SUPREME COURT

Manila

EN BANC

G.R. No. 122846 January 20, 2009

WHITE LIGHT CORPORATION, TITANIUM CORPORATION and STA. MESA TOURIST & DEVELOPMENT
CORPORATION, Petitioners,
vs.
CITY OF MANILA, represented by DE CASTRO, MAYOR ALFREDO S. LIM, Respondent.

DECISION

Tinga, J.:

With another city ordinance of Manila also principally involving the tourist district as subject, the Court is confronted anew
with the incessant clash between government power and individual liberty in tandem with the archetypal tension between
law and morality.

In City of Manila v. Laguio, Jr.,1 the Court affirmed the nullification of a city ordinance barring the operation of motels and
inns, among other establishments, within the Ermita-Malate area. The petition at bar assails a similarly-motivated city
ordinance that prohibits those same establishments from offering short-time admission, as well as pro-rated or "wash up"
rates for such abbreviated stays. Our earlier decision tested the city ordinance against our sacred constitutional rights to
liberty, due process and equal protection of law. The same parameters apply to the present petition.

This Petition2 under Rule 45 of the Revised Rules on Civil Procedure, which seeks the reversal of the Decision 3 in C.A.-
G.R. S.P. No. 33316 of the Court of Appeals, challenges the validity of Manila City Ordinance No. 7774 entitled, "An
Ordinance Prohibiting Short-Time Admission, Short-Time Admission Rates, and Wash-Up Rate Schemes in Hotels, Motels,
Inns, Lodging Houses, Pension Houses, and Similar Establishments in the City of Manila" (the Ordinance).

I.

The facts are as follows:

On December 3, 1992, City Mayor Alfredo S. Lim (Mayor Lim) signed into law the Ordinance. 4 The Ordinance is
reproduced in full, hereunder:

SECTION 1. Declaration of Policy. It is hereby the declared policy of the City Government to protect the best interest,
health and welfare, and the morality of its constituents in general and the youth in particular.

SEC. 2. Title. This ordinance shall be known as "An Ordinance" prohibiting short time admission in hotels, motels, lodging
houses, pension houses and similar establishments in the City of Manila.

SEC. 3. Pursuant to the above policy, short-time admission and rate [ sic], wash-up rate or other similarly concocted
terms, are hereby prohibited in hotels, motels, inns, lodging houses, pension houses and similar establishments in the
City of Manila.

SEC. 4. Definition of Term[s]. Short-time admission shall mean admittance and charging of room rate for less than twelve
(12) hours at any given time or the renting out of rooms more than twice a day or any other term that may be concocted
by owners or managers of said establishments but would mean the same or would bear the same meaning.

SEC. 5. Penalty Clause. Any person or corporation who shall violate any provision of this ordinance shall upon conviction
thereof be punished by a fine of Five Thousand (5,000.00) Pesos or imprisonment for a period of not exceeding one (1)
year or both such fine and imprisonment at the discretion of the court; Provided, That in case of [a] juridical person, the
president, the manager, or the persons in charge of the operation thereof shall be liable: Provided, further, That in case
of subsequent conviction for the same offense, the business license of the guilty party shall automatically be cancelled.

SEC. 6. Repealing Clause. Any or all provisions of City ordinances not consistent with or contrary to this measure or any
portion hereof are hereby deemed repealed.

SEC. 7. Effectivity. This ordinance shall take effect immediately upon approval.

Enacted by the city Council of Manila at its regular session today, November 10, 1992.

Approved by His Honor, the Mayor on December 3, 1992.

On December 15, 1992, the Malate Tourist and Development Corporation (MTDC) filed a complaint for declaratory relief
with prayer for a writ of preliminary injunction and/or temporary restraining order ( TRO)5 with the Regional Trial Court
(RTC) of Manila, Branch 9 impleading as defendant, herein respondent City of Manila (the City) represented by Mayor
Lim.6 MTDC prayed that the Ordinance, insofar as it includes motels and inns as among its prohibited establishments, be
declared invalid and unconstitutional. MTDC claimed that as owner and operator of the Victoria Court in Malate, Manila it
was authorized by Presidential Decree (P.D.) No. 259 to admit customers on a short time basis as well as to charge
customers wash up rates for stays of only three hours.

On December 21, 1992, petitioners White Light Corporation (WLC), Titanium Corporation (TC) and Sta. Mesa Tourist and
Development Corporation (STDC) filed a motion to intervene and to admit attached complaint-in-intervention7 on the
ground that the Ordinance directly affects their business interests as operators of drive-in-hotels and motels in
Manila.8 The three companies are components of the Anito Group of Companies which owns and operates several hotels
and motels in Metro Manila.9

On December 23, 1992, the RTC granted the motion to intervene. 10 The RTC also notified the Solicitor General of the
proceedings pursuant to then Rule 64, Section 4 of the Rules of Court. On the same date, MTDC moved to withdraw as
plaintiff.11

On December 28, 1992, the RTC granted MTDC's motion to withdraw. 12 The RTC issued a TRO on January 14, 1993,
directing the City to cease and desist from enforcing the Ordinance. 13 The City filed an Answer dated January 22, 1993
alleging that the Ordinance is a legitimate exercise of police power. 14

On February 8, 1993, the RTC issued a writ of preliminary injunction ordering the city to desist from the enforcement of
the Ordinance.15 A month later, on March 8, 1993, the Solicitor General filed his Comment arguing that the Ordinance is
constitutional.

During the pre-trial conference, the WLC, TC and STDC agreed to submit the case for decision without trial as the case
involved a purely legal question.16 On October 20, 1993, the RTC rendered a decision declaring the Ordinance null and
void. The dispositive portion of the decision reads:

WHEREFORE, in view of all the foregoing, [O]rdinance No. 7774 of the City of Manila is hereby declared null and void.

Accordingly, the preliminary injunction heretofor issued is hereby made permanent.

SO ORDERED.17

The RTC noted that the ordinance "strikes at the personal liberty of the individual guaranteed and jealously guarded by
the Constitution."18 Reference was made to the provisions of the Constitution encouraging private enterprises and the
incentive to needed investment, as well as the right to operate economic enterprises. Finally, from the observation that
the illicit relationships the Ordinance sought to dissuade could nonetheless be consummated by simply paying for a 12-
hour stay, the RTC likened the law to the ordinance annulled in Ynot v. Intermediate Appellate Court,19 where the
legitimate purpose of preventing indiscriminate slaughter of carabaos was sought to be effected through an inter-province
ban on the transport of carabaos and carabeef.

The City later filed a petition for review on certiorari with the Supreme Court.20 The petition was docketed as G.R. No.
112471. However in a resolution dated January 26, 1994, the Court treated the petition as a petition for certiorari and
referred the petition to the Court of Appeals.21

Before the Court of Appeals, the City asserted that the Ordinance is a valid exercise of police power pursuant to Section
458 (4)(iv) of the Local Government Code which confers on cities, among other local government units, the power:

[To] 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. 22

The Ordinance, it is argued, is also a valid exercise of the power of the City under Article III, Section 18(kk) of the
Revised Manila Charter, thus:

"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 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. 23

Petitioners argued that the Ordinance is unconstitutional and void since it violates the right to privacy and the freedom of
movement; it is an invalid exercise of police power; and it is an unreasonable and oppressive interference in their
business.
The Court of Appeals reversed the decision of the RTC and affirmed the constitutionality of the Ordinance. 24 First, it held
that the Ordinance did not violate the right to privacy or the freedom of movement, as it only penalizes the owners or
operators of establishments that admit individuals for short time stays. Second, the virtually limitless reach of police
power is only constrained by having a lawful object obtained through a lawful method. The lawful objective of the
Ordinance is satisfied since it aims to curb immoral activities. There is a lawful method since the establishments are still
allowed to operate. Third, the adverse effect on the establishments is justified by the well-being of its constituents in
general. Finally, as held in Ermita-Malate Motel Operators Association v. City Mayor of Manila, liberty is regulated by law.

TC, WLC and STDC come to this Court via petition for review on certiorari.25 In their petition and Memorandum,
petitioners in essence repeat the assertions they made before the Court of Appeals. They contend that the assailed
Ordinance is an invalid exercise of police power.

II.

We must address the threshold issue of petitioners standing. Petitioners allege that as owners of establishments offering
"wash-up" rates, their business is being unlawfully interfered with by the Ordinance. However, petitioners also allege that
the equal protection rights of their clients are also being interfered with. Thus, the crux of the matter is whether or not
these establishments have the requisite standing to plead for protection of their patrons' equal protection rights.

Standing or locus standi is the ability of a party to demonstrate to the court sufficient connection to and harm from the
law or action challenged to support that party's participation in the case. More importantly, the doctrine of standing is
built on the principle of separation of powers,26 sparing as it does unnecessary interference or invalidation by the judicial
branch of the actions rendered by its co-equal branches of government.

The requirement of standing is a core component of the judicial system derived directly from the Constitution. 27 The
constitutional component of standing doctrine incorporates concepts which concededly are not susceptible of precise
definition.28 In this jurisdiction, the extancy of "a direct and personal interest" presents the most obvious cause, as well as
the standard test for a petitioner's standing. 29 In a similar vein, the United States Supreme Court reviewed and elaborated
on the meaning of the three constitutional standing requirements of injury, causation, and redressability in Allen v.
Wright.30

Nonetheless, the general rules on standing admit of several exceptions such as the overbreadth doctrine, taxpayer suits,
third party standing and, especially in the Philippines, the doctrine of transcendental importance. 31

For this particular set of facts, the concept of third party standing as an exception and the overbreadth doctrine are
appropriate. In Powers v. Ohio,32 the United States Supreme Court wrote that: "We have recognized the right of litigants
to bring actions on behalf of third parties, provided three important criteria are satisfied: the litigant must have suffered
an injury-in-fact, thus giving him or her a "sufficiently concrete interest" in the outcome of the issue in dispute; the
litigant must have a close relation to the third party; and there must exist some hindrance to the third party's ability to
protect his or her own interests."33 Herein, it is clear that the business interests of the petitioners are likewise injured by
the Ordinance. They rely on the patronage of their customers for their continued viability which appears to be threatened
by the enforcement of the Ordinance. The relative silence in constitutional litigation of such special interest groups in our
nation such as the American Civil Liberties Union in the United States may also be construed as a hindrance for customers
to bring suit.34

American jurisprudence is replete with examples where parties-in-interest were allowed standing to advocate or invoke
the fundamental due process or equal protection claims of other persons or classes of persons injured by state action.
In Griswold v. Connecticut,35 the United States Supreme Court held that physicians had standing to challenge a
reproductive health statute that would penalize them as accessories as well as to plead the constitutional protections
available to their patients. The Court held that:

"The rights of husband and wife, pressed here, are likely to be diluted or adversely affected unless those rights are
considered in a suit involving those who have this kind of confidential relation to them."36

An even more analogous example may be found in Craig v. Boren,37 wherein the United States Supreme Court held that a
licensed beverage vendor has standing to raise the equal protection claim of a male customer challenging a statutory
scheme prohibiting the sale of beer to males under the age of 21 and to females under the age of 18. The United States
High Court explained that the vendors had standing "by acting as advocates of the rights of third parties who seek access
to their market or function."38

Assuming arguendo that petitioners do not have a relationship with their patrons for the former to assert the rights of the
latter, the overbreadth doctrine comes into play. In overbreadth analysis, challengers to government action are in effect
permitted to raise the rights of third parties. Generally applied to statutes infringing on the freedom of speech, the
overbreadth doctrine applies when a statute needlessly restrains even constitutionally guaranteed rights.39 In this case,
the petitioners claim that the Ordinance makes a sweeping intrusion into the right to liberty of their clients. We can see
that based on the allegations in the petition, the Ordinance suffers from overbreadth.
We thus recognize that the petitioners have a right to assert the constitutional rights of their clients to patronize their
establishments for a "wash-rate" time frame.

III.

To students of jurisprudence, the facts of this case will recall to mind not only the recent City of Manila ruling, but our
1967 decision in Ermita-Malate Hotel and Motel Operations Association, Inc., v. Hon. City Mayor of Manila. 40Ermita-
Malate concerned the City ordinance requiring patrons to fill up a prescribed form stating personal information such as
name, gender, nationality, age, address and occupation before they could be admitted to a motel, hotel or lodging house.
This earlier ordinance was precisely enacted to minimize certain practices deemed harmful to public morals. A purpose
similar to the annulled ordinance in City of Manila which sought a blanket ban on motels, inns and similar establishments
in the Ermita-Malate area. However, the constitutionality of the ordinance in Ermita-Malate was sustained by the Court.

The common thread that runs through those decisions and the case at bar goes beyond the singularity of the localities
covered under the respective ordinances. All three ordinances were enacted with a view of regulating public morals
including particular illicit activity in transient lodging establishments. This could be described as the middle case, wherein
there is no wholesale ban on motels and hotels but the services offered by these establishments have been severely
restricted. At its core, this is another case about the extent to which the State can intrude into and regulate the lives of its
citizens.

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.41

The Ordinance prohibits two specific and distinct business practices, namely wash rate admissions and renting out a room
more than twice a day. The ban is evidently sought to be rooted in the police power as conferred on local government
units by the Local Government Code through such implements as the general welfare clause.

A.

Police power, while incapable of an exact definition, has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response as the
conditions warrant.42 Police power is based upon the concept of necessity of the State and its corresponding right to
protect itself and its people.43 Police power has been used as justification for numerous and varied actions by the State.
These range from the regulation of dance halls, 44 movie theaters,45 gas stations46 and cockpits.47 The awesome scope of
police power is best demonstrated by the fact that in its hundred or so years of presence in our nations legal system, its
use has rarely been denied.

The apparent goal of the Ordinance is to minimize if not eliminate the use of the covered establishments for illicit sex,
prostitution, drug use and alike. These goals, by themselves, are unimpeachable and certainly fall within the ambit of the
police power of the State. Yet the desirability of these ends do not sanctify any and all means for their achievement.
Those means must align with the Constitution, and our emerging sophisticated analysis of its guarantees to the people.
The Bill of Rights stands as a rebuke to the seductive theory of Macchiavelli, and, sometimes even, the political majorities
animated by his cynicism.

Even as we design the precedents that establish the framework for analysis of due process or equal protection questions,
the courts are naturally inhibited by a due deference to the co-equal branches of government as they exercise their
political functions. But when we are compelled to nullify executive or legislative actions, yet another form of caution
emerges. If the Court were animated by the same passing fancies or turbulent emotions that motivate many political
decisions, judicial integrity is compromised by any perception that the judiciary is merely the third political branch of
government. We derive our respect and good standing in the annals of history by acting as judicious and neutral arbiters
of the rule of law, and there is no surer way to that end than through the development of rigorous and sophisticated legal
standards through which the courts analyze the most fundamental and far-reaching constitutional questions of the day.

B.

The primary constitutional question that confronts us is one of due process, as guaranteed under Section 1, Article III of
the Constitution. Due process evades a precise definition. 48 The purpose of the guaranty is to prevent arbitrary
governmental encroachment against the life, liberty and property of individuals. The due process guaranty serves as a
protection against arbitrary regulation or seizure. Even corporations and partnerships are protected by the guaranty
insofar as their property is concerned.

The due process guaranty has traditionally been interpreted as imposing two related but distinct restrictions on
government, "procedural due process" and "substantive due process." Procedural due process refers to the procedures
that the government must follow before it deprives a person of life, liberty, or property.49 Procedural due process
concerns itself with government action adhering to the established process when it makes an intrusion into the private
sphere. Examples range from the form of notice given to the level of formality of a hearing.

If due process were confined solely to its procedural aspects, there would arise absurd situation of arbitrary government
action, provided the proper formalities are followed. Substantive due process completes the protection envisioned by the
due process clause. It inquires whether the government has sufficient justification for depriving a person of life, liberty, or
property.50

The question of substantive due process, moreso than most other fields of law, has reflected dynamism in progressive
legal thought tied with the expanded acceptance of fundamental freedoms. Police power, traditionally awesome as it may
be, is now confronted with a more rigorous level of analysis before it can be upheld. The vitality though of constitutional
due process has not been predicated on the frequency with which it has been utilized to achieve a liberal result for, after
all, the libertarian ends should sometimes yield to the prerogatives of the State. Instead, the due process clause has
acquired potency because of the sophisticated methodology that has emerged to determine the proper metes and bounds
for its application.

C.

The general test of the validity of an ordinance on substantive due process grounds is best tested when assessed with the
evolved footnote 4 test laid down by the U.S. Supreme Court in U.S. v. Carolene Products.51 Footnote 4 of the Carolene
Products case acknowledged that the judiciary would defer to the legislature unless there is a discrimination against a
"discrete and insular" minority or infringement of a "fundamental right." 52 Consequently, two standards of judicial review
were established: strict scrutiny for laws dealing with freedom of the mind or restricting the political process, and the
rational basis standard of review for economic legislation.

A third standard, denominated as heightened or immediate scrutiny, was later adopted by the U.S. Supreme Court for
evaluating classifications based on gender 53 and legitimacy.54 Immediate scrutiny was adopted by the U.S. Supreme Court
in Craig,55 after the Court declined to do so in Reed v. Reed.56 While the test may have first been articulated in equal
protection analysis, it has in the United States since been applied in all substantive due process cases as well.

We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges. 57 Using the
rational basis examination, laws or ordinances are upheld if they rationally further a legitimate governmental
interest.58 Under intermediate review, governmental interest is extensively examined and the availability of less restrictive
measures is considered.59 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.

In terms of judicial review of statutes or ordinances, strict scrutiny refers to the standard for determining the quality and
the amount of governmental interest brought to justify the regulation of fundamental freedoms.60 Strict scrutiny is used
today to test the validity of laws dealing with the regulation of speech, gender, or race as well as other fundamental
rights as expansion from its earlier applications to equal protection. 61 The United States Supreme Court has expanded the
scope of strict scrutiny to protect fundamental rights such as suffrage, 62 judicial access63and interstate travel.64

If we were to take the myopic view that an Ordinance should be analyzed strictly as to its effect only on the petitioners at
bar, then it would seem that the only restraint imposed by the law which we are capacitated to act upon is the injury to
property sustained by the petitioners, an injury that would warrant the application of the most deferential standard the
rational basis test. Yet as earlier stated, we recognize the capacity of the petitioners to invoke as well the constitutional
rights of their patrons those persons who would be deprived of availing short time access or wash-up rates to the
lodging establishments in question.

Viewed cynically, one might say that the infringed rights of these customers were are trivial since they seem shorn of
political consequence. Concededly, these are not the sort of cherished rights that, when proscribed, would impel the
people to tear up their cedulas. Still, the Bill of Rights does not shelter gravitas alone. Indeed, it is those "trivial" yet
fundamental freedoms which the people reflexively exercise any day without the impairing awareness of their
constitutional consequence that accurately reflect the degree of liberty enjoyed by the people. Liberty, as integrally
incorporated as a fundamental right in the Constitution, is not a Ten Commandments-style enumeration of what may or
what may not be done; but rather an atmosphere of freedom where the people do not feel labored under a Big Brother
presence as they interact with each other, their society and nature, in a manner innately understood by them as inherent,
without doing harm or injury to others.

D.

The rights at stake herein fall within the same fundamental rights to liberty which we upheld in City of Manila v. Hon.
Laguio, Jr. We expounded on that most primordial of rights, thus:

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."[ 65] 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.[ 66]

The U.S. Supreme Court in the case of Roth v. Board of Regents, 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
recognized . . . as 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.67 [Citations omitted]

It cannot be denied that the primary animus behind the ordinance is the curtailment of sexual behavior. The City asserts
before this Court that the subject establishments "have gained notoriety as venue of prostitution, adultery and
fornications in Manila since they provide the necessary atmosphere for clandestine entry, presence and exit and thus
became the ideal haven for prostitutes and thrill-seekers."68 Whether or not this depiction of a mise-en-scene of vice is
accurate, it cannot be denied that legitimate sexual behavior among willing married or consenting single adults which is
constitutionally protected69 will be curtailed as well, as it was in the City of Manila case. Our holding therein retains
significance for our purposes:

The concept of liberty compels respect for the individual whose claim to privacy and interference demands respect. As the
case of Morfe v. Mutuc, 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.

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.70

We cannot discount other legitimate activities which the Ordinance would proscribe or impair. There are very legitimate
uses for a wash rate or renting the room out for more than twice a day. Entire families are known to choose pass the
time in a motel or hotel whilst the power is momentarily out in their homes. In transit passengers who wish to wash up
and rest between trips have a legitimate purpose for abbreviated stays in motels or hotels. Indeed any person or groups
of persons in need of comfortable private spaces for a span of a few hours with purposes other than having sex or using
illegal drugs can legitimately look to staying in a motel or hotel as a convenient alternative.

E.

That the Ordinance prevents the lawful uses of a wash rate depriving patrons of a product and the petitioners of lucrative
business ties in with another constitutional requisite for the legitimacy of the Ordinance as a police power measure. It
must appear that the interests of the public generally, as distinguished from those of a particular class, require an
interference with private rights and the means must be reasonably necessary for the accomplishment of the purpose and
not unduly oppressive of private rights.71 It must also be evident that no other alternative for the accomplishment of the
purpose less intrusive of private rights can work. More importantly, a reasonable relation must exist between the
purposes of the 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. 72

Lacking a concurrence of these requisites, the police measure shall be struck down as an arbitrary intrusion into private
rights. As held in Morfe v. Mutuc, the exercise of police power is subject to judicial review when life, liberty or property is
affected.73 However, this is not in any way meant to take it away from the vastness of State police power whose exercise
enjoys the presumption of validity.74

Similar to the Comelec resolution requiring newspapers to donate advertising space to candidates, this Ordinance is a
blunt and heavy instrument.75 The Ordinance makes no distinction between places frequented by patrons engaged in illicit
activities and patrons engaged in legitimate actions. Thus it prevents legitimate use of places where illicit activities are
rare or even unheard of. A plain reading of section 3 of the Ordinance shows it makes no classification of places of
lodging, thus deems them all susceptible to illicit patronage and subject them without exception to the unjustified
prohibition.

The Court has professed its deep sentiment and tenderness of the Ermita-Malate area, its longtime home,76 and it is
skeptical of those who wish to depict our capital city the Pearl of the Orient as a modern-day Sodom or Gomorrah for
the Third World set. Those still steeped in Nick Joaquin-dreams of the grandeur of Old Manila will have to accept that
Manila like all evolving big cities, will have its problems. Urban decay is a fact of mega cities such as Manila, and vice is a
common problem confronted by the modern metropolis wherever in the world. The solution to such perceived decay is
not to prevent legitimate businesses from offering a legitimate product. Rather, cities revive themselves by offering
incentives for new businesses to sprout up thus attracting the dynamism of individuals that would bring a new grandeur
to Manila.

The behavior which the Ordinance seeks to curtail is in fact already prohibited and could in fact be diminished simply by
applying existing laws. Less intrusive measures such as curbing the proliferation of prostitutes and drug dealers through
active police work would be more effective in easing the situation. So would the strict enforcement of existing laws and
regulations penalizing prostitution and drug use. These measures would have minimal intrusion on the businesses of the
petitioners and other legitimate merchants. Further, it is apparent that the Ordinance can easily be circumvented by
merely paying the whole day rate without any hindrance to those engaged in illicit activities. Moreover, drug dealers and
prostitutes can in fact collect "wash rates" from their clientele by charging their customers a portion of the rent for motel
rooms and even apartments.

IV.

We reiterate that individual rights may be adversely affected only to the extent that may fairly be required by the
legitimate demands of public interest or public welfare. The State is a leviathan that must be restrained from needlessly
intruding into the lives of its citizens. However well-intentioned the Ordinance may be, it is in effect an arbitrary and
whimsical intrusion into the rights of the establishments as well as their patrons. The Ordinance needlessly restrains the
operation of the businesses of the petitioners as well as restricting the rights of their patrons without sufficient
justification. The Ordinance rashly equates wash rates and renting out a room more than twice a day with immorality
without accommodating innocuous intentions.

The promotion of public welfare and a sense of morality among citizens deserves the full endorsement of the judiciary
provided that such measures do not trample rights this Court is sworn to protect. 77 The notion that the promotion of
public morality is a function of the State is as old as Aristotle. 78 The advancement of moral relativism as a school of
philosophy does not de-legitimize the role of morality in law, even if it may foster wider debate on which particular
behavior to penalize. It is conceivable that a society with relatively little shared morality among its citizens could be
functional so long as the pursuit of sharply variant moral perspectives yields an adequate accommodation of different
interests.79

To be candid about it, the oft-quoted American maxim that "you cannot legislate morality" is ultimately illegitimate as a
matter of law, since as explained by Calabresi, that phrase is more accurately interpreted as meaning that efforts to
legislate morality will fail if they are widely at variance with public attitudes about right and wrong. 80 Our penal laws, for
one, are founded on age-old moral traditions, and as long as there are widely accepted distinctions between right and
wrong, they will remain so oriented.

Yet the continuing progression of the human story has seen not only the acceptance of the right-wrong distinction, but
also the advent of fundamental liberties as the key to the enjoyment of life to the fullest. Our democracy is distinguished
from non-free societies not with any more extensive elaboration on our part of what is moral and immoral, but from our
recognition that the individual liberty to make the choices in our lives is innate, and protected by the State. Independent
and fair-minded judges themselves are under a moral duty to uphold the Constitution as the embodiment of the rule of
law, by reason of their expression of consent to do so when they take the oath of office, and because they are entrusted
by the people to uphold the law.81

Even as the implementation of moral norms remains an indispensable complement to governance, that prerogative is
hardly absolute, especially in the face of the norms of due process of liberty. And while the tension may often be left to
the courts to relieve, it is possible for the government to avoid the constitutional conflict by employing more judicious,
less drastic means to promote morality.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals is REVERSED, and the Decision of the
Regional Trial Court of Manila, Branch 9, is REINSTATED. Ordinance No. 7774 is hereby declared UNCONSTITUTIONAL.
No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA
Associate Justice

EN BANC

G.R. No. 74457 March 20, 1987

RESTITUTO YNOT, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, THE STATION COMMANDER, INTEGRATED NATIONAL POLICE,
 BAROTAC NUEVO, ILOILO and THE REGIONAL DIRECTOR, BUREAU OF ANIMAL INDUSTRY, REGION IV,
ILOILO CITY, respondents.

Ramon A. Gonzales for petitioner.

CRUZ, J.:

The essence of due process is distilled in the immortal cry of Themistocles to Alcibiades "Strike but hear me first!" It is
this cry that the petitioner in effect repeats here as he challenges the constitutionality of Executive Order No. 626-A.

The said executive order reads in full as follows:

WHEREAS, the President has given orders prohibiting the interprovincial movement of carabaos and the
slaughtering of carabaos not complying with the requirements of Executive Order No. 626 particularly
with respect to age;

WHEREAS, it has been observed that despite such orders the violators still manage to circumvent the
prohibition against inter-provincial movement of carabaos by transporting carabeef instead; and

WHEREAS, in order to achieve the purposes and objectives of Executive Order No. 626 and the
prohibition against interprovincial movement of carabaos, it is necessary to strengthen the said Executive
Order and provide for the disposition of the carabaos and carabeef subject of the violation;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution, do hereby promulgate the following:

SECTION 1. Executive Order No. 626 is hereby amended such that henceforth, no carabao regardless of
age, sex, physical condition or purpose and no carabeef shall be transported from one province to
another. The carabao or carabeef transported in violation of this Executive Order as amended shall be
subject to confiscation and forfeiture by the government, to be distributed to charitable institutions and
other similar institutions as the Chairman of the National Meat Inspection Commission may ay see fit, in
the case of carabeef, and to deserving farmers through dispersal as the Director of Animal Industry may
see fit, in the case of carabaos.

SECTION 2. This Executive Order shall take effect immediately.

Done in the City of Manila, this 25th day of October, in the year of Our Lord, nineteen hundred and
eighty.

(SGD.) FERDINAND E. MARCOS

President

Republic of the Philippines

The petitioner had transported six carabaos in a pump boat from Masbate to Iloilo on January 13, 1984, when they were
confiscated by the police station commander of Barotac Nuevo, Iloilo, for violation of the above measure. 1 The petitioner
sued for recovery, and the Regional Trial Court of Iloilo City issued a writ of replevin upon his filing of a supersedeas bond
of P12,000.00. After considering the merits of the case, the court sustained the confiscation of the carabaos and, since
they could no longer be produced, ordered the confiscation of the bond. The court also declined to rule on the
constitutionality of the executive order, as raise by the petitioner, for lack of authority and also for its presumed validity. 2

The petitioner appealed the decision to the Intermediate Appellate Court,* 3 which upheld the trial court, ** and he has
now come before us in this petition for review on certiorari.

The thrust of his petition is that the executive order is unconstitutional insofar as it authorizes outright confiscation of the
carabao or carabeef being transported across provincial boundaries. His claim is that the penalty is invalid because it is
imposed without according the owner a right to be heard before a competent and impartial court as guaranteed by due
process. He complains that the measure should not have been presumed, and so sustained, as constitutional. There is
also a challenge to the improper exercise of the legislative power by the former President under Amendment No. 6 of the
1973 Constitution. 4

While also involving the same executive order, the case of Pesigan v. Angeles 5 is not applicable here. The question raised
there was the necessity of the previous publication of the measure in the Official Gazette before it could be considered
enforceable. We imposed the requirement then on the basis of due process of law. In doing so, however, this Court did
not, as contended by the Solicitor General, impliedly affirm the constitutionality of Executive Order No. 626-A. That is an
entirely different matter.

This Court has declared that while lower courts should observe a becoming modesty in examining constitutional
questions, they are nonetheless not prevented from resolving the same whenever warranted, subject only to review by
the highest tribunal. 6 We have jurisdiction under the Constitution to "review, revise, reverse, modify or affirm on appeal
or certiorari, as the law or rules of court may provide," final judgments and orders of lower courts in, among others, all
cases involving the constitutionality of certain measures. 7 This simply means that the resolution of such cases may be
made in the first instance by these lower courts.

And while it is true that laws are presumed to be constitutional, that presumption is not by any means conclusive and in
fact may be rebutted. Indeed, if there be a clear showing of their invalidity, and of the need to declare them so, then "will
be the time to make the hammer fall, and heavily," 8 to recall Justice Laurel's trenchant warning. Stated otherwise, courts
should not follow the path of least resistance by simply presuming the constitutionality of a law when it is questioned. On
the contrary, they should probe the issue more deeply, to relieve the abscess, paraphrasing another distinguished
jurist, 9 and so heal the wound or excise the affliction.

Judicial power authorizes this; and when the exercise is demanded, there should be no shirking of the task for fear of
retaliation, or loss of favor, or popular censure, or any other similar inhibition unworthy of the bench, especially this
Court.

The challenged measure is denominated an executive order but it is really presidential decree, promulgating a new rule
instead of merely implementing an existing law. It was issued by President Marcos not for the purpose of taking care that
the laws were faithfully executed but in the exercise of his legislative authority under Amendment No. 6. It was provided
thereunder that whenever in his judgment there existed a grave emergency or a threat or imminence thereof or
whenever the legislature failed or was unable to act adequately on any matter that in his judgment required immediate
action, he could, in order to meet the exigency, issue decrees, orders or letters of instruction that were to have the force
and effect of law. As there is no showing of any exigency to justify the exercise of that extraordinary power then, the
petitioner has reason, indeed, to question the validity of the executive order. Nevertheless, since the determination of the
grounds was supposed to have been made by the President "in his judgment, " a phrase that will lead to protracted
discussion not really necessary at this time, we reserve resolution of this matter until a more appropriate occasion. For
the nonce, we confine ourselves to the more fundamental question of due process.

It is part of the art of constitution-making that the provisions of the charter be cast in precise and unmistakable language
to avoid controversies that might arise on their correct interpretation. That is the Ideal. In the case of the due process
clause, however, this rule was deliberately not followed and the wording was purposely kept ambiguous. In fact, a
proposal to delineate it more clearly was submitted in the Constitutional Convention of 1934, but it was rejected by
Delegate Jose P. Laurel, Chairman of the Committee on the Bill of Rights, who forcefully argued against it. He was
sustained by the body. 10

The due process clause was kept intentionally vague so it would remain also conveniently resilient. This was felt
necessary because due process is not, like some provisions of the fundamental law, an "iron rule" laying down an
implacable and immutable command for all seasons and all persons. Flexibility must be the best virtue of the guaranty.
The very elasticity of the due process clause was meant to make it adapt easily to every situation, enlarging or
constricting its protection as the changing times and circumstances may require.

Aware of this, the courts have also hesitated to adopt their own specific description of due process lest they confine
themselves in a legal straitjacket that will deprive them of the elbow room they may need to vary the meaning of the
clause whenever indicated. Instead, they have preferred to leave the import of the protection open-ended, as it were, to
be "gradually ascertained by the process of inclusion and exclusion in the course of the decision of cases as they
arise." 11 Thus, Justice Felix Frankfurter of the U.S. Supreme Court, for example, would go no farther than to define due
process and in so doing sums it all up as nothing more and nothing less than "the embodiment of the sporting Idea
of fair play." 12

When the barons of England extracted from their sovereign liege the reluctant promise that that Crown would thenceforth
not proceed against the life liberty or property of any of its subjects except by the lawful judgment of his peers or the law
of the land, they thereby won for themselves and their progeny that splendid guaranty of fairness that is now the
hallmark of the free society. The solemn vow that King John made at Runnymede in 1215 has since then resounded
through the ages, as a ringing reminder to all rulers, benevolent or base, that every person, when confronted by the
stern visage of the law, is entitled to have his say in a fair and open hearing of his cause.

The closed mind has no place in the open society. It is part of the sporting Idea of fair play to hear "the other side"
before an opinion is formed or a decision is made by those who sit in judgment. Obviously, one side is only one-half of
the question; the other half must also be considered if an impartial verdict is to be reached based on an informed
appreciation of the issues in contention. It is indispensable that the two sides complement each other, as unto the bow
the arrow, in leading to the correct ruling after examination of the problem not from one or the other perspective only but
in its totality. A judgment based on less that this full appraisal, on the pretext that a hearing is unnecessary or useless, is
tainted with the vice of bias or intolerance or ignorance, or worst of all, in repressive regimes, the insolence of power.
The minimum requirements of due process are notice and hearing 13 which, generally speaking, may not be dispensed
with because they are intended as a safeguard against official arbitrariness. It is a gratifying commentary on our judicial
system that the jurisprudence of this country is rich with applications of this guaranty as proof of our fealty to the rule of
law and the ancient rudiments of fair play. We have consistently declared that every person, faced by the awesome
power of the State, is entitled to "the law of the land," which Daniel Webster described almost two hundred years ago in
the famous Dartmouth College Case, 14 as "the law which hears before it condemns, which proceeds upon inquiry and
renders judgment only after trial." It has to be so if the rights of every person are to be secured beyond the reach of
officials who, out of mistaken zeal or plain arrogance, would degrade the due process clause into a worn and empty
catchword.

This is not to say that notice and hearing are imperative in every case for, to be sure, there are a number of admitted
exceptions. The conclusive presumption, for example, bars the admission of contrary evidence as long as such
presumption is based on human experience or there is a rational connection between the fact proved and the fact
ultimately presumed therefrom. 15 There are instances when the need for expeditions action will justify omission of these
requisites, as in the summary abatement of a nuisance per se, like a mad dog on the loose, which may be killed on sight
because of the immediate danger it poses to the safety and lives of the people. Pornographic materials, contaminated
meat and narcotic drugs are inherently pernicious and may be summarily destroyed. The passport of a person sought for
a criminal offense may be cancelled without hearing, to compel his return to the country he has fled. 16 Filthy
restaurants may be summarily padlocked in the interest of the public health and bawdy houses to protect the public
morals. 17 In such instances, previous judicial hearing may be omitted without violation of due process in view of the
nature of the property involved or the urgency of the need to protect the general welfare from a clear and present
danger.

The protection of the general welfare is the particular function of the police power which both restraints and is restrained
by due process. The police power is simply defined as the power inherent in the State to regulate liberty and property for
the promotion of the general welfare. 18 By reason of its function, it extends to all the great public needs and is
described as the most pervasive, the least limitable and the most demanding of the three inherent powers of the State,
far outpacing taxation and eminent domain. The individual, as a member of society, is hemmed in by the police power,
which affects him even before he is born and follows him still after he is dead from the womb to beyond the tomb in
practically everything he does or owns. Its reach is virtually limitless. It is a ubiquitous and often unwelcome intrusion.
Even so, as long as the activity or the property has some relevance to the public welfare, its regulation under the police
power is not only proper but necessary. And the justification is found in the venerable Latin maxims, Salus populi est
suprema lex and Sic utere tuo ut alienum non laedas, which call for the subordination of individual interests to the benefit
of the greater number.

It is this power that is now invoked by the government to justify Executive Order No. 626-A, amending the basic rule in
Executive Order No. 626, prohibiting the slaughter of carabaos except under certain conditions. The original measure was
issued for the reason, as expressed in one of its Whereases, that "present conditions demand that the carabaos and the
buffaloes be conserved for the benefit of the small farmers who rely on them for energy needs." We affirm at the outset
the need for such a measure. In the face of the worsening energy crisis and the increased dependence of our farms on
these traditional beasts of burden, the government would have been remiss, indeed, if it had not taken steps to protect
and preserve them.

A similar prohibition was challenged in United States v. Toribio, 19 where a law regulating the registration, branding and
slaughter of large cattle was claimed to be a deprivation of property without due process of law. The defendant had been
convicted thereunder for having slaughtered his own carabao without the required permit, and he appealed to the
Supreme Court. The conviction was affirmed. The law was sustained as a valid police measure to prevent the
indiscriminate killing of carabaos, which were then badly needed by farmers. An epidemic had stricken many of these
animals and the reduction of their number had resulted in an acute decline in agricultural output, which in turn had
caused an incipient famine. Furthermore, because of the scarcity of the animals and the consequent increase in their
price, cattle-rustling had spread alarmingly, necessitating more effective measures for the registration and branding of
these animals. The Court held that the questioned statute was a valid exercise of the police power and declared in part as
follows:

To justify the State in thus interposing its authority in behalf of the public, it must appear, first, that the
interests of the public generally, as distinguished from those of a particular class, require such
interference; and second, that the means are reasonably necessary for the accomplishment of the
purpose, and not unduly oppressive upon individuals. ...

From what has been said, we think it is clear that the enactment of the provisions of the statute under
consideration was required by "the interests of the public generally, as distinguished from those of a
particular class" and that the prohibition of the slaughter of carabaos for human consumption, so long as
these animals are fit for agricultural work or draft purposes was a "reasonably necessary" limitation on
private ownership, to protect the community from the loss of the services of such animals by their
slaughter by improvident owners, tempted either by greed of momentary gain, or by a desire to enjoy the
luxury of animal food, even when by so doing the productive power of the community may be
measurably and dangerously affected.
In the light of the tests mentioned above, we hold with the Toribio Case that the carabao, as the poor man's tractor, so
to speak, has a direct relevance to the public welfare and so is a lawful subject of Executive Order No. 626. The method
chosen in the basic measure is also reasonably necessary for the purpose sought to be achieved and not unduly
oppressive upon individuals, again following the above-cited doctrine. There is no doubt that by banning the slaughter of
these animals except where they are at least seven years old if male and eleven years old if female upon issuance of the
necessary permit, the executive order will be conserving those still fit for farm work or breeding and preventing their
improvident depletion.

But while conceding that the amendatory measure has the same lawful subject as the original executive order, we cannot
say with equal certainty that it complies with the second requirement, viz., that there be a lawful method. We note that
to strengthen the original measure, Executive Order No. 626-A imposes an absolute ban not on the slaughter of the
carabaos but on their movement, providing that "no carabao regardless of age, sex, physical condition or purpose (sic)
and no carabeef shall be transported from one province to another." The object of the prohibition escapes us. The
reasonable connection between the means employed and the purpose sought to be achieved by the questioned measure
is missing

We do not see how the prohibition of the inter-provincial transport of carabaos can prevent their indiscriminate slaughter,
considering that they can be killed anywhere, with no less difficulty in one province than in another. Obviously, retaining
the carabaos in one province will not prevent their slaughter there, any more than moving them to another province will
make it easier to kill them there. As for the carabeef, the prohibition is made to apply to it as otherwise, so says executive
order, it could be easily circumvented by simply killing the animal. Perhaps so. However, if the movement of the live
animals for the purpose of preventing their slaughter cannot be prohibited, it should follow that there is no reason either
to prohibit their transfer as, not to be flippant dead meat.

Even if a reasonable relation between the means and the end were to be assumed, we would still have to reckon with the
sanction that the measure applies for violation of the prohibition. The penalty is outright confiscation of the carabao or
carabeef being transported, to be meted out by the executive authorities, usually the police only. In the Toribio Case, the
statute was sustained because the penalty prescribed was fine and imprisonment, to be imposed by the court after trial
and conviction of the accused. Under the challenged measure, significantly, no such trial is prescribed, and the property
being transported is immediately impounded by the police and declared, by the measure itself, as forfeited to the
government.

In the instant case, the carabaos were arbitrarily confiscated by the police station commander, were returned to the
petitioner only after he had filed a complaint for recovery and given a supersedeas bond of P12,000.00, which was
ordered confiscated upon his failure to produce the carabaos when ordered by the trial court. The executive order defined
the prohibition, convicted the petitioner and immediately imposed punishment, which was carried out forthright. The
measure struck at once and pounced upon the petitioner without giving him a chance to be heard, thus denying him the
centuries-old guaranty of elementary fair play.

It has already been remarked that there are occasions when notice and hearing may be validly dispensed with
notwithstanding the usual requirement for these minimum guarantees of due process. It is also conceded that summary
action may be validly taken in administrative proceedings as procedural due process is not necessarily judicial only. 20 In
the exceptional cases accepted, however. there is a justification for the omission of the right to a previous hearing, to wit,
the immediacy of the problem sought to be corrected and the urgency of the need to correct it.

In the case before us, there was no such pressure of time or action calling for the petitioner's peremptory treatment. The
properties involved were not even inimical per se as to require their instant destruction. There certainly was no reason
why the offense prohibited by the executive order should not have been proved first in a court of justice, with the
accused being accorded all the rights safeguarded to him under the Constitution. Considering that, as we held in Pesigan
v. Angeles, 21 Executive Order No. 626-A is penal in nature, the violation thereof should have been pronounced not by the
police only but by a court of justice, which alone would have had the authority to impose the prescribed penalty, and only
after trial and conviction of the accused.

We also mark, on top of all this, the questionable manner of the disposition of the confiscated property as prescribed in
the questioned executive order. It is there authorized that the seized property shall "be distributed to charitable
institutions and other similar institutions as the Chairman of the National Meat Inspection Commission may see fit, in the
case of carabeef, and to deserving farmers through dispersal as the Director of Animal Industry may see fit, in the case of
carabaos." (Emphasis supplied.) The phrase "may see fit" is an extremely generous and dangerous condition, if condition
it is. It is laden with perilous opportunities for partiality and abuse, and even corruption. One searches in vain for the
usual standard and the reasonable guidelines, or better still, the limitations that the said officers must observe when they
make their distribution. There is none. Their options are apparently boundless. Who shall be the fortunate beneficiaries of
their generosity and by what criteria shall they be chosen? Only the officers named can supply the answer, they and they
alone may choose the grantee as they see fit, and in their own exclusive discretion. Definitely, there is here a "roving
commission," a wide and sweeping authority that is not "canalized within banks that keep it from overflowing," in short, a
clearly profligate and therefore invalid delegation of legislative powers.

To sum up then, we find that the challenged measure is an invalid exercise of the police power because the method
employed to conserve the carabaos is not reasonably necessary to the purpose of the law and, worse, is unduly
oppressive. Due process is violated because the owner of the property confiscated is denied the right to be heard in his
defense and is immediately condemned and punished. The conferment on the administrative authorities of the power to
adjudge the guilt of the supposed offender is a clear encroachment on judicial functions and militates against the doctrine
of separation of powers. There is, finally, also an invalid delegation of legislative powers to the officers mentioned therein
who are granted unlimited discretion in the distribution of the properties arbitrarily taken. For these reasons, we hereby
declare Executive Order No. 626-A unconstitutional.

We agree with the respondent court, however, that the police station commander who confiscated the petitioner's
carabaos is not liable in damages for enforcing the executive order in accordance with its mandate. The law was at that
time presumptively valid, and it was his obligation, as a member of the police, to enforce it. It would have been
impertinent of him, being a mere subordinate of the President, to declare the executive order unconstitutional and, on his
own responsibility alone, refuse to execute it. Even the trial court, in fact, and the Court of Appeals itself did not feel they
had the competence, for all their superior authority, to question the order we now annul.

The Court notes that if the petitioner had not seen fit to assert and protect his rights as he saw them, this case would
never have reached us and the taking of his property under the challenged measure would have become
a faitaccompli despite its invalidity. We commend him for his spirit. Without the present challenge, the matter would have
ended in that pump boat in Masbate and another violation of the Constitution, for all its obviousness, would have been
perpetrated, allowed without protest, and soon forgotten in the limbo of relinquished rights.

The strength of democracy lies not in the rights it guarantees but in the courage of the people to invoke them whenever
they are ignored or violated. Rights are but weapons on the wall if, like expensive tapestry, all they do is embellish and
impress. Rights, as weapons, must be a promise of protection. They become truly meaningful, and fulfill the role assigned
to them in the free society, if they are kept bright and sharp with use by those who are not afraid to assert them.

WHEREFORE, Executive Order No. 626-A is hereby declared unconstitutional. Except as affirmed above, the decision of
the Court of Appeals is reversed. The supersedeas bond is cancelled and the amount thereof is ordered restored to the
petitioner. No costs.

SO ORDERED.

Teehankee, C.J., Yap, Fernan, Narvasa, Gutierrez, Jr., Paras, Gancayco, Padilla Bidin Sarmiento and Cortes, JJ., concur.

Melencio-Herrera and Feliciano, JJ., are on leave.

N BANC

G.R. No. 207132, December 06, 2016

ASSOCIATION OF MEDICAL CLINICS FOR OVERSEAS WORKERS, INC., (AMCOW), REPRESENTED HEREIN
BY ITS PRESIDENT, DR. ROLANDO VILLOTE, Petitioner, v. GCC APPROVED MEDICAL CENTERS
ASSOCIATION, INC. AND CHRISTIAN CANGCO, Respondents.

G.R. No. 207205

HON. ENRIQUE T. ONA, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF

HEALTH, Petitioner, v. GCC APPROVED MEDICAL CENTERS ASSOCIATION, INC. AND CHRISTIAN E.
CANGCO, Respondents.

DECISION

BRION, J.:

In these consolidated petitions for review on certiorari1 filed under Rule 45 of the Rules of Court, by the Association
of Medical Clinics for Overseas Workers, Inc. (AMCOW) in GR No. 207132, and by Secretary Enrique T. Ona (Secretary
Ona) of the Department of Health (DOH) in GR No. 207205, we resolve the challenge to the August 10,
2012 decision2 and the April 12, 2013 order3 of the Regional Trial Court (RTC) of Pasay City, Branch 108, in Sp. Civil
Action No. R-PSY-10-04391-CV.4

The August 10, 2012 decision and April 12, 2013 order declared null and void ab initio the August 23,
2010 and November 2, 2010 orders issued by the DOH directing respondent GCC Approved Medical Centers
Association, Inc. (GAMCA) to cease and desist from implementing the referral decking system (these orders shall be
alternately referred to as DOH CDO letters).
I. The Antecedents

On March 8, 2001, the DOH issued Administrative Order No. 5, Series of 20015(AO 5-01) which directed the
decking or equal distribution of migrant workers among the several clinics who are members of GAMCA .

AO 5-01 was issued to comply with the Gulf Cooperative Countries (GCC) States' requirement that only GCC-accredited
medical clinics/hospitals' examination results will be honored by the GCC States' respective embassies. It required an OFW
applicant to first go to a GAMCA Center which, in turn, will refer the applicant to a GAMCA clinic or hospital.

Subsequently, the DOH issued AO No. 106, Series of 2002 6holding in abeyance the implementation of the
referral decking system. The DOH reiterated its directive suspending the referral decking system in AO No.
159, Series of 2004.7

In 2004, the DOH issued AO No. 167, Series of 20048repealing AO 5-01, reasoning that the referral decking system
did not guarantee the migrant workers' right to safe and quality health service . AO 167-04 pertinently reads:
WHEREAS, after a meticulous and deliberate study, examination, and consultation about the GAMCA referral decking
system, the DOH believes that its mandate is to protect and promote the health of the Filipino people by ensuring the
rights to safe and quality health service and reliable medical examination results through the stricter regulation of medical
clinics and other health facilities, which the referral decking system neither assures nor guarantees.

NOW, THEREFORE, for and in consideration of the foregoing, the DOH hereby withdraws, repeals and/or revokes
Administrative Order No. 5, series of 2001, concerning the referral decking system. Hence, all other administrative
issuances, bureau circulars and memoranda related to A.O. No. 5, series of 2001, are hereby withdrawn, repealed
and/revoked accordingly.
In Department Memorandum No. 2008-0210,9 dated September 26, 2008, then DOH Secretary Francisco T.
Duque III expressed his concern about the continued implementation of the referral decking system despite the DOH's
prior suspension directives. The DOH directed the "OFW clinics, duly accredited/licensed by the DOH and/or by the
Philippine Health Insurance Corporation (PHILHEALTH) belonging to and identified with GAMCA x x x to forthwith stop,
terminate, withdraw or otherwise end the x x x 'referral decking system.' "10

GAMCA questioned the DOH's Memorandum No. 2008-0210 before the Office of the President (OP). In a
decision11 dated January 14, 2010, the OP nullified Memorandum No. 2008-0210.

On March 8, 2010, Republic Act (RA) No. 1002212lapsed into law without the President's signature. Section 16 of
RA No. 10022 amended Section 23 of RA No. 8042, adding two new paragraphs - paragraphs (c) and (d). The pertinent
portions of the amendatory provisions read:
Section 16. Under Section 23 of Republic Act No. 8042, as amended, add new paragraphs (c) and (d) with their
corresponding subparagraphs to read as follows:

(c) Department of Health. - The Department of Health (DOH) shall regulate the activities and operations of all
clinics which conduct medical, physical, optical, dental, psychological and other similar examinations,
hereinafter referred to as health examinations, on Filipino migrant workers as requirement for their
overseas employment. Pursuant to this, the DOH shall ensure that:

(c.1) The fees for the health examinations are regulated, regularly monitored and duly published to ensure that the said
fees are reasonable and not exorbitant;

(c.2) The Filipino migrant worker shall only be required to undergo health examinations when there is reasonable
certainty that he or she will be hired and deployed to the jobsite and only those health examinations which are absolutely
necessary for the type of job applied for or those specifically required by the foreign employer shall be conducted;

(c.3) No group or groups of medical clinics shall have a monopoly of exclusively conducting health
examinations on migrant workers for certain receiving countries;

(c.4) Every Filipino migrant worker shall have the freedom to choose any of the DOH-accredited or DOH-
operated clinics that will conduct his/her health examinations and that his or her rights as a patient are
respected. The decking practice, which requires an overseas Filipino worker to go first to an office for
registration and then farmed out to a medical clinic located elsewhere, shall not be allowed;

(c.5) Within a period of three (3) years from the effectivity of this Act, all DOH regional and/or provincial hospitals shall
establish and operate clinics that can serve the health examination requirements of Filipino migrant workers to provide
them easy access to such clinics all over the country and lessen their transportation and lodging expenses; and

(c.6) All DOH-accredited medical clinics, including the DOH operated clinics, conducting health examinations for Filipino
migrant workers shall observe the same standard operating procedures and shall comply with internationally accepted
standards in their operations to conform with the requirements of receiving countries or of foreign employers/principals.

Any Foreign employer who does not honor the results of valid health examinations conducted by a DOH-accredited or
DOH-operated clinic shall be temporarily disqualified from participating in the overseas employment program, pursuant to
POEA rules and regulations.

In case an overseas Filipino worker is found to be not medically fit upon his/her immediate arrival in the country of
destination, the medical clinic that conducted the health examinations of such overseas Filipino worker shall pay for his or
her repatriation back to the Philippines and the cost of deployment of such worker.

Any government official or employee who violates any provision of this subsection shall be removed or dismissed from
service with disqualification to hold any appointive public office for five (5) years. Such penalty is without prejudice to any
other liability which he or she may have incurred under existing laws, rules or regulations. [emphases and underscoring
supplied]
On August 13, 2010, the Implementing Rules and Regulations 13 (IRR) of RA No. 8042, as amended by RA No. 10022,
took effect.

Pursuant to Section 16 of RA No. 10022, the DOH, through its August 23, 2010 letter-order,14directed GAMCA
to cease and desist from implementing the referral decking system and to wrap up their operations within three
(3) days from receipt thereof. GAMCA received its copy of the August 23, 2010 letter-order on August 25, 2010.

On August 26, 2010, GAMCA filed with the RTC of Pasig City a petition for certiorari and prohibition with prayer for a writ
of preliminary injunction and/or temporary restraining order ( GAMCA's petition).15 It assailed: (1) the DOH's August 23,
2010 letter-order on the ground of grave abuse of discretion; and (2) paragraphs c.3 and c.4, Section 16 of RA No.
10022, as well as Section 1 (c) and (d), Rule XI of the IRR, as unconstitutional.

Meanwhile, the DOH reiterated - through its November 2, 2010 order - its directive that GAMCA cease and desist from
implementing the referral decking system.16

On November 23, 2010, AMCOW filed an urgent motion for leave to intervene and to file an opposition-in-intervention,
attaching its opposition-in-intervention to its motion.17 In the hearing conducted the following day, November 24, 2010,
the RTC granted AMCOW's intervention; DOH and GAMCA did not oppose AMCOW's motion. 18 AMCOW subsequently paid
the docket fees and submitted its memorandum. 19

In an order20 dated August 1, 2011, the RTC issued a writ of preliminary injunction 21 directing the DOH to cease and
desist from implementing its August 23, 2010 and November 2, 2010 orders. The RTC likewise issued an order denying
the motion for inhibition/disqualification filed by AMCOW.

On August 18, 2011, the DOH sought reconsideration of the RTC's August 1, 2011 order.

The assailed RTC rulings

In its August 10, 2012 decision,22 the RTC granted GAMCA's certiorari petition and declared null and void ab initio the
DOH CDO letters. It also issued a writ of prohibition directing "the DOH Secretary and all persons acting on his behalf to
cease and desist from implementing the assailed Orders against the [GAMCA]."

The RTC upheld the constitutionality of Section 16 of RA No. 10022, amending Section 23 of RA No. 8042, but
ruled that Section 16 of RA No. 10022 does not apply to GAMCA.

The RTC reasoned out that the prohibition against the referral decking system under Section 16 of RA No. 10022 must be
interpreted as applying only to clinics that conduct health examination on migrant workers bound for countries that do
not require the referral decking system for the issuance of visas to job applicants.

It noted that the referral decking system is part of the application procedure in obtaining visas to enter the GCC States, a
procedure made in the exercise of the sovereign power of the GCC States to protect their nationals from health hazards,
and of their diplomatic power to regulate and screen entrants to their territories. Under the principle of sovereign equality
and independence of States, the Philippines cannot interfere with this system and, in fact, must respect the visa-granting
procedures of foreign states in the same way that they respect our immigration procedures.

Moreover, to restrain GAMCA which is a mere adjunct of HMC, the agent of GCC States, is to restrain the GCC States
themselves. To the RTC, the Congress was aware of this limitation, pursuant to the generally accepted principles of
international law under Article II, Section 2 of the 1987 Constitution, when it enacted Section 16 of RA No. 10022.

The DOH and AMCOW separately sought reconsideration of the RTC's August 10, 2012 decision, which motions the RTC
denied.23 The DOH and AMCOW separately filed the present Rule 45 petitions.

On August 24, 2013, AMCOW filed a motion for consolidation 24 of the two petitions; the Court granted this motion and
ordered the consolidation of the two petitions in a resolution dated September 17, 2013.25cralawred

In the resolution26 of April 14, 2015, the Court denied: (1) GAMCA's most urgent motion for issuance of temporary
restraining order/writ of preliminary injunction/status quo ante order (with request for immediate inclusion in the
Honorable Court's agenda of March 3, 2015, its motion dated March 2, 2015); 27 and (2) the most urgent reiterating
motion for issuance of temporary restraining order/writ of preliminary injunction/status quo ante order dated March 11,
2015.28

The Court also suspended the implementation of the permanent injunction issued by the RTC of Pasay City, Branch 108 in
its August 10, 2012 decision.
II. The Issues

The consolidated cases before us present the following issues:

First, whether the Regional Trial Court legally erred in giving due course to the petition for certiorari and prohibition
against the DOH CDO letters;

Second, whether the DOH CDO letters prohibiting GAMCA from implementing the referral decking system embodied
under Section 16 of Republic Act No. 10022 violates Section 3, Article II of the 1987 Constitution for being an undue
taking of property;

Third, whether the application of Section 16 of Republic Act No.10022 to the GAMCA violates the international customary
principles of sovereign independence and equality.
III. Our Ruling

A. The RTC legally erred when it gave due course to GAMCA's petition for certiorari and prohibition.

The present case reached us through an appeal by certiorari (pursuant to Rule 45) of an RTC ruling, assailing the decision
based solely on questions of law. The RTC decision, on the other hand, involves the grant of the petitions
for certiorari and prohibition (pursuant to Rule 65) assailing the DOH CDO letters for grave abuse of discretion.

The question before us asks whether the RTC made a reversible error of law when it issued writs
of certiorari and prohibition against the DOH CDO letters.

AMCOW questions the means by which GAMCA raised the issue of the legality of RA No. 10022 before the RTC. AMCOW
posits that GAMCA availed of an improper remedy, as certiorari and prohibition lie only against quasi-judicial acts, and
quasi-judicial and ministerial acts, respectively. Since the disputed cease and desist order is neither, the RTC should have
dismissed the petition outright for being an improper remedy.

We agree with the petitioners' assertion that the RTC erred when it gave due course to GAMCA's petition
for certiorari and prohibition, but we do so for different reasons.

1. Certiorari under Rules of Court and under the courts' expanded jurisdiction under Art VIII, Section 1 of
the Constitution, as recognized by jurisprudence.

A.1.a. The Current Certiorari Situation

The use of petitions for certiorari and prohibition under Rule 65 is a remedy that judiciaries have used long before our
Rules of Court existed.29 As footnoted below, these writs - now recognized and regulated as remedies under Rule 65 of
our Rules of Court - have been characterized a "supervisory writs" used by superior courts to keep lower courts within the
confines of their granted jurisdictions, thereby ensuring orderliness in lower courts' rulings.

We confirmed this characterization in Madrigal Transport v. Lapanday Holdings Corporation,30 when we held that a writ is
founded on the supervisory jurisdiction of appellate courts over inferior courts, and is issued to keep the latter within the
bounds of their jurisdiction. Thus, the writ corrects only errors of jurisdiction of judicial and quasi-judicial bodies, and
cannot be used to correct errors of law or fact. For these mistakes of judgment, the appropriate remedy is an appeal. 31

This situation changed after 1987 when the new Constitution "expanded" the scope of judicial power by providing that -
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.
(italics supplied)32
In Francisco v. The House of Representatives ,33 we recognized that this expanded jurisdiction was meant "to ensure the
potency of the power of judicial review to curb grave abuse of discretion by 'any branch or instrumentalities of
government.'" Thus, the second paragraph of Article VIII, Section 1 engraves, for the first time in its history, into black
letter law the "expanded certiorari jurisdiction" of this Court, whose nature and purpose had been provided in the
sponsorship speech of its proponent, former Chief Justice Constitutional Commissioner Roberto Concepcion:
xxxx

The first section starts with a sentence copied from former

Constitutions. It says:

The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.

I suppose nobody can question it.

The next provision is new in our constitutional law. I will read it first and explain.

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the government.

Fellow Members of this Commission, this is actually a product of our experience during martial law. As a matter of fact, it
has some antecedents in the past, but the role of the judiciary during the deposed regime was marred considerably by
the circumstance that in a number of cases against the government, which then had no legal defense at all, the solicitor
general set up the defense of political question and got away with it. As a consequence, certain principles concerning
particularly the writ of habeas corpus, that is, the authority of courts to order the release of political detainees, and other
matters related to the operation and effect of martial law failed because the government set up the defense of political
question. And the Supreme Court said: "Well, since it is political, we have no authority to pass upon it." The Committee
on the Judiciary feels that this was not a proper solution of the questions involved. It did not merely request an
encroachment upon the rights of the people, but it, in effect, encouraged further violations thereof during the martial law
regime. x x x

xxxx

Briefly stated, courts of justice determine the limits of power of the agencies and offices of the government as well as
those of its officers. In other words, the judiciary is the final arbiter on the question whether or not a branch of
government or any of its officials has acted without jurisdiction or in excess of jurisdiction, or so capriciously as to
constitute an abuse of discretion amounting to excess of jurisdiction or lack of jurisdiction. This is not only a judicial
power but a duty to pass judgment on matters of this nature.

This is the background of paragraph 2 of Section 1, which means that the courts cannot hereafter evade the duty to
settle matters of this nature, by claiming that such matters constitute a political question. 34 (italics in the original;
emphasis and underscoring supplied)
Meanwhile that no specific procedural rule has been promulgated to enforce this "expanded" constitutional definition of
judicial power and because of the commonality of "grave abuse of discretion" as a ground for review under Rule 65 and
the courts expanded jurisdiction, the Supreme Court based on its power to relax its rules 35 allowed Rule 65 to be used as
the medium for petitions invoking the courts' expanded jurisdiction based on its power to relax its Rules. 36 This is
however an ad hoc approach that does not fully consider the accompanying implications, among them, that Rule 65 is an
essentially distinct remedy that cannot simply be bodily lifted for application under the judicial power's expanded mode.
The terms of Rule 65, too, are not fully aligned with what the Court's expanded jurisdiction signifies and requires. 37

On the basis of almost thirty years' experience with the courts' expanded jurisdiction, the Court should now fully
recognize the attendant distinctions and should be aware that the continued use of Rule 65 on an ad hoc basis as the
operational remedy in implementing its expanded jurisdiction may, in the longer term, result in problems of uneven,
misguided, or even incorrect application of the courts' expanded mandate.

The present case is a prime example of the misguided reading that may take place in constitutional litigation: the
procedural issues raised apparently spring from the lack of proper understanding of what a petition for certiorari assails
under the traditional and expanded modes, and the impact of these distinctions in complying with the procedural
requirements for a valid petition.

2. The Basic Distinctions

A.2.a. Actual Case or Controversy

Basic in the exercise of judicial power whether under the traditional or in the expanded setting - is the presence of an
actual case or controversy. For a dispute to be justiciable, a legally demandable and enforceable right must exist as basis,
and must be shown to have been violated. 38

Whether a case actually exists depends on the pleaded allegations, as affected by the elements of standing (translated
in civil actions as the status of being a "real-party-in-interest," in criminal actions as "offended party" and
in special proceedings as "interested party"),39ripeness,40prematurity, and the moot and academic
principle that likewise interact with one another. These elements and their interactions are discussed m greater detail
below.

The Court's expanded jurisdiction - itself an exercise of judicial power - does not do away with the actual case or
controversy requirement in presenting a constitutional issue, but effectively simplifies this requirement by merely
requiring a prima facie showing of grave abuse of discretion in the assailed governmental act.

A.2.b. Actions Correctable by Certiorari

A basic feature of the expanded jurisdiction under the constitutional definition of judicial power, is the authority and
command for the courts to act on petitions involving the commission by any branch or instrumentality of government of
grave abuse of discretion amounting to lack or excess of jurisdiction .

This command distinctly contrasts with the terms of Rule 65 which confines court certiorari action solely to the review
of judicial and quasi-judicial acts.41 These differing features create very basic distinctions that must necessarily result in
differences in the application of remedies.

While actions by lower courts do not pose a significant problem because they are necessarily acting judicially when they
adjudicate, a critical question comes up for the court acting on certiorari petitions when governmental agencies are
involved - under what capacity does the agency act?
This is a critical question as the circumstances of the present case show. When the government entity acts quasi-
judicially, the petition for certiorari challenging the action falls under Rule 65; in other instances, the petition must be filed
based on the courts' expanded jurisdiction.

A.2.c. Grave Abuse of Discretion

Another distinction, a seeming one as explained below, relates to the cited ground of a certiorari petition under Rule 65
which speaks of lack or excess of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction , as
against the remedy under the courts' expanded jurisdiction which expressly only mentions grave abuse of discretion
amounting to lack or excess of jurisdiction.

This distinction is apparently not legally significant when it is considered that action outside of or in excess of the granted
authority necessarily involves action with grave abuse of discretion: no discretion is allowed in areas outside of an
agency's granted authority so that any such action would be a gravely abusive exercise of power. The constitutional grant
of power, too, pointedly addresses grave abuse of discretion when it amounts to lack or excess of jurisdiction,42 thus
establishing that the presence of jurisdiction is the critical element; failure to comply with this requirement necessarily
leads to the certiorari petition's immediate dismissal.43

As an added observation on a point that our jurisprudence has not fully explored, the result of the action by a
governmental entity (e.g., a law or an executive order) can be distinguished from the perspective of its legality as tested
against the terms of the Constitution or of another law (where subordinate action like an executive order is involved), vis-
a-vis the legality of the resulting action where grave abuse of discretion attended the governmental action or the exercise
of the governmental function.

In the former, the conclusion may be plain illegality or legal error that characterized the law or exec order (as tested, for
example, under the established rules of interpretation); no consideration is made of how the governmental entity
exercised its function. In the latter case, on the other hand, it is the governmental entity's exercise of its function that is
examined and adjudged independently of the result, with impact on the legality of the result of the gravely abusive
action.

Where the dispute in a case relates to plain legal error, ordinary court action and traditional mode are called for and this
must be filed in the lower courts based on rules of jurisdiction while observing the hierarchy of courts.

Where grave abuse of discretion is alleged to be involved, the expanded jurisdiction is brought into play based on the
express wording of the Constitution and constitutional implications may be involved (such as grave abuse of discretion
because of plain oppression or discrimination), but this must likewise be filed with the lowest court of concurrent
jurisdiction, unless the court highest in the hierarchy grants exemption. Note that in the absence of express rules, it is
only the highest court, the Supreme Court, that can only grant exemptions.

From these perspectives, the use of grave abuse of discretion can spell the difference in deciding whether a case
filed directly with the Supreme Court has been properly filed.

A.2.d. Exhaustion of Available Remedies

A basic requirement under Rule 65 is that there be " no other plain, speedy and adequate remedy found in law ,"44 which
requirement the expanded jurisdiction provision does not expressly carry. Nevertheless, this requirement is not a
significant distinction in using the remedy of certiorari under the traditional and the expanded modes. The doctrine of
exhaustion of administrative remedies applies to a petition for certiorari, regardless of the act of the administrative
agency concerned, i.e., whether the act concerns a quasi-judicial, or quasi-legislative function, or is purely regulatory.45

Consider in this regard that once an administrative agency has been empowered by Congress to undertake a sovereign
function, the agency should be allowed to perform its function to the full extent that the law grants. This full extent
covers the authority of superior officers in the administrative agencies to correct the actions of subordinates, or for
collegial bodies to reconsider their own decisions on a motion for reconsideration. Premature judicial intervention would
interfere with this administrative mandate, leaving administrative action incomplete; if allowed, such premature judicial
action through a writ of certiorari, would be a usurpation that violates the separation of powers principle that underlies
our Constitution.46

In every case, remedies within the agency's administrative process must be exhausted before external remedies can be
applied. Thus, even if a governmental entity may have committed a grave abuse of discretion, litigants should, as a rule,
first ask reconsideration from the body itself, or a review thereof before the agency concerned. This step ensures that by
the time the grave abuse of discretion issue reaches the court, the administrative agency concerned would have fully
exercised its jurisdiction and the court can focus its attention on the questions of law presented before it.

Additionally, the failure to exhaust administrative remedies affects the ripeness to adjudicate the
constitutionality of a governmental act, which in turn affects the existence of the need for an actual case
or controversy for the courts to exercise their power of judicial review .47 The need for ripeness - an aspect of
the timing of a case or controversy does not change regardless of whether the issue of constitutionality reaches the Court
through the traditional means, or through the Court's expanded jurisdiction. In fact, separately from ripeness, one other
concept pertaining to judicial review is intrinsically connected to it; the concept of a case being moot and academic. 48

Both these concepts relate to the timing of the presentation of a controversy before the Court ripeness relates to its
prematurity, while mootness relates to a belated or unnecessary judgment on the issues. The Court cannot preempt the
actions of the parties, and neither should it (as a rule) render judgment after the issue has already been resolved by or
through external developments.

The importance of timing in the exercise of judicial review highlights and reinforces the need for an actual case or
controversy an act that may violate a party's right. Without any completed action or a concrete threat of injury to the
petitioning party, the act is not yet ripe for adjudication. It is merely a hypothetical problem. The challenged act must
have been accomplished or performed by either branch or instrumentality of government before a court may come into
the picture, and the petitioner must allege the existence of an immediate or threatened injury to itself as a result of the
challenged action.

In these lights, a constitutional challenge, whether presented through the traditional route or through the Court's
expanded jurisdiction, requires compliance with the ripeness requirement. In the case of administrative acts, ripeness
manifests itself through compliance with the doctrine of exhaustion of administrative remedies.

In like manner, an issue that was once ripe for resolution but whose resolution, since then, has been rendered
unnecessary, needs no resolution from the Court, as it presents no actual case or controversy and likewise merely
presents a hypothetical problem. In simpler terms, a case is moot and academic when an event supervenes to render a
judgment over the issues unnecessary and superfluous.

Without the element of ripeness or a showing that the presented issue is moot and academic, petitions challenging the
constitutionality of a law or governmental act are vulnerable to dismissal.

Not to be forgotten is that jurisprudence also prohibits litigants from immediately seeking judicial relief without first
exhausting the available administrative remedies for practical reasons.49

From the perspective of practicality, immediate resort to the courts on issues that are within the competence of
administrative agencies to resolve, would unnecessarily clog the courts' dockets. These issues, too, usually involve
technical considerations that are within the agency's specific competence and which, for the courts, would require
additional time and resources to study and consider.50 Of course, the Supreme Court cannot really avoid the issues that a
petition for certiorari, filed with the lower courts may present; the case may be bound ultimately to reach the Court, albeit
as an appeal from the rulings of the lower courts.

3. Situations Where a Petition for Certiorari May Be Used

There are two distinct situations where a writ of certiorari or prohibition may be sought. Each situation carries
requirements, peculiar to the nature of each situation, that lead to distinctions that should be recognized in the use
of certiorari under Rule 65 and under the courts' expanded jurisdiction.

The two situations differ in the type of questions raised. The first is the constitutional situation where the
constitutionality of acts are questioned. The second is the non-constitutional situation where acts amounting to grave
abuse of discretion are challenged without raising constitutional questions or violations.

The process of questioning the constitutionality of a governmental action provides a notable area of comparison between
the use of certiorari in the traditional and the expanded modes.

Under the traditional mode, plaintiffs question the constitutionality of a governmental action through the cases they
file before the lower courts; the defendants may likewise do so when they interpose the defense of unconstitutionality of
the law under which they are being sued. A petition for declaratory relief may also be used to question the
constitutionality or application of a legislative (or quasi-legislative) act before the court. 51

For quasi-judicial actions, on the other hand, certiorari is an available remedy, as acts or exercise of functions that violate
the Constitution are necessarily committed with grave abuse of discretion for being acts undertaken outside the
contemplation of the Constitution. Under both remedies, the petitioners should comply with the traditional requirements
of judicial review, discussed below.52 In both cases, the decisions of these courts reach the Court through an appeal
by certiorari under Rule 45.

In contrast, existing Court rulings in the exercise of its expanded jurisdiction have allowed the direct filing of
petitions for certiorari and prohibition with the Court to question, for grave abuse of discretion, actions or the exercise of
a function that violate the Constitution. 53 The governmental action may be questioned regardless of whether it is quasi-
judicial, quasi-legislative, or administrative in nature. The Court's expanded jurisdiction does not do away with the actual
case or controversy requirement for presenting a constitutional issue, but effectively simplifies this requirement by merely
requiring a prima facie showing of grave abuse of discretion in the exercise of the governmental act. 54

To return to judicial review heretofore mentioned, in constitutional cases where the question of constitutionality of a
governmental action is raised, the judicial power the courts exercise is likewise identified as the power of judicial
review - the power to review the constitutionality of the actions of other branches of government. 55 As a rule, as
required by the hierarchy of courts principle, these cases are filed with the lowest court with jurisdiction over the
matter. The judicial review that the courts undertake requires:
1) there be an actual case or controversy calling for the exercise of judicial power;

(2) the person challenging the act must have "Standing" to challenge; he must have a personal and substantial interest
in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement;

(3) the question of constitutionality must be raised at the earliest possible opportunity; and

(4) the issue of constitutionality must be the very lis mota of the case.56
The lower court's decision under the constitutional situation reaches the Supreme Court through the appeal process,
interestingly, through a petition for review on certiorari under Rule 45 of the Rules of Court.

In the non-constitutional situation, the same requirements essentially apply, less the requirements specific to the
constitutional issues. In particular, there must be an actual case or controversy and the compliance with requirements of
standing, as affected by the hierarchy of courts, exhaustion of remedies, ripeness, prematurity, and the moot and
academic principles.

A.3.a. The "Standing" Requirement

Under both situations, the party bringing suit must have the necessary "standing." This means that this party has, in its
favor, the demandable and enforceable right or interest giving rise to a justiciable controversy after the right is violated
by the offending party.

The necessity of a person's standing to sue derives from the very definition of judicial power. Judicial power includes the
duty of the courts to settle actual controversies involving rights which are legally demandable and
enforceable. Necessarily, the person availing of a judicial remedy must show that he possesses a legal interest or right to
it, otherwise, the issue presented would be purely hypothetical and academic. This concept has been translated into the
requirement to have "standing" in judicial review,57or to be considered as a "real-party-in-interest" in civil actions,58 as the
"offended party" in criminal actions59 and the "interested party" in special proceedings.60

While the Court follows these terms closely in both non-constitutional cases and constitutional cases under the traditional
mode, it has relaxed the rule in constitutional cases harrdled under the expanded jurisdiction mode. in the latter case,
a prima facie showing that the questioned governmental act violated the Constitution, effectively disputably shows an
injury to the sovereign Filipino nation who approved the Constitution and endowed it with authority, such that the
challenged act may be questioned by any Philippine citizen before the Supreme Court. 61 In this manner, the "standing"
requirement is relaxed compared with the standard of personal stake or injury that the traditional petition requires.

The relaxation of the standing requirement has likewise been achieved through the application of the "transcendental
importance doctrine" under the traditional mode for constitutional cases. 62 (Under the traditional mode, "transcendental
importance" not only relaxes the standing requirement, but also allows immediate access to this Court, thus exempting
the petitioner from complying with the hierarchy of courts requirement.) 63

More importantly perhaps, the prima facie showing of grave abuse of discretion in constitutional cases also implies that
the injury alleged is actual or imminent, and not merely hypothetical.

Through this approach, the Court's attention is directed towards the existence of an actual case or controversy - that is,
whether the government indeed violated the Constitution to the detriment of the Filipino people without the distractions
of determining the existence of transcendental importance indicators unrelated to the dispute and which do not at all
determine whether the Court properly exercises its power of judicial review.

Parenthetically, in the traditional mode, the determination of the transcendental importance of the issue
presented,64 aside from simply relaxing the standing requirement, may result in the dilution of the actual case or
controversy element because of the inextricable link between standing and the existence of an actual case or controversy.

Consider, in this regard, that an actual case or controversy that calls for the exercise of judicial power necessarily requires
that the party presenting it possesses the standing to mount a challenge to a governmental act. A case or controversy
exists when there is an actual dispute between parties over their legal rights, which remains in conflict at the time the
dispute is presented before the court.65 Standing, on the other hand, involves a personal and substantial interest in the
case because the petitioner has sustained, or will sustain, direct injury as a result of the violation of its right. 66

With the element of "standing" (or the petitioner's personal or substantial stake or interest in the case) relaxed, the
practical effect is to dilute the need to show that an immediate actual dispute over legal rights did indeed take place and
is now the subject of the action before the court. 67

In both the traditional and the expanded modes, this relaxation carries a ripple effect under established jurisprudential
rulings,68 affecting not only the actual case or controversy requirement, but compliance with the doctrine of hierarchy of
courts, discussed in greater detail below.

A.3.b. The Hierarchy of Courts Principle

Another requirement that a certiorari petition carries, springs from the principle of "hierarchy of courts" which recognizes
the various levels of courts in the country as they are established under the Constitution and by law, their ranking and
effect of their rulings in relation with one another, and how these different levels of court interact with one
another.69 Since courts are established and given their defined jurisdictions by law, the hierarchy of the different levels of
courts should leave very little opening for flexibility (and potential legal questions), but for the fact that the law creates
courts at different and defined levels but with concurrent jurisdictions.

The Constitution itself has partially determined the judicial hierarchy in the Philippine legal system by designating the
Supreme Court as the highest court with irreducible powers; its rulings serve as precedents that other courts must
follow70 because they form part of the law of the land.71 As a rule, the Supreme Court is not a trial court and rules only on
questions of law, in contrast with the Court of Appeals and other intermediate courts 72 which rule on both questions of
law and of fact. At the lowest level of courts are the municipal and the regional trial courts which handle questions of fact
and law at the first instance according to the jurisdiction granted to them by law.

