to participate because of his or her direct and immediate
interest, characterized by either gain or loss from the judgment that the court may render.19 In the
present case, the NPCs ownership of the plant will happen only after the lapse of the 25-year period; until
such time arrives, the NPC's claim of ownership is merely contingent, i.e., dependent on whether the plant
and its machineries exist at that time. Prior to this event, the NPCs real interest is only in the continued
operation of the plant for the generation of electricity. This interest has not been shown to be adversely
affected by the realty taxes imposed and is an interest that NPC can protect, not by claiming an exemption
that is not due to Mirant, but by paying the taxes it (NPC) has assumed for Mirant under the ECA.
To show that Mirant only retains a naked title, the NPC has selectively cited provisions of the ECA to make
it appear that it has the sole authority over the power plant and its operations. Contrary to these
assertions, however, a complete reading of the ECA shows that Mirant has more substantial powers in the
control and supervision of the power plant's construction and operations.
Under Articles 2.1 and 3.1 of the ECA, Mirant is responsible for the design, construction, equipping, testing,
and commissioning of the power plant. Article 5.1 on the operation of the power plant states that Mirant
shall be responsible for the power plants management, operation, maintenance, and repair until the
Transfer Date. This is reiterated in Article 5.3 where Mirant undertakes to operate the power plant to
convert fuel into electricity.
While the NPC asserts that it has the power to authorize the closure of the power plant without any veto on
the part of Mirant, the full text of Article 8.5 of the ECA shows that Mirant is possessed with similar powers
to terminate the agreement:
8.5 BUYOUT. If the circumstances set out in Article 7.18, Article 9.4, Article 14.4 or Article 28.4 arise or if,
not earlier than 20 years after the Completion Date, [the NPC] gives not less than 90 days notice to
[Mirant] that it wishes to close the power station, or if [the NPC] has failed to ensure the due payment of
any sum due hereunder within three months of its due date then, upon [Mirant] giving to [the NPC] not less
than 90 days notice requiring [the NPC] to buy out [Mirant] or, as the case may be, [the NPC] giving not
less than 90 days notice requiring [Mirant] to sell out to [NPC], [NPC] shall purchase all [Mirant's] right,
title, and interest in and to the Power Station and thereupon all [Mirant's] obligations hereunder shall
cease. [Emphasis supplied.]1avvphi1
On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the power plant and its
machineries,20 specifically, "all real estate taxes and assessments, rates and other charges in respect of
the site, the buildings and improvements thereon and the [power plant]." At first blush, this contractual
provision would appear to make the NPC liable and give it standing to protest the assessment. The tax
liability we refer to above, however, is the liability arising from law that the local government unit can
rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a
contract as discussed below. By law, the tax liability rests on Mirant based on its ownership, use, and
possession of the plant and its machineries.
In Testate of Concordia Lim v. City of Manila,21 we had occasion to rule that:
51

In [Baguio v. Busuego22], the assumption by the vendee of the liability for real estate taxes prospectively
due was in harmony with the tax policy that the user of the property bears the tax. In [the present case],
the interpretation that the [vendee] assumed a liability for overdue real estate taxes for the periods prior
to the contract of sale is incongruent with the said policy because there was no immediate transfer of
possession of the properties previous to full payment of the repurchase price.
xxxx
To impose the real property tax on the estate which was neither the owner nor the beneficial user of the
property during the designated periods would not only be contrary to law but also unjust.
For a fuller appreciation of this ruling, the Baguio case referred to a contract of sale wherein the vendee
not only assumed liability for the taxes on the property, but also acquired its use and possession, even
though title remained with the vendor pending full payment of the purchase price. Under this situation, we
found the vendee who had assumed liability for the realty taxes and who had been given use and
possession to be liable. Compared with Baguio, the Lim case supposedly involved the same contractual
assumption of tax liabilities,23 but possession and enjoyment of the property remained with other persons.
Effectively, Lim held that the contractual assumption of the obligation to pay real property tax, by itself, is
not sufficient to make one legally compellable by the government to pay for the taxes due; the person
liable must also have use and possession of the property.
Using the Baguio and Lim situations as guides, and after considering the comparable legal situations of the
parties assuming liability in these cases, we conclude that the NPCs contractual liability alone cannot be
the basis for the enforcement of tax liabilities against it by the local government unit. In Baguio and Lim,
the vendors still retained ownership, and the effectiveness of the tax liabilities assumed by the vendees
turned on the possession and use of the property subject to tax. In other words, the contractual
assumption of liability was supplemented by an interest that the party assuming liability had on the
property taxed; on this basis, the vendee in Baguio was found liable, while the vendee in Lim was not. In
the present case, the NPC is neither the owner, nor the possessor or user of the property taxed. No interest
on its part thus justifies any tax liability on its part other than its voluntary contractual undertaking. Under
this legal situation, only Mirant as the contractual obligor, not the local government unit, can enforce the
tax liability that the NPC contractually assumed; the NPC does not have the "legal interest" that the law
and jurisprudence require to give it personality to protest the tax imposed by law on Mirant.
By our above conclusion, we do not thereby pass upon the validity of the contractual stipulation between
the NPC and Mirant on the assumption of liability that the NPC undertook. All we declare is that the
stipulation is entirely between the NPC and Mirant, and does not bind third persons who are not privy to
the contract between these parties. We say this pursuant to the principle of relativity of contracts under
Article 1311 of the Civil Code which postulates that contracts take effect only between the parties, their
assigns and heirs. Quite obviously, there is no privity between the respondent local government units and
the NPC, even though both are public corporations. The tax due will not come from one pocket and go to
another pocket of the same governmental entity. An LGU is independent and autonomous in its taxing
powers and this is clearly reflected in Section 130 of the LGC which states:
SECTION 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of
the taxing and other revenue-raising powers of local government units:
xxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; xxx. [Emphasis supplied.]
An exception to the rule on relativity of contracts is provided under the same Article 1311 as follows:
If the contract should contain some stipulation in favor of a third person, he may demand its fulfilment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. [Emphasis supplied.]
52