Petitions for certiorari and prohibition fall under the concurrent jurisdiction of the regional trial courts and the higher
courts, all the way up to the Supreme Court. As a general rule, under the hierarchy of courts principle, the petition must
be brought to the lowest court with jurisdiction; 73 the petition brought to the higher courts may be dismissed based on
the hierarchy principle. Cases, of course, may ultimately reach the Supreme Court through the medium of an appeal.

The recognition of exceptions to the general rule is provided by the Supreme Court through jurisprudence, i.e., through
the cases that recognized the propriety of filing cases directly with the Supreme Court. This is possible as the Supreme
Court has the authority to relax the application of its own rules. 74

As observed above, this relaxation waters down other principles affecting the remedy of certiorari. While the relaxation
may result in greater and closer supervision by the Court over the lower courts and quasi-judicial bodies under Rule 65,
the effect may not always be salutary in the long term when it is considered that this may affect the constitutional
standards for the exercise of judicial power, particularly the existence of an actual case or controversy.

The "transcendental importance" standard, in particular, is vague, open-ended and value-laden, and should be limited in
its use to exemptions from the application of the hierarchy of courts principle. It should not carry any ripple effect on the
constitutional requirement for the presence of an actual case or controversy.

4. The petition for certiorari and prohibition against the DOH Letter was filed before the wrong court.

In the present case, the act alleged to be unconstitutional refers to the cease and desist order that the DOH issued
against GAMCA's referral decking system. Its constitutionality was questioned through a petition for certiorari and
prohibition before the RTC. The case reached this Court through a Rule 45 appeal by certiorari under the traditional route.

In using a petition for certiorari and prohibition to assail the DOHCDO letters, GAMCA committed several procedural
lapses that rendered its petition readily dismissible by the RTC. Not only did the petitioner present a premature
challenge against an administrative act; it also committed the grave jurisdictional error of filing the petition before
the wrong court.

A.4.a. The DOH CDO letters were issued in the exercise of the DOH's quasi-judicial functions, and could be
assailed through Rule 65 on certiorari and prohibition.

A cease and desist order is quasi-judicial in nature, as it applies a legislative policy to an individual or group within the
coverage of the law containing the policy.

The Court, in Municipal Council of Lemery, Batangas v. Provincial Board of Batangas ,75 recognized the difficulty of d fining
the precise demarcation line between what are judicial and what are administrative or ministerial functions, as the
exercise of judicial functions may involve the performance of legislative or administrative duties, and the performance of
administrative or ministerial duties may, to some extent, involve the exercise of functions judicial in character. Thus, the
Court held that the nature of the act to be performed, rather than of the office, board, or body which
performs it, should determine whether or not an action is in the discharge of a judicial or a quasi-judicial function.76

Generally, the exercise of judicial functions involves the determination of what the law is, and what the legal rights of
parties are under this law with respect to a matter in controversy. Whenever an officer is clothed with this authority and
undertakes to determine those questions, he acts judicially.77

In the administrative realm, a government officer or body exercises a quasi-judicial function when it hears and determines
questions of fact to which the legislative policy is to apply, and decide, based on the law's standards, matters relating to
the enforcement and administration of the law. 78

The DOH CDO letter directed GAMCA to cease and desist from engaging in the referral decking system practice within
three days from receipt of the letter. By issuing this CDO letter implementing Section 16 of RA No. 10022, the DOH (1)
made the finding of fact that GAMCA implements the referral decking system, and (2) applied Section 16 of RA No.
10022, to conclude that GAMCA's practice is prohibited by law and should be stopped.

From this perspective, the DOH acted in a quasi-judicial capacity: its CDO letter determined a question of fact, and
applied the legislative policy prohibiting the referral decking system practice.

Notably, cease and desist orders have been described and treated as quasi-judicial acts in past cases, and had even been
described as similar to the remedy of injunction granted by the courts. 79

A.4.b. The petitions for certiorari and prohibition against the DOH CDO letters fall within the jurisdiction of
the Court of Appeals.

Since the CDO Letter was a quasi-judicial act, the manner by which GAMCA assailed it before the courts of law had been
erroneous; the RTC should not have entertained GAMCA's petition.

First, acts or omissions by quasi-judicial agencies, regardless of whether the remedy involves a Rule 43 appeal or a Rule
65 petition for certiorari, is cognizable by the Court of Appeals. In particular, Section 4, Rule 65 of the Rules of Court
provides:
Section 4. When and where petition filed. The petition shall be filed not later than sixty (60) days from notice of the
judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is
required or not, the sixty (60) day period shall be counted from notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a
corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial area as defined
by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its appellate
jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves the acts or omissions of
a quasi-judicial agency, unless otherwise provided by law or these Rules, the petition shall be filed in and
cognizable only by the Court of Appeals. (emphasis, italics, and underscoring supplied)
Since the DOH is part of the Executive Department and has acted in its quasi-judicial capacity, the petition challenging its
CDO letter should have been filed before the Court of Appeals. The RTC thus did not have jurisdiction over the subject
matter of the petitions and erred in giving due course to the petition for certiorari and prohibition against the DOH CDO
letters. In procedural terms, petitions for certiorari and prohibition against a government agency are remedies avaiJable
to assail its quasi-judicial acts, and should thus have been filed before the CA.

The provision in Section 4, Rule 65 requiring that certiorari petitions challenging quasi-judicial acts to be filed with the CA
is in full accord with Section 9 of Batas Pambansa Blg. 12980 on the same point. Section 9 provides:
Section 9. Jurisdiction.- The Court of Appeals shall exercise:

1. Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and
auxiliary writs or processes, whether or not in aid of its appellate jurisdiction;
xxxx

3. Exclusive appellate jurisdiction over all final judgments, resolutions, orders or awards of Regional Trial
Courts and quasi-judicial agencies, instrumentalities, boards or commission, including the Securities and Exchange
Commission, the Social Security Commission, the Employees Compensation Commission and the Civil Service Commission,
except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor
Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph
(1) of the third paragraph and subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
xxxx

(emphases, italics, and underscoring supplied)

Thus, by law and by Supreme Court Rules, the CA is the court with the exclusive original jurisdiction to entertain petitions
for certiorari and prohibition against quasi-judicial agencies. In short, GAMCA filed its remedy with the wrong court.

A.4.c The petitions for certiorari and prohibition against the DOH CDO letters were premature challenges -
they failed to comply with the requirement that there be "no other plain, speedy and adequate remedy"
and with the doctrine of exhaustion of administrative remedies.

Second, the Regional Trial Court of Pasay City unduly disregarded the requirements that there be " no other plain, speedy
and adequate remedy at law" and the doctrine of exhaustion of administrative remedies, when it gave due course to
the certiorari and prohibition petition against the DOH's CDO.

Under Chapter 8, Book IV of Executive Order (EO) No. 292,81 series of 1987, the DOH Secretary " shall have supervision
and control over the bureaus, offices, and agencies under him "82 and "shall have authority over and responsibility for x x
x operation" of the Department.

Section 1, Chapter 1, Title I, Book III of EO No. 292 in relation with Article VII, Sections 1 and 17 of the Constitution, 83 on
the other hand, provides that the "President shall have control of all the executive departments, bureaus, and offices ."
These provisions both signify that remedies internal to the Executive Branch exist before resorting to judicial remedies:
GAMCA could ask the DOH Secretary to reconsider or clarify its letter-order, after which it could appeal, should the ruling
be unfavorable, to the Office of the President.

Significantly, this was what GAMCA did in the past when the DOH issued Memorandum Order No. 2008-0210 that
prohibited the referral decking system. GAMCA then asked for the DOH Secretary's reconsideration, and subsequently
appealed the DOH's unfavorable decision with the Office of the President. The OP then reversed Memorandum Order No.
2008-0210 and allowed the referral decking system to continue.

That GAMCA had earlier taken this course indicates that it was not unaware of the administrative remedies available to it;
it simply opted to disregard the doctrine of exhaustion of administrative remedies and the requirement that there be no
other plain, speedy, and adequate remedy in law when it immediately filed its petition for certiorari with the RTC.

This blatant disregard of the Rule 65 requirements clearly places GAMCA's petition outside the exceptions that we
recognized in the past in relaxing strict compliance with the exhaustion of administrative remedies requirement.

Jurisprudence84 shows that this Court never hesitated in the past in relaxing the application of the rules of procedure to
accommodate exceptional circumstances when their strict application would result in injustice. These instances, founded
as they are on equitable considerations, do not include the undue disreiard of administrative remedies, particularly when
they are readily available.85

A.4.d. The petitions for certiorari and prohibition against the DOH CDO letters should have been dismissed
outright, as Rule 65 Petitions for Certiorari and Prohibition are extraordinary remedies given due course
only upon compliance with the formal and substantive requirements.

Note, at this point, that Rule 65 petitions for certiorari and prohibition are discretionary writs, and that the handling court
possesses the authority to dismiss them outright for failure to comply with the form and substance requirements. Section
6, Rule 65 of the Rules of Court in this regard provides:
Section 6. Order to comment. - If the petition is sufficient in form and substance to justify suclr process , the
court shall issue an order requiring the respondent or respondents to comment on the petition within ten (10) days from
receipt of a copy thereof. Such order shall be served on the respondents in such manner as the court may direct together
with a copy of the petition and any annexes thereto. (emphasis, italics, and underscoring supplied)
Thus, even before requiring the DOH to comment, the RTC could have assessed the petition for certiorariand prohibition
for its compliance with the Rule 65 requirements. At that point, the petition for certiorariand prohibition should have been
dismissed outright, for failing to comply with Section 1 and Section 4 of Rule 65. When the court instead took cognizance
of the petition, it acted on a matter outside its jurisdiction.

Consequently, the RTC's resulting judgment is void and carries no legal effect. The decision exempting GAMCA from the
application of the referral decking system should equally have no legal effect.

Noncompliance with the Section 1, Rule 65 requirement that there be no other plain, speedy, and adequate remedy in
law, on the other hand, is more than just a pro-forma requirement in the present case. Since the petitions
for certiorari and prohibition challenge a governmental act - i.e. action under the DOH CDO letters, as well as the validity
of the instruments under which these letters were issued - compliance with Section 1, Rule 65 and the doctrine of
exhaustion of administrative remedies that judicial review requires is also mandatory. To recall a previous discussion, the
exhaustion of administrative remedies is also an aspect of ripeness in deciding a constitutional issue.

Thus, GAMCA's disregard of the Rules of Court not only renders the petition dismissible for failure to first exhaust
administrative remedies; the constitutional issues GAMCA posed before the RTC were not also ripe for adjudication.

5. The Regional Trial Court erred in finding grave abuse of discretion on the part of the DOH's issuance of
the DOH CDO letters.

On the merits, we find that the RTC of Pasay reversibly erred in law when it held that the DOH acted with grave abuse of
discretion m prohibiting GAMCA from implementing the referral decking system.

In exempting GAMCA from the referral decking system that RA No. 10022 prohibits, the RTC of Pasay City noted that the
regulation per se was not unconstitutional, but its application to GAMCA would violate the principle of sovereign equality
and independence.

While we agree with the RTC's ultimate conclusion upholding the constitutionality of the prohibition against the referral
decking system under RA No. 10022, our agreement proceeds from another reason; we disagree that the prohibition does
not apply to GAMCA and with the consequent ruling nullifying the DOH's CDO Letter.

A.5.a. The prohibition against the referral decking system under Section 16, RA No. 10022, is a valid
exercise of police power.

In its comment, GAMCA asserts that implementing the prohibition against the referral decking system would amount to
an undue taking of property that violates Article II, Section 2 of the 1987 Constitution.
It submits that the Securities and Exchange Commission had in fact approved its Articles of Incorporation and Bylaws that
embody the referral decking system; thus, the DOH cannot validly prohibit the implementation of this system.

GAMCA further claims that its members made substantial investments to upgrade their facilities and equipment. From this
perspective, the August 23, 2010 order constitutes taking of property without due process of law as its implementation
would deprive GAMCA members of their property.

AMCOW responded to these claims with the argument that the DOH CDO letters implementing RA No. 10022 are
consistent with the State's exercise of the police power to prescribe regulations to promote the health, safety, and
general welfare of the people. Public interest justifies the State's interference in health matters, since the welfare of
migrant workers is a legitimate public concern. The DOH thus merely performed its duty of upholding the migrant
workers' freedom to consult their chosen clinics for the conduct of health examinations.

We agree with AMCOW.

The State's police power86 is vast and plenary87 and the operation of a business,88 especially one that is imbued with
public interest (such as healthcare services),89 falls within the scope of governmental exercise of police power through
regulation.

As defined, police power includes (1) the imposition of restraint on liberty or property, (2) in order to foster the common
good.90 The exercise of police power involves the "state authority to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare."91

By its very nature, the exercise of the State's police power limits individual rights and liberties, and subjects them to the
"far more overriding demands and requirements of the greater number." 92 Though vast and plenary, this State power also
carries limitations, specifically, it may not be exercised arbitrarily or unreasonably. Otherwise, it defeats the purpose for
which it is exercised, that is, the advancement of the public good. 93

To be considered reasonable, the government's exercise of police power must satisfy the "valid object and valid means"
method of analysis: first, the interest of the public generally, as distinguished from those of a particular class, requires
interference; and second, the means employed are reasonably necessary to attain the objective sought and not unduly
oppressive upon individuals.94

These two elements of reasonableness are undeniably present in Section 16 of RA No. 10022. The prohibition against the
referral decking system is consistent with the State's exercise of the police power to prescribe regulations to promote the
health, safety, and general welfare of the people. Public interest demands State interference on health matters, since the
welfare of migrant workers is a legitimate public concern.

We note that RA No. 10022 expressly reflects the declared State policies to " uphold the dignity of its citizens whether in
the country or overseas, in general, and Filipino migrant workers, " and to "afford full protection to labor, local and
overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.
Towards this end, the State shall provide adequate and timely social, economic and legal services to Filipino migrant
workers." The prohibition against the referral decking system in Section 16 of RA No. 10022 is an expression and
implementation of these state policies.

The guarantee under Section 16 for OFWs to be given the option to choose a quality healthcare service provider as
expressed in Section 16 (c)95 of RA No. 10022 is guaranteed by the prohibition against the decking practice and against
monopoly practices in OFW health examinations.96

Section 16 likewise requires employers to accept health examinations from any DOH-accredited health facility; a refusal
could lead to their temporary disqualification under pertinent rules to be formulated by the Philippine Overseas
Employment Authority (POEA).97

These rules are part of the larger legal framework to ensure the Overseas Filipino Workers' (OFW) access to quality
healthcare services, and to curb existing practices that limit their choices to specific clinics and facilities.

Separately from the Section 16 prohibition against the referral decking system, RA No. 10022 also prohibits and penalizes
the imposition of a compulsory exclusive arrangement requiring OFWs to undergo health examinations only from
specifically designated medical clinics, institutions, entities or persons. Section 5, in relation to Section 6 of RA No. 10022,
penalizes compulsory, exclusive arrangements 98 by imprisonment and fine and by the automatic revocation of the
participating medical clinic's license.

The DOH's role under this framework is to regulate the activities and operations of all clinics conducting health
examinations on Filipino migrant workers as a requirement for their overseas employment. The DOH is tasked to ensure
that:
(c.3) No group or groups of medical clinics shall have a monopoly of exclusively conducting health examinations on
migrant workers for certain receiving countries;

(c.4) Every Filipino migrant worker shall have the freedom to choose any of the DOH-accredited or DOH-operated clinics
that will conduct his/her health examinations and that his or her rights as a patient are respected. The decking practice,
which requires an overseas Filipino worker to go first to an office for registration and then farmed out to a medical clinic
located elsewhere, shall not be allowed;99
While Section 16 of RA No. 10022 does not specifically define the consequences of violating the prohibition against the
referral decking system, Republic Act No. 4226 (Hospital Licensure Act), which governs the licensure and regulation of
hospitals and health facilities, authorizes the DOH to suspend, revoke, or refuse to renew the license of hospitals and
clinics violating the law.100

These consequences cannot but apply to the violation of the prohibition against the referral decking system under RA No.
10022. If, under the law, the DOH can suspend, revoke, or refuse to renew the license of these hospitals upon the finding
that they violated any provision of law (whether those found in RA No. 4226 or in RA No. 10022), it follows- as a
necessarily included lesser power - that the DOH can likewise order these clinics and their association to cease and desist
from practices that the law deems to be undesirable.

A.5.b. The DOH did not gravely abuse its discretion in issuing the assailed DOH CDO letters.

As discussed above, the letter-order implementing the prohibition against the referral decking system is quasi-judicial in
nature. This characteristic requires that procedural due process be observed - that is, that the clinics concerned be given
the opportunity to be heard before the standard found in the law can be applied to them.

Thus, prior to the issuance of the disputed CDO letter, the DOH should have given GAMCA the opportunity to be heard on
whether the prohibition applies to it. Lest this opportunity to be heard be misunderstood, this DOH obligation raises an
issue different from the question of whether Congress can, under the exercise of police power, prohibit the referral
decking system; this latter issue lies outside the scope of the DOH to pass upon. The required hearing before the DOH
relates solely to whether it properly implemented, based on the given standards under the law, the prohibition that
Congress decreed under RA No. 10022.

Under normal circumstances, the issuance of a CDO without a prior hearing would violate GAMCA's procedural due
process rights, and would amount to more than a legal error, i.e., an error equivalent to action without jurisdiction.
Rendering a decision quasi-judicial in nature without providing the opportunity to be heard amounts to a grave abuse of
discretion that divests a quasi-judicial agency of its jurisdiction.

Factual circumstances unique to the present case, however, lead us to conclude that while it was an error of law for the
DOH to issue a CDO without complying with the requirements of procedural due process, its action did not amount to a
grave abuse of discretion.

Grave abuse of discretion amounts to more than an error of law; it refers to an act that is so capricious, arbitrary, and
whimsical that it amounts to a clear evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, as
where the power is exercised in an arbitrary and despotic manner because of passion or hostility. 101

Prior to the issuance of its CDO Letter, the DOH had more than sufficient basis to determine that GAMCA practices the
prohibited referral decking system under RA No. 10022. Notably, the DOH had earlier allowed and recognized the referral
decking system that GAMCA practiced through AO 5-01. This recognition was made with GAMCA's practice in mind. The
subsequent administrative orders and department memorandum suspending and terminating the referral decking system,
respectively, all pertain to the practice that the DOH had authorized under AO 5-01. Even the subject matter of these
issuances do not just pertain to any other referral decking system, but to the "GAMCA referral decking system."

GAMCA likewise had more than several opportunities to contest the suspension and eventual revocation of the referral
decking system initially pe1mitted under AO 5-01. Its appeal even reached the Office of the President, which overturned
the DOH Memorandum Order terminating the referral decking system.

That the referral decking system had been subsequently prohibited by law shows the intent of Congress to prevent and
prohibit the practice that GAMCA initiated and which the President had allowed. The President's duty under our political
system is to implement the law; hence, when Congress subsequently prohibited the practice that GAMCA initiated, the
Executive - including the President -has no choice but to implement it.

Based on these circumstances, while the DOH erred when it issued its CDO letters without first giving GAMCA the
opportunity to prove whether the practice conducted by GAMCA is the same practice prohibited under RA No. 10022, the
DOH conclusion to so act, in our view, did not constitute grave abuse of discretion that would have divested it of
jurisdiction.

We note that the DOH had sufficient basis when it determined that the referral decking system prohibited under RA No.
10022 was the same decking system practiced by GAMCA. To reiterate, the referral decking system was not something
new; it was an old system that GAMCA practiced and was known to all in its scope and operating details. That GAMCA
had previously questioned the DOH prohibition and had been given ample opportunity to be heard when it filed an appeal
before the OP, negate the conclusion that GAMCA had been aggrieved by precipitate and unfair DOH action.

To be sure, these factual circumstances do not make the CDO letter compliant with procedural due process. They
mitigate, however, the error committed and render it less than the capricious, arbitrary, and patent refusal to comply with
a positive legal duty that characterizes an act committed with grave abuse of discretion.
The Court furthermore, in several instances,102 has recognized that an administrative agency may issue an ex parte cease
and desist order, where vital public interests outweigh the need for procedural due process." In these instances, the
Court noted that the affected establishment may contest the ex parteorder, upon which the administrative agency
concerned must conduct a hearing and allow the establishment to be heard. While jurisprudence has so far used the
"vital public interests" standard to pollution cases, it had not been a grave abuse of discretion on the part of the DOH to
consider that GAMCA's referral decking practice falls within this category. The DOH has long made the factual finding that
the referral decking system hinders our Filipino seafarers' access to quality and affordable healthcare in its A.O. No. 106,
series of 2002.

These circumstances further mitigate whatever legal error the DOH has committed and render the conclusion that grave
abuse of discretion had taken place misplaced.

Since the writs of certiorari and prohibition do not issue against legal errors, but to acts of grave abuse of discretion, the
RTC erred in issuing these writs against the DOH CDO letters.

6. The prohibition against the referral decking system against GAMCA does not violate the principle of
sovereign equality and independence.

The RTC based its decision to grant the writs of certiorari and prohibition against the DOH letter-order on the principle of
sovereign equality and independence; applying the referral decking system prohibition against GAMCA violates this
principle.

The RTC reasoned out that the prohibition against the referral decking system under Section 16 of RA No. 10022 must be
interpreted to apply only to clinics conducting health examinations on migrant workers bound for countries that do not
require the referral decking system for the issuance of visas to job applicants.

The RTC observed, too, that the refer al decking system is part of the application procedure in obtaining visas to enter
the GCC States, a procedure made in the exercise of the sovereign power of the GCC States to protect their nationals
from health hazards, and of their diplomatic power to regulate and screen entrants to their territories.

It also reasoned out that under the principle of sovereign equality and independence of States, the Philippines cannot
interfere with this system and in fact must respect the visa-granting procedures of foreign states in the same way that
they respect our immigration procedures. Moreover, to restrain GAMCA which is a mere adjunct of HMC (an agent of GCC
States) is to restrain the GCC States themselves.

AMCOW contests the RTC's conclusion, arguing that the principles of sovereign equality and independence of States do
not apply to the present case. According to AMCOW, the subject matter of this case pertains to a domestic concern as the
law and the regulations that GAMCA assails relate to the operation of medical clinics in the Philippines.

It points out that the Philippines gave GAMCA and its members the privilege of conducting their businesses domestically;
hence, their operations are governed by Philippine laws, specifically by RA No. 10022 which serves as one of the
limitations on the privilege granted to them. GAMCA's right to engage in business should yield to the State's exercise of
police power. In legal contemplation, therefore, the DOH CDO letters did not prejudice GAMCA's right to engage in
business; nor did they hamper the GAMCA members' business operations.

AMCOW further insists that the August 23, 2010 and November 2, 2010 orders are consistent with the State's exercise of
the police power to prescribe regulations to promote the health, safety, and general welfare of the people. Public interest
demands State interference on health matters, since the welfare of migrant workers is a legitimate public concern. The
DOH thus merely performed its duty of upholding the migrant workers' freedom to choose any of its accredited or
operated clinics that will conduct health examinations.

The DOH, for its part, adds that the implementation of RA No. 10022 cannot be defeated by agreements entered into by
GAMCA with the GCC States. The GCC States, the DOH points out, are not empowered to determine the Philippines'
courses of action with respect to the operation, within Philippine territory, of medical clinics; the conduct of health
examinations; and the freedom of choice of Filipino migrant workers.

GAMCA responds to these arguments by asserting that the referral decking system is a part of the application procedure
for obtaining visas to enter the GCC States. Hence, it is an exercise of the sovereign power of the GCC States to protect
their nationals from health hazards, and their diplomatic power to regulate and screen entrants to their territories. To
restrain an agent of the GCC States under the control and acting in accordance with the direction of these GCC States,
restrains the GCC States.

GAMCA also points out that the OFWs would suffer grave and irreparable damage and injury if the DOH CDO letters
would be implemented as the GCC States would not issue working visas without the GAMCA seal attesting that the OFWs
had been medically examined by GAMCA member clinics.

After considering all these arguments, we find that the RTC's decision misapplied the principle of sovereign independence
and equality to the present case. While the principles of sovereign independence and equality have been recognized in
Philippine jurisprudence, our recogmtmn of this principle does not extend to the exemption of States and their affiliates
from compliance with Philippine regulatory laws.
A.6. The principle of sovereign equality and independence of states does not exempt GAMCAfrom the
referral decking system prohibition under RA No. 10022.

In Republic of Indonesia v. Vinzon,103 we recognized the principle of sovereign independence and equality as part of the
law of the land. We used this principle to justify the recognition of the principle of sovereign immunity which exempts the
State - both our Government and foreign governments - from suit. We held:
International law is founded largely upon the principles of reciprocity, comity, independence, and equality of States which
were adopted as part of the law of our land under Article II, Section 2 of the 1987 Constitution. The rule that a State may
not be sued without its consent is a necessary consequence of the principles of independence and equality of States. As
enunciated in Sanders v. Veridiano II, the practical justification for the doctrine of sovereign immunity is that there can be
no legal right against the authority that makes the law on which the right depends. In the case of foreign States, the rule
is derived from the principle of the sovereign equality of States, as expressed in the maxim par in parem non habet
imperium. All states are sovereign equals and cannot assert jurisdiction over one another. A contrary attitude would
"unduly vex the peace of nations."
Our recognition of sovereign immunity, however, has never been unqualified. While we recognized the principles of
independence and equality of States to justify a State's sovereign immunity from suit, we also restricted state immunity to
acts jus imperii, or public acts. We said that once a State enters into commercial transactions ( jus gestionis), then it
descends to the level of a private individual, and is thus not immune from the resulting liability and consequences of its
actions.104

By this recognition, we acknowledge that a foreign government acting in its jus imperii function cannot be held liable in a
Philippine court. Philippine courts, as part of the Philippine government, cannot and should not take jurisdiction over
cases involving the public acts of a foreign government. Taking jurisdiction would amount to authority over a foreign
government, and would thus violate the principle of sovereign independence and equality. 105

This recognition is altogether different from exempting governments whose agents are in the Philippines from complying
with our domestic laws.106 We have yet to declare in a case that the principle of sovereign independence and equality
exempts agents of foreign governments from compliance with the application of Philippine domestic law.

In the present case, GAMCA has not adduced any evidence in the court below, nor has it presented any argument before
us showing that the principle of sovereign equality and independence has developed into an international custom
shielding state agents from compliance with another state's domestic laws. Under this situation, the Court is in no position
to determine whether the practice that GAMCA alleges has indeed crystallized into an international custom.

GAMCA has never proven in this case, too, that the GCC has extended its sovereign immunity to GAMCA. Sovereign
immunity belongs to the State, and it must first be extended to its agents before the latter may be considered to possess
sovereign immunity.

Significantly, the Court has even adopted a restrictive approach in recognizing state immunity, by distinguishing between
a State's jus imperii and jus gestionis. It is only when a State acts in its jus imperii function that we recognize state
immunity.107

We point out furthermore that the prohibition against the referral decking system applies to hospitals and clinics, as well
as to OFW employers, and does not seek to interfere with the GCC's visa requirement processes. RA 10022 prohibits
hospitals and clinics in the Philippines from practicing the referral decking system, and employers from requiring OFWs to
procure their medical examinations from hospitals and clinics practicing the referral decking system.

The regulation applies to Philippine hospitals and clinics, as well as to employers of OFWs. It does not apply to the GCCs
and their visa processes. That the regulation could affect the OFWs' compliance with the visa requirements imposed by
GCCs does not place it outside the regulatory powers of the Philippine government.

In the same manner, GCC states continue to possess the prerogative to apply their visa requirements to any foreign
national, including our OFWs, who seeks to enter their territory; they may refuse to grant them entry for failure to comply
with the referral decking system, or they may adjust to the prohibition against the referral decking system that we have
imposed. These prerogatives lie with the GCC member-states and do not affect at all the legality of the prohibition against
the referral decking system.

Lastly, the effect of the prohibition against the referral decking system is beyond the authority of this Court to consider.
The wisdom of this prohibition has been decided by Congress, through the enactment of RA No. 10022. Our role in this
case is merely to determine whether our government has the authority to enact the law's prohibition against the referral
decking system, and whether this prohibition is being implemented legally. Beyond these lies the realm of policy that,
under our Constitution's separation of powers, this Court cannot cross.

WHEREFORE, in the light of these considerations, we hereby GRANT the petitions. Accordingly, we REVERSE and SET
ASIDE the orders dated August 10, 2012 and April 12, 2013 of the Regional Trial Court of Pasay City, Branch 108, in Sp.
Civil Action No. R-PSY-10-04391-CV.

Costs against respondent GAMCA.

SO ORDERED. cralawlawlibrary

Sereno, C. J., Carpio, Velsco, Jr., Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Perez, Mendoza, Reyes , and Perlas-
Bernabe, JJ., concur.
Leonen, J., In the result. See separate opinion.
Jardeleza,*J., No part prior OSG action.
Caguioa, J., on leave.

EN BANC

G.R. No. 127685 July 23, 1998

BLAS F. OPLE, petitioner,

vs.

RUBEN D. TORRES, ALEXANDER AGUIRRE, HECTOR VILLANUEVA, CIELITO HABITO, ROBERT BARBERS,
CARMENCITA REODICA, CESAR SARINO, RENATO VALENCIA, TOMAS P. AFRICA, HEAD OF THE NATIONAL
COMPUTER CENTER and CHAIRMAN OF THE COMMISSION ON AUDIT, respondents.

PUNO, J.:

The petition at bar is a commendable effort on the part of Senator Blas F. Ople to prevent the shrinking of the right to
privacy, which the revered Mr. Justice Brandeis considered as "the most comprehensive of rights and the right most
valued by civilized men." 1 Petitioner Ople prays that we invalidate Administrative Order No. 308 entitled
"Adoption of a National Computerized Identification Reference System" on two important constitutional
grounds, viz: one, it is a usurpation of the power of Congress to legislate, and two, it impermissibly
intrudes on our citizenry's protected zone of privacy. We grant the petition for the rights sought to be
vindicated by the petitioner need stronger barriers against further erosion.

A.O. No. 308 was issued by President Fidel V. Ramos On December 12, 1996 and reads as follows:

ADOPTION OF A NATIONAL COMPUTERIZED

IDENTIFICATION REFERENCE SYSTEM

WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility
to conveniently transact business with basic service and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services on social security and reduce, if not totally eradicate
fraudulent transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government intrumentalities is required to achieve
such a system;

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue
of the powers vested in me by law, do hereby direct the following:

Sec. 1. Establishment of a National Compoterized Identification Reference System . A

decentralized Identification Reference System among the key basic services and social
security providers is hereby established.

Sec. 2. Inter-Agency Coordinating Committee. An Inter-Agency Coordinating Committee

(IACC) to draw-up the implementing guidelines and oversee the implementation of the
System is hereby created, chaired by the Executive Secretary, with the following as
members:

Head, Presidential Management Staff

Secretary, National Economic Development Authority

 Secretary, Department of the Interior and Local Government

Secretary, Department of Health

Administrator, Government Service Insurance System,

Administrator, Social Security System,

Administrator, National Statistics Office

Managing Director, National Computer Center.

Sec. 3. Secretariat. The National Computer Center (NCC) is hereby designated as secretariat
to the IACC and as such shall provide administrative and technical support to the IACC.

Sec. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the
NSO shall serve as the common reference number to establish a linkage among concerned
agencies. The IACC Secretariat shall coordinate with the different Social Security and
Services Agencies to establish the standards in the use of Biometrics Technology and in
computer application designs of their respective systems.

Sec. 5. Conduct of Information Dissemination Campaign. The Office of the Press Secretary, in
coordination with the National Statistics Office, the GSIS and SSS as lead agencies and other
concerned agencies shall undertake a massive tri-media information dissemination
campaign to educate and raise public awareness on the importance and use of the PRN and
the Social Security Identification Reference.

Sec. 6. Funding. The funds necessary for the implementation of the system shall be sourced
from the respective budgets of the concerned agencies.

Sec. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit regular reports
to the Office of the President through the IACC, on the status of implementation of this
undertaking.

Sec. 8. Effectivity. This Administrative Order shall take effect immediately.

DONE in the City of Manila, this 12th day of December in the year of Our Lord, Nineteen
Hundred and Ninety-Six.

(SGD.) FIDEL V. RAMOS

A.O. No. 308 was published in four newspapers of general circulation on January 22, 1997 and January 23,
1997. On January 24, 1997, petitioner filed the instant petition against respondents, then Executive
Secretary Ruben Torres and the heads of the government agencies, who as members of the Inter-Agency
Coordinating Committee, are charged with the implementation of A.O. No. 308. On April 8, 1997, we issued
a temporary restraining order enjoining its implementation.

Petitioner contends:

A. THE ESTABLISNMENT OF A NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE

SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUANCE OF A.O. NO. 308 BY THE PRESIDENT
OF THE REPUBLIC OF THE PHILIPPINES IS, THEREFORE, AN UNCONSTITUTIONAL
USURPATION OF THE LEGISLATIVE POWERS OF THE CONGRESS OF THE REPUBLIC OF THE
PHILIPPINES.

B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE IMPLEMENTATION

OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF THE EXCLUSIVE RIGHT OF
CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR EXPENDITURE.
 C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE GROUNDWORK FOR A
SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS ENSHRINED IN THE CONSTITUTION. 2

Respondents counter-argue:

A. THE INSTANT PETITION IS NOT A JUSTICIABLE CASE AS WOULD WARRANT A JUDICIAL

REVIEW;

B. A.O. NO. 308 [1996] WAS ISSUED WITHIN THE EXECUTIVE AND ADMINISTRATIVE
POWERS OF THE PRESIDENT WITHOUT ENCROACHING ON THE LEGISLATIVE POWERS OF
CONGRESS;

C. THE FUNDS NECESSARY FOR THE IMPLEMENTATION OF THE IDENTIFICATION

REFERENCE SYSTEM MAY BE SOURCED FROM THE BUDGETS OF THE CONCERNED AGENCIES;

D. A.O. NO. 308 [1996] PROTECTS AN INDIVIDUAL'S INTEREST IN PRIVACY. 3

We now resolve.

As is usual in constitutional litigation, respondents raise the threshold issues relating to the standing to
sue of the petitioner and the justiciability of the case at bar. More specifically, respondents aver that
petitioner has no legal interest to uphold and that the implementing rules of A.O. No. 308 have yet to be
promulgated.

These submissions do not deserve our sympathetic ear. Petitioner Ople is a distinguished member of our
Senate. As a Senator, petitioner is possessed of the requisite standing to bring suit raising the issue that
the issuance of A.O. No. 308 is a usurpation of legislative power. 4 As taxpayer and member of the
Government Service Insurance System (GSIS), petitioner can also impugn the legality of the misalignment
of public funds and the misuse of GSIS funds to implement A.O. No. 308. 5

The ripeness for adjudication of the Petition at bar is not affected by the fact that the implementing rules
of A.O. No. 308 have yet to be promulgated. Petitioner Ople assails A.O. No. 308 as invalid per se and as
infirmed on its face. His action is not premature for the rules yet to be promulgated cannot cure its fatal
defects. Moreover, the respondents themselves have started the implementation of A.O. No. 308 without
waiting for the rules. As early as January 19, 1997, respondent Social Security System (SSS) caused the
publication of a notice to bid for the manufacture of the National Identification (ID) card. 6 Respondent
Executive Secretary Torres has publicly announced that representatives from the GSIS and the SSS have
completed the guidelines for the national identification system. 7 All signals from the respondents show
their unswerving will to implement A.O. No. 308 and we need not wait for the formality of the rules to pass
judgment on its constitutionality. In this light, the dissenters insistence that we tighten the rule on
standing is not a commendable stance as its result would be to throttle an important constitutional
principle and a fundamental right.

II

We now come to the core issues. Petitioner claims that A.O. No. 308 is not a mere administrative order but
a law and hence, beyond the power of the President to issue. He alleges that A.O. No. 308 establishes a
system of identification that is all-encompassing in scope, affects the life and liberty of every Filipino
citizen and foreign resident, and more particularly, violates their right to privacy.

Petitioner's sedulous concern for the Executive not to trespass on the lawmaking domain of Congress is
understandable. The blurring of the demarcation line between the power of the Legislature to make laws
and the power of the Executive to execute laws will disturb their delicate balance of power and cannot be
allowed. Hence, the exercise by one branch of government of power belonging to another will be given a
stricter scrutiny by this Court.

The line that delineates Legislative and Executive power is not indistinct. Legislative power is "the
authority, under the Constitution, to make laws, and to alter and repeal them." 8 The Constitution, as the
will of the people in their original, sovereign and unlimited capacity, has vested this power in the Congress
of the Philippines. 9 The grant of legislative power to Congress is broad, general and comprehensive. 10 The
legislative body possesses plenary power for all purposes of civil government. 11 Any power, deemed to be
legislative by usage and tradition, is necessarily possessed by Congress, unless the Constitution has lodged
it elsewhere. 12 In fine, except as limited by the Constitution, either expressly or impliedly, legislative
power embraces all subjects and extends to matters of general concern or common interest. 13
While Congress is vested with the power to enact laws, the President executes the laws. 14 The executive
power is vested in the Presidents. 15 It is generally defined as the power to enforce and administer the
laws. 16 It is the power of carrying the laws into practical operation and enforcing their due observance. 17

As head of the Executive Department, the President is the Chief Executive. He represents the government
as a whole and sees to it that all laws are enforced by the officials and employees of his department. 18 He
has control over the executive department, bureaus and offices. This means that he has the authority to
assume directly the functions of the executive department, bureau and office or interfere with the
discretion of its officials.19 Corollary to the power of control, the President also has the duty of supervising
the enforcement of laws for the maintenance of general peace and public order. Thus, he is granted
administrative power over bureaus and offices under his control to enable him to discharge his duties
effectively. 20

Administrative power is concerned with the work of applying policies and enforcing orders as determined
by proper governmental organs. 21 It enables the President to fix a uniform standard of administrative
efficiency and check the official conduct of his agents. 22 To this end, he can issue administrative orders,
rules and regulations.

Prescinding from these precepts, we hold that A.O. No. 308 involves a subject that is not appropriate to be
covered by an administrative order. An administrative order is:

Sec. 3. Administrative Orders. Acts of the President which relate to particular aspects of
governmental operation in pursuance of his duties as administrative head shall be
promulgated in administrative orders. 23

An administrative order is an ordinance issued by the President which relates to specific aspects in
the administrative operation of government. It must be in harmony with the law and should be for
the sole purpose of implementing the law and carrying out the legislative policy. 24 We reject the
argument that A.O. No. 308 implements the legislative policy of the Administrative Code of 1987.
The Code is a general law and "incorporates in a unified document the major structural, functional
and procedural principles of governance." 25 and "embodies changes in administrative structure and
procedures designed to serve the
people." 26 The Code is divided into seven (7) Books: Book I deals with Sovereignty and General
Administration, Book II with the Distribution of Powers of the three branches of Government, Book
III on the Office of the President, Book IV on the Executive Branch, Book V on Constitutional
Commissions, Book VI on National Government Budgeting, and Book VII on Administrative
Procedure. These Books contain provisions on the organization, powers and general administration
of the executive, legislative and judicial branches of government, the organization and
administration of departments, bureaus and offices under the executive branch, the organization
and functions of the Constitutional Commissions and other constitutional bodies, the rules on the
national government budget, as well as guideline for the exercise by administrative agencies of
quasi-legislative and quasi-judicial powers. The Code covers both the internal administration of
government, i.e, internal organization, personnel and recruitment, supervision and discipline, and
the effects of the functions performed by administrative officials on private individuals or parties
outside government. 27

It cannot be simplistically argued that A.O. No. 308 merely implements the Administrative Code of 1987. It
establishes for the first time a National Computerized Identification Reference System. Such a System
requires a delicate adjustment of various contending state policies the primacy of national security, the
extent of privacy interest against dossier-gathering by government, the choice of policies, etc. Indeed, the
dissent of Mr. Justice Mendoza states that the A.O. No. 308 involves the all-important freedom of thought.
As said administrative order redefines the parameters of some basic rights of our citizenry vis-a-vis the
State as well as the line that separates the administrative power of the President to make rules and the
legislative power of Congress, it ought to be evident that it deals with a subject that should be covered by
law.

Nor is it correct to argue as the dissenters do that A.D. No. 308 is not a law because it confers no right,
imposes no duty, affords no proctection, and creates no office. Under A.O. No. 308, a citizen cannot
transact business with government agencies delivering basic services to the people without the
contemplated identification card. No citizen will refuse to get this identification card for no one can avoid
dealing with government. It is thus clear as daylight that without the ID, a citizen will have difficulty
exercising his rights and enjoying his privileges. Given this reality, the contention that A.O. No. 308 gives
no right and imposes no duty cannot stand.

Again, with due respect, the dissenting opinions unduly expand the limits of administrative legislation and
consequently erodes the plenary power of Congress to make laws. This is contrary to the established
approach defining the traditional limits of administrative legislation. As well stated by Fisher: ". . . Many
regulations however, bear directly on the public. It is here that administrative legislation must he
restricted in its scope and application. Regulations are not supposed to be a substitute for the general
policy-making that Congress enacts in the form of a public law. Although administrative regulations are
entitled to respect, the authority to prescribe rules and regulations is not an independent source of power
to make laws." 28

III

Assuming, arguendo, that A.O. No. 308 need not be the subject of a law, still it cannot pass constitutional
muster as an administrative legislation because facially it violates the right to privacy. The essence of
privacy is the "right to be let alone." 29 In the 1965 case of Griswold v. Connecticut, 30 the United States
Supreme Court gave more substance to the right of privacy when it ruled that the right has a constitutional
foundation. It held that there is a right of privacy which can be found within the penumbras of the First,
Third, Fourth, Fifth and Ninth Amendments, 31 viz:

Specific guarantees in the Bill of Rights have penumbras formed by emanations from these
guarantees that help give them life and substance . . . various guarantees create zones of
privacy. The right of association contained in the penumbra of the First Amendment is one,
as we have seen. The Third Amendment in its prohibition against the quartering of soldiers
"in any house" in time of peace without the consent of the owner is another facet of that
privacy. The Fourth Amendment explicitly affirms the ''right of the people to be secure in
their persons, houses and effects, against unreasonable searches and seizures." The Fifth
Amendment in its Self-Incrimination Clause enables the citizen to create a zone of privacy
which government may not force him to surrender to his detriment. The Ninth Amendment
provides: "The enumeration in the Constitution, of certain rights, shall not be construed to
deny or disparage others retained by the people."

In the 1968 case of Morfe v. Mutuc, 32 we adopted the Griswold ruling that there is a constitutional
right to privacy. Speaking thru Mr. Justice, later Chief Justice, Enrique Fernando, we held:

xxx xxx xxx

The Griswold case invalidated a Connecticut statute which made the use of contraceptives a
criminal offence on the ground of its amounting to an unconstitutional invasion of the right
of privacy of married persons; rightfully it stressed "a relationship lying within the zone of
privacy created by several fundamental constitutional guarantees." It has wider implications
though. The constitutional right to privacy has come into its own.

So it is likewise in our jurisdiction. The right to privacy as such is accorded recognition

independently of its identification with liberty; in itself, it is fully deserving of constitutional
protection. The language of Prof. Emerson is particularly apt: "The concept of limited
government has always included the idea that governmental powers stop short of certain
intrusions into the personal life of the citizen. This is indeed one of the basic distinctions
between absolute and limited government. Ultimate and pervasive control of the individual,
in all aspects of his life, is the hallmark of the absolute state. In contrast, a system of limited
government safeguards a private sector, which belongs to the individual, firmly
distinguishing it from the public sector, which the state can control. Protection of this
private sector protection, in other words, of the dignity and integrity of the individual
has become increasingly important as modern society has developed. All the forces of a
technological age industrialization, urbanization, and organization operate to narrow
the area of privacy and facilitate intrusion into it. In modern terms, the capacity to maintain
and support this enclave of private life marks the difference between a democratic and a
totalitarian society."

Indeed, if we extend our judicial gaze we will find that the right of privacy is recognized and enshrined in
several provisions of our Constitution. 33 It is expressly recognized in section 3 (1) of the Bill of Rights:

Sec. 3. (1) The privacy of communication and correspondence shall be inviolable except upon
lawful order of the court, or when public safety or order requires otherwise as prescribed by
law.

Other facets of the right to privacy are protectad in various provisions of the Bill of Rights, viz: 34

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 the laws.

Sec. 2. The right of the people to be secure in their persons, houses papers, and effects
against unreasonable searches and seizures of whatever nature and for any purpose shall be
inviolable, and no search warrant or warrant of arrest shall issue except upon probable
cause to be determined personally by the judge after examination under oath or affirmation
 of the complainant and the witnesses he may produce, and particularly describing the place
to be searched and the persons or things to be seized.

xxx xxx xxx

Sec. 6. The liberty of abode and of changing the same within the limits prescribed by law
shall not be impaired except upon lawful order of the court. Neither shall the right to travel
be impaired except in the interest of national security, public safety, or public health as may
be provided by law.

xxx xxx xxx

Sec. 8. The right of the people, including those employed in the public and private sectors, to
form unions, associations, or societies for purposes not contrary to law shall not be
abridged.

Sec. 17. No person shall be compelled to be a witness against himself.

Zones of privacy are likewise recognized and protected in our laws. The Civil Code provides that "[e]very
person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other
persons" and punishes as actionable torts several acts by a person of meddling and prying into the privacy
of another. 35 It also holds a public officer or employee or any private individual liable for damages for any
violation of the rights and liberties of another person, 36 and recognizes the privacy of letters and other
private communications. 37 The Revised Penal Code makes a crime the violation of secrets by an
officer, 38the revelation of trade and industrial secrets, 39 and trespass to dwelling. 40 Invasion of privacy is
an offense in special laws like the Anti-Wiretapping Law, 41 the Secrecy of Bank Deposits Act 42 and the
Intellectual Property Code. 43 The Rules of Court on privileged communication likewise recognize the
privacy of certain information. 44

Unlike the dissenters, we prescind from the premise that the right to privacy is a fundamental right
guaranteed by the Constitution, hence, it is the burden of government to show that A.O. No. 308 is justified
by some compelling state interest and that it is narrowly drawn. A.O. No. 308 is predicated on two
considerations: (1) the need to provides our citizens and foreigners with the facility to conveniently
transact business with basic service and social security providers and other government instrumentalities
and (2) the need to reduce, if not totally eradicate, fraudulent transactions and misrepresentations by
persons seeking basic services. It is debatable whether these interests are compelling enough to warrant
the issuance of A.O. No. 308. But what is not arguable is the broadness, the vagueness, the overbreadth of
A.O. No. 308 which if implemented will put our people's right to privacy in clear and present danger.

The heart of A.O. No. 308 lies in its Section 4 which provides for a Population Reference Number (PRN) as a
"common reference number to establish a linkage among concerned agencies" through the use of
"Biometrics Technology" and "computer application designs."

Biometry or biometrics is "the science of the applicatin of statistical methods to biological facts; a
mathematical analysis of biological data." 45 The term "biometrics" has evolved into a broad category of
technologies which provide precise confirmation of an individual's identity through the use of the
individual's own physiological and behavioral characteristics. 46 A physiological characteristic is a relatively
stable physical characteristic such as a fingerprint, retinal scan, hand geometry or facial features. A
behavioral characteristic is influenced by the individual's personality and includes voice print, signature
and keystroke. 47 Most biometric idenfication systems use a card or personal identificatin number (PIN) for
initial identification. The biometric measurement is used to verify that the individual holding the card or
entering the PIN is the legitimate owner of the card or PIN. 48

A most common form of biological encoding is finger-scanning where technology scans a fingertip and
turns the unique pattern therein into an individual number which is called a biocrypt. The biocrypt is stored
in computer data banks 49 and becomes a means of identifying an individual using a service. This
technology requires one's fingertip to be scanned every time service or access is provided. 50 Another
method is the retinal scan. Retinal scan technology employs optical technology to map the capillary pattern
of the retina of the eye. This technology produces a unique print similar to a finger print. 51 Another
biometric method is known as the "artificial nose." This device chemically analyzes the unique combination
of substances excreted from the skin of people. 52 The latest on the list of biometric achievements is the
thermogram. Scientists have found that by taking pictures of a face using infra-red cameras, a unique heat
distribution pattern is seen. The different densities of bone, skin, fat and blood vessels all contribute to the
individual's personal "heat signature." 53

In the last few decades, technology has progressed at a galloping rate. Some science fictions are now
science facts. Today, biometrics is no longer limited to the use of fingerprint to identify an individual. It is a
new science that uses various technologies in encoding any and all biological characteristics of an
individual for identification. It is noteworthy that A.O. No. 308 does not state what specific biological
characteristics and what particular biometrics technology shall be used to identify people who will seek its
coverage. Considering the banquest of options available to the implementors of A.O. No. 308, the fear that
it threatens the right to privacy of our people is not groundless.

A.O. No. 308 should also raise our antennas for a further look will show that it does not state whether
encoding of data is limited to biological information alone for identification purposes. In fact, the Solicitor
General claims that the adoption of the Identification Reference System will contribute to the "generation
of population data for development planning." 54 This is an admission that the PRN will not be used solely
for identification but the generation of other data with remote relation to the avowed purposes of A.O. No.
308. Clearly, the indefiniteness of A.O. No. 308 can give the government the roving authority to store and
retrieve information for a purpose other than the identification of the individual through his PRN.

The potential for misuse of the data to be gathered under A.O. No. 308 cannot be undarplayed as the
dissenters do. Pursuant to said administrative order, an individual must present his PRN everytime he
deals with a government agency to avail of basic services and security. His transactions with the
government agency will necessarily be recorded whether it be in the computer or in the documentary
file of the agency. The individual's file may include his transactions for loan availments, income tax
returns, statement of assets and liabilities, reimbursements for medication, hospitalization, etc. The more
frequent the use of the PRN, the better the chance of building a huge formidable informatin base through
the electronic linkage of the files. 55 The data may be gathered for gainful and useful government
purposes; but the existence of this vast reservoir of personal information constitutes a covert invitation to
misuse, a temptation that may be too great for some of our authorities to resist. 56

We can even grant, arguendo, that the computer data file will be limited to the name, address and other
basic personal infomation about the individual. 57 Even that hospitable assumption will not save A.O. No.
308 from constitutional infirmity for again said order does not tell us in clear and categorical terms how
these information gathered shall he handled. It does not provide who shall control and access the data,
under what circumstances and for what purpose. These factors are essential to safeguard the privacy and
guaranty the integrity of the information. 58 Well to note, the computer linkage gives other government
agencies access to the information. Yet, there are no controls to guard against leakage of information.
When the access code of the control programs of the particular computer system is broken, an intruder,
without fear of sanction or penalty, can make use of the data for whatever purpose, or worse, manipulate
the data stored within the system. 59

It is plain and we hold that A.O. No. 308 falls short of assuring that personal information which will be
gathered about our people will only be processed for unequivocally specified purposes. 60 The lack of
proper safeguards in this regard of A.O. No. 308 may interfere with the individual's liberty of abode and
travel by enabling authorities to track down his movement; it may also enable unscrupulous persons to
access confidential information and circumvent the right against self-incrimination; it may pave the way
for "fishing expeditions" by government authorities and evade the right against unreasonable searches and
seizures. 61 The possibilities of abuse and misuse of the PRN, biometrics and computer technology are
accentuated when we consider that the individual lacks control over what can be read or placed on his ID,
much less verify the correctness of the data encoded. 62 They threaten the very abuses that the Bill of
Rights seeks to prevent. 63

The ability of sophisticated data center to generate a comprehensive cradle-to-grave dossier on an

individual and transmit it over a national network is one of the most graphic threats of the computer
revolution. 64 The computer is capable of producing a comprehensive dossier on individuals out of
information given at different times and for varied purposes. 65 It can continue adding to the stored data
and keeping the information up to date. Retrieval of stored date is simple. When information of a
privileged character finds its way into the computer, it can be extracted together with other data on the
subject. 66Once extracted, the information is putty in the hands of any person. The end of privacy begins.

Though A.O. No. 308 is undoubtedly not narrowly drawn, the dissenting opinions would dismiss its danger
to the right to privacy as speculative and hypothetical. Again, we cannot countenance such a laidback
posture. The Court will not be true to its role as the ultimate guardian of the people's liberty if it would not
immediately smother the sparks that endanger their rights but would rather wait for the fire that could
consume them.

We reject the argument of the Solicitor General that an individual has a reasonable expectation of privacy
with regard to the Natioal ID and the use of biometrics technology as it stands on quicksand. The
reasonableness of a person's expectation of privacy depends on a two-part test: (1) whether by his
conduct, the individual has exhibited an expectation of privacy; and (2) whether this expectation is one
that society recognizes as reasonable. 67 The factual circumstances of the case determines the
reasonableness of the expectation. 68 However, other factors, such as customs, physical surroundings and
practices of a particular activity, may serve to create or diminish this expectation. 69 The use of biometrics
and computer technology in A.O. No. 308 does not assure the individual of a reasonable expectation of
privacy. 70 As technology advances, the level of reasonably expected privacy decreases. 71 The measure of
protection granted by the reasonable expectation diminishes as relevant technology becomes more widely
accepted. 72 The security of the computer data file depends not only on the physical inaccessibility of the
file but also on the advances in hardware and software computer technology. A.O. No. 308 is so widely
drawn that a minimum standard for a reasonable expectation of privacy, regardless of technology used,
cannot be inferred from its provisions.

The rules and regulations to be by the IACC cannot remedy this fatal defect. Rules and regulations merely
implement the policy of the law or order. On its face, A.O. No. gives the IACC virtually infettered discretion
to determine the metes and bounds of the ID System.

Nor do your present laws prvide adequate safeguards for a reasonable expectation of privacy.
Commonwealth Act. No. 591 penalizes the disclosure by any person of data furnished by the individual to
the NSO with imprisonment and fine. 73 Republic Act. No. 1161 prohibits public disclosure of SSS
employment records and reports. 74 These laws, however, apply to records and data with the NSO and the
SSS. It is not clear whether they may be applied to data with the other government agencies forming part
of the National ID System. The need to clarify the penal aspect of A.O. No. 308 is another reason why its
enactment should be given to Congress.

Next, the Solicitor General urges us to validate A.O. No. 308's abridgment of the right of privacy by using
the rational relationship test. 75 He stressed that the purposes of A.O. No. 308 are: (1) to streamline and
speed up the implementation of basic government services, (2) eradicate fraud by avoiding duplication of
services, and (3) generate population data for development planning. He cocludes that these purposes
justify the incursions into the right to privacy for the means are rationally related to the end. 76

We are not impressed by the argument. In Morfe v. Mutuc, 77 we upheld the constitutionality of R.A. 3019,
the Anti-Graft and Corrupt Practices Act, as a valid police power measure. We declared that the law, in
compelling a public officer to make an annual report disclosing his assets and liabilities, his sources of
income and expenses, did not infringe on the individual's right to privacy. The law was enacted to promote
morality in public administration by curtailing and minimizing the opportunities for official corruption and
maintaining a standard of honesty in the public service. 78

The same circumstances do not obtain in the case at bar. For one, R.A. 3019 is a statute, not an
administrative order. Secondly, R.A. 3019 itself is sufficiently detailed. The law is clear on what practices
were prohibited and penalized, and it was narrowly drawn to avoid abuses. IN the case at bar, A.O. No. 308
may have been impelled by a worthy purpose, but, it cannot pass constitutional scrutiny for it is not
narrowly drawn. And we now hod that when the integrity of a fundamental right is at stake, this court will
give the challenged law, administrative order, rule or regulation a stricter scrutiny. It will not do for the
authorities to invoke the presumption of regularity in the performance of official duties. Nor is it enough
for the authorities to prove that their act is not irrational for a basic right can be diminished, if not
defeated, even when the government does not act irrationally. They must satisfactorily show the presence
of compelling state interests and that the law, rule or regulation is narrowly drawn to preclude abuses.
This approach is demanded by the 1987 Constitution whose entire matrix is designed to protect human
rights and to prevent authoritarianism. In case of doubt, the least we can do is to lean towards the stance
that will not put in danger the rights protected by the Constitutions.

The case of Whalen v. Roe 79 cited by the Solicitor General is also off-line. In Whalen, the United States
Supreme Court was presented with the question of whether the State of New York could keep a centralized
computer record of the names and addresses of all persons who obtained certain drugs pursuant to a
doctor's prescription. The New York State Controlled Substance Act of 1972 required physicians to identify
parties obtaining prescription drugs enumerated in the statute, i.e., drugs with a recognized medical use
but with a potential for abuse, so that the names and addresses of the patients can be recorded in a
centralized computer file of the State Department of Health. The plaintiffs, who were patients and doctors,
claimed that some people might decline necessary medication because of their fear that the computerized
data may be readily available and open to public disclosure; and that once disclosed, it may stigmatize
them as drug addicts. 80 The plaintiffs alleged that the statute invaded a constitutionally protected zone of
privacy, i.e., the individual interest in avoiding disclosure of personal matters, and the interest in
independence in making certain kinds of important decisions. The U.S. Supreme Court held that while an
individual's interest in avoiding disclosuer of personal matter is an aspect of the right to privacy, the
statute did not pose a grievous threat to establish a constitutional violation. The Court found that the
statute was necessary to aid in the enforcement of laws designed to minimize the misuse of dangerous
drugs. The patient-identification requirement was a product of an orderly and rational legislative decision
made upon recommmendation by a specially appointed commission which held extensive hearings on the
matter. Moreover, the statute was narrowly drawn and contained numerous safeguards against
indiscriminate disclosure. The statute laid down the procedure and requirements for the gathering, storage
and retrieval of the informatin. It ebumerated who were authorized to access the data. It also prohibited
public disclosure of the data by imposing penalties for its violation. In view of these safeguards, the
infringement of the patients' right to privacy was justified by a valid exercise of police power. As we
discussed above, A.O. No. 308 lacks these vital safeguards.
Even while we strike down A.O. No. 308, we spell out in neon that the Court is not per se agains the use of
computers to accumulate, store, process, retvieve and transmit data to improve our bureaucracy.
Computers work wonders to achieve the efficiency which both government and private industry seek.
Many information system in different countries make use of the computer to facilitate important social
objective, such as better law enforcement, faster delivery of public services, more efficient management of
credit and insurance programs, improvement of telecommunications and streamlining of financial
activities. 81 Used wisely, data stored in the computer could help good administration by making accurate
and comprehensive information for those who have to frame policy and make key decisions. 82 The benefits
of the computer has revolutionized information technology. It developed the internet, 83 introduced the
concept of cyberspace 84 and the information superhighway where the individual, armed only with his
personal computer, may surf and search all kinds and classes of information from libraries and databases
connected to the net.

In no uncertain terms, we also underscore that the right to privacy does not bar all incursions into
individual privacy. The right is not intended to stifle scientific and technological advancements that
enhance public service and the common good. It merely requires that the law be narrowly focused 85 and a
compelling interest justify such intrusions. 86 Intrusions into the right must be accompanied by proper
safeguards and well-defined standards to prevent unconstitutional invasions. We reiterate that any law or
order that invades individual privacy will be subjected by this Court to strict scrutiny. The reason for this
stance was laid down in Morfe v. Mutuc, to wit:

The concept of limited government has always included the idea that governmental powers
stop short of certain intrusions into the personal life of the citizen. This is indeed one of the
basic disctinctions between absolute and limited government. Ultimate and pervasive
control of the individual, in all aspects of his life, is the hallmark of the absolute state. In
contrast, a system of limited government safeguards a private sector, which belongs to the
individual, firmly distinguishing it from the public sector, which the state can control.
Protection of this private sector protection, in other words, of the dignity and integrity of
the individual has become increasingly important as modern society has developed. All the
forces of a technological age industrialization, urbanization, and organization operate to
narrow the area of privacy and facilitate intrusion into it. In modern terms, the capacity to
maintain and support this enclave of private life marks the difference between a democratic
and a totalitarian society. 87

IV

The right to privacy is one of the most threatened rights of man living in a mass society. The threats
emanate from various sources governments, journalists, employers, social scientists, etc. 88 In th case at
bar, the threat comes from the executive branch of government which by issuing A.O. No. 308 pressures
the people to surrender their privacy by giving information about themselves on the pretext that it will
facilitate delivery of basic services. Given the record-keeping power of the computer, only the indifferent
fail to perceive the danger that A.O. No. 308 gives the government the power to compile a devastating
dossier against unsuspecting citizens. It is timely to take note of the well-worded warning of Kalvin, Jr.,
"the disturbing result could be that everyone will live burdened by an unerasable record of his past and his
limitations. In a way, the threat is that because of its record-keeping, the society will have lost its benign
capacity to forget." 89 Oblivious to this counsel, the dissents still say we should not be too quick in labelling
the right to privacy as a fundamental right. We close with the statement that the right to privacy was not
engraved in our Constitution for flattery.

IN VIEW WHEREOF, the petition is granted and Adminisrative Order No. 308 entitled "Adoption of a
National Computerized Identification Reference System" declared null and void for being unconstitutional.

SO ORDERED.

Bellosillo and Martinez, JJ., concur.

Narvasa, C.J., I join Justices Kapunan and Mendoza in their dissents.

Regalado, J., In the result.

Davide, Jr., In the result and I join Mr. Justice Panganiban in his separate opinion.

Romero, J., Please see separate opinion.

Melo, J., I join the dissents of Justices Kapunan and Mendoza.

Vitug, J., See separate opinion.

Kapunan, J., See dissenting opinion.

Mendoza, J., Please see dissenting opinion.

Panganiban, J., Please see Separate Opinion.

Quisumbing, J., I join in dissenting opinion of JJ. Mendoza and Kapunan.

Purisima, J., I join in Justice Mendoza's dissenting.

Separate Opinions

ROMERO, J., separate opinion;

What marks offs man from a beast?

Aside from the distinguishing physical characteristics, man is a rational being, one who is endowed with
intellect which allows him to apply reasoned judgment to problems at hand; he has the innate spiritual
faculty which can tell, not only what is right but, as well, what is moral and ethical. Because of his
sensibilities, emotions and feelings, he likewise possesses a sense of shame. In varying degrees as dictated
by diverse cultures, he erects a wall between himself and the outside world wherein he can retreat in
solitude, protecting himself from prying eyes and ears and their extensions, whether form individuals, or
much later, from authoritarian intrusions.

Piercing through the mists of time, we find the original Man and Woman defying the injunction of God by
eating of the forbidden fruit in the Garden. And when their eyes were "opened" forthwith "they sewed fig
leaves together, and made themselves aprons." 1 Down the corridors of time, we find man fashioning "fig
leaves" of sorts or setting up figurative walls, the better to insulate themselves from the rest of humanity.

Such vague stirrings of the desire "to be left alone," considered "anti-social" by some, led to the
development of the concept of "privacy," unheard of among beasts. Different branches of science, have
made their own studies of this craving of the human spirit psychological, anthropological sociological
and philosophical, with the legal finally giving its imprimatur by elevating it to the status ofa right,
specifically a private right.

Initially recognized as an aspect of tort law, it created giant waves in legal circles with the publication in
the Harvard Law Review 2 of the trail-blazing article, "The Right to Privacy," by Samuel D. Warren and
Louis D. Brandeis.

Whether viewed as a personal or a property right, it found its way in Philippine Constitutions and statutes;
this, in spite of the fact that Philippine culture can hardly be said to provide a fertile field for the
burgeoning of said right. In fact, our lexicographers have yet to coin a word for it in the Filipino language.
Customs and practices, being what they have always been, Filipinos think it perfectly natural and in good
taste to inquire into each other's intimate affairs.

One has only to sit through a televised talk show to be convinced that what passes for wholesome
entertainment is actually an invasion into one's private life, leaving the interviewee embarrassed and
outraged by turns.

With the overarching influence of common law and the recent advent of the Information Age with its high-
tech devices, the right to privacy has expanded to embrace its public law aspect. The Bill of Rights of our
evolving Charters, a direct transplant from that of the United States, contains in essence facets of the right
to privacy which constitute limitations on the far-reaching powers of government.

So terrifying are the possibilities of a law such as Administrative Order No. 308 in making inroads into the
private lives of the citizens, a virtual Big Brother looking over our shoulder, that it must, without delay, be
"slain upon sight" before our society turns totalitarian with each of us, a mindless robot.

I, therefore, VOTE for the nullification of A.O. No. 308.

VITUG, J., separate opinion;

One can appreciate the concern expressed by my esteemed colleague, Mr. Justice Reynato S. Puno,
echoing that of the petitioner, the Honorable Blas F. Ople, on the issuance of Administrative Order No. 308
by the President of the Philippines and the dangers its implementation could bring. I find it hard,
nevertheless, to peremptorily assume at this time that the administrative order will be misused and to
thereby ignore the possible benefits that can be derived from, or the merits of, a nationwide computerized
identification reference system. The great strides and swift advances in technology render it inescapable
that one day we will, at all events, have to face up with the reality of seeing extremely sophisticated
methods of personal identification and any attempt to stop the inevitable may either be short-lived or even
futile. The imperatives, I believe, would instead be to now install specific safeguards and control measures
that may be calculated best to ward-off probable ill effects of any such device. Here, it may be apropos to
recall the pronouncement of this Court in People vs. Nazario 1 that

As a rule, a statute or [an] act may be said to be vague when it lacks comprehensible
standards that men "of common intelligence must necessarily guess at its meaning and
differ as to its application." It is repugnant to the Constitution in two respects: (1) it violates
due process for failure to accord persons, especially the parties targeted by it, fair notice of
the conduct to avoid; and (2) it leaves law enforcers unbridled discretion in carrying out its
provisions and becomes an arbitrary flexing of the Government muscle. 2

Administrative Order No. 308 appears to be so extensively drawn that could, indeed, allow
unbridled options to become available to its implementors beyond the reasonable comfort of the
citizens and of residents alike.

Prescinding from the foregoing, and most importantly to this instance, the subject covered by the
questioned administrative order can have far-reaching consequences that can tell on all individuals, their
liberty and privacy, that, to my mind, should make it indispensable and appropriate to have the matter
specifically addressed by the Congress of the Philippines, the policy-making body of our government, to
which the task should initially belong and to which the authority to formulate and promulgate that policy is
constitutionally lodged.

WHEREFORE, I vote for the nullification of Administrative Order No. 308 for being an undue and
impermissible exercise of legislative power by the Executive.

PANGANIBAN, J., separate opinion;

I concur only in the result and only on the ground that an executive issuance is not legally sufficient to
establish an all-encompassing computerized system of identification in the country. The subject matter
contained in AO 308 is beyond the powers of the President to regulate without a legislative enactment.

I reserve judgmeht on the issue of wherher a national ID system is an infringement of the constitutional
right to privacy or the freedom of thought until after Congress passes, if ever, a law to this effect. Only
then, and upon the filing of a proper petition, may the provisions of the statute be scrutinized by the
judiciary to determine their constitutional foundation. Until such time, the issue is premature; and any
decision thereon, speculative and academic. 1

Be that as it may, the scholarly discussions of Justices Romero, Puno, Kapunan and Mendoza on the
constitutional right to privacy and freedom of thought may stil become useful guides to our lawmakers,
when and if Congress should deliberate on a bill establishing a national identification system.

Let it be noted that this Court, as shown by the voting of the justices, has not definitively ruled on these
points. The voting is decisive only on the need for the appropriate legislation, and it is only on this ground
that the petition is granted by this Court.

KAPUNAN, J., dissenting opinion;

The pioneering efforts of the executive to adopt a national computerized identification reference system
has met fierce opposition. It has spun dark predictions of sinister government ploys to tamper with the
citizen's right to privacy and ominous forecasts of a return to authoritarianism. Lost in the uproar,
however, is the simple fact that there is nothing in the whole breadth and lenght of Administrative Order
No. 308 that suggests a taint constitutional infirmity.
A.O. No. 308 issued by President Fidel V. Ramos on 12 December 1996 reads:

ADMTNISTRATIVE ORDER NO. 308

ADOPTION OF A NATIONAL COMPUTERIZED

IDENTIFICATION REFERENCE SYSTEM

WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility
to conveniently transact business with basic services and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services and social security and reduce, if not totally eradicate,
fraudulent transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government instrumentalities is required to achieve
such a system;

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Repubic of the Philippines, by virtue
of the powers vested in me by law, do hereby direct the following:

Sec. 1 Establishment of a National Computerized Identification Reference System . A

decentralized Identification Reference System among the key basic services and social
security providers is hereby established.

Sec. 2. Inter-Agency Coordinating Committee. An Inter-Agency Coordinating Committee

(IACC) to draw-up the implementing guidelines and oversee the implementation of the
System is hereby created, chaired by the Executive Secretary, with the following as
members:

Head Presidential Management Staff

Secretary, National Economic Development Authority

Secretary, Department of the Interior and Local Government

Secretary, Department of Health

Administrator, Government Service Insurance System

Administrator, Social Security System

Administrator, National Statistics Office

Managing Director, National Computer Center

Sec. 3. Secretariat. The National Computer Center (NCC) is hereby designated as secretariat
to the IACC and as such shall provide administrative and technical support to the IACC.

Sec. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the
NSO shall serve as the common reference number to establish a linkage among concerned
agencies. The IACC Secretariat shall coordinate with the different Social Security and
Services Agencies to establish the standards in the use of Biometrics Technology and in
computer application designs of their respective systems.

Sec. 5. Conduct of Information Dissemination Campaign. The Office of the Press Secretary, in
coordination with the National Statistics Offices, the GSIS and SSS as lead agencies and
other concerned agencies shall undertake a massive tri-media information dissemination
campaign to educate and raise public awareness on the importance and use of the PRN and
the Social Security Identification Reference.

Sec. 6. Funding. The funds necessary for the implementation of the system shall be sourced
from the respective budgets of the concerned agencies.
 Sec. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit regular reports
to the Office of the President, through the IACC, on the status of implementation of this
undertaking.

Sec. 8 Effectivity. This Administartive Order shall take effect immediately.

DONE in the City of Manila, this 12th day of December in the year of Our Lord, Nineteen
Hundred and Ninety-Six.

In seeking to strike down A.O. No. 308 as unconstitutional, petitioner argues:

A. THE ESTABLISHMENT OF NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE

SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUACE OF A.O. NO. 308 BY THE PRESIDENT
OF THE REPUBLIC OF THE PHILIPPINES IS, THEREFORE, AN UNCONSTITUTIONAL
USURPATION OF THE LEGISLATIVE POWERS OF THE CONGRESS OF THE REPUBLIC OF THE
PHILIPPINES.

B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE IMPLEMENTATION

OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF THE EXCLUSIVE RIGHT OF
CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR EXPENDITURE.

C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE GROUNDWORK FOR A
SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS ENSHRINED IN THE CONSTITUTION.

The National Computerized Identification Reference system to which the NSO, GSIS and SSS are linked as
lead members of the IACC is intended to establish uniform standards for ID cards isssued by key
government agencies (like the SSS) 1 for the "efficient identification of persons." 2 Under the new system,
only one reliable and tamper-proof I.D. need be presented by the cardholder instead of several
identification papers such as passports and driver's license, 3 to able to transact with government agencies.
The improved ID can be used to facilitate public transactions such as:

1. Payment of SSS and GSIS benefits

2. Applications for driver's license, BIR TIN, passport, marriage license, death
certificate, NBI and police clearances, and business permits

3. Availment of Medicare services in hospitals

4. Availment of welfare services

5. Application for work/employment

6. Pre-requisite for Voter's ID. 4

The card may also be used for private transactions such as:

1. Opening of bank accounts

2. Encashment of checks

3. Applications for loans, credit cards, water, power, telephones, pagers, etc.

4. Purchase of stocks

5. Application for work/employment

6. Insurance claims

7. Receipt of payments, checks, letters, valuables, etc. 5

The new identification system would tremendously improve and uplift public service in our country to the
benefit of Filipino citizens and resident aliens. It would promote, facilitate and speed up legitimate
transactions with government offices as well as with private and business entities. Experience tells us of
the constant delays and inconveniences the public has to suffer in availing of basic public services and
social security benefits because of inefficient and not too reliable means of identification of the
beneficiaries.
Thus, in the "Primer on the Social Security Card and Administrative Order No. 308" issued by the SSS, a
lead agency in the implementation of the said order, the following salient features are mentioned:

1. A.O. 308 merely establishes the standards for I.D. cards issued by key government
agencies such as SSS and GSIS.

2. It does not establish a national I.D. system neither does it require a national I.D. card for
every person.

3. The use of the I.D. is voluntary.

4. The I.D. is not required for delivery of any government service. Everyone has the right to
basic government services as long as he is qualified under existing laws.

5. The LD. cannot and will not in any way be used to prevent one to travel.

6. There will be no discrimination Non-holders of the improved I.D. are still entitled to the
same services but will be subjected to the usual rigid identification and verification
beforehand.

The issue that must first be hurdled is: was the issuance of A.O. No. 308 an exercise by the President of
legislative power properly belonging to Congress?

It is not.

The Administrative Code of 1987 has unequivocally vested the President with quasi-legislative powers in
the form of executive orders, administrative orders, proclamations, memorandum orders and circulars and
general or special orders. 6 An administrative order, like the one under which the new identification system
is embodied, has its peculiar meaning under the 1987 Administrative Code:

Sec. 3. Administrative Orders. Acts of the President which relate to particular aspects of
governmental operations in pursuance of his duties as administrative head shall be
promulgated in administrative orders.

The National Computerized Identification Reference System was established pursuant to the aforaquoted
provision precisely because its principal purpose, as expressly stated in the order, is to provide the people
with "the facility to conveniently transact business" with the various government agencies providing basic
services. Being the "administrative head," it is unquestionably the responsibility of the President to find
ways and means to improve the government bureaucracy, and make it more professional, efficient and
reliable, specially those government agencies and instrumentalities which provide basic services and which
the citizenry constantly transact with, like the Government Service Insurance System (GSIS), Social
Security System (SSS) and National Statistics Office (NSO). The national computerized ID system is one
such advancement. To emphasize, the new identification reference system is created to streamline the
bureaucracy, cut the red tape and ultimately achieve administrative efficiency. The project, therefore,
relates to, is an appropriate subject and falls squarely within the ambit of the Chief Executive's
administrative power under which, in order to successfully carry out his administrative duties, he has been
granted by law quasi-legislative powers, quoted above.

Understandably, strict adherence to the doctrine of separation of power spawns differences of opinion. For
we cannot divide the branches of government into water-tight compartment. Even if such is possible, it is
neither desirable nor feasible. Bernard Schwartz, in his work Administrative Law, A Casebook, thus states:

To be sure, if we think of the separation of powers as carrying out the distinction between
legislation and administration with mathematical precision and as dividing the branches of
government into watertight compartments, we would probably have to conclude that any
exercise of lawmaking authority by an agency is automatically invalid. Such a rigorous
application of the constitutional doctrine is neither desirable nor feasible; the only absolute
separation that has ever been possible was that in the theoretical writings of a Montesquieu,
who looked across at foggy England from his sunny Gascon vineyards and completely
misconstrued what he saw. 7

A mingling of powers among the three branches of government is not a novel concept. This blending of
powers has become necessary to properly address the complexities brought about by a rapidly developing
society and which the traditional branches of government have difficulty coping with. 8

It has been said that:

 The true meaning of the general doctrine of the separation of powers seems to be that the
whole power of one department should not be exercised by the same hands which possess
the whole power of either of the other department, and that no one department ought to
possess directly or indirectly an overruling influence over the others. And it has been that
this doctrine should be applied only to the powers which because of their nature are
assigned by the constitution itself to one of the departments exclusively. Hence, it does not
necessarily follow that an entire and complete separation is either desirable of was ever
intended, for such a complete separation would be impracticable if not impossible; there
may be-and frequently are-areas in which executive, legislative, and judicial powers blend or
overlap; and many officers whose duties cannot be exclusively placed under any one of these
heads.

The courts have perceived the necessity of avoiding a narrow construction of a state
constitutional provision for the division of the powers of the government into three distinct
departments, for it is impractical to view the provision from the standpoint of a doctrinaire.
Thus, the modern view of separation of powers rejects the metaphysical abstractions and
reverts instead to more pragmatic, flexible, functional approach, giving recognition to the
fact that then may be a certain degree of blending or admixture of the three powers of the
government. Moreover, the doctrine of separation of powers has never been strictly or
rigidly applied, and indeed could not be, to all the ramifications of state or national
governments; government would prove abortive if it were attempted to follow the policy of
separation to the letter. 9

In any case A.O. No. 308 was promulgated by the President pursuant to the quasi-legislative powers
expressly granted to him by law and in accordance with his duty as administrative head. Hence, the
contention that the President usurped the legislative prerogatives of Congress has no firm basis.

II

Having resolved that the President has the authority and prerogative to issue A.O. No. 308, I submit that it
is premature for the Court to determine the constitutionality or unconstitutionality of the National
Computerized Identification Reference System.

Basic in constitutional law is the rule that before the court assumes jurisdiction over and decide
constitutional issues, the following requisites must first be satisfied:

1) there must be an actual case or controversy involving a conflict of rights susceptible of judicial
determination;

2) the constitutional question must be raised by a proper party;

3) the constitutional question must be raised at the earliest opportunity; and

4) the resolution of the constitutional question must be necessary to the resolution of the case. 10

In this case, it is evident that the first element is missing. Judicial intervention calls for an actual case or
controversy which is defined as "an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory." 11 Justice Isagani A. Cruz further expounds that "(a)
justifiable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract
character or from one that is academic or moot. The controversy must be definite and concrete, touching
the legal relations of parties having adverse legal interests. It must be a real and substantial controversy
admitting of special relief through a decree that is conclusive in character, as distinguished from an
opinion advising what the law would be upon a hypothetical state of facts. . . ." 12 A.O. No. 308 does not
create any concrete or substantial controversy. It provides the general framework of the National
Computerized Identification Reference System and lays down the basic standards (efficiency, convenience
and prevention of fraudulent transactions) for its cretion. But as manifestly indicated in the subject order,
it is the Inter-Agency Coordinating Committee (IACC) which is tasked to research, study and formulate the
guidelines and parameters for the use of Biometrics Technology and in computer application designs that
will and define give substance to the new system. 13 This petition is, thus, premature considering that the
IACC is still in the process of doing the leg work and has yet to codify and formalize the details of the new
system.

The majority opines that the petition is ripe for adjudication even without the promulgation of the
necessary guidelines in view of the fact that respondents have begun implementation of A.O. No. 308. The
SSS, in particular, has started advertising in newspapers the invitation to bid for the production of the I.D.
cards. 14
I beg to disagree. It is not the new system itself that is intended to be implemented in the invitation to bid
but only the manufacture of the I.D. cards. Biometrics Technology is not and cannot be used in the I.D.
cards as no guidelines therefor have yet been laid down by the IACC. Before the assailed system can be set
up, it is imperative that the guidelines be issued first.

III

Without the essential guidelines, the principal contention for invalidating the new identification reference
system that it is an impermissible encroachment on the constitutionally recognized right to privacy is
plainly groundless. There is nothing in A.O. No. 308 to serve as sufficient basis for a conclusion that the
new system to be evolved violates the right to privacy. Said order simply provides the system's general
framework. Without the concomitant guidelines, which would spell out in detail how this new
identification system would work, the perceived violation of the right to privacy amounts to nothing more
than mere surmise and speculation.

What has caused much of the hysteria over the National Computerized Identification Reference System is
the possible utilization of Biometrics Technology which refers to the use of autnomated matching of
physiological or behavioral characteristics to identify a person that would violated the citizen's
constitutionally protected right to privacy.

The majority opinion has enumerated various forms and methods of Biometrics Technology which if
adopted in the National Computaized Identification Reference System would seriously threaten the right to
privacy. Among which are biocrypt retinal scan, artificial nose and thermogram. The majority also points to
certain alleged deficiencies of A O. No. 308. Thus:

1) A.O. No. 308 does not specify the particular Biometrics Technology that shall be used for
the new identification system.

2) The order dots not state whether encoding of data is limited to biological information
alone for identification purposes;

3) There is no provision as to who shall control and access the data, under what
circumstances and for what purpose; and

4) There are no controls to guard against leakage of information, thus heightening the
potential for misuse and abuse.

We should not be overwhelmed by the mere mention of the Biometrics Technology and its alleged, yet
unfounded "far-reaching effects."

There is nothing in A.O. No. 308, as it is worded, to suggest that the advanced methods of the Biometrics
Technology that may pose danger to the right of privacy will be adopted.

The standards set in A.O. No. 308 for the adoption of the new system are clear-cut and unequivocably
spelled out in the "WHEREASES" and body of the order, namely, the need to provide citizens and foreign
residents with the facility to conveniently transact business with basic service and social security providers
and other government instrumentalities; the computerized system is intended
to properly and efficientlyidentify persons seeking basic services or social security and reduce, if not totally
eradicate fraudulent transactions and misreprentation; the national identification reference system is
established among the key basic services and social security providers; and finally, the IACC Secretariat
shall coordinate with different Social Security and Services Agencies to establish the standards in the use
of Biometrics Technology. Consequently, the choice of the particular form and extent of Biometrics
Technology that will be applied and the parameters for its use (as will be defined in the guidelines) will
necessarily and logically be guided, limited and circumscribed by the afore-stated standards. The fear
entertained by the majority on the potential dangers of this new technology is thus securedly allayed by
the specific limitations set by the above-mentioned standards. More than this, the right to privacy is well-
esconced in and directly protected by various provisions of the Bill of Rights, the Civil Code, the Revised
Penal Code, and certain laws, all so painstakingly and resourcefully catalogued in the majority opinion.
Many of these laws provide penalties for their violation in the form of imprisonment, fines, or damages.
These laws will serve as powerful deterrents not only in the establishment of any administrative rule that
will violate the constitutionally protected right to privacy, but also to would-be transgressors of such right.

Relevant to this case is the ruling of the U.S. Supreme Court in Whalen v. Roe. 15 In that case, a New York
statute was challenged for requiring physicians to identify patients obtaining prescription drugs of the
statute's "Schedule II" category (a class of drugs having a potential for abuse and a recognized medical
use) so the names and addresses of the prescription drug patients can be recorded in a centralized
computer file maintained by the New York State Department of Health. Some patients regularly receiving
prescription for "Schedule II" drugs and doctors who prescribed such drugs brought an action questioning
the validity of the statute on the ground that it violated the plaintiffs' constitutionally protected rights of
privacy.

In a unanimous decision, the US Supreme Court sustained the validity of the statute on the ground that the
patient identification requirement is a reasonable exercise of the State's broad police powers. The Court
also held that there is no support in the record for an assumption that the security provisions of the statute
will be adiministered improperly. Finally, the Court opined that the remote possibility that judicial
supervision of the evidentiary use of particular items of stored information will not provide adequate
protection against unwarranted diclosures is not a sufficient reason for invalidating the patient-
identification program.

To be sure, there is always a possibility of an unwarranted disclosure of confidential matters enomously

accumulated in computerized data banks and in government records relating to taxes, public health, social
security benefits, military affairs, and similar matters. But as previously pointed out, we have a sufficient
number of laws prohibiting and punishing any such unwarranted disclosures. Anent this matter, the
observation in Whalen vs. Roe is instructive:

. . . We are not unaware of the threat to privacy implicit in the accumulation of vast amounts
of personal information in computerized data banks or other massive government files. The
collection of taxes, the distribution of welfare and social security benefits, the supervision of
public health, the direction of our Armed Forces and the enforcement of the criminal laws all
require the orderly preservation of great quantities of information, much of which is
personal in character and potentially embarrassing or harmful if disclosed. The right to
collect and use such data for public purposes is typically accompanied by a concomitant
statutory or regulatory duty to avoid unwarranted disclosures. . . . 16

The majority laments that as technology advances, the level of reasonably expected privacy decreases.
That may be true. However, court should tread daintily on the field of social and economic experimentation
lest they impede or obstruct the march of technology to improve public services just on the basis of an
unfounded fear that the experimentation violates one's constitutionally protected rights. In the sobering
words of Mr. Justice Brandeis:

To stay experimentation in things social and economic is a grave responsibility. Denial of the
right to experiment may be fraught with serious consequences to the Nation. It is one of the
happy incidents of the federal system that a single courageous State may, if its citizens
choose, serve as a laboratory; and try novel social and economic experiments without risk to
the rest of the country. This Court has the power to prevent an experiment. We may strike
down the statute which embodies it on the ground that, in our opinion, the measure is
arbitary, capricious or unreaonable. We have power to do this, because the due process
clause has been held by he Court applicable to matters of substantive law as well as to
matters of procedure. But in the exercise of this high power, we must be ever on our guard,
lest we erect our prejudices into legal principles. If we would guide by the light of reason,
we must let our minds be bold. 17

Again, the concerns of the majority are premature precisely because there are as yet no guidelines that will
direct the Court and serve as solid basis for determining the constitutionality of the new identification
system. The Court cannot and should not anticipate the constitutional issues and rule on the basis of
guesswok. The guidelines would, among others, determine the particular biometrics method that would be
used and the specific personal data that would be collected provide the safeguard, (if any) and supply the
details on how this new system in supposed to work. The Court should not jump the gun on the Executive.

III

On the issue of funding, the majority submits that Section 6 of A.O. No. 308, which allows the government
agencies included in the new system to obtain funding form their respective budgets, is unconstitutional
for being an illegal transfer of appropriations.

It is not so. The budget for the national identification system cannot be deemed a transfer of funds since
the same is composed of and will be implemented by the member government agancies. Morever, thses
agencies particularly the GSIS and SSS have been issuing some form of identification or membership card.
The improved ID cards that will be issued under this new system would just take place of the old
identification cards and budget-wise, the funds that were being used to manufacture the old ID cards,
which are usually accounted for under the "Supplies and Materials" item of the Government Accounting
and Auditing Manual, could now be utilized to fund the new cards. Hence, what is envisioned is not transfer
of appropriations but a pooling of funds and resources by the various government agencies involved in the
project.

WHEREFORE, I vote to dismiss the petition.

MENDOZA, J., separate opinion;

My vote is to dismiss the petition in this case.

First. I cannot find anything in the text of Administrative Order No. 308 of the President of the Philippines
that would warrant a declaration that it is violative of the right of privacy. So far as I can see, all the
Administrative Orders does is

establish an Identification Reference System involving the following service

agencies of the government:

Presidential Management Staff

National Economic Developemnt Authority

Department of the Interior and Local Government

Department of Health

Government Service Isurance System

Social Security Office

National Computer Center

create a committee, composed of the heads of the agencies concerned, to draft

rules for the System;

direct the use of the Population Reference Number (PRN) generated by the
National Census and Statistics Office as the common reference number to link the
participating agencies into an Identification Reference System, and the adoption by
the agencies of standards in the use of biometrics technology and computer designs;
and

provide for the funding of the System from the budgets of the agencies concerned.

Petitioner argues, however, that "the implementation of A.O. No. 308 will mean that each and every
Filipino and resident will have a file with the government containing, at the very least, his PRN and
physiological biometrics such as, but not limited to, his facial features, hand geometry, retinal or iris
pattern, DNA pattern, fingerprints, voice characteristics, and signature analysis."

In support of his contention, petitioner quotes the following publication surfed from the Internet:

The use of biometrics is the means by which an individual may be conclusively identified.
There are two types of biometrics identifiers; Physical and behavioral characteristics,
Physiological biometrics include facial features, hand geometry, retinal and iris patterns.
DNA, and fingerprints characteristics include voice characteristics and signature analysis . 1

I do not see how from the bare provisions of the Order, the full text of which is set forth in the majority
opinion, petitioner and the majority can conclude that the Identification Reference System establishes
such comprehensive personal information dossiers that can destroy individual privacy. So far as the Order
provides, all that is contemplated is an identification system based on data which the government agencies
involved have already been requiring individuals making use of their services to give.

For example, under C.A. No. 591, 2(a) the National Statistics Office collects "by enumeration, sampling or
other methods, statistics and other information concerning population . . . social and economic institutions,
and such other statistics as the President may direct." In addition, it is in charge of the administration of
the Civil Register, 2 which means that it keeps records of information concerning the civil status of
persons, i.e., (a) births, (b) deaths, (c) marriages and their annulments; (d) legitimations, (e) adoptions,
(f) acknowledgments of natural children, (g) naturalizations, and (h) changes of name. 3

Other statutes giving government agencies the power to require personal information may be cited. R.A.
No. 4136, 23 gives the Land Transportation Office the power to require applicants for a driver's license to
give information regarding the following: their full names, date of birth, height, weight, sex, color of eyes,
blood type, address, and right thumbprint;4 while R.A. No. 8239, 5 gives the Department of Foreign Affairs
the power to require passport applicants to give information concerning their names, place of birth, date of
birth, religious affiliation, marital status, and citizenship.
Justice Romero, tracing the origin of privacy to the attempt of the first man and woman to cover their
nakedness with fig leaves, bemoans the fact that technology and institutional pressures have threatened
our sense of privacy. On the other hand, the majority would have none of the Identification Reference
System "to prevent the shrinking of the right to privacy, once regarded as "the most comprehensive of
rights and the right most valued by civilized men."" 5 Indeed, techniques such as fingerprinting or
electronic photography in banks have become commonplace. As has been observed, the teaching hospital
has come to be accepted as offering madical services that compensate for the loss of the isolation of the
sickbed; the increased capacity of applied sciences to utilize more and more kinds of data and the
cosequent calls for such data have weakened traditional resistance to disclosure. As the area of relevance,
political or scientific, expands, there is strong psychological pressure to yield some ground of privacy. 6

But this is a fact of life to which we must adjust, as long as the intrusion into the domain of privacy is
reasonable. In Morfe v. Mutuc, 7 this Court dealt the coup de grace to claims of latitudinarian scope for the
right of privacy by quoting the pungent remark of an acute observer of the social scene, Carmen Guerrero-
Nakpil:

Privacy? What's that? There is no precise word for it in Filipino, and as far as I know any
Filipino dialect and there is none because there is no need for it. The concept and practice of
privacy are missing from conventional Filipino life. The Filipino believes that privacy is an
unnecessary imposition, an eccentricity that is barely pardonable or, at best, an esoteric
Western afterthought smacking of legal trickery. 8

Justice Romero herself says in her separate opinion that the word privacy is not even in the lexicon
of Filipinos.

As to whether the right of privacy is "the most valued right," we do well to remember the encomiums paid
as well to other constitutional rights. For Professor Zechariah Chafee, "The writ of habeas corpus is "the
most important human rights provision in the fundamental law,""9 For Justice Cardozo, on the other hand,
freedom of expression "is the matrix, the indispensable condition of nearly every other form of freedom." 10

The point is that care must be taken in assigning values to constitutional rights for the purpose of
calibrating them on the judicial scale, especially if this means employing stricter standards of review for
regulations alleged to infringe certain rights deemed to be "most valued by civilized men.''

Indeed, the majority concedes that "the right of privacy does not bar all incursions into individual privacy .
. . [only that such] incursions into the right must be accompanied by proper safeguards and well-defined
standards to prevent unconstitutional invasions." 11 In the case of the Identification Reference System, the
purpose is to facilitate the transaction of business with service agencies of the government and to prevent
fraud and misrepresentation. The personal identification of an individual can facilitate his treatment in any
government hospital in case of emergency. On the other hand, the delivery of material assistance, such as
free medicines, can be protected from fraud or misrepresentation as the absence of a data base makes it
possible for unscrupulous individuals to obtain assistance from more than one government agency.

Second. Thus, the issue in this case is not really whether A.O. No. 308 violates the right of privacy formed
by emanations from the several constitutional rights cited by the majority. 12 The question is whether it
violates freedom of thought and of conscience guaranteed in the following provisions of our Bill of Rights
(Art. III):

Sec. 4. No law Shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for
redress of grievances.

Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise enjoyment of religious profession and worship, without
discrimination or preference, shall be forever be allowed. No religious test shall be required
for the exercise of civil or political rights.

More specifically, the question is whether the establishment of the Identification Reference System will
not result in the compilation of massive dossiers on individuals which, beyond their use for identification,
can become instruments of thought control. So far, the next of A.O. No. 308 affords no basis for believing
that the data gathered can be used for such sinister purpose. As already stated, nothing that is not already
being required by the concerned agencies of those making use of their servides is required by the Order in
question. The Order simply organizes service agencies of the government into a System for the purpose of
facilitating the identification of persons seeking basic services and social security. Thus, the whereas
clauses of A.O. No. 308 state:
 WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility
to conveniently transact business with basic services and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services and social security, and reduce, if not totally eradicate,
fraudulent transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government instrumentalities is required to achieve
such a system:

The application of biometric technology and the standardization of computer designs can provide
service agencies with precise identification of individuals, but what is wrong with that?

Indeed, A.O. No. 308 is no more than a directive to government agencies which the President of the
Philippines has issued in his capacity as administrative head. 13 It is not a statute. It confers no right; it
imposes no duty; it affords no protection; it creates no office. 14 It is, as its name indicates, a mere
administrative order, the prescise nature of which is given in the following excerpt from the decision in the
early case of Olsen & Co. v. Herstein: 15

[It] is nothing more or less than a command from a superior to an inferior. It creates no
relation except between the official who issues it and the official who receives it. Such
orders, whether executive or departmental, have for their object simply the efficient and
economical administration of the affairs of the department to which or in which they are
issued in accordance with the law governing the subject-matter. They are administrative in
their nature and do not pass beyond the limits of the department to which they are directed
or in which they are published, and, therefore, create no rights in third persons. They are
based on, and are the product of a relationship in which power is their source and obedience
their object. Disobedience to or deviation from such an order can be punished only by the
power which issued it: and, if that power fails to administer the corrective, then the
disobedience goes unpunished. In that relationship no third person or official may intervene,
not even the court. Such orders may be very temporary, they being subject to instant
revocation or modification by the power which published them. Their very nature, as
determined by the relationship which prodecued them, demonstrates clearly the
impossibility of any other person enforcing them except the one who created them. An
attempt on the part of the courts to enforce such orders would result not only in confusion
but, substantially, in departmental anarchy also. 16

Third. There is no basis for believing that, beyond the identification of individuals, the System will be used
for illegal purposes. Nor are sanctions lacking for the unauthorized use or disclosure of information
gathered by the various agencies constituting the System. For example, as the Solicitor General points out.
C.A. No. 591. 4 penalizes the unauthorized use or disclosure of data furnished the NSO with a fine of not
more than P600.00 or imprisonment for not more than six months or both.

At all events, at this stage, it is premature to pass on the claim that the Identification Reference System
can be used for the purpose of compiling massive dossiers on individuals that can be used to curtail basic
civil and political rights since, if at all, this can only be provided in the implementing rules and regulations
which have yet to be promulgated. We have already stated that A.O. No. 308 is not a statute. Even in the
case of statutes, however, where implementing rules are necessary to put them into effect, it has been
held that an attack on their constitutionality would be premature. 17 As Edgar in King Lear puts it,
"Ripeness is all." 18For, to borrow some more Shakespearean lines,

The canker galls the infants of the spring

Too oft before their buttons be disclos'd. 19

That, more than any doctrine of constitutional law I can think of, succinctly expresses the rule on
ripeness, prematurity, and hypothetical, speculative, or conjectural claims.

Of special relevance to this case is Laird v. Tatum. 20 There, a class suit was brought seeking declaratory
and injunctive relief on the claim that a U.S. Army intelligence surveillance of civilian political activity
having "a potential for civil disorder" exercised "a present inhibiting effect on [respondents'] full
expression and utilization of their First Amendment rights." In holding the case nonjusticiable, the U.S.
Supreme Court, in an opinion by Chief Justice Burger. said: 21

In recent years this Court has found in a number of cases that constitutional violations may
arise from the deterrent or ''chilling," effect of governmental regulations that fall short of a
 direct prohibition against the exercise of First Amendment rights. [Citation of cases omitted]
In none of these cases, however, did the chilling effect arise merely from the individual's
knowledge that a governmental agency was engaged in certain activities or from the
individual's concomitant fear that, armed with the fruits of those activities, the agency might
in the future take some other and additional action detrimental to that individual. Rather, in
each of these cases, the challenged exercise of governmental power was regulatory,
proscriptive, or compulsory in nature, and the complainant was either presently or
prospectively subject to the regulations, proscriptions, or compulsions that he was
challenging. . . .

[T]hese decisions have in no way eroded the "established principle that to entitle a private
individual to invoke the judicial power to determine the validity of executive or legislative
action he must show that he was sustained or is immediately in danger of sustaining a direct
injury as the result of that action. . . .

The respondents do not meet this test; [the] alleged "chilling" effect may perhaps be seen as
arising from respondents' perception of the system as inappropriate to the Army's role under
our form of government, or as arising from respondents' beliefs that it is inherently
dangerous for the military to be concerned with activities in the civilian sector, or as arising
from respondents' less generalized yet speculative apprehensiveness that the Army may at
some future date misuse the information in some way that would cause direct harm to
respondents. Allegations of a subjective "chill" are not an adequate substitute for a claim of
specific present objective harm or a threat of specific future harm: "the federal courts
established pursuant to Article III of the Constitution do not render advisory
opinions." United Public Workers v. Mitchell, 330 US 75, 89, 91 L Ed 754, 766, 67 S Ct 556
(1947).

Fourth. Given the fact that no right of privacy is involved in this case and that any objection to the
identification Reference System on the ground that it violates freedom of thought is premature,
speculative, or conjectural pending the issuance of the implementing rules, it is clear that petitioner Blas F.
Ople has no cause of action and, therefore, no standing to bring this action. Indeed, although he assails
A.O. No. 308 on the ground that it violates the right of privacy, he claims no personal injury suffered as a
result of the Order in question. Instead, he says he is bringing this action as taxpayer, Senator, and
member of the Government Service Insurance System.

Insofar as petitioner claims an interest as taxpayer, it is sufficient to say that A.O. No. 308 does not involve
the exercise of the taxing or spending power of the government.

Insofar as he purports to sue as a member of the GSIS, neither does petitioner have an intertest sufficient
to enable him to litigate a constitutional question. Petitioner claims that in providing that the funds
necessary for implementing the System shall be taken from the budgets of the concerned agencies. A.O.
No. 308 violates Art. VI, 25(5) which. provides:

No law shall be passed authorizing any transfer of appropriations; however, the President,
the President of the Senate, the Speaker of the House of Representatives, the Chief Justice
of the Supreme Court, and the heads of Constitutional Commissions may, by law, be
authorized to augment any item in the general appropriations law for their respective offices
from savings in other items of their respective appropriations.

But, as the Solicitor General states:

Petitioner's argument is anchored on two erroneous assumptions: one, that all the
concerned agencies, including the SSS and the GSIS, receive budgetary support from the
national government; and two, that the GAA is the only law whereby public funds are
appropriated. Both assumptions are wrong.

The SSS and GSIS do not presently receive budgetary support from the National
Government. They have achieved self-supporting status such that the contributions of their
members are sufficient to finance their expenses. One would be hard pressed to find in the
GAA an appropriation of funds to the SSS and the GSIS.

Furthermore, their respective charters authorize the SSS and the GSIS to disburse their
funds (Rep. Act No. 1161 [1954], as amended, Sec. 25; Pres. Decree No. 1146 [1977], as
amended, Sec. 29) without the need for a separate appropriation from the Congress.

Nor as Senator can petitioner claim standing since no power of Congress is alleged to have been impaired
by the Administrative Order in question. 22 As already stated, in issuing A.O. No. 308, the President did not
exercise the legislative power vested by the Constitution in Congress. He acted on the basis of his own
powers as administrative head of the government, as distinguished from his capacity as the Executive.
Dean Sinco elucidates the crucial distinction thus:

The Constitution of the Philippines makes the President not only the executive but also the
administrative head of the government. . . . Executive power refers to the legal and political
function of the President involving the exercise of discretion. Administrative power, on the
other hand, concerns itself with the work of applying policies and enforcing orders as
determined by proper governmental organs. These two functions are often confused by the
public: but they are distinct from each other. The President as the executive authority has
the duty of supervising the enforcement of laws for the maintenance of general peace and
public order. As administrative head, his duty is to see that every government office is
managed and maintained properly by the persons in charge of it in accordance with
pertinent laws and regulations.

. . . The power of control vested in him by the Constitution makes for a strongly centralized
administrative system. It reinforces further his position as the executive of the government,
enabling him to comply more effectively with his constitutional duty to enforce the laws. It
enables him to fix a uniform standard of a administrative eficiency and to check the official
conduct of his agents. The decisions of all the officers within his department are subject to
his power of revision, either on his own motion or on the appeal of some individual who
might deem himself aggrieved by the action of an administrative official. In case of serious
dereliction of duty, he may suspend or remove the officials concerned. 23

For the foregoing reasons, the petition should be DISMISSED.

# Separate Opinions

ROMERO, J., separate opinion;

What marks offs man from a beast?

Aside from the distinguishing physical characteristics, man is a rational being, one who is endowed with
intellect which allows him to apply reasoned judgment to problems at hand; he has the innate spiritual
faculty which can tell, not only what is right but, as well, what is moral and ethical. Because of his
sensibilities, emotions and feelings, he likewise possesses a sense of shame. In varying degrees as dictated
by diverse cultures, he erects a wall between himself and the outside world wherein he can retreat in
solitude, protecting himself from prying eyes and ears and their extensions, whether form individuals, or
much later, from authoritarian intrusions.

Piercing through the mists of time, we find the original Man and Woman defying the injunction of God by
eating of the forbidden fruit in the Garden. And when their eyes were "opened" forthwith "they sewed fig
leaves together, and made themselves aprons." 1 Down the corridors of time, we find man fashioning "fig
leaves" of sorts or setting up figurative walls, the better to insulate themselves from the rest of humanity.

Such vague stirrings of the desire "to be left alone," considered "anti-social" by some, led to the
development of the concept of "privacy," unheard of among beasts. Different branches of science, have
made their own studies of this craving of the human spirit psychological, anthropological sociological
and philosophical, with the legal finally giving its imprimatur by elevating it to the status ofa right,
specifically a private right.

Initially recognized as an aspect of tort law, it created giant waves in legal circles with the publication in
the Harvard Law Review 2 of the trail-blazing article, "The Right to Privacy," by Samuel D. Warren and
Louis D. Brandeis.

Whether viewed as a personal or a property right, it found its way in Philippine Constitutions and statutes;
this, in spite of the fact that Philippine culture can hardly be said to provide a fertile field for the
burgeoning of said right. In fact, our lexicographers have yet to coin a word for it in the Filipino language.
Customs and practices, being what they have always been, Filipinos think it perfectly natural and in good
taste to inquire into each other's intimate affairs.

One has only to sit through a televised talk show to be convinced that what passes for wholesome
entertainment is actually an invasion into one's private life, leaving the interviewee embarrassed and
outraged by turns.

With the overarching influence of common law and the recent advent of the Information Age with its high-
tech devices, the right to privacy has expanded to embrace its public law aspect. The Bill of Rights of our
evolving Charters, a direct transplant from that of the United States, contains in essence facets of the right
to privacy which constitute limitations on the far-reaching powers of government.

So terrifying are the possibilities of a law such as Administrative Order No. 308 in making inroads into the
private lives of the citizens, a virtual Big Brother looking over our shoulder, that it must, without delay, be
"slain upon sight" before our society turns totalitarian with each of us, a mindless robot.

I, therefore, VOTE for the nullification of A.O. No. 308.

VITUG, J., separate opinion;

One can appreciate the concern expressed by my esteemed colleague, Mr. Justice Reynato S. Puno,
echoing that of the petitioner, the Honorable Blas F. Ople, on the issuance of Administrative Order No. 308
by the President of the Philippines and the dangers its implementation could bring. I find it hard,
nevertheless, to peremptorily assume at this time that the administrative order will be misused and to
thereby ignore the possible benefits that can be derived from, or the merits of, a nationwide computerized
identification reference system. The great strides and swift advances in technology render it inescapable
that one day we will, at all events, have to face up with the reality of seeing extremely sophisticated
methods of personal identification and any attempt to stop the inevitable may either be short-lived or even
futile. The imperatives, I believe, would instead be to now install specific safeguards and control measures
that may be calculated best to ward-off probable ill effects of any such device. Here, it may be apropos to
recall the pronouncement of this Court in People vs. Nazario 1 that

As a rule, a statute or [an] act may be said to be vague when it lacks comprehensible
standards that men "of common intelligence must necessarily guess at its meaning and
differ as to its application." It is repugnant to the Constitution in two respects: (1) it violates
due process for failure to accord persons, especially the parties targeted by it, fair notice of
the conduct to avoid; and (2) it leaves law enforcers unbridled discretion in carrying out its
provisions and becomes an arbitrary flexing of the Government muscle. 2

Administrative Order No. 308 appears to be so extensively drawn that could, indeed, allow
unbridled options to become available to its implementors beyond the reasonable comfort of the
citizens and of residents alike.

Prescinding from the foregoing, and most importantly to this instance, the subject covered by the
questioned administrative order can have far-reaching consequences that can tell on all individuals, their
liberty and privacy, that, to my mind, should make it indispensable and appropriate to have the matter
specifically addressed by the Congress of the Philippines, the policy-making body of our government, to
which the task should initially belong and to which the authority to formulate and promulgate that policy is
constitutionally lodged.

WHEREFORE, I vote for the nullification of Administrative Order No. 308 for being an undue and
impermissible exercise of legislative power by the Executive.

PANGANIBAN, J., separate opinion;

I concur only in the result and only on the ground that an executive issuance is not legally sufficient to
establish an all-encompassing computerized system of identification in the country. The subject matter
contained in AO 308 is beyond the powers of the President to regulate without a legislative enactment.

I reserve judgmeht on the issue of wherher a national ID system is an infringement of the constitutional
right to privacy or the freedom of thought until after Congress passes, if ever, a law to this effect. Only
then, and upon the filing of a proper petition, may the provisions of the statute be scrutinized by the
judiciary to determine their constitutional foundation. Until such time, the issue is premature; and any
decision thereon, speculative and academic. 1

Be that as it may, the scholarly discussions of Justices Romero, Puno, Kapunan and Mendoza on the
constitutional right to privacy and freedom of thought may stil become useful guides to our lawmakers,
when and if Congress should deliberate on a bill establishing a national identification system.

Let it be noted that this Court, as shown by the voting of the justices, has not definitively ruled on these
points. The voting is decisive only on the need for the appropriate legislation, and it is only on this ground
that the petition is granted by this Court.
KAPUNAN, J., dissenting opinion;

The pioneering efforts of the executive to adopt a national computerized identification reference system
has met fierce opposition. It has spun dark predictions of sinister government ploys to tamper with the
citizen's right to privacy and ominous forecasts of a return to authoritarianism. Lost in the uproar,
however, is the simple fact that there is nothing in the whole breadth and lenght of Administrative Order
No. 308 that suggests a taint constitutional infirmity.

A.O. No. 308 issued by President Fidel V. Ramos on 12 December 1996 reads:

ADMTNISTRATIVE ORDER NO. 308

ADOPTION OF A NATIONAL COMPUTERIZED

IDENTIFICATION REFERENCE SYSTEM

WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility
to conveniently transact business with basic services and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services and social security and reduce, if not totally eradicate,
fraudulent transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government instrumentalities is required to achieve
such a system;

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Repubic of the Philippines, by virtue
of the powers vested in me by law, do hereby direct the following:

Sec. 1 Establishment of a National Computerized Identification Reference System . A

decentralized Identification Reference System among the key basic services and social
security providers is hereby established.

Sec. 2. Inter-Agency Coordinating Committee. An Inter-Agency Coordinating Committee

(IACC) to draw-up the implementing guidelines and oversee the implementation of the
System is hereby created, chaired by the Executive Secretary, with the following as
members:

Head Presidential Management Staff

Secretary, National Economic Development Authority

Secretary, Department of the Interior and Local Government

Secretary, Department of Health

Administrator, Government Service Insurance System

Administrator, Social Security System

Administrator, National Statistics Office

Managing Director, National Computer Center

Sec. 3. Secretariat. The National Computer Center (NCC) is hereby designated as secretariat
to the IACC and as such shall provide administrative and technical support to the IACC.

Sec. 4. Linkage Among Agencies. The Population Reference Number (PRN) generated by the
NSO shall serve as the common reference number to establish a linkage among concerned
agencies. The IACC Secretariat shall coordinate with the different Social Security and
Services Agencies to establish the standards in the use of Biometrics Technology and in
computer application designs of their respective systems.

Sec. 5. Conduct of Information Dissemination Campaign. The Office of the Press Secretary, in
coordination with the National Statistics Offices, the GSIS and SSS as lead agencies and
 other concerned agencies shall undertake a massive tri-media information dissemination
campaign to educate and raise public awareness on the importance and use of the PRN and
the Social Security Identification Reference.

Sec. 6. Funding. The funds necessary for the implementation of the system shall be sourced
from the respective budgets of the concerned agencies.

Sec. 7. Submission of Regular Reports. The NSO, GSIS and SSS shall submit regular reports
to the Office of the President, through the IACC, on the status of implementation of this
undertaking.

Sec. 8 Effectivity. This Administartive Order shall take effect immediately.

DONE in the City of Manila, this 12th day of December in the year of Our Lord, Nineteen
Hundred and Ninety-Six.

In seeking to strike down A.O. No. 308 as unconstitutional, petitioner argues:

A. THE ESTABLISHMENT OF NATIONAL COMPUTERIZED IDENTIFICATION REFERENCE

SYSTEM REQUIRES A LEGISLATIVE ACT. THE ISSUACE OF A.O. NO. 308 BY THE PRESIDENT
OF THE REPUBLIC OF THE PHILIPPINES IS, THEREFORE, AN UNCONSTITUTIONAL
USURPATION OF THE LEGISLATIVE POWERS OF THE CONGRESS OF THE REPUBLIC OF THE
PHILIPPINES.

B. THE APPROPRIATION OF PUBLIC FUNDS BY THE PRESIDENT FOR THE IMPLEMENTATION

OF A.O. NO. 308 IS AN UNCONSTITUTIONAL USURPATION OF THE EXCLUSIVE RIGHT OF
CONGRESS TO APPROPRIATE PUBLIC FUNDS FOR EXPENDITURE.

C. THE IMPLEMENTATION OF A.O. NO. 308 INSIDIOUSLY LAYS THE GROUNDWORK FOR A
SYSTEM WHICH WILL VIOLATE THE BILL OF RIGHTS ENSHRINED IN THE CONSTITUTION.

The National Computerized Identification Reference system to which the NSO, GSIS and SSS are linked as
lead members of the IACC is intended to establish uniform standards for ID cards isssued by key
government agencies (like the SSS) 1 for the "efficient identification of persons." 2 Under the new system,
only one reliable and tamper-proof I.D. need be presented by the cardholder instead of several
identification papers such as passports and driver's license, 3 to able to transact with government agencies.
The improved ID can be used to facilitate public transactions such as:

1. Payment of SSS and GSIS benefits

2. Applications for driver's license, BIR TIN, passport, marriage license, death
certificate, NBI and police clearances, and business permits

3. Availment of Medicare services in hospitals

4. Availment of welfare services

5. Application for work/employment

4
6. Pre-requisite for Voter's ID.

The card may also be used for private transactions such as:

1. Opening of bank accounts

2. Encashment of checks

3. Applications for loans, credit cards, water, power, telephones, pagers, etc.

4. Purchase of stocks

5. Application for work/employment

6. Insurance claims

7. Receipt of payments, checks, letters, valuables, etc. 5

The new identification system would tremendously improve and uplift public service in our country to the
benefit of Filipino citizens and resident aliens. It would promote, facilitate and speed up legitimate
transactions with government offices as well as with private and business entities. Experience tells us of
the constant delays and inconveniences the public has to suffer in availing of basic public services and
social security benefits because of inefficient and not too reliable means of identification of the
beneficiaries.

Thus, in the "Primer on the Social Security Card and Administrative Order No. 308" issued by the SSS, a
lead agency in the implementation of the said order, the following salient features are mentioned:

1. A.O. 308 merely establishes the standards for I.D. cards issued by key government
agencies such as SSS and GSIS.

2. It does not establish a national I.D. system neither does it require a national I.D. card for
every person.

3. The use of the I.D. is voluntary.

4. The I.D. is not required for delivery of any government service. Everyone has the right to
basic government services as long as he is qualified under existing laws.

5. The LD. cannot and will not in any way be used to prevent one to travel.

6. There will be no discrimination Non-holders of the improved I.D. are still entitled to the
same services but will be subjected to the usual rigid identification and verification
beforehand.

The issue that must first be hurdled is: was the issuance of A.O. No. 308 an exercise by the President of
legislative power properly belonging to Congress?

It is not.

The Administrative Code of 1987 has unequivocally vested the President with quasi-legislative powers in
the form of executive orders, administrative orders, proclamations, memorandum orders and circulars and
general or special orders. 6 An administrative order, like the one under which the new identification system
is embodied, has its peculiar meaning under the 1987 Administrative Code:

Sec. 3. Administrative Orders. Acts of the President which relate to particular aspects of
governmental operations in pursuance of his duties as administrative head shall be
promulgated in administrative orders.

The National Computerized Identification Reference System was established pursuant to the aforaquoted
provision precisely because its principal purpose, as expressly stated in the order, is to provide the people
with "the facility to conveniently transact business" with the various government agencies providing basic
services. Being the "administrative head," it is unquestionably the responsibility of the President to find
ways and means to improve the government bureaucracy, and make it more professional, efficient and
reliable, specially those government agencies and instrumentalities which provide basic services and which
the citizenry constantly transact with, like the Government Service Insurance System (GSIS), Social
Security System (SSS) and National Statistics Office (NSO). The national computerized ID system is one
such advancement. To emphasize, the new identification reference system is created to streamline the
bureaucracy, cut the red tape and ultimately achieve administrative efficiency. The project, therefore,
relates to, is an appropriate subject and falls squarely within the ambit of the Chief Executive's
administrative power under which, in order to successfully carry out his administrative duties, he has been
granted by law quasi-legislative powers, quoted above.

Understandably, strict adherence to the doctrine of separation of power spawns differences of opinion. For
we cannot divide the branches of government into water-tight compartment. Even if such is possible, it is
neither desirable nor feasible. Bernard Schwartz, in his work Administrative Law, A Casebook, thus states:

To be sure, if we think of the separation of powers as carrying out the distinction between
legislation and administration with mathematical precision and as dividing the branches of
government into watertight compartments, we would probably have to conclude that any
exercise of lawmaking authority by an agency is automatically invalid. Such a rigorous
application of the constitutional doctrine is neither desirable nor feasible; the only absolute
separation that has ever been possible was that in the theoretical writings of a Montesquieu,
 who looked across at foggy England from his sunny Gascon vineyards and completely
misconstrued what he saw. 7

A mingling of powers among the three branches of government is not a novel concept. This blending of
powers has become necessary to properly address the complexities brought about by a rapidly developing
society and which the traditional branches of government have difficulty coping with. 8

It has been said that:

The true meaning of the general doctrine of the separation of powers seems to be that the
whole power of one department should not be exercised by the same hands which possess
the whole power of either of the other department, and that no one department ought to
possess directly or indirectly an overruling influence over the others. And it has been that
this doctrine should be applied only to the powers which because of their nature are
assigned by the constitution itself to one of the departments exclusively. Hence, it does not
necessarily follow that an entire and complete separation is either desirable of was ever
intended, for such a complete separation would be impracticable if not impossible; there
may be-and frequently are-areas in which executive, legislative, and judicial powers blend or
overlap; and many officers whose duties cannot be exclusively placed under any one of these
heads.

The courts have perceived the necessity of avoiding a narrow construction of a state
constitutional provision for the division of the powers of the government into three distinct
departments, for it is impractical to view the provision from the standpoint of a doctrinaire.
Thus, the modern view of separation of powers rejects the metaphysical abstractions and
reverts instead to more pragmatic, flexible, functional approach, giving recognition to the
fact that then may be a certain degree of blending or admixture of the three powers of the
government. Moreover, the doctrine of separation of powers has never been strictly or
rigidly applied, and indeed could not be, to all the ramifications of state or national
governments; government would prove abortive if it were attempted to follow the policy of
separation to the letter. 9

In any case A.O. No. 308 was promulgated by the President pursuant to the quasi-legislative powers
expressly granted to him by law and in accordance with his duty as administrative head. Hence, the
contention that the President usurped the legislative prerogatives of Congress has no firm basis.

II

Having resolved that the President has the authority and prerogative to issue A.O. No. 308, I submit that it
is premature for the Court to determine the constitutionality or unconstitutionality of the National
Computerized Identification Reference System.

Basic in constitutional law is the rule that before the court assumes jurisdiction over and decide
constitutional issues, the following requisites must first be satisfied:

1) there must be an actual case or controversy involving a conflict of rights susceptible of judicial
determination;

2) the constitutional question must be raised by a proper party;

3) the constitutional question must be raised at the earliest opportunity; and

4) the resolution of the constitutional question must be necessary to the resolution of the case. 10

In this case, it is evident that the first element is missing. Judicial intervention calls for an actual case or
controversy which is defined as "an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory." 11 Justice Isagani A. Cruz further expounds that "(a)
justifiable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract
character or from one that is academic or moot. The controversy must be definite and concrete, touching
the legal relations of parties having adverse legal interests. It must be a real and substantial controversy
admitting of special relief through a decree that is conclusive in character, as distinguished from an
opinion advising what the law would be upon a hypothetical state of facts. . . ." 12 A.O. No. 308 does not
create any concrete or substantial controversy. It provides the general framework of the National
Computerized Identification Reference System and lays down the basic standards (efficiency, convenience
and prevention of fraudulent transactions) for its cretion. But as manifestly indicated in the subject order,
it is the Inter-Agency Coordinating Committee (IACC) which is tasked to research, study and formulate the
guidelines and parameters for the use of Biometrics Technology and in computer application designs that
will and define give substance to the new system. 13 This petition is, thus, premature considering that the
IACC is still in the process of doing the leg work and has yet to codify and formalize the details of the new
system.

The majority opines that the petition is ripe for adjudication even without the promulgation of the
necessary guidelines in view of the fact that respondents have begun implementation of A.O. No. 308. The
SSS, in particular, has started advertising in newspapers the invitation to bid for the production of the I.D.
cards. 14

I beg to disagree. It is not the new system itself that is intended to be implemented in the invitation to bid
but only the manufacture of the I.D. cards. Biometrics Technology is not and cannot be used in the I.D.
cards as no guidelines therefor have yet been laid down by the IACC. Before the assailed system can be set
up, it is imperative that the guidelines be issued first.

III

Without the essential guidelines, the principal contention for invalidating the new identification reference
system that it is an impermissible encroachment on the constitutionally recognized right to privacy is
plainly groundless. There is nothing in A.O. No. 308 to serve as sufficient basis for a conclusion that the
new system to be evolved violates the right to privacy. Said order simply provides the system's general
framework. Without the concomitant guidelines, which would spell out in detail how this new
identification system would work, the perceived violation of the right to privacy amounts to nothing more
than mere surmise and speculation.

What has caused much of the hysteria over the National Computerized Identification Reference System is
the possible utilization of Biometrics Technology which refers to the use of autnomated matching of
physiological or behavioral characteristics to identify a person that would violated the citizen's
constitutionally protected right to privacy.

The majority opinion has enumerated various forms and methods of Biometrics Technology which if
adopted in the National Computaized Identification Reference System would seriously threaten the right to
privacy. Among which are biocrypt retinal scan, artificial nose and thermogram. The majority also points to
certain alleged deficiencies of A O. No. 308. Thus:

1) A.O. No. 308 does not specify the particular Biometrics Technology that shall be used for
the new identification system.

2) The order dots not state whether encoding of data is limited to biological information
alone for identification purposes;

3) There is no provision as to who shall control and access the data, under what
circumstances and for what purpose; and

4) There are no controls to guard against leakage of information, thus heightening the
potential for misuse and abuse.

We should not be overwhelmed by the mere mention of the Biometrics Technology and its alleged, yet
unfounded "far-reaching effects."

There is nothing in A.O. No. 308, as it is worded, to suggest that the advanced methods of the Biometrics
Technology that may pose danger to the right of privacy will be adopted.

The standards set in A.O. No. 308 for the adoption of the new system are clear-cut and unequivocably
spelled out in the "WHEREASES" and body of the order, namely, the need to provide citizens and foreign
residents with the facility to conveniently transact business with basic service and social security providers
and other government instrumentalities; the computerized system is intended
to properly and efficientlyidentify persons seeking basic services or social security and reduce, if not totally
eradicate fraudulent transactions and misreprentation; the national identification reference system is
established among the key basic services and social security providers; and finally, the IACC Secretariat
shall coordinate with different Social Security and Services Agencies to establish the standards in the use
of Biometrics Technology. Consequently, the choice of the particular form and extent of Biometrics
Technology that will be applied and the parameters for its use (as will be defined in the guidelines) will
necessarily and logically be guided, limited and circumscribed by the afore-stated standards. The fear
entertained by the majority on the potential dangers of this new technology is thus securedly allayed by
the specific limitations set by the above-mentioned standards. More than this, the right to privacy is well-
esconced in and directly protected by various provisions of the Bill of Rights, the Civil Code, the Revised
Penal Code, and certain laws, all so painstakingly and resourcefully catalogued in the majority opinion.
Many of these laws provide penalties for their violation in the form of imprisonment, fines, or damages.
These laws will serve as powerful deterrents not only in the establishment of any administrative rule that
will violate the constitutionally protected right to privacy, but also to would-be transgressors of such right.

Relevant to this case is the ruling of the U.S. Supreme Court in Whalen v. Roe. 15 In that case, a New York
statute was challenged for requiring physicians to identify patients obtaining prescription drugs of the
statute's "Schedule II" category (a class of drugs having a potential for abuse and a recognized medical
use) so the names and addresses of the prescription drug patients can be recorded in a centralized
computer file maintained by the New York State Department of Health. Some patients regularly receiving
prescription for "Schedule II" drugs and doctors who prescribed such drugs brought an action questioning
the validity of the statute on the ground that it violated the plaintiffs' constitutionally protected rights of
privacy.

In a unanimous decision, the US Supreme Court sustained the validity of the statute on the ground that the
patient identification requirement is a reasonable exercise of the State's broad police powers. The Court
also held that there is no support in the record for an assumption that the security provisions of the statute
will be adiministered improperly. Finally, the Court opined that the remote possibility that judicial
supervision of the evidentiary use of particular items of stored information will not provide adequate
protection against unwarranted diclosures is not a sufficient reason for invalidating the patient-
identification program.

To be sure, there is always a possibility of an unwarranted disclosure of confidential matters enomously

accumulated in computerized data banks and in government records relating to taxes, public health, social
security benefits, military affairs, and similar matters. But as previously pointed out, we have a sufficient
number of laws prohibiting and punishing any such unwarranted disclosures. Anent this matter, the
observation in Whalen vs. Roe is instructive:

. . . We are not unaware of the threat to privacy implicit in the accumulation of vast amounts
of personal information in computerized data banks or other massive government files. The
collection of taxes, the distribution of welfare and social security benefits, the supervision of
public health, the direction of our Armed Forces and the enforcement of the criminal laws all
require the orderly preservation of great quantities of information, much of which is
personal in character and potentially embarrassing or harmful if disclosed. The right to
collect and use such data for public purposes is typically accompanied by a concomitant
statutory or regulatory duty to avoid unwarranted disclosures. . . . 16

The majority laments that as technology advances, the level of reasonably expected privacy decreases.
That may be true. However, court should tread daintily on the field of social and economic experimentation
lest they impede or obstruct the march of technology to improve public services just on the basis of an
unfounded fear that the experimentation violates one's constitutionally protected rights. In the sobering
words of Mr. Justice Brandeis:

To stay experimentation in things social and economic is a grave responsibility. Denial of the
right to experiment may be fraught with serious consequences to the Nation. It is one of the
happy incidents of the federal system that a single courageous State may, if its citizens
choose, serve as a laboratory; and try novel social and economic experiments without risk to
the rest of the country. This Court has the power to prevent an experiment. We may strike
down the statute which embodies it on the ground that, in our opinion, the measure is
arbitary, capricious or unreaonable. We have power to do this, because the due process
clause has been held by he Court applicable to matters of substantive law as well as to
matters of procedure. But in the exercise of this high power, we must be ever on our guard,
lest we erect our prejudices into legal principles. If we would guide by the light of reason,
we must let our minds be bold. 17

Again, the concerns of the majority are premature precisely because there are as yet no guidelines that will
direct the Court and serve as solid basis for determining the constitutionality of the new identification
system. The Court cannot and should not anticipate the constitutional issues and rule on the basis of
guesswok. The guidelines would, among others, determine the particular biometrics method that would be
used and the specific personal data that would be collected provide the safeguard, (if any) and supply the
details on how this new system in supposed to work. The Court should not jump the gun on the Executive.

III

On the issue of funding, the majority submits that Section 6 of A.O. No. 308, which allows the government
agencies included in the new system to obtain funding form their respective budgets, is unconstitutional
for being an illegal transfer of appropriations.

It is not so. The budget for the national identification system cannot be deemed a transfer of funds since
the same is composed of and will be implemented by the member government agancies. Morever, thses
agencies particularly the GSIS and SSS have been issuing some form of identification or membership card.
The improved ID cards that will be issued under this new system would just take place of the old
identification cards and budget-wise, the funds that were being used to manufacture the old ID cards,
which are usually accounted for under the "Supplies and Materials" item of the Government Accounting
and Auditing Manual, could now be utilized to fund the new cards. Hence, what is envisioned is not transfer
of appropriations but a pooling of funds and resources by the various government agencies involved in the
project.

WHEREFORE, I vote to dismiss the petition.

MENDOZA, J., separate opinion;

My vote is to dismiss the petition in this case.

First. I cannot find anything in the text of Administrative Order No. 308 of the President of the Philippines
that would warrant a declaration that it is violative of the right of privacy. So far as I can see, all the
Administrative Orders does is

establish an Identification Reference System involving the following service

agencies of the government:

Presidential Management Staff

National Economic Developemnt Authority

Department of the Interior and Local Government

Department of Health

Government Service Isurance System

Social Security Office

National Computer Center

create a committee, composed of the heads of the agencies concerned, to draft

rules for the System;

direct the use of the Population Reference Number (PRN) generated by the
National Census and Statistics Office as the common reference number to link the
participating agencies into an Identification Reference System, and the adoption by
the agencies of standards in the use of biometrics technology and computer designs;
and

provide for the funding of the System from the budgets of the agencies concerned.

Petitioner argues, however, that "the implementation of A.O. No. 308 will mean that each and every
Filipino and resident will have a file with the government containing, at the very least, his PRN and
physiological biometrics such as, but not limited to, his facial features, hand geometry, retinal or iris
pattern, DNA pattern, fingerprints, voice characteristics, and signature analysis."

In support of his contention, petitioner quotes the following publication surfed from the Internet:

The use of biometrics is the means by which an individual may be conclusively identified.
There are two types of biometrics identifiers; Physical and behavioral characteristics,
Physiological biometrics include facial features, hand geometry, retinal and iris patterns.
DNA, and fingerprints characteristics include voice characteristics and signature analysis . 1

I do not see how from the bare provisions of the Order, the full text of which is set forth in the majority
opinion, petitioner and the majority can conclude that the Identification Reference System establishes
such comprehensive personal information dossiers that can destroy individual privacy. So far as the Order
provides, all that is contemplated is an identification system based on data which the government agencies
involved have already been requiring individuals making use of their services to give.

For example, under C.A. No. 591, 2(a) the National Statistics Office collects "by enumeration, sampling or
other methods, statistics and other information concerning population . . . social and economic institutions,
and such other statistics as the President may direct." In addition, it is in charge of the administration of
the Civil Register, 2 which means that it keeps records of information concerning the civil status of
persons, i.e., (a) births, (b) deaths, (c) marriages and their annulments; (d) legitimations, (e) adoptions,
(f) acknowledgments of natural children, (g) naturalizations, and (h) changes of name. 3

Other statutes giving government agencies the power to require personal information may be cited. R.A.
No. 4136, 23 gives the Land Transportation Office the power to require applicants for a driver's license to
give information regarding the following: their full names, date of birth, height, weight, sex, color of eyes,
blood type, address, and right thumbprint;4 while R.A. No. 8239, 5 gives the Department of Foreign Affairs
the power to require passport applicants to give information concerning their names, place of birth, date of
birth, religious affiliation, marital status, and citizenship.

Justice Romero, tracing the origin of privacy to the attempt of the first man and woman to cover their
nakedness with fig leaves, bemoans the fact that technology and institutional pressures have threatened
our sense of privacy. On the other hand, the majority would have none of the Identification Reference
System "to prevent the shrinking of the right to privacy, once regarded as "the most comprehensive of
rights and the right most valued by civilized men."" 5 Indeed, techniques such as fingerprinting or
electronic photography in banks have become commonplace. As has been observed, the teaching hospital
has come to be accepted as offering madical services that compensate for the loss of the isolation of the
sickbed; the increased capacity of applied sciences to utilize more and more kinds of data and the
cosequent calls for such data have weakened traditional resistance to disclosure. As the area of relevance,
political or scientific, expands, there is strong psychological pressure to yield some ground of privacy. 6

But this is a fact of life to which we must adjust, as long as the intrusion into the domain of privacy is
reasonable. In Morfe v. Mutuc, 7 this Court dealt the coup de grace to claims of latitudinarian scope for the
right of privacy by quoting the pungent remark of an acute observer of the social scene, Carmen Guerrero-
Nakpil:

Privacy? What's that? There is no precise word for it in Filipino, and as far as I know any
Filipino dialect and there is none because there is no need for it. The concept and practice of
privacy are missing from conventional Filipino life. The Filipino believes that privacy is an
unnecessary imposition, an eccentricity that is barely pardonable or, at best, an esoteric
Western afterthought smacking of legal trickery. 8

Justice Romero herself says in her separate opinion that the word privacy is not even in the lexicon
of Filipinos.

As to whether the right of privacy is "the most valued right," we do well to remember the encomiums paid
as well to other constitutional rights. For Professor Zechariah Chafee, "The writ of habeas corpus is "the
most important human rights provision in the fundamental law,"" 9 For Justice Cardozo, on the other hand,
freedom of expression "is the matrix, the indispensable condition of nearly every other form of freedom." 10

The point is that care must be taken in assigning values to constitutional rights for the purpose of
calibrating them on the judicial scale, especially if this means employing stricter standards of review for
regulations alleged to infringe certain rights deemed to be "most valued by civilized men.''

Indeed, the majority concedes that "the right of privacy does not bar all incursions into individual privacy .
. . [only that such] incursions into the right must be accompanied by proper safeguards and well-defined
standards to prevent unconstitutional invasions." 11 In the case of the Identification Reference System, the
purpose is to facilitate the transaction of business with service agencies of the government and to prevent
fraud and misrepresentation. The personal identification of an individual can facilitate his treatment in any
government hospital in case of emergency. On the other hand, the delivery of material assistance, such as
free medicines, can be protected from fraud or misrepresentation as the absence of a data base makes it
possible for unscrupulous individuals to obtain assistance from more than one government agency.

Second. Thus, the issue in this case is not really whether A.O. No. 308 violates the right of privacy formed
by emanations from the several constitutional rights cited by the majority. 12 The question is whether it
violates freedom of thought and of conscience guaranteed in the following provisions of our Bill of Rights
(Art. III):

Sec. 4. No law Shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for
redress of grievances.

Sec. 5. No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise enjoyment of religious profession and worship, without
discrimination or preference, shall be forever be allowed. No religious test shall be required
for the exercise of civil or political rights.
More specifically, the question is whether the establishment of the Identification Reference System will
not result in the compilation of massive dossiers on individuals which, beyond their use for identification,
can become instruments of thought control. So far, the next of A.O. No. 308 affords no basis for believing
that the data gathered can be used for such sinister purpose. As already stated, nothing that is not already
being required by the concerned agencies of those making use of their servides is required by the Order in
question. The Order simply organizes service agencies of the government into a System for the purpose of
facilitating the identification of persons seeking basic services and social security. Thus, the whereas
clauses of A.O. No. 308 state:

WHEREAS, there is a need to provide Filipino citizens and foreign residents with the facility
to conveniently transact business with basic services and social security providers and other
government instrumentalities;

WHEREAS, this will require a computerized system to properly and efficiently identify
persons seeking basic services and social security, and reduce, if not totally eradicate,
fraudulent transactions and misrepresentations;

WHEREAS, a concerted and collaborative effort among the various basic services and social
security providing agencies and other government instrumentalities is required to achieve
such a system:

The application of biometric technology and the standardization of computer designs can provide
service agencies with precise identification of individuals, but what is wrong with that?

Indeed, A.O. No. 308 is no more than a directive to government agencies which the President of the
Philippines has issued in his capacity as administrative head. 13 It is not a statute. It confers no right; it
imposes no duty; it affords no protection; it creates no office. 14 It is, as its name indicates, a mere
administrative order, the prescise nature of which is given in the following excerpt from the decision in the
early case of Olsen & Co. v. Herstein: 15

[It] is nothing more or less than a command from a superior to an inferior. It creates no
relation except between the official who issues it and the official who receives it . Such
orders, whether executive or departmental, have for their object simply the efficient and
economical administration of the affairs of the department to which or in which they are
issued in accordance with the law governing the subject-matter. They are administrative in
their nature and do not pass beyond the limits of the department to which they are directed
or in which they are published, and, therefore, create no rights in third persons. They are
based on, and are the product of a relationship in which power is their source and obedience
their object. Disobedience to or deviation from such an order can be punished only by the
power which issued it: and, if that power fails to administer the corrective, then the
disobedience goes unpunished. In that relationship no third person or official may intervene,
not even the court. Such orders may be very temporary, they being subject to instant
revocation or modification by the power which published them. Their very nature, as
determined by the relationship which prodecued them, demonstrates clearly the
impossibility of any other person enforcing them except the one who created them. An
attempt on the part of the courts to enforce such orders would result not only in confusion
but, substantially, in departmental anarchy also. 16

Third. There is no basis for believing that, beyond the identification of individuals, the System will be used
for illegal purposes. Nor are sanctions lacking for the unauthorized use or disclosure of information
gathered by the various agencies constituting the System. For example, as the Solicitor General points out.
C.A. No. 591. 4 penalizes the unauthorized use or disclosure of data furnished the NSO with a fine of not
more than P600.00 or imprisonment for not more than six months or both.

At all events, at this stage, it is premature to pass on the claim that the Identification Reference System
can be used for the purpose of compiling massive dossiers on individuals that can be used to curtail basic
civil and political rights since, if at all, this can only be provided in the implementing rules and regulations
which have yet to be promulgated. We have already stated that A.O. No. 308 is not a statute. Even in the
case of statutes, however, where implementing rules are necessary to put them into effect, it has been
held that an attack on their constitutionality would be premature. 17 As Edgar in King Lear puts it,
"Ripeness is all." 18For, to borrow some more Shakespearean lines,

The canker galls the infants of the spring

Too oft before their buttons be disclos'd. 19

That, more than any doctrine of constitutional law I can think of, succinctly expresses the rule on
ripeness, prematurity, and hypothetical, speculative, or conjectural claims.
Of special relevance to this case is Laird v. Tatum. 20 There, a class suit was brought seeking declaratory
and injunctive relief on the claim that a U.S. Army intelligence surveillance of civilian political activity
having "a potential for civil disorder" exercised "a present inhibiting effect on [respondents'] full
expression and utilization of their First Amendment rights." In holding the case nonjusticiable, the U.S.
Supreme Court, in an opinion by Chief Justice Burger. said: 21

In recent years this Court has found in a number of cases that constitutional violations may
arise from the deterrent or ''chilling," effect of governmental regulations that fall short of a
direct prohibition against the exercise of First Amendment rights. [Citation of cases omitted]
In none of these cases, however, did the chilling effect arise merely from the individual's
knowledge that a governmental agency was engaged in certain activities or from the
individual's concomitant fear that, armed with the fruits of those activities, the agency might
in the future take some other and additional action detrimental to that individual. Rather, in
each of these cases, the challenged exercise of governmental power was regulatory,
proscriptive, or compulsory in nature, and the complainant was either presently or
prospectively subject to the regulations, proscriptions, or compulsions that he was
challenging. . . .

[T]hese decisions have in no way eroded the "established principle that to entitle a private
individual to invoke the judicial power to determine the validity of executive or legislative
action he must show that he was sustained or is immediately in danger of sustaining a direct
injury as the result of that action. . . .

The respondents do not meet this test; [the] alleged "chilling" effect may perhaps be seen as
arising from respondents' perception of the system as inappropriate to the Army's role under
our form of government, or as arising from respondents' beliefs that it is inherently
dangerous for the military to be concerned with activities in the civilian sector, or as arising
from respondents' less generalized yet speculative apprehensiveness that the Army may at
some future date misuse the information in some way that would cause direct harm to
respondents. Allegations of a subjective "chill" are not an adequate substitute for a claim of
specific present objective harm or a threat of specific future harm: "the federal courts
established pursuant to Article III of the Constitution do not render advisory
opinions." United Public Workers v. Mitchell, 330 US 75, 89, 91 L Ed 754, 766, 67 S Ct 556
(1947).

Fourth. Given the fact that no right of privacy is involved in this case and that any objection to the
identification Reference System on the ground that it violates freedom of thought is premature,
speculative, or conjectural pending the issuance of the implementing rules, it is clear that petitioner Blas F.
Ople has no cause of action and, therefore, no standing to bring this action. Indeed, although he assails
A.O. No. 308 on the ground that it violates the right of privacy, he claims no personal injury suffered as a
result of the Order in question. Instead, he says he is bringing this action as taxpayer, Senator, and
member of the Government Service Insurance System.

Insofar as petitioner claims an interest as taxpayer, it is sufficient to say that A.O. No. 308 does not involve
the exercise of the taxing or spending power of the government.

Insofar as he purports to sue as a member of the GSIS, neither does petitioner have an intertest sufficient
to enable him to litigate a constitutional question. Petitioner claims that in providing that the funds
necessary for implementing the System shall be taken from the budgets of the concerned agencies. A.O.
No. 308 violates Art. VI, 25(5) which. provides:

No law shall be passed authorizing any transfer of appropriations; however, the President,
the President of the Senate, the Speaker of the House of Representatives, the Chief Justice
of the Supreme Court, and the heads of Constitutional Commissions may, by law, be
authorized to augment any item in the general appropriations law for their respective offices
from savings in other items of their respective appropriations.

But, as the Solicitor General states:

Petitioner's argument is anchored on two erroneous assumptions: one, that all the
concerned agencies, including the SSS and the GSIS, receive budgetary support from the
national government; and two, that the GAA is the only law whereby public funds are
appropriated. Both assumptions are wrong.

The SSS and GSIS do not presently receive budgetary support from the National
Government. They have achieved self-supporting status such that the contributions of their
members are sufficient to finance their expenses. One would be hard pressed to find in the
GAA an appropriation of funds to the SSS and the GSIS.
 Furthermore, their respective charters authorize the SSS and the GSIS to disburse their
funds (Rep. Act No. 1161 [1954], as amended, Sec. 25; Pres. Decree No. 1146 [1977], as
amended, Sec. 29) without the need for a separate appropriation from the Congress.

Nor as Senator can petitioner claim standing since no power of Congress is alleged to have been impaired
by the Administrative Order in question. 22 As already stated, in issuing A.O. No. 308, the President did not
exercise the legislative power vested by the Constitution in Congress. He acted on the basis of his own
powers as administrative head of the government, as distinguished from his capacity as the Executive.
Dean Sinco elucidates the crucial distinction thus:

The Constitution of the Philippines makes the President not only the executive but also the
administrative head of the government. . . . Executive power refers to the legal and political
function of the President involving the exercise of discretion. Administrative power, on the
other hand, concerns itself with the work of applying policies and enforcing orders as
determined by proper governmental organs. These two functions are often confused by the
public: but they are distinct from each other. The President as the executive authority has
the duty of supervising the enforcement of laws for the maintenance of general peace and
public order. As administrative head, his duty is to see that every government office is
managed and maintained properly by the persons in charge of it in accordance with
pertinent laws and regulations.

. . . The power of control vested in him by the Constitution makes for a strongly centralized
administrative system. It reinforces further his position as the executive of the government,
enabling him to comply more effectively with his constitutional duty to enforce the laws. It
enables him to fix a uniform standard of a administrative eficiency and to check the official
conduct of his agents. The decisions of all the officers within his department are subject to
his power of revision, either on his own motion or on the appeal of some individual who
might deem himself aggrieved by the action of an administrative official. In case of serious
dereliction of duty, he may suspend or remove the officials concerned. 23

For the foregoing reasons, the petition should be DISMISSED.

KILUSANG MAYO UNO, NATIONAL FEDERATION OF LABOR UNIONS-KILUSANG MAYO UNO (NAFLU-KMU),
JOSELITO V. USTAREZ, EMILIA P. DAPULANG, SALVADOR T. CARRANZA, MARTIN T. CUSTODIO, JR. and
ROQUE M. TAN, Petitioners,
vs.
THE DIRECTOR-GENERAL, NATIONAL ECONOMIC DEVELOPMENT AUTHORITY, and THE SECRETARY,
DEPARTMENT OF BUDGET and MANAGEMENT, Respondents.

x-----------------------------------x

G.R. No. 167930 April 19, 2006

BAYAN MUNA Representatives SATUR C. OCAMPO, TEODORO A. CASIO, and JOEL G. VIRADOR, GABRIELA
WOMENS PARTY Representative LIZA L. MAZA, ANAKPAWIS Representatives RAFAEL V. MARIANO and
CRISPIN B. BELTRAN, Rep. FRANCIS G. ESCUDERO, Rep. EDUARDO C. ZIALCITA, Rep. LORENZO R. TAADA
III, DR. CAROL PAGADUAN-ARAULLO and RENATO M. REYES, JR. of BAYAN, MARIE HILAO-ENRIQUEZ of
KARAPATAN, ANTONIO L. TINIO of ACT, FERDINAND GAITE of COURAGE, GIOVANNI A. TAPANG of AGHAM,
WILFREDO MARBELLA GARCIA, of KMP, LANA LINABAN of GABRIELA, AMADO GAT INCIONG, RENATO
CONSTANTINO, JR., DEAN PACIFICO H. AGABIN, SHARON R. DUREMDES of the NATIONAL COUNCIL OF
CHURCHES IN THE PHILIPPINES, and BRO. EDMUNDO L. FERNANDEZ (FSC) of the ASSOCIATION OF
MAJOR RELIGIOUS SUPERIORS OF THE PHILIPPINES (AMRSP), Petitioners,
vs.
EDUARDO ERMITA, in his capacity as Executive Secretary, ROMULO NERI, in his capacity as Director-
General of the NATIONAL ECONOMIC and DEVELOPMENT AUTHORITY (NEDA) and the Administrator of the
NATIONAL STATISTICS OFFICE (NSO), Respondents.

DECISION

CARPIO, J.:

This case involves two consolidated petitions for certiorari, prohibition, and mandamus under Rule 65 of the Rules of
Court, seeking the nullification of Executive Order No. 420 (EO 420) on the ground that it is unconstitutional.

EO 420, issued by President Gloria Macapagal-Arroyo on 13 April 2005, reads:

REQUIRING ALL GOVERNMENT AGENCIES AND GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS TO

STREAMLINE AND HARMONIZE THEIR IDENTIFICATION (ID) SYSTEMS, AND AUTHORIZING FOR SUCH PURPOSE THE
DIRECTOR-GENERAL, NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY TO IMPLEMENT THE SAME, AND FOR
OTHER PURPOSES

WHEREAS, good governance is a major thrust of this Administration;

WHEREAS, the existing multiple identification systems in government have created unnecessary and costly redundancies
and higher costs to government, while making it inconvenient for individuals to be holding several identification cards;

WHEREAS, there is urgent need to streamline and integrate the processes and issuance of identification cards in
government to reduce costs and to provide greater convenience for those transacting business with government;

WHEREAS, a unified identification system will facilitate private businesses, enhance the integrity and reliability of
government-issued identification cards in private transactions, and prevent violations of laws involving false names and
identities.

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines by virtue of the
powers vested in me by law, do hereby direct the following:

Section 1. Adoption of a unified multi-purpose identification (ID) system for government.1avvphil.net All
government agencies, including government-owned and controlled corporations, are hereby directed to adopt a unified
multi-purpose ID system to ensure the attainment of the following objectives:

a. To reduce costs and thereby lessen the financial burden on both the government and the public brought about
by the use of multiple ID cards and the maintenance of redundant database containing the same or related
information;

b. To ensure greater convenience for those transacting business with the government and those availing of
government services;

c. To facilitate private businesses and promote the wider use of the unified ID card as provided under this
executive order;

d. To enhance the integrity and reliability of government-issued ID cards; and

e. To facilitate access to and delivery of quality and effective government service.

Section 2. Coverage All government agencies and government-owned and controlled corporations issuing ID cards to
their members or constituents shall be covered by this executive order.

Section 3. Data requirement for the unified ID system The data to be collected and recorded by the participating
agencies shall be limited to the following:

Name

Home Address

Sex

Picture

Signature

Date of Birth

Place of Birth

Marital Status

Names of Parents

Height

Weight

Two index fingers and two thumbmarks

 Any prominent distinguishing features like moles and others

Tax Identification Number (TIN)

Provided that a corresponding ID number issued by the participating agency and a common reference number shall form
part of the stored ID data and, together with at least the first five items listed above, including the print of the right
thumbmark, or any of the fingerprints as collected and stored, shall appear on the face or back of the ID card for visual
verification purposes.

Section 4. Authorizing the Director-General, National Economic and Development Authority, to Harmonize
All Government Identification Systems. The Director-General, National Economic Development Authority, is hereby
authorized to streamline and harmonize all government ID systems.

Section 5. Functions and responsibilities of the Director-General, National Economic and Development
Authority. In addition to his organic functions and responsibilities, the Director-General, National Economic and
Development Authority, shall have the following functions and responsibilities:

a. Adopt within sixty (60) days from the effectivity of this executive order a unified government ID system
containing only such data and features, as indicated in Section 3 above, to validly establish the identity of the
card holder:

b. Enter into agreements with local governments, through their respective leagues of governors or mayors, the
Commission on Elections (COMELEC), and with other branches or instrumentalities of the government, for the
purpose of ensuring government-wide adoption of and support to this effort to streamline the ID systems in
government;

b. Call on any other government agency or institution, or create subcommittees or technical working groups, to
provide such assistance as may be necessary or required for the effective performance of its functions; and

d. Promulgate such rules or regulations as may be necessary in pursuance of the objectives of this executive
order.

Section 6. Safeguards. The Director-General, National Economic and Development Authority, and the pertinent
agencies shall adopt such safeguard as may be necessary and adequate to ensure that the right to privacy of an
individual takes precedence over efficient public service delivery. Such safeguards shall, as a minimum, include the
following:

a. The data to be recorded and stored, which shall be used only for purposes of establishing the identity of a
person, shall be limited to those specified in Section 3 of this executive order;

b. In no case shall the collection or compilation of other data in violation of a persons right to privacy shall be
allowed or tolerated under this order;

c. Stringent systems of access control to data in the identification system shall be instituted;

d. Data collected and stored for this purpose shall be kept and treated as strictly confidential and a personal or
written authorization of the Owner shall be required for access and disclosure of data;

e. The identification card to be issued shall be protected by advanced security features and cryptographic
technology; and

f. A written request by the Owner of the identification card shall be required for any correction or revision of
relevant data, or under such conditions as the participating agency issuing the identification card shall prescribe.

Section 7. Funding. Such funds as may be recommended by the Department of Budget and Management shall be
provided to carry out the objectives of this executive order.

Section 8. Repealing clause. All executive orders or issuances, or portions thereof, which are inconsistent with this
executive order, are hereby revoked, amended or modified accordingly.

Section 9. Effectivity. This executive order shall take effect fifteen (15) days after its publication in two (2)
newspapers of general circulation.

DONE in the City of Manila, this 13th day of April, in the year of Our Lord, Two Thousand and Five.

Thus, under EO 420, the President directs all government agencies and government-owned and controlled corporations to
adopt a uniform data collection and format for their existing identification (ID) systems.
Petitioners in G.R. No. 167798 allege that EO 420 is unconstitutional because it constitutes usurpation of legislative
functions by the executive branch of the government. Furthermore, they allege that EO 420 infringes on the citizens right
to privacy.1

Petitioners in G.R. No. 167930 allege that EO 420 is void based on the following grounds:

1. EO 420 is contrary to law. It completely disregards and violates the decision of this Honorable Court in Ople v.
Torres et al., G.R. No. 127685, July 23, 1998. It also violates RA 8282 otherwise known as the Social Security Act
of 1997.

2. The Executive has usurped the legislative power of Congress as she has no power to issue EO 420.
Furthermore, the implementation of the EO will use public funds not appropriated by Congress for that purpose.

3. EO 420 violates the constitutional provisions on the right to privacy

(i) It allows access to personal confidential data without the owners consent.

(ii) EO 420 is vague and without adequate safeguards or penalties for any violation of its provisions.

(iii) There are no compelling reasons that will legitimize the necessity of EO 420.

4. Granting without conceding that the President may issue EO 420, the Executive Order was issued without
public hearing.

5. EO 420 violates the Constitutional provision on equal protection of laws and results in the discriminatory
treatment of and penalizes those without ID. 2

Issues

Essentially, the petitions raise two issues. First, petitioners claim that EO 420 is a usurpation of legislative power by the
President. Second, petitioners claim that EO 420 infringes on the citizens right to privacy.

Respondents question the legal standing of petitioners and the ripeness of the petitions. Even assuming that petitioners
are bereft of legal standing, the Court considers the issues raised under the circumstances of paramount public concern
or of transcendental significance to the people. The petitions also present a justiciable controversy ripe for judicial
determination because all government entities currently issuing identification cards are mandated to implement EO 420,
which petitioners claim is patently unconstitutional. Hence, the Court takes cognizance of the petitions.

The Courts Ruling

The petitions are without merit.

On the Alleged Usurpation of Legislative Power

Section 2 of EO 420 provides, "Coverage. All government agencies and government-owned and controlled corporations
issuing ID cards to their members or constituents shall be covered by this executive order." EO 420 applies only to
government entities that issue ID cards as part of their functions under existing laws. These government entities have
already been issuing ID cards even prior to EO 420. Examples of these government entities are the
GSIS,3 SSS,4 Philhealth,5 Mayors Office,6 LTO,7 PRC,8 and similar government entities.

Section 1 of EO 420 directs these government entities to "adopt a unified multi-purpose ID system." Thus, all government
entities that issue IDs as part of their functions under existing laws are required to adopt a uniform data collection and
format for their IDs. Section 1 of EO 420 enumerates the purposes of the uniform data collection and format, namely:

a. To reduce costs and thereby lessen the financial burden on both the government and the public brought about
by the use of multiple ID cards and the maintenance of redundant database containing the same or related
information;

b. To ensure greater convenience for those transacting business with the government and those availing of
government services;

c. To facilitate private businesses and promote the wider use of the unified ID card as provided under this
executive order;

d. To enhance the integrity and reliability of government-issued ID cards; and

e. To facilitate access to and delivery of quality and effective government service.

In short, the purposes of the uniform ID data collection and ID format are to reduce costs, achieve efficiency and
reliability, insure compatibility, and provide convenience to the people served by government entities.

Section 3 of EO 420 limits the data to be collected and recorded under the uniform ID system to only 14 specific items,
namely: (1) Name; (2) Home Address; (3) Sex; (4) Picture; (5) Signature; (6) Date of Birth; (7) Place of Birth; (8) Marital
Status; (9) Name of Parents; (10) Height; (11) Weight; (12) Two index fingers and two thumbmarks; (13) Any prominent
distinguishing features like moles or others; and (14) Tax Identification Number.

These limited and specific data are the usual data required for personal identification by government entities, and even by
the private sector. Any one who applies for or renews a drivers license provides to the LTO all these 14 specific data.

At present, government entities like LTO require considerably more data from applicants for identification purposes. EO
420 will reduce the data required to be collected and recorded in the ID databases of the government entities.
Government entities cannot collect or record data, for identification purposes, other than the 14 specific data.

Various laws allow several government entities to collect and record data for their ID systems, either expressly or
impliedly by the nature of the functions of these government entities. Under their existing ID systems, some government
entities collect and record more data than what EO 420 allows. At present, the data collected and recorded by
government entities are disparate, and the IDs they issue are dissimilar.

In the case of the Supreme Court, 9 the IDs that the Court issues to all its employees, including the Justices, contain 15
specific data, namely: (1) Name; (2) Picture; (3) Position; (4) Office Code Number; (5) ID Number; (6) Height; (7)
Weight; (8) Complexion; (9) Color of Hair; (10) Blood Type; (11) Right Thumbmark; (12) Tax Identification Number; (13)
GSIS Policy Number; (14) Name and Address of Person to be Notified in Case of Emergency; and (15) Signature. If we
consider that the picture in the ID can generally also show the sex of the employee, the Courts ID actually contains 16
data.

In contrast, the uniform ID format under Section 3 of EO 420 requires only "the first five items listed" in Section 3, plus
the fingerprint, agency number and the common reference number, or only eight specific data. Thus, at present, the
Supreme Courts ID contains far more data than the proposed uniform ID for government entities under EO 420. The
nature of the data contained in the Supreme Court ID is also far more financially sensitive, specifically the Tax
Identification Number.

Making the data collection and recording of government entities unified, and making their ID formats uniform, will
admittedly achieve substantial benefits. These benefits are savings in terms of procurement of equipment and supplies,
compatibility in systems as to hardware and software, ease of verification and thus increased reliability of data, and the
user-friendliness of a single ID format for all government entities.

There is no dispute that government entities can individually limit the collection and recording of their data to the 14
specific items in Section 3 of EO 420. There is also no dispute that these government entities can individually adopt the
ID format as specified in Section 3 of EO 420. Such an act is certainly within the authority of the heads or governing
boards of the government entities that are already authorized under existing laws to issue IDs.

A unified ID system for all these government entities can be achieved in either of two ways. First, the heads of these
existing government entities can enter into a memorandum of agreement making their systems uniform. If the
government entities can individually adopt a format for their own ID pursuant to their regular functions under existing
laws, they can also adopt by mutual agreement a uniform ID format, especially if the uniform format will result in
substantial savings, greater efficiency, and optimum compatibility. This is purely an administrative matter, and does not
involve the exercise of legislative power.

Second, the President may by executive or administrative order direct the government entities under the Executive
department to adopt a uniform ID data collection and format. Section 17, Article VII of the 1987 Constitution provides
that the "President shall have control of all executive departments, bureaus and offices." The same Section also mandates
the President to "ensure that the laws be faithfully executed."

Certainly, under this constitutional power of control the President can direct all government entities, in the exercise of
their functions under existing laws, to adopt a uniform ID data collection and ID format to achieve savings, efficiency,
reliability, compatibility, and convenience to the public. The Presidents constitutional power of control is self-executing
and does not need any implementing legislation.