The NPCs assumption of tax liability under Article 11.1 of the ECA does not appear, however, to be in any
way for the benefit of the Municipality of Pagbilao and the Province of Quezon. In fact, if the NPC theory of
the case were to be followed, the NPCs assumption of tax liability will work against the interests of these
LGUs. Besides, based on the objectives of the BOT Law24 that underlie the parties BOT agreement,25 the
assumption of taxes clause is an incentive for private corporations to take part and invest in Philippine
industries. Thus, the principle of relativity of contracts applies with full force in the relationship between
Mirant and NPC, on the one hand, and the respondent LGUs, on the other.
To reiterate, only the parties to the ECA agreement can exact and demand the enforcement of the rights
and obligations it established only Mirant can demand compliance from the NPC for the payment of the
real property tax the NPC assumed to pay. The local government units (the Municipality of Pagbilao and the
Province of Quezon), as third parties to the ECA, cannot demand payment from the NPC on the basis of
Article 11.1 of the ECA alone. Corollarily, the local government units can neither be compelled to recognize
the protest of a tax assessment from the NPC, an entity against whom it cannot enforce the tax liability.
The test of exemption is the nature of the use,
not ownership, of the subject machineries
At any rate, the NPCs claim of tax exemptions is completely without merit. To successfully claim
exemption under Section 234(c) of the LGC, the claimant must prove two elements:
a. the machineries and equipment are actually, directly, and exclusively used by local water districts and
government-owned or controlled corporations; and
b. the local water districts and government-owned and controlled corporations claiming exemption must
be engaged in the supply and distribution of water and/or the generation and transmission of electric
power.
As applied to the present case, the government-owned or controlled corporation claiming exemption must
be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to
the generation and transmission of electric power. Neither the NPC nor Mirant satisfies both requirements.
Although the plants machineries are devoted to the generation of electric power, by the NPCs own
admission and as previously pointed out, Mirant a private corporation uses and operates them. That
Mirant operates the machineries solely in compliance with the will of the NPC only underscores the fact
that NPC does not actually, directly, and exclusively use them. The machineries must be actually, directly,
and exclusively used by the government-owned or controlled corporation for the exemption under Section
234(c) to apply.26
Nor will NPC find solace in its claim that it utilizes all the power plants generated electricity in supplying
the power needs of its customers. Based on the clear wording of the law, it is the machineries that are
exempted from the payment of real property tax, not the water or electricity that these machineries
generate and distribute.27
Even the NPCs claim of beneficial ownership is unavailing. The test of exemption is the use, not the
ownership of the machineries devoted to generation and transmission of electric power.28 The nature of
the NPCs ownership of these machineries only finds materiality in resolving the NPCs claim of legal
interest in protesting the tax assessment on Mirant. As we discussed above, this claim is inexistent for tax
protest purposes.
Lastly, from the points of view of essential fairness and the integrity of our tax system, we find it
essentially wrong to allow the NPC to assume in its BOT contracts the liability of the other contracting
party for taxes that the government can impose on that other party, and at the same time allow NPC to
turn around and say that no taxes should be collected because the NPC is tax-exempt as a governmentowned and controlled corporation. We cannot be a party to this kind of arrangement; for us to allow it
without congressional authority is to intrude into the realm of policy and to debase the tax system that the
Legislature established. We will then also be grossly unfair to the people of the Province of Quezon and the
Municipality of Pagbilao who, by law, stand to benefit from the tax provisions of the LGC.
WHEREFORE, we DENY the National Power Corporations petition for review on certiorari, and AFFIRM the
decision of the Court of Tax Appeals en banc dated February 21, 2006. Costs against the petitioner.
53

SO ORDERED.

54

You might also like