Of course, the Presidents power of control is limited to the Executive branch of government and does not extend to the
Judiciary or to the independent constitutional commissions. Thus, EO 420 does not apply to the Judiciary, or to the
COMELEC which under existing laws is also authorized to issue voters ID cards.10 This only shows that EO 420 does not
establish a national ID system because legislation is needed to establish a single ID system that is compulsory for all
branches of government.

The Constitution also mandates the President to ensure that the laws are faithfully executed. There are several laws
mandating government entities to reduce costs, increase efficiency, and in general, improve public services.11 The
adoption of a uniform ID data collection and format under EO 420 is designed to reduce costs, increase efficiency, and in
general, improve public services. Thus, in issuing EO 420, the President is simply performing the constitutional duty to
ensure that the laws are faithfully executed.

Clearly, EO 420 is well within the constitutional power of the President to promulgate. The President has not usurped
legislative power in issuing EO 420. EO 420 is an exercise of Executive power the Presidents constitutional power of
control over the Executive department. EO 420 is also compliance by the President of the constitutional duty to ensure
that the laws are faithfully executed.

Legislative power is the authority to make laws and to alter or repeal them. In issuing EO 420, the President did not
make, alter or repeal any law but merely implemented and executed existing laws. EO 420 reduces costs, as well as
insures efficiency, reliability, compatibility and user-friendliness in the implementation of current ID systems of
government entities under existing laws. Thus, EO 420 is simply an executive issuance and not an act of legislation.

The act of issuing ID cards and collecting the necessary personal data for imprinting on the ID card does not require
legislation. Private employers routinely issue ID cards to their employees. Private and public schools also routinely issue
ID cards to their students. Even private clubs and associations issue ID cards to their members. The purpose of all these
ID cards is simply to insure the proper identification of a person as an employee, student, or member of a club. These ID
cards, although imposed as a condition for exercising a privilege, are voluntary because a person is not compelled to be
an employee, student or member of a club.

What require legislation are three aspects of a government maintained ID card system. First, when the implementation of
an ID card system requires a special appropriation because there is no existing appropriation for such purpose. Second,
when the ID card system is compulsory on all branches of government, including the independent constitutional
commissions, as well as compulsory on all citizens whether they have a use for the ID card or not. Third, when the ID
card system requires the collection and recording of personal data beyond what is routinely or usually required for such
purpose, such that the citizens right to privacy is infringed.

In the present case, EO 420 does not require any special appropriation because the existing ID card systems of
government entities covered by EO 420 have the proper appropriation or funding. EO 420 is not compulsory on all
branches of government and is not compulsory on all citizens. EO 420 requires a very narrow and focused collection and
recording of personal data while safeguarding the confidentiality of such data. In fact, the data collected and recorded
under EO 420 are far less than the data collected and recorded under the ID systems existing prior to EO 420.

EO 420 does not establish a national ID card system. EO 420 does not compel all citizens to have an ID card. EO 420
applies only to government entities that under existing laws are already collecting data and issuing ID cards as part of
their governmental functions. Every government entity that presently issues an ID card will still issue its own ID card
under its own name. The only difference is that the ID card will contain only the five data specified in Section 3 of EO
420, plus the fingerprint, the agency ID number, and the common reference number which is needed for cross-
verification to ensure integrity and reliability of identification.

This Court should not interfere how government entities under the Executive department should undertake cost savings,
achieve efficiency in operations, insure compatibility of equipment and systems, and provide user-friendly service to the
public. The collection of ID data and issuance of ID cards are day-to-day functions of many government entities under
existing laws. Even the Supreme Court has its own ID system for employees of the Court and all first and second level
courts. The Court is even trying to unify its ID system with those of the appellate courts, namely the Court of Appeals,
Sandiganbayan and Court of Tax Appeals.

There is nothing legislative about unifying existing ID systems of all courts within the Judiciary. The same is true for
government entities under the Executive department. If government entities under the Executive department decide to
unify their existing ID data collection and ID card issuance systems to achieve savings, efficiency, compatibility and
convenience, such act does not involve the exercise of any legislative power. Thus, the issuance of EO 420 does not
constitute usurpation of legislative power.

On the Alleged Infringement of the Right to Privacy

All these years, the GSIS, SSS, LTO, Philhealth and other government entities have been issuing ID cards in the
performance of their governmental functions. There have been no complaints from citizens that the ID cards of these
government entities violate their right to privacy. There have also been no complaints of abuse by these government
entities in the collection and recording of personal identification data.

In fact, petitioners in the present cases do not claim that the ID systems of government entities prior to EO 420 violate
their right to privacy. Since petitioners do not make such claim, they even have less basis to complain against the unified
ID system under EO 420. The data collected and stored for the unified ID system under EO 420 will be limited to only 14
specific data, and the ID card itself will show only eight specific data. The data collection, recording and ID card system
under EO 420 will even require less data collected, stored and revealed than under the disparate systems prior to EO 420.
Prior to EO 420, government entities had a free hand in determining the kind, nature and extent of data to be collected
and stored for their ID systems. Under EO 420, government entities can collect and record only the 14 specific data
mentioned in Section 3 of EO 420. In addition, government entities can show in their ID cards only eight of these specific
data, seven less data than what the Supreme Courts ID shows.

Also, prior to EO 420, there was no executive issuance to government entities prescribing safeguards on the collection,
recording, and disclosure of personal identification data to protect the right to privacy. Now, under Section 5 of EO 420,
the following safeguards are instituted:

a. The data to be recorded and stored, which shall be used only for purposes of establishing the identity of a
person, shall be limited to those specified in Section 3 of this executive order;

b. In no case shall the collection or compilation of other data in violation of a persons right to privacy be allowed
or tolerated under this order;

c. Stringent systems of access control to data in the identification system shall be instituted;

d. Data collected and stored for this purpose shall be kept and treated as strictly confidential and a personal or
written authorization of the Owner shall be required for access and disclosure of data;

e. The identification card to be issued shall be protected by advanced security features and cryptographic
technology;

f. A written request by the Owner of the identification card shall be required for any correction or revision of
relevant data, or under such conditions as the participating agency issuing the identification card shall prescribe.

On its face, EO 420 shows no constitutional infirmity because it even narrowly limits the data that can be collected,
recorded and shown compared to the existing ID systems of government entities. EO 420 further provides strict
safeguards to protect the confidentiality of the data collected, in contrast to the prior ID systems which are bereft of strict
administrative safeguards.

The right to privacy does not bar the adoption of reasonable ID systems by government entities. Some one hundred
countries have compulsory national ID systems, including democracies such as Spain, France, Germany, Belgium, Greece,
Luxembourg, and Portugal. Other countries which do not have national ID systems, like the United States, Canada,
Australia, New Zealand, Ireland, the Nordic Countries and Sweden, have sectoral cards for health, social or other public
services.12 Even with EO 420, the Philippines will still fall under the countries that do not have compulsory national ID
systems but allow only sectoral cards for social security, health services, and other specific purposes.

Without a reliable ID system, government entities like GSIS, SSS, Philhealth, and LTO cannot perform effectively and
efficiently their mandated functions under existing laws. Without a reliable ID system, GSIS, SSS, Philhealth and similar
government entities stand to suffer substantial losses arising from false names and identities. The integrity of the LTOs
licensing system will suffer in the absence of a reliable ID system.

The dissenting opinion cites three American decisions on the right to privacy, namely, Griswold v.
Connecticut,13U.S. Justice Department v. Reporters Committee for Freedom of the Press, 14 and Whalen v. Roe.15 The last
two decisions actually support the validity of EO 420, while the first is inapplicable to the present case.

In Griswold, the U.S. Supreme Court declared unconstitutional a state law that prohibited the use and distribution of
contraceptives because enforcement of the law would allow the police entry into the bedrooms of married couples.
Declared the U.S. Supreme Court: "Would we allow the police to search the sacred precincts of the marital bedrooms for
telltale signs of the use of contraceptives? The very idea is repulsive to the notions of privacy surrounding the marriage
relationship." Because the facts and the issue involved in Griswold are materially different from the present case, Griswold
has no persuasive bearing on the present case.

In U.S. Justice Department, the issue was not whether the State could collect and store information on individuals from
public records nationwide but whether the State could withhold such information from the press. The premise of the issue
in U.S. Justice Department is that the State can collect and store in a central database information on citizens gathered
from public records across the country. In fact, the law authorized the Department of Justice to collect and preserve
fingerprints and other criminal identification records nationwide. The law also authorized the Department of Justice to
exchange such information with "officials of States, cities and other institutions." The Department of Justice treated such
information as confidential. A CBS news correspondent and the Reporters Committee demanded the criminal records of
four members of a family pursuant to the Freedom of Information Act. The U.S. Supreme Court ruled that the Freedom of
Information Act expressly exempts release of information that would "constitute an unwarranted invasion of personal
privacy," and the information demanded falls under that category of exempt information.

With the exception of the 8 specific data shown on the ID card, the personal data collected and recorded under EO 420
are treated as "strictly confidential" under Section 6(d) of EO 420. These data are not only strictly confidential but also
personal matters. Section 7, Article III of the 1987 Constitution grants the "right of the people to information on matters
of public concern." Personal matters are exempt or outside the coverage of the peoples right to information on matters of
public concern. The data treated as "strictly confidential" under EO 420 being private matters and not matters of public
concern, these data cannot be released to the public or the press. Thus, the ruling in U.S. Justice Department does not
collide with EO 420 but actually supports the validity EO 420.

Whalen v. Roe is the leading American case on the constitutional protection for control over information. In Whalen, the
U.S. Supreme Court upheld the validity of a New York law that required doctors to furnish the government reports
identifying patients who received prescription drugs that have a potential for abuse. The government maintained a central
computerized database containing the names and addresses of the patients, as well as the identity of the prescribing
doctors. The law was assailed because the database allegedly infringed the right to privacy of individuals who want to
keep their personal matters confidential. The U.S. Supreme Court rejected the privacy claim, and declared:

Disclosures of private medical information to doctors, to hospital personnel, to insurance companies, and to public health
agencies are often an essential part of modern medical practice even when the disclosure may reflect unfavorably on the
character of the patient. Requiring such disclosures to representatives of the State having responsibility for the health of
the community does not automatically amount to an impermissible invasion of privacy. (Emphasis supplied)

Compared to the personal medical data required for disclosure to the New York State in Whalen, the 14 specific data
required for disclosure to the Philippine government under EO 420 are far less sensitive and far less personal. In fact, the
14 specific data required under EO 420 are routine data for ID systems, unlike the sensitive and potentially embarrassing
medical records of patients taking prescription drugs. Whalen, therefore, carries persuasive force for upholding the
constitutionality of EO 420 as non-violative of the right to privacy.

Subsequent U.S. Supreme Court decisions have reiterated Whalen. In Planned Parenthood of Central Missouri v.
Danforth,16 the U.S. Supreme Court upheld the validity of a law that required doctors performing abortions to fill up
forms, maintain records for seven years, and allow the inspection of such records by public health officials. The U.S.
Supreme Court ruled that "recordkeeping and reporting requirements that are reasonably directed to the preservation of
maternal health and that properly respect a patients confidentiality and privacy are permissible."

Again, in Planned Parenthood of Southeastern Pennsylvania v. Casey, 17 the U.S. Supreme Court upheld a law that
required doctors performing an abortion to file a report to the government that included the doctors name, the womans
age, the number of prior pregnancies and abortions that the woman had, the medical complications from the abortion,
the weight of the fetus, and the marital status of the woman. In case of state-funded institutions, the law made such
information publicly available. In Casey, the U.S. Supreme Court stated: "The collection of information with respect to
actual patients is a vital element of medical research, and so it cannot be said that the requirements serve no purpose
other than to make abortion more difficult."

Compared to the disclosure requirements of personal data that the U.S. Supreme Court have upheld in Whalen, Danforth
and Casey as not violative of the right to privacy, the disclosure requirements under EO 420 are far benign and cannot
therefore constitute violation of the right to privacy. EO 420 requires disclosure of 14 personal data that are routine for ID
purposes, data that cannot possibly embarrass or humiliate anyone.

Petitioners have not shown how EO 420 will violate their right to privacy. Petitioners cannot show such violation by a
mere facial examination of EO 420 because EO 420 narrowly draws the data collection, recording and exhibition while
prescribing comprehensive safeguards. Ople v. Torres18 is not authority to hold that EO 420 violates the right to privacy
because in that case the assailed executive issuance, broadly drawn and devoid of safeguards, was annulled solely on the
ground that the subject matter required legislation. As then Associate Justice, now Chief Justice Artemio V. Panganiban
noted in his concurring opinion in Ople v. Torres, "The voting is decisive only on the need for appropriate legislation, and
it is only on this ground that the petition is granted by this Court."

EO 420 applies only to government entities that already maintain ID systems and issue ID cards pursuant to their regular
functions under existing laws. EO 420 does not grant such government entities any power that they do not already
possess under existing laws. In contrast, the assailed executive issuance in Ople v. Torres sought to establish a "National
Computerized Identification Reference System," 19 a national ID system that did not exist prior to the assailed executive
issuance. Obviously, a national ID card system requires legislation because it creates a new national data collection and
card issuance system where none existed before.

In the present case, EO 420 does not establish a national ID system but makes the existing sectoral card systems of
government entities like GSIS, SSS, Philhealth and LTO less costly, more efficient, reliable and user-friendly to the public.
Hence, EO 420 is a proper subject of executive issuance under the Presidents constitutional power of control over
government entities in the Executive department, as well as under the Presidents constitutional duty to ensure that laws
are faithfully executed.

WHEREFORE, the petitions are DISMISSED. Executive Order No. 420 is declared VALID.

SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

EN BANC

G.R. No. L-59234 September 30, 1982

TAXICAB OPERATORS OF METRO MANILA, INC., FELICISIMO CABIGAO and ACE TRANSPORTATION
CORPORATION, petitioners,
vs.
THE BOARD OF TRANSPORTATION and THE DIRECTOR OF THE BUREAU OF LAND
TRANSPORTATION, respondents.

MELENCIO-HERRERA, J.:

This Petition for "Certiorari, Prohibition and mandamus with Preliminary Injunction and Temporary Restraining Order" filed
by the Taxicab Operators of Metro Manila, Inc., Felicisimo Cabigao and Ace Transportation, seeks to declare the nullity of
Memorandum Circular No. 77-42, dated October 10, 1977, of the Board of Transportation, and Memorandum Circular No.
52, dated August 15, 1980, of the Bureau of Land Transportation.

Petitioner Taxicab Operators of Metro Manila, Inc. (TOMMI) is a domestic corporation composed of taxicab operators,
who are grantees of Certificates of Public Convenience to operate taxicabs within the City of Manila and to any other
place in Luzon accessible to vehicular traffic. Petitioners Ace Transportation Corporation and Felicisimo Cabigao are two of
the members of TOMMI, each being an operator and grantee of such certificate of public convenience.

On October 10, 1977, respondent Board of Transportation (BOT) issued Memorandum Circular No. 77-42 which reads:

SUBJECT: Phasing out and Replacement of

Old and Dilapidated Taxis

WHEREAS, it is the policy of the government to insure that only safe and comfortable units are used as
public conveyances;

WHEREAS, the riding public, particularly in Metro-Manila, has, time and again, complained against, and
condemned, the continued operation of old and dilapidated taxis;

WHEREAS, in order that the commuting public may be assured of comfort, convenience, and safety, a
program of phasing out of old and dilapidated taxis should be adopted;

WHEREAS, after studies and inquiries made by the Board of Transportation, the latter believes that in six
years of operation, a taxi operator has not only covered the cost of his taxis, but has made reasonable
profit for his investments;

NOW, THEREFORE, pursuant to this policy, the Board hereby declares that no car beyond six years shall
be operated as taxi, and in implementation of the same hereby promulgates the following rules and
regulations:

1. As of December 31, 1977, all taxis of Model 1971 and earlier are ordered withdrawn from public
service and thereafter may no longer be registered and operated as taxis. In the registration of cards for
1978, only taxis of Model 1972 and later shall be accepted for registration and allowed for operation;

2. As of December 31, 1978, all taxis of Model 1972 are ordered withdrawn from public service and
thereafter may no longer be registered and operated as taxis. In the registration of cars for 1979, only
taxis of Model 1973 and later shall be accepted for registration and allowed for operation; and every year
thereafter, there shall be a six-year lifetime of taxi, to wit:

1980 Model 1974

1981 Model 1975, etc.

All taxis of earlier models than those provided above are hereby ordered withdrawn from public service as
of the last day of registration of each particular year and their respective plates shall be surrendered
directly to the Board of Transportation for subsequent turnover to the Land Transportation Commission.
 For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be
effective in Metro-Manila. Its implementation outside Metro- Manila shall be carried out only after the
project has been implemented in Metro-Manila and only after the date has been determined by the
Board. 1

Pursuant to the above BOT circular, respondent Director of the Bureau of Land Transportation (BLT) issued Implementing
Circular No. 52, dated August 15, 1980, instructing the Regional Director, the MV Registrars and other personnel of BLT,
all within the National Capitol Region, to implement said Circular, and formulating a schedule of phase-out of vehicles to
be allowed and accepted for registration as public conveyances. To quote said Circular:

Pursuant to BOT Memo-Circular No. 77-42, taxi units with year models over six (6) years old are now
banned from operating as public utilities in Metro Manila. As such the units involved should be considered
as automatically dropped as public utilities and, therefore, do not require any further dropping order from
the BOT.

Henceforth, taxi units within the National Capitol Region having year models over 6 years old shall be
refused registration. The following schedule of phase-out is herewith prescribed for the guidance of all
concerned:
Year Model Automatic
Phase-Out
Year

1980

1974 1981

1975 1982

1976 1983

1977

etc. etc.

Strict compliance here is desired. 2

In accordance therewith, cabs of model 1971 were phase-out in registration year 1978; those of model 1972, in 1979;
those of model 1973, in 1980; and those of model 1974, in 1981.

On January 27, 1981, petitioners filed a Petition with the BOT, docketed as Case No. 80-7553, seeking to nullify MC No.
77-42 or to stop its implementation; to allow the registration and operation in 1981 and subsequent years of taxicabs of
model 1974, as well as those of earlier models which were phased-out, provided that, at the time of registration, they are
roadworthy and fit for operation.

On February 16, 1981, petitioners filed before the BOT a "Manifestation and Urgent Motion", praying for an early hearing
of their petition. The case was heard on February 20, 1981. Petitioners presented testimonial and documentary evidence,
offered the same, and manifested that they would submit additional documentary proofs. Said proofs were submitted on
March 27, 1981 attached to petitioners' pleading entitled, "Manifestation, Presentation of Additional Evidence and
Submission of the Case for Resolution." 3

On November 28, 1981, petitioners filed before the same Board a "Manifestation and Urgent Motion to Resolve or Decide
Main Petition" praying that the case be resolved or decided not later than December 10, 1981 to enable them, in case of
denial, to avail of whatever remedy they may have under the law for the protection of their interests before their 1975
model cabs are phased-out on January 1, 1982.

Petitioners, through its President, allegedly made personal follow-ups of the case, but was later informed that the records
of the case could not be located.

On December 29, 1981, the present Petition was instituted wherein the following queries were posed for consideration by
this Court:

A. Did BOT and BLT promulgate the questioned memorandum circulars in accord with the manner
required by Presidential Decree No. 101, thereby safeguarding the petitioners' constitutional right to
procedural due process?

B. Granting, arguendo, that respondents did comply with the procedural requirements imposed by
Presidential Decree No. 101, would the implementation and enforcement of the assailed memorandum
circulars violate the petitioners' constitutional rights to.
 (1) Equal protection of the law;

(2) Substantive due process; and

(3) Protection against arbitrary and unreasonable classification and

standard?

On Procedural and Substantive Due Process:

Presidential Decree No. 101 grants to the Board of Transportation the power

4. To fix just and reasonable standards, classification, regulations, practices, measurements, or service to
be furnished, imposed, observed, and followed by operators of public utility motor vehicles.

Section 2 of said Decree provides procedural guidelines for said agency to follow in the exercise of its powers:

Sec. 2. Exercise of powers. In the exercise of the powers granted in the preceding section, the Board
shag proceed promptly along the method of legislative inquiry.

Apart from its own investigation and studies, the Board, in its discretion, may require the cooperation and
assistance of the Bureau of Transportation, the Philippine Constabulary, particularly the Highway Patrol
Group, the support agencies within the Department of Public Works, Transportation and Communications,
or any other government office or agency that may be able to furnish useful information or data in the
formulation of the Board of any policy, plan or program in the implementation of this Decree.

The Board may also can conferences, require the submission of position papers or other documents,
information, or data by operators or other persons that may be affected by the implementation of this
Decree, or employ any other suitable means of inquiry.

In support of their submission that they were denied procedural due process, petitioners contend that they were not
caged upon to submit their position papers, nor were they ever summoned to attend any conference prior to the issuance
of the questioned BOT Circular.

It is clear from the provision aforequoted, however, that the leeway accorded the Board gives it a wide range of choice in
gathering necessary information or data in the formulation of any policy, plan or program. It is not mandatory that it
should first call a conference or require the submission of position papers or other documents from operators or persons
who may be affected, this being only one of the options open to the Board, which is given wide discretionary authority.
Petitioners cannot justifiably claim, therefore, that they were deprived of procedural due process. Neither can they state
with certainty that public respondents had not availed of other sources of inquiry prior to issuing the challenged Circulars.
operators of public conveyances are not the only primary sources of the data and information that may be desired by the
BOT.

Dispensing with a public hearing prior to the issuance of the Circulars is neither violative of procedural due process. As
held in Central Bank vs. Hon. Cloribel and Banco Filipino, 44 SCRA 307 (1972):

Pevious notice and hearing as elements of due process, are constitutionally required for the protection of
life or vested property rights, as well as of liberty, when its limitation or loss takes place in consequence
of a judicial or quasi-judicial proceeding, generally dependent upon a past act or event which has to be
established or ascertained. It is not essential to the validity of general rules or regulations promulgated to
govern future conduct of a class or persons or enterprises, unless the law provides otherwise. (Emphasis
supplied)

Petitioners further take the position that fixing the ceiling at six (6) years is arbitrary and oppressive because the
roadworthiness of taxicabs depends upon their kind of maintenance and the use to which they are subjected, and,
therefore, their actual physical condition should be taken into consideration at the time of registration. As public contend,
however, it is impractical to subject every taxicab to constant and recurring evaluation, not to speak of the fact that it can
open the door to the adoption of multiple standards, possible collusion, and even graft and corruption. A reasonable
standard must be adopted to apply to an vehicles affected uniformly, fairly, and justly. The span of six years supplies that
reasonable standard. The product of experience shows that by that time taxis have fully depreciated, their cost recovered,
and a fair return on investment obtained. They are also generally dilapidated and no longer fit for safe and comfortable
service to the public specially considering that they are in continuous operation practically 24 hours everyday in three
shifts of eight hours per shift. With that standard of reasonableness and absence of arbitrariness, the requirement of due
process has been met.

On Equal Protection of the Law:

Petitioners alleged that the Circular in question violates their right to equal protection of the law because the same is
being enforced in Metro Manila only and is directed solely towards the taxi industry. At the outset it should be pointed out
that implementation outside Metro Manila is also envisioned in Memorandum Circular No. 77-42. To repeat the pertinent
portion:

For an orderly implementation of this Memorandum Circular, the rules herein shall immediately be
effective in Metro Manila. Its implementation outside Metro Manila shall be carried out only after the
project has been implemented in Metro Manila and only after the date has been determined by the
Board. 4

In fact, it is the understanding of the Court that implementation of the Circulars in Cebu City is already being effected,
with the BOT in the process of conducting studies regarding the operation of taxicabs in other cities.

The Board's reason for enforcing the Circular initially in Metro Manila is that taxicabs in this city, compared to those of
other places, are subjected to heavier traffic pressure and more constant use. This is of common knowledge. Considering
that traffic conditions are not the same in every city, a substantial distinction exists so that infringement of the equal
protection clause can hardly be successfully claimed.

As enunciated in the preambular clauses of the challenged BOT Circular, the overriding consideration is the safety and
comfort of the riding public from the dangers posed by old and dilapidated taxis. The State, in the exercise, of its police
power, can prescribe regulations to promote the health, morals, peace, good order, safety and general welfare of the
people. It can prohibit all things hurtful to comfort, safety and welfare of society. 5 It may also regulate property
rights. 6 In the language of Chief Justice Enrique M. Fernando "the necessities imposed by public welfare may justify the
exercise of governmental authority to regulate even if thereby certain groups may plausibly assert that their interests are
disregarded". 7

In so far as the non-application of the assailed Circulars to other transportation services is concerned, it need only be
recalled that the equal protection clause does not imply that the same treatment be accorded all and sundry. It applies to
things or persons Identically or similarly situated. It permits of classification of the object or subject of the law provided
classification is reasonable or based on substantial distinction, which make for real differences, and that it must apply
equally to each member of the class. 8 What is required under the equal protection clause is the uniform operation by
legal means so that all persons under Identical or similar circumstance would be accorded the same treatment both in
privilege conferred and the liabilities imposed. 9 The challenged Circulars satisfy the foregoing criteria.

Evident then is the conclusion that the questioned Circulars do not suffer from any constitutional infirmity. To declare a
law unconstitutional, the infringement of constitutional right must be clear, categorical and undeniable. 10

WHEREFORE, the Writs prayed for are denied and this Petition is hereby dismissed. No costs.

SO ORDERED.

Fernando, CJ., Barredo, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Plana, Escolin, Vasquez, Relova and
Gutierrez, Jr., JJ., concur.

Teehankee and Aquino, JJ., concur in the result.

EN BANC

G.R. No. 78164 July 31, 1987

TERESITA TABLARIN, MA, LUZ CIRIACO, MA NIMFA B. ROVIRA, EVANGELINA S. LABAO, in their behalf and
in behalf of applicants for admission into the Medical Colleges during the school year 1987-88 and future
years who have not taken or successfully hurdled tile National Medical Admission Test (NMAT).petitioners,
vs.
THE HONORABLE JUDGE ANGELINA S. GUTIERREZ, Presiding Judge of Branch XXXVII of the Regional Trial
Court of the National Capital Judicial Region with seat at Manila, THE HONORABLE SECRETARY LOURDES
QUISUMBING, in her capacity as Chairman of the BOARD OF MEDICAL EDUCATION, and THE CENTER FOR
EDUCATIONAL MEASUREMENT (CEM), respondents.

FELICIANO, J.:

The petitioners sought admission into colleges or schools of medicine for the school year 1987-1988. However, the
petitioners either did not take or did not successfully take the National Medical Admission Test (NMAT) required by the
Board of Medical Education, one of the public respondents, and administered by the private respondent, the Center for
Educational Measurement (CEM).

On 5 March 1987, the petitioners filed with the Regional Trial Court, National Capital Judicial Region, a Petition for
Declaratory Judgment and Prohibition with a prayer for Temporary Restraining Order and Preliminary Injunction. The
petitioners sought to enjoin the Secretary of Education, Culture and Sports, the Board of Medical Education and the
Center for Educational Measurement from enforcing Section 5 (a) and (f) of Republic Act No. 2382, as amended, and
MECS Order No. 52, series of 1985, dated 23 August 1985 and from requiring the taking and passing of the NMAT as a
condition for securing certificates of eligibility for admission, from proceeding with accepting applications for taking the
NMAT and from administering the NMAT as scheduled on 26 April 1987 and in the future. After hearing on the petition for
issuance of preliminary injunction, the trial court denied said petition on 20 April 1987. The NMAT was conducted and
administered as previously scheduled.

Petitioners accordingly filed this Special Civil Action for certiorari with this Court to set aside the Order of the respondent
judge denying the petition for issuance of a writ of preliminary injunction.

Republic Act 2382, as amended by Republic Acts Nos. 4224 and 5946, known as the "Medical Act of 1959" defines its
basic objectives in the following manner:

Section 1. Objectives. This Act provides for and shall govern (a) the standardization and regulation of medical
education (b) the examination for registration of physicians; and (c) the supervision, control and regulation of the
practice of medicine in the Philippines. (Underscoring supplied)

The statute, among other things, created a Board of Medical Education which is composed of (a) the Secretary of
Education, Culture and Sports or his duly authorized representative, as Chairman; (b) the Secretary of Health or his duly
authorized representative; (c) the Director of Higher Education or his duly authorized representative; (d) the Chairman of
the Medical Board or his duly authorized representative; (e) a representative of the Philippine Medical Association; (f) the
Dean of the College of Medicine, University of the Philippines; (g) a representative of the Council of Deans of Philippine
Medical Schools; and (h) a representative of the Association of Philippine Medical Colleges, as members. The functions of
the Board of Medical Education specified in Section 5 of the statute include the following:

(a) To determine and prescribe equirements for admission into a recognized college of medicine;

(b) To determine and prescribe requirements for minimum physical facilities of colleges of medicine, to wit:
buildings, including hospitals, equipment and supplies, apparatus, instruments, appliances, laboratories, bed
capacity for instruction purposes, operating and delivery rooms, facilities for outpatient services, and others, used
for didactic and practical instruction in accordance with modern trends;

(c) To determine and prescribe the minimum number and minimum qualifications of teaching personnel, including
student-teachers ratio;

(d) To determine and prescribe the minimum required curriculum leading to the degree of Doctor of Medicine;

(e) To authorize the implementation of experimental medical curriculum in a medical school that has exceptional
faculty and instrumental facilities. Such an experimental curriculum may prescribe admission and graduation
requirements other than those prescribed in this Act; Provided, That only exceptional students shall be enrolled in
the experimental curriculum;

(f) To accept applications for certification for admission to a medical school and keep a register of those issued
said certificate; and to collect from said applicants the amount of twenty-five pesos each which shall accrue to
the operating fund of the Board of Medical Education;

(g) To select, determine and approve hospitals or some departments of the hospitals for training which comply
with the minimum specific physical facilities as provided in subparagraph (b) hereof; and

(h) To promulgate and prescribe and enforce the necessary rules and regulations for the proper implementation
of the foregoing functions. (Emphasis supplied)

Section 7 prescribes certain minimum requirements for applicants to medical schools:

Admission requirements. The medical college may admit any student who has not been convicted by any court
of competent jurisdiction of any offense involving moral turpitude and who presents (a) a record of completion of
a bachelor's degree in science or arts; (b) a certificate of eligibility for entrance to a medical school from the
Board of Medical Education; (c) a certificate of good moral character issued by two former professors in the
college of liberal arts; and (d) birth certificate. Nothing in this act shall be construed to inhibit any college of
medicine from establishing, in addition to the preceding, other entrance requirements that may be deemed
admissible.

xxx xxx x x x (Emphasis supplied)

MECS Order No. 52, s. 1985, issued by the then Minister of Education, Culture and Sports and dated 23 August 1985,
established a uniform admission test called the National Medical Admission Test (NMAT) as an additional requirement for
issuance of a certificate of eligibility for admission into medical schools of the Philippines, beginning with the school year
1986-1987. This Order goes on to state that:
 2. The NMAT, an aptitude test, is considered as an instrument toward upgrading the selection of applicants for
admission into the medical schools and its calculated to improve the quality of medical education in the
country. The cutoff score for the successful applicants, based on the scores on the NMAT, shall be determined
every year by the Board of Medical Education after consultation with the Association of Philippine Medical
Colleges. The NMAT rating of each applicant, together with the other admission requirements as presently called
for under existing rules, shall serve as a basis for the issuance of the prescribed certificate of elegibility for
admission into the medical colleges.

3. Subject to the prior approval of the Board of Medical Education, each medical college may give other tests for
applicants who have been issued a corresponding certificate of eligibility for admission that will yield information
on other aspects of the applicant's personality to complement the information derived from the NMAT.

xxx xxx xxx

8. No applicant shall be issued the requisite Certificate of Eligibility for Admission (CEA), or admitted for
enrollment as first year student in any medical college, beginning the school year, 1986-87, without the required
NMAT qualification as called for under this Order. (Underscoring supplied)

Pursuant to MECS Order No. 52, s. 1985, the private respondent Center conducted NMATs for entrance to medical
colleges during the school year 1986-1987. In December 1986 and in April 1987, respondent Center conducted the
NMATs for admission to medical colleges during the school year 1987.1988.1avvphi1

Petitioners raise the question of whether or not a writ of preliminary injunction may be issued to enjoin the enforcement
of Section 5 (a) and (f) of Republic Act No. 2382, as amended, and MECS Order No. 52, s. 1985, pending resolution of
the issue of constitutionality of the assailed statute and administrative order. We regard this issue as entirely peripheral in
nature. It scarcely needs documentation that a court would issue a writ of preliminary injunction only when the petitioner
assailing a statute or administrative order has made out a case of unconstitutionality strong enough to overcome, in the
mind of the judge, the presumption of constitutionality, aside from showing a clear legal right to the remedy sought. The
fundamental issue is of course the constitutionality of the statute or order assailed.

1. The petitioners invoke a number of provisions of the 1987 Constitution which are, in their assertion, violated by the
continued implementation of Section 5 (a) and (f) of Republic Act 2381, as amended, and MECS Order No. 52, s. 1985.
The provisions invoked read as follows:

(a) Article 11, Section 11: "The state values the dignity of every human person and guarantees full respect of
human rights. "

(b) ArticleII, Section l3: "The State recognizes the vital role of the youth in nation building and shall promote and
protect their physical, moral, spiritual, intellectual and social well being. It shall inculcate in the youth patriotism
and nationalism, and encourage their involvement in public and civic affairs."

(c) Article II, Section 17: "The State shall give priority to education, science and technology, arts, culture and
sports to foster patriotism and nationalism, accelerate social progress and to promote total human liberation and
development. "

(d) Article XIV, Section l: "The State shall protect and promote the right of all citizens to quality education at all
levels and take appropriate steps to make such education accessible to all. "

(e) Article XIV, Section 5 (3): "Every citizen has a right to select a profession or course of study, subject to fair,
reasonable and equitable admission and academic requirements."

Article II of the 1987 Constitution sets forth in its second half certain "State policies" which the government is enjoined to
pursue and promote. The petitioners here have not seriously undertaken to demonstrate to what extent or in what
manner the statute and the administrative order they assail collide with the State policies embodied in Sections 11, 13
and 17. They have not, in other words, discharged the burden of proof which lies upon them. This burden is heavy
enough where the constitutional provision invoked is relatively specific, rather than abstract, in character and cast in
behavioral or operational terms. That burden of proof becomes of necessity heavier where the constitutional provision
invoked is cast, as the second portion of Article II is cast, in language descriptive of basic policies, or more precisely, of
basic objectives of State policy and therefore highly generalized in tenor. The petitioners have not made their case, even
a prima facie case, and we are not compelled to speculate and to imagine how the legislation and regulation impugned as
unconstitutional could possibly offend the constitutional provisions pointed to by the petitioners.

Turning to Article XIV, Section 1, of the 1987 Constitution, we note that once more petitioners have failed to demonstrate
that the statute and regulation they assail in fact clash with that provision. On the contrary we may note-in anticipation of
discussion infra that the statute and the regulation which petitioners attack are in fact designed to promote "quality
education" at the level of professional schools. When one reads Section 1 in relation to Section 5 (3) of Article XIV as one
must one cannot but note that the latter phrase of Section 1 is not to be read with absolute literalness. The State is not
really enjoined to take appropriate steps to make quality education " accessible to all who might for any number of
reasons wish to enroll in a professional school but rather merely to make such education accessible to all who qualify
under "fair, reasonable and equitable admission and academic requirements. "

2. In the trial court, petitioners had made the argument that Section 5 (a) and (f) of Republic Act No. 2382, as amended,
offend against the constitutional principle which forbids the undue delegation of legislative power, by failing to establish
the necessary standard to be followed by the delegate, the Board of Medical Education. The general principle of non-
delegation of legislative power, which both flows from the reinforces the more fundamental rule of the separation and
allocation of powers among the three great departments of government, 1 must be applied with circumspection in respect
of statutes which like the Medical Act of 1959, deal with subjects as obviously complex and technical as medical education
and the practice of medicine in our present day world. Mr. Justice Laurel stressed this point 47 years ago in Pangasinan
Transportation Co., Inc. vs. The Public Service Commission:2

One thing, however, is apparent in the development of the principle of separation of powers and that is that the
maxim of delegatus non potest delegare or delegate potestas non potest delegare, adopted this practice
(Delegibus et Consuetudiniis Anglia edited by G.E. Woodbine, Yale University Press, 1922, Vol. 2, p. 167) but
which is also recognized in principle in the Roman Law (d. 17.18.3) has been made to adapt itself to the
complexities of modern government , giving rise to the adoption, within certain limits of the principle of
"subordinate legislation," not only in the United States and England but in practically all modern governments.
(People vs. Rosenthal and Osmena [68 Phil. 318, 1939]. Accordingly, with the growing complexity of modern life,
the multiplication of the subjects of governmental regulation and the increased difficulty of administering the
laws, there is a constantly growing tendency toward the delegation of greater power by the legislature, and
toward the approval of the practice by the courts." 3

The standards set for subordinate legislation in the exercise of rule making authority by an administrative agency like the
Board of Medical Education are necessarily broad and highly abstract. As explained by then Mr. Justice Fernando in Edu v.
Ericta4

The standard may be either expressed or implied. If the former, the non-delegation objection is easily met. The
standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of
the act considered as a whole. In the Reflector Law, clearly the legislative objective is public safety. What is
sought to be attained as in Calalang v. Williams is "safe transit upon the roads. 5

We believe and so hold that the necessary standards are set forth in Section 1 of the 1959 Medical Act: "the
standardization and regulation of medical education" and in Section 5 (a) and 7 of the same Act, the body of the statute
itself, and that these considered together are sufficient compliance with the requirements of the non-delegation principle.

3. The petitioners also urge that the NMAT prescribed in MECS Order No. 52, s. 1985, is an "unfair, unreasonable and
inequitable requirement," which results in a denial of due process. Again, petitioners have failed to specify just what
factors or features of the NMAT render it "unfair" and "unreasonable" or "inequitable." They appear to suggest that
passing the NMAT is an unnecessary requirement when added on top of the admission requirements set out in Section 7
of the Medical Act of 1959, and other admission requirements established by internal regulations of the various medical
schools, public or private. Petitioners arguments thus appear to relate to utility and wisdom or desirability of the NMAT
requirement. But constitutionality is essentially a question of power or authority: this Court has neither commission or
competence to pass upon questions of the desirability or wisdom or utility of legislation or administrative regulation.
Those questions must be address to the political departments of the government not to the courts.

There is another reason why the petitioners' arguments must fail: the legislative and administrative provisions impugned
by them constitute, to the mind of the Court, a valid exercise of the police power of the state. The police power, it is
commonplace learning, is the pervasive and non-waivable power and authority of the sovereign to secure and promote an
the important interests and needs in a word, the public order of the general community.6 An important component
of that public order is the health and physical safety and well being of the population, the securing of which no one can
deny is a legitimate objective of governmental effort and regulation. 7

Perhaps the only issue that needs some consideration is whether there is some reasonable relation between the
prescribing of passing the NMAT as a condition for admission to medical school on the one hand, and the securing of the
health and safety of the general community, on the other hand. This question is perhaps most usefully approached by
recalling that the regulation of the practice of medicine in all its branches has long been recognized as a reasonable
method of protecting the health and safety of the public.8 That the power to regulate and control the practice of medicine
includes the power to regulate admission to the ranks of those authorized to practice medicine, is also well recognized.
thus, legislation and administrative regulations requiring those who wish to practice medicine first to take and pass
medical board examinations have long ago been recognized as valid exercises of governmental power. 9 Similarly, the
establishment of minimum medical educational requirements i.e., the completion of prescribed courses in a recognized
medical school for admission to the medical profession, has also been sustained as a legitimate exercise of the
regulatory authority of the state.10 What we have before us in the instant case is closely related: the regulation of access
to medical schools. MECS Order No. 52, s. 1985, as noted earlier, articulates the rationale of regulation of this type: the
improvement of the professional and technical quality of the graduates of medical schools, by upgrading the quality of
those admitted to the student body of the medical schools. That upgrading is sought by selectivity in the process of
admission, selectivity consisting, among other things, of limiting admission to those who exhibit in the required degree
the aptitude for medical studies and eventually for medical practice. The need to maintain, and the difficulties of
maintaining, high standards in our professional schools in general, and medical schools in particular, in the current stage
of our social and economic development, are widely known.

We believe that the government is entitled to prescribe an admission test like the NMAT as a means for achieving its
stated objective of "upgrading the selection of applicants into [our] medical schools" and of "improv[ing] the quality of
medical education in the country." Given the widespread use today of such admission tests in, for instance, medical
schools in the United States of America (the Medical College Admission Test [MCAT] 11 and quite probably in other
countries with far more developed educational resources than our own, and taking into account the failure or inability of
the petitioners to even attempt to prove otherwise, we are entitled to hold that the NMAT is reasonably related to the
securing of the ultimate end of legislation and regulation in this area. That end, it is useful to recall, is the protection of
the public from the potentially deadly effects of incompetence and ignorance in those who would undertake to treat our
bodies and minds for disease or trauma.

4. Petitioners have contended, finally, that MECS Order No. 52, s. 1985, is in conflict with the equal protection clause of
the Constitution. More specifically, petitioners assert that that portion of the MECS Order which provides that

the cutoff score for the successful applicants, based on the scores on the NMAT, shall be determined every-
year by the Board of Medical 11 Education after consultation with the Association of Philippine Medical Colleges.
(Emphasis supplied)

infringes the requirements of equal protection. They assert, in other words, that students seeking admission during a
given school year, e.g., 1987-1988, when subjected to a different cutoff score than that established for an, e.g., earlier
school year, are discriminated against and that this renders the MECS Order "arbitrary and capricious." The force of this
argument is more apparent than real. Different cutoff scores for different school years may be dictated by differing
conditions obtaining during those years. Thus, the appropriate cutoff score for a given year may be a function of such
factors as the number of students who have reached the cutoff score established the preceding year; the number of
places available in medical schools during the current year; the average score attained during the current year; the level
of difficulty of the test given during the current year, and so forth. To establish a permanent and immutable cutoff score
regardless of changes in circumstances from year to year, may wen result in an unreasonable rigidity. The above
language in MECS Order No. 52, far from being arbitrary or capricious, leaves the Board of Medical Education with the
measure of flexibility needed to meet circumstances as they change.

We conclude that prescribing the NMAT and requiring certain minimum scores therein as a condition for admission to
medical schools in the Philippines, do not constitute an unconstitutional imposition.

WHEREFORE, the Petition for certiorari is DISMISSED and the Order of the respondent trial court denying the petition for
a writ of preliminary injunction is AFFIRMED. Costs against petitioners.

SO ORDERED.

Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Padilla, Bidin, Sarmiento
and Cortes, JJ., concur.
THE OFFICE OF THE SOLICITOR G.R. No. 177056
GENERAL,
Petitioner, Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
AYALA LAND INCORPORATED, NACHURA, and
ROBINSONS LAND CORPORATION, PERALTA, JJ.
SHANGRI-LA PLAZA CORPORATION
and SM PRIME HOLDINGS, INC.,
Respondents. Promulgated:

September 18, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:
 Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of Court, filed by
petitioner Office of the Solicitor General (OSG), seeking the reversal and setting aside of the Decision [2] dated 25 January
2007 of the Court of Appeals in CA-G.R. CV No. 76298, which affirmed in toto the Joint Decision[3] dated 29 May 2002 of
the Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the
Resolution[4] dated 14 March 2007 of the appellate court in the same case which denied the Motion for Reconsideration of
the OSG. The RTC adjudged that respondents Ayala Land Incorporated (Ayala Land), Robinsons Land Corporation
(Robinsons), Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could not be obliged to
provide free parking spaces in their malls to their patrons and the general public.

Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in various locations in
Metro Manila. Respondent SM Prime constructs, operates, and leases out commercial buildings and other structures,
among which, are SM City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM City, North Avenue, Quezon City; and SM
Southmall, Las Pias.

The shopping malls operated or leased out by respondents have parking facilities for all kinds of motor vehicles,
either by way of parking spaces inside the mall buildings or in separate buildings and/or adjacent lots that are solely
devoted for use as parking spaces. Respondents Ayala Land, Robinsons, and SM Prime spent for the construction of their
own parking facilities. Respondent Shangri-la is renting its parking facilities, consisting of land and building specifically
used as parking spaces, which were constructed for the lessors account.

Respondents expend for the maintenance and administration of their respective parking facilities. They provide
security personnel to protect the vehicles parked in their parking facilities and maintain order within the area. In turn,
they collect the following parking fees from the persons making use of their parking facilities, regardless of whether said
persons are mall patrons or not:

Respondent Parking Fees

Ayala Land On weekdays, P25.00 for the first four hours

and P10.00 for every succeeding hour; on weekends,
flat rate of P25.00 per day

Robinsons P20.00 for the first three hours and P10.00 for every
succeeding hour

Shangri-la Flat rate of P30.00 per day

SM Prime P10.00 to P20.00 (depending on whether the parking
space is outdoors or indoors) for the first three hours
and 59 minutes, and P10.00 for every succeeding
hour or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that respondents shall not be
responsible for any loss or damage to the vehicles parked in respondents parking facilities.

In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights conducted a joint
investigation for the following purposes: (1) to inquire into the legality of the prevalent practice of shopping malls of
charging parking fees; (2) assuming arguendo that the collection of parking fees was legally authorized, to find out the
basis and reasonableness of the parking rates charged by shopping malls; and (3) to determine the legality of the policy
of shopping malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver clause at the back
of the parking tickets. Said Senate Committees invited the top executives of respondents, who operate the major malls in
the country; the officials from the Department of Trade and Industry (DTI), Department of Public Works and Highways
(DPWH), Metro Manila Development Authority (MMDA), and other local government officials; and the Philippine Motorists
Association (PMA) as representative of the consumers group.

After three public hearings held on 30 September, 3 November, and 1 December 1999, the afore-mentioned
Senate Committees jointly issued Senate Committee Report No. 225 [5] on 2 May 2000, in which they concluded:

In view of the foregoing, the Committees find that the collection of parking fees by shopping
malls is contrary to the National Building Code and is therefor [sic] illegal. While it is true that the Code
merely requires malls to provide parking spaces, without specifying whether it is free or not, both
Committees believe that the reasonable and logical interpretation of the Code is that the parking spaces
 are for free. This interpretation is not only reasonable and logical but finds support in the actual practice
in other countries like the United States of America where parking spaces owned and operated by mall
owners are free of charge.

Figuratively speaking, the Code has expropriated the land for parking something similar to the
subdivision law which require developers to devote so much of the land area for parks.

Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines) provides that it is the
policy of the State to protect the interest of the consumers, promote the general welfare and establish
standards of conduct for business and industry. Obviously, a contrary interpretation (i.e., justifying the
collection of parking fees) would be going against the declared policy of R.A. 7394.

Section 201 of the National Building Code gives the responsibility for the administration and
enforcement of the provisions of the Code, including the imposition of penalties for administrative
violations thereof to the Secretary of Public Works. This set up, however, is not being carried out in
reality.

In the position paper submitted by the Metropolitan Manila Development Authority (MMDA), its
chairman, Jejomar C. Binay, accurately pointed out that the Secretary of the DPWH is responsible for the
implementation/enforcement of the National Building Code. After the enactment of the Local Government
Code of 1991, the local government units (LGUs) were tasked to discharge the regulatory powers of the
DPWH. Hence, in the local level, the Building Officials enforce all rules/ regulations formulated by the
DPWH relative to all building plans, specifications and designs including parking space
requirements. There is, however, no single national department or agency directly tasked to supervise
the enforcement of the provisions of the Code on parking, notwithstanding the national character of the
law.[6]

Senate Committee Report No. 225, thus, contained the following recommendations:

In light of the foregoing, the Committees on Trade and Commerce and Justice and Human Rights
hereby recommend the following:

1. The Office of the Solicitor General should institute the necessary action to enjoin the collection of
parking fees as well as to enforce the penal sanction provisions of the National Building
Code. The Office of the Solicitor General should likewise study how refund can be exacted from
mall owners who continue to collect parking fees.

2. The Department of Trade and Industry pursuant to the provisions of R.A. No. 7394, otherwise known
as the Consumer Act of the Philippines should enforce the provisions of the Code relative to
parking. Towards this end, the DTI should formulate the necessary implementing rules and
regulations on parking in shopping malls, with prior consultations with the local government units
where these are located. Furthermore, the DTI, in coordination with the DPWH, should be
empowered to regulate and supervise the construction and maintenance of parking
establishments.

3. Finally, Congress should amend and update the National Building Code to expressly prohibit shopping
malls from collecting parking fees by at the same time, prohibit them from invoking the waiver of
liability.[7]

Respondent SM Prime thereafter received information that, pursuant to Senate Committee Report No. 225, the
DPWH Secretary and the local building officials of Manila, Quezon City, and Las Pias intended to institute, through the
OSG, an action to enjoin respondent SM Prime and similar establishments from collecting parking fees, and to impose
upon said establishments penal sanctions under Presidential Decree No. 1096, otherwise known as the National Building
Code of the Philippines (National Building Code), and its Implementing Rules and Regulations (IRR). With the threatened
action against it, respondent SM Prime filed, on 3 October 2000, a Petition for Declaratory Relief [8]under Rule 63 of the
Revised Rules of Court, against the DPWH Secretary and local building officials of Manila, Quezon City, and Las Pias. Said
Petition was docketed as Civil Case No. 00-1208 and assigned to the RTC of Makati City, Branch 138, presided over by
Judge Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:

a) Declaring Rule XIX of the Implementing Rules and Regulations of the National Building Code
as ultra vires, hence, unconstitutional and void;

b) Declaring [herein respondent SM Prime]s clear legal right to lease parking spaces appurtenant
to its department stores, malls, shopping centers and other commercial establishments; and
 c) Declaring the National Building Code of the Philippines Implementing Rules and Regulations as
ineffective, not having been published once a week for three (3) consecutive weeks in a newspaper of
general circulation, as prescribed by Section 211 of Presidential Decree No. 1096.

[Respondent SM Prime] further prays for such other reliefs as may be deemed just and equitable
under the premises.[9]

The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and Injunction (with Prayer for
Temporary Restraining Order and Writ of Preliminary Injunction) [10] against respondents. This Petition was docketed as
Civil Case No. 00-1210 and raffled to the RTC of Makati, Branch 135, presided over by Judge Francisco B. Ibay (Judge
Ibay). Petitioner prayed that the RTC:

1. After summary hearing, a temporary restraining order and a writ of preliminary injunction be
issued restraining respondents from collecting parking fees from their customers; and

2. After hearing, judgment be rendered declaring that the practice of respondents in charging
parking fees is violative of the National Building Code and its Implementing Rules and Regulations and is
therefore invalid, and making permanent any injunctive writ issued in this case.

Other reliefs just and equitable under the premises are likewise prayed for. [11]

On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order consolidating Civil Case
No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of RTC of Makati, Branch 138.
As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a Pre-Trial
Order [12]
of even date which limited the issues to be resolved in Civil Cases No. 00-1208 and No. 00-1210 to the
following:

1. Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute the present proceedings
and relative thereto whether the controversy in the collection of parking fees by mall owners is a matter
of public welfare.

2. Whether declaratory relief is proper.

3. Whether respondent Ayala Land, Robinsons, Shangri-La and SM Prime are

obligated to provide parking spaces in their malls for the use of their patrons or the public in general, free
of charge.

4. Entitlement of the parties of [sic] award of damages.[13]

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 00-1210.

The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case No. 00-1210
under Presidential Decree No. 478 and the Administrative Code of 1987. [14] It also found that all the requisites for an
action for declaratory relief were present, to wit:

The requisites for an action for declaratory relief are: (a) there is a justiciable controversy; (b) the
controversy is between persons whose interests are adverse; (c) the party seeking the relief has a legal
interest in the controversy; and (d) the issue involved is ripe for judicial determination.

SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who stands to be affected
directly by the position taken by the government officials sued namely the Secretary of Public Highways
and the Building Officials of the local government units where it operates shopping malls. The OSG on the
other hand acts on a matter of public interest and has taken a position adverse to that of the mall owners
whom it sued. The construction of new and bigger malls has been announced, a matter which the Court
can take judicial notice and the unsettled issue of whether mall operators should provide parking
facilities, free of charge needs to be resolved.[15]

As to the third and most contentious issue, the RTC pronounced that:

The Building Code, which is the enabling law and the Implementing Rules and Regulations do
not impose that parking spaces shall be provided by the mall owners free of charge. Absent such
 directive[,] Ayala Land, Robinsons, Shangri-la and SM [Prime] are under no obligation to provide them for
free. Article 1158 of the Civil Code is clear:

Obligations derived from law are not presumed. Only those expressly determined
in this Code or in special laws are demandable and shall be regulated by the precepts of
the law which establishes them; and as to what has not been foreseen, by the provisions
of this Book (1090).[]

xxxx

The provision on ratios of parking slots to several variables, like shopping floor area or customer
area found in Rule XIX of the Implementing Rules and Regulations cannot be construed as a directive to
provide free parking spaces, because the enabling law, the Building Code does not so provide. x x x.

To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide parking spaces for free
can be considered as an unlawful taking of property right without just compensation.

Parking spaces in shopping malls are privately owned and for their use, the mall operators collect
fees. The legal relationship could be either lease or deposit. In either case[,] the mall owners have the
right to collect money which translates into income.Should parking spaces be made free, this right of mall
owners shall be gone. This, without just compensation. Further, loss of effective control over their
property will ensue which is frowned upon by law.

The presence of parking spaces can be viewed in another light. They can be looked at as
necessary facilities to entice the public to increase patronage of their malls because without parking
spaces, going to their malls will be inconvenient. These are[,] however[,] business considerations which
mall operators will have to decide for themselves. They are not sufficient to justify a legal conclusion, as
the OSG would like the Court to adopt that it is the obligation of the mall owners to provide parking
spaces for free.[16]

The RTC then held that there was no sufficient evidence to justify any award for damages.

The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-1210 that:

FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc., Robinsons Land
Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,] Inc. are not obligated to provide
parking spaces in their malls for the use of their patrons or public in general, free of charge.

All counterclaims in Civil Case No. 00-1210 are dismissed.

No pronouncement as to costs.[17]

CA-G.R. CV No. 76298 involved the separate appeals of the OSG [18] and respondent SM Prime[19] filed with the Court of
Appeals. The sole assignment of error of the OSG in its Appellants Brief was:

THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID NOT INTEND MALL
PARKING SPACES TO BE FREE OF CHARGE[;][20]

while the four errors assigned by respondent SM Prime in its Appellants Brief were:

THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING RULES AS
HAVING BEEN ENACTED ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND VOID.

II

THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES INEFFECTIVE FOR NOT
HAVING BEEN PUBLISHED AS REQUIRED BY LAW.

III

THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSGS PETITION FOR DECLARATORY RELIEF
AND INJUNCTION FOR FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES.
 IV

THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL CAPACITY TO SUE
AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN THE INSTANT CASE.[21]

Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone issue raised therein
involved a pure question of law, not reviewable by the Court of Appeals.

The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The appellate court agreed
with respondent Robinsons that the appeal of the OSG should suffer the fate of dismissal, since the issue on whether or
not the National Building Code and its implementing rules require shopping mall operators to provide parking facilities to
the public for free was evidently a question of law. Even so, since CA-G.R. CV No. 76298 also included the appeal of
respondent SM Prime, which raised issues worthy of consideration, and in order to satisfy the demands of substantial
justice, the Court of Appeals proceeded to rule on the merits of the case.

In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-1210 before the RTC as
the legal representative of the government, [22] and as the one deputized by the Senate of the Republic of
the Philippines through Senate Committee Report No. 225.

The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to exhaust
administrative remedies. The appellate court explained that an administrative review is not a condition precedent to
judicial relief where the question in dispute is purely a legal one, and nothing of an administrative nature is to be or can
be done.

The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building Code, as such
issue was not among those the parties had agreed to be resolved by the RTC during the pre-trial conference for Civil
Cases No. 00-1208 and No. 00-1210. Issues cannot be raised for the first time on appeal. Furthermore, the appellate
court found that the controversy could be settled on other grounds, without touching on the issue of the validity of the
IRR. It referred to the settled rule that courts should refrain from passing upon the constitutionality of a law or
implementing rules, because of the principle that bars judicial inquiry into a constitutional question, unless the resolution
thereof is indispensable to the determination of the case.

Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule XIX of the IRR were
clear and needed no further construction. Said provisions were only intended to control the occupancy or congestion of
areas and structures. In the absence of any express and clear provision of law, respondents could not be obliged and
expected to provide parking slots free of charge.

The fallo of the 25 January 2007 Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the instant appeals are DENIED. Accordingly, appealed
Decision is hereby AFFIRMED in toto.[23]

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for Reconsideration of the OSG,
finding that the grounds relied upon by the latter had already been carefully considered, evaluated, and passed upon by
the appellate court, and there was no strong and cogent reason to modify much less reverse the assailed judgment.

The OSG now comes before this Court, via the instant Petition for Review, with a single assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THAT
RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE PARKING SPACES TO THEIR CUSTOMERS OR THE
PUBLIC.[24]

The OSG argues that respondents are mandated to provide free parking by Section 803 of the National Building
Code and Rule XIX of the IRR.

According to Section 803 of the National Building Code:

 SECTION 803. Percentage of Site Occupancy

(a) Maximum site occupancy shall be governed by the use, type of construction, and height of the
building and the use, area, nature, and location of the site; and subject to the provisions of the local
zoning requirements and in accordance with the rules and regulations promulgated by the Secretary.

In connection therewith, Rule XIX of the old IRR,[25] provides:

RULE XIX PARKING AND LOADING SPACE REQUIREMENTS

Pursuant to Section 803 of the National Building Code (PD 1096) providing for maximum site
occupancy, the following provisions on parking and loading space requirements shall be observed:

1. The parking space ratings listed below are minimum off-street requirements for specific
uses/occupancies for buildings/structures:
1.1 The size of an average automobile parking slot shall be computed as 2.4 meters by
5.00 meters for perpendicular or diagonal parking, 2.00 meters by 6.00 meters
for parallel parking. A truck or bus parking/loading slot shall be computed at a
minimum of 3.60 meters by 12.00 meters. The parking slot shall be drawn to
scale and the total number of which shall be indicated on the plans and specified
whether or not parking accommodations, are attendant-managed. (See Section 2
for computation of parking requirements).

xxxx

1.7 Neighborhood shopping center 1 slot/100 sq. m. of shopping floor area

The OSG avers that the aforequoted provisions should be read together with Section 102 of the National Building
Code, which declares:

SECTION 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health, property, and public
welfare, consistent with the principles of sound environmental management and control; and to this end,
make it the purpose of this Code to provide for all buildings and structures, a framework of minimum
standards and requirements to regulate and control their location, site, design, quality of materials,
construction, use, occupancy, and maintenance.

The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of safeguarding life, health,
property, and public welfare, consistent with the principles of sound environmental management and control. Adequate
parking spaces would contribute greatly to alleviating traffic congestion when complemented by quick and easy access
thereto because of free-charge parking. Moreover, the power to regulate and control the use, occupancy, and
maintenance of buildings and structures carries with it the power to impose fees and, conversely, to control -- partially or,
as in this case, absolutely -- the imposition of such fees.

The Court finds no merit in the present Petition.

The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a plain reading
thereof, is that respondents, as operators/lessors of neighborhood shopping centers, should provide parking and loading
spaces, in accordance with the minimum ratio of one slot per 100 square meters of shopping floor area. There is nothing
therein pertaining to the collection (or non-collection) of parking fees by respondents. In fact, the term parking fees
cannot even be found at all in the entire National Building Code and its IRR.

Statutory construction has it that if a statute is clear and unequivocal, it must be given its literal meaning and
applied without any attempt at interpretation.[26] Since Section 803 of the National Building Code and Rule XIX of its IRR
do not mention parking fees, then simply, said provisions do not regulate the collection of the same. The RTC and the
Court of Appeals correctly applied Article 1158 of the New Civil Code, which states:

Art. 1158. Obligations derived from law are not presumed. Only those expressly
determined in this Code or in special laws are demandable, and shall be regulated by the precepts of
 the law which establishes them; and as to what has not been foreseen, by the provisions of this Book.
(Emphasis ours.)

Hence, in order to bring the matter of parking fees within the ambit of the National Building Code and its IRR,
the OSG had to resort to specious and feeble argumentation, in which the Court cannot concur.

The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of Section 803 of the
same Code and Rule XIX of the IRR, so as to include the regulation of parking fees. The OSG limits its citation to the first
part of Section 102 of the National Building Code declaring the policy of the State to safeguard life, health, property, and
public welfare, consistent with the principles of sound environmental management and control; but totally ignores the
second part of said provision, which reads, and to this end, make it the purpose of this Code to provide for all buildings
and structures, a framework of minimum standards and requirements to regulate and control their location, site,
design, quality of materials, construction, use, occupancy, and maintenance. While the first part of Section 102 of the
National Building Code lays down the State policy, it is the second part thereof that explains how said policy shall be
carried out in the Code. Section 102 of the National Building Code is not an all-encompassing grant of regulatory power to
the DPWH Secretary and local building officials in the name of life, health, property, and public welfare. On the contrary,
it limits the regulatory power of said officials to ensuring that the minimum standards and requirements for all buildings
and structures, as set forth in the National Building Code, are complied with.

Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for parking spaces for
buildings, Rule XIX of the IRR also mandates that such parking spaces be provided by building owners free of charge.If
Rule XIX is not covered by the enabling law, then it cannot be added to or included in the implementing rules. The rule-
making power of administrative agencies must be confined to details for regulating the mode or proceedings to carry into
effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to
embrace matters not covered by the statute. Administrative regulations must always be in harmony with the provisions of
the law because any resulting discrepancy between the two will always be resolved in favor of the basic law. [27]

From the RTC all the way to this Court, the OSG repeatedly referred to Republic v. Gonzales[28] and City of
Ozamis v. Lumapas[29] to support its position that the State has the power to regulate parking spaces to promote the
health, safety, and welfare of the public; and it is by virtue of said power that respondents may be required to provide
free parking facilities. The OSG, though, failed to consider the substantial differences in the factual and legal backgrounds
of these two cases from those of the Petition at bar.

In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of the public
domain to give way to a road-widening project. It was in this context that the Court pronounced:

Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was prevalent; this, of
course, caused the build up of traffic in the surrounding area to the great discomfort and inconvenience
of the public who use the streets. Traffic congestion constitutes a threat to the health, welfare, safety
and convenience of the people and it can only be substantially relieved by widening streets and providing
adequate parking areas.

The Court, in City of Ozamis, declared that the City had been clothed with full power to control and regulate its
streets for the purpose of promoting public health, safety and welfare. The City can regulate the time, place, and manner
of parking in the streets and public places; and charge minimal fees for the street parking to cover the expenses for
supervision, inspection and control, to ensure the smooth flow of traffic in the environs of the public market, and for the
safety and convenience of the public.

Republic and City of Ozamis involved parking in the local streets; in contrast, the present case deals with
privately owned parking facilities available for use by the general public. In Republic and City of Ozamis, the concerned
local governments regulated parking pursuant to their power to control and regulate their streets; in the instant case, the
DPWH Secretary and local building officials regulate parking pursuant to their authority to ensure compliance with the
minimum standards and requirements under the National Building Code and its IRR. With the difference in subject
matters and the bases for the regulatory powers being invoked, Republic and City of Ozamis do not constitute precedents
for this case.
 Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of the OSG in the
case at bar. In Republic, the Court, instead of placing the burden on private persons to provide parking facilities to the
general public, mentioned the trend in other jurisdictions wherein the municipal governments themselves took the
initiative to make more parking spaces available so as to alleviate the traffic problems, thus:

Under the Land Transportation and Traffic Code, parking in designated areas along public streets
or highways is allowed which clearly indicates that provision for parking spaces serves a useful purpose.
In other jurisdictions where traffic is at least as voluminous as here, the provision by municipal
governments of parking space is not limited to parking along public streets or highways. There has been
a marked trend to build off-street parking facilities with the view to removing parked cars from the
streets. While the provision of off-street parking facilities or carparks has been commonly undertaken by
private enterprise, municipal governments have been constrained to put up carparks in response to public
necessity where private enterprise had failed to keep up with the growing public demand. American
courts have upheld the right of municipal governments to construct off-street parking facilities as clearly
redounding to the public benefit.[30]

In City of Ozamis, the Court authorized the collection by the City of minimal fees for the parking of vehicles along
the streets: so why then should the Court now preclude respondents from collecting from the public a fee for the use of
the mall parking facilities? Undoubtedly, respondents also incur expenses in the maintenance and operation of the mall
parking facilities, such as electric consumption, compensation for parking attendants and security, and upkeep of the
physical structures.

It is not sufficient for the OSG to claim that the power to regulate and control the use, occupancy, and
maintenance of buildings and structures carries with it the power to impose fees and, conversely, to control, partially or,
as in this case, absolutely, the imposition of such fees. Firstly, the fees within the power of regulatory agencies to impose
are regulatory fees. It has been settled law in this jurisdiction that this broad and all-compassing governmental
competence to restrict rights of liberty and property carries with it the undeniable power to collect a regulatory fee. It
looks to the enactment of specific measures that govern the relations not only as between individuals but also as between
private parties and the political society.[31] True, if the regulatory agencies have the power to impose regulatory fees,
then conversely, they also have the power to remove the same. Even so, it is worthy to note that the present case does
not involve the imposition by the DPWH Secretary and local building officials of regulatory fees upon respondents; but the
collection by respondents of parking fees from persons who use the mall parking facilities. Secondly,
assuming arguendo that the DPWH Secretary and local building officials do have regulatory powers over the collection of
parking fees for the use of privately owned parking facilities, they cannot allow or prohibit such collection arbitrarily or
whimsically. Whether allowing or prohibiting the collection of such parking fees, the action of the DPWH Secretary and
local building officials must pass the test of classic reasonableness and propriety of the measures or means in the
promotion of the ends sought to be accomplished.[32]

Keeping in mind the aforementioned test of reasonableness and propriety of measures or means, the Court notes
that Section 803 of the National Building Code falls under Chapter 8 on Light and Ventilation. Evidently, the Code
deems it necessary to regulate site occupancy to ensure that there is proper lighting and ventilation in every
building. Pursuant thereto, Rule XIX of the IRR requires that a building, depending on its specific use and/or floor area,
should provide a minimum number of parking spaces. The Court, however, fails to see the connection between regulating
site occupancy to ensure proper light and ventilation in every building vis--vis regulating the collection by building owners
of fees for the use of their parking spaces. Contrary to the averment of the OSG, the former does not necessarily include
or imply the latter. It totally escapes this Court how lighting and ventilation conditions at the malls could be affected by
the fact that parking facilities thereat are free or paid for.

The OSG attempts to provide the missing link by arguing that:

Under Section 803 of the National Building Code, complimentary parking spaces are required to
enhance light and ventilation, that is, to avoid traffic congestion in areas surrounding the building, which
certainly affects the ventilation within the building itself, which otherwise, the annexed parking spaces
would have served. Free-of-charge parking avoids traffic congestion by ensuring quick and easy access of
legitimate shoppers to off-street parking spaces annexed to the malls, and thereby removing the vehicles
of these legitimate shoppers off the busy streets near the commercial establishments. [33]
 The Court is unconvinced. The National Building Code regulates buildings, by setting the minimum
specifications and requirements for the same. It does not concern itself with traffic congestion in areas surrounding the
building.It is already a stretch to say that the National Building Code and its IRR also intend to solve the problem of traffic
congestion around the buildings so as to ensure that the said buildings shall have adequate lighting and
ventilation.Moreover, the Court cannot simply assume, as the OSG has apparently done, that the traffic congestion in
areas around the malls is due to the fact that respondents charge for their parking facilities, thus, forcing vehicle owners
to just park in the streets. The Court notes that despite the fees charged by respondents, vehicle owners still use the mall
parking facilities, which are even fully occupied on some days. Vehicle owners may be parking in the streets only because
there are not enough parking spaces in the malls, and not because they are deterred by the parking fees charged by
respondents. Free parking spaces at the malls may even have the opposite effect from what the OSG envisioned: more
people may be encouraged by the free parking to bring their own vehicles, instead of taking public transport, to the
malls; as a result, the parking facilities would become full sooner, leaving more vehicles without parking spaces in the
malls and parked in the streets instead, causing even more traffic congestion.

Without using the term outright, the OSG is actually invoking police power to justify the regulation by the State,
through the DPWH Secretary and local building officials, of privately owned parking facilities, including the collection by
the owners/operators of such facilities of parking fees from the public for the use thereof. The Court finds, however, that
in totally prohibiting respondents from collecting parking fees from the public for the use of the mall parking facilities, the
State would be acting beyond the bounds of police power.

Police power is the power of promoting the public welfare by restraining and regulating the use of liberty and
property. It is usually exerted in order to merely regulate the use and enjoyment of the property of the owner. The power
to regulate, however, does not include the power to prohibit. A fortiori, the power to regulate does not include the power
to confiscate. Police power does not involve the taking or confiscation of property, with the exception of a few cases
where there is a necessity to confiscate private property in order to destroy it for the purpose of protecting peace and
order and of promoting the general welfare; for instance, the confiscation of an illegally possessed article, such as opium
and firearms. [34]

When there is a taking or confiscation of private property for public use, the State is no longer exercising police
power, but another of its inherent powers, namely, eminent domain. Eminent domain enables the State to forcibly acquire
private lands intended for public use upon payment of just compensation to the owner. [35]

Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession
of, the expropriated property; but no cogent reason appears why the said power may not be availed of only to impose a
burden upon the owner of condemned property, without loss of title and possession. [36] It is a settled rule that neither
acquisition of title nor total destruction of value is essential to taking. It is usually in cases where 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. A regulation that deprives any person of the profitable use of his property constitutes
a taking and entitles him to compensation, unless the invasion of rights is so slight as to permit the regulation to be
justified under the police power. Similarly, a police regulation that unreasonably restricts the right to use business
property for business purposes amounts to a taking of private property, and the owner may recover therefor. [37]
Although in the present case, title to and/or possession of the parking facilities remain/s with respondents, the
prohibition against their collection of parking fees from the public, for the use of said facilities, is already tantamount to a
taking or confiscation of their properties. The State is not only requiring that respondents devote a portion of the latters
properties for use as parking spaces, but is also mandating that they give the public access to said parking spaces for
free. Such is already an excessive intrusion into the property rights of respondents. Not only are they being deprived of
the right to use a portion of their properties as they wish, they are further prohibited from profiting from its use or even
just recovering therefrom the expenses for the maintenance and operation of the required parking facilities.

The ruling of this Court in City Government of Quezon City v. Judge Ericta [38] is edifying. Therein, the City
Government of Quezon City passed an ordinance obliging private cemeteries within its jurisdiction to set aside at least six
percent of their total area for charity, that is, for burial grounds of deceased paupers. According to the Court, the
ordinance in question was null and void, for it authorized the taking of private property without just compensation:

There is no reasonable relation between the setting aside of at least six (6) percent of the total
area of all private cemeteries for charity burial grounds of deceased paupers and the promotion of'
health, morals, good order, safety, or the general welfare of the people. The ordinance is actually a
 taking without compensation of a certain area from a private cemetery to benefit paupers who are
charges of the municipal corporation. Instead of' building or maintaining a public cemetery for this
purpose, the city passes the burden to private cemeteries.

'The expropriation without compensation of a portion of private cemeteries is not covered by

Section 12(t) of Republic Act 537, the Revised Charter of Quezon City which empowers the city council to
prohibit the burial of the dead within the center of population of the city and to provide for their burial in
a proper place subject to the provisions of general law regulating burial grounds and cemeteries. When
the Local Government Code, Batas Pambansa Blg. 337 provides in Section 177(q) that a sangguniang
panlungsod may "provide for the burial of the dead in such place and in such manner as prescribed by
law or ordinance" it simply authorizes the city to provide its own city owned land or to buy or expropriate
private properties to construct public cemeteries. This has been the law, and practise in the past. It
continues to the present. Expropriation, however, requires payment of just compensation. The
questioned ordinance is different from laws and regulations requiring owners of subdivisions to set aside
certain areas for streets, parks, playgrounds, and other public facilities from the land they sell to buyers
of subdivision lots. The necessities of public safety, health, and convenience are very clear from said
requirements which are intended to insure the development of communities with salubrious and
wholesome environments. The beneficiaries of the regulation, in turn, are made to pay by the subdivision
developer when individual lots are sold to homeowners.

In conclusion, the total prohibition against the collection by respondents of parking fees from persons who use the mall
parking facilities has no basis in the National Building Code or its IRR. The State also cannot impose the same prohibition
by generally invoking police power, since said prohibition amounts to a taking of respondents property without payment
of just compensation.
Given the foregoing, the Court finds no more need to address the issue persistently raised by respondent SM Prime
concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said issue was not among those that the
parties, during the pre-trial conference for Civil Cases No. 12-08 and No. 00-1210, agreed to submit for resolution of the
RTC. It is likewise axiomatic that the constitutionality of a law, a regulation, an ordinance or an act will not be resolved by
courts if the controversy can be, as in this case it has been, settled on other grounds. [39]

WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision dated 25 January
2007 and Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No. 76298, affirming in toto the Joint
Decision dated 29 May 2002 of the Regional Trial Court of Makati City, Branch 138, in Civil Cases No. 00-1208 and No.
00-1210 are hereby AFFIRMED. No costs.

SO ORDERED.

EN BANC

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. 217 5 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";

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
9,041,700.00, along West Drive, and at least 1,954.02 square meters, worth roughly 9,770,100.00, 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 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 ABOVE-MENTIONED
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 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.

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. 303,34Series
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.

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 would-be 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.

"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.

JOSE CATRAL MENDOZA

Associate Justice
EN BANC

[G.R. No. 118127. April 12, 2005]

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, 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 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.
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-in-charge 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 Ermita-Malate 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 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 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 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.
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, 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.
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 m ost
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.
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 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 investment-backed 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 Ermita-Malate 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 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.
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 Ermita-Malate
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. 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 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, 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 accidensit 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 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.
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.

EN BANC

G.R. No. 111097 July 20, 1994

MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners,
vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, respondents.

Aquilino G. Pimentel, Jr. and Associates for petitioners.

R.R. Torralba & Associates for private respondent.

CRUZ, J.:

There was instant opposition when PAGCOR announced the opening of a casino in Cagayan de Oro City. Civic
organizations angrily denounced the project. The religious elements echoed the objection and so did the women's groups
and the youth. Demonstrations were led by the mayor and the city legislators. The media trumpeted the protest,
describing the casino as an affront to the welfare of the city.

The trouble arose when in 1992, flush with its tremendous success in several cities, PAGCOR decided to expand its
operations to Cagayan de Oro City. To this end, it leased a portion of a building belonging to Pryce Properties
Corporation, Inc., one of the herein private respondents, renovated and equipped the same, and prepared to inaugurate
its casino there during the Christmas season.

The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and hostile. On December 7, 1992, it
enacted Ordinance No. 3353 reading as follows:

ORDINANCE NO. 3353

AN ORDINANCE PROHIBITING THE ISSUANCE OF BUSINESS PERMIT AND CANCELLING EXISTING

BUSINESS PERMIT TO ANY ESTABLISHMENT FOR THE USING AND ALLOWING TO BE USED ITS
PREMISES OR PORTION THEREOF FOR THE OPERATION OF CASINO.

BE IT ORDAINED by the Sangguniang Panlungsod of the City of Cagayan de Oro, in session assembled
that:

Sec. 1. That pursuant to the policy of the city banning the operation of casino within its territorial
jurisdiction, no business permit shall be issued to any person, partnership or corporation for the operation
of casino within the city limits.

Sec. 2. That it shall be a violation of existing business permit by any persons, partnership or
corporation to use its business establishment or portion thereof, or allow the use thereof by others for
casino operation and other gambling activities.

Sec. 3. PENALTIES. Any violation of such existing business permit as defined in the preceding
section shall suffer the following penalties, to wit:

a) Suspension of the business permit for sixty (60) days for the first
offense and a fine of P1,000.00/day

b) Suspension of the business permit for Six (6) months for the second
offense, and a fine of P3,000.00/day

c) Permanent revocation of the business permit and imprisonment of

One (1) year, for the third and subsequent offenses.

Sec. 4. This Ordinance shall take effect ten (10) days from publication thereof.

Nor was this all. On January 4, 1993, it adopted a sterner Ordinance No. 3375-93 reading as follows:

ORDINANCE NO. 3375-93

AN ORDINANCE PROHIBITING THE OPERATION OF CASINO AND PROVIDING PENALTY FOR VIOLATION
THEREFOR.

WHEREAS, the City Council established a policy as early as 1990 against CASINO under its Resolution No.
2295;
 WHEREAS, on October 14, 1992, the City Council passed another Resolution No. 2673, reiterating its
policy against the establishment of CASINO;

WHEREAS, subsequently, thereafter, it likewise passed Ordinance No. 3353, prohibiting the issuance of
Business Permit and to cancel existing Business Permit to any establishment for the using and allowing to
be used its premises or portion thereof for the operation of CASINO;

WHEREAS, under Art. 3, section 458, No. (4), sub paragraph VI of the Local Government Code of 1991
(Rep. Act 7160) and under Art. 99, No. (4), Paragraph VI of the implementing rules of the Local
Government Code, the City Council as the Legislative Body shall enact measure to suppress any activity
inimical to public morals and general welfare of the people and/or regulate or prohibit such activity
pertaining to amusement or entertainment in order to protect social and moral welfare of the community;

NOW THEREFORE,

BE IT ORDAINED by the City Council in session duly assembled that:

Sec. 1. The operation of gambling CASINO in the City of Cagayan de Oro is hereby prohibited.

Sec. 2. Any violation of this Ordinance shall be subject to the following penalties:

a) Administrative fine of P5,000.00 shall be imposed against the proprietor, partnership or corporation
undertaking the operation, conduct, maintenance of gambling CASINO in the City and closure thereof;

b) Imprisonment of not less than six (6) months nor more than one (1) year or a fine in the amount of
P5,000.00 or both at the discretion of the court against the manager, supervisor, and/or any person
responsible in the establishment, conduct and maintenance of gambling CASINO.

Sec. 3. This Ordinance shall take effect ten (10) days after its publication in a local newspaper of
general circulation.

Pryce assailed the ordinances before the Court of Appeals, where it was joined by PAGCOR as intervenor and
supplemental petitioner. Their challenge succeeded. On March 31, 1993, the Court of Appeals declared the ordinances
invalid and issued the writ prayed for to prohibit their enforcement. 1 Reconsideration of this decision was denied on July
13, 1993. 2

Cagayan de Oro City and its mayor are now before us in this petition for review under Rule 45 of the Rules of
Court. 3 They aver that the respondent Court of Appeals erred in holding that:

1. Under existing laws, the Sangguniang Panlungsod of the City of Cagayan de Oro does not have the
power and authority to prohibit the establishment and operation of a PAGCOR gambling casino within the
City's territorial limits.

2. The phrase "gambling and other prohibited games of chance" found in Sec. 458, par. (a), sub-par. (1)
(v) of R.A. 7160 could only mean "illegal gambling."

3. The questioned Ordinances in effect annul P.D. 1869 and are therefore invalid on that point.

4. The questioned Ordinances are discriminatory to casino and partial to cockfighting and are therefore
invalid on that point.

5. The questioned Ordinances are not reasonable, not consonant with the general powers and purposes
of the instrumentality concerned and inconsistent with the laws or policy of the State.

6. It had no option but to follow the ruling in the case of Basco, et al. v. PAGCOR, G.R. No. 91649, May
14, 1991, 197 SCRA 53 in disposing of the issues presented in this present case.

PAGCOR is a corporation created directly by P.D. 1869 to help centralize and regulate all games of chance, including
casinos on land and sea within the territorial jurisdiction of the Philippines. In Basco v. Philippine Amusements and
Gaming Corporation, 4 this Court sustained the constitutionality of the decree and even cited the benefits of the entity to
the national economy as the third highest revenue-earner in the government, next only to the BIR and the Bureau of
Customs.

Cagayan de Oro City, like other local political subdivisions, is empowered to enact ordinances for the purposes indicated
in the Local Government Code. It is expressly vested with the police power under what is known as the General Welfare
Clause now embodied in Section 16 as follows:
 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.

In addition, Section 458 of the said Code specifically declares that:

Sec. 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:

xxx xxx xxx

(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, gamblingand 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;

This section also authorizes the local government units to regulate properties and businesses within their territorial limits
in the interest of the general welfare. 5

The petitioners argue that by virtue of these provisions, the Sangguniang Panlungsod may prohibit the operation of
casinos because they involve games of chance, which are detrimental to the people. Gambling is not allowed by general
law and even by the Constitution itself. The legislative power conferred upon local government units may be exercised
over all kinds of gambling and not only over "illegal gambling" as the respondents erroneously argue. Even if the
operation of casinos may have been permitted under P.D. 1869, the government of Cagayan de Oro City has the
authority to prohibit them within its territory pursuant to the authority entrusted to it by the Local Government Code.

It is submitted that this interpretation is consonant with the policy of local autonomy as mandated in Article II, Section
25, and Article X of the Constitution, as well as various other provisions therein seeking to strengthen the character of the
nation. In giving the local government units the power to prevent or suppress gambling and other social problems, the
Local Government Code has recognized the competence of such communities to determine and adopt the measures best
expected to promote the general welfare of their inhabitants in line with the policies of the State.

The petitioners also stress that when the Code expressly authorized the local government units to prevent and suppress
gambling and other prohibited games of chance, like craps, baccarat, blackjack and roulette, it meant allforms of
gambling without distinction. Ubi lex non distinguit, nec nos distinguere debemos. 6 Otherwise, it would have expressly
excluded from the scope of their power casinos and other forms of gambling authorized by special law, as it could have
easily done. The fact that it did not do so simply means that the local government units are permitted to prohibit all kinds
of gambling within their territories, including the operation of casinos.

The adoption of the Local Government Code, it is pointed out, had the effect of modifying the charter of the PAGCOR.
The Code is not only a later enactment than P.D. 1869 and so is deemed to prevail in case of inconsistencies between
them. More than this, the powers of the PAGCOR under the decree are expressly discontinued by the Code insofar as they
do not conform to its philosophy and provisions, pursuant to Par. (f) of its repealing clause reading as follows:

(f) 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.

It is also maintained that assuming there is doubt regarding the effect of the Local Government Code on P.D. 1869, the
doubt must be resolved in favor of the petitioners, in accordance with the direction in the Code calling for its liberal
interpretation in favor of the local government units. Section 5 of the Code specifically provides:
 Sec. 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules
shall apply:

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in
case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower
local government unit. Any fair and reasonable doubt as to the existence of the power shall be
interpreted in favor of the local government unit concerned;

xxx xxx xxx

(c) The general welfare provisions in this Code shall be liberally interpreted to give more powers to local
government units in accelerating economic development and upgrading the quality of life for the people
in the community; . . . (Emphasis supplied.)

Finally, the petitioners also attack gambling as intrinsically harmful and cite various provisions of the Constitution and
several decisions of this Court expressive of the general and official disapprobation of the vice. They invoke the State
policies on the family and the proper upbringing of the youth and, as might be expected, call attention to the old case
of U.S. v. Salaveria,7 which sustained a municipal ordinance prohibiting the playing of panguingue. The petitioners decry
the immorality of gambling. They also impugn the wisdom of P.D. 1869 (which they describe as "a martial law
instrument") in creating PAGCOR and authorizing it to operate casinos "on land and sea within the territorial jurisdiction
of the Philippines."

This is the opportune time to stress an important point.

The morality of gambling is not a justiciable issue. Gambling is not illegal per se. While it is generally considered inimical
to the interests of the people, there is nothing in the Constitution categorically proscribing or penalizing gambling or, for
that matter, even mentioning it at all. It is left to Congress to deal with the activity as it sees fit. In the exercise of its own
discretion, the legislature may prohibit gambling altogether or allow it without limitation or it may prohibit some forms of
gambling and allow others for whatever reasons it may consider sufficient. Thus, it has prohibited jueteng and monte but
permits lotteries, cockfighting and horse-racing. In making such choices, Congress has consulted its own wisdom, which
this Court has no authority to review, much less reverse. Well has it been said that courts do not sit to resolve the merits
of conflicting theories. 8 That is the prerogative of the political departments. It is settled that questions regarding the
wisdom, morality, or practicibility of statutes are not addressed to the judiciary but may be resolved only by the legislative
and executive departments, to which the function belongs in our scheme of government. That function is exclusive.
Whichever way these branches decide, they are answerable only to their own conscience and the constituents who will
ultimately judge their acts, and not to the courts of justice.

The only question we can and shall resolve in this petition is the validity of Ordinance No. 3355 and Ordinance No. 3375-
93 as enacted by the Sangguniang Panlungsod of Cagayan de Oro City. And we shall do so only by the criteria laid down
by law and not by our own convictions on the propriety of gambling.

The tests of a valid ordinance are well established. A long line of decisions 9
has held that to be valid, an ordinance must
conform to the following substantive requirements:

1) It must not contravene the constitution or any statute.

2) It must not be unfair or oppressive.

3) It must not be partial or discriminatory.

4) It must not prohibit but may regulate trade.

5) It must be general and consistent with public policy.

6) It must not be unreasonable.

We begin by observing that under Sec. 458 of the Local Government Code, local government units are authorized to
prevent or suppress, among others, "gambling and other prohibited games of chance." Obviously, this provision excludes
games of chance which are not prohibited but are in fact permitted by law. The petitioners are less than accurate in
claiming that the Code could have excluded such games of chance but did not. In fact it does. The language of the
section is clear and unmistakable. Under the rule of noscitur a sociis, a word or phrase should be interpreted in relation
to, or given the same meaning of, words with which it is associated. Accordingly, we conclude that since the word
"gambling" is associated with "and other prohibited games of chance," the word should be read as referring to only illegal
gambling which, like the other prohibited games of chance, must be prevented or suppressed.

We could stop here as this interpretation should settle the problem quite conclusively. But we will not. The vigorous
efforts of the petitioners on behalf of the inhabitants of Cagayan de Oro City, and the earnestness of their advocacy,
deserve more than short shrift from this Court.
The apparent flaw in the ordinances in question is that they contravene P.D. 1869 and the public policy embodied therein
insofar as they prevent PAGCOR from exercising the power conferred on it to operate a casino in Cagayan de Oro City.
The petitioners have an ingenious answer to this misgiving. They deny that it is the ordinances that have changed P.D.
1869 for an ordinance admittedly cannot prevail against a statute. Their theory is that the change has been made by the
Local Government Code itself, which was also enacted by the national lawmaking authority. In their view, the decree has
been, not really repealed by the Code, but merely "modified pro tanto" in the sense that PAGCOR cannot now operate a
casino over the objection of the local government unit concerned. This modification of P.D. 1869 by the Local
Government Code is permissible because one law can change or repeal another law.

It seems to us that the petitioners are playing with words. While insisting that the decree has only been "modified pro
tanto," they are actually arguing that it is already dead, repealed and useless for all intents and purposes because the
Code has shorn PAGCOR of all power to centralize and regulate casinos. Strictly speaking, its operations may now be not
only prohibited by the local government unit; in fact, the prohibition is not only discretionary but mandated by Section
458 of the Code if the word "shall" as used therein is to be given its accepted meaning. Local government units have now
no choice but to prevent and suppress gambling, which in the petitioners' view includes both legal and illegal gambling.
Under this construction, PAGCOR will have no more games of chance to regulate or centralize as they must all be
prohibited by the local government units pursuant to the mandatory duty imposed upon them by the Code. In this
situation, PAGCOR cannot continue to exist except only as a toothless tiger or a white elephant and will no longer be able
to exercise its powers as a prime source of government revenue through the operation of casinos.

It is noteworthy that the petitioners have cited only Par. (f) of the repealing clause, conveniently discarding the rest of
the provision which painstakingly mentions the specific laws or the parts thereof which are repealed (or modified) by the
Code. Significantly, P.D. 1869 is not one of them. A reading of the entire repealing clause, which is reproduced below, will
disclose the omission:

Sec. 534. Repealing Clause. (a) Batas Pambansa Blg. 337, otherwise known as the "Local Government
Code," Executive Order No. 112 (1987), and Executive Order No. 319 (1988) are hereby repealed.

(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders, instructions, memoranda
and issuances related to or concerning the barangay are hereby repealed.

(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding hospital fund; Section 3, a
(3) and b (2) of Republic Act. No. 5447 regarding the Special Education Fund; Presidential Decree No.
144 as amended by Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as amended;
Presidential Decree No. 436 as amended by Presidential Decree No. 558; and Presidential Decree Nos.
381, 436, 464, 477, 526, 632, 752, and 1136 are hereby repealed and rendered of no force and effect.

(d) Presidential Decree No. 1594 is hereby repealed insofar as it governs locally-funded projects.

(e) The following provisions are hereby repealed or amended insofar as they are inconsistent with the
provisions of this Code: Sections 2, 16, and 29 of Presidential Decree No. 704; Sections 12 of Presidential
Decree No. 87, as amended; Sections 52, 53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential
Decree No. 463, as amended; and Section 16 of Presidential Decree No. 972, as amended, and

(f) 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.

Furthermore, it is a familiar rule that implied repeals are not lightly presumed in the absence of a clear and unmistakable
showing of such intention. In Lichauco & Co. v. Apostol, 10 this Court explained:

The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of
later date clearly reveals an intention on the part of the lawmaking power to abrogate the prior law, this
intention must be given effect; but there must always be a sufficient revelation of this intention, and it
has become an unbending rule of statutory construction that the intention to repeal a former law will not
be imputed to the Legislature when it appears that the two statutes, or provisions, with reference to
which the question arises bear to each other the relation of general to special.

There is no sufficient indication of an implied repeal of P.D. 1869. On the contrary, as the private respondent points out,
PAGCOR is mentioned as the source of funding in two later enactments of Congress, to wit, R.A. 7309, creating a Board
of Claims under the Department of Justice for the benefit of victims of unjust punishment or detention or of violent
crimes, and R.A. 7648, providing for measures for the solution of the power crisis. PAGCOR revenues are tapped by these
two statutes. This would show that the PAGCOR charter has not been repealed by the Local Government Code but has in
fact been improved as it were to make the entity more responsive to the fiscal problems of the government.

It is a canon of legal hermeneutics that instead of pitting one statute against another in an inevitably destructive
confrontation, courts must exert every effort to reconcile them, remembering that both laws deserve a becoming respect
as the handiwork of a coordinate branch of the government. On the assumption of a conflict between P.D. 1869 and the
Code, the proper action is not to uphold one and annul the other but to give effect to both by harmonizing them if
possible. This is possible in the case before us. The proper resolution of the problem at hand is to hold that under the
Local Government Code, local government units may (and indeed must) prevent and suppress all kinds of gambling within
their territories except only those allowed by statutes like P.D. 1869. The exception reserved in such laws must be read
into the Code, to make both the Code and such laws equally effective and mutually complementary.

This approach would also affirm that there are indeed two kinds of gambling, to wit, the illegal and those authorized by
law. Legalized gambling is not a modern concept; it is probably as old as illegal gambling, if not indeed more so. The
petitioners' suggestion that the Code authorizes them to prohibit all kinds of gambling would erase the distinction
between these two forms of gambling without a clear indication that this is the will of the legislature. Plausibly, following
this theory, the City of Manila could, by mere ordinance, prohibit the Philippine Charity Sweepstakes Office from
conducting a lottery as authorized by R.A. 1169 and B.P. 42 or stop the races at the San Lazaro Hippodrome as
authorized by R.A. 309 and R.A. 983.

In light of all the above considerations, we see no way of arriving at the conclusion urged on us by the petitioners that
the ordinances in question are valid. On the contrary, we find that the ordinances violate P.D. 1869, which has the
character and force of a statute, as well as the public policy expressed in the decree allowing the playing of certain games
of chance despite the prohibition of gambling in general.

The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal governments
are only agents of the national government. Local councils exercise only delegated legislative powers conferred on them
by Congress as the national lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the acts of Congress, from
which they have derived their power in the first place, and negate by mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights wholly from the legislature.
It breathes into them the breath of life, without which they cannot exist. As it creates, so it may destroy.
As it may destroy, it may abridge and control. Unless there is some constitutional limitation on the right,
the legislature might, by a single act, and if we can suppose it capable of so great a folly and so great a
wrong, sweep from existence all of the municipal corporations in the State, and the corporation could not
prevent it. We know of no limitation on the right so far as to the corporation themselves are concerned.
They are, so to phrase it, the mere tenants at will of the legislature. 11

This basic 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. Without meaning to detract from that
policy, we here confirm that Congress retains control of the local government units although in significantly reduced
degree now than under our previous Constitutions. The power to create still includes the power to destroy. The power to
grant still includes the power to withhold or recall. True, there are certain notable innovations in the Constitution, like the
direct conferment on the local government units of the power to tax, 12 which cannot now be withdrawn by mere statute.
By and large, however, the national legislature is still the principal of the local government units, which cannot defy its
will or modify or violate it.

The Court understands and admires the concern of the petitioners for the welfare of their constituents and their
apprehensions that the welfare of Cagayan de Oro City will be endangered by the opening of the casino. We share the
view that "the hope of large or easy gain, obtained without special effort, turns the head of the workman" 13 and that
"habitual gambling is a cause of laziness and ruin." 14 In People v. Gorostiza, 15 we declared: "The social scourge of
gambling must be stamped out. The laws against gambling must be enforced to the limit." George Washington called
gambling "the child of avarice, the brother of iniquity and the father of mischief." Nevertheless, we must recognize the
power of the legislature to decide, in its own wisdom, to legalize certain forms of gambling, as was done in P.D. 1869 and
impliedly affirmed in the Local Government Code. That decision can be revoked by this Court only if it contravenes the
Constitution as the touchstone of all official acts. We do not find such contravention here.

We hold that the power of PAGCOR to centralize and regulate all games of chance, including casinos on land and sea
within the territorial jurisdiction of the Philippines, remains unimpaired. P.D. 1869 has not been modified by the Local
Government Code, which empowers the local government units to prevent or suppress only those forms of gambling
prohibited by law.

Casino gambling is authorized by P.D. 1869. This decree has the status of a statute that cannot be amended or nullified
by a mere ordinance. Hence, it was not competent for the Sangguniang Panlungsod of Cagayan de Oro City to enact
Ordinance No. 3353 prohibiting the use of buildings for the operation of a casino and Ordinance No. 3375-93 prohibiting
the operation of casinos. For all their praiseworthy motives, these ordinances are contrary to P.D. 1869 and the public
policy announced therein and are therefore ultra vires and void.

WHEREFORE, the petition is DENIED and the challenged decision of the respondent Court of Appeals is AFFIRMED, with
costs against the petitioners. It is so ordered.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo, Melo, Quiason, Puno, Vitug, Kapunan and Mendoza,
JJ., concur.
 Separate Opinions

PADILLA, J., concurring:

I concur with the majority holding that the city ordinances in question cannot modify much less repeal PAGCOR's general
authority to establish and maintain gambling casinos anywhere in the Philippines under Presidential Decree No. 1869.

In Basco v. Philippine Amusement and Gaming Corporation (PAGCOR), 197 SCRA 52, I stated in a separate opinion that:

. . . I agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire
activity known as gambling properly pertain to "state policy". It is, therefore, the political departments of
government, namely, the legislative and the executive that should decide on what government should do
in the entire area of gambling, and assume full responsibility to the people for such policy." (Emphasis
supplied)

However, despite the legality of the opening and operation of a casino in Cagayan de Oro City by respondent PAGCOR, I
wish to reiterate my view that gambling in any form runs counter to the government's own efforts to re-establish and
resurrect the Filipino moral character which is generally perceived to be in a state of continuing erosion.

It is in the light of this alarming perspective that I call upon government to carefully weigh the advantages and
disadvantages of setting up more gambling facilities in the country.

That the PAGCOR contributes greatly to the coffers of the government is not enough reason for setting up more gambling
casinos because, undoubtedly, this will not help improve, but will cause a further deterioration in the Filipino moral
character.

It is worth remembering in this regard that, 1) what is legal is not always moral and 2) the ends do not always justify the
means.

As in Basco, I can easily visualize prostitution at par with gambling. And yet, legalization of the former will not render it
any less reprehensible even if substantial revenue for the government can be realized from it. The same is true of
gambling.

In the present case, it is my considered view that the national government (through PAGCOR) should re-examine and re-
evaluate its decision of imposing the gambling casino on the residents of Cagayan de Oro City; for it is abundantly clear
that public opinion in the city is very much against it, and again the question must be seriously deliberated: will the
prospects of revenue to be realized from the casino outweigh the further destruction of the Filipino sense of values?

DAVIDE, JR., J., concurring:

While I concur in part with the majority, I wish, however, to express my views on certain aspects of this case.

I.

It must at once be noted that private respondent Pryce Properties Corporation (PRYCE) directly filed with the Court of
Appeals its so-called petition for prohibition, thereby invoking the said court's original jurisdiction to issue writs of
prohibition under Section 9(1) of B.P. Blg. 129. As I see it, however, the principal cause of action therein is one for
declaratory relief: to declare null and unconstitutional for, inter alia, having been enacted without or in excess of
jurisdiction, for impairing the obligation of contracts, and for being inconsistent with public policy the challenged
ordinances enacted by the Sangguniang Panglungsod of the City of Cagayan de Oro. The intervention therein of public
respondent Philippine Amusement and Gaming Corporation (PAGCOR) further underscores the "declaratory relief" nature
of the action. PAGCOR assails the ordinances for being contrary to the non-impairment and equal protection clauses of
the Constitution, violative of the Local Government Code, and against the State's national policy declared in P.D. No.
1869. Accordingly, the Court of Appeals does not have jurisdiction over the nature of the action. Even
assuming arguendo that the case is one for prohibition, then, under this Court's established policy relative to the
hierarchy of courts, the petition should have been filed with the Regional Trial Court of Cagayan de Oro City. I find no
special or compelling reason why it was not filed with the said court. I do not wish to entertain the thought that PRYCE
doubted a favorable verdict therefrom, in which case the filing of the petition with the Court of Appeals may have been
impelled by tactical considerations. A dismissal of the petition by the Court of Appeals would have been in order pursuant
to our decisions in People vs. Cuaresma (172 SCRA 415, [1989]) and Defensor-Santiago vs. Vasquez (217 SCRA 633
[1993]). In Cuaresma, this Court stated:

A last word. This court's original jurisdiction to issue writs of certiorari (as well as
prohibition, mandamus, quo warranto, habeas corpus and injunction) is not exclusive. It is shared by this
Court with Regional Trial Courts (formerly Courts of First Instance), which may issue the writ, enforceable
in any part of their respective regions. It is also shared by this court, and by the Regional Trial Court,
with the Court of Appeals (formerly, Intermediate Appellate Court), although prior to the effectivity
of Batas Pambansa Bilang 129 on August 14, 1981, the latter's competence to issue the extraordinary
writs was restricted by those "in aid of its appellate jurisdiction." This concurrence of jurisdiction is not,
however, to be taken as according to parties seeking any of the writs an absolute, unrestrained freedom
of choice of the court to which application therefor will be directed. There is after all a hierarchy of
courts. That hierarchy is determinative of the revenue of appeals, and should also serve as a general
determinant of the appropriate forum for petitions for the extraordinary writs. A becoming regard for that
judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against
first level ("inferior") courts should be filed with the Regional Trial Court, and those against the latter,
with the Court of Appeals. A direct invocation of the Supreme Court's original jurisdiction to issue these
writs should be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy that is necessary to prevent
inordinate demands upon the Court's time and attention which are better devoted to those matters within
its exclusive jurisdiction, and to prevent further over-crowding of the Court's docket. Indeed, the removal
of the restriction of the jurisdiction of the Court of Appeals in this regard, supra resulting from the
deletion of the qualifying phrase, "in aid of its appellate jurisdiction" was evidently intended precisely
to relieve this Court pro tanto of the burden of dealing with applications for extraordinary writs which, but
for the expansion of the Appellate Court's corresponding jurisdiction, would have had to be filed with it.
(citations omitted)

And in Vasquez, this Court said:

One final observation. We discern in the proceedings in this case a propensity on the part of petitioner,
and, for that matter, the same may be said of a number of litigants who initiate recourses before us, to
disregard the hierarchy of courts in our judicial system by seeking relief directly from this Court despite
the fact that the same is available in the lower courts in the exercise of their original or concurrent
jurisdiction, or is even mandated by law to be sought therein. This practice must be stopped, not only
because of the imposition upon the previous time of this Court but also because of the inevitable and
resultant delay, intended or otherwise, in the adjudication of the case which often has to be remanded or
referred to the lower court as the proper forum under the rules of procedure, or as better equipped to
resolve the issues since this Court is not a trier of facts. We, therefore, reiterate the judicial policy that
this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of a remedy
within and calling for the exercise of our primary jurisdiction.

II.

The challenged ordinances are (a) Ordinance No. 3353 entitled, " An Ordinance Prohibiting the Issuance of Business
Permit and Canceling Existing Business Permit To Any Establishment for the Using and Allowing to be Used Its Premises
or Portion Thereof for the Operation of Casino," and (b) Ordinance No. 3375-93 entitled, "An Ordinance Prohibiting the
Operation of Casino and Providing Penalty for Violation Therefor." They were enacted to implement Resolution No. 2295
entitled, "Resolution Declaring As a Matter of Policy to Prohibit and/or Not to Allow the Establishment of the Gambling
Casino in the City of Cagayan de Oro," which was promulgated on 19 November 1990 nearly two years before PRYCE
and PAGCOR entered into a contract of lease under which the latter leased a portion of the former's Pryce Plaza Hotel for
the operation of a gambling casino which resolution was vigorously reiterated in Resolution No. 2673 of 19 October
1992.

The challenged ordinances were enacted pursuant to the Sangguniang Panglungsod's express powers conferred by
Section 458, paragraph (a), subparagraphs (1)-(v), (3)-(ii), and (4)-(i), (iv), and (vii), Local Government Code, and
pursuant to its implied power under Section 16 thereof (the general welfare clause) which reads:

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.
The issue that necessarily arises is whether in granting local governments (such as the City of Cagayan de Oro) the above
powers and functions, the Local Government Code has, pro tanto, repealed P.D. No. 1869 insofar as PAGCOR's general
authority to establish and maintain gambling casinos anywhere in the Philippines is concerned.

I join the majority in holding that the ordinances cannot repeal P.D. No. 1869.

III.

The nullification by the Court of Appeals of the challenged ordinances as unconstitutional primarily because it is in
contravention to P.D. No. 1869 is unwarranted. A contravention of a law is not necessarily a contravention of the
constitution. In any case, the ordinances can still stand even if they be conceded as offending P.D. No. 1869. They can be
reconciled, which is not impossible to do. So reconciled, the ordinances should be construed as not applying to PAGCOR.

IV.

From the pleadings, it is obvious that the government and the people of Cagayan de Oro City are, for obvious reasons,
strongly against the opening of the gambling casino in their city. Gambling, even if legalized, would be inimical to the
general welfare of the inhabitants of the City, or of any place for that matter. The PAGCOR, as a government-owned
corporation, must consider the valid concerns of the people of the City of Cagayan de Oro and should not impose its will
upon them in an arbitrary, if not despotic, manner.

# Separate Opinions

PADILLA, J., concurring:

I concur with the majority holding that the city ordinances in question cannot modify much less repeal PAGCOR's general
authority to establish and maintain gambling casinos anywhere in the Philippines under Presidential Decree No. 1869.

In Basco v. Philippine Amusement and Gaming Corporation (PAGCOR), 197 SCRA 52, I stated in a separate opinion that:

. . . I agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire
activity known as gambling properly pertain to "state policy". It is, therefore, the political departments of
government, namely, the legislative and the executive that should decide on what government should do
in the entire area of gambling, and assume full responsibility to the people for such policy. (emphasis
supplied)

However, despite the legality of the opening and operation of a casino in Cagayan de Oro City by respondent PAGCOR, I
wish to reiterate my view that gambling in any form runs counter to the government's own efforts to re-establish and
resurrect the Filipino moral character which is generally perceived to be in a state of continuing erosion.

It is in the light of this alarming perspective that I call upon government to carefully weigh the advantages and
disadvantages of setting up more gambling facilities in the country.

That the PAGCOR contributes greatly to the coffers of the government is not enough reason for setting up more gambling
casinos because, undoubtedly, this will not help improve, but will cause a further deterioration in the Filipino moral
character.

It is worth remembering in this regard that, 1) what is legal is not always moral and 2) the ends do not always justify the
means.

As in Basco, I can easily visualize prostitution at par with gambling. And yet, legalization of the former will not render it
any less reprehensible even if substantial revenue for the government can be realized from it. The same is true of
gambling.

In the present case, it is my considered view that the national government (through PAGCOR) should re-examine and re-
evaluate its decision of imposing the gambling casino on the residents of Cagayan de Oro City; for it is abundantly clear
that public opinion in the city is very much against it, and again the question must be seriously deliberated: will the
prospects of revenue to be realized from the casino outweigh the further destruction of the Filipino sense of values?

DAVIDE, JR., J., concurring:

While I concur in part with the majority, I wish, however, to express my views on certain aspects of this case.
 I.

It must at once be noted that private respondent Pryce Properties Corporation (PRYCE) directly filed with the Court of
Appeals its so-called petition for prohibition, thereby invoking the said court's original jurisdiction to issue writs of
prohibition under Section 9(1) of B.P. Blg. 129. As I see it, however, the principal cause of action therein is one for
declaratory relief: to declare null and unconstitutional for, inter alia, having been enacted without or in excess of
jurisdiction, for impairing the obligation of contracts, and for being inconsistent with public policy the challenged
ordinances enacted by the Sangguniang Panglungsod of the City of Cagayan de Oro. The intervention therein of public
respondent Philippine Amusement and Gaming Corporation (PAGCOR) further underscores the "declaratory relief" nature
of the action. PAGCOR assails the ordinances for being contrary to the non-impairment and equal protection clauses of
the Constitution, violative of the Local Government Code, and against the State's national policy declared in P.D. No.
1869. Accordingly, the Court of Appeals does not have jurisdiction over the nature of the action. Even
assuming arguendo that the case is one for prohibition, then, under this Court's established policy relative to the
hierarchy of courts, the petition should have been filed with the Regional Trial Court of Cagayan de Oro City. I find no
special or compelling reason why it was not filed with the said court. I do not wish to entertain the thought that PRYCE
doubted a favorable verdict therefrom, in which case the filing of the petition with the Court of Appeals may have been
impelled by tactical considerations. A dismissal of the petition by the Court of Appeals would have been in order pursuant
to our decisions in People vs. Cuaresma (172 SCRA 415, [1989]) and Defensor-Santiago vs. Vasquez (217 SCRA 633
[1993]). In Cuaresma, this Court stated:

A last word. This court's original jurisdiction to issue writs of certiorari (as well as
prohibition, mandamus, quo warranto, habeas corpus and injunction) is not exclusive. It is shared by this
Court with Regional Trial Courts (formerly Courts of First Instance), which may issue the writ, enforceable
in any part of their respective regions. It is also shared by this court, and by the Regional Trial Court,
with the Court of Appeals (formerly, Intermediate Appellate Court), although prior to the effectivity
of Batas Pambansa Bilang 129 on August 14, 1981, the latter's competence to issue the extraordinary
writs was restricted by those "in aid of its appellate jurisdiction." This concurrence of jurisdiction is not,
however, to be taken as according to parties seeking any of the writs an absolute, unrestrained freedom
of choice of the court to which application therefor will be directed. There is after all a hierarchy of
courts. That hierarchy is determinative of the revenue of appeals, and should also serve as a general
determinant of the appropriate forum for petitions for the extraordinary writs. A becoming regard for that
judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against
first level ("inferior") courts should be filed with the Regional Trial Court, and those against the latter,
with the Court of Appeals. A direct invocation of the Supreme Court's original jurisdiction to issue these
writs should be allowed only when there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy that is necessary to prevent
inordinate demands upon the Court's time and attention which are better devoted to those matters within
its exclusive jurisdiction, and to prevent further over-crowding of the Court's docket. Indeed, the removal
of the restriction of the jurisdiction of the Court of Appeals in this regard, supra resulting from the
deletion of the qualifying phrase, "in aid of its appellate jurisdiction" was evidently intended precisely
to relieve this Court pro tanto of the burden of dealing with applications for extraordinary writs which, but
for the expansion of the Appellate Court's corresponding jurisdiction, would have had to be filed with it.
(citations omitted)

And in Vasquez, this Court said:

One final observation. We discern in the proceedings in this case a propensity on the part of petitioner,
and, for that matter, the same may be said of a number of litigants who initiate recourses before us, to
disregard the hierarchy of courts in our judicial system by seeking relief directly from this Court despite
the fact that the same is available in the lower courts in the exercise of their original or concurrent
jurisdiction, or is even mandated by law to be sought therein. This practice must be stopped, not only
because of the imposition upon the previous time of this Court but also because of the inevitable and
resultant delay, intended or otherwise, in the adjudication of the case which often has to be remanded or
referred to the lower court as the proper forum under the rules of procedure, or as better equipped to
resolve the issues since this Court is not a trier of facts. We, therefore, reiterate the judicial policy that
this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of a remedy
within and calling for the exercise of our primary jurisdiction.

II.

The challenged ordinances are (a) Ordinance No. 3353 entitled, " An Ordinance Prohibiting the Issuance of Business
Permit and Canceling Existing Business Permit To Any Establishment for the Using and Allowing to be Used Its Premises
or Portion Thereof for the Operation of Casino," and (b) Ordinance No. 3375-93 entitled, "An Ordinance Prohibiting the
Operation of Casino and Providing Penalty for Violation Therefor ." They were enacted to implement Resolution No. 2295
entitled, "Resolution Declaring As a Matter of Policy to Prohibit and/or Not to Allow the Establishment of the Gambling
Casino in the City of Cagayan de Oro," which was promulgated on 19 November 1990 nearly two years before PRYCE
and PAGCOR entered into a contract of lease under which the latter leased a portion of the former's Pryce Plaza Hotel for
the operation of a gambling casino which resolution was vigorously reiterated in Resolution No. 2673 of 19 October
1992.

The challenged ordinances were enacted pursuant to the Sangguniang Panglungsod's express powers conferred by
Section 458, paragraph (a), subparagraphs (1)-(v), (3)-(ii), and (4)-(i), (iv), and (vii), Local Government Code, and
pursuant to its implied power under Section 16 thereof (the general welfare clause) which reads:

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.

The issue that necessarily arises is whether in granting local governments (such as the City of Cagayan de Oro) the above
powers and functions, the Local Government Code has, pro tanto, repealed P.D. No. 1869 insofar as PAGCOR's general
authority to establish and maintain gambling casinos anywhere in the Philippines is concerned.

I join the majority in holding that the ordinances cannot repeal P.D. No. 1869.

III.

The nullification by the Court of Appeals of the challenged ordinances as unconstitutional primarily because it is in
contravention to P.D. No. 1869 is unwarranted. A contravention of a law is not necessarily a contravention of the
constitution. In any case, the ordinances can still stand even if they be conceded as offending P.D. No. 1869. They can be
reconciled, which is not impossible to do. So reconciled, the ordinances should be construed as not applying to PAGCOR.

IV.

From the pleadings, it is obvious that the government and the people of Cagayan de Oro City are, for obvious reasons,
strongly against the opening of the gambling casino in their city. Gambling, even if legalized, would be inimical to the
general welfare of the inhabitants of the City, or of any place for that matter. The PAGCOR, as a government-owned
corporation, must consider the valid concerns of the people of the City of Cagayan de Oro and should not impose its will
upon them in an arbitrary, if not despotic, manner.

SECOND DIVISION

G.R. No. 40243 March 11, 1992

CELESTINO TATEL, petitioner,

vs.
MUNICIPALITY OF VIRAC, SALVADOR A. SURTIDA, in his capacity as Mayor of Virac, Catanduanes; GAVINO
V. GUERRERO, in his capacity as Vice-Mayor of Virac, Catanduanes; JOSE T. BUEBOS, in his capacity as
Councilor of Virac, Catanduanes; ANGELES TABLIZO, in his capacity as Councilor of Virac, Catanduanes;
ELPIDIO T. ZAFE, in his capacity as Councilor of Virac, Catanduanes; MARIANO ALBERTO, in his capacity as
Councilor of Virac, Catanduanes; JULIA A. GARCIA, in her capacity as Councilor of Virac, Catanduanes; and
PEDRO A. GUERRERO, in his capacity as Councilor of Virac, Catanduanes, respondents.

NOCON, J.:

This is a Petition for Prohibition with Preliminary Injunction with the Court of First Instance of Catanduanes filed by
appellant, Celestino Tatel, a businessman engaged in the import and export of abaca and other products against the
Municipal Council of Virac, Catanduanes and its municipal officials enjoining them from enforcing Resolution No 29 1of the
Council, declaring the warehouse of petitioner in barrio Sta. Elena of the said municipality a public nuisance within the
purview of Article 694 of the Civil Code of the Philippines and directing the petitioner to remove and transfer said
warehouse to a more suitable place within two (2) months from receipt of the said resolution.

It appears from the records that on the basis of complaints received from the residents of barrio Sta. Elena on March 18,
1966 against the disturbance caused by the operation of the abaca bailing machine inside the warehouse of petitioner
which affected the peace and tranquility of the neighborhood due to the smoke, obnoxious odor and dust emitted by the
machine, a committee was appointed by the municipal council of Virac to investigate the matter. The committee noted
the crowded nature of the neighborhood with narrow roads and the surrounding residential houses, so much so that an
accidental fire within the warehouse of the petitioner occasioned by the continuance of the activity inside the warehouse
and the storing of inflammable materials created a danger to the lives and properties of the people within the
neighborhood.

Resultantly, Resolution No. 29 was passed by the Municipal Council of Virac on April 22, 1966 declaring the warehouse
owned and operated by petitioner a public nuisance within the purview of Article 694 of the New Civil Code. 2

His motion for reconsideration having been denied by the Municipal Council of Virac, petitioner instituted the present
petition for prohibition with preliminary injunction.

Respondent municipal officials contend that petitioner's warehouse was constructed in violation of Ordinance No. 13,
series of 1952, prohibiting the construction of warehouses near a block of houses either in the poblacion or barrios
without maintaining the necessary distance of 200 meters from said block of houses to avoid loss of lives and properties
by accidental fire.

On the other hand, petitioner contends that said ordinance is unconstitutional, contrary to the due process and equal
protection clause of the Constitution and null and void for not having been passed in accordance with law.

The issue then boils down on whether petitioner's warehouse is a nuisance within the meaning of Article 694 of the Civil
Code and whether Ordinance No. 13, S. 1952 of the Municipality of Virac is unconstitutional and void.

In a decision dated September 18, 1969, the court a quo ruled as follows:

1. The warehouse in question was legally constructed under a valid permit issued by the municipality of
Virac in accordance with existing regulations and may not be destroyed or removed from its present
location;

2. Ordinance No. 13, series of 1952, is a legitimate and valid exercise of police power by the Municipal
Council of Virac is not (sic) unconstitutional and void as claimed by the petitioner;

3. The storage by the petitioner of abaca and copra in the warehouse is not only in violation of the
provisions of the ordinance but poses a grave danger to the safety of the lives and properties of the
residents of the neighborhood due to accidental fire and constitutes a public nuisance under the
provisions of Article 694 of the New Civil code of the Philippines and may be abated;

4. Accordingly, the petitioner is hereby directed to remove from the said warehouse all abaca and copra
and other inflammable articles stored therein which are prohibited under the provisions of Ordinance No.
13, within a period of two (2) months from the time this decision becomes final and that henceforth, the
petitioner is enjoined from storing such prohibited articles in the warehouse. With costs against
petitioner.

Seeking appellate review, petitioner raised as errors of the court a quo:

1. In holding that Ordinance No. 13, series of 1952, of the Municipality of Virac, Catanduanes, is a
legitimate and valid exercise of police power of the Municipal Council, and therefore, constitutional;

2. In giving the ordinance a meaning other than and different from what it provided by declaring that
petitioner violated the same by using the warehouse for storage of abaca and copra when what is
prohibited and penalized by the ordinance is the construction of warehouses.

3. In refusing to take judicial notice of the fact that in the municipality, there are numerous
establishments similarly situated as appellants' warehouses but which are not prosecuted.

We find no merit in the Petition.

Ordinance No. 13, series of 1952, was passed by the Municipal Council of Virac in the exercise of its police power. It is a
settled principle of law that municipal corporations are agencies of the State for the promotion and maintenance of local
self-government and as such are endowed with the police powers in order to effectively accomplish and carry out the
declared objects of their creation. 3 Its authority emanates from the general welfare clause under the Administrative
Code, which reads:

The municipal council shall enact such ordinances and make such regulations, not repugnant to law, as
may be necessary to carry into effect and discharge the powers and duties conferred upon it by law and
such as shall seem necessary and proper to provide for the health and safety, promote the prosperity,
improve the morals, peace, good order, comfort and convenience of the municipality and the inhabitants
thereof, and for the protection of property therein. 4
For an ordinance to be valid, it must not only be within the corporate powers of the municipality to enact but must also
be passed according to the procedure prescribed by law, and must be in consonance with certain well established and
basic principles of a substantive nature. These principles require that a municipal ordinance (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. 5 Ordinance No. 13, Series of 1952, meets these criteria.

As to the petitioner's second assignment of error, the trial court did not give the ordinance in question a meaning other
than what it says. Ordinance No. 13 passed by the Municipal Council of Virac on December 29, 1952, 6 reads:

AN ORDINANCE STRICTLY PROHIBITING THE CONSTRUCTION OF WAREHOUSE IN ANY FORM NEAR A

BLOCK OF HOUSES EITHER IN POBLACION OR BARRIO WITH NECESSARY DISTANCE TO AVOID GREAT
LOSSES OF PROPERTY AND LIVES BY FIRE ACCIDENT.

Section 1 provides:

It is strictly prohibited to construct warehouses in any form to any person, persons, entity, corporation or
merchants, wherein to keep or store copra, hemp, gasoline, petroleum, alcohol, crude oil, oil of
turpentine and the like products or materials if not within the distance of 200 meters from a block of
houses either in the poblacion or barrios to avoid great losses of properties inclusive lives by fire accident.

Section 2 provides: 7

Owners of warehouses in any form, are hereby given advice to remove their said warehouses this
ordinance by the Municipal Council, provided however, that if those warehouses now in existence should
no longer be utilized as such warehouse for the above-described products in Section 1 of this ordinance
after a lapse of the time given for the removal of the said warehouses now in existence, same
warehouses shall be exempted from the spirit of the provision of section 1 of this
ordinance,provided further, that these warehouses now in existence, shall in the future be converted into
non-inflammable products and materials warehouses.

In spite of its fractured syntax, basically, what is regulated by the ordinance is the construction of warehouses wherein
inflammable materials are stored where such warehouses are located at a distance of 200 meters from a block of houses
and not the construction per se of a warehouse. The purpose is to avoid the loss of life and property in case of fire which
is one of the primordial obligation of the government.

This was also the observation of the trial court:

A casual glance of the ordinance at once reveals a manifest disregard of the elemental rules of syntax.
Experience, however, will show that this is not uncommon in law making bodies in small towns where
local authorities and in particular the persons charged with the drafting and preparation of municipal
resolutions and ordinances lack sufficient education and training and are not well grounded even on the
basic and fundamental elements of the English language commonly used throughout the country in such
matters. Nevertheless, if one scrutinizes the terms of the ordinance, it is clear that what is prohibited is
the construction of warehouses by any person, entity or corporation wherein copra, hemp, gasoline and
other inflammable products mentioned in Section 1 may be stored unless at a distance of not less than
200 meters from a block of houses either in the poblacion or barrios in order to avoid loss of property
and life due to fire. Under Section 2, existing warehouses for the storage of the prohibited articles were
given one year after the approval of the ordinance within which to remove them but were allowed to
remain in operation if they had ceased to store such prohibited articles.

The ambiguity therefore is more apparent than real and springs from simple error in grammatical
construction but otherwise, the meaning and intent is clear that what is prohibited is the construction or
maintenance of warehouses for the storage of inflammable articles at a distance within 200 meters from
a block of houses either in the poblacion or in the barrios. And the purpose of the ordinance is to avoid
loss of life and property in case of accidental fire which is one of the primordial and basic obligation of
any government. 8

Clearly, the lower court did NOT add meaning other than or differrent from what was provided in the ordinance in
question. It merely stated the purpose of the ordinance and what it intends to prohibit to accomplish its purpose.

As to the third assignment of error, that warehouses similarly situated as that of the petitioner were not prosecuted,
suffice it to say that the mere fact that the municipal authorities of Virac have not proceeded against other warehouses in
the municipality allegedly violating Ordinance No. 13 is no reason to claim that the ordinance is discriminatory. A
distinction must be made between the law itself and the manner in which said law is implemented by the agencies in
charge with its administration and enforcement. There is no valid reason for the petitioner to complain, in the absence of
proof that the other bodegas mentioned by him are operating in violation of the ordinance and that the complaints have
been lodged against the bodegas concerned without the municipal authorities doing anything about it.
The objections interposed by the petitioner to the validity of the ordinance have not been substantiated. Its purpose is
well within the objectives of sound government. No undue restraint is placed upon the petitioner or for anybody to
engage in trade but merely a prohibition from storing inflammable products in the warehouse because of the danger of
fire to the lives and properties of the people residing in the vicinity. As far as public policy is concerned, there can be no
better policy than what has been conceived by the municipal government.

As to petitioner's contention of want of jurisdiction by the lower court we find no merit in the same. The case is a simple
civil suit for abatement of a nuisance, the original jurisdiction of which falls under the then Court of First Instance.

WHEREFORE, for lack of merit, the petition is hereby DISMISSED. Costs against petitioner.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.

THIRD DIVISION

FERMIN MANAPAT, G.R. No. 110478[1]

Petitioner,
- versus -

COURT OF APPEALS and

NATIONAL HOUSING
AUTHORITY,
Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - -x
DOMINGO LIM, G.R. No. 116176
Petitioner,

- versus -

COURT OF APPEALS and

NATIONAL HOUSING
AUTHORITY,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - -x

NATIONAL HOUSING G.R. Nos. 116491-503

AUTHORITY,
Petitioner, Present:
YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
MAXIMO LOBERANES, NACHURA, and
ELADIO QUIMQUE, CESARIO REYES, JJ.
VEGA, JUANITO SANTOS,
ALEJANDRO ORACION and Promulgated:
GONZALO MERCADO,
Respondents. October 15, 2007

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:
 For the resolution of the Court are three consolidated petitions for review on certiorari under Rule 45 of the Rules
of Court. G.R. No. 110478 assails the May 27, 1993 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV Nos. 10200-
10212. G.R. No. 116176 questions the June 28, 1994 Decision[3] of the appellate court in CA-G.R. CV No. 27159. G.R.
Nos. 116491-503 assails the March 2, 1994 and the July 25, 1994 Resolutions[4] of the CA also in CA-G.R. CV Nos. 10200-
10212.

The three-decade saga of the parties herein has for its subject parcels of land forming part of what was originally
known as the Grace Park Subdivision in Caloocan City and formerly owned by the Roman Catholic Archbishop of Manila
(RCAM) and/or the Philippine Realty Corporation (PRC).

The Facts

Sometime in the 1960s, RCAM allowed a number of individuals to occupy the Grace Park property on condition
that they would vacate the premises should the former push through with the plan to construct a school in the area. The
plan, however, did not materialize, thus, the occupants offered to purchase the portions they occupied. Later, as they
could not afford RCAMs proposed price, the occupants, organizing themselves as exclusive members of the Eulogio
Rodriguez, Jr. Tenants Association, Inc., petitioned the Government for the acquisition of the said property, its subdivision
into home lots, and the resale of the subdivided lots to them at a low price. [5]

Acting on the associations petition, the Government, in 1963, through the Land Tenure Administration (LTA),
later succeeded by the Peoples Homesite and Housing Corporation (PHHC), negotiated for the acquisition of the property
from RCAM/PRC. But because of the high asking price of RCAM and the budgetary constraints of the Government, the
latters effort to purchase and/or to expropriate the property was discontinued. RCAM then decided to effect, on its own,
the subdivision of the property and the sale of the individual subdivided lots to the public. [6] Petitioners Manapat and Lim
and respondents Loberanes, Quimque, Vega, Santos, Oracion and Mercado in these consolidated cases were among
those who purchased individual subdivided lots of Grace Park directly from RCAM and/or PRC. [7]

A significant turn of events however happened in 1977 when the late President Ferdinand E. Marcos issued
Presidential Decree (PD) No. 1072,[8] appropriating P1.2M out of the Presidents Special Operations Funds to cover the
additional amount needed for the expropriation of Grace Park. The National Housing Authority (NHA), PHHCs successor,
then filed several expropriation proceedings over the already subdivided lots for the purpose of developing Grace Park
under the Zonal Improvement Program (ZIP) and subdividing it into small lots for distribution and resale at a low cost to
the residents of the area.[9] The following cases were filed by the NHA with the Regional Trial Court (RTC)
of Caloocan City: C-6225, C-6226, C-6227, C-6228, C-6229, C-6230, C-6231, C-6232, C-6233, C-6234, C-6235, C-6236, C-
6237, C-6238, C-6255 and C-6435.[10]

After due proceedings, the trial court rendered separate decisions dismissing the expropriation cases, with the
exceptions of Cases Nos. C-6233 and C-6236 in which it ordered the condemnation of the involved lots. [11] On motion for
reconsideration by the NHA in Cases Nos. C-6227, C-6228, C-6230, C-6234, C-6235, C-6238 and C-6255, the trial court
later amended its decision, set aside its dismissal of the said cases, ordered the condemnation of the involved lots and
fixed the amount of just compensation at P180.00 per square meter. In Cases Nos. C-6225, C-6229, C-6231, C-6232, C-
6237 and C-6435, the RTC however denied NHAs motion for reconsideration.[12]

NHA eventually appealed to the CA the decisions in Cases Nos. C-6225, C-6229, C-6231, C-6232, C-6237 and C-
6435 on the issue of the necessity of the taking, and the amended ruling in Cases Nos. C-6227, C-6228, C-6230, C-6234,
C-6235, C-6238 and C-6255 on the issue of just compensation.[13] The CA consolidated the appeals and docketed them
as CA-G.R. CV No. 10200-10212. NHA likewise filed with the CA an appeal from the decision in C-6226, which was
docketed as CA-G.R. CV No. 27159.

On May 27, 1993, the appellate court rendered its Decision[14] in CA-G.R. CV No. 10200-10212 disposing of
the appealed cases as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Reversing and setting aside the decisions of dismissal in Cases Nos. C-6225, C-6229, C-6231,
C-6232, C-6237 and C-6435; and in lieu thereof an order of condemnation is entered declaring that
plaintiff-appellant NHA has a lawful right to take the lots involved for the public use described in the
complaints;

2) Affirming the decisions in Case Nos. C-6227, C-6228, C-6234, C-6235, C-6238 and C-6255
insofar as said decision granted the expropriation; declaring that plaintiff-appellant NHA has a lawful right
to take the lots involved for the public use stated in the complaint; but annulling and setting aside the
just compensation fixed by the trial court at P180.00 per square meter in the said cases;

3) Ordering the remand of all the appealed cases, except for Case No. C-6230, to the trial court
for determination of the just compensation to which defendants are entitled in accordance with Rule 67
of the Revised Rules of Court;

4) Finding the compromise agreement in Case No. C-6230, entitled, NHA v. Aurora Dy dela
Costa, et al. in accordance with law, and not contrary to morals or public policy, and rendering judgment
in accordance therewith;

5) Ordering Remedios Macato to be joined as defendant with Julia C. Diaz in Case No. C-6227.

No pronouncement as to costs.

SO ORDERED.[15]

Rosemarie and Dolores Guanzon, two of the owners of the lots in C-6225, filed before this Court a petition for review
on certiorari of the aforesaid decision of the appellate court [Their petition was docketed as G.R. Nos. 110462-74].
On September 5, 1994, we dismissed their petition for failure to sufficiently show that the CA had committed any
reversible error in the challenged decision.[16] An Entry of Judgment was issued on February 2, 1995.[17]

Likewise, Julia Diez and Remedios Macato, the owners of the lots in C-6227, assailed before us the afore-quoted CA
decision through a petition under Rule 45. On July 28, 1993, however, in G.R. No. 110770, we denied their Motion for
Extension of Time to file a petition for review on certiorari for their failure to submit an affidavit of service of the motion
as required by

Circular No. 19-91.[18] After denying their motion for reconsideration,[19] we issued an Entry of Judgment on August 27,
1993.[20]

Petitioner Manapat, the defendant-landowner in C-6229, also elevated the case before us via a petition for review
on certiorari docketed as G.R. No. 110478.[21] We initially dismissed this petition for having been filed out of time,[22] but
we reinstated it on motion for reconsideration.[23]
 In the meantime, the other defendants-landowners in the expropriation casesRCAM/PRC in C-6225, Maximo
Loberanes and Eladio Quimque in C-6231, Alejandro Oracion, Gonzalo Mercado, Cesario Vega and Juanito Santos in C-
6435, and Remedios Macato in C-6227moved for the reconsideration of the said May 27, 1993 Decision of the CA.[24] In
the March 2, 1994 Resolution,[25] the appellate court resolved the motions in this wise:

WHEREFORE, premises considered, the motion for reconsideration of movants Roman Catholic
Archbishop of Manila and Philippine Realty Corporation (in Special Civil Action No. 6225) and movant-
intervenor Remedios Macato (in Special Civil Action No. 6227) are DENIED.

The motions for reconsideration of movants Gonzalo Mercado, Cesario Vega and Juanito Santos
(in Special Civil Action No. 6435) and movants Maximo Loberanes and Eladio Quimque (in Special Civil
Action No. 6231) are GRANTED. The motion for reconsideration of movant Alejandro Oracion (in Special
Civil Action No. 6435) is partially granted to the extent of Three Hundred (300) square meters of Lot 22,
Block 157. The decision of this Court promulgated May 27, 1993 is accordingly MODIFIED. Lot No. 26,
Block No. 157 owned by Cesario Vega and Juanito Santos, and Lot No. 4, Block No. 157 owned by
Maximo Loberanes and Eladio Quimque are declared exempt from expropriation and the corresponding
complaints for expropriation (sic) DISMISSED insofar as said lots are concerned. Lot No. 22, Block No.
157 owned by movant Alejandro Oracion is declared exempt from expropriation to the extent of Three
Hundred (300) square meters. Only the remaining Ninety (90) square meters shall be the subject of
expropriation, the portion to be determined by the lower court in the manner most beneficial to the
owner and consistent with the objective of PD 1072.

SO ORDERED.[26]

Aggrieved by the said March 2, 1994 CA Resolution specifically with regard to the exemption from expropriation
of the lots of Loberanes, Quimque, Mercado, Vega and Santos, and the partial exemption of the lot of Oracion, NHA
moved for the reconsideration of the same. In the subsequent July 25, 1994 Resolution,[27] the appellate court denied
NHAs motion, together with the belated motion of Vivencio S. de Guzman, the defendant-landowner in C-6255. The
dispositive portion of the July 25, 1994 Resolution reads:

WHEREFORE, the motions for reconsideration of defendant-appellant Vivencio S. de Guzman of

the decision promulgated May 27, 1993 and of plaintiff-appellant National Housing Authority of the
resolution promulgated March 2, 1994 are DENIED.

SO ORDERED.[28]

With the denial of its motion for reconsideration, NHA filed with this Court a Consolidated Petition for
Review [29]
under Rule 45, as aforesaid, assailing the March 2, 1994 and the July 25, 1994 Resolutions of the appellate
court. NHAs petition was docketed as G.R. Nos. 116491-503 against respondents Loberanes and Quimque (in C-6231),
Vega, Santos, Oracion and Mercado (in C-6435).

In a separate development, the CA, on June 28, 1994, rendered its Decision[30] in CA-G.R. CV No. 27159,
reversing the RTCs ruling in C-6226. The fallo of the decision reads:

WHEREFORE, FOREGOING PREMISES CONSIDERED, the appealed decision dated October 29,
1986 is hereby REVERSED for want of merit. Let the record of this case be remanded to the court of
origin for further proceedings.

IT IS SO ORDERED.[31]
Discontented with the appellate courts ruling, petitioner Domingo Lim, one of the owners of the lots subject of C-6226,
elevated the case to us via a petition for review on certiorari docketed as G.R. No. 116176.[32]

The Issues

Thus, for resolution by this Court are the following consolidated cases: (1) G.R. No. 110478 of Manapat; (2) G.R. Nos.
116491-503 of the NHA; and (3) G.R. No. 116176 of Lim.

In G.R. No. 110487, petitioner Manapat argues in the main that, as he is also a member of the tenant association, the
beneficiary of the expropriation, it would be incongruous to take the land away from him only to give it back to him as an
intended beneficiary. Accordingly, the CA, in its May 27, 1993 Decision in CA-G.R. CV No. 10200-10212, should not
have allowed the expropriation of his lot. To further support his stance, Manapat raises the following grounds:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ISSUANCE MADE IN THE EXERCISE OF
LEGISLATIVE POWER, SPECIFYING THE LOTS TO BE EXPROPRIATED AND THE PURPOSE FOR WHICH
THEY ARE INTENDED, REMOVES FROM THE JUDICIARY THE DETERMINATION OF THE NECESSITY OF
THE TAKING, THERE BEING NO SHOWING OF ABUSE OF DISCRETION.[33]

II

SUPERVENING EVENT RENDERS IMPROPER THE DISPOSITION BY THE COURT OF APPEALS FOR AN
ORDER OF CONDEMNATION DECLARING THAT NHA HAS A LAWFUL RIGHT TO TAKE THE LOT OF
FERMIN MANAPAT FOR SUPPOSED PUBLIC USE AND FOR REMAND OF HIS CASE TO THE TRIAL COURT
FOR DETERMINATION OF JUST COMPENSATION.[34]

III

THE COURT OF APPEALS SHOULD HAVE CONSIDERED THAT FERMIN MANAPAT IS NOT ONLY A BONA
FIDE OCCUPANT IN THE GRACE PARK SUBDIVISION FOR PURPOSES OF P.D. 1072 BUT LIKEWISE HAS A
TRANSFER CERTIFICATE OF TITLE NO. 42370 OF THE REGISTRY OF DEEDS FOR THE CITY
OF CALOOCAN OVER THE SAME LOT SOUGHT TO BE EXPROPRIATED WHICH SHOULD NOT BE SUBJECT
TO COLLATERAL ATTACK AS DISPOSED BY THE COURT OF APPEALS.[35]

IV

THE COURT OF APPEALS SHOULD HAVE CONSIDERED THAT THE EVENTUAL BENEFICIARIES OF ITS
BENEVOLENT EXPROPRIATION ARE SQUATTERS.[36]

NHA, in its petition in G.R. Nos. 116491-503, primarily contends that the CA erred when it issued its March 2, 1994
Resolution and modified the May 27, 1993 Decision in CA-G.R. CV No. 10200-10212 to the extent that it applied
retroactively Article VI, Section 10 of Republic Act (R.A.) No. 7279, thus exempting from expropriation the 300-sq m lots
of respondents Loberanes, Quimque, Vega, Santos, Oracion and Mercado. NHA summarized its arguments as follows:

The Honorable Court of Appeals erred in applying retroactively Article VI, Section 10 of Republic Act No.
7279 to the subject expropriation cases instituted back in 1977 by petitioner-appellant NHA.[37]

A. Republic Act 7279 passed in 1992 should operate prospectively and, therefore, should not
be given retroactive effect.[38]

Republic Act 7279 is a substantive and penal law with a penalty clause which cannot apply
retroactively especially to pending actions.[39]
 B. Republic Act No. 7279 and PD 1072 are not in pari materia.[40]

The retroactive application of Article VI, Section 10 of RA 7279 will affect vested rights of
petitioner-appellant NHA arising from its exercise of the power of eminent domain. [41]

II

The Honorable Court of Appeals erred in ignoring the impractical consequences resulting from a selective
expropriation of lots.[42]

In G.R. No. 116176, petitioner Lim, a non-member of the tenant association who bought from RCAM/PRC four
lots of the subdivided Grace Park Subdivision,[43] argues as follows:

Respondent NHA may not, as it would herein, legally re-group several smaller lots into which a much
bigger lot had previously been subdivided, and consider and treat them as one again for the purpose of
subdividing it once more into still smaller lots for distribution to its supposed or intended beneficiaries.[44]

There really was no genuine necessity for the expropriation of the lots in question to satisfy the purpose
thereof as alleged in the complaint therefor.[45]

Respondent Court did not sustain the clear finding of the trial court that no evidence sufficient to prove
its claim that the expropriation of said lots and subdividing them again into much smaller lots for resale
to their present occupants would provide the latter with more healthful, decent and peaceful
surroundings and thus improve the quality of their lives was ever presented by respondent NHA.[46]

Stripped of non-essentials, the petitions raise only one fundamental issue, and that is, whether the NHA may validly
expropriate the parcels of land subject of these cases.

The Courts Ruling

The power of eminent domain is an inherent and indispensable power of the State. Also called the power of
expropriation, it is described as the highest and most exact idea of property remaining in the government that may be
acquired for some public purpose through a method in the nature of a compulsory sale to the State. [47] By virtue of its
sovereign character, the exercise of the power prevails over the non-impairment clause,[48] and is clearly superior to the
final and executory judgment rendered by a court in an ejectment case.[49]

Being inherent, the power need not be specifically conferred on the government by the Constitution. Section 9, Article III
of the Constitution, which mandates that private property shall not be taken for a public use without just compensation,
merely imposes a limit on the governments exercise of the power and provides a measure of protection to the individuals
right to property.[50]

Just like its two companion fundamental powers of the State, [51] the power of eminent domain is exercised by the
Legislature. However, it may be delegated by Congress to the President, administrative bodies, local government units,
and even to private enterprises performing public services.[52]
Albeit the power partakes of a sovereign character, it is by no means absolute. Its exercise is subject to limitations, one
of which is, precisely, Section 9, Article III of the Constitution.

Over the years and in a plethora of cases, this Court has recognized the following requisites for the valid exercise of the
power of eminent domain: (1) the property taken must be private property; (2) there must be genuine necessity to take
the private property; (3) the taking must be for public use; (4) there must be payment of just compensation; and (5) the
taking must comply with due process of law.[53] Accordingly, the question that this Court must resolve is whether these
requisites have been adequately addressed.

It is incontrovertible that the parcels of land subject of these consolidated petitions are private property. Thus, the first
requisite is satisfied.

With respect to the second, it is well to recall that in Lagcao v. Judge Labra,[54] we declared that the foundation of the
right to exercise eminent domain is genuine necessity, and that necessity must be of a public character. As a rule, the
determination of whether there is genuine necessity for the exercise is a justiciable question. [55] However, when the
power is exercised by the Legislature, the question of necessity is essentially a political question. [56] Thus, in City
of Manila v. Chinese Community,[57] we held:

The legislature, in providing for the exercise of the power of eminent domain, may directly determine the
necessity for appropriating private property for a particular improvement for public use, and it may select
the exact location of the improvement. In such a case, it is well-settled that the utility of the proposed
improvement, the extent of the public necessity for its construction, the expediency of constructing it, the
suitableness of the location selected and the consequent necessity of taking the land selected for its site,
are all questions exclusively for the legislature to determine, and the courts have no power to interfere,
or to substitute their own views for those of the representatives of the people.

In the instant cases, the authority to expropriate came from Presidential Decree No. 1072, issued by then President
Ferdinand E. Marcos in 1977. At that time, and as explicitly recognized under the 1973 Constitution, President Marcos had
legislative powers. Perforce, the expropriation of the subject properties identified with specificity in the P.D. --- was
directed by legislation. The issue of necessity then assumed the nature of a political question.

As to the third requisite of public use, we examine the purpose for which the expropriation was undertaken by NHA. As
set forth in its petition, NHA justifies the taking of the subject property for the purpose of improving and upgrading the
area by constructing roads and installing facilities thereon under the Governments zonal improvement program and
subdividing them into much smaller lots for distribution and sale at a low cost to qualified beneficiaries, mostly
underprivileged long-time occupants of Grace Park. Around 510 families with approximately 5 members each will be
benefited by the project.[58] The only remaining obstacle in the completion of this project is the lots subject of these
consolidated petitions as the other lots in Grace Park have already been expropriated. [59]

The Zonal Improvement Program (ZIP), being implemented for government by NHA, draws breath from policy mandates
found in the 1987 Constitution.[60] It is an integral part of the governments socialized housing program which,
in Sumulong v. Guerrero,[61] we deemed compliant with the public use requirement, it being a program clearly devoted to
a public purpose. Justice Irene R. Cortes, speaking eloquently for the Court, said:

Socialized housing is defined as, the construction of dwelling units for the middle and lower class
members of our society, including the construction of the supporting infrastructure and other facilities
(Pres. Decree No. 1224, par. 1). This definition was later expanded to include among others:
 a) The construction and/or improvement of dwelling units for the middle and
lower income groups of the society, including the construction of the supporting
infrastructure and other facilities;

b) Slum clearance, relocation and resettlement of squatters and slum dwellers as

well as the provision of related facilities and services;

c) Slum improvement which consists basically of allocating homelots to the

dwellers in the area or property involved, rearrangement and re-alignment of existing
houses and other dwelling structures and the construction and provision of basic
community facilities and services, where there are none, such as roads, footpaths,
drainage, sewerage, water and power system, schools, barangay centers, community
centers, clinics, open spaces, parks, playgrounds and other recreational facilities;

d) The provision of economic opportunities, including the development of

commercial and industrial estates and such other facilities to enhance the total
community growth; and

e) Such other activities undertaken in pursuance of the objective to provide and

maintain housing for the greatest number of people under Presidential Decree No. 757.
(Pres. Decree No. 1259, sec. 1)

xxxx

Specifically, urban renewal or redevelopment and the construction of low-cost housing is

recognized as a public purpose, not only because of the expanded concept of public use but also because
of specific provisions in the Constitution. The 1973 Constitution made it incumbent upon the State to
establish, maintain and ensure adequate social services including housing [Art. II, sec. 7]. The 1987
Constitution goes even further by providing that:

The State shall promote a just and dynamic social order that will ensure the
prosperity and independence of the nation and free the people from poverty through
policies that provide adequate social services, promote full employment, a rising standard
of living and an improved quality of life for all. [Art. II, sec. 9]

The state shall, by law, and for the common good, undertake, in cooperation
with the private sector, a continuing program of urban land reform and housing which
will make available at affordable cost decent housing and basic services to
underprivileged and homeless citizens in urban centers and resettlement areas. It shall
also promote adequate employment opportunities to such citizens. In the implementation
of such program the State shall respect the rights of small property owners. (Art. XIII,
sec. 9, Emphasis supplied)

Housing is a basic human need. Shortage in housing is a matter of state concern since it directly and
significantly affects public health, safety, the environment and in sum, the general welfare. The public
character of housing measures does not change because units in housing projects cannot be occupied by
all but only by those who satisfy prescribed qualifications. A beginning has to be made, for it is not
possible to provide housing for all who need it, all at once.

Population growth, the migration to urban areas and the mushrooming of crowded makeshift
dwellings is a worldwide development particularly in developing countries. So basic and urgent are
housing problems that the United Nations General Assembly proclaimed 1987 as the International Year of
Shelter for the Homeless to focus the attention of the international community on those problems. The
General Assembly is [s]eriously concerned that, despite the efforts of Governments at the national and
local levels and of international organizations, the living conditions of the majority of the people in slums
and squatter areas and rural settlements, especially in developing countries, continue to deteriorate in
both relative and absolute terms. [G.A. Res. 37/221, Yearbook of the United Nations 1982, Vol. 36, p.
1043-4]

In the light of the foregoing, this Court is satisfied that "socialized housing" falls within the
confines of "public use". It is, particularly important to draw attention to paragraph (d) of Pres. Dec. No.
 1224 which should be construed in relation with the preceding three paragraphs. Provisions on economic
opportunities inextricably linked with low-cost housing, or slum clearance, relocation and resettlement, or
slum improvement emphasize the public purpose of the project.[62]

It need only be added, at this juncture, that the public use requisite for the valid exercise of the power of
eminent domain is a flexible and evolving concept influenced by changing conditions. At present, it may not be amiss to
state that whatever is beneficially employed for the general welfare satisfies the requirement of public use. [63]

Still, petitioner Manapat insists that, being himself a beneficiary of the expropriation (because he has been a
long-time resident of Grace Park), it would be incongruous for government to take his land away from him only to give it
back to him. This contention sadly fails to comprehend the public purpose for the taking under the socialized housing
program. The parcels of land subject of the expropriation are, precisely, being taken so that they can be subdivided into
much smaller lots --- at an average of 66.5 square meters per lot [64] --- for distribution to deserving dwellers in the
area. Upon the completion of the project, Manapat, and those similarly situated as he, cannot assert any right to be
awarded the very same lots they currently occupy, nor be entitled to the same area of the land they now have.

Then, we have petitioner Lim and respondents Vega, Santos, Oracion, and Mercado, who argue that the lots they
own should not be expropriated are already titled in their names and are very small in area, being already the subdivided
portions of the original Grace Park Subdivision.

We are not persuaded.

J. M. Tuason & Co., Inc. v. Land Tenure Administration[65] is instructive. In that case, this Court adopted the
dissenting opinion of Justice J. B. L. Reyes in Republic v. Baylosis,[66] that the propriety of exercising the power of
eminent domain cannot be determined on a purely quantitative or area basis, given that the Constitution speaks
of lands, not of landed estates. Speaking through Justice (later Chief Justice) Enrique M. Fernando, the Court said:

This is not to say of course that property rights are disregarded. This is merely to emphasize that
the philosophy of our Constitution embodying as it does what Justice Laurel referred to as its nationalistic
and socialist traits discoverable upon even a sudden dip into a variety of [its] provisions although not
extending as far as the destruction or annihilation of the rights to property, negates the postulate which
at one time reigned supreme in American constitutional law as to their well-nigh inviolable character. This
is not so under our Constitution, which rejects the doctrine of laissez faire with its abhorrence for the
least interference with the autonomy supposed to be enjoyed by the property owner. Laissez faire, as
Justice Malcolm pointed out as far back as 1919, did not take too firm a foothold in our jurisprudence.
Our Constitution is much more explicit. There is no room for it for laissez faire. So Justice Laurel affirmed
not only in the above opinion but in another concurring opinion quoted with approval in at least two of
our subsequent decisions. We had occasion to reiterate such a view in the ACCFA case, decided barely
two months ago.

This particular grant of authority to Congress authorizing the expropriation of land is a clear
manifestation of such a policy that finds expression in our fundamental law. So is the social justice
principle enshrined in the Constitution of which it is an expression, as so clearly pointed out in the
respective dissenting opinions of Justice J.B.L. Reyes and Chief Justice Paras in the Baylosis case. Why it
should be thus is so plausibly set forth in the ACCFA decision, the opinion being penned by Justice
Makalintal. We quote: The growing complexities of modern society, however, have rendered this
traditional classification of the functions of government quite unrealistic, not to say obsolete. The areas
which used to be left to private enterprise and initiative and which the government was called upon to
enter optionally, and only because it was better equipped to administer for the public welfare than is any
private individual or group of individuals, continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times. Here as almost everywhere else the tendency is
undoubtedly towards a greater socialization of economic forces. Here of course this development was
 envisioned, indeed adopted as a national policy, by the Constitution itself in its declaration of principle
concerning the promotion of social justice.

In a more recent decision,[67] we had occasion to declare that the fact that the property is less than -hectare and
that only a few would actually benefit from the expropriation does not diminish its public use character, inasmuch as
public use now includes the broader notion of indirect public benefit or advantage, including in particular, urban land
reform and housing.

The Courts departure from the land size or area test finds further affirmation in its rulings in Mataas na Lupa
Tenants Association, Inc. v. Dimayuga[68] and the aforecited Sumulong v. Guerrero.[69]

Given this discussion, it is clear that public use, as a requisite for the exercise of eminent domain in the instant
cases, has been adequately fulfilled.

To satisfy the fourth requisite, we affirm the appellate courts disposition that the subject cases be remanded to
the trial court for the determination of the amount of just compensation. Under case law, the said determination is a
judicial prerogative.[70] As to the observance of the fifth requisite, the due process clause, in the expropriation
proceedings, all the parties have been given their day in court. That they are now before this Court is attestation enough
that they were not denied due process of law.

From the foregoing disquisitions, it is unmistakable that all the requirements for the valid exercise of the power of
eminent domain have been complied with. Thus, our answer to the singular and fundamental issue in these consolidated
cases is: YES, the NHA may validly expropriate the subject parcels of land.

One final matter: the propriety of the application by the CA of R.A. No. 7279, otherwise known as the Urban
Development and Housing Act of 1992.

The Court is not unaware of the condition now imposed by R.A. No. 7279 [71] that, for purposes of urban development and
housing under the Act, where expropriation is resorted to, parcels of land owned by small property owners shall be
exempted.[72] Small property owners are owners of residential lands with an area not exceeding 300 sq m in highly
urbanized cities and 800 sq m in other urban areas and who do not own any other real property. [73] Invoking this
limitation under the said law, the appellate court in the questioned rulings exempted from expropriation the lots owned
by Loberanes, Quimque, Mercado, Vega and Santos, and partially exempted the lot of Oracion.

The CAs ruling on this point is incorrect. R.A. No. 7279 was enacted in 1992, almost two decades after the
expropriation cases against the property owners herein were instituted with the RTC in 1977. Nova constitutio futuris
formam imponere debet, non praeteritis. A new statute should affect the future, not the past. The law looks forward, not
backward.[74] Article 4 of the Civil Code even explicitly declares, (l)aws shall have no retroactive effect, unless the contrary
is provided.[75] In these consolidated cases, the Court finds that the language of R.A. No. 7279 does not suggest that the
Legislature has intended its provisions to have any retroactive application. On the contrary, Section 49 of the said law
indicates that it shall take effect upon its publication in at least two (2) national newspapers of general circulation. [76] The
laws prospective application being clearly stated, the Court cannot agree with the disposition of the appellate court that
the subject lots not exceeding 300 sq m are exempt from expropriation.

WHEREFORE, PREMISES CONSIDERED, the May 27, 1993 Decision of the Court of Appeals in CA-G.R. CV No. 10200-
10212 and the June 28, 1994 Decision in CA-G.R. CV No. 27159 are AFFIRMED; and the March 2, 1994 and the July 25,
1994 Resolutions in CA-G.R. CV Nos. 10200-10212 are REVERSED and SET ASIDE.
SO ORDERED.

S E C O N D D I V I S I O N

LOURDES DE LA PAZ MASIKIP, G.R. No. 136349

Petitioner,

Present:

- versus -
PUNO, J., Chairman,
SANDOVAL-GUTIERREZ,
CORONA,
THE CITY OF PASIG, HON. MARIETTA A. AZCUNA, and
LEGASPI, in her capacity as Presiding GARCIA, JJ.
Judge of the Regional Trial Court of Pasig
City, Branch 165 and THE COURT OF
APPEALS, Promulgated:
Respondents.

January 23, 2006

x-----------------------------------------------------------------------------------------x

DECISION

SANDOVAL GUTIERREZ, J.:

Where the taking by the State of private property is done for the benefit of a small community which seeks to have its
own sports and recreational facility, notwithstanding that there is such a recreational facility only a short distance away,
such taking cannot be considered to be for public use. Its expropriation is not valid. In this case, the Court defines what
constitutes a genuine necessity for public use.

This petition for review on certiorari assails the Decision[1] of the Court of Appeals dated October 31, 1997 in CA-G.R. SP
No. 41860 affirming the Order[2] of the Regional Trial Court, Branch 165, Pasig City, dated May 7, 1996 in S.C.A. No. 873.
Likewise assailed is the Resolution[3] of the same court dated November 20, 1998 denying petitioners Motion for
Reconsideration.

The facts of the case are:

Petitioner Lourdes Dela Paz Masikip is the registered owner of a parcel of land with an area of 4,521 square meters
located at Pag-Asa, Caniogan, Pasig City, Metro Manila.

In a letter dated January 6, 1994, the then Municipality of Pasig, now City of Pasig, respondent, notified petitioner of its
intention to expropriate a 1,500 square meter portion of her property to be used for the sports development and
recreational activities of the residents of Barangay Caniogan. This was pursuant to Ordinance No. 42, Series of 1993
enacted by the then Sangguniang Bayan of Pasig.

Again, on March 23, 1994, respondent wrote another letter to petitioner, but this time the purpose was allegedly in line
with the program of the Municipal Government to provide land opportunities to deserving poor sectors of our community.
On May 2, 1994, petitioner sent a reply to respondent stating that the intended expropriation of her property is
unconstitutional, invalid, and oppressive, as the area of her lot is neither sufficient nor suitable to provide land
opportunities to deserving poor sectors of our community.

In its letter of December 20, 1994, respondent reiterated that the purpose of the expropriation of petitioners property is
to provide sports and recreational facilities to its poor residents.

Subsequently, on February 21, 1995, respondent filed with the trial court a complaint for expropriation, docketed as SCA
No. 873. Respondent prayed that the trial court, after due notice and hearing, issue an order for the condemnation of the
property; that commissioners be appointed for the purpose of determining the just compensation; and that judgment be
rendered based on the report of the commissioners.

On April 25, 1995, petitioner filed a Motion to Dismiss the complaint on the following grounds:

I
PLAINTIFF HAS NO CAUSE OF ACTION FOR THE EXERCISE OF THE POWER OF EMINENT
DOMAIN, CONSIDERING THAT:

(A) THERE IS NO GENUINE NECESSITY FOR THE TAKING OF THE PROPERTY

SOUGHT TO BE EXPROPRIATED.

(B) PLAINTIFF HAS ARBITRARILY AND CAPRICIOUSLY CHOSEN THE PROPERTY

SOUGHT TO BE EXPROPRIATED.

(C) EVEN ASSUMING ARGUENDO THAT DEFENDANTS PROPERTY MAY BE

EXPROPRIATED BY PLAINTIFF, THE FAIR MARKET VALUE OF THE PROPERTY TO
BE EXPROPRIATED FAR EXCEEDS SEVENTY-EIGHT THOUSAND PESOS
(P78,000.00)

II

PLAINTIFFS COMPLAINT IS DEFECTIVE IN FORM AND SUBSTANCE, CONSIDERING THAT:

(A) PLAINTIFF FAILS TO ALLEGE WITH CERTAINTY THE PURPOSE OF THE

EXPROPRIATION.

(B) PLAINTIFF HAS FAILED TO COMPLY WITH THE PREREQUISITES LAID DOWN
IN SECTION 34, RULE VI OF THE RULES AND REGULATIONS IMPLEMENTING
THE LOCAL GOVERNMENT CODE; THUS, THE INSTANT EXPROPRIATION
PROCEEDING IS PREMATURE.

III

THE GRANTING OF THE EXPROPRIATION WOULD VIOLATE SECTION 261 (V) OF THE OMNIBUS
ELECTION CODE.

IV

PLAINTIFF CANNOT TAKE POSSESSION OF THE SUBJECT PROPERTY BY MERELY DEPOSITING

AN AMOUNT EQUAL TO FIFTEEN PERCENT (15%) OF THE VALUE OF THE PROPERTY BASED ON
THE CURRENT TAX DECLARATION OF THE SUBJECT PROPERTY.[4]

On May 7, 1996, the trial court issued an Order denying the Motion to Dismiss, [5] on the ground that there is a genuine
necessity to expropriate the property for the sports and recreational activities of the residents of Pasig. As
to the issue of just compensation, the trial court held that the same is to be determined in accordance with the Revised
Rules of Court.

Petitioner filed a motion for reconsideration but it was denied by the trial court in its Order of July 31, 1996. Forthwith, it
appointed the City Assessor and City Treasurer of Pasig City as commissioners to ascertain the just compensation. This
prompted petitioner to file with the Court of Appeals a special civil action for certiorari, docketed as CA-G.R. SP No.
41860. On October 31, 1997, the Appellate Court dismissed the petition for lack of merit. Petitioners Motion for
Reconsideration was denied in a Resolution dated November 20, 1998.

Hence, this petition anchored on the following grounds:

THE QUESTIONED DECISION DATED 31 OCTOBER 1997 (ATTACHMENT A)

AND RESOLUTION DATED 20 NOVEMBER 1998 (ATTACHMENT B) ARE CONTRARY TO LAW, THE
RULES OF COURT AND JURISPRUDENCE CONSIDERING THAT:

A. THERE IS NO EVIDENCE TO PROVE THAT THERE IS GENUINE NECESSITY

FOR THE TAKING OF THE PETITIONERS PROPERTY.

B. THERE IS NO EVIDENCE TO PROVE THAT THE PUBLIC USE REQUIREMENT

FOR THE EXERCISE OF THE POWER OF EMINENT DOMAIN HAS BEEN
COMPLIED WITH.

C. THERE IS NO EVIDENCE TO PROVE THAT RESPONDENT CITY OF PASIG HAS

COMPLIED WITH ALL CONDITIONS PRECEDENT FOR THE EXERCISE OF
THE POWER OF EMINENT DOMAIN.

THE COURT A QUOS ORDER DATED 07 MAY 1996 AND 31 JULY 1996, WHICH WERE AFFIRMED
BY THE COURT OF APPEALS, EFFECTIVELY AMOUNT TO THE TAKING OF PETITIONERS
PROPERTY WITHOUT DUE PROCESS OF LAW:

II

THE COURT OF APPEALS GRAVELY ERRED IN APPLYING OF RULE ON

ACTIONABLE DOCUMENTS TO THE DOCUMENTS ATTACHED TO RESPONDENT
CITY OF PASIGSCOMPLAINT DATED 07 APRIL 1995 TO JUSTIFY THE COURT A
QUOS DENIAL OF PETITIONERS RESPONSIVE PLEADING TO THE COMPLAINT
FOR EXPROPRIATION (THE MOTION TO DISMISS DATED 21 APRIL 1995).

III

THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE RULE ON

HYPOTHETICAL ADMISSION OF FACTS ALLEGED IN A COMPLAINT
CONSIDERING THAT THE MOTION TO DISMISS FILED BY PETITIONER IN THE
EXPROPRIATION CASE BELOW WAS THE RESPONSIVE PLEADING REQUIRED TO
BE FILED UNDER THE THEN RULE 67 OF THE RULES OF COURT AND NOT AN
ORIDNARY MOTION TO DISMISS UNDER RULE 16 OF THE RULES OF COURT.

The foregoing arguments may be synthesized into two main issues one substantive and one procedural. We will first
address the procedural issue.

Petitioner filed her Motion to Dismiss the complaint for expropriation on April 25, 1995. It was denied by the trial court on
May 7, 1996. At that time, the rule on expropriation was governed by Section 3, Rule 67 of the Revised Rules of Court
which provides:
 SEC. 3. Defenses and objections. Within the time specified in the summons, each defendant, in lieu of an
answer, shall present in a single motion to dismiss or for other appropriate relief, all his objections and
defenses to the right of the plaintiff to take his property for the use or purpose specified in the complaint.
All such objections and defenses not so presented are waived. A copy of the motion shall be served on
the plaintiffs attorney of record and filed with the court with proof of service.

The motion to dismiss contemplated in the above Rule clearly constitutes the responsive pleading which takes the place
of an answer to the complaint for expropriation. Such motion is the pleading that puts in issue the right of the plaintiff to
expropriate the defendants property for the use specified in the complaint. All that the law requires is that a copy of the
said motion be served on plaintiffs attorney of record. It is the court that at its convenience will set the case for trial after
the filing of the said pleading.[6]

The Court of Appeals therefore erred in holding that the motion to dismiss filed by petitioner hypothetically admitted the
truth of the facts alleged in the complaint, specifically that there is a genuine necessity to expropriate petitioners property
for public use. Pursuant to the above Rule, the motion is a responsive pleading joining the issues. What the trial court
should have done was to set the case for the reception of evidence to determine whether there is indeed a genuine
necessity for the taking of the property, instead of summarily making a finding that the taking is for public use and
appointing commissioners to fix just compensation. This is especially so considering that the purpose of the expropriation
was squarely challenged and put in issue by petitioner in her motion to dismiss.

Significantly, the above Rule allowing a defendant in an expropriation case to file a motion to dismiss in lieu of an answer
was amended by the 1997 Rules of Civil Procedure, which took effect on July 1, 1997. Section 3, Rule 67 now expressly
mandates that any objection or defense to the taking of the property of a defendant must be set forth in an answer.

The fact that the Court of Appeals rendered its Decision in CA-G.R. SP No. 41860 on October 31, after the 1997 Rules of
Civil Procedure took effect, is of no moment. It is only fair that the Rule at the time petitioner filed her motion to dismiss
should govern. The new provision cannot be applied retroactively to her prejudice.

We now proceed to address the substantive issue.

In the early case of US v. Toribio,[7] this Court defined the power of eminent domain as the right of a government to take
and appropriate private property to public use, whenever the public exigency requires it, which can be done only on
condition of providing a reasonable compensation therefor. It has also been described as the power of the State or its
instrumentalities to take private property for public use and is inseparable from sovereignty and inherent in
government.[8]

The power of eminent domain is lodged in the legislative branch of the government. It delegates the exercise thereof to
local government units, other public entities and public utility corporations, [9] subject only to Constitutional limitations.
Local governments have no inherent power of eminent domain and may exercise it only when expressly authorized by
statute.[10] Section 19 of the Local Government Code of 1991 (Republic Act No. 7160) prescribes the delegation by
Congress of the power of eminent domain to local government units and lays down the parameters for its exercise, thus:

SEC. 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, 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 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
expropriated property shall be determined by the proper court, based on the fair market value at the time
of the taking of the property.

Judicial review of the exercise of eminent domain is limited to the following areas of concern: (a) the adequacy of the
compensation, (b) the necessity of the taking, and (c) the public use character of the purpose of the taking. [11]
In this case, petitioner contends that respondent City of Pasig failed to establish a genuine necessity which justifies the
condemnation of her property. While she does not dispute the intended public purpose, nonetheless, she insists that
there must be a genuine necessity for the proposed use and purposes. According to petitioner, there is already an
established sports development and recreational activity center at Rainforest Park in Pasig City, fully operational and
being utilized by its residents, including those from Barangay Caniogan. Respondent does not dispute this. Evidently,
there is no genuine necessity to justify the expropriation.

The right to take private property for public purposes necessarily originates from the necessity and the taking must be
limited to such necessity. In City of Manila v. Chinese Community of Manila,[12] we held that the very foundation of the
right to exercise eminent domain is a genuine necessity and that necessity must be of a public character.
Moreover, the ascertainment of the necessity must precede or accompany and not follow, the taking of the land. In City
of Manila v. Arellano Law College,[13] we ruled that necessity within the rule that the particular property to be
expropriated must be necessary, does not mean an absolute but only a reasonable or practical necessity, such as would
combine the greatest benefit to the public with the least inconvenience and expense to the condemning party and the
property owner consistent with such benefit.

Applying this standard, we hold that respondent City of Pasig has failed to establish that there is a genuine
necessity to expropriate petitioners property. Our scrutiny of the records shows that the Certification [14] issued by the
Caniogan Barangay Council dated November 20, 1994, the basis for the passage of Ordinance No. 42 s. 1993 authorizing
the expropriation, indicates that the intended beneficiary is the Melendres Compound Homeowners Association, a private,
non-profit organization, not the residents of Caniogan. It can be gleaned that the members of the said Association are
desirous of having their own private playground and recreational facility. Petitioners lot is the nearest vacant space
available. The purpose is, therefore, not clearly and categorically public. The necessity has not been shown, especially
considering that there exists an alternative facility for sports development and community recreation in the area, which is
the Rainforest Park, available to all residents of Pasig City, including those of Caniogan.

The right to own and possess property is one of the most cherished rights of men. It is so fundamental that it has
been written into organic law of every nation where the rule of law prevails. Unless the requisite of genuine necessity for
the expropriation of ones property is clearly established, it shall be the duty of the courts to protect the rights of
individuals to their private property. Important as the power of eminent domain may be, the inviolable sanctity which the
Constitution attaches to the property of the individual requires not only that the purpose for the taking of private property
be specified. The genuine necessity for the taking, which must be of a public character, must also be shown to exist.

WHEREFORE, the petition for review is GRANTED. The challenged Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 41860 are REVERSED. The complaint for expropriation filed before the trial court by
respondent City of Pasig, docketed as SCA No. 873, is ordered DISMISSED.

SO ORDERED.

THIRD DIVISION

G.R. No. L-60077 January 18, 1991

NATIONAL POWER CORPORATION, petitioner,

vs.
SPS. MISERICORDIA GUTIERREZ and RICARDO MALIT and THE HONORABLE COURT OF
APPEALS,respondents.

Pedro S. Dabu for private respondents.

BIDIN, J.:

This is a petition for review on certiorari filed by the National Power Corporation (NPC) seeking the reversal or
modification of the March 9, 1986 Decision of the Court of Appeals in CA G.R. No. 54291-R entitled "National Power
Corporation v. Sps. Misericordia Gutierrez and Ricardo Malit", affirming the December 4, 1972 Decision of the then Court
of First Instance of Pampanga, Fifth Judicial District, Branch II, in Civil Case No. 2709, entitled National Power
Corporation v. Matias Cruz, et al.

The undisputed facts of the case, as found by the Court of Appeals, are as follows:

Plaintiff National Power Corporation, a government owned and controlled entity, in accordance with
Commonwealth Act No. 120, is invested with the power of eminent domain for the purpose of pursuing its
objectives, which among others is the construction, operation, and maintenance of electric transmission lines for
distribution throughout the Philippines. For the construction of its 230 KV Mexico-Limay transmission lines,
plaintiff's lines have to pass the lands belonging to defendants Matias Cruz, Heirs of Natalia Paule and spouses
Misericordia Gutierrez and Ricardo Malit covered by tax declarations Nos. 907, 4281 and 7582, respectively.

Plaintiff initiated negotiations for the acquisition of right of way easements over the aforementioned lots for the
construction of its transmission lines but unsuccessful in this regard, said corporation was constrained to file
eminent domain proceedings against the herein defendants on January 20, 1965.

Upon filing of the corresponding complaint, plaintiff corporation deposited the amount of P973.00 with the
Provincial Treasurer of Pampanga, tendered to cover the provisional value of the land of the defendant spouses
Ricardo Malit and Misericordia Gutierrez. And by virtue of which, the plaintiff corporation was placed in possession
of the property of the defendant spouses so it could immediately proceed with the construction of its Mexico-
Limay 230 KV transmission line. In this connection, by the trial court's order of September 30, 1965, the
defendant spouses were authorized to withdraw the fixed provisional value of their land in the sum of P973.00.

The only controversy existing between the parties litigants is the reasonableness and adequacy of the disturbance
or compensation fee of the expropriated properties.

Meanwhile, for the purpose of determining the fair and just compensation due the defendants, the court
appointed three commissioners, comprised of one representative of the plaintiff, one for the defendants and the
other from the court, who then were empowered to receive evidence, conduct ocular inspection of the premises,
and thereafter, prepare their appraisals as to the fair and just compensation to be paid to the owners of the lots.
Hearings were consequently held before said commissioners and during their hearings, the case of defendant
Heirs of Natalia Paule was amicably settled by virtue of a Right of Way Grant (Exh. C) executed by Guadalupe
Sangalang for herself and in behalf of her co-heirs in favor of the plaintiff corporation. The case against Matias
Cruz was earlier decided by the court, thereby leaving only the case against the defendant spouses Ricardo Malit
and Misericordia Gutierrez still to be resolved. Accordingly, the commissioners submitted their individual reports.
The commissioner for the plaintiff corporation recommended the following:

. . . that plaintiff be granted right of way easement over the 760 square meters of the defendants Malit
and Gutierrez land for plaintiff transmission line upon payment of an easement fee of P1.00 therefor. . . .
(Annex M)

The commissioner for the defendant spouses recommended the following:

. . . that Mr. and Mrs. Ricardo Malit be paid as disturbance compensation the amount of P10.00 sq. meter
or the total amount of P7,600.00' (Annex K)

The Court's commissioner recommended the following:

. . . the payment of Five (P 5.OO) Pesos per square meter of the area covered by the Right-of-way to be
granted, . . .(Annex L)

The plaintiff corporation urged the Court that the assessment as recommended by their commissioner be
the one adopted. Defendant spouses, however, dissented and objected to the price recommended by
both the representative of the court and of the plaintiff corporation.

With these reports submitted by the three commissioners and on the evidence adduced by the
defendants as well as the plaintiff for the purpose of proving the fair market value of the property sought
to be expropriated, the lower court rendered a decision the dispositive portion of which reads as follows:

WHEREFORE, responsive to the foregoing considerations, judgment is hereby rendered ordering

plaintiff National Power Corporation to pay defendant spouses Ricardo Malit and Misericordia
Gutierrez the sum of P10.00 per square meter as the fair and reasonable compensation for the
right-of-way easement of the affected area, which is 760 squares, or a total sum of P7,600.00
and P800.00 as attorney's fees' (Record on Appeal, p. 83)

Dissatisfied with the decision, the plaintiff corporation filed a motion for reconsideration which was
favorably acted upon by the lower court, and in an order dated June 10, 1973, it amended its previous
decision in the following tenor:
 On the basis of an ocular inspection made personally by the undersigned, this court finally
classified the land of the spouses Ricardo Malit and Misericordia to be partly commercial and
partly agricultural, for which reason the amount of P10.00 per sq. meter awarded in the decision
of December 4,1972 is hereby reduced to P5.00 per square meter as the fair and reasonable
market value of the 760 square meters belonging to the said spouses.

There being no claim and evidence for attorney's fees, the amount of P800.00 awarded as
attorney's fees, in the decision of December 4, 1972 is hereby reconsidered and set aside.
(Annex S)

Still not satisfied, an appeal was filed by petitioner (NPC) with the Court of Appeals but respondent Court
of Appeals in its March 9, 1982, sustained the trial court, as follows:

WHEREFORE, finding no reversible error committed by the court a quo, the appealed judgment is
hereby affirmed with costs against the plaintiff-appellant.

Hence, the instant petition.

The First Division of this Court gave due course to the petition and required both parties to submit their respective
memoranda (Resolution of January 12, 1983). It also noted in an internal resolution of August 17, 1983 that petitioner
flied its memorandum while the respondents failed to file their memorandum within the period which expired on February
24,1983; hence, the case was considered submitted for decision.

The sole issue raised by petitioner is

WHETHER PETITIONER SHOULD BE MADE TO PAY SIMPLE EASEMENT FEE OR FULL COMPENSATION FOR THE
LAND TRAVERSED BY ITS TRANSMISSION LINES.

It is the contention of petitioner that the Court of Appeals committed gross error by adjudging the petitioner liable for the
payment of the full market value of the land traversed by its transmission lines, and that it overlooks the undeniable fact
that a simple right-of-way easement (for the passage of transmission lines) transmits no rights, except that of the
easement. Full ownership is retained by the private respondents and they are not totally deprived of the use of the land.
They can continue planting the same agricultural crops, except those that would result in contact with the wires. On this
premise, petitioner submits that if full market value is required, then full transfer of ownership is only the logical
equivalent.

The petition is devoid of merit. The resolution of this case hinges on the determination of whether the acquisition of a
mere right-of-way is an exercise of the power of eminent domain contemplated by law.1wphi1

The trial court's observation shared by the appellate court show that ". . . While it is true that plaintiff are ( sic) only after
a right-of-way easement, it nevertheless perpetually deprives defendants of their proprietary rights as manifested by the
imposition by the plaintiff upon defendants that below said transmission lines no plant higher than three (3) meters is
allowed. Furthermore, because of the high-tension current conveyed through said transmission lines, danger to life and
limbs that may be caused beneath said wires cannot altogether be discounted, and to cap it all plaintiff only pays the fee
to defendants once, while the latter shall continually pay the taxes due on said affected portion of their property."

The foregoing facts considered, the acquisition of the right-of-way easement falls within the purview of the power of
eminent domain. Such conclusion finds support in similar cases of easement of right-of-way where the Supreme Court
sustained the award of just compensation for private property condemned for public use ( See National Power Corporation
vs. Court of Appeals, 129 SCRA 665, 1984; Garcia vs. Court of Appeals, 102 SCRA 597,1981). The Supreme Court, in
Republic of the Philippines vs. PLDT, * thus held that:

Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession
of, the expropriated property; but no cogent reason appears why said power may not be availed of to impose
only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable
that real property may, through expropriation, be subjected to an easement of right-of-way.

In the case at bar, the easement of right-of-way is definitely a taking under the power of eminent domain. Considering
the nature and effect of the installation of the 230 KV Mexico-Limay transmission lines, the limitation imposed by NPC
against the use of the land for an indefinite period deprives private respondents of its ordinary use.

For these reasons, the owner of the property expropriated is entitled to a just compensation, which should be neither
more nor less, whenever it is possible to make the assessment, than the money equivalent of said property. Just
compensation has always been understood to be the just and complete equivalent of the loss which the owner of the
thing expropriated has to suffer by reason of the expropriation (Province of Tayabas vs. Perez, 66 Phil. 467 [1938];
Assoc. of Small Land Owners of the Phils., Inc. vs. Secretary of Agrarian Reform, G.R. No. 78742; Acuna vs. Arroyo , G.R.
No. 79310; Pabrico vs. Juico, G.R. No. 79744; Manaay v. Juico, G.R. No. 79777,14 July 1989, 175 SCRA 343 [1989]). The
price or value of the land and its character at the time it was taken by the Government are the criteria for determining
just compensation (National Power Corp. v. Court of Appeals, 129 SCRA 665, [1984]). The above price refers to the
market value of the land which may be the full market value thereof. According to private respondents, the market value
of their lot is P50.00 per square meter because the said lot is adjacent to the National and super highways of Gapan,
Nueva Ecija and Olongapo City.

Private respondents recognize the inherent power of eminent domain being exercised by NPC when it finally consented to
the expropriation of the said portion of their land, subject however to payment of just compensation. No matter how
laudable NPC's purpose is, for which expropriation was sought, it is just and equitable that they be compensated the fair
and full equivalent for the loss sustained, which is the measure of the indemnity, not whatever gain would accrue to the
expropriating entity (EPZA v. Dulay, 149 SCRA 305 [1987]; Mun. of Daet v. Court of Appeals, 93 SCRA 503 (1979]).

It appearing that the trial court did not act capriciously and arbitrarily in setting the price of P5.00 per square meter of
the affected property, the said award is proper and not unreasonable.

On the issue of ownership being claimed by petitioner in the event that the price of P5.00 per square meter be sustained,
it is well settled that an issue which has not been raised in the Court a quo cannot be raised for the first time on appeal
as it would be offensive to the basic rules of fair play, justice and due process . . . (Filipino Merchants v. Court of Appeals,
G.R. No. 85141, November 8, 1989, 179 SCRA 638; Commissioner of Internal Revenue v. Procter and Gamble Philippines
Manufacturing Corporation, 160 SCRA 560 [1988]; Commissioner of Internal Revenue v. Wander Philippines, Inc., 160
SCRA 573 1988]). Petitioner only sought an easement of right-of-way, and as earlier discussed, the power of eminent
domain may be exercised although title was not transferred to the expropriator.

WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Fernan, C.J. and Feliciano, J., concur.

Gutierrez, Jr., J., I concur but believe payment should be P10.00 a sq. meter at the very least.

EN BANC

G.R. No. L-12792 February 28, 1961

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
LA ORDEN DE PP. BENEDICTINOS DE FILIPINAS, defendant-appellee.

Office of the Solicitor General for plaintiff-appellant.

Ledesma, Puno, Guytingco, Antonio and Associates for defendant-appellee.

DIZON, J.:

To ease and solve the daily traffic congestion on Legarda Street, the Government drew plans to extend Azcarraga street
from its junction with Mendiola street, up to the Sta. Mesa Rotonda, Sampaloc, Manila. To carry out this plan it offered to
buy a portion of approximately 6,000 square meters of a bigger parcel belonging to La Orden de PP. Benedictinos de
Filipinas, a domestic religious corporation that owns the San Beda College, a private educational institution situated on
Mendiola street. Not having been able to reach an agreement on the matter with the owner, the Government instituted
the present expropriation proceedings.

On May 27, 1957 the trial court, upon application of the Government hereinafter referred to as appellant issued an
order fixing the provisional value of the property in question at P270,000.00 and authorizing appellant to take immediate
possession thereof upon depositing said amount. The deposit having been made with the City Treasurer of Manila, the
trial court issued the corresponding order directing the Sheriff of Manila to place appellant in possession of the property
aforesaid.

On June 8, 1957, as directed by the Rules of Court, the herein appellee, in lieu of an answer, filed a motion to dismiss the
complaint based on the following grounds:

I. That the property sought to be expropriated is already dedicated to public use and therefore is not subject to
expropriation.

II. That there is no necessity for the proposed expropriation.

III. That the proposed Azcarraga Extension could pass through a different site which would entail less expense to
the Government and which would not necessitate the expropriation of a property dedicated to education.

IV. That the present action filed by the plaintiff against the defendant is discriminatory.
 V. That the herein plaintiff does not count with sufficient funds to push through its project of constructing the
proposed Azcarraga Extension and to allow the plaintiff to expropriate defendant's property at this time would be
only to needlessly deprive the latter of the use of its property.".

The government filed a written opposition to the motion to dismiss (Record on Appeal, pp. 30-37) while appellee filed a
reply thereto (Id., pp. 38-48). On July 29, 1957, without receiving evidence upon the questions of fact arising from the
complaint, the motion to dismiss and the opposition thereto filed, the trial court issued the appealed order dismissing the
case.

The appealed order shows that the trial court limited itself to deciding the point of whether or not the expropriation of the
property in question is necessary (Rec. on Ap., p. 50) and, having arrived at the conclusion that such expropriation was
not of extreme necessity, dismissed the proceedings.

It is to be observed that paragraph IV of the complaint expressly alleges that appellant needs, among other properties,
the portion of appellee's property in question for the purpose of constructing the Azcarraga street extension, and that
paragraph VII of the same complaint expressly alleges that, in accordance with Section 64(b) of the Revised
Administrative Code, the President of the Philippines had authorized the acquisition, thru condemnation proceedings, of
the aforesaid parcel of land belonging to appellee, as evidenced by the third indorsement dated May 15, 1957 of the
Executive Secretary, Office of the President of the Philippines, a copy of which was attached to the complaint as Annex
"C" and made an integral part thereof. In denial of these allegations appellee's motion to dismiss alleged that "there is no
necessity for the proposed expropriation". Thus, the question of fact decisive of the whole case arose.

It is the rule in this jurisdiction that private property may be expropriated for public use and upon payment of just
compensation; that condemnation of private property is justified only if it is for the public good and there is a genuine
necessity therefor of a public character. Consequently, the courts have the power to inquire into the legality of the
exercise of the right of eminent domain and to determine whether or not there is a genuine necessity therefor (City of
Manila vs. Chinese Community, 40 Phil. 349; Manila Railroad Company vs. Hacienda Benito, Inc., 37 O.G. 1957).

Upon the other hand, it does not need extended argument to show that whether or not the proposed opening of the
Azcarraga extension is a necessity in order to relieve the daily congestion of traffic on Legarda St., is a question of fact
dependent not only upon the facts of which the trial court very liberally took judicial notice but also up on other factors
that do not appear of record and must, therefore, be established by means of evidence. We are, therefore, of the opinion
that the parties should have been given an opportunity to present their respective evidence upon these factors and others
that might be of direct or indirect help in determining the vital question of fact involved, namely, the need to open the
extension of Azcarraga street to ease and solve the traffic congestion on Legarda street.

WHEREFORE, the appealed order of dismissal is set aside and the present case is remanded to the trial court for further
proceedings in accordance with this decision. Without costs.

Bengzon, Actg. C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera and Paredes JJ., concur.
Concepcion, J., took no part.

EN BANC

G.R. No. L-18841 January 27, 1969

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio A. Torres and Solicitor Camilo D.
Quiason for plaintiff-appellant.
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant-appellant.

REYES, J.B.L., J.:

Direct appeals, upon a joint record on appeal, by both the plaintiff and the defendant from the dismissal, after hearing,
by the Court of First Instance of Manila, in its Civil Case No. 35805, of their respective complaint and counterclaims, but
making permanent a preliminary mandatory injunction theretofore issued against the defendant on the interconnection of
telephone facilities owned and operated by said parties.

The plaintiff, Republic of the Philippines, is a political entity exercising governmental powers through its branches and
instrumentalities, one of which is the Bureau of Telecommunications. That office was created on 1 July 1947, under
Executive Order No. 94, with the following powers and duties, in addition to certain powers and duties formerly vested in
the Director of Posts: 1awphil.t

SEC. 79. The Bureau of Telecommunications shall exercise the following powers and duties:
 (a) To operate and maintain existing wire-telegraph and radio-telegraph offices, stations, and facilities, and those
to be established to restore the pre-war telecommunication service under the Bureau of Posts, as well as such
additional offices or stations as may hereafter be established to provide telecommunication service in places
requiring such service;

(b) To investigate, consolidate, negotiate for, operate and maintain wire-telephone or radio telephone
communication service throughout the Philippines by utilizing such existing facilities in cities, towns, and
provinces as may be found feasible and under such terms and conditions or arrangements with the present
owners or operators thereof as may be agreed upon to the satisfaction of all concerned;

(c) To prescribe, subject to approval by the Department Head, equitable rates of charges for messages handled
by the system and/or for time calls and other services that may be rendered by said system;

(d) To establish and maintain coastal stations to serve ships at sea or aircrafts and, when public interest so
requires, to engage in the international telecommunication service in agreement with other countries desiring to
establish such service with the Republic of the Philippines; and

(e) To abide by all existing rules and regulations prescribed by the International Telecommunication Convention
relative to the accounting, disposition and exchange of messages handled in the international service, and those
that may hereafter be promulgated by said convention and adhered to by the Government of the Republic of the
Philippines. 1

The defendant, Philippine Long Distance Telephone Company (PLDT for short), is a public service corporation holding a
legislative franchise, Act 3426, as amended by Commonwealth Act 407, to install, operate and maintain a telephone
system throughout the Philippines and to carry on the business of electrical transmission of messages within the
Philippines and between the Philippines and the telephone systems of other countries. 2 The RCA Communications, Inc.,
(which is not a party to the present case but has contractual relations with the parties) is an American corporation
authorized to transact business in the Philippines and is the grantee, by assignment, of a legislative franchise to operate a
domestic station for the reception and transmission of long distance wireless messages (Act 2178) and to operate
broadcasting and radio-telephone and radio-telegraphic communications services (Act 3180). 3

Sometime in 1933, the defendant, PLDT, and the RCA Communications, Inc., entered into an agreement whereby
telephone messages, coming from the United States and received by RCA's domestic station, could automatically be
transferred to the lines of PLDT; and vice-versa, for calls collected by the PLDT for transmission from the Philippines to
the United States. The contracting parties agreed to divide the tolls, as follows: 25% to PLDT and 75% to RCA. The
sharing was amended in 1941 to 30% for PLDT and 70% for RCA, and again amended in 1947 to a 50-50 basis. The
arrangement was later extended to radio-telephone messages to and from European and Asiatic countries. Their contract
contained a stipulation that either party could terminate it on a 24-month notice to the other.4 On 2 February 1956, PLDT
gave notice to RCA to terminate their contract on 2 February 1958. 5

Soon after its creation in 1947, the Bureau of Telecommunications set up its own Government Telephone System by
utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable government offices to call
private parties. 6 Its application for the use of these trunk lines was in the usual form of applications for telephone service,
containing a statement, above the signature of the applicant, that the latter will abide by the rules and regulations of the
PLDT which are on file with the Public Service Commission. 7 One of the many rules prohibits the public use of the service
furnished the telephone subscriber for his private use. 8 The Bureau has extended its services to the general public since
1948, 9 using the same trunk lines owned by, and rented from, the PLDT, and prescribing its (the Bureau's) own schedule
of rates. 10 Through these trunk lines, a Government Telephone System (GTS) subscriber could make a call to a PLDT
subscriber in the same way that the latter could make a call to the former.

On 5 March 1958, the plaintiff, through the Director of Telecommunications, entered into an agreement with RCA
Communications, Inc., for a joint overseas telephone service whereby the Bureau would convey radio-telephone overseas
calls received by RCA's station to and from local residents. 11 Actually, they inaugurated this joint operation on 2 February
1958, under a "provisional" agreement. 12

On 7 April 1958, the defendant Philippine Long Distance Telephone Company, complained to the Bureau of
Telecommunications that said bureau was violating the conditions under which their Private Branch Exchange (PBX) is
inter-connected with the PLDT's facilities, referring to the rented trunk lines, for the Bureau had used the trunk lines not
only for the use of government offices but even to serve private persons or the general public, in competition with the
business of the PLDT; and gave notice that if said violations were not stopped by midnight of 12 April 1958, the PLDT
would sever the telephone connections. 13 When the PLDT received no reply, it disconnected the trunk lines being rented
by the Bureau at midnight on 12 April 1958. 14 The result was the isolation of the Philippines, on telephone services, from
the rest of the world, except the United States. 15

At that time, the Bureau was maintaining 5,000 telephones and had 5,000 pending applications for telephone
connection. 16 The PLDT was also maintaining 60,000 telephones and had also 20,000 pending applications. 17Through the
years, neither of them has been able to fill up the demand for telephone service.
 The Bureau of Telecommunications had proposed to the PLDT on 8 January 1958 that both enter into an
interconnecting agreement, with the government paying (on a call basis) for all calls passing through the interconnecting
facilities from the Government Telephone System to the PLDT. 18 The PLDT replied that it was willing to enter into an
agreement on overseas telephone service to Europe and Asian countries provided that the Bureau would submit to the
jurisdiction and regulations of the Public Service Commission and in consideration of 37 1/2% of the gross revenues. 19 In
its memorandum in lieu of oral argument in this Court dated 9 February 1964, on page 8, the defendant reduced its offer
to 33 1/3 % (1/3) as its share in the overseas telephone service. The proposals were not accepted by either party.

On 12 April 1958, plaintiff Republic commenced suit against the defendant, Philippine Long Distance Telephone
Company, in the Court of First Instance of Manila (Civil Case No. 35805), praying in its complaint for judgment
commanding the PLDT to execute a contract with plaintiff, through the Bureau, for the use of the facilities of defendant's
telephone system throughout the Philippines under such terms and conditions as the court might consider reasonable,
and for a writ of preliminary injunction against the defendant company to restrain the severance of the existing telephone
connections and/or restore those severed.

Acting on the application of the plaintiff, and on the ground that the severance of telephone connections by the
defendant company would isolate the Philippines from other countries, the court a quo, on 14 April 1958, issued an order
for the defendant:

(1) to forthwith reconnect and restore the seventy-eight (78) trunk lines that it has disconnected between the
facilities of the Government Telephone System, including its overseas telephone services, and the facilities of
defendant; (2) to refrain from carrying into effect its threat to sever the existing telephone communication
between the Bureau of Telecommunications and defendant, and not to make connection over its telephone
system of telephone calls coming to the Philippines from foreign countries through the said Bureau's telephone
facilities and the radio facilities of RCA Communications, Inc.; and (3) to accept and connect through its
telephone system all such telephone calls coming to the Philippines from foreign countries until further order of
this Court.

On 28 April 1958, the defendant company filed its answer, with counterclaims.

It denied any obligation on its part to execute a contrary of services with the Bureau of Telecommunications; contested
the jurisdiction of the Court of First Instance to compel it to enter into interconnecting agreements, and averred that it
was justified to disconnect the trunk lines heretofore leased to the Bureau of Telecommunications under the existing
agreement because its facilities were being used in fraud of its rights. PLDT further claimed that the Bureau was engaging
in commercial telephone operations in excess of authority, in competition with, and to the prejudice of, the PLDT, using
defendants own telephone poles, without proper accounting of revenues.

After trial, the lower court rendered judgment that it could not compel the PLDT to enter into an agreement with the
Bureau because the parties were not in agreement; that under Executive Order 94, establishing the Bureau of
Telecommunications, said Bureau was not limited to servicing government offices alone, nor was there any in the contract
of lease of the trunk lines, since the PLDT knew, or ought to have known, at the time that their use by the Bureau was to
be public throughout the Islands, hence the Bureau was neither guilty of fraud, abuse, or misuse of the poles of the
PLDT; and, in view of serious public prejudice that would result from the disconnection of the trunk lines, declared the
preliminary injunction permanent, although it dismissed both the complaint and the counterclaims.

Both parties appealed.

Taking up first the appeal of the Republic, the latter complains of the action of the trial court in dismissing the part of its
complaint seeking to compel the defendant to enter into an interconnecting contract with it, because the parties could not
agree on the terms and conditions of the interconnection, and of its refusal to fix the terms and conditions therefor.

We agree with the court below that parties can not be coerced to enter into a contract where no agreement is had
between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is
of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted
by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). But the court a
quo has apparently overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the
Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit
interconnection of the government telephone system and that of the PLDT, as the needs of the government service may
require, subject to the payment of just compensation to be determined by the court. Nominally, of course, the power of
eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no
cogent reason appears why the said power may not be availed of to impose only a burden upon the owner of condemned
property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be
subjected to an easement of right of way. The use of the PLDT's lines and services to allow inter-service connection
between both telephone systems is not much different. In either case private property is subjected to a burden for public
use and benefit. If, under section 6, Article XIII, of the Constitution, the State may, in the interest of national welfare,
transfer utilities to public ownership upon payment of just compensation, there is no reason why the State may not
require a public utility to render services in the general interest, provided just compensation is paid therefor. Ultimately,
the beneficiary of the interconnecting service would be the users of both telephone systems, so that the condemnation
would be for public use.
 The Bureau of Telecommunications, under section 78 (b) of Executive Order No. 94, may operate and maintain wire
telephone or radio telephone communications throughout the Philippines by utilizing existing facilities in cities, towns, and
provinces under such terms and conditions or arrangement with present owners or operators as may be agreed upon to
the satisfaction of all concerned; but there is nothing in this section that would exclude resort to condemnation
proceedings where unreasonable or unjust terms and conditions are exacted, to the extent of crippling or seriously
hampering the operations of said Bureau.

A perusal of the complaint shows that the Republic's cause of action is predicated upon the radio telephonic isolation of
the Bureau's facilities from the outside world if the severance of interconnection were to be carried out by the PLDT,
thereby preventing the Bureau of Telecommunications from properly discharging its functions, to the prejudice of the
general public. Save for the prayer to compel the PLDT to enter into a contract (and the prayer is no essential part of the
pleading), the averments make out a case for compulsory rendering of inter-connecting services by the telephone
company upon such terms and conditions as the court may determine to be just. And since the lower court found that
both parties "are practically at one that defendant (PLDT) is entitled to reasonable compensation from plaintiff for the
reasonable use of the former's telephone facilities" (Decision, Record on Appeal, page 224), the lower court should have
proceeded to treat the case as one of condemnation of such services independently of contract and proceeded to
determine the just and reasonable compensation for the same, instead of dismissing the petition.

This view we have taken of the true nature of the Republic's petition necessarily results in overruling the plea of
defendant-appellant PLDT that the court of first instance had no jurisdiction to entertain the petition and that the proper
forum for the action was the Public Service Commission. That body, under the law, has no authority to pass upon actions
for the taking of private property under the sovereign right of eminent domain. Furthermore, while the defendant
telephone company is a public utility corporation whose franchise, equipment and other properties are under the
jurisdiction, supervision and control of the Public Service Commission (Sec. 13, Public Service Act), yet the plaintiff's
telecommunications network is a public service owned by the Republic and operated by an instrumentality of the National
Government, hence exempt, under Section 14 of the Public Service Act, from such jurisdiction, supervision and control.
The Bureau of Telecommunications was created in pursuance of a state policy reorganizing the government offices

to meet the exigencies attendant upon the establishment of the free and independent Government of the
Republic of the Philippines, and for the purpose of promoting simplicity, economy and efficiency in its operation
(Section 1, Republic Act No. 51)

and the determination of state policy is not vested in the Commission (Utilities Com. vs. Bartonville Bus Line, 290 Ill.
574; 124 N.E. 373).

Defendant PLDT, as appellant, contends that the court below was in error in not holding that the Bureau of
Telecommunications was not empowered to engage in commercial telephone business, and in ruling that said defendant
was not justified in disconnecting the telephone trunk lines it had previously leased to the Bureau. We find that the court
a quo ruled correctly in rejecting both assertions.

Executive Order No. 94, Series of 1947, reorganizing the Bureau of Telecommunications, expressly empowered the
latter in its Section 79, subsection (b), to "negotiate for, operate and maintain wire telephone or radio telephone
communication service throughout the Philippines", and, in subsection (c), "to prescribe, subject to approval by the
Department Head, equitable rates of charges for messages handled by the system and/or for time calls and other services
that may be rendered by the system". Nothing in these provisions limits the Bureau to non-commercial activities or
prevents it from serving the general public. It may be that in its original prospectuses the Bureau officials had stated that
the service would be limited to government offices: but such limitations could not block future expansion of the system,
as authorized by the terms of the Executive Order, nor could the officials of the Bureau bind the Government not to
engage in services that are authorized by law. It is a well-known rule that erroneous application and enforcement of the
law by public officers do not block subsequent correct application of the statute (PLDT vs. Collector of Internal Revenue,
90 Phil. 676), and that the Government is never estopped by mistake or error on the part of its agents (Pineda vs. Court
of First Instance of Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. vs. Pineda, 98 Phil. 711, 724).

The theses that the Bureau's commercial services constituted unfair competition, and that the Bureau was guilty of fraud
and abuse under its contract, are, likewise, untenable.

First, the competition is merely hypothetical, the demand for telephone service being very much more than the
supposed competitors can supply. As previously noted, the PLDT had 20,000 pending applications at the time, and the
Bureau had another 5,000. The telephone company's inability to meet the demands for service are notorious even now.
Second, the charter of the defendant expressly provides:

SEC. 14. The rights herein granted shall not be exclusive, and the rights and power to grant to any corporation,
association or person other than the grantee franchise for the telephone or electrical transmission of message or
signals shall not be impaired or affected by the granting of this franchise: (Act 3436)

And third, as the trial court correctly stated, "when the Bureau of Telecommunications subscribed to the trunk lines,
defendant knew or should have known that their use by the subscriber was more or less public and all embracing in
nature, that is, throughout the Philippines, if not abroad" (Decision, Record on Appeal, page 216).
 The acceptance by the defendant of the payment of rentals, despite its knowledge that the plaintiff had extended the
use of the trunk lines to commercial purposes, continuously since 1948, implies assent by the defendant to such extended
use. Since this relationship has been maintained for a long time and the public has patronized both telephone systems,
and their interconnection is to the public convenience, it is too late for the defendant to claim misuse of its facilities, a nd
it is not now at liberty to unilaterally sever the physical connection of the trunk lines.

..., but there is high authority for the position that, when such physical connection has been voluntarily made,
under a fair and workable arrangement and guaranteed by contract and the continuous line has come to be
patronized and established as a great public convenience, such connection shall not in breach of the agreement
be severed by one of the parties. In that case, the public is held to have such an interest in the arrangement that
its rights must receive due consideration. This position finds approval in State ex rel. vs. Cadwaller, 172 Ind. 619,
636, 87 N.E. 650, and is stated in the elaborate and learned opinion of Chief Justice Myers as follows: "Such
physical connection cannot be required as of right, but if such connection is voluntarily made by contract, as is
here alleged to be the case, so that the public acquires an interest in its continuance, the act of the parties in
making such connection is equivalent to a declaration of a purpose to waive the primary right of independence,
and it imposes upon the property such a public status that it may not be disregarded" citing Mahan v. Mich.
Tel. Co., 132 Mich. 242, 93 N.W. 629, and the reasons upon which it is in part made to rest are referred to in the
same opinion, as follows: "Where private property is by the consent of the owner invested with a public interest
or privilege for the benefit of the public, the owner can no longer deal with it as private property only, but must
hold it subject to the right of the public in the exercise of that public interest or privilege conferred for their
benefit." Allnut v. Inglis (1810) 12 East, 527. The doctrine of this early case is the acknowledged law. (Clinton-
Dunn Tel. Co. v. Carolina Tel. & Tel. Co., 74 S.E. 636, 638).

It is clear that the main reason for the objection of the PLDT lies in the fact that said appellant did not expect that the
Bureau's telephone system would expand with such rapidity as it has done; but this expansion is no ground for the
discontinuance of the service agreed upon.

The last issue urged by the PLDT as appellant is its right to compensation for the use of its poles for bearing telephone
wires of the Bureau of Telecommunications. Admitting that section 19 of the PLDT charter reserves to the Government

the privilege without compensation of using the poles of the grantee to attach one ten-pin cross-arm, and to
install, maintain and operate wires of its telegraph system thereon; Provided, however, That the Bureau of Posts
shall have the right to place additional cross-arms and wires on the poles of the grantee by paying a
compensation, the rate of which is to be agreed upon by the Director of Posts and the grantee;

the defendant counterclaimed for P8,772.00 for the use of its poles by the plaintiff, contending that what was allowed
free use, under the aforequoted provision, was one ten-pin cross-arm attachment and only for plaintiff's telegraph
system, not for its telephone system; that said section could not refer to the plaintiff's telephone system, because it did
not have such telephone system when defendant acquired its franchise. The implication of the argument is that plaintiff
has to pay for the use of defendant's poles if such use is for plaintiff's telephone system and has to pay also if it attaches
more than one (1) ten-pin cross-arm for telegraphic purposes.

As there is no proof that the telephone wires strain the poles of the PLDT more than the telegraph wires, nor that they
cause more damage than the wires of the telegraph system, or that the Government has attached to the poles more than
one ten-pin cross-arm as permitted by the PLDT charter, we see no point in this assignment of error. So long as the
burden to be borne by the PLDT poles is not increased, we see no reason why the reservation in favor of the telegraph
wires of the government should not be extended to its telephone lines, any time that the government decided to engage
also in this kind of communication.

In the ultimate analysis, the true objection of the PLDT to continue the link between its network and that of the
Government is that the latter competes "parasitically" (sic) with its own telephone services. Considering, however, that
the PLDT franchise is non-exclusive; that it is well-known that defendant PLDT is unable to adequately cope with the
current demands for telephone service, as shown by the number of pending applications therefor; and that the PLDT's
right to just compensation for the services rendered to the Government telephone system and its users is herein
recognized and preserved, the objections of defendant-appellant are without merit. To uphold the PLDT's contention is to
subordinate the needs of the general public to the right of the PLDT to derive profit from the future expansion of its
services under its non-exclusive franchise.

WHEREFORE, the decision of the Court of First Instance, now under appeal, is affirmed, except in so far as it dismisses
the petition of the Republic of the Philippines to compel the Philippine Long Distance Telephone Company to continue
servicing the Government telephone system upon such terms, and for a compensation, that the trial court may determine
to be just, including the period elapsed from the filing of the original complaint or petition. And for this purpose, the
records are ordered returned to the court of origin for further hearings and other proceedings not inconsistent with this
opinion. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano, Teehankee and Barredo, JJ., concur.

FIRST DIVISION
G.R. No. 165354 January 12, 2015

REPUBLIC OF THE PHILIPPINES, represented by the NATIONAL POWER CORPORATION, Petitioner,

vs.
HEIRS OF SATURNINO Q. BORBON, AND COURT OF APPEALS, Respondents.

DECISION

BERSAMIN, J.:

The expropriator who has taken possession of the property subject of expropriation is obliged to pay reasonable
compensation to the landowner for the period of such possession although the proceedings had been discontinued on the
ground that the public purpose for the expropriation had meanwhile ceased.

Antecedents

The National Power Corporation (NAPOCOR) is a government-owned and -controlled corporation vested with authority
under Republic Act No. 6395, as amended, to undertake the development of hydro-electric generation of power,
production of electricity from any and all sources, construction, operation and maintenance of power plants, auxiliary
plants, dams, reservoirs, pipes, main transmission lines, power stations and substations, and other works for the purpose
of developing hydraulic power from any river, lake, creek, spring and waterfalls in the Philippines and to supply such
power to the inhabitants thereof.1

In February 1993, NAPOCOR entered a property located in Barangay San Isidro, Batangas City in order to construct and
maintain transmission lines for the 230 KV Mahabang Parang-Pinamucan Power Transmission Project. 2 Respondents heirs
of Saturnino Q. Borbon owned the property, with a total area of 14,257 square meters, which was registered under
Transfer Certificate of Title No. T-9696 of the Registry of Deeds of Batangas. 3

On May 26, 1995, NAPOCOR filed a complaint for expropriation in the Regional Trial Court in Batangas City
(RTC),4seeking the acquisition of an easement of right of way over a portion of the property involving an area of only
6,326 square meters, more or less,5 alleging that it had negotiated with the respondents for the acquisition of the
easement but they had failed to reach any agreement; and that, nonetheless, it was willing to deposit the amount of
9,790.00 representing the assessed value of the portion sought to be expropriated. 6 It prayed for the issuance of a writ
of possession upon deposit to enable it to enter and take possession and control of the affected portion of the property;
to demolish all improvements existing thereon; and to commence construction of the transmission line project. It likewise
prayed for the appointment of three commissioners to determine the just compensation to be paid. 7

In their answer with motion to dismiss, 8 the respondents staunchly maintained that NAPOCOR had not negotiated with
them before entering the property and that the entry was done without their consent in the process, destroying some
fruit trees without payment, and installing five transmission line posts and five woodpoles for its project; 9 that the area
being expropriated only covered the portion directly affected by the transmission lines; that the remaining portion of the
property was also affected because the transmission line passed through the center of the land, thereby dividing the land
into three lots; that the presence of the high tension transmission line had rendered the entire property inutile for any
future use and capabilities;10 that, nonetheless, they tendered no objection to NAPOCORs entry provided it would pay
just compensation not only for the portion sought to be expropriated but for the entire property whose potential was
greatly diminished, if not totally lost, due to the project;11 and that their property was classified as industrial land. Thus,
they sought the dismissal of the complaint, the payment of just compensation of 1,000.00/square meter, and attorneys
fees;12 and to be allowed to nominate their representative to the panel of commissioners to be appointed by the trial
court.13

In the pre-trial conference conducted on December 20, 1995, the parties stipulated on: (1) the location of the property;
(2) the number of the heirs of the late Saturnino Q. Borbon; (3) the names of the persons upon whom title to the
property was issued; and (4) the ownership and possession of the property. 14 In its order of that date, the RTC directed
the parties to submit the names of their nominees to sit in the panel of commissioners within 10 days from the date of
the pre-trial.15

The RTC constituted the panel of three commissioners. Two commissioners submitted a joint report on April 8, 1999,16 in
which they found that the property was classified as industrial land located within the Industrial 2 Zone;17that although
the property used to be classified as agricultural (i.e., horticultural and pasture land), it was reclassified to industrial land
for appraisal or taxation purposes on June 30, 1994; and that the reclassification was made on the basis of a certification
issued by the Zoning Administrator pursuant to Section 3.10 (d) of the Amended Zoning Ordinance (1989) of the City of
Batangas.18 The two commissioners appraised the value at 550.00/square meter. 19However, the third commissioner filed
a separate report dated March 16, 1999, 20 whereby he recommended the payment of "an easement fee of at least ten
percent (10%) of the assessed value indicated in the tax declaration 21plus cost of damages in the course of the
construction, improvements affected and tower occupancy fee."22

The parties then submitted their respective objections to the reports. On their part, the respondents maintained that
NAPOCOR should compensate them for the entire property at the rate of 550.00/square meter because the property was
already classified as industrial land at the time NAPOCOR entered it. 23 In contrast, NAPOCOR objected to the joint report,
insisting that the property was classified as agricultural land at the time of its taking in March 1993; and clarifying that it
was only seeking an easement of right of way over a portion of the property, not the entire area thereof, so that it should
pay only 10% of the assessed value of the portion thus occupied. 24

In the judgment dated November 27, 2000, 25 the RTC adopted the recommendation contained in the joint report, and
ruled thusly:

The price to be paid for an expropriated land is its value at the time of taking, which is the date when the plaintiff actually
entered the property or the date of the filing of the complaint for expropriation. In this case, there is no evidence as to
when the plaintiff actually entered the property in question, so the reference point should be the date of filing of the
complaint, which is May 5, 1995.

On this date, the property in question was already classified as industrial. So, the Joint Report (Exhibit "1") is credible on
this point. The two Commissioners who submitted the Joint Report are government officials who were not shown to be
biased. So, that their report should be given more weight than the minority report submitted by a private lawyer
representing the plaintiff. In view of these, the Court adopts the Joint Report and rejects the minority report. The former
fixed the just compensation at 550.00 per square meter for the whole lot of 14,257 square meters. 26

Accordingly, the RTC ordered NAPOCOR to pay the respondents: (1) just compensation for the whole area of 14,257
square meters at the rate of 550.00/square meter; (2) legal rate of interest from May 5, 1995 until full payment; and (3)
the costs of suit.27

NAPOCOR appealed (CA-G.R. No. 72069).

On April 29, 2004,28 the CA promulgated its decision, viz:

WHEREFORE, premises considered, the Decision dated November 27, 2000 of Branch I of the Regional Trial Court of
Batangas City, is hereby AFFIRMED with the MODIFICATION that plaintiff-appellant shall pay only for the occupied 6,326
square meters of the subject real property at the rate of 550.00 per square meter and to pay legal interest therefrom
until fully paid.

SO ORDERED.29

Hence, this appeal by NAPOCOR.

Issue

On December 3, 2012, during the pendency of the appeal, NAPOCOR filed a Motion to Defer Proceedings stating that
negotiations between the parties were going on with a view to the amicable settlement of the case. 30

On January 3, 2014, NAPOCOR filed a Manifestation and Motion to Discontinue Expropriation Proceedings, 31informing that
the parties failed to reach an amicable agreement; that the property sought to be expropriated was no longer necessary
for public purpose because of the intervening retirement of the transmission lines installed on the respondents
property;32 that because the public purpose for which such property would be used thereby ceased to exist, the
proceedings for expropriation should no longer continue, and the State was now duty-bound to return the property to its
owners; and that the dismissal or discontinuance of the expropriation proceedings was in accordance with Section 4, Rule
67 of the Rules of Court. Hence, NAPOCOR prayed that the proceedings be discontinued "under such terms as the court
deems just and equitable,"33 and that the compensation to be awarded the respondents be reduced by the equivalent of
the benefit they received from the land during the time of its occupation, for which purpose the case could be remanded
to the trial court for the determination of reasonable compensation to be paid to them. 34

In light of its Manifestation and Motion to Discontinue Expropriation Proceedings, NAPOCOR contends that the
expropriation has become without basis for lack of public purpose as a result of the retirement of the transmission lines;
that if expropriation still proceeds, the Government will be unduly burdened by payment of just compensation for
property it no longer requires; and that there is legal basis in dismissing the proceedings, citing Metropolitan Water
District v. De los Angeles35 where the Court granted petitioners prayer for the quashal of expropriation proceedings and
the eventual dismissal of the proceedings on the ground that the land sought to be expropriated was no longer
"indispensably necessary" in the maintenance and operation of petitioner's waterworks system.

The issue to be considered and resolved is whether or not the expropriation proceedings should be discontinued or
dismissed pending appeal.

Ruling of the Court

The dismissal of the proceedings for expropriation at the instance of NAPOCOR is proper, but, conformably with Section
4,36 Rule 67 of the Rules of Court, the dismissal or discontinuance of the proceedings must be upon such terms as the
court deems just and equitable.
Before anything more, we remind the parties about the nature of the power of eminent domain. The right of eminent
domain is "the ultimate right of the sovereign power to appropriate, not only the public but the private property of all
citizens within the territorial sovereignty, to public purpose."37 But the exercise of such right is not unlimited, for two
mandatory requirements should underlie the Governments exercise of the power of eminent domain, namely: (1) that it
is for a particular public purpose; and (2) that just compensation be paid to the property owner. 38 These requirements
partake the nature of implied conditions that should be complied with to enable the condemnor to keep the property
expropriated.39

Public use, in common acceptation, means "use by the public." However, the concept has expanded to include utility,
advantage or productivity for the benefit of the public. 40 In Asia's Emerging Dragon Corporation v. Department of
Transportation and Communications,41 Justice Corona, in his dissenting opinion said that:

To be valid, the taking must be for public use. The meaning of the term "public use" has evolved over time in response to
changing public needs and exigencies. Public use which was traditionally understood as strictly limited to actual "use by
the public" has already been abandoned. "Public use" has now been held to be synonymous with "public interest," "public
benefit," and "public convenience."

It is essential that the element of public use of the property be maintained throughout the proceedings for expropriation.
The effects of abandoning the public purpose were explained in Mactan-Cebu International Airport Authority v. Lozada,
Sr.,42 to wit:

More particularly, with respect to the element of public use, the expropriator should commit to use the property pursuant
to the purpose stated in the petition for expropriation filed, failing which, it should file another petition for the new
purpose. If not, it is then incumbent upon the expropriator to return the said property to its private owner, if the latter
desires to reacquire the same. Otherwise, the judgment of expropriation suffers an intrinsic flaw, as it would lack one
indispensable element for the proper exercise of the power of eminent domain, namely, the particular public purpose for
which the property will be devoted. Accordingly, the private property owner would be denied due process of law, and the
judgment would violate the property owner's right to justice, fairness and equity. 43

A review reveals that Metropolitan Water District v. De los Angeles 44 is an appropriate precedent herein. There, the
Metropolitan Water District passed a board resolution requesting the Attorney-General to file a petition in the Court of
First Instance of the Province of Rizal praying that it be permitted to discontinue the condemnation proceedings it had
initiated for the expropriation of a parcel of land in Montalban, Rizal to be used in the construction of the Angat
Waterworks System. It claimed that the land was no longer indispensably necessary in the maintenance and operation of
its waterworks system, and that the expropriation complaint should then be dismissed. The Court, expounding on the
power of the State to exercise the right of eminent domain, then pronounced:

There is no question raised concerning the right of the plaintiff here to acquire the land under the power of eminent
domain.1wphi1 That power was expressly granted it by its charter. The power of eminent domain is a right reserved to
the people or Government to take property for public use. It is the right of the state, through its regular organization, to
reassert either temporarily or permanently its dominion over any portion of the soil of the state on account of public
necessity and for the public good. The right of eminent domain is the right which the Government or the people retains
over the estates of individuals to resume them for public use. It is the right of the people, or the sovereign, to dispose, in
case of public necessity and for the public safety, of all the wealth contained in the state. 45

Indeed, public use is the fundamental basis for the action for expropriation; hence, NAPOCORs motion to discontinue the
proceedings is warranted and should be granted. The Court has observed in Metropolitan Water District v. De los
Angeles:

It is not denied that the purpose of the plaintiff was to acquire the land in question for public use. The fundamental basis
then of all actions brought for the expropriation of lands, under the power of eminent domain, is public use. That being
true, the very moment that it appears at any stage of the proceedings that the expropriation is not for a public use, the
action must necessarily fail and should be dismissed, for the reason that the action cannot be maintained at all except
when the expropriation is for some public use. That must be true even during the pendency of the appeal or at any other
stage of the proceedings. If, for example, during the trial in the lower court, it should be made to appear to the
satisfaction of the court that the expropriation is not for some public use, it would be the duty and the obligation of the
trial court to dismiss the action. And even during the pendency of the appeal, if it should be made to appear to the
satisfaction of the appellate court that the expropriation is not for public use, then it would become the duty and the
obligation of the appellate court to dismiss it.

In the present case the petitioner admits that the expropriation of the land in question is no longer necessary for public
use. Had that admission been made in the trial court the case should have been dismissed there. It now appearing
positively, by resolution of the plaintiff, that the expropriation is not necessary for public use, the action should be
dismissed even without a motion on the part of the plaintiff. The moment it appears in whatever stage of the proceedings
that the expropriation is not for a public use the complaint should be dismissed and all the parties thereto should be
relieved from further annoyance or litigation.46 (underscoring and emphasis supplied)

It is notable that the dismissal of the expropriation proceedings in Metropolitan Water District v. De los Angeles was made
subject to several conditions in order to address the dispossession of the defendants of their land, and the inconvenience,
annoyance and damages suffered by the defendants on account of the proceedings. Accordingly, the Court remanded the
case to the trial court for the issuance of a writ of possession ordering Metropolitan Water District to immediately return
possession of the land to the defendants, and for the determination of damages in favor of the defendants, the claims for
which must be presented within 30 days from the return of the record to the court of origin and notice thereof. 47

Here, NAPOCOR seeks to discontinue the expropriation proceedings on the ground that the transmission lines constructed
on the respondents property had already been retired. Considering that the Court has consistently upheld the primordial
importance of public use in expropriation proceedings, NAPOCORs reliance on Metropolitan Water District v. De los
Angeles was apt and correct. Verily, the retirement of the transmission lines necessarily stripped the expropriation
proceedings of the element of public use. To continue with the expropriation proceedings despite the definite cessation of
the public purpose of the project would result in the rendition of an invalid judgment in favor of the expropriator due to
the absence of the essential element of public use.

Unlike in Metropolitan Water District v. De los Angeles where the request to discontinue the expropriation proceedings
was made upon the authority appearing in the board resolution issued on July 14, 1930, 48 counsel for NAPOCOR has not
presented herein any document to show that NAPOCOR had decided, as a corporate body, to discontinue the
expropriation proceedings. Nonetheless, the Court points to the Memorandum dated December 13, 2012 49 and the
Certificate of Inspection/Accomplishment dated February 5, 2005 50 attached to NAPOCORs motion attesting to the
retirement of the transmission lines. Also, Metropolitan Water District v. De los Angeles emphasized that it became the
duty and the obligation of the court, regardless of the stage of the proceedings, to dismiss the action "if it should be
made to appear to the satisfaction of the court that the expropriation is not for some public use." 51 Despite the lack of the
board resolution, therefore, the Court now considers the documents attached to NAPOCORs Manifestation and Motion to
Discontinue Expropriation Proceedings to be sufficient to establish that the expropriation sought is no longer for some
public purpose.

Accordingly, the Court grants the motion to discontinue the proceedings subject to the conditions to be shortly mentioned
hereunder, and requires the return of the property to the respondents. Having said that, we must point out that
NAPOCOR entered the property without the owners consent and without paying just compensation to the respondents.
Neither did it deposit any amount as required by law prior to its entry. The Constitution is explicit in obliging the
Government and its entities to pay just compensation before depriving any person of his or her property for public
use.52 Considering that in the process of installing transmission lines, NAPOCOR destroyed some fruit trees and plants
without payment, and the installation of the transmission lines went through the middle of the land as to divide the
property into three lots, thereby effectively rendering the entire property inutile for any future use, it would be unfair for
NAPOCOR not to be made liable to the respondents for the disturbance of their property rights from the time of entry
until the time of restoration of the possession of the property. There should be no question about the taking. In several
rulings, notably National Power Corporation v. Zabala,53 Republic v. Libunao,54 National Power Corporation v.
Tuazon,55 and National Power Corporation v. Saludares,56 this Court has already declared that "since the high-tension
electric current passing through the transmission lines will perpetually deprive the property owners of the normal use of
their land, it is only just and proper to require Napocor to recompense them for the full market value of their property."

There is a sufficient showing that NAPOCOR entered into and took possession of the respondents property as early as in
March 1993 without the benefit of first filing a petition for eminent domain. For all intents and purposes, therefore, March
1993 is the reckoning point of NAPOCORs taking of the property, instead of May 5, 1995, the time NAPOCOR filed the
petition for expropriation. The reckoning conforms to the pronouncement in Ansaldo v. Tantuico, Jr.,57 to wit:

Normally, of course, where the institution of an expropriation action precedes the taking of the property subject thereof,
the just compensation is fixed as of the time of the filing of the complaint. This is so provided by the Rules of Court, the
assumption of possession by the expropriator ordinarily being conditioned on its deposits with the National or Provincial
Treasurer of the value of the property as provisionally ascertained by the court having jurisdiction of the proceedings.

There are instances, however, where the expropriating agency takes over the property prior to the expropriation suit, as
in this case although, to repeat, the case at bar is quite extraordinary in that possession was taken by the expropriator
more than 40 years prior to suit. In these instances, this Court has ruled that the just compensation shall be determined
as of the time of taking, not as of the time of filing of the action of eminent domain.

In the context of the State's inherent power of eminent domain, there is a "taking" when the owner is actually deprived
or dispossessed of his property; when there is a practical destruction or a material impairment of the value of his property
or when he is deprived of the ordinary use thereof. There is a "taking" in this sense when the expropriator enters private
property not only for a momentary period but for a more permanent duration, for the purpose of devoting the property to
a public use in such a manner as to oust the owner and deprive him of all beneficial enjoyment thereof. For ownership,
after all, "is nothing without the inherent rights of possession, control and enjoyment. Where the owner is deprived of the
ordinary and beneficial use of his property or of its value by its being diverted to public use, there is taking within the
Constitutional sense." x x x.58

In view of the discontinuance of the proceedings and the eventual return of the property to the respondents, there is no
need to pay "just compensation" to them because their property would not be taken by NAPOCOR. Instead of full market
value of the property, therefore, NAPOCOR should compensate the respondents for the disturbance of their property
rights from the time of entry in March 1993 until the time of restoration of the possession by paying to them actual or
other compensatory damages. This conforms with the following pronouncement in Mactan-Cebu International Airport
Authority v. Lozada, Sr.:59

In light of these premises, we now expressly hold that the taking of private property, consequent to the Governments
exercise of its power of eminent domain, is always subject to the condition that the property be devoted to the specific
public purpose for which it was taken. Corollarily, if this particular purpose or intent is not initiated or not at all pursued,
and is peremptorily abandoned, then the former owners, if they so desire, may seek the reversion of the property,
subject to the return of the amount of just compensation received. In such a case, the exercise of the power of eminent
domain has become improper for lack of the required factual justification. 60

This should mean that the compensation must be based on what they actually lost as a result and by reason of their
dispossession of the property and of its use, including the value of the fruit trees, plants and crops destroyed by
NAPOCORs construction of the transmission lines. Considering that the dismissal of the expropriation proceedings is a
development occurring during the appeal, the Court now treats the dismissal of the expropriation proceedings as
producing the effect of converting the case into an action for damages. For that purpose, the Court remands the case to
the court of origin for further proceedings, with instruction to the court of origin to enable the parties to fully litigate the
action for damages by giving them the opportunity to re-define the factual and legal issues by the submission of the
proper pleadings on the extent of the taking, the value of the compensation to be paid to the respondents by NAPOCOR,
and other relevant matters as they deem fit. Trial shall be limited to matters the evidence upon which had not been
heretofore heard or adduced. The assessment and payment of the correct amount of filing fees due from the respondents
shall be made in the judgment, and such amount shall constitute a first lien on the recovery. Subject to these conditions,
the court of origin shall treat the case as if originally filed as an action for damages.

WHEREFORE, the Court DISMISSES the expropriation proceedings due to the intervening cessation of the need for public
use; REMANDS the records to the Regional Trial Court, Branch 1, in Batangas City as the court of origin for further
proceedings to be conducted in accordance with the foregoing instructions; and ORDERS said trial court to try and decide
the issues with dispatch.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

EN BANC

G.R. No. L-12172 August 29, 1958

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
JUAN F. FAJARDO, ET AL., defendants-appellants.

Assistant Solicitor General Esmeraldo Umali and Higinio V. Catalan for appellee.
Prila, Pardalis and Pejo for appellants.

REYES, J. B. L., J.:

Appeal from the decision of the Court of First Instance of Camarines Sur convicting defendants-appellants Juan F. Fajardo
and Pedro Babilonia of a violation of Ordinance No. 7, Series of 1950, of the Municipality of Baao, Camarines Sur, for
having constructed without a permit from the municipal mayor a building that destroys the view of the public plaza.

It appears that on August 15, 1950, during the incumbency of defendant-appellant Juan F. Fajardo as mayor of the
municipality of Baao, Camarines Sur, the municipal council passed the ordinance in question providing as follows:

SECTION 1. Any person or persons who will construct or repair a building should, before constructing or
repairing, obtain a written permit from the Municipal Mayor.

SEC. 2. A fee of not less than P2.00 should be charged for each building permit and P1.00 for each repair permit
issued.

SEC. 3. PENALTY Any violation of the provisions of the above, this ordinance, shall make the violation liable to
pay a fine of not less than P25 nor more than P50 or imprisonment of not less than 12 days nor more than 24
days or both, at the discretion of the court. If said building destroys the view of the Public Plaza or occupies any
public property, it shall be removed at the expense of the owner of the building or house.

SEC. 4. EFFECTIVITY This ordinance shall take effect on its approval. (Orig. Recs., P. 3)
Four years later, after the term of appellant Fajardo as mayor had expired, he and his son in-law, appellant Babilonia,
filed a written request with the incumbent municipal mayor for a permit to construct a building adjacent to their gasoline
station on a parcel of land registered in Fajardo's name, located along the national highway and separated from the
public plaza by a creek (Exh. D). On January 16, 1954, the request was denied, for the reason among others that the
proposed building would destroy the view or beauty of the public plaza (Exh. E). On January 18, 1954, defendants
reiterated their request for a building permit (Exh. 3), but again the request was turned down by the mayor. Whereupon,
appellants proceeded with the construction of the building without a permit, because they needed a place of residence
very badly, their former house having been destroyed by a typhoon and hitherto they had been living on leased property.

On February 26, 1954, appellants were charged before and convicted by the justice of the peace court of Baao,
Camarines Sur, for violation of the ordinance in question. Defendants appealed to the Court of First Instance, which
affirmed the conviction, and sentenced appellants to pay a fine of P35 each and the costs, as well as to demolish the
building in question because it destroys the view of the public plaza of Baao, in that "it hinders the view of travelers from
the National Highway to the said public plaza." From this decision, the accused appealed to the Court of Appeals, but the
latter forwarded the records to us because the appeal attacks the constitutionality of the ordinance in question.

We find that the appealed conviction can not stand.

A first objection to the validity of the ordinance in question is that under it the mayor has absolute discretion to issue or
deny a permit. The ordinance fails to state any policy, or to set up any standard to guide or limit the mayor's action. No
purpose to be attained by requiring the permit is expressed; no conditions for its grant or refusal are enumerated. It is
not merely a case of deficient standards; standards are entirely lacking. The ordinance thus confers upon the mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, and it is a settled rule that such an
undefined and unlimited delegation of power to allow or prevent an activity, per se lawful, is invalid (People vs. Vera, 65
Phil., 56; Primicias vs. Fugoso, 80 Phil., 71; Schloss Poster Adv. Co. vs. Rock Hill, 2 SE (2d) 392)

The ordinance in question in no way controls or guides the discretion vested thereby in the respondents. It
prescribes no uniform rule upon which the special permission of the city is to be granted. Thus the city is clothed
with the uncontrolled power to capriciously grant the privilege to some and deny it others; to refuse the
application of one landowner or lessee and to grant that of another, when for all material purposes, the two
applying for precisely the same privileges under the same circumstances. The danger of such an ordinance is that
it makes possible arbitrary discriminations and abuses in its execution, depending upon no conditions or
qualifications whatever, other than the unregulated arbitrary will of the city authorities as the touchstone by
which its validity is to be tested. Fundamental rights under our government do not depend for their existence
upon such a slender and uncertain thread. Ordinances which thus invest a city council with a discretion which is
purely arbitrary, and which may be exercised in the interest of a favored few, are unreasonable and invalid. The
ordinance should have established a rule by which its impartial enforcement could be secured. All of the
authorities cited above sustain this conclusion.

As was said in City of Richmond vs. Dudley, 129 Ind. 112,28 N. E. 312, 314 13 L. R. A. 587, 28 Am. St. Rep. 180:
"It seems from the foregoing authorities to be well established that municipal ordinances placing restrictions upon
lawful conduct or the lawful use of property must, in order to be valid, specify the rules and conditions to be
observed in such conduct or business; and must admit of the exercise of the privilege of all citizens alike who will
comply with such rules and conditions; and must not admit of the exercise, or of an opportunity for the exercise,
of any arbitrary discrimination by the municipal authorities between citizens who will so comply. (Schloss Poster
Adv. Co., Inc. vs. City of Rock Hill, et al., 2 SE (2d), pp. 394-395).

It is contended, on the other hand, that the mayor can refuse a permit solely in case that the proposed building "destroys
the view of the public plaza or occupies any public property" (as stated in its section 3); and in fact, the refusal of the
Mayor of Baao to issue a building permit to the appellant was predicated on the ground that the proposed building would
"destroy the view of the public plaza" by preventing its being seen from the public highway. Even thus interpreted, the
ordinance is unreasonable and oppressive, in that it operates to permanently deprive appellants of the right to use their
own property; hence, it oversteps the bounds of police power, and amounts to a taking of appellants property without
just compensation. We do not overlook that the modern tendency is to regard the beautification of neighborhoods as
conducive to the comfort and happiness of residents. But while property may be regulated in the interest of the general
welfare, and in its pursuit, the State may prohibit structures offensive to the sight (Churchill and Tait vs. Rafferty, 32 Phil.
580), the State may not, under the guise of police power, permanently divest owners of the beneficial use of their
property and practically confiscate them solely to preserve or assure the aesthetic appearance of the community. As the
case now stands, every structure that may be erected on appellants' land, regardless of its own beauty, stands
condemned under the ordinance in question, because it would interfere with the view of the public plaza from the
highway. The appellants would, in effect, be constrained to let their land remain idle and unused for the obvious purpose
for which it is best suited, being urban in character. To legally achieve that result, the municipality must give appellants
just compensation and an opportunity to be heard.

An ordinance which permanently so restricts the use of property that it can not be used for any reasonable
purpose goes, it is plain, beyond regulation and must be recognized as a taking of the property. The only
substantial difference, in such case, between restriction and actual taking, is that the restriction leaves the owner
subject to the burden of payment of taxation, while outright confiscation would relieve him of that burden.
(Arverne Bay Constr. Co. vs. Thatcher (N.Y.) 117 ALR. 1110, 1116).
 A regulation which substantially deprives an owner of all beneficial use of his property is confiscation and is a
deprivation within the meaning of the 14th Amendment. (Sundlum vs. Zoning Bd., 145 Atl. 451; also Eaton vs.
Sweeny, 177 NE 412; Taylor vs. Jacksonville, 133 So. 114).

Zoning which admittedly limits property to a use which can not reasonably be made of it cannot be said to set
aside such property to a use but constitutes the taking of such property without just compensation. Use of
property is an element of ownership therein. Regardless of the opinion of zealots that property may properly, by
zoning, be utterly destroyed without compensation, such principle finds no support in the genius of our
government nor in the principles of justice as we known them. Such a doctrine shocks the sense of justice. If it
be of public benefit that property remain open and unused, then certainly the public, and not the private
individuals, should bear the cost of reasonable compensation for such property under the rules of law governing
the condemnation of private property for public use . (Tews vs. Woolhiser (1933) 352 I11. 212, 185 N.E. 827)
(Emphasis supplied.)

The validity of the ordinance in question was justified by the court below under section 2243, par. (c), of the Revised
Administrative Code, as amended. This section provides:

SEC. 2243. Certain legislative powers of discretionary character. The municipal council shall have authority to
exercise the following discretionary powers:

xxx xxx xxx

(c) To establish fire limits in populous centers, prescribe the kinds of buildings that may be constructed or
repaired within them, and issue permits for the creation or repair thereof, charging a fee which shall be
determined by the municipal council and which shall not be less than two pesos for each building permit and one
peso for each repair permit issued. The fees collected under the provisions of this subsection shall accrue to the
municipal school fund.

Under the provisions of the section above quoted, however, the power of the municipal council to require the issuance of
building permits rests upon its first establishing fire limits in populous parts of the town and prescribing the kinds of
buildings that may be constructed or repaired within them. As there is absolutely no showing in this case that the
municipal council had either established fire limits within the municipality or set standards for the kind or kinds of
buildings to be constructed or repaired within them before it passed the ordinance in question, it is clear that said
ordinance was not conceived and promulgated under the express authority of sec. 2243 (c) aforequoted.

We rule that the regulation in question, Municipal Ordinance No. 7, Series of 1950, of the Municipality of Baao, Camarines
Sur, was beyond the authority of said municipality to enact, and is therefore null and void. Hence, the conviction of herein
appellants is reversed, and said accused are acquitted, with costs de oficio. So ordered.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Endencia and Felix, JJ., concur.

THIRD DIVISION

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review 1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and July
10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City
of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.4 It
is tasked to undertake the "development of hydroelectric generations of power and the production of electricity from
nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain
power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and
supplying such power to the inhabitants. 6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax
assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall
devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of
the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products
used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the
assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13Respondent
alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160, 14 which reads
as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is
a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No.
7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative
intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly
and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A
declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number
or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied
repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled
rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to
have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not
repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify
or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned
Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs.
Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares
of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to
this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the
total electrification of the Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives of the nations which
shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its
 financial institutions.' (underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would
be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which
is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts
resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not
impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to sections
137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the petitioner to pay
the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on
gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in
all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied by
the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing
power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may
not impliedly repeal the NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the
effect that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations except local water districts xxx are hereby
withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION,
IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF TAXES
HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER
LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER
THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE." 21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an
annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein."
(emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees,
and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality
by not more than fifty percent (50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city
government to private entities that are engaged in trade or occupation for profit. 22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred
upon private persons or corporations, under such terms and conditions as the government and its political subdivisions
may impose in the interest of the public welfare, security and safety." From the phraseology of this provision, the
petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the
term "franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and to
private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise
tax in question.

On the other hand, section 131 (d) of the LGC defines " business" as "trade or commercial activity regularly engaged in as
means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as
its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation
of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may not be taxed by the
respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation 26where this
Court held that local governments have no power to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places
it in the category of an agency or instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere local government.

'The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'

This doctrine emanates from the 'supremacy' of the National Government over local governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even seriously burden it from accomplishment of them .' (Antieau, Modern Constitutional Law, Vol. 2, p.
140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as ' a tool regulation' ( U.S. v.
Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' ( Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to
wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified
impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as
much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in
statutory construction that the enactment of a later legislation which is a general law cannot be construed to
have repealed a special law. Where there is a conflict between a general law and a special statute, the special
statute should prevail since it evinces the legislative intent more clearly than the general statute." 28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC.
It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the
power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of
the power to tax emanates from necessity;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. 33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, 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 34 pursuant to Article X, section 5 of
the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, 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."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that
will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term,
salaries, powers and functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, 37 the Local
Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40 Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies. 41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such
as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does
not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies
of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the 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:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of
the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions
of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real
property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down
in section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and
charges of any kind on the national government, its agencies and instrumentalities, and local government units';
however, pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose
the real property tax except on, inter alia, 'real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise, to a
taxable person as provided in the item (a) of the first paragraph of section 12.'" 47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to
impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens
of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the corporation
itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary
or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a
public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used,
a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted
by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its property 54 or its
income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this context that the
phrase "tax on businesses enjoying a franchise " in section 137 of the LGC should be interpreted and understood. Verily,
to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur:
(1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights
or privileges under this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition, capitalization,
the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes
specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons
owning or interested in waters which are or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels
intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected
or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing hydraulic
power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of
electric power; to establish, develop, operate, maintain and administer power and lighting systems for the
transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2)
city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise
holders, and (5) real estate subdivisions x x x;
 (h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property
incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be
sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall
be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration
and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of
the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration
and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural
resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly
was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry. Although Exec.
Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the transmission of
electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction
pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly
owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue
and be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code. 62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner
is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled corporations
(GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing

governmental or proprietary functions, which is directly chartered by special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute
obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of
advancing the general interest of society, and are merely optional on the government. 64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS),
and the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do
not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit
imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph
companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice
plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at
advancing the general interest of society. 67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of
its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds
subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is
that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its
operation, for expansion"70 while other franchise holders have the option to distribute their profits to its stockholders by
declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions. 71 In the case at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However,
section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private
and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general,
repeal of all statutes granting tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. 73 Not being a local water
district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other special law ." This particular provision of the LGC does not
admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of
franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila
Electric Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the
franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their
position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other
special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise
provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions,
are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.
 In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing
tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit
may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic)
Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since
it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special
tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used."76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax
exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise
tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not
intend to exempt the petitioner from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations
and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

EN BANC

CHAMBER OF REAL G.R. No. 160756

ESTATE AND BUILDERS
ASSOCIATIONS, INC.,
Petitioner, Present:
PUNO, C.J.,

CARPIO,

CORONA,

CARPIO MORALES,

VELASCO, JR.,
NACHURA,
- v e r s u s - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ and
MENDOZA, JJ.

THE HON. EXECUTIVE

SECRETARY ALBERTO ROMULO,
THE HON. ACTING SECRETARY OF
FINANCE JUANITA D. AMATONG,
and THE HON. COMMISSIONER OF
INTERNAL REVENUE GUILLERMO
PARAYNO, JR.,
Respondents. Promulgated:
 March 9, 2010

x-------------------------------------------------x

DECISION

CORONA, J.:

In this original petition for certiorari and mandamus,[1] petitioner Chamber of Real Estate and Builders Associations, Inc. is

questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 [2] and the revenue regulations (RRs) issued

by the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable withholding taxes. [3]

Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive

Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal

Revenue Guillermo Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable

withholding tax (CWT) on sales of real properties classified as ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. Petitioner

argues that the MCIT violates the due process clause because it levies income tax even if there is no realized gain.

Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii)

and (c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real

properties categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two

reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second,

respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross selling price or

fair market value of the real properties classified as ordinary assets.

Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause

because, like the MCIT, the government collects income tax even when the net income has not yet been determined.

They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not

on other business enterprises, more particularly those in the manufacturing sector.

The issues to be resolved are as follows:

(1) whether or not this Court should take cognizance of the present case;
 (2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and

(3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary assets

under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.

OVERVIEW OF THE ASSAILED PROVISIONS

Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of

its gross income when such MCIT is greater than the normal corporate income tax imposed under Section 27(A). [4] If the

regular income tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the

normal tax shall be carried forward and credited against the normal income tax for the three immediately succeeding

taxable years. Section 27(E) of RA 8424 provides:

Section 27 (E). [MCIT] on Domestic Corporations. -

(1) Imposition of Tax. A [MCIT] of two percent (2%) of the gross income as of the end of
the taxable year, as defined herein, is hereby imposed on a corporation taxable under this
Title, beginning on the fourth taxable year immediately following the year in which such
corporation commenced its business operations, when the minimum income tax is greater
than the tax computed under Subsection (A) of this Section for the taxable year.

(2) Carry Forward of Excess Minimum Tax. Any excess of the [MCIT] over the normal income
tax as computed under Subsection (A) of this Section shall be carried forward and credited
against the normal income tax for the three (3) immediately succeeding taxable years.

(3) Relief from the [MCIT] under certain conditions. The Secretary of Finance is hereby
authorized to suspend the imposition of the [MCIT] on any corporation which suffers losses
on account of prolonged labor dispute, or because of force majeure, or because of
legitimate business reverses.

The Secretary of Finance is hereby authorized to promulgate, upon recommendation

of the Commissioner, the necessary rules and regulations that shall define the terms and
conditions under which he may suspend the imposition of the [MCIT] in a meritorious case.

(4) Gross Income Defined. For purposes of applying the [MCIT] provided under Subsection
(E) hereof, the term gross income shall mean gross sales less sales returns, discounts and
allowances and cost of goods sold. Cost of goods sold shall include all business expenses
directly incurred to produce the merchandise to bring them to their present location and
use.

For trading or merchandising concern, cost of goods sold shall include the invoice
cost of the goods sold, plus import duties, freight in transporting the goods to the place
where the goods are actually sold including insurance while the goods are in transit.

For a manufacturing concern, cost of goods manufactured and sold shall include all
costs of production of finished goods, such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring
the raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service, gross income means gross
receipts less sales returns, allowances, discounts and cost of services. Cost of services shall
 mean all direct costs and expenses necessarily incurred to provide the services required by
the customers and clients including (A) salaries and employee benefits of personnel,
consultants and specialists directly rendering the service and (B) cost of facilities directly
utilized in providing the service such as depreciation or rental of equipment used and cost of
supplies: Provided, however, that in the case of banks, cost of services shall include interest
expense.

On August 25, 1998, respondent Secretary of Finance (Secretary), on the recommendation of the Commissioner of

Internal Revenue (CIR), promulgated RR 9-98 implementing Section 27(E).[5] The pertinent portions thereof read:

Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. A [MCIT] of two percent (2%) of the gross income as of the end of
the taxable year (whether calendar or fiscal year, depending on the accounting period
employed) is hereby imposed upon any domestic corporation beginning the fourth (4 th)
taxable year immediately following the taxable year in which such corporation commenced
its business operations. The MCIT shall be imposed whenever such corporation has zero or
negative taxable income or whenever the amount of minimum corporate income tax is
greater than the normal income tax due from such corporation.

For purposes of these Regulations, the term, normal income tax means the income
tax rates prescribed under Sec. 27(A) and Sec. 28(A)(1) of the Code xxx at 32% effective
January 1, 2000 and thereafter.

xxx xxx xxx

(2) Carry forward of excess [MCIT]. Any excess of the [MCIT] over the normal income tax as
computed under Sec. 27(A) of the Code shall be carried forward on an annual basis and
credited against the normal income tax for the three (3) immediately succeeding taxable
years.

xxx xxx xxx

Meanwhile, on April 17, 1998, respondent Secretary, upon recommendation of respondent CIR, promulgated RR 2-98

implementing certain provisions of RA 8424 involving the withholding of taxes. [6] Under Section 2.57.2(J) of RR No. 2-98,

income payments from the sale, exchange or transfer of real property, other than capital assets, by persons residing in

the Philippines and habitually engaged in the real estate business were subjected to CWT:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner
for the sale, exchange or transfer of. Real property, other than capital assets, sold by an individual,
corporation, estate, trust, trust fund or pension fund and the seller/transferor is habitually engaged in the
real estate business in accordance with the following schedule
Those which are exempt from a
withholding tax at source as
prescribed in Sec. 2.57.5 of these
regulations. Exempt

With a selling price of five hundred

thousand pesos (P500,000.00) or
less. 1.5% xxx xxx xxx

With a selling price of more than five Gross selling price shall mean
hundred thousand pesos the consideration stated in the
(P500,000.00) but not more than two sales document or the fair
million pesos (P2,000,000.00). market value determined in
3.0% accordance with Section 6 (E)
of the Code, as amended,
With selling price of more than two whichever is higher. In an
million pesos (P2,000,000.00) exchange, the fair market value
5.0% of the property received in
exchange, as determined in the
Income Tax Regulations shall be used.

Where the consideration or part thereof is payable on installment, no withholding tax is required to be
made on the periodic installment payments where the buyer is an individual not engaged in trade or
business. In such a case, the applicable rate of tax based on the entire consideration shall be withheld on
the last installment or installments to be paid to the seller.

However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax shall
be deducted and withheld by the buyer on every installment.

This provision was amended by RR 6-2001 on July 31, 2001:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange or transfer of real property classified as ordinary asset. -
A [CWT] based on the gross selling price/total amount of consideration or the fair market
value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to
the seller/owner for the sale, transfer or exchange of real property, other than capital asset,
shall be imposed upon the withholding agent,/buyer, in accordance with the following
schedule:

Where the seller/transferor is exempt from [CWT]

in accordance with Sec. 2.57.5 of these
regulations. Exempt

Upon the following values of real property, where

the seller/transferor is habitually engaged in the
real estate business.

With a selling price of Five Hundred Thousand

Pesos (P500,000.00) or less. 1.5%

With a selling price of more than Five Hundred

Thousand Pesos (P500,000.00) but not more than
Two Million Pesos (P2,000,000.00).
3.0%

With a selling price of more than two Million

Pesos (P2,000,000.00). 5.0%
xxx xxx xxx

Gross selling price shall remain the consideration stated in the sales document or the fair market
value determined in accordance with Section 6 (E) of the Code, as amended, whichever is higher. In an
exchange, the fair market value of the property received in exchange shall be considered as the
consideration.

xxx xxx xxx

 However, if the buyer is engaged in trade or business, whether a corporation or otherwise, these
rules shall apply:

(i) If the sale is a sale of property on the installment plan (that is, payments in the year
of sale do not exceed 25% of the selling price), the tax shall be deducted and withheld
by the buyer on every installment.

(ii) If, on the other hand, the sale is on a cash basis or is a deferred-payment sale not
on the installment plan (that is, payments in the year of sale exceed 25% of the selling
price), the buyer shall withhold the tax based on the gross selling price or fair market
value of the property, whichever is higher, on the first installment.

In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the
[CWT] due on the sale, transfer or exchange of real property other than capital asset has been fully
paid. (Underlined amendments in the original)

Section 2.58.2 of RR 2-98 implementing Section 58(E) of RA 8424 provides that any sale, barter or exchange

subject to the CWT will not be recorded by the Registry of Deeds until the CIR has certified that such transfers and

conveyances have been reported and the taxes thereof have been duly paid: [7]

Sec. 2.58.2. Registration with the Register of Deeds. Deeds of conveyances of land or land and
building/improvement thereon arising from sales, barters, or exchanges subject to the creditable
expanded withholding tax shall not be recorded by the Register of Deeds unless the [CIR] or his duly
authorized representative has certified that such transfers and conveyances have been reported and the
expanded withholding tax, inclusive of the documentary stamp tax, due thereon have been fully paid
xxxx.

On February 11, 2003, RR No. 7-2003[8] was promulgated, providing for the guidelines in determining whether a

particular real property is a capital or an ordinary asset for purposes of imposing the MCIT, among others. The pertinent

portions thereof state:

Section 4. Applicable taxes on sale, exchange or other disposition of real property. -
Gains/Income derived from sale, exchange, or other disposition of real properties shall, unless
otherwise exempt, be subject to applicable taxes imposed under the Code, depending on
whether the subject properties are classified as capital assets or ordinary assets;

a. In the case of individual citizen (including estates and trusts), resident aliens, and
non-resident aliens engaged in trade or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as ordinary
assets, shall be subject to the [CWT] (expanded) under Sec. 2.57..2(J) of [RR
2-98], as amended, based on the gross selling price or current fair market value
as determined in accordance with Section 6(E) of the Code, whichever is higher,
and consequently, to the ordinary income tax imposed under Sec. 24(A)(1)(c)
or 25(A)(1) of the Code, as the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

xxx xxx xxx

 (ii) The sale of land and/or building classified as ordinary asset and other real property
(other than land and/or building treated as capital asset), regardless of the classification
thereof, all of which are located in the Philippines, shall be subject to the [CWT]
(expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended, and consequently, to the
ordinary income tax under Sec. 27(A) of the Code. In lieu of the ordinary income tax,
however, domestic corporations may become subject to the [MCIT] under Sec. 27(E) of
the Code, whichever is applicable.

xxx xxx xxx

We shall now tackle the issues raised.

EXISTENCE OF A JUSTICIABLE CONTROVERSY

Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied: (1)

there must be an actual case calling for the exercise of judicial review; (2) the question before the court must be ripe for

adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question of

constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality must be the

very lis mota of the case.[9]

Respondents aver that the first three requisites are absent in this case. According to them, there is no actual case

calling for the exercise of judicial power and it is not yet ripe for adjudication because

[petitioner] did not allege that CREBA, as a corporate entity, or any of its members, has been assessed
by the BIR for the payment of [MCIT] or [CWT] on sales of real property. Neither did petitioner allege
that its members have shut down their businesses as a result of the payment of the MCIT or
CWT. Petitioner has raised concerns in mere abstract and hypothetical form without any actual, specific
and concrete instances cited that the assailed law and revenue regulations have actually and adversely
affected it.Lacking empirical data on which to base any conclusion, any discussion on the constitutionality
of the MCIT or CWT on sales of real property is essentially an academic exercise.

Perceived or alleged hardship to taxpayers alone is not an adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not
really settle legal issues.[10]

An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal claims which is

susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute. [11] On the other

hand, a question is considered ripe for adjudication when the act being challenged has a direct adverse effect on the

individual challenging it.[12]

Contrary to respondents assertion, we do not have to wait until petitioners members have shut down their

operations as a result of the MCIT or CWT. The assailed provisions are already being implemented. As we stated

in Didipio Earth-Savers Multi-Purpose Association, Incorporated (DESAMA) v. Gozun:[13]

 By the mere enactment of the questioned law or the approval of the challenged act, the dispute
is said to have ripened into a judicial controversy even without any other overt act. Indeed, even a
singular violation of the Constitution and/or the law is enough to awaken judicial duty. [14]

If the assailed provisions are indeed unconstitutional, there is no better time than the present to settle such question

once and for all.

Respondents next argue that petitioner has no legal standing to sue:

Petitioner is an association of some of the real estate developers and builders in the
Philippines. Petitioners did not allege that [it] itself is in the real estate business. It did not allege any
material interest or any wrong that it may suffer from the enforcement of [the assailed provisions].[15]

Legal standing or locus standi is a partys personal and substantial interest in a case such that it has sustained or

will sustain direct injury as a result of the governmental act being challenged. [16] In Holy Spirit Homeowners Association,

Inc. v. Defensor,[17] we held that the association had legal standing because its members stood to be injured by the

enforcement of the assailed provisions:

Petitioner association has the legal standing to institute the instant petition xxx. There is no
dispute that the individual members of petitioner association are residents of the NGC. As such they are
covered and stand to be either benefited or injured by the enforcement of the IRR, particularly as regards
the selection process of beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner
association may assail those provisions in the IRR which it believes to be unfavorable to the rights of its
members. xxx Certainly, petitioner and its members have sustained direct injury arising from the
enforcement of the IRR in that they have been disqualified and eliminated from the selection process. [18]

In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an

actual case, ripeness or legal standing when paramount public interest is involved. [19] The questioned MCIT and CWT

affect not only petitioners but practically all domestic corporate taxpayers in our country. The transcendental importance

of the issues raised and their overreaching significance to society make it proper for us to take cognizance of this

petition.[20]

CONCEPT AND RATIONALE OF THE MCIT

The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It

came about as a result of the perceived inadequacy of the self-assessment system in capturing the true income of

corporations.[21] It was devised as a relatively simple and effective revenue-raising instrument compared to the normal

income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make some minimum

contribution to the support of the public sector. The congressional deliberations on this are illuminating:

Senator Enrile. Mr. President, we are not unmindful of the practice of certain corporations of reporting
constantly a loss in their operations to avoid the payment of taxes, and thus avoid sharing in the cost of
government. In this regard, the Tax Reform Act introduces for the first time a new concept called the
 [MCIT] so as to minimize tax evasion, tax avoidance, tax manipulation in the country and for
administrative convenience. This will go a long way in ensuring that corporations will pay their just share
in supporting our public life and our economic advancement.[22]

Domestic corporations owe their corporate existence and their privilege to do business to the government. They

also benefit from the efforts of the government to improve the financial market and to ensure a favorable business

climate. It is therefore fair for the government to require them to make a reasonable contribution to the public expenses.

Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report

minimal or negative net income resulting in minimal or zero income taxes year in and year out, through under-declaration

of income or over-deduction of expenses otherwise called tax shelters.[23]

Mr. Javier (E.) [This] is what the Finance Dept. is trying to remedy, that is why they have proposed the
[MCIT]. Because from experience too, you have corporations which have been losing year in and year out
and paid no tax. So, if the corporation has been losing for the past five years to ten years, then that
corporation has no business to be in business. It is dead. Why continue if you are losing year in and year
out? So, we have this provision to avoid this type of tax shelters, Your Honor.[24]

The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses after

operations of a corporation or consistent reports of minimal net income render its financial statements and its tax

payments suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed in our

jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and

minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other

stratagems. Since the tax base was broader, the tax rate was lowered.

To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:

First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital

expenditures, the imposition of the MCIT commences only on the fourth taxable year immediately following the year in

which the corporation commenced its operations.[25] This grace period allows a new business to stabilize first and make its

ventures viable before it is subjected to the MCIT.[26]

Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which

shall be credited against the normal income tax for the three immediately succeeding years. [27]

Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of

Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force

majeureand legitimate business reverses.[28]

Even before the legislature introduced the MCIT to the Philippine taxation system, several other countries already

had their own system of minimum corporate income taxation. Our lawmakers noted that most developing countries,

particularly Latin American and Asian countries, have the same form of safeguards as we do. As pointed out during the

committee hearings:
 [Mr. Medalla:] Note that most developing countries where you have of course quite a bit of room for
underdeclaration of gross receipts have this same form of safeguards.

In the case of Thailand, half a percent (0.5%), theres a minimum of income tax of half a percent (0.5%)
of gross assessable income. In Korea a 25% of taxable income before deductions and exemptions. Of
course the different countries have different basis for that minimum income tax.

The other thing youll notice is the preponderance of Latin American countries that employed this
method. Okay, those are additional Latin American countries.[29]

At present, the United States of America, Mexico, Argentina, Tunisia, Panama and Hungary have their own versions of the

MCIT.[30]

MCIT IS NOT VIOLATIVE OF DUE PROCESS

Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive,

arbitrary and confiscatory which amounts to deprivation of property without due process of law. It explains that gross

income as defined under said provision only considers the cost of goods sold and other direct expenses; other major

expenditures, such as administrative and interest expenses which are equally necessary to produce gross income, were

not taken into account.[31] Thus, pegging the tax base of the MCIT to a corporations gross income is tantamount to a

confiscation of capital because gross income, unlike net income, is not realized gain. [32]

We disagree.

Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The

exercise of taxing power derives its source from the very existence of the State whose social contract with its citizens

obliges it to promote public interest and the common good.[33]

Taxation is an inherent attribute of sovereignty.[34] It is a power that is purely legislative.[35] Essentially, this

means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate),

coverage (subjects) and situs (place) of taxation. [36] It has the authority to prescribe a certain tax at a specific rate for a

particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to

define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it

shall be imposed and where it shall be imposed.

As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so

that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the

tax) to its constituency who are to pay it. [37] Nevertheless, it is circumscribed by constitutional limitations. At the same

time, like any other statute, tax legislation carries a presumption of constitutionality.
 The constitutional safeguard of due process is embodied in the fiat [no] person shall be deprived of life, liberty or

property without due process of law. In Sison, Jr. v. Ancheta, et al.,[38] we held that the due process clause may properly

be invoked to invalidate, in appropriate cases, a revenue measure [39] when it amounts to a confiscation of

property.[40] But in the same case, we also explained that we will not strike down a revenue measure as unconstitutional

(for being violative of the due process clause) on the mere allegation of arbitrariness by the taxpayer. [41] There must be a

factual foundation to such an unconstitutional taint. [42] This merely adheres to the authoritative doctrine that, where the

due process clause is invoked, considering that it is not a fixed rule but rather a broad standard, there is a need for proof

of such persuasive character.[43]

Petitioner is correct in saying that income is distinct from capital. [44] Income means all the wealth which flows into

the taxpayer other than a mere return on capital. Capital is a fund or property existing at one distinct point in time while

income denotes a flow of wealth during a definite period of time. [45] Income is gain derived and severed from

capital.[46] For income to be taxable, the following requisites must exist:

(1) there must be gain;

(2) the gain must be realized or received and

(3) the gain must not be excluded by law or treaty from

taxation.[47]

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is

income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital.

The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the

sale of its goods, i.e., the cost of goods[48] and other direct expenses from gross sales. Clearly, the capital is not being

taxed.

Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if

the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a

corporation, pegging the rate at a very much reduced 2% and uses as the base the corporations gross income.

Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the

same time reducing the applicable tax rate.[49]

Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are
found in many jurisdictions. Tax thereon is generally held to be within the power of a state to impose; or
constitutional, unless it interferes with interstate commerce or violates the requirement as to uniformity
of taxation.[50]

The United States has a similar alternative minimum tax (AMT) system which is generally characterized by a

lower tax rate but a broader tax base.[51] Since our income tax laws are of American origin, interpretations by American
courts of our parallel tax laws have persuasive effect on the interpretation of these laws. [52] Although our MCIT is not

exactly the same as the AMT, the policy behind them and the procedure of their implementation are comparable. On the

question of the AMTs constitutionality, the United States Court of Appeals for the Ninth Circuit stated in Okin v.

Commissioner:[53]

In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system
growing from large numbers of taxpayers with large incomes who were yet paying no taxes.

xxx xxx xxx

We thus join a number of other courts in upholding the constitutionality of the [AMT]. xxx [It] is a
rational means of obtaining a broad-based tax, and therefore is constitutional.[54]

The U.S. Court declared that the congressional intent to ensure that corporate taxpayers would contribute a minimum

amount of taxes was a legitimate governmental end to which the AMT bore a reasonable relation. [55]

American courts have also emphasized that Congress has the power to condition, limit or deny deductions from gross

income in order to arrive at the net that it chooses to tax. [56] This is because deductions are a matter of legislative

grace.[57]

Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the

MCIT, taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.

Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor does

it present empirical data to show that the implementation of the MCIT resulted in the confiscation of their property.

In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and

confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes. [58] Taxation is

necessarily burdensome because, by its nature, it adversely affects property rights. [59] The party alleging the laws

unconstitutionality has the burden to demonstrate the supposed violations in understandable terms. [60]

RR 9-98 MERELY CLARIFIES

SECTION 27(E) OF RA 8424

Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is being

imposed and collected even when there is actually a loss, or a zero or negative taxable income:
Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. xxx The MCIT shall be imposed whenever such corporation has zero or
negative taxable income or whenever the amount of [MCIT] is greater than the normal income tax
due from such corporation. (Emphasis supplied)
 RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or negative taxable

income, merely defines the coverage of Section 27(E). This means that even if a corporation incurs a net loss in its

business operations or reports zero income after deducting its expenses, it is still subject to an MCIT of 2% of its gross

income. This is consistent with the law which imposes the MCIT on gross income notwithstanding the amount of the net

income. But the law also states that the MCIT is to be paid only if it is greater than the normal net income. Obviously, it

may well be the case that the MCIT would be less than the net income of the corporation which posts a zero or negative

taxable income.

We now proceed to the issues involving the CWT.

The withholding tax system is a procedure through which taxes (including income taxes) are collected. [61] Under

Section 57 of RA 8424, the types of income subject to withholding tax are divided into three categories: (a) withholding

of final tax on certain incomes; (b) withholding of creditable tax at source and (c) tax-free covenant bonds. Petitioner is

concerned with the second category (CWT) and maintains that the revenue regulations on the collection of CWT on sale

of real estate categorized as ordinary assets are unconstitutional.

Petitioner, after enumerating the distinctions between capital and ordinary assets under RA 8424, contends that

Sections 2.57.2(J) and 2.58.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated with grave

abuse of discretion amounting to lack of jurisdiction and patently in contravention of law [62] because they ignore such

distinctions. Petitioners conclusion is based on the following premises: (a) the revenue regulations use gross selling price

(GSP) or fair market value (FMV) of the real estate as basis for determining the income tax for the sale of real estate

classified as ordinary assets and (b) they mandate the collection of income tax on a per transaction basis, i.e., upon

consummation of the sale via the CWT, contrary to RA 8424 which calls for the payment of the net income at the end of

the taxable period.[63]

Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets differently, respondents cannot

disregard the distinctions set by the legislators as regards the tax base, modes of collection and payment of taxes on

income from the sale of capital and ordinary assets.

Petitioners arguments have no merit.

AUTHORITY OF THE SECRETARY OF FINANCE TO ORDER THE

COLLECTION OF CWT ON SALES OF REAL PROPERTY

CONSIDERED AS ORDINARY ASSETS

The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary

rules and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation
that the rules and regulations must not override, but must remain consistent and in harmony with, the law they seek to

apply and implement.[64] It is well-settled that an administrative agency cannot amend an act of Congress. [65]

We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is

sanctioned by our tax laws.[66] The withholding tax system was devised for three primary reasons: first, to provide the

taxpayer a convenient manner to meet his probable income tax liability; second, to ensure the collection of income tax

which can otherwise be lost or substantially reduced through failure to file the corresponding returns and third, to

improve the governments cash flow.[67] This results in administrative savings, prompt and efficient collection of taxes,

prevention of delinquencies and reduction of governmental effort to collect taxes through more complicated means and

remedies.[68]

Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any

person, national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424 which

provides:

SEC. 57. Withholding of Tax at Source.

xxx xxx xxx

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the recommendation
of the [CIR], require the withholding of a tax on the items of income payable to natural or
juridical persons, residing in the Philippines, by payor-corporation/persons as provided for
by law, at the rate of not less than one percent (1%) but not more than thirty-two percent
(32%) thereof, which shall be credited against the income tax liability of the taxpayer for
the taxable year.

The questioned provisions of RR 2-98, as amended, are well within the authority given by Section 57(B) to the

Secretary, i.e., the graduated rate of 1.5%-5% is between the 1%-32% range; the withholding tax is imposed on the

income payable and the tax is creditable against the income tax liability of the taxpayer for the taxable year.

EFFECT OF RRS ON THE TAX BASE FOR THE INCOME TAX OF

INDIVIDUALS OR CORPORATIONS ENGAGED IN THE REAL

ESTATE BUSINESS

Petitioner maintains that RR 2-98, as amended, arbitrarily shifted the tax base of a real estate business income tax from

net income to GSP or FMV of the property sold.

Petitioner is wrong.

The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax

obligation. [69] They are installments on the annual tax which may be due at the end of the taxable year.[70]
 Under RR 2-98, the tax base of the income tax from the sale of real property classified as ordinary assets remains

to be the entitys net income imposed under Section 24 (resident individuals) or Section 27 (domestic corporations) in

relation to Section 31 of RA 8424, i.e. gross income less allowable deductions. The CWT is to be deducted from the net

income tax payable by the taxpayer at the end of the taxable year. [71] Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-2003

reiterate that the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income:

Section 4. Applicable taxes on sale, exchange or other disposition of real property . - Gains/Income
derived from sale, exchange, or other disposition of real properties shall unless otherwise exempt, be
subject to applicable taxes imposed under the Code, depending on whether the subject properties are
classified as capital assets or ordinary assets;

xxx xxx xxx

a. In the case of individual citizens (including estates and trusts), resident aliens, and non-
resident aliens engaged in trade or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject
to the [CWT] (expanded) under Sec. 2.57.2(j) of [RR 2-98], as amended, based on the [GSP] or current
[FMV] as determined in accordance with Section 6(E) of the Code, whichever is higher, and
consequently, to the ordinary income tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of the
Code, as the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

The sale of land and/or building classified as ordinary asset and other real property (other than land
and/or building treated as capital asset), regardless of the classification thereof, all of which are located
in the Philippines, shall be subject to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as
amended, and consequently, to the ordinary income tax under Sec. 27(A) of the Code. In lieu of
the ordinary income tax, however, domestic corporations may become subject to the [MCIT] under Sec.
27(E) of the same Code, whichever is applicable. (Emphasis supplied)

Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld (by

the withholding agent/buyer) against its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall

pay the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a

refund or tax credit. Undoubtedly, the taxpayer is taxed on its net income.

The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and

convenience. Obviously, the withholding agent/buyer who is obligated to withhold the tax does not know, nor is he privy

to, how much the taxpayer/seller will have as its net income at the end of the taxable year. Instead, said withholding

agents knowledge and privity are limited only to the particular transaction in which he is a party. In such a case, his basis

can only be the GSP or FMV as these are the only factors reasonably known or knowable by him in connection with the

performance of his duties as a withholding agent.

NO BLURRING OF DISTINCTIONS BETWEEN ORDINARY

ASSETS AND CAPITAL ASSETS

RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property categorized as ordinary

assets. On the other hand, Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on the gain presumed to

be realized from the sale of a capital asset based on its GSP or FMV. This final tax is also withheld at source.[72]

The differences between the two forms of withholding tax, i.e., creditable and final, show that ordinary assets are

not treated in the same manner as capital assets. Final withholding tax (FWT) and CWT are distinguished as follows:

FWT CWT
a) The amount of income tax a) Taxes withheld on certain income
withheld by the withholding agent is payments are intended to equal or at
constituted as a full and final least approximate the tax due of the
payment of the income tax due from payee on said income.
the payee on the said income.

b)The liability for payment of the tax b) Payee of income is required to

rests primarily on the payor as a
withholding agent.
c) The payee is not required to file
an income tax return for the
particular income.[73]
report the income and/or pay the
difference between the tax withheld
and the tax due on the income. The
payee also has the right to ask for a
refund if the tax withheld is more than
the tax due.
c) The income recipient is still required
to file an income tax return, as
prescribed in Sec. 51 and Sec. 52 of
the NIRC, as amended.[74]

As previously stated, FWT is imposed on the sale of capital assets. On the other hand, CWT is imposed on the sale of

ordinary assets. The inherent and substantial differences between FWT and CWT disprove petitioners contention that

ordinary assets are being lumped together with, and treated similarly as, capital assets in contravention of the pertinent

provisions of RA 8424.

Petitioner insists that the levy, collection and payment of CWT at the time of transaction are contrary to the

provisions of RA 8424 on the manner and time of filing of the return, payment and assessment of income tax involving

ordinary assets.[75]

The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way as

capital gains. As aforementioned, the mechanics of the FWT are distinct from those of the CWT. The withholding

agent/buyers act of collecting the tax at the time of the transaction by withholding the tax due from the income payable

is the essence of the withholding tax method of tax collection.

NO RULE THAT ONLY PASSIVE

INCOMES CAN BE SUBJECT TO CWT

 Petitioner submits that only passive income can be subjected to withholding tax, whether final or

creditable. According to petitioner, the whole of Section 57 governs the withholding of income tax on passive income. The

enumeration in Section 57(A) refers to passive income being subjected to FWT. It follows that Section 57(B) on CWT

should also be limited to passive income:

SEC. 57. Withholding of Tax at Source.

(A) Withholding of Final Tax on Certain Incomes. Subject to rules and regulations, the [Secretary] may
promulgate, upon the recommendation of the [CIR], requiring the filing of income tax return by certain
income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1);
25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5);
28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3),
28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items
of income shall be withheld by payor-corporation and/or person and paid in the same manner and
subject to the same conditions as provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the recommendation of the
[CIR], require the withholding of a tax on the items of income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate
of not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which shall be
credited against the income tax liability of the taxpayer for the taxable year. (Emphasis supplied)

This line of reasoning is non sequitur.

Section 57(A) expressly states that final tax can be imposed on certain kinds of income and enumerates these as

passive income. The BIR defines passive income by stating what it is not:

if the income is generated in the active pursuit and performance of the corporations primary
purposes, the same is not passive income[76]

It is income generated by the taxpayers assets. These assets can be in the form of real properties that return rental

income, shares of stock in a corporation that earn dividends or interest income received from savings.

On the other hand, Section 57(B) provides that the Secretary can require a CWT on income payable to natural or

juridical persons, residing in the Philippines. There is no requirement that this income be passive income. If that were the

intent of Congress, it could have easily said so.

Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to FWT while Section 57(B) pertains to CWT. The former

covers the kinds of passive income enumerated therein and the latter encompasses any income other than those listed in

57(A). Since the law itself makes distinctions, it is wrong to regard 57(A) and 57(B) in the same way.

To repeat, the assailed provisions of RR 2-98, as amended, do not modify or deviate from the text of Section

57(B). RR 2-98 merely implements the law by specifying what income is subject to CWT. It has been held that, where a

statute does not require any particular procedure to be followed by an administrative agency, the agency may adopt any

reasonable method to carry out its functions.[77] Similarly, considering that the law uses the general term income, the
Secretary and CIR may specify the kinds of income the rules will apply to based on what is feasible. In addition,

administrative rules and regulations ordinarily deserve to be given weight and respect by the courts [78] in view of the rule-

making authority given to those who formulate them and their specific expertise in their respective fields.

NO DEPRIVATION OF PROPERTY

WITHOUT DUE PROCESS

Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives its

members of their property without due process of law because, in their line of business, gain is never assured by mere

receipt of the selling price. As a result, the government is collecting tax from net income not yet gained or earned.

Again, it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the

taxable year. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is taken

that is not due so there is no confiscation of property repugnant to the constitutional guarantee of due process. More

importantly, the due process requirement applies to the power to tax. [79] The CWT does not impose new taxes nor does it

increase taxes.[80] It relates entirely to the method and time of payment.

Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have to

wait years and may even resort to litigation before they are granted a refund. [81] This argument is misleading. The

practical problems encountered in claiming a tax refund do not affect the constitutionality and validity of the CWT as a

method of collecting the tax.

Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor

wages, materials, cost of money and other expenses which can then save the entity from having to obtain loans entailing

considerable interest expense. Petitioner also lists the expenses and pitfalls of the trade which add to the burden of the

realty industry: huge investments and borrowings; long gestation period; sudden and unpredictable interest rate surges;

continually spiraling development/construction costs; heavy taxes and prohibitive up-front regulatory fees from at least 20

government agencies.[82]

Petitioners lamentations will not support its attack on the constitutionality of the CWT. Petitioners complaints are

essentially matters of policy best addressed to the executive and legislative branches of the government. Besides, the

CWT is applied only on the amounts actually received or receivable by the real estate entity. Sales on installment are

taxed on a per-installment basis.[83] Petitioners desire to utilize for its operational and capital expenses money earmarked

for the payment of taxes may be a practical business option but it is not a fundamental right which can be demanded

from the court or from the government.

NO VIOLATION OF EQUAL PROTECTION

Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being levied

only on real estate enterprises. Specifically, petitioner points out that manufacturing enterprises are not similarly imposed

a CWT on their sales, even if their manner of doing business is not much different from that of a real estate

enterprise. Like a manufacturing concern, a real estate business is involved in a continuous process of production and it

incurs costs and expenditures on a regular basis. The only difference is that goods produced by the real estate business

are house and lot units.[84]

Again, we disagree.

The equal protection clause under the Constitution means that no person or class of persons shall be deprived of

the same protection of laws which is enjoyed by other persons or other classes in the same place and in like

circumstances.[85] Stated differently, all persons belonging to the same class shall be taxed alike. It follows that the

guaranty of the equal protection of the laws is not violated by legislation based on a reasonable

classification.Classification, to be valid, must (1) rest on substantial distinctions; (2) be germane to the purpose of the

law; (3) not be limited to existing conditions only and (4) apply equally to all members of the same class. [86]

The taxing power has the authority to make reasonable classifications for purposes of taxation.[87] Inequalities which

result from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation.[88]The real

estate industry is, by itself, a class and can be validly treated differently from other business enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize that what

distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of the CWT, is

not their production processes but the prices of their goods sold and the number of transactions involved. The income

from the sale of a real property is bigger and its frequency of transaction limited, making it less cumbersome for the

parties to comply with the withholding tax scheme.

On the other hand, each manufacturing enterprise may have tens of thousands of transactions with several thousand

customers every month involving both minimal and substantial amounts. To require the customers of manufacturing

enterprises, at present, to withhold the taxes on each of their transactions with their tens or hundreds of suppliers may

result in an inefficient and unmanageable system of taxation and may well defeat the purpose of the withholding tax

system.

Petitioner counters that there are other businesses wherein expensive items are also sold infrequently, e.g. heavy

equipment, jewelry, furniture, appliance and other capital goods yet these are not similarly subjected to the CWT. [89] As

already discussed, the Secretary may adopt any reasonable method to carry out its functions. [90] Under Section 57(B), it

may choose what to subject to CWT.

A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioners argument is not accurate. The sales of

manufacturers who have clients within the top 5,000 corporations, as specified by the BIR, are also subject to CWT for

their transactions with said 5,000 corporations.[91]

SECTION 2.58.2 OF RR NO. 2-98 MERELY IMPLEMENTS

SECTION 58 OF RA 8424

Lastly, petitioner assails Section 2.58.2 of RR 2-98, which provides that the Registry of Deeds should not effect

the regisration of any document transferring real property unless a certification is issued by the CIR that the withholding

tax has been paid. Petitioner proffers hardly any reason to strike down this rule except to rely on its contention that the

CWT is unconstitutional. We have ruled that it is not. Furthermore, this provision uses almost exactly the same wording

as Section 58(E) of RA 8424 and is unquestionably in accordance with it:

Sec. 58. Returns and Payment of Taxes Withheld at Source.

(E) Registration with Register of Deeds . - No registration of any document transferring real
property shall be effected by the Register of Deeds unless the [CIR] or his duly authorized
representative has certified that such transfer has been reported, and the capital gains or
[CWT], if any, has been paid: xxxx any violation of this provision by the Register of Deeds shall be
subject to the penalties imposed under Section 269 of this Code. (Emphasis supplied)

CONCLUSION

The renowned genius Albert Einstein was once quoted as saying [the] hardest thing in the world to understand is the

income tax.[92] When a party questions the constitutionality of an income tax measure, it has to contend not only with

Einsteins observation but also with the vast and well-established jurisprudence in support of the plenary powers of

Congress to impose taxes. Petitioner has miserably failed to discharge its burden of convincing the Court that the

imposition of MCIT and CWT is unconstitutional.

WHEREFORE, the petition is hereby DISMISSED.

Costs against petitioner.

SO ORDERED.

EN BANC

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD
NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex
in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International
Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and buildings
("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved
by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21
of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable
years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No.
061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary
period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental
motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the
Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues of the Philippine
Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the
Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the
City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and
the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the
TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective
Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings
for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service,
the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are
not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the
Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code.
Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act
excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt
from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that the
Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents
further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate
tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all
proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become
moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is

not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties,
movable and immovable[,] which may be contributed by the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of
the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of
the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be
provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-
stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A
non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income
to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as
follows:

SEC. 2. General Terms Defined. x x x x

 (10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, 12 police authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department framework. The MIAA Charter
expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its operation more
"financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate
powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government
entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 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:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that
has to be handled by government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them ." (Antieau, Modern Constitutional Law, Vol. 2,
p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to
wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall
form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road,
the speed restrictions and other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax
is more equitable a principle of taxation mandated in the 1987 Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of
man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works
of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold
because they are by their very nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce
of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to
the public in general. They are outside the commerce of man and cannot be disposed of or even leased by
the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of
an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe
Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to
this day the existing general law governing the classification and disposition of lands of the public domain other than
timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.
 SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until
again declared alienable under the provisions of this Act or by proclamation of the President.
(Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the
State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government . (1) The President
shall have the power to reserve for settlement or public use, and for specific public purposes, any of
the lands of the public domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until otherwise provided by
law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce
of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I
of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless
the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority . x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands
and other appropriate government agencies shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)
 SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and
Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory
notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and
domestic air traffic, is required to provide standards of airport accommodation and service comparable with the
best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the
current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will
best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of
the Philippines is given continuing authority to reorganize the National Government, which authority
includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis
supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in
the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership
rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the
Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and
Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic
paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the
sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to
the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of
the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x x."
The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies
or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to
be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by
the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government.
This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the
Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic
has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax.
In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court
ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code
of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code.
Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the
minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not
just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from
Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) states:

SEC. 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:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133.
The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned
by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193.
(Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to
tax by local governments since the national government is not included in the enumeration of exempt entities in Section
193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national
government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to
any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments
from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical
person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code.
Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This
means that unless the Local Government Code grants an express authorization, local governments have no power to tax
the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax
the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity.
Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property
tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real
estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person,
is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of
the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234
on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that
there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious
error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of
the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters,
there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits
the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133
states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national
government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the
"common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of
local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross
absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise
provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided
in this Code." This exception which is an exception to the exemption of the Republic from real estate tax imposed by
local governments refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real
property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities,
to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative
Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that
the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative
Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by
special charters. The minority sees no reason why government corporations with special charters should have a capital
stock. Thus, the minority declares:
 I submit that the definition of "government-owned or controlled corporations" under the Administrative Code
refer to those corporations owned by the government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends
or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will
also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish
between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The
special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which
shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine
Crop Insurance Corporation,42 Philippine International Trading Corporation, 43 and the Philippine National Bank44 before it
was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized
under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that
they are not government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting
them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or
controlled corporation must be established for the common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through
special charters only if these entities are required to meet the twin conditions of common good and economic viability. In
other words, Congress has no power to create government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial activities and need to
compete in the market place. Being essentially economic vehicles of the State for the common good meaning for
economic development purposes these government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions
need not meet the test of economic viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned
or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as "government-owned or controlled corporations"
must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain
the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the
purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is always invoked is the common
good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the
drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes
the ideas that they must show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not quantifiable in financial terms. 46(Emphasis
supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations,
along with government-owned or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because there is no competing international airport operated
by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the
Philippines. The operation of an international airport requires the presence of personnel from the following government
agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening
out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
 3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the
country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter
or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel,
passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public
services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation"
as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned
or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a
government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned
by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA
are intended for public use, and at the very least intended for public service. Whether intended for public use or public
service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local
Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation
and status of government units, agencies and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government
Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges
of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject
to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports
x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all
the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of
Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale,
and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales,
Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

x-------------------------------------------------------------------------------x

DISSENTING OPINION

TINGA, J. :

The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result a
recognition of the constitutional and statutory power of the City of Paraaque to impose real property taxes on the Manila
International Airport Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of
Paraaque from seizing and conducting an execution sale over the real properties of MIAA. In the end, all that the City of
Paraaque would hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA
properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions applied to this case, it
also leaves the room for negotiation for a mutually acceptable resolution between the City of Paraaque and MIAA.

Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial
precedents left and right in order to protect the precious Ming vase that is the Manila International Airport Authority
(MIAA). While the MIAA is left unscathed, it is surrounded by the wreckage that once was the constitutional policy, duly
enacted into law, that was local autonomy. Make no mistake, the majority has virtually declared war on the seventy nine
(79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the
Philippines.1

The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority opinion.
Decisions of the Supreme Court are expected to provide clarity to the parties and to students of jurisprudence, as to what
the law of the case is, especially when the doctrines of long standing are modified or clarified. With all due respect, the
decision in this case is plainly so, so wrong on many levels. More egregious, in the majority's resolve to spare the Manila
International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule emerges on the important
question of the power of local government units (LGUs) to tax government corporations, instrumentalities or agencies.

The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by recently retired Chief
Justice Davide, which held that the express withdrawal by the Local Government Code of previously granted exemptions
from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the
Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor, 3 a precedent
discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government rule that the Local
Government Code was drafted precisely to counter such philosophy. The efficacy of several rulings that expressly rely on
Mactan, such as PHILRECA v. DILG Secretary,4 City Government of San Pablo v. Hon. Reyes 5 is now put in question.

2) The rulings in National Power Corporation v. City of Cabanatuan,6 wherein the Court, through Justice Puno, declared
that the National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and
succeeding cases that have relied on it such as Batangas Power Corp. v. Batangas City 7 The majority now states that
deems instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of
taxation by LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and
instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d) of the
Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding conclusion that
GOCCs may not be taxed by LGUs under the Local Government Code.

3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the
Philippines may be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly
classified as an instrumentality which the majority now holds as exempt from all forms of local taxation. 10

4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real
property taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local
Government Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the
majority.

5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo, 13 cases penned by
Justices Callejo and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA)
liable for realty taxes, notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot
be considered a GOCC. The reliance of these cases on Mactan, and its rationale for holding governmental entities like the
PPA liable for local government taxation is mooted by the majority.

6) The 1963 precedent of Social Security System Employees Association v. Soriano, 14 which declared the Social Security
Commission (SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the
Social Security System is not a GOCC. Or perhaps more accurately, "no longer" a GOCC.

7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of
Assessment.15 The characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial
endeavor" whose patrimonial property is subject to local taxation is now rendered inconsequential, owing to the
majority's thinking that an entity such as the LRTA is itself exempt from local government taxation16, irrespective of the
functions it performs. Moreover, based on the majority's criteria, LRTA is not a GOCC.

8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v. Court of
Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was similarly engaged in the
operation, administration and management of the Manila International Agency, was engaged in the exercise of
proprietary, as opposed to sovereign functions. The majority would hold otherwise that the property maintained by MIAA
is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions.

9) My own majority in Phividec Industrial Authority v. Capitol Steel,19 wherein the Court held that the Phividec Industrial
Authority, a GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal
representation.20 Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office
of the Government Corporate Counsel extends only to GOCCs.

10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of
Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a general
rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no
longer hold, since "local governments are devoid of power to tax the national government, its agencies and
instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in
jeopardy by the majority's ruling.

There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local government
taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous distinctions between
the exercise of governmental and proprietary functions (a distinction laid down by this Court as far back as 1916 24). What
is the reason offered by the majority for overturning or modifying all these precedents and doctrines? None is given, for
the majority takes comfort instead in the pretense that these precedents never existed. Only children should be permitted
to subscribe to the theory that something bad will go away if you pretend hard enough that it does not exist.
I.

Case Should Have Been Decided

Following Mactan Precedent

The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property taxes under the Local
Government Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply
applying precedent.

Mactan Explained

A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was
exempt from payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of
its charter, Republic Act No. 6958, and its status as an instrumentality of the government performing governmental
functions.25 Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized
by the majority as the basis for MIAA's exemption. Section 133 reads:

Sec. 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

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units. (emphasis and underscoring supplied).

However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies
and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other
relevant provisions of the Local Government Code, particularly the following:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemption or incentives
granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and controlled
corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. 26

SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila area
may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not
hereafter specifically exempted.27

SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person:

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or
educational purposes;

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

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(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 all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.28

Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National
Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But
what was the extent of the limitation under Section 133? This is how the Court, correctly to my mind, defined the
parameters in Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the
exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or
provisos in these sections, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in Section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems
to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course,
the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since
the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were
intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when
levied on banks and other financial institutions"; item (d) which excepts "wharfage on wharves constructed and
maintained by the local government unit concerned"; and item (1) which excepts taxes, fees and charges for the
registration and issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body
itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause
"except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were "Unless otherwise provided in this Code" instead of "Unless otherwise provided
herein." In any event, even if the latter is used, since under Section 232 local government units have the power to levy
real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify
Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and charges
of any kind on the National Government, its agencies and instrumentalities, and local government units"; however,
pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person," as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-
owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter
proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of
such property has been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified
by Sections 232 and 234.29

The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of
local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided"
insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of who owned the property. At the same
time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically
exempted." The exemptions from real property taxes are enumerated in Section 234, which specifically states that only
real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the
payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234. 30

Mactan Overturned the

Precedents Now Relied

Upon by the Majority

But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR, 31 decided before the enactment of the
Local Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in
this wise:

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned
or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National
Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in
the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR
should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.

"The states have no power by taxation or otherwise, to retard impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government." (McCulloch
v. Marland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US
51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activates or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340
US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.32

Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it
interfered with the prerogatives and privileges of the national government. Also consider the following citation from
Maceda v. Macaraig,33 decided the same year as Basco. Discussing the rule of construction of tax exemptions on
government instrumentalities, the sentiments are of a similar vein.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in
favor of a government political subdivision or instrumentality.

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even
more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential
treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies.

In the case of property owned by the state or a city or other public corporations, the express exemption should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to
such property "exemption is the rule and taxation the exception." 34

Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective
from which the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the
enactment of the Local Government Code of 1991.

However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced
in the Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The
majority might have private qualms about the wisdom of the policy of local autonomy, but the members of the Court are
not expected to substitute their personal biases for the legislative will, especially when the 1987 Constitution itself
promotes the principle of local autonomy.

Article II. Declaration of Principles and State Policies

xxx
Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable
local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local units.

xxx

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.

xxx

The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local
Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In
doing so, the language of the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with
the enactment of the Local Government Code:

Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming
Corporation is unavailing since it was decided before the effectivity of the [Local Government Code]. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom.35 (emphasis supplied)

The Court Has Repeatedly

Reaffirmed Mactan Over the

Precedents Now Relied Upon

By the Majority

Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that
instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of
Cabanatuan,36 which was penned by Justice Puno. NPC or Napocor, invoking its continued exemption from payment of
franchise taxes to the City of Cabanatuan, alleged that it was an instrumentality of the National Government which could
not be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about Basco.

xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its
claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National Government was in effect. However, as
this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents
Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions
may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although
an instrumentality of the national government, was subject to real property tax. 37

In the 2003 case of Philippine Ports Authority v. City of Iloilo, 38 the Court, in the able ponencia of Justice Azcuna, affirmed
the levy of realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the
Local Government Code, the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption.

[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein:

The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide
by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause"
remains an exemption to the exercise of the power of local governments to impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case
was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom." The fact that tax
exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from
local taxation.39

Just last month, the Court in National Power Corporation v. Province of Isabela 40 again rejected Basco in emphatic terms.
Held the Court, through Justice Callejo, Sr.:

Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that
the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to
tax instrumentalities of the National Government was in effect. It further explained that in enacting the LGC, Congress
empowered the LGUs to impose certain taxes even on instrumentalities of the National Government.41

The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a decision also penned
by Justice Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at public auction for failure to pay realty
taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or
presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity" of the
Code.43 The Court in the second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the
withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and the objective of
the [Local Government Code] that they enjoy genuine and meaningful local autonomy to enable them to attain their
fullest development as self-reliant communities. . . . "44

Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the
Government Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied
upon as the governing precedent. The removal of the tax exemption stood even though the then GSIS law 46 prohibited
the removal of GSIS' tax exemptions unless the exemption was specifically repealed, "and a provision is enacted to
substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the
fund."47 The Court, citing established doctrines in statutory construction and Duarte v. Dade 48ruled that such proscription
on future legislation was itself prohibited, as "the legislature cannot bind a future legislature to a particular mode of
repeal."49

And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance
System v. City Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous exemption from
real property taxes of the GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the
[GOCC].51

Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court
since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite
of Mactan has been emphatically rejected and declared inconsistent with the Local Government Code.

II.

Majority, in Effectively Overturning Mactan,

Refuses to Say Why Mactan Is Wrong

The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by
the respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that
employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be
obviously deducted from the fact that both petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces
an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under
the Local Government Code.

Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied
murkiness vis--vis the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these
two rulings can stand together. Following basic principles in statutory construction, Mactan will be deemed as giving way
to this new ruling.

However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the relevant
provisions of the Local Government Code is elegant and rational, yet the majority refuses to explain why this reasoning of
the Court in Mactan is erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the
majority believes that Mactan may still stand despite this ruling, it remains silent as to the viable distinctions between
these two cases.
The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible precedent.
Perhaps the majority does not simply know how to dispense with the ruling in Mactan. If Mactan truly deserves to be
discarded as precedent, it deserves a more honorable end than death by amnesia or ignonominous disregard. The
majority could have devoted its discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan
never existed at all. Such an approach might not have won the votes of the minority, but at least it would provide some
degree of intellectual clarity for the parties, LGUs and the national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter would have been possible, enriching the study of law and the
intellectual dynamic of this Court.

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly
situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport.
They are the owners of airport properties they respectively maintain and hold title over these properties in their
name.53 These entities are both owned by the State, and denied by their respective charters the absolute right to dispose
of their properties without prior approval elsewhere.54 Both of them are

not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President.55

III.

Instrumentalities, Agencies

And GOCCs Generally

Liable for Real Property Tax

I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan,
which will further demonstrate why the majority has found it inconvenient to even grapple with the precedent that is
Mactan in the first place.

Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133
is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies
is as provided under Section 234(o), or on "real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."

It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not
even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234
both state, the withdrawal applies to "all persons, including [GOCCs]", thus encompassing the two classes of persons
recognized under our laws, natural persons56 and juridical persons.57

The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key
points. If an entity was previously granted an express exemption from real property taxes in the first place, the obvious
conclusion would be that such entity would ordinarily be liable for such taxes without the exemption. If such entities were
already deemed exempt due to some overarching principle of law, then it would be a redundancy or surplusage to grant
an exemption to an already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from
realty taxes, since it required the enactment of an express exemption from such taxes in its charter.

Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not
taxable persons unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given
short shrift. In arriving at this conclusion, several leaps in reasoning are committed.

Majority's Flawed Definition

of GOCCs.

The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite
grievously, the supposed foundation of this assertion is an adulteration.

The majority gives the impression that a government instrumentality is a distinct concept from a government
corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987,
as follows:

Instrumentality refers to any agency of the National Government not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. xxx59 (emphasis omitted)
However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority
does not show. The portions omitted by the majority are highlighted below:

(10)Instrumentality refers to any agency of the National Government not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered
institutions and governmentowned or controlled corporations.60

Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full:

(4) Agency of the Government refers to any of the various units of the Government, including a department, bureau,
office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein.
(emphasis supplied)61

Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the National
Government. Thus, there actually is no point in the majority's assertion that MIAA is not a GOCC, since based on the
majority's premise of Section 133 as the key provision, the material question is whether MIAA is either an instrumentality,
an agency, or the National Government itself. The very provisions of the Administrative Code provide that a GOCC can be
either an instrumentality or an agency, so why even bother to extensively discuss whether or not MIAA is a GOCC?

Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer, 62 the Supreme Court already
noted that a corporation of which the government is the majority stockholder "remains an agency or instrumentality of
government."63

Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire discussion
of the majority on the definition of a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the
majority on this matter are very dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in
fact, the majority effectively declassifies many entities created and recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters as to the definition of these entities.

Majority Ignores the Power

Of Congress to Legislate and

Define Chartered Corporations

First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or
non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory.
Congress has the undeniable power to create a corporation by legislative charter, and has been doing so throughout
legislative history. There is no constitutional prohibition on Congress as to what structure these chartered corporations
should take on. Clearly, Congress has the prerogative to create a corporation in whatever form it chooses, and it is not
bound by any traditional format. Even if there is a definition of what a corporation is under the Corporation Code or the
Administrative Code, these laws are by no means sacrosanct. It should be remembered that these two statutes fall within
the same level of hierarchy as a congressional charter, since they all are legislative enactments. Certainly, Congress can
choose to disregard either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC,
utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the Corporation
Code or the Administrative Code.

These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of
GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms
Defined," which qualifies:

Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute,
shall require a different meaning: (emphasis supplied)

xxx

Similar in vein is Section 6 of the Corporation Code which provides:

SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (emphasis supplied)

Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity created by Congress is its
legislative charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the
Corporation Code or the Administrative Code seemingly provides otherwise. In case of conflict between the legislative
charter of a government corporation, on one hand, and the Corporate Code and the Administrative Code, on the other,
the former always prevails.
Majority, in Ignoring the

Legislative Charters, Effectively

Classifies Duly Established GOCCs,

With Disastrous and Far Reaching

Legal Consequences

Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the
Corporation Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided
into shares. Neither can it be considered as a non-stock corporation because it has no members, and under Section 87, a
non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers.

This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by
special laws or charters shall be governed primarily by the provisions of the special law or charter, and not the
Corporation Code.

That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a
plausible proposition. Indeed, there is no point in requiring a capital stock structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.

Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is
provided with authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into
shares but at the same time, is prohibited from transferring, negotiating, pledging, mortgaging or otherwise giving these
shares as security for payment of any obligation.64 However, based on the Corporation Code definition relied upon by the
majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the Corporation Code, stock
corporations are defined as being "authorized to distribute to the holders of its shares dividends or allotments of the
surplus profits on the basis of the shares held."65 On the other hand, Section 13 of the NPC's charter states that "the
Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from
its operation, for expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus profits
on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation
Code, the NPC is not a stock corporation, if the majority is to be believed.

The majority likewise claims that corporations without members cannot be deemed non-stock corporations. This would
seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, non-stock
corporations cannot distribute any part of its income as dividends to its members, trustees or officers. The majority faults
MIAA for remitting 20% of its gross operating income to the national government. How about the Philippine Health
Insurance Corporation, created with the "status of a tax-exempt government corporation attached to the Department of
Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock corporation because it has no capital stock
structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-stock corporation, since the
PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse"
the National Health Insurance Fund. 68 Or how about the Social Security System, which under its revised charter, Republic
Act No. 8282, is denominated as a "corporate body." 69 The SSS has no capital stock structure, but has capital comprised
of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from
classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees
Association v. Soriano?70

In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock,71 declare and remit
at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National
Government.72 But according to the majority, non-stock corporations are prohibited from declaring any part of its income
as dividends. But if Republic Act No. 7656 requires even non-stock corporations to declare dividends from income, should
it not follow that the prohibition against declaration of dividends by non-stock corporations under the Corporation Code
does not apply to government-owned or controlled corporations? For if not, and the majority's illogic is pursued, Republic
Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the
Corporation Code.

In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No.
7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few
entities which are not obliged to remit fifty (50%) of its annual net earnings to the National Government as they are
excluded from the scope of Republic Act No. 7656:

1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance of its income or
revenue at the end of each year in a general reserve. 75

2) Bases Conversion Development Authority76 - has no capital stock,77 no members.

3) Philippine Economic Zone Authority78 - no capital stock,79 no members.

4) Light Rail Transit Authority80 - no capital stock,81 no members.

5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to
the National Treasury.84

6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares
dividends or allotments of the surplus profits on the basis of the shares held;" 86 no members.

7) Manila International Airport Authority no capital stock87, no members88, mandated to remit twenty percent (20%) of
its annual gross operating income to the National Treasury. 89

Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No.
7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by
President Ramos, be explained? The issuance provides:

WHEREAS, Section 1 of Republic Act No. 7656 provides that:

"Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government
to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the
purposes for which they have been established, shall share a substantial amount of their net earnings to the National
Government."

WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the
liquidity, retained earnings position and medium-term plans and programs of these GOCCs were considered in the
determination of the reasonable dividend rates of such corporations on their 1997 net earnings.

WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage
of annual net earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial
Authority [PIA] in the interest of national economy and general welfare.

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do
hereby order:

SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the
National Government as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent
[50%] to the rates specified hereunder:

1. Manila International Airport Authority - 35% [cash]

2. Phividec Industrial Authority - 25% [cash]

SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the
concerned government-owned and/or controlled corporations.

Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it
have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently
disagrees, and resultantly holds that MIAA is not obliged to remit even the reduced rate of thirty five percent (35%) of its
net earnings to the national government, since it cannot be covered by Republic Act No. 7656.

All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the
sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical that chartered
corporations are compelled to comply with the templates of the Corporation Code, especially when the Corporation Code
itself states that these corporations are to be governed by their own charters. This is especially true considering that the
very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the definition provided
therein is laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the Corporation
Code which mandates that corporations created by charter be governed by the law creating them, it is clear that contrary
to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of Section 87, the
provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why
the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or
maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock
corporations).

The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says
so. After all, it is the legislature that dictates what a corporation is in the first place. This is better illustrated by another
set of entities created before martial law. These include the Mindanao Development Authority, 90 the Northern Samar
Development Authority,91 the Ilocos Sur Development Authority,92 the Southeastern Samar Development Authority93 and
the Mountain Province Development Authority.94 An examination of the first section of the statutes creating these entities
reveal that they were established "to foster accelerated and balanced growth" of their respective regions, and towards
such end, the charters commonly provide that "it is recognized that a government corporation should be created for the
purpose," and accordingly, these charters "hereby created a body corporate."95 However, these corporations do not have
capital stock nor members, and are obliged to return the unexpended balances of their appropriations and earnings to a
revolving fund in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind the fact
that their very charters declare them to be GOCCs.

I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my
fundamental pointthat it is the legislative charters of these entities, and not the Administrative Code, which define the
class of personality of these entities created by Congress. To adopt the view of the majority would be, in effect, to
sanction an implied repeal of numerous congressional charters for the purpose of declassifying GOCCs. Certainly, this
could not have been the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms"
incorporated therein.

MIAA Is Without

Doubt, A GOCC

Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock
corporations and GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are
simply those which have capital stock while no stock GOCCs are those which have no capital stock. Obviously these
definitions are different from the definitions of the terms in the Corporation Code. Verily, GOCCs which are not
incorporated with the Securities and Exchange Commission are not governed by the Corporation Code but by their
respective charters.

For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following
provisions from MIAA's charter:

SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a body corporate to be
known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided,
That any subsidiary that may be organized shall have the prior approval of the President.

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey
of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines.

xxx

SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions, powers and duties:

xxx

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility,
or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

xxx
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order.

xxx

SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of Finance and with the
approval of the President of the Philippines, as recommended by the Minister of Transportation and Communications,
raise funds, either from local or international sources, by way of loans, credits or securities, and other borrowing
instruments, with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets
or properties.

All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect
thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one
another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That
this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages, and other voluntary liens or encumbrances on any assets or property of the Authority.

Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in
the principal amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any
given time.

xxx

The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the
name and on behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up
to the amount herein authorized.

These cited provisions establish the fitness of MIAA to be the subject of legal relations. 96 MIAA under its charter may
acquire and possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own
name, and to acquire title to real or personal property. It likewise may exercise a panoply of corporate powers and
possesses all the trappings of corporate personality, such as a corporate name, a corporate seal and by-laws. All these
are contained in MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is the
primary law that governs the definition and organization of the MIAA.

In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the
present petition before this Court.97 So does, apparently, the Department of Budget and Management, which classifies
MIAA as a "government owned & controlled corporation" on its internet website.98 There is also the matter of Executive
Order No. 483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC. And the Court
before had similarly characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case,
Manila International Airport Authority v. Commission on Audit. 99

Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an
instrumentality. But the very definition relied upon by the majority of an instrumentality under the Administrative Code
clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not
even be determinative of this Petition, but the effect of the majority's disquisition on that matter may even be more
destructive than the ruling that MIAA is exempt from realty taxes. Is the majority ready to live up to the momentous
consequences of its flawed reasoning?

Novel Proviso in 1987 Constitution

Prescribing Standards in the

Creation of GOCCs Necessarily

Applies only to GOCCs Created

After 1987.

One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of
the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the
common good and subject to the test of economic viability." For the majority, the test of economic viability does not
apply to government entities vested with corporate powers and performing essential public services. But this test of
"economic viability" is new to the constitutional framework. No such test was imposed in previous Constitutions, including
the 1973 Constitution which was the fundamental law in force when the MIAA was created. How then could the MIAA, or
any GOCC created before 1987 be expected to meet this new precondition to the creation of a GOCC? Does the dissent
seriously suggest that GOCCs created before 1987 may be declassified on account of their failure to meet this "economic
viability test"?
Instrumentalities and Agencies

Also Generally Liable For

Real Property Taxes

Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an
instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more
convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA is not an
instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is attached within the
department framework of the Department of Transportation and Communications. 100 Interestingly, Executive Order No.
341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since instrumentalities are expressly defined as
"an agency not integrated within the department framework," that view concluded that MIAA cannot be deemed an
instrumentality.

Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as
agencies,101 so the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the
majority justifies MIAA's purported exemption on Section 133 of the Local Government Code, which similarly situates
"agencies and instrumentalities" as generally exempt from the taxation powers of LGUs. And on this point, the majority
again evades Mactan and somehow concludes that Section 133 is the general rule, notwithstanding Sections 232 and
234(a) of the Local Government Code. And the majority's ultimate conclusion? "By express mandate of the Local
Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the
MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities."102

The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due
accord to the respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the
Republic of the Philippines or its political subdivisions shall not be subjected to any form of local government taxation,
except realty taxes if the beneficial use of the property owned has been granted for consideration to a taxable entity or
person. On the other hand, Section 133 likewise assures that government instrumentalities such as GOCCs may not be
arbitrarily taxed by LGUs, since they could be subjected to local taxation if there is a specific proviso thereon in the Code.
One such proviso is Section 137, which as the Court found in National Power Corporation, 103 permits the imposition of a
franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as the Court acknowledged in
Mactan, Section 232 provides another exception on the taxability of instrumentalities.

The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the indubitable
general rule that LGUs "may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted." The specific exemptions are provided by Section 234. Section 232
comes sequentially after Section 133(o), 104 and even if the sequencing is irrelevant, Section 232 would fall under the
qualifying phrase of Section 133, "Unless otherwise provided herein." It is sad, but not surprising that the majority is not
willing to consider or even discuss the general rule, but only the exemptions under Section 133 and Section 234. After all,
if the majority is dead set in ruling for MIAA no matter what the law says, why bother citing what the law does say.

Constitution, Laws and

Jurisprudence Have Long

Explained the Rationale

Behind the Local Taxation

Of GOCCs.

This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the
succeeding discussion of the majority, which asserts that the power of local governments to tax national government
instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local Government
Code, is cited, as is Basco. This section of the majority employs deliberate pretense that the Code never existed, or that
the fundamentals of local autonomy are of limited effect in our country. Why is it that the Local Government Code is
barely mentioned in this section of the majority? Because Section 5 of the Code, purposely omitted by the majority
provides for a different rule of interpretation than that asserted:

Section 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt,
any question thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair
and reasonable doubt as to the existence of the power shall be interpreted in favor of the local government unit
concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit
enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government
unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it; xxx

Yet the majority insists that "there is no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another." 105 I wonder whether
the Constitution satisfies the majority's desire for "a sound and compelling policy." To repeat:

Article II. Declaration of Principles and State Policies

xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

xxx

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.

Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it
was enacted by the legislature, that veritable source of all statutes:

SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.

Justice Puno, in National Power Corporation v. City of Cabanatuan, 106 provides a more "sound and compelling policy
considerations" that would warrant sustaining the taxability of government-owned entities by local government units
under the Local Government Code.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations
and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.107

I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the
acceptance of the principles of local autonomy:

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, 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 pursuant to Article X, section 5 of
the 1987 Constitution, viz:

"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, 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."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will,
consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable
local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local
Autonomy Act of 1959, the Decentralization Act of 1967 and the Local Government Code of 1983. Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such
as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does
not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian. 108

And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo 109, provides especially clear and
emphatic rationale:

In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss.
In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:

Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real
property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-
building, particularly in the local government level.

xxxxxxxxx

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no
measure can the government be said to have lost anything.

Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government was that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need
for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges
due from them.110

How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration
subjecting national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is
unfortunate if the majority deems these cases or the principles of devolution and local autonomy as simply too
inconvenient, and relies instead on discredited precedents. Of course, if the majority faces the issues squarely, and
expressly discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court would be more
intellectually satisfying. But, this is not a game the majority wants to play.

Mischaracterization of My

Views on the Tax Exemption

Enjoyed by the National Government

Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that
provision as if I had been interpreting the provision as making "the national government, which itself is a juridical person,
subject to tax by local governments since the national government is not included in the enumeration of exempt entities
in Section 193."111

Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis
on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government
Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn
upon the effectivity of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the
exemptions theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn upon the advent of the
Code.

On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of
LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject
to tax. Thus, Section 193 does not apply to entities which were never given any tax exemption. This would include the
national government and its political subdivisions which, as a general rule, are not subjected to tax in the first
place.112 Corollarily, the national government and its political subdivisions do not need tax exemptions. And Section 193
which ordains the withdrawal of tax exemptions is obviously irrelevant to them.

Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA
on Section 21 of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193
withdraws the tax exemptions previously enjoyed by all juridical persons.

With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for
MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter.

Lung Center of the Philippines v. Quezon City 113 provides another illustrative example of the jurisprudential havoc wrought
about by the majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous
GOCC organized with the SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the
Administrative Code, it is also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative
Code definition of "instrumentalities" encompasses agencies, especially those not attached to a line department such as
the Lung Center, it also follows that the Lung Center is an instrumentality, which for the majority is exempt from all local
government taxes, especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not
exempt from real property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is
made to demonstrate otherwise.

Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes
granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of
Sections 133 and 234(a) however necessarily implies that all instrumentalities, including GOCCs, can never be subjected
to real property taxation under the Code. If that is so, what then is the sense of the last paragraph specifically
withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons such as MIAA are anyway, to
his view, already exempt from such taxes under Section 133? The majority's interpretation would effectively render the
express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a
statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction
which will render the provision thereof operative and effective, as well as harmonious with each other. 115

But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use
anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or
Maceda. Local government rule has never been a grant of emancipation from the national government. This is the
favorite bugaboo of the opponents of local autonomythe fallacy that autonomy equates to independence.

Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the
reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national
instrumentalities and agencies by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No
mention is made of the subsequent rejection of these cases in jurisprudence following the Local Government Code,
including Mactan. The majority is similarly silent on the general rule under Section 232 on real property taxation or
Section 5 on the rules of construction of the Local Government Code.

V.

MIAA, and not the National Government

Is the Owner of the Subject Taxable Properties

Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule
property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for
exempting entities from real property taxation. It provides the most viable legal support for any claim that an
governmental entity such as the MIAA is exempt from real property taxes. To repeat:

SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:

xxx

(f) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them
under the exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments.

MIAA Property Is Patrimonial

And Not Part of Public Dominion

The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and
therefore owned by the State or the Republic of the Philippines. But as pointed out by Justice Azcuna in the first PPA
case, if indeed a property is considered part of the public dominion, such property is "owned by the general public and
cannot be declared to be owned by a public corporation, such as [the PPA]."

Relevant on this point are the following provisions of the MIAA charter:

Section 3. Creation of the Manila International Airport Authority. xxx

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. xxx Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.

Section 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands,
buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment
which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority.

Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government that asserts
legal title over the Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the
national government. If the distinction is to be blurred, as the majority does, between the State/Republic/Government
and a body corporate such as the MIAA, then the MIAA charter showcases the remarkable absurdity of an entity
transferring property to itself.

Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of public
dominion to an entity that it similarly owns. It is just like a family transferring ownership over the properties its members
own into a family corporation. The family exercises effective control over the administration and disposition of these
properties. Yet for several purposes under the law, such as taxation, it is the corporation that is deemed to own those
properties. A similar situation obtains with MIAA, the State, and the Airport Lands and Buildings.

The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The
Court refuted the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's
charter expressly transferred ownership over these properties to the PPA, a situation which similarly obtains with MIAA.
The Court even went as far as saying that the fact that the PPA "had not been issued any torrens title over the port and
port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely
an evidence of title over properties. xxx It has never been recognized as a mode of acquiring ownership over real
properties."116

The Court further added:

xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it
from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the
petitioner's corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the
administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with
corporate status and corporate powers in the furtherance of its proprietary interests xxx The petitioner is even
empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income
from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. xxx Clearly then, the
petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax. 117

There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was
propounded by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118which was
cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body
corporate, "provides valuable transportation facilities to the paying public." 119 It claimed that its carriage-ways and
terminal stations are immovably attached to government-owned national roads, and to impose real property taxes
thereupon would be to impose taxes on public roads. This view did not persuade the Court, whose decision was penned
by Justice (now Chief Justice) Panganiban. It was noted:

Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic
and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is
clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates
much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.

xxx

Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways
and terminal stations are the commuting public. It adds that the public use character of the LRT is not negated by the
fact that revenue is obtained from the latter's operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay
the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways
and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-
earning. It actually uses those carriageways and terminal stations in its public utility business and earns money
therefrom.120

xxx

Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would
not apply because their beneficial use has been granted to petitioner, a taxable entity. 121

There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities
are in the business of operating facilities that promote public transportation.

The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man.
But if this is so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale
of any of these properties? In fact, why does MIAA's charter in the first place authorize the transfer of these airport
properties, assuming that indeed these are beyond the commerce of man?

No Trust Has Been Created

Over MIAA Properties For

The Benefit of the Republic

The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for
the Republic. A provision of the Administrative Code is cited, but said provision does not expressly provide that the
property is held in trust. Trusts are either express or implied, and only those situations enumerated under the Civil Code
would constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a provision in MIAA's
charter expressly stating that these properties are being held in trust. In fact, under its charter, MIAA is obligated to
retain up to eighty percent (80%) of its gross operating income, not an inconsequential sum assuming that the beneficial
owner of MIAA's properties is actually the Republic, and not the MIAA.

Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately
irrelevant. Section 234(a) of the Local Government Code provides among those exempted from paying real property taxes
are "[r]eal property owned by the [Republic] except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." In the context of Section 234(a), the identity of the beneficial owner
over the properties is not determinative as to whether the exemption avails. It is the identity of the beneficial user of the
property owned by the Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person,
then the exemption does not lie.

I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the
properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed
by the National Government.122 If so, then there is no difference between the State's ownership rights over MIAA
properties than those of a majority stockholder over the properties of a corporation. Even if such shareholder effectively
owns the corporation and controls the disposition of its assets, the personality of the stockholder remains separately
distinct from that of the corporation. A brief recall of the entrenched rule in corporate law is in order:

The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its
stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched
in American jurisprudence:

Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special
agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or equity.
The reason is that the corporation is a legal entity or artificial person, distinct from the members who compose it, in their
individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial person the corporation
and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been
given definite recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not
be made to answer for acts or liabilities of its stockholders or those of legal entities to which it may be connected, or vice
versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared in a similar case that a bonafide corporation
should alone be liable for corporate acts duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al.
151 SCRA, p. 372)123

It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation
under the Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate
name.124 The national government made a particular choice to divest ownership and operation of the Manila International
Airport and transfer the same to such an empowered entity due to perceived advantages. Yet such transfer cannot be
deemed consequence free merely because it was the State which contributed the operating capital of this body corporate.

The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed
rationale for such transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it
was intended that the transfer should be free of consequence, then why was it effected to a body corporate, with a
distinct legal personality from that of the State or Republic? The stated aims of the MIAA could have very well been
accomplished by creating an agency without independent juridical personality.

VI.

MIAA Performs Proprietary Functions

Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from
realty taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding
the scope of "the Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined
as "the provinces, cities, municipalities and barangays."125 In correlation, the Administrative Code of 1987 defines "local
government" as referring to "the political subdivisions established by or in accordance with the Constitution."

Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt.
The same could be said generally of the national government, which would be similarly exempt. After all, even with the
principle of local autonomy, it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign
exercise of functions. However, the exercise of proprietary functions is a different matter altogether.

Sovereign and Proprietary

Functions Distinguished

Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature,
while ministrant or proprietary functions are those undertaken by way of advancing the general interests of society and
are merely optional.126 An exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO: 127

xxx This institution, when referring to the national government, has reference to what our Constitution has established
composed of three great departments, the legislative, executive, and the judicial, through which the powers and functions
of government are exercised. These functions are twofold: constituent and ministrant. The former are those which
constitute the very bonds of society and are compulsory in nature; the latter are those that are undertaken only by way
of advancing the general interests of society, and are merely optional. President Wilson enumerates the constituent
functions as follows:

"'(1) The keeping of order and providing for the protection of persons and property from violence and robbery.

'(2) The fixing of the legal relations between man and wife and between parents and children.

'(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for
debt or for crime.

'(4) The determination of contract rights between individuals.

'(5) The definition and punishment of crime.

'(6) The administration of justice in civil cases.

'(7) The determination of the political duties, privileges, and relations of citizens.

'(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and
the advancement of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.)
The most important of the ministrant functions are: public works, public education, public charity, health and safety
regulations, and regulations of trade and industry. The principles determining whether or not a government shall exercise
certain of these optional functions are: (1) that a government should do for the public welfare those things which private
capital would not naturally undertake and (2) that a government should do these things which by its very nature it is
better equipped to administer for the public welfare than is any private individual or group of individuals. (Malcolm, The
Government of the Philippine Islands, pp. 19-20.)

From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to
promote its objectives as expressed in our Constitution and which are exercised by it as an attribute of sovereignty, and
those which it may exercise to promote merely the welfare, progress and prosperity of the people. To this latter class
belongs the organization of those corporations owned or controlled by the government to promote certain aspects of the
economic life of our people such as the National Coconut Corporation. These are what we call government-owned or
controlled corporations which may take on the form of a private enterprise or one organized with powers and formal
characteristics of a private corporations under the Corporation Law. 128

The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions:

Does the fact that these corporations perform certain functions of government make them a part of the Government of
the Philippines?

The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification
of municipal or public corporation. Take for instance the National Coconut Corporation. While it was organized with the
purpose of "adjusting the coconut industry to a position independent of trade preferences in the United States" and of
providing "Facilities for the better curing of copra products and the proper utilization of coconut by-products," a function
which our government has chosen to exercise to promote the coconut industry, however, it was given a corporate power
separate and distinct from our government, for it was made subject to the provisions of our Corporation Law in so far as
its corporate existence and the powers that it may exercise are concerned (sections 2 and 4, Commonwealth Act No.
518). It may sue and be sued in the same manner as any other private corporations, and in this sense it is an entity
different from our government. As this Court has aptly said, "The mere fact that the Government happens to be a
majority stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil.,
586-587). "By becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign
character so far as respects the transactions of the corporation. . . . Unlike the Government, the corporation may be sued
without its consent, and is subject to taxation. Yet the National Coal Company remains an agency or instrumentality of
government." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.)

The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting:

The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit.
(Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages in a particular business through the
instrumentality of a corporation, it divests itself pro hoc vice of its sovereign character so as to subject itself to the rules
governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to be treated like any other corporation. (PNR v.
Union de Maquinistas Fogonero y Motormen, 84 SCRA 223)

In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such.
It acts merely as a corporator and exercises no other power in the management of the affairs of the corporation than are
expressly given by the incorporating act. Nor does the fact that the government may own all or a majority of the capital
stock take from the corporation its character as such, or make the government the real party in interest. (Amtorg Trading
Corp. v. US 71 F2d 524, 528)129

MIAA Performs Proprietary

Functions No Matter How

Vital to the Public Interest

The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation of
an airport facility by the State may be imbued with public interest, but it is by no means indispensable or obligatory on
the national government. In fact, as demonstrated in other countries, it makes a lot of economic sense to leave the
operation of airports to the private sector.

The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is no
competing international airport operated by the private sector; and that MIAA performs an essential public service as the
primary domestic and international airport of the Philippines. This premise is false, for one. On a local scale, MIAA
competes with other international airports situated in the Philippines, such as Davao International Airport and MCIAA.
More pertinently, MIAA also competes with other international airports in Asia, at least. International airlines take into
account the quality and conditions of various international airports in determining the number of flights it would assign to
a particular airport, or even in choosing a hub through which destinations necessitating connecting flights would pass
through.
Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National
Railways should be taken into account. The PNR does not compete in the marketplace, and performs an essential public
service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in
Malong v. Philippine National Railways,130 held that it was not.131

Even more relevant to this particular case is Teodoro v. National Airports Corporation, 132 concerning the proper
appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the
defunction National Airports Corporation. The CAA claimed that as an unincorporated agency of the Republic of the
Philippines, it was incapable of suing and being sued. The Court noted:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind,
to purchase property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to
aircraft of aviation gasoline, accessories and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The
power to sue and be sued is implied from the power to transact private business. And if it has the power to sue and be
sued on its behalf, the Civil Aeronautics Administration with greater reason should have the power to prosecute and
defend suits for and against the National Airports Corporation, having acquired all the properties, funds and choses in
action and assumed all the liabilities of the latter. To deny the National Airports Corporation's creditors access to the
courts of justice against the Civil Aeronautics Administration is to say that the government could impair the obligation of
its corporations by the simple expedient of converting them into unincorporated agencies. 133

xxx

Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate,
manage, control, maintain and develop the Manila International Airport." 134 Notwithstanding this expansion, in the 1988
case of CAA v. Court of Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or non-
governmental functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA was
engaged in private or non-governmental functions. These are more precedents ignored by the majority. The following
observation from the Teodoro case very well applies to MIAA.

The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was
created, like the National Airports Corporation, not to maintain a necessary function of government, but to run what is
essentially a business, even if revenues be not its prime objective but rather the promotion of travel and the convenience
of the traveling public. It is engaged in an enterprise which, far from being the exclusive prerogative of state, may, more
than the construction of public roads, be undertaken by private concerns. 137

If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality of the
public service being performed, then it should be noted that there is no more important public service performed than
that engaged in by public utilities. But notably, the Constitution itself authorizes private persons to exercise these
functions as it allows them to operate public utilities in this country 138 If indeed such functions are actually sovereign and
belonging properly to the government, shouldn't it follow that the exercise of these tasks remain within the exclusive
preserve of the State?

There really is no prohibition against the government taxing itself, 139 and nothing obscene with allowing government
entities exercising proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the other hand, it
would be an even more noxious proposition that the government or the instrumentalities that it owns are above the law
and may refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and not
sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that it is imbued with some of
the attributes of government.

VII.

MIAA Property Not Subject to

Execution Sale Without Consent

Of the President.

Despite the fact that the City of Paraaque ineluctably has the power to impose real property taxes over the MIAA, there
is an equally relevant statutory limitation on this power that must be fully upheld. Section 3 of the MIAA charter states
that "[a]ny portion [of the [lands transferred, conveyed and assigned to the ownership and administration of the MIAA]
shall not be disposed through sale or through any other mode unless specifically approved by the President of the
Philippines."140

Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this
prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in the collection of delinquent
real property taxes. While the Local Government Code withdrew all previous local tax exemptions of the MIAA and other
natural and juridical persons, it did not similarly withdraw any previously enacted prohibitions on properties owned by
GOCCs, agencies or instrumentalities. Moreover, the resulting legal effect, subjecting on one hand the MIAA to local taxes
but on the other hand shielding its properties from any form of sale or disposition, is not contradictory or paradoxical,
onerous as its effect may be on the LGU. It simply means that the LGU has to find another way to collect the taxes due
from MIAA, thus paving the way for a mutually acceptable negotiated solution.141

There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this juncture
that the importance of the Manila Airport to our national life and commerce may be accorded proper consideration. The
closure of the airport, even by reason of MIAA's legal omission to pay its taxes, will have an injurious effect to our
national economy, which is ever reliant on air travel and traffic. The same effect would obtain if ownership and
administration of the airport were to be transferred to an LGU or some other entity which were not specifically chartered
or tasked to perform such vital function. It is for this reason that the MIAA charter specifically forbids the sale or
disposition of MIAA properties without the consent of the President. The prohibition prevents the peremptory closure of
the MIAA or the hampering of its operations on account of the demands of its creditors. The airport is important enough
to be sheltered by legislation from ordinary legal processes.

Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President
over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of
government. The power of executive control by the President should be upheld so long as such exercise does not
contravene the Constitution or the law, the President having the corollary duty to faithfully execute the Constitution and
the laws of the land.142 In this case, the exercise of executive control is precisely recognized and authorized by the
legislature, and it should be upheld even if it comes at the expense of limiting the power of local government units to
collect real property taxes.

Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties could not be
subject of execution sale without the consent of the President, I suspect that the parties would feel little distress.
Through such action, both the Local Government Code and the MIAA charter would have been upheld. The prerogatives
of LGUs in real property taxation, as guaranteed by the Local Government Code, would have been preserved, yet the
concerns about the ruinous effects of having to close the Manila International Airport would have been averted. The
parties would then be compelled to try harder at working out a compromise, a task, if I might add, they are all too willing
to engage in.143 Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the
City of Paraaque, but to the thousands of LGUs in the country.

VIII.

Summary of Points

My points may be summarized as follows:

1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code,
enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs,
instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only
exemptions from local taxes are those specifically provided under the Local Government Code itself, or those enacted
through subsequent legislation.

2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable
for real property taxes. The only exemptions therefrom under the same Code are provided in Section 234, which include
real property owned by the Republic of the Philippines or any of its political subdivisions.

3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from
the Republic of the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does
not fall within the exemptions under Section 234 of the Local Government Code.

4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Paraaque is
prohibited from seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end,
MIAA is encumbered only by a limited lien possessed by the City of Paraaque.

On the other hand, the majority's flaws are summarized as follows:

1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies
and directly cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than
that warranted by the precedents without explaining why Mactan or the other precedents are wrong, the majority
attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the
practices and traditions of this Court.

2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution,
enacted under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no
sound rationale for local governments to tax national government instrumentalities, despite the blunt existence of such
rationales in the Constitution, the Local Government Code, and precedents.

3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code
above and beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition
of GOCCs that effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences.

4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies
and instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary
and the proviso under Section 133, "unless otherwise provided herein [the Local Government Code]."

5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that
such properties are patrimonial in character. No express or implied trust has been created to benefit the national
government. The legal distinction between sovereign and proprietary functions, as affirmed by jurisprudence, likewise
preclude the classification of MIAA properties as patrimonial.

IX.

Epilogue

If my previous discussion still fails to convince on how wrong the majority is, then the following points are well-worth
considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that
exercises corporate powers but not organized as a stock or non-stock corporation. Correspondingly for the majority, the
Bangko ng Sentral is exempt from all forms of local taxation by LGUs by virtue of the Local Government Code.

Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:

SECTION 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of
this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt
from local taxation owing to its personality as an "government instrumentality," why then the need to make a new grant
of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly, does not this
provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial,
municipal and city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which
entities are subject to taxation and which are exempt.

Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation,
but a government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like
the Bangko Sentral , which is not even a government owned corporation, be subjected to local taxation like any mere
mortal? But then, see Section 1 of the New Central Bank Act:

SECTION 1. Declaration of Policy. The State shall maintain a central monetary authority that shall function and operate
as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money,
banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative
autonomy.

Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas.
But this legislative intent, the sort that is evident from the text of the provision and not the one that needs to be
unearthed from the bowels of the archival offices of the House and the Senate, is for naught to the majority, as it
contravenes the Administrative Code of 1987, which after all, is "the governing law defining the status and relationship of
government agencies and instrumentalities" and thus superior to the legislative charter in determining the personality of a
chartered entity. Its like saying that the architect who designed a school building is better equipped to teach than the
professor because at least the architect is familiar with the geometry of the classroom.

Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by
Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and
empowered with the attributes of a corporation, 145 including the power to purchase or acquire real properties. 146 However
the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC.

The state policy that guides PITAHC is the development of traditional and alternative health care, 147 and its objectives
include the promotion and advocacy of alternative, preventive and curative health care modalities that have been proven
safe, effective and cost effective. 148 "Alternative health care modalities" include "other forms of non-allophatic,
occasionally non-indigenous or imported healing methods" which include, among others "reflexology, acupuncture,
massage, acupressure" and chiropractics.149
Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor
that would provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is
in line with the purpose of the PITAHC and with state policy. Is such massage parlor exempt from realty taxes? For the
majority, it is, for PITAHC is an instrumentality or agency exempt from local government taxation, which does not fall
under the exceptions under Section 234 of the Local Government Code. Hence, this massage parlor would not just be a
shelter for frazzled nerves, but for taxes as well.

Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an absurdity. But
precisely the majority, and the faulty reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-
exempt massage parlor is one of the lesser evils that could arise from the majority ruling. This is indeed a very strange
and very wrong decision.

I dissent.

DANTE O. TINGA

Associate Justice

EN BANC

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD
NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex
in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International
Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings
("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved
by the President of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21
of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the
City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable
years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
 GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No.
061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The
OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary
period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental
motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review. 7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the
Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues of the Philippine
Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the
Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building
of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the
City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and
the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the
TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective
Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and
Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings
for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service,
the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are
not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the
Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code.
Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act
excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt
from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that the
Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents
further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate
tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all
proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become
moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities
exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is

not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to
consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties,
movable and immovable[,] which may be contributed by the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of
the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of
the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be
provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-
stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A
non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income
to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as
follows:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, 12 police authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department framework. The MIAA Charter
expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its operation more
"financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate
powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government
corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of government
entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 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:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as
one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and
limitations as the Congress may provide."18
When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed
liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that
has to be handled by government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them ." (Antieau, Modern Constitutional Law, Vol. 2,
p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities
may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v.
Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to
wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.
 ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall
form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the
public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms
and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road,
the speed restrictions and other conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax
is more equitable a principle of taxation mandated in the 1987 Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of
man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works
of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold
because they are by their very nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce
of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to
the public in general. They are outside the commerce of man and cannot be disposed of or even leased by
the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of
an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being
contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public usethe
Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to
this day the existing general law governing the classification and disposition of lands of the public domain other than
timber and mineral lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the
Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until
again declared alienable under the provisions of this Act or by proclamation of the President.
(Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the
State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government . (1) The President
shall have the power to reserve for settlement or public use, and for specific public purposes, any of
the lands of the public domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until otherwise provided by
law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce
of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I
of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless
the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority . x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands
and other appropriate government agencies shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and
Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a division
under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory
notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and
domestic air traffic, is required to provide standards of airport accommodation and service comparable with the
best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the
current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will
best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of
the Philippines is given continuing authority to reorganize the National Government, which authority
includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis
supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in
the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership
rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the
Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and
Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic
paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the
sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to
the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of
the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalitiesx x x."
The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies
or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to
be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by
the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government.
This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the
Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality,
is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic
has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax.
In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court
ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code
of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code.
Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the
minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not
just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from
Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) states:

SEC. 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:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its
agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133.
The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned
by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by
local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193.
(Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to
tax by local governments since the national government is not included in the enumeration of exempt entities in Section
193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national
government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to
any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority, 34Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine
National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments
from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical
person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code.
Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This
means that unless the Local Government Code grants an express authorization, local governments have no power to tax
the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax
the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the
national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity.
Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property
tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
 x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real
estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person,
is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of
the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234
on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that
there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious
error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its
own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of
the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters,
there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits
the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133
states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national
government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the
"common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of
local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross
absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise
provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided
in this Code." This exception which is an exception to the exemption of the Republic from real estate tax imposed by
local governments refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real
property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities,
to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative
Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that
the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative
Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by
special charters. The minority sees no reason why government corporations with special charters should have a capital
stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code
refer to those corporations owned by the government or its instrumentalities which are created not by legislative
enactment, but formed and organized under the Corporation Code through registration with the Securities and
Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends
or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will
also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish
between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish,
courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The
special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by
the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which
shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine
Crop Insurance Corporation,42 Philippine International Trading Corporation, 43 and the Philippine National Bank44 before it
was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized
under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that
they are not government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting
them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or
controlled corporation must be established for the common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
 SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through
special charters only if these entities are required to meet the twin conditions of common good and economic viability. In
other words, Congress has no power to create government-owned or controlled corporations with special charters unless
they are made to comply with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial activities and need to
compete in the market place. Being essentially economic vehicles of the State for the common good meaning for
economic development purposes these government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions
need not meet the test of economic viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned
or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to create
government instrumentalities vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as "government-owned or controlled corporations"
must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain
the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the
purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is always invoked is the common
good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28
billion of this will go into equity infusions to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the
drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes
the ideas that they must show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not quantifiable in financial terms. 46(Emphasis
supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations,
along with government-owned or controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because there is no competing international airport operated
by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the
Philippines. The operation of an international airport requires the presence of personnel from the following government
agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening
out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the
country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter
or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel,
passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:

SEC. 2. General Terms Defined. x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of
the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public
services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation"
as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned
or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a
government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned
by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA
are intended for public use, and at the very least intended for public service. Whether intended for public use or public
service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local
Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation
and status of government units, agencies and offices within the entire government machinery, MIAA is a government
instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government
Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges
of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject
to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports
x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila
International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all
the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of
Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale,
and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales,
Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

x-------------------------------------------------------------------------------x

DISSENTING OPINION

TINGA, J. :

The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result a
recognition of the constitutional and statutory power of the City of Paraaque to impose real property taxes on the Manila
International Airport Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of
Paraaque from seizing and conducting an execution sale over the real properties of MIAA. In the end, all that the City of
Paraaque would hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA
properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions applied to this case, it
also leaves the room for negotiation for a mutually acceptable resolution between the City of Paraaque and MIAA.

Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial
precedents left and right in order to protect the precious Ming vase that is the Manila International Airport Authority
(MIAA). While the MIAA is left unscathed, it is surrounded by the wreckage that once was the constitutional policy, duly
enacted into law, that was local autonomy. Make no mistake, the majority has virtually declared war on the seventy nine
(79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the
Philippines.1

The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority opinion.
Decisions of the Supreme Court are expected to provide clarity to the parties and to students of jurisprudence, as to what
the law of the case is, especially when the doctrines of long standing are modified or clarified. With all due respect, the
decision in this case is plainly so, so wrong on many levels. More egregious, in the majority's resolve to spare the Manila
International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule emerges on the important
question of the power of local government units (LGUs) to tax government corporations, instrumentalities or agencies.

The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below:

1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by recently retired Chief
Justice Davide, which held that the express withdrawal by the Local Government Code of previously granted exemptions
from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the
Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor, 3 a precedent
discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government rule that the Local
Government Code was drafted precisely to counter such philosophy. The efficacy of several rulings that expressly rely on
Mactan, such as PHILRECA v. DILG Secretary,4 City Government of San Pablo v. Hon. Reyes 5 is now put in question.

2) The rulings in National Power Corporation v. City of Cabanatuan, 6 wherein the Court, through Justice Puno, declared
that the National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and
succeeding cases that have relied on it such as Batangas Power Corp. v. Batangas City 7 The majority now states that
deems instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of
taxation by LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and
instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d) of the
Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding conclusion that
GOCCs may not be taxed by LGUs under the Local Government Code.

3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the
Philippines may be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly
classified as an instrumentality which the majority now holds as exempt from all forms of local taxation. 10

4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real
property taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local
Government Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the
majority.

5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo, 13 cases penned by
Justices Callejo and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA)
liable for realty taxes, notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot
be considered a GOCC. The reliance of these cases on Mactan, and its rationale for holding governmental entities like the
PPA liable for local government taxation is mooted by the majority.

6) The 1963 precedent of Social Security System Employees Association v. Soriano,14 which declared the Social Security
Commission (SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the
Social Security System is not a GOCC. Or perhaps more accurately, "no longer" a GOCC.

7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of
Assessment.15 The characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial
endeavor" whose patrimonial property is subject to local taxation is now rendered inconsequential, owing to the
majority's thinking that an entity such as the LRTA is itself exempt from local government taxation 16, irrespective of the
functions it performs. Moreover, based on the majority's criteria, LRTA is not a GOCC.

8) The cases of Teodoro v. National Airports Corporation 17 and Civil Aeronautics Administration v. Court of
Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was similarly engaged in the
operation, administration and management of the Manila International Agency, was engaged in the exercise of
proprietary, as opposed to sovereign functions. The majority would hold otherwise that the property maintained by MIAA
is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions.
9) My own majority in Phividec Industrial Authority v. Capitol Steel,19 wherein the Court held that the Phividec Industrial
Authority, a GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal
representation.20 Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office
of the Government Corporate Counsel extends only to GOCCs.

10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of
Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a general
rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no
longer hold, since "local governments are devoid of power to tax the national government, its agencies and
instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in
jeopardy by the majority's ruling.

There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local government
taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous distinctions between
the exercise of governmental and proprietary functions (a distinction laid down by this Court as far back as 1916 24). What
is the reason offered by the majority for overturning or modifying all these precedents and doctrines? None is given, for
the majority takes comfort instead in the pretense that these precedents never existed. Only children should be permitted
to subscribe to the theory that something bad will go away if you pretend hard enough that it does not exist.

I.

Case Should Have Been Decided

Following Mactan Precedent

The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property taxes under the Local
Government Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply
applying precedent.

Mactan Explained

A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was
exempt from payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of
its charter, Republic Act No. 6958, and its status as an instrumentality of the government performing governmental
functions.25 Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized
by the majority as the basis for MIAA's exemption. Section 133 reads:

Sec. 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

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units. (emphasis and underscoring supplied).

However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies
and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other
relevant provisions of the Local Government Code, particularly the following:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemption or incentives
granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and controlled
corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. 26

SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila area
may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not
hereafter specifically exempted.27

SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person:
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or
educational purposes;

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

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(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 all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.28

Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National
Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But
what was the extent of the limitation under Section 133? This is how the Court, correctly to my mind, defined the
parameters in Mactan:

The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the
exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or
provisos in these sections, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133;

(2) "Unless otherwise provided in this Code" in Section 193;

(3) "not hereafter specifically exempted" in Section 232; and

(4) "Except as provided herein" in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems
to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course,
the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since
the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were
intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when
levied on banks and other financial institutions"; item (d) which excepts "wharfage on wharves constructed and
maintained by the local government unit concerned"; and item (1) which excepts taxes, fees and charges for the
registration and issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body
itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause
"except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were "Unless otherwise provided in this Code" instead of "Unless otherwise provided
herein." In any event, even if the latter is used, since under Section 232 local government units have the power to levy
real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify
Section 133.

Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in
Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and charges
of any kind on the National Government, its agencies and instrumentalities, and local government units"; however,
pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person," as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-
owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter
proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph
of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of
such property has been granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified
by Sections 232 and 234.29

The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of
local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided"
insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of who owned the property. At the same
time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically
exempted." The exemptions from real property taxes are enumerated in Section 234, which specifically states that only
real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the
payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234.30

Mactan Overturned the

Precedents Now Relied

Upon by the Majority

But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR,31 decided before the enactment of the
Local Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in
this wise:

Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned
or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National
Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in
the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR
should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to
control by a mere Local government.

"The states have no power by taxation or otherwise, to retard impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the powers vested in the federal government." (McCulloch
v. Marland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US
51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activates or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340
US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 32

Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it
interfered with the prerogatives and privileges of the national government. Also consider the following citation from
Maceda v. Macaraig,33 decided the same year as Basco. Discussing the rule of construction of tax exemptions on
government instrumentalities, the sentiments are of a similar vein.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in
favor of a government political subdivision or instrumentality.

The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even
more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential
treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies.

In the case of property owned by the state or a city or other public corporations, the express exemption should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to
such property "exemption is the rule and taxation the exception." 34

Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective
from which the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the
enactment of the Local Government Code of 1991.

However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced
in the Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The
majority might have private qualms about the wisdom of the policy of local autonomy, but the members of the Court are
not expected to substitute their personal biases for the legislative will, especially when the 1987 Constitution itself
promotes the principle of local autonomy.

Article II. Declaration of Principles and State Policies

xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable
local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local units.

xxx

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.

xxx

The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local
Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In
doing so, the language of the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with
the enactment of the Local Government Code:

Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming
Corporation is unavailing since it was decided before the effectivity of the [Local Government Code]. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom.35 (emphasis supplied)

The Court Has Repeatedly

Reaffirmed Mactan Over the

Precedents Now Relied Upon

By the Majority

Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that
instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of
Cabanatuan,36 which was penned by Justice Puno. NPC or Napocor, invoking its continued exemption from payment of
franchise taxes to the City of Cabanatuan, alleged that it was an instrumentality of the National Government which could
not be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its
claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National Government was in effect. However, as
this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents
Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions
may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of
government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although
an instrumentality of the national government, was subject to real property tax. 37

In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court, in the able ponencia of Justice Azcuna, affirmed
the levy of realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the
Local Government Code, the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption.

[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein:

The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide
by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause"
remains an exemption to the exercise of the power of local governments to impose taxes and fees.

Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case
was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom." The fact that tax
exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from
local taxation.39

Just last month, the Court in National Power Corporation v. Province of Isabela 40 again rejected Basco in emphatic terms.
Held the Court, through Justice Callejo, Sr.:

Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that
the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to
tax instrumentalities of the National Government was in effect. It further explained that in enacting the LGC, Congress
empowered the LGUs to impose certain taxes even on instrumentalities of the National Government. 41

The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a decision also penned
by Justice Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at public auction for failure to pay realty
taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or
presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity" of the
Code.43 The Court in the second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the
withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and the objective of
the [Local Government Code] that they enjoy genuine and meaningful local autonomy to enable them to attain their
fullest development as self-reliant communities. . . . "44

Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the
Government Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied
upon as the governing precedent. The removal of the tax exemption stood even though the then GSIS law 46 prohibited
the removal of GSIS' tax exemptions unless the exemption was specifically repealed, "and a provision is enacted to
substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the
fund."47 The Court, citing established doctrines in statutory construction and Duarte v. Dade 48ruled that such proscription
on future legislation was itself prohibited, as "the legislature cannot bind a future legislature to a particular mode of
repeal."49

And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance
System v. City Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous exemption from
real property taxes of the GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the
[GOCC].51

Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court
since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite
of Mactan has been emphatically rejected and declared inconsistent with the Local Government Code.

II.

Majority, in Effectively Overturning Mactan,

Refuses to Say Why Mactan Is Wrong

The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by
the respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that
employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be
obviously deducted from the fact that both petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces
an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under
the Local Government Code.

Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied
murkiness vis--vis the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these
two rulings can stand together. Following basic principles in statutory construction, Mactan will be deemed as giving way
to this new ruling.

However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the relevant
provisions of the Local Government Code is elegant and rational, yet the majority refuses to explain why this reasoning of
the Court in Mactan is erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the
majority believes that Mactan may still stand despite this ruling, it remains silent as to the viable distinctions between
these two cases.

The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible precedent.
Perhaps the majority does not simply know how to dispense with the ruling in Mactan. If Mactan truly deserves to be
discarded as precedent, it deserves a more honorable end than death by amnesia or ignonominous disregard. The
majority could have devoted its discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan
never existed at all. Such an approach might not have won the votes of the minority, but at least it would provide some
degree of intellectual clarity for the parties, LGUs and the national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter would have been possible, enriching the study of law and the
intellectual dynamic of this Court.

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly
situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport.
They are the owners of airport properties they respectively maintain and hold title over these properties in their
name.53 These entities are both owned by the State, and denied by their respective charters the absolute right to dispose
of their properties without prior approval elsewhere. 54 Both of them are

not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President. 55

III.

Instrumentalities, Agencies

And GOCCs Generally

Liable for Real Property Tax

I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan,
which will further demonstrate why the majority has found it inconvenient to even grapple with the precedent that is
Mactan in the first place.

Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133
is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies
is as provided under Section 234(o), or on "real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person."

It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not
even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234
both state, the withdrawal applies to "all persons, including [GOCCs]", thus encompassing the two classes of persons
recognized under our laws, natural persons56 and juridical persons.57

The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key
points. If an entity was previously granted an express exemption from real property taxes in the first place, the obvious
conclusion would be that such entity would ordinarily be liable for such taxes without the exemption. If such entities were
already deemed exempt due to some overarching principle of law, then it would be a redundancy or surplusage to grant
an exemption to an already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from
realty taxes, since it required the enactment of an express exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not
taxable persons unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given
short shrift. In arriving at this conclusion, several leaps in reasoning are committed.

Majority's Flawed Definition

of GOCCs.

The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite
grievously, the supposed foundation of this assertion is an adulteration.

The majority gives the impression that a government instrumentality is a distinct concept from a government
corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987,
as follows:

Instrumentality refers to any agency of the National Government not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. xxx59 (emphasis omitted)

However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority
does not show. The portions omitted by the majority are highlighted below:

(10)Instrumentality refers to any agency of the National Government not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered
institutions and governmentowned or controlled corporations.60

Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full:

(4) Agency of the Government refers to any of the various units of the Government, including a department, bureau,
office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein.
(emphasis supplied)61

Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the National
Government. Thus, there actually is no point in the majority's assertion that MIAA is not a GOCC, since based on the
majority's premise of Section 133 as the key provision, the material question is whether MIAA is either an instrumentality,
an agency, or the National Government itself. The very provisions of the Administrative Code provide that a GOCC can be
either an instrumentality or an agency, so why even bother to extensively discuss whether or not MIAA is a GOCC?

Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer, 62 the Supreme Court already
noted that a corporation of which the government is the majority stockholder "remains an agency or instrumentality of
government."63

Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire discussion
of the majority on the definition of a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the
majority on this matter are very dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in
fact, the majority effectively declassifies many entities created and recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters as to the definition of these entities.

Majority Ignores the Power

Of Congress to Legislate and

Define Chartered Corporations

First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or
non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory.
Congress has the undeniable power to create a corporation by legislative charter, and has been doing so throughout
legislative history. There is no constitutional prohibition on Congress as to what structure these chartered corporations
should take on. Clearly, Congress has the prerogative to create a corporation in whatever form it chooses, and it is not
bound by any traditional format. Even if there is a definition of what a corporation is under the Corporation Code or the
Administrative Code, these laws are by no means sacrosanct. It should be remembered that these two statutes fall within
the same level of hierarchy as a congressional charter, since they all are legislative enactments. Certainly, Congress can
choose to disregard either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC,
utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the Corporation
Code or the Administrative Code.
These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of
GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms
Defined," which qualifies:

Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute,
shall require a different meaning: (emphasis supplied)

xxx

Similar in vein is Section 6 of the Corporation Code which provides:

SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (emphasis supplied)

Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity created by Congress is its
legislative charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the
Corporation Code or the Administrative Code seemingly provides otherwise. In case of conflict between the legislative
charter of a government corporation, on one hand, and the Corporate Code and the Administrative Code, on the other,
the former always prevails.

Majority, in Ignoring the

Legislative Charters, Effectively

Classifies Duly Established GOCCs,

With Disastrous and Far Reaching

Legal Consequences

Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the
Corporation Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided
into shares. Neither can it be considered as a non-stock corporation because it has no members, and under Section 87, a
non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers.

This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by
special laws or charters shall be governed primarily by the provisions of the special law or charter, and not the
Corporation Code.

That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a
plausible proposition. Indeed, there is no point in requiring a capital stock structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.

Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is
provided with authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into
shares but at the same time, is prohibited from transferring, negotiating, pledging, mortgaging or otherwise giving these
shares as security for payment of any obligation. 64 However, based on the Corporation Code definition relied upon by the
majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the Corporation Code, stock
corporations are defined as being "authorized to distribute to the holders of its shares dividends or allotments of the
surplus profits on the basis of the shares held."65 On the other hand, Section 13 of the NPC's charter states that "the
Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from
its operation, for expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus profits
on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation
Code, the NPC is not a stock corporation, if the majority is to be believed.

The majority likewise claims that corporations without members cannot be deemed non-stock corporations. This would
seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, non-stock
corporations cannot distribute any part of its income as dividends to its members, trustees or officers. The majority faults
MIAA for remitting 20% of its gross operating income to the national government. How about the Philippine Health
Insurance Corporation, created with the "status of a tax-exempt government corporation attached to the Department of
Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock corporation because it has no capital stock
structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-stock corporation, since the
PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse"
the National Health Insurance Fund. 68 Or how about the Social Security System, which under its revised charter, Republic
Act No. 8282, is denominated as a "corporate body." 69 The SSS has no capital stock structure, but has capital comprised
of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from
classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees
Association v. Soriano?70

In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock,71 declare and remit
at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National
Government.72 But according to the majority, non-stock corporations are prohibited from declaring any part of its income
as dividends. But if Republic Act No. 7656 requires even non-stock corporations to declare dividends from income, should
it not follow that the prohibition against declaration of dividends by non-stock corporations under the Corporation Code
does not apply to government-owned or controlled corporations? For if not, and the majority's illogic is pursued, Republic
Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the
Corporation Code.

In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No.
7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few
entities which are not obliged to remit fifty (50%) of its annual net earnings to the National Government as they are
excluded from the scope of Republic Act No. 7656:

1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance of its income or
revenue at the end of each year in a general reserve. 75

2) Bases Conversion Development Authority76 - has no capital stock,77 no members.

3) Philippine Economic Zone Authority78 - no capital stock,79 no members.

4) Light Rail Transit Authority80 - no capital stock,81 no members.

5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to
the National Treasury.84

6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares
dividends or allotments of the surplus profits on the basis of the shares held;" 86 no members.

7) Manila International Airport Authority no capital stock87, no members88, mandated to remit twenty percent (20%) of
its annual gross operating income to the National Treasury. 89

Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No.
7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by
President Ramos, be explained? The issuance provides:

WHEREAS, Section 1 of Republic Act No. 7656 provides that:

"Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government
to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the
purposes for which they have been established, shall share a substantial amount of their net earnings to the National
Government."

WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the
liquidity, retained earnings position and medium-term plans and programs of these GOCCs were considered in the
determination of the reasonable dividend rates of such corporations on their 1997 net earnings.

WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage
of annual net earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial
Authority [PIA] in the interest of national economy and general welfare.

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do
hereby order:

SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the
National Government as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent
[50%] to the rates specified hereunder:

1. Manila International Airport Authority - 35% [cash]

2. Phividec Industrial Authority - 25% [cash]

SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the
concerned government-owned and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it
have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently
disagrees, and resultantly holds that MIAA is not obliged to remit even the reduced rate of thirty five percent (35%) of its
net earnings to the national government, since it cannot be covered by Republic Act No. 7656.

All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the
sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical that chartered
corporations are compelled to comply with the templates of the Corporation Code, especially when the Corporation Code
itself states that these corporations are to be governed by their own charters. This is especially true considering that the
very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the definition provided
therein is laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the Corporation
Code which mandates that corporations created by charter be governed by the law creating them, it is clear that contrary
to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of Section 87, the
provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why
the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or
maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock
corporations).

The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says
so. After all, it is the legislature that dictates what a corporation is in the first place. This is better illustrated by another
set of entities created before martial law. These include the Mindanao Development Authority, 90 the Northern Samar
Development Authority,91 the Ilocos Sur Development Authority,92 the Southeastern Samar Development Authority93 and
the Mountain Province Development Authority.94 An examination of the first section of the statutes creating these entities
reveal that they were established "to foster accelerated and balanced growth" of their respective regions, and towards
such end, the charters commonly provide that "it is recognized that a government corporation should be created for the
purpose," and accordingly, these charters "hereby created a body corporate."95 However, these corporations do not have
capital stock nor members, and are obliged to return the unexpended balances of their appropriations and earnings to a
revolving fund in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind the fact
that their very charters declare them to be GOCCs.

I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my
fundamental pointthat it is the legislative charters of these entities, and not the Administrative Code, which define the
class of personality of these entities created by Congress. To adopt the view of the majority would be, in effect, to
sanction an implied repeal of numerous congressional charters for the purpose of declassifying GOCCs. Certainly, this
could not have been the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms"
incorporated therein.

MIAA Is Without

Doubt, A GOCC

Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock
corporations and GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are
simply those which have capital stock while no stock GOCCs are those which have no capital stock. Obviously these
definitions are different from the definitions of the terms in the Corporation Code. Verily, GOCCs which are not
incorporated with the Securities and Exchange Commission are not governed by the Corporation Code but by their
respective charters.

For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following
provisions from MIAA's charter:

SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a body corporate to be
known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided,
That any subsidiary that may be organized shall have the prior approval of the President.

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey
of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines.

xxx

SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions, powers and duties:
xxx

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility,
or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

xxx

(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order.

xxx

SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of Finance and with the
approval of the President of the Philippines, as recommended by the Minister of Transportation and Communications,
raise funds, either from local or international sources, by way of loans, credits or securities, and other borrowing
instruments, with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets
or properties.

All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect
thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one
another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That
this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages, and other voluntary liens or encumbrances on any assets or property of the Authority.

Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in
the principal amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any
given time.

xxx

The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the
name and on behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up
to the amount herein authorized.

These cited provisions establish the fitness of MIAA to be the subject of legal relations. 96 MIAA under its charter may
acquire and possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own
name, and to acquire title to real or personal property. It likewise may exercise a panoply of corporate powers and
possesses all the trappings of corporate personality, such as a corporate name, a corporate seal and by-laws. All these
are contained in MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is the
primary law that governs the definition and organization of the MIAA.

In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the
present petition before this Court.97 So does, apparently, the Department of Budget and Management, which classifies
MIAA as a "government owned & controlled corporation" on its internet website. 98 There is also the matter of Executive
Order No. 483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC. And the Court
before had similarly characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case,
Manila International Airport Authority v. Commission on Audit. 99

Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an
instrumentality. But the very definition relied upon by the majority of an instrumentality under the Administrative Code
clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not
even be determinative of this Petition, but the effect of the majority's disquisition on that matter may even be more
destructive than the ruling that MIAA is exempt from realty taxes. Is the majority ready to live up to the momentous
consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution

Prescribing Standards in the

Creation of GOCCs Necessarily

Applies only to GOCCs Created

After 1987.

One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of
the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the
common good and subject to the test of economic viability." For the majority, the test of economic viability does not
apply to government entities vested with corporate powers and performing essential public services. But this test of
"economic viability" is new to the constitutional framework. No such test was imposed in previous Constitutions, including
the 1973 Constitution which was the fundamental law in force when the MIAA was created. How then could the MIAA, or
any GOCC created before 1987 be expected to meet this new precondition to the creation of a GOCC? Does the dissent
seriously suggest that GOCCs created before 1987 may be declassified on account of their failure to meet this "economic
viability test"?

Instrumentalities and Agencies

Also Generally Liable For

Real Property Taxes

Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an
instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more
convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA is not an
instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is attached within the
department framework of the Department of Transportation and Communications. 100 Interestingly, Executive Order No.
341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since instrumentalities are expressly defined as
"an agency not integrated within the department framework," that view concluded that MIAA cannot be deemed an
instrumentality.

Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as
agencies,101 so the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the
majority justifies MIAA's purported exemption on Section 133 of the Local Government Code, which similarly situates
"agencies and instrumentalities" as generally exempt from the taxation powers of LGUs. And on this point, the majority
again evades Mactan and somehow concludes that Section 133 is the general rule, notwithstanding Sections 232 and
234(a) of the Local Government Code. And the majority's ultimate conclusion? "By express mandate of the Local
Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the
MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities."102

The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due
accord to the respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the
Republic of the Philippines or its political subdivisions shall not be subjected to any form of local government taxation,
except realty taxes if the beneficial use of the property owned has been granted for consideration to a taxable entity or
person. On the other hand, Section 133 likewise assures that government instrumentalities such as GOCCs may not be
arbitrarily taxed by LGUs, since they could be subjected to local taxation if there is a specific proviso thereon in the Code.
One such proviso is Section 137, which as the Court found in National Power Corporation, 103 permits the imposition of a
franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as the Court acknowledged in
Mactan, Section 232 provides another exception on the taxability of instrumentalities.

The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the indubitable
general rule that LGUs "may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted." The specific exemptions are provided by Section 234. Section 232
comes sequentially after Section 133(o), 104 and even if the sequencing is irrelevant, Section 232 would fall under the
qualifying phrase of Section 133, "Unless otherwise provided herein." It is sad, but not surprising that the majority is not
willing to consider or even discuss the general rule, but only the exemptions under Section 133 and Section 234. After all,
if the majority is dead set in ruling for MIAA no matter what the law says, why bother citing what the law does say.

Constitution, Laws and

Jurisprudence Have Long

Explained the Rationale

Behind the Local Taxation

Of GOCCs.

This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the
succeeding discussion of the majority, which asserts that the power of local governments to tax national government
instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local Government
Code, is cited, as is Basco. This section of the majority employs deliberate pretense that the Code never existed, or that
the fundamentals of local autonomy are of limited effect in our country. Why is it that the Local Government Code is
barely mentioned in this section of the majority? Because Section 5 of the Code, purposely omitted by the majority
provides for a different rule of interpretation than that asserted:

Section 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt,
any question thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair
and reasonable doubt as to the existence of the power shall be interpreted in favor of the local government unit
concerned;

(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit
enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government
unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it; xxx

Yet the majority insists that "there is no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another." 105 I wonder whether
the Constitution satisfies the majority's desire for "a sound and compelling policy." To repeat:

Article II. Declaration of Principles and State Policies

xxx

Sec. 25. The State shall ensure the autonomy of local governments.

Article X. Local Government

xxx

Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

xxx

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.

Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it
was enacted by the legislature, that veritable source of all statutes:

SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units.

Justice Puno, in National Power Corporation v. City of Cabanatuan, 106 provides a more "sound and compelling policy
considerations" that would warrant sustaining the taxability of government-owned entities by local government units
under the Local Government Code.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities of the local government units for the delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations
and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.107

I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the
acceptance of the principles of local autonomy:
In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of
local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, 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 pursuant to Article X, section 5 of
the 1987 Constitution, viz:

"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, 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."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will,
consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable
local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC),
various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local
Autonomy Act of 1959, the Decentralization Act of 1967 and the Local Government Code of 1983. Despite these
initiatives, however, the shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority
to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal
constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such
as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does
not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian. 108

And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo 109, provides especially clear and
emphatic rationale:

In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss.
In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:

Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real
property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-
building, particularly in the local government level.

xxxxxxxxx

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no
measure can the government be said to have lost anything.

Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to
government-owned and controlled corporations and all other units of government was that such privilege resulted in
serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need
for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges
due from them.110

How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration
subjecting national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is
unfortunate if the majority deems these cases or the principles of devolution and local autonomy as simply too
inconvenient, and relies instead on discredited precedents. Of course, if the majority faces the issues squarely, and
expressly discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court would be more
intellectually satisfying. But, this is not a game the majority wants to play.

Mischaracterization of My

Views on the Tax Exemption

Enjoyed by the National Government

Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that
provision as if I had been interpreting the provision as making "the national government, which itself is a juridical person,
subject to tax by local governments since the national government is not included in the enumeration of exempt entities
in Section 193."111

Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis
on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government
Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn
upon the effectivity of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the
exemptions theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn upon the advent of the
Code.

On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of
LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject
to tax. Thus, Section 193 does not apply to entities which were never given any tax exemption. This would include the
national government and its political subdivisions which, as a general rule, are not subjected to tax in the first
place.112 Corollarily, the national government and its political subdivisions do not need tax exemptions. And Section 193
which ordains the withdrawal of tax exemptions is obviously irrelevant to them.

Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA
on Section 21 of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193
withdraws the tax exemptions previously enjoyed by all juridical persons.

With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for
MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter.

Lung Center of the Philippines v. Quezon City 113 provides another illustrative example of the jurisprudential havoc wrought
about by the majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous
GOCC organized with the SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the
Administrative Code, it is also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative
Code definition of "instrumentalities" encompasses agencies, especially those not attached to a line department such as
the Lung Center, it also follows that the Lung Center is an instrumentality, which for the majority is exempt from all local
government taxes, especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not
exempt from real property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is
made to demonstrate otherwise.

Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes
granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of
Sections 133 and 234(a) however necessarily implies that all instrumentalities, including GOCCs, can never be subjected
to real property taxation under the Code. If that is so, what then is the sense of the last paragraph specifically
withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons such as MIAA are anyway, to
his view, already exempt from such taxes under Section 133? The majority's interpretation would effectively render the
express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a
statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction
which will render the provision thereof operative and effective, as well as harmonious with each other. 115

But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use
anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or
Maceda. Local government rule has never been a grant of emancipation from the national government. This is the
favorite bugaboo of the opponents of local autonomythe fallacy that autonomy equates to independence.

Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the
reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national
instrumentalities and agencies by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No
mention is made of the subsequent rejection of these cases in jurisprudence following the Local Government Code,
including Mactan. The majority is similarly silent on the general rule under Section 232 on real property taxation or
Section 5 on the rules of construction of the Local Government Code.

V.
MIAA, and not the National Government

Is the Owner of the Subject Taxable Properties

Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule
property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for
exempting entities from real property taxation. It provides the most viable legal support for any claim that an
governmental entity such as the MIAA is exempt from real property taxes. To repeat:

SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax:

xxx

(f) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person:

The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them
under the exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments.

MIAA Property Is Patrimonial

And Not Part of Public Dominion

The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and
therefore owned by the State or the Republic of the Philippines. But as pointed out by Justice Azcuna in the first PPA
case, if indeed a property is considered part of the public dominion, such property is "owned by the general public and
cannot be declared to be owned by a public corporation, such as [the PPA]."

Relevant on this point are the following provisions of the MIAA charter:

Section 3. Creation of the Manila International Airport Authority. xxx

The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. xxx Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.

Section 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands,
buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment
which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority.

Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government that asserts
legal title over the Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the
national government. If the distinction is to be blurred, as the majority does, between the State/Republic/Government
and a body corporate such as the MIAA, then the MIAA charter showcases the remarkable absurdity of an entity
transferring property to itself.

Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of public
dominion to an entity that it similarly owns. It is just like a family transferring ownership over the properties its members
own into a family corporation. The family exercises effective control over the administration and disposition of these
properties. Yet for several purposes under the law, such as taxation, it is the corporation that is deemed to own those
properties. A similar situation obtains with MIAA, the State, and the Airport Lands and Buildings.

The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The
Court refuted the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's
charter expressly transferred ownership over these properties to the PPA, a situation which similarly obtains with MIAA.
The Court even went as far as saying that the fact that the PPA "had not been issued any torrens title over the port and
port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely
an evidence of title over properties. xxx It has never been recognized as a mode of acquiring ownership over real
properties."116

The Court further added:

xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it
from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the
petitioner's corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the
administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with
corporate status and corporate powers in the furtherance of its proprietary interests xxx The petitioner is even
empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income
from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. xxx Clearly then, the
petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax. 117

There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was
propounded by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118which was
cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body
corporate, "provides valuable transportation facilities to the paying public." 119 It claimed that its carriage-ways and
terminal stations are immovably attached to government-owned national roads, and to impose real property taxes
thereupon would be to impose taxes on public roads. This view did not persuade the Court, whose decision was penned
by Justice (now Chief Justice) Panganiban. It was noted:

Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic
and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is
clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates
much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its
claim of being a government-owned or controlled corporation.

xxx

Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways
and terminal stations are the commuting public. It adds that the public use character of the LRT is not negated by the
fact that revenue is obtained from the latter's operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay
the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways
and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-
earning. It actually uses those carriageways and terminal stations in its public utility business and earns money
therefrom.120

xxx

Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would
not apply because their beneficial use has been granted to petitioner, a taxable entity. 121

There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities
are in the business of operating facilities that promote public transportation.

The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man.
But if this is so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale
of any of these properties? In fact, why does MIAA's charter in the first place authorize the transfer of these airport
properties, assuming that indeed these are beyond the commerce of man?

No Trust Has Been Created

Over MIAA Properties For

The Benefit of the Republic

The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for
the Republic. A provision of the Administrative Code is cited, but said provision does not expressly provide that the
property is held in trust. Trusts are either express or implied, and only those situations enumerated under the Civil Code
would constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a provision in MIAA's
charter expressly stating that these properties are being held in trust. In fact, under its charter, MIAA is obligated to
retain up to eighty percent (80%) of its gross operating income, not an inconsequential sum assuming that the beneficial
owner of MIAA's properties is actually the Republic, and not the MIAA.

Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately
irrelevant. Section 234(a) of the Local Government Code provides among those exempted from paying real property taxes
are "[r]eal property owned by the [Republic] except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." In the context of Section 234(a), the identity of the beneficial owner
over the properties is not determinative as to whether the exemption avails. It is the identity of the beneficial user of the
property owned by the Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person,
then the exemption does not lie.
I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the
properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed
by the National Government.122 If so, then there is no difference between the State's ownership rights over MIAA
properties than those of a majority stockholder over the properties of a corporation. Even if such shareholder effectively
owns the corporation and controls the disposition of its assets, the personality of the stockholder remains separately
distinct from that of the corporation. A brief recall of the entrenched rule in corporate law is in order:

The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its
stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched
in American jurisprudence:

Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special
agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or equity.
The reason is that the corporation is a legal entity or artificial person, distinct from the members who compose it, in their
individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial person the corporation
and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213)

The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been
given definite recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not
be made to answer for acts or liabilities of its stockholders or those of legal entities to which it may be connected, or vice
versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared in a similar case that a bonafide corporation
should alone be liable for corporate acts duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al.
151 SCRA, p. 372)123

It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation
under the Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate
name.124 The national government made a particular choice to divest ownership and operation of the Manila International
Airport and transfer the same to such an empowered entity due to perceived advantages. Yet such transfer cannot be
deemed consequence free merely because it was the State which contributed the operating capital of this body corporate.

The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed
rationale for such transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it
was intended that the transfer should be free of consequence, then why was it effected to a body corporate, with a
distinct legal personality from that of the State or Republic? The stated aims of the MIAA could have very well been
accomplished by creating an agency without independent juridical personality.

VI.

MIAA Performs Proprietary Functions

Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from
realty taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding
the scope of "the Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined
as "the provinces, cities, municipalities and barangays."125 In correlation, the Administrative Code of 1987 defines "local
government" as referring to "the political subdivisions established by or in accordance with the Constitution."

Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt.
The same could be said generally of the national government, which would be similarly exempt. After all, even with the
principle of local autonomy, it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign
exercise of functions. However, the exercise of proprietary functions is a different matter altogether.

Sovereign and Proprietary

Functions Distinguished

Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature,
while ministrant or proprietary functions are those undertaken by way of advancing the general interests of society and
are merely optional.126 An exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO: 127

xxx This institution, when referring to the national government, has reference to what our Constitution has established
composed of three great departments, the legislative, executive, and the judicial, through which the powers and functions
of government are exercised. These functions are twofold: constituent and ministrant. The former are those which
constitute the very bonds of society and are compulsory in nature; the latter are those that are undertaken only by way
of advancing the general interests of society, and are merely optional. President Wilson enumerates the constituent
functions as follows:

"'(1) The keeping of order and providing for the protection of persons and property from violence and robbery.
'(2) The fixing of the legal relations between man and wife and between parents and children.

'(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for
debt or for crime.

'(4) The determination of contract rights between individuals.

'(5) The definition and punishment of crime.

'(6) The administration of justice in civil cases.

'(7) The determination of the political duties, privileges, and relations of citizens.

'(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and
the advancement of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.)

The most important of the ministrant functions are: public works, public education, public charity, health and safety
regulations, and regulations of trade and industry. The principles determining whether or not a government shall exercise
certain of these optional functions are: (1) that a government should do for the public welfare those things which private
capital would not naturally undertake and (2) that a government should do these things which by its very nature it is
better equipped to administer for the public welfare than is any private individual or group of individuals. (Malcolm, The
Government of the Philippine Islands, pp. 19-20.)

From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to
promote its objectives as expressed in our Constitution and which are exercised by it as an attribute of sovereignty, and
those which it may exercise to promote merely the welfare, progress and prosperity of the people. To this latter class
belongs the organization of those corporations owned or controlled by the government to promote certain aspects of the
economic life of our people such as the National Coconut Corporation. These are what we call government-owned or
controlled corporations which may take on the form of a private enterprise or one organized with powers and formal
characteristics of a private corporations under the Corporation Law. 128

The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions:

Does the fact that these corporations perform certain functions of government make them a part of the Government of
the Philippines?

The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification
of municipal or public corporation. Take for instance the National Coconut Corporation. While it was organized with the
purpose of "adjusting the coconut industry to a position independent of trade preferences in the United States" and of
providing "Facilities for the better curing of copra products and the proper utilization of coconut by-products," a function
which our government has chosen to exercise to promote the coconut industry, however, it was given a corporate power
separate and distinct from our government, for it was made subject to the provisions of our Corporation Law in so far as
its corporate existence and the powers that it may exercise are concerned (sections 2 and 4, Commonwealth Act No.
518). It may sue and be sued in the same manner as any other private corporations, and in this sense it is an entity
different from our government. As this Court has aptly said, "The mere fact that the Government happens to be a
majority stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil.,
586-587). "By becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign
character so far as respects the transactions of the corporation. . . . Unlike the Government, the corporation may be sued
without its consent, and is subject to taxation. Yet the National Coal Company remains an agency or instrumentality of
government." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.)

The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting:

The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit.
(Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages in a particular business through the
instrumentality of a corporation, it divests itself pro hoc vice of its sovereign character so as to subject itself to the rules
governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to be treated like any other corporation. (PNR v.
Union de Maquinistas Fogonero y Motormen, 84 SCRA 223)

In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such.
It acts merely as a corporator and exercises no other power in the management of the affairs of the corporation than are
expressly given by the incorporating act. Nor does the fact that the government may own all or a majority of the capital
stock take from the corporation its character as such, or make the government the real party in interest. (Amtorg Trading
Corp. v. US 71 F2d 524, 528)129

MIAA Performs Proprietary

Functions No Matter How

Vital to the Public Interest

The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation of
an airport facility by the State may be imbued with public interest, but it is by no means indispensable or obligatory on
the national government. In fact, as demonstrated in other countries, it makes a lot of economic sense to leave the
operation of airports to the private sector.

The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is no
competing international airport operated by the private sector; and that MIAA performs an essential public service as the
primary domestic and international airport of the Philippines. This premise is false, for one. On a local scale, MIAA
competes with other international airports situated in the Philippines, such as Davao International Airport and MCIAA.
More pertinently, MIAA also competes with other international airports in Asia, at least. International airlines take into
account the quality and conditions of various international airports in determining the number of flights it would assign to
a particular airport, or even in choosing a hub through which destinations necessitating connecting flights would pass
through.

Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National
Railways should be taken into account. The PNR does not compete in the marketplace, and performs an essential public
service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in
Malong v. Philippine National Railways,130 held that it was not.131

Even more relevant to this particular case is Teodoro v. National Airports Corporation,132 concerning the proper
appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the
defunction National Airports Corporation. The CAA claimed that as an unincorporated agency of the Republic of the
Philippines, it was incapable of suing and being sued. The Court noted:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind,
to purchase property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to
aircraft of aviation gasoline, accessories and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The
power to sue and be sued is implied from the power to transact private business. And if it has the power to sue and be
sued on its behalf, the Civil Aeronautics Administration with greater reason should have the power to prosecute and
defend suits for and against the National Airports Corporation, having acquired all the properties, funds and choses in
action and assumed all the liabilities of the latter. To deny the National Airports Corporation's creditors access to the
courts of justice against the Civil Aeronautics Administration is to say that the government could impair the obligation of
its corporations by the simple expedient of converting them into unincorporated agencies. 133

xxx

Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate,
manage, control, maintain and develop the Manila International Airport." 134 Notwithstanding this expansion, in the 1988
case of CAA v. Court of Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or non-
governmental functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA was
engaged in private or non-governmental functions. These are more precedents ignored by the majority. The following
observation from the Teodoro case very well applies to MIAA.

The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was
created, like the National Airports Corporation, not to maintain a necessary function of government, but to run what is
essentially a business, even if revenues be not its prime objective but rather the promotion of travel and the convenience
of the traveling public. It is engaged in an enterprise which, far from being the exclusive prerogative of state, may, more
than the construction of public roads, be undertaken by private concerns. 137

If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality of the
public service being performed, then it should be noted that there is no more important public service performed than
that engaged in by public utilities. But notably, the Constitution itself authorizes private persons to exercise these
functions as it allows them to operate public utilities in this country 138 If indeed such functions are actually sovereign and
belonging properly to the government, shouldn't it follow that the exercise of these tasks remain within the exclusive
preserve of the State?

There really is no prohibition against the government taxing itself,139 and nothing obscene with allowing government
entities exercising proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the other hand, it
would be an even more noxious proposition that the government or the instrumentalities that it owns are above the law
and may refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and not
sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that it is imbued with some of
the attributes of government.

VII.
MIAA Property Not Subject to

Execution Sale Without Consent

Of the President.

Despite the fact that the City of Paraaque ineluctably has the power to impose real property taxes over the MIAA, there
is an equally relevant statutory limitation on this power that must be fully upheld. Section 3 of the MIAA charter states
that "[a]ny portion [of the [lands transferred, conveyed and assigned to the ownership and administration of the MIAA]
shall not be disposed through sale or through any other mode unless specifically approved by the President of the
Philippines."140

Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this
prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in the collection of delinquent
real property taxes. While the Local Government Code withdrew all previous local tax exemptions of the MIAA and other
natural and juridical persons, it did not similarly withdraw any previously enacted prohibitions on properties owned by
GOCCs, agencies or instrumentalities. Moreover, the resulting legal effect, subjecting on one hand the MIAA to local taxes
but on the other hand shielding its properties from any form of sale or disposition, is not contradictory or paradoxical,
onerous as its effect may be on the LGU. It simply means that the LGU has to find another way to collect the taxes due
from MIAA, thus paving the way for a mutually acceptable negotiated solution. 141

There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this juncture
that the importance of the Manila Airport to our national life and commerce may be accorded proper consideration. The
closure of the airport, even by reason of MIAA's legal omission to pay its taxes, will have an injurious effect to our
national economy, which is ever reliant on air travel and traffic. The same effect would obtain if ownership and
administration of the airport were to be transferred to an LGU or some other entity which were not specifically chartered
or tasked to perform such vital function. It is for this reason that the MIAA charter specifically forbids the sale or
disposition of MIAA properties without the consent of the President. The prohibition prevents the peremptory closure of
the MIAA or the hampering of its operations on account of the demands of its creditors. The airport is important enough
to be sheltered by legislation from ordinary legal processes.

Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President
over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of
government. The power of executive control by the President should be upheld so long as such exercise does not
contravene the Constitution or the law, the President having the corollary duty to faithfully execute the Constitution and
the laws of the land.142 In this case, the exercise of executive control is precisely recognized and authorized by the
legislature, and it should be upheld even if it comes at the expense of limiting the power of local government units to
collect real property taxes.

Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties could not be
subject of execution sale without the consent of the President, I suspect that the parties would feel little distress.
Through such action, both the Local Government Code and the MIAA charter would have been upheld. The prerogatives
of LGUs in real property taxation, as guaranteed by the Local Government Code, would have been preserved, yet the
concerns about the ruinous effects of having to close the Manila International Airport would have been averted. The
parties would then be compelled to try harder at working out a compromise, a task, if I might add, they are all too willing
to engage in.143 Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the
City of Paraaque, but to the thousands of LGUs in the country.

VIII.

Summary of Points

My points may be summarized as follows:

1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code,
enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs,
instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only
exemptions from local taxes are those specifically provided under the Local Government Code itself, or those enacted
through subsequent legislation.

2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable
for real property taxes. The only exemptions therefrom under the same Code are provided in Section 234, which include
real property owned by the Republic of the Philippines or any of its political subdivisions.

3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from
the Republic of the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does
not fall within the exemptions under Section 234 of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Paraaque is
prohibited from seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end,
MIAA is encumbered only by a limited lien possessed by the City of Paraaque.

On the other hand, the majority's flaws are summarized as follows:

1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies
and directly cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than
that warranted by the precedents without explaining why Mactan or the other precedents are wrong, the majority
attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the
practices and traditions of this Court.

2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution,
enacted under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no
sound rationale for local governments to tax national government instrumentalities, despite the blunt existence of such
rationales in the Constitution, the Local Government Code, and precedents.

3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code
above and beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition
of GOCCs that effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences.

4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies
and instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary
and the proviso under Section 133, "unless otherwise provided herein [the Local Government Code]."

5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that
such properties are patrimonial in character. No express or implied trust has been created to benefit the national
government. The legal distinction between sovereign and proprietary functions, as affirmed by jurisprudence, likewise
preclude the classification of MIAA properties as patrimonial.

IX.

Epilogue

If my previous discussion still fails to convince on how wrong the majority is, then the following points are well-worth
considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that
exercises corporate powers but not organized as a stock or non-stock corporation. Correspondingly for the majority, the
Bangko ng Sentral is exempt from all forms of local taxation by LGUs by virtue of the Local Government Code.

Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:

SECTION 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of
this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.

The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt
from local taxation owing to its personality as an "government instrumentality," why then the need to make a new grant
of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly, does not this
provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial,
municipal and city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which
entities are subject to taxation and which are exempt.

Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation,
but a government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like
the Bangko Sentral , which is not even a government owned corporation, be subjected to local taxation like any mere
mortal? But then, see Section 1 of the New Central Bank Act:

SECTION 1. Declaration of Policy. The State shall maintain a central monetary authority that shall function and operate
as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money,
banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative
autonomy.

Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas.
But this legislative intent, the sort that is evident from the text of the provision and not the one that needs to be
unearthed from the bowels of the archival offices of the House and the Senate, is for naught to the majority, as it
contravenes the Administrative Code of 1987, which after all, is "the governing law defining the status and relationship of
government agencies and instrumentalities" and thus superior to the legislative charter in determining the personality of a
chartered entity. Its like saying that the architect who designed a school building is better equipped to teach than the
professor because at least the architect is familiar with the geometry of the classroom.

Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by
Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and
empowered with the attributes of a corporation, 145 including the power to purchase or acquire real properties. 146 However
the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC.

The state policy that guides PITAHC is the development of traditional and alternative health care, 147 and its objectives
include the promotion and advocacy of alternative, preventive and curative health care modalities that have been proven
safe, effective and cost effective. 148 "Alternative health care modalities" include "other forms of non-allophatic,
occasionally non-indigenous or imported healing methods" which include, among others "reflexology, acupuncture,
massage, acupressure" and chiropractics.149

Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor
that would provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is
in line with the purpose of the PITAHC and with state policy. Is such massage parlor exempt from realty taxes? For the
majority, it is, for PITAHC is an instrumentality or agency exempt from local government taxation, which does not fall
under the exceptions under Section 234 of the Local Government Code. Hence, this massage parlor would not just be a
shelter for frazzled nerves, but for taxes as well.

Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an absurdity. But
precisely the majority, and the faulty reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-
exempt massage parlor is one of the lesser evils that could arise from the majority ruling. This is indeed a very strange
and very wrong decision.

I dissent.

DANTE O. TINGA

Associate Justice
THIRD DIVISION

PLANTERS PRODUCTS, INC., G.R. No. 166006

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
FERTIPHIL CORPORATION,
Respondent. March 14, 2008

x--------------------------------------------------x

DECISION

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the constitutionality of statutes, executive
orders, presidential decrees and other issuances. The Constitution vests that power not only in the Supreme Court but in
all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) affirming
with modification that of
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation
(Fertiphil) for the levies it paid under Letter of Instruction (LOI) No. 1465.

The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws.[3] They are
both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in
the Philippines.[4] The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to
make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[5]
(Underscoring supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and
Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.[6]

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the return of democracy,
Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the
demand.[7]

Fertiphil filed a complaint for collection and damages[8] against FPA and PPI with the RTC in Makati. It questioned the
constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process of law.[9] Fertiphil alleged that the LOI solely favored PPI, a privately owned
corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,[10] FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of
the police power of the State in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil
did not sustain any damage from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the
seller.

RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the
defendant Planters Product, Inc., ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.

SO ORDERED.[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of taxation, the RTC invalidated
the levy for violating the basic principle that taxes can only be levied for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is purportedly in the exercise of
the power of taxation. It is a settled principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to their
constituents. However, there are two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token, taxes may not be
levied for purely private purposes, for building up of private fortunes, or for the redress of private wrongs. They cannot
be levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where
the aid is incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied
except for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under the guise
of taxation to promote a purpose that is not of public interest. Without such limitation, the power to tax could be
exercised or employed as an authority to destroy the economy of the people. A tax, however, is not held void on the
ground of want of public interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide Authority pursuant to the
P10 per bag of fertilizer sold imposition under LOI 1465 which, in turn, remitted the amount to the defendant Planters
Products, Inc. thru the latters depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff,
Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and the
defendant, Planters Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite evident that LOI
1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should
go to the defendant Planters Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a
public purpose and not to benefit, aid and promote a private enterprise such as Planters Product, Inc.[12]

PPI moved for reconsideration but its motion was denied.[13] PPI then filed a notice of appeal with the RTC but it failed
to pay the requisite appeal docket fee. In a separate but related proceeding, this Court[14] allowed the appeal of PPI and
remanded the case to the CA for proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the RTC, with the following
fallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject to the MODIFICATION that
the award of attorneys fees is hereby DELETED.[15]

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was the constitutionality of
LOI No. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially determine the
constitutionality of the subject statute in the instant case.

As a rule, where the controversy can be settled on other grounds, the courts will not resolve the constitutionality of a law
(Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid ruling on constitutional questions and to
presume that the acts of political departments are valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites are obtaining in a
controversy before it: First, there must be before the court an actual case calling for the exercise of judicial review.
Second, the question must be ripe for adjudication. Third, the person challenging the validity of the act must have
standing to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity; and
lastly, the issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines v. Zamora,
338 SCRA 81 [2000]).

Indisputably, the present case was primarily instituted for collection and damages. However, a perusal of the complaint
also reveals
that the instant action is founded on the claim that the levy imposed was an unlawful and unconstitutional special
assessment. Consequently, the requisite that the constitutionality of the law in question be the very lis mota of the case is
present, making it proper for the trial court to rule on the constitutionality of LOI 1465.[16]

The CA held that even on the assumption that LOI No. 1465 was issued under the police power of the state, it is still
unconstitutional because it did not promote public welfare. The CA explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid
exercise of the States power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be
levied only for public purposes. It reasoned out that the amount collected under the levy was remitted to the depository
bank of PPI, which the latter used to advance its private interest.

On the other hand, appellant submits that the subject statutes passage was a valid exercise of police power. In addition,
it disputes the court a quos findings arguing that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock ownership
of PPI.

Of the three fundamental powers of the State, the exercise of police power has been characterized as the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs. It may be exercised as long
as the activity or the property sought to be regulated has some relevance to public welfare (Constitutional Law, by
Isagani A. Cruz, p. 38, 1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution, which requires the
concurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test to determine the validity of
a police measure as follows: (1) the interests of the public generally, as distinguished from those of a particular class,
requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals (National Development Company v. Philippine Veterans Bank, 192 SCRA 257
[1990]).

It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure,
ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest.
However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public
welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a private
corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the self-
interest of a favored entity,
like PPI, as identical with the general interest of the countrys farmers or even the Filipino people in general. Well to
stress, substantive due process exacts fairness and equal protection disallows distinction where none is needed. When a
statutes public purpose is spoiled by private interest, the use of police power becomes a travesty which must be struck
down for being an arbitrary exercise of government power. To rule in favor of appellant would contravene the general
principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private individuals.[17]

The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit of Planters Foundation,
Inc., a foundation created to hold in trust the stock ownership of PPI. The CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI),
a foundation created by law to hold in trust for millions of farmers, the stock ownership of PFI on the strength of Letter of
Undertaking (LOU) issued by then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice
in an Opinion dated October 12, 1987, to wit:

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters
Foundation), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and
Planters Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the
Unpaid Capital), and subsequently for such capital increases as may be required for the continuing viability of Planters.

The capital recovery component shall be in the minimum amount of P10 per bag, which will be added to the price of all
domestic sales of fertilizer in the Philippines by any importer and/or fertilizer mother company. In this connection, the
Republic hereby acknowledges that the advances by Planters to Planters Foundation which were applied to the payment
of the Planters shares now held in trust by Planters Foundation, have been assigned to, among others, the Creditors.
Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the capital recovery component in the
special trust account designated in the notice dated April 2, 1985, addressed by counsel for the Creditors to Planters
Foundation. Such proceeds shall be deposited by FPA on or before the 15th day of each month.

The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on
the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and (d)
the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account
both its peso and foreign currency-denominated obligations. (Records, pp. 42-43)

Appellants proposition is open to question, to say the least. The LOU issued by then Prime Minister Virata taken together
with the Justice Secretarys Opinion does not preponderantly demonstrate that the collections made were held in trust in
favor of millions of farmers. Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this
Court is constrained to rely on what is explicitly provided in LOI 1465 that one of the primary aims in imposing the levy is
to support the successful rehabilitation and continued viability of PPI.[18]

PPI moved for reconsideration but its motion was denied.[19] It then filed the present petition with this Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE DECREED VIA A DEFAULT
JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT
THE VERY LIS MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS
NO STANDING TO DO SO.

II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION
IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF
FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.

III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO THE GOVERNMENT, AND
BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED DUTIES
AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF OPERATIVE FACT PRIOR TO ANY DECLARATION OF
UNCONSTITUTIONALITY OF LOI 1465.

IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN THE INSTANT CASE.[20]
(Underscoring supplied)

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to resolve constitutional issues.

Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality which
may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a
personal and substantial interest in the case or will sustain direct injury as a result of its enforcement.[21] It asserts that
Fertiphil did not suffer any damage from the CRC imposition because incidence of the levy fell on the ultimate consumer
or the farmers themselves, not on the seller fertilizer company.[22]

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has been adequately
discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to have a material interest in
the outcome of a case. In private suits, locus standi requires a litigant to be a real party in interest, which is defined as
the
party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit.[23]

In public suits, this Court recognizes the difficulty of applying the doctrine especially when plaintiff asserts a public right
on behalf of the general public because of conflicting public policy issues. [24] On one end, there is the right of the
ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal official action. At the
other end, there is the public policy precluding excessive judicial interference in official acts, which may unnecessarily
hinder the delivery of basic public services.
In this jurisdiction, We have adopted the direct injury test to determine locus standi in public suits. In People v. Vera,[25]
it was held that a person who impugns the validity of a statute must have a personal and substantial interest in the case
such that he has sustained, or will sustain direct injury as a result. The direct injury test in public suits is similar to the
real party in interest rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure.[26]

Recognizing that a strict application of the direct injury test may hamper public interest, this Court relaxed the
requirement in cases of transcendental importance or with far reaching implications. Being a mere procedural technicality,
it has also been held that locus standi may be waived in the public interest.[27]

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil has locus standi to file it.
Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was required, and it did pay, the P10 levy
imposed for every bag of fertilizer sold on the domestic market. It may be true that Fertiphil has passed some or all of the
levy to the ultimate consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from
seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility of severe sanctions for
failure to pay the levy. The fact of payment is sufficient injury to Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to factor in its product the
levy. The levy certainly rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. The
harm to their business consists not only in fewer clients because of the increased price, but also in adopting alternative
corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered all or
part of the levy just to be competitive in the market. The harm occasioned on the business of Fertiphil is sufficient injury
for purposes of locus standi.

Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently adopted by this Court
on locus standi must apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the
constitutionality of a tax law but, more importantly, the use of taxes for public purpose. Former President Marcos issued
LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and conditional
upon PPI becoming financially viable. The LOI provided that the capital contribution shall be collected until adequate
capital is raised to make PPI viable.

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty to
squarely resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing, being a mere
procedural technicality, should be waived, if at all, to adequately thresh out an important constitutional issue.

RTC may resolve constitutional issues; the constitutional issue was adequately raised in the complaint; it is the lis mota of
the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts that the constitutionality
of the LOI cannot be collaterally attacked in a complaint for collection.[28] Alternatively, the resolution of the
constitutional issue is not necessary for a determination of the complaint for collection.[29]

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It claims that the
constitutionality of LOI No. 1465 is the very lis mota of the case because the trial court cannot determine its claim without
resolving the issue.[30]

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential decree or an executive
order. This is clear from Section 5, Article VIII of the 1987 Constitution, which provides:

SECTION 5. The Supreme Court shall have the following powers:

xxxx
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final
judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential
decree, proclamation, order, instruction, ordinance, or regulation is in question. (Underscoring supplied)

In Mirasol v. Court of Appeals,[31] this Court recognized the power of the RTC to resolve constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to consider the
constitutionality of a statute, presidential decree, or executive order. The Constitution vests the power of judicial review
or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation not only in this Court, but in all Regional Trial Courts.[32]

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,[33] this Court reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity or constitutionality of a rule or
regulation issued by administrative agencies. Such jurisdiction, however, is not limited to the Court of Appeals or to this
Court alone for even the regional trial courts can take cognizance of actions assailing a specific rule or set of rules
promulgated by administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to declare
a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts.[34]

Judicial review of official acts on the ground of unconstitutionality may be sought or availed of through any of the actions
cognizable by courts of justice, not necessarily in a suit for declaratory relief. Such review may be had in criminal actions,
as in People v. Ferrer[35] involving the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as
in Krivenko v. Register of Deeds[36] involving the constitutionality of laws prohibiting aliens from acquiring public lands.
The constitutional issue, however, (a) must be properly raised and presented in the case, and (b) its resolution is
necessary to a determination of the case, i.e., the issue of constitutionality must be the very lis mota presented.[37]

Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised in the complaint for
collection filed with the RTC. The pertinent portions of the complaint allege:

6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in the Philippines, is
unlawful, unjust, uncalled for, unreasonable, inequitable and oppressive because:
xxxx

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense and disadvantage of
the other fertilizer importers/distributors who were themselves in tight business situation and were then exerting all
efforts and maximizing management and marketing skills to remain viable;

xxxx

(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having been presumptuously
masqueraded as the fertilizer industry itself, was the sole and anointed beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is tantamount to illegal exaction
amounting to a denial of due process since the persons of entities which had to bear the burden of paying the CRC
derived no benefit therefrom; that on the contrary it was used by PPI in trying to regain its former despicable monopoly
of the fertilizer industry to the detriment of other distributors and importers.[38] (Underscoring supplied)

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection. Fertiphil filed the complaint
to compel PPI to refund the levies paid under the statute on the ground that the law imposing the levy is unconstitutional.
The thesis is that an unconstitutional law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay
the levy. Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the civil code
principle against unjust enrichment. The refund is a mere consequence of the law being declared unconstitutional. The
RTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality
of the LOI which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is an exercise of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOI
was implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting a
foundation created by law to hold in trust for millions of farmers their stock ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a private company. The levy
was imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the police
power, it is still unconstitutional because it did not promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different
tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare,[39] while the power of taxation is the power to levy taxes to be used
for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue
generation. The lawful subjects and lawful means tests are used to determine the validity of a law enacted under the
police power.[40] The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true
that the power of taxation can be used as an implement of police power,[41] the primary purpose of the levy is revenue
generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax.[42]

In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle registration fee is not an exercise by the
State of its police power, but of its taxation power, thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land Transportation and
Traffic Code that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay
for the operating expenses of the administering agency. x x x Fees may be properly regarded as taxes even though they
also serve as an instrument of regulation.

Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is
primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called
a tax. Such is the case of motor vehicle registration fees. The same provision appears as Section 59(b) in the Land
Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the
imposition on the registration, operation or ownership of a motor vehicle as a tax or fee. x x x Simply put, if the exaction
under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an additional tax. Rep.
Act 4136 also speaks of other fees such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle
registration fee and chauffeurs license fee. Such fees are to go into the expenditures of the Land Transportation
Commission as provided for in the last proviso of Sec. 61.[44] (Underscoring supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big
burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent.[45]
A plain reading of the LOI also supports the conclusion that the levy was for revenue generation. The LOI expressly
provided that the levy was imposed until adequate capital is raised to make PPI viable.

Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The
levy was imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They
cannot be used for purely private purposes or for the exclusive benefit of private persons.[46] The reason for this is
simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used
only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private
purpose. As an old United States case bluntly put it: To lay with one hand, the power of the government on the property
of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private
fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation.[47]

The term public purpose is not defined. It is an elastic concept that can be hammered to fit modern standards.
Jurisprudence states that public purpose should be given a broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for
the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

While the categories of what may constitute a public purpose are continually expanding in light of the expansion of
government functions, the inherent requirement that taxes can only be exacted for a public purpose still stands. Public
purpose is the heart of a tax law. When a tax law is only a mask to exact funds from the public when its true intent is to
give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of public purpose.

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We agree with the RTC and
that CA that the levy imposed under LOI No. 1465 was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from
Clause 3 of the law, thus:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution
component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to
make PPI viable. Such capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[48]
(Underscoring supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the
text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the LOI did not even
hide the insidious purpose of the law. They were cavalier enough to name PPI as the ultimate beneficiary of the taxes
levied under the LOI. We find it utterly repulsive that a tax law would expressly name a private company as the ultimate
beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming
financially viable. This suggests that the levy was actually imposed to benefit PPI. The LOI notably does not fix a
maximum amount when PPI is deemed financially viable. Worse, the liability of Fertiphil and other domestic sellers of
fertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate capital is raised
for PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East
Bank and Trust Company, the depositary bank of PPI.[49] This proves that PPI benefited from the LOI. It is also proves
that the main purpose of the law was to give undue benefit and advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of Understanding[50] dated May 18,
1985 signed by then Prime Minister Cesar Virata reveals that PPI was in deep financial problem because of its huge
corporate debts. There were pending petitions for rehabilitation against PPI before the Securities and Exchange
Commission. The government guaranteed payment of PPIs debts to its foreign creditors. To fund the payment, President
Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:

Republic of the Philippines

Office of the Prime Minister
Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS

LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)

Gentlemen:

This has reference to Planters which is the principal importer and distributor of fertilizer, pesticides and agricultural
chemicals in the Philippines. As regards Planters, the Philippine Government confirms its awareness of the following: (1)
that Planters has outstanding obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the Securities and Exchange Commission
of the Philippines a petition filed at Planters own behest for the suspension of payment of all its obligations, and a
separate petition filed by Manufacturers Hanover Trust Company, Manila Offshore Branch for the appointment of a
rehabilitation receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the Republic) confirms that it considers and continues
to consider Planters as a major fertilizer distributor. Accordingly, for and in consideration of your expressed willingness to
consider and participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and unqualified
support of the successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and obligates
itself to the creditors and Planters, as follows:

xxxx

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in its fertilizer pricing
formula a capital recovery component, the proceeds of which will be used initially for the purpose of funding the unpaid
portion of the outstanding capital stock of Planters presently held in trust by Planters Foundation, Inc. (Planters
Foundation), which unpaid capital is estimated at approximately P206 million (subject to validation by Planters and
Planters Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter referred to as the
Unpaid Capital), and subsequently for such capital increases as may be required for the continuing viability of Planters.

xxxx

The capital recovery component shall continue to be charged and collected until payment in full of (a) the Unpaid Capital
and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any carrying cost accruing from the date hereof on
the amounts which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d)
the capital increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts, taking into account
both its peso and foreign currency-denominated obligations.

REPUBLIC OF THE PHILIPPINES

By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI. We
cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country. The letter
of understanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit of a private
corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465 was not for a public
purpose. LOI No. 1465 failed to comply with the public purpose requirement for tax laws.

The LOI is still unconstitutional even if enacted under the police power; it did not promote public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to
comply with the test of lawful subjects and lawful means. Jurisprudence states the test as follows: (1) the interest of the
public generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are
reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was
enacted to give undue advantage to a private corporation. We quote with approval the CA ratiocination on this point,
thus:

It is upon applying this established tests that We sustain the trial courts holding LOI 1465 unconstitutional. To be sure,
ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest.
However, the method by which LOI 1465 sought to achieve this is by no means a measure that will promote the public
welfare. The governments commitment to support the successful rehabilitation and continued viability of PPI, a private
corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to treat the self-
interest of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino
people in general. Well to stress, substantive due process exacts fairness and equal protection disallows distinction where
none is needed. When a statutes public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private individuals. (Underscoring supplied)

The general rule is that an unconstitutional law is void; the doctrine of operative fact is inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared unconstitutional. It banks on the
doctrine of operative fact, which provides that an unconstitutional law has an effect before being declared
unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even if it is subsequently declared to be
unconstitutional.

We cannot agree. It is settled that no question, issue or argument will be entertained on appeal, unless it has been raised
in the court a quo.[53] PPI did not raise the applicability of the doctrine of operative fact with the RTC and the CA. It
cannot belatedly raise the issue with Us in order to extricate itself from the dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is void. It produces no
rights, imposes no duties and affords no protection. It has no legal effect. It is, in legal contemplation, inoperative as if it
has not been passed.[54] Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in
accordance with the general civil code principle against unjust enrichment. The general rule is supported by Article 7 of
the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse
or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall
govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play.[55] It
nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot
always be erased by a new judicial declaration.[56]

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied
on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused
in double jeopardy[57] or would put in limbo the acts done by a municipality in reliance upon a law creating it.[58]

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It
unduly benefited from the levy. It was proven during the trial that the levies paid were remitted and deposited to its bank
account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI
at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that every person who, through an act of
performance by another comes into possession of something at the expense of the latter without just or legal ground
shall return the same to him. We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that
PPI must refund the amounts paid by Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003 is AFFIRMED.

SO ORDERED.