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POLICE POWER
United States Supreme Court
JACOBSON v. COM. OF MASSACHUSETTS, (1905)
No. 70
Argued: December 6, 1904 Decided: February 20, 1905
Facts:
The Board of Health of the city of Cambridge, Massachusetts, on the twenty-seventh
day of February, 1902, adopted the following regulation:
"Whereas, smallpox has been prevalent to some extent in the city of Cambridge and
still continues to increase; and whereas it is necessary for the speedy extermination
of the disease that all persons not protected by vaccination should be vaccinated, and
whereas, in the opinion of the board, the public health and safety require the
vaccination or revaccination of all the inhabitants of Cambridge; be it ordered, that
all the inhabitants of the city who have not been successfully vaccinated since March
1, 1897, be vaccinated or revaccinated."
Subsequently, the Board adopted an additional regulation empowering a named
physician to enforce the vaccination of persons as directed by the Board at its special
meeting of February 27.
The above regulations being in force, the plaintiff in error, Jacobson, was proceeded
against by a criminal complaint in one of the inferior courts of Massachusetts. The
complaint charged that, on the seventeenth day of July, 1902, the Board of Health of
Cambridge, being of the opinion that it was necessary for the public health and safety,
required the vaccination and revaccination of all the inhabitants thereof who had not been
successfully vaccinated since the first day of March, 1897, and provided them with the
means of free vaccination, and that the defendant, being over twenty-one years of age
and not under guardianship, refused and neglected to comply with such requirement.
Jacobson having been arraigned, pleaded not guilty and contended that the Revised
Laws of Massachusetts was in derogation of the rights secured to the defendant (Jacobson)
by the Preamble to the Constitution of the United States, and tended to subvert and defeat
the purposes of the Constitution as declared in its Preamble.
Second, it was in derogation of the rights secured to the defendant by the Fourteenth
Amendment of the Constitution of the United States, and especially of the clauses of that
amendment providing that no State shall make or enforce any law abridging the privileges
or immunities of citizens of the United States, nor deprive any person of life, liberty or
property without due process of law, nor deny to any person within its jurisdiction the equal
protection of the laws; and said section was opposed to the spirit of the Constitution.
He was sentenced by the inferior courts of Massachusetts and to pay a fine of five
dollars. The case was then continued for the opinion of the Supreme Judicial Court of
Massachusetts.
Issue:
Whether or not it is within the police power of a State to enact a compulsory
vaccination law.
Whether or not it is for the legislature, and not for the courts, to determine in the first
instance whether vaccination is or is not the best mode for the prevention of smallpox and
the protection of the public health.
Ruling:
Yes on both issues.
The police power of a State embraces such reasonable regulations relating to matters
completely within its territory, and not affecting the people of other States, established
directly by legislative enactment, as will protect the public health and safety.
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While a local regulation, even if based on the acknowledged police power of a State,
must always yield in case of conflict with the exercise by the General Government of any
power it possesses under the Constitution, the mode or manner of exercising its police power
is wholly within the discretion of the State so long as the Constitution of the United States
is not contravened, or any right granted or secured thereby is not infringed, or not exercised
in such an arbitrary and oppressive manner as to justify the interference of the courts to
prevent wrong and oppression.
The liberty secured by the Constitution of the United States does not import an
absolute right in each person to be at all times, and in all circumstances, wholly freed
from restraint, nor is it an element in such liberty that one person, or a minority of
persons residing in any community and enjoying the benefits of its local government,
should have power to dominate the majority when supported in their action by the
authority of the State.
It is within the police power of a State to enact a compulsory vaccination law,
and it is for the legislature, and not for the courts, to determine in the first instance
whether vaccination is or is not the best mode for the prevention of smallpox and the
protection of the public health.
There being obvious reasons for such exception, the fact that children, under certain
circumstances, are excepted from the operation of the law does not deny the equal protection
of the laws to adults if the statute is applicable equally to all adults in like condition.
The highest court of Massachusetts not having held that the compulsory
vaccination law of that State establishes the absolute rule that an adult must be
vaccinated even if he is not a fit subject at the time or that vaccination would seriously
injure his health or cause his death, this court holds that, as to an adult residing in the
community, and a fit subject of vaccination, the statute is not invalid as in derogation
of any of the rights of such person under the Fourteenth Amendment.
SARMIENTO, J.:
exercise of the lawmaking power, police power being legislative, and not
executive, in character.
In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the
Constitution, providing for worker participation "in policy and decision-making
processes affecting their rights and benefits as may be provided by
law." 4 Department Order No. 1, it is contended, was passed in the absence of prior
consultations. It is claimed, finally, to be in violation of the Charter's non-impairment
clause, in addition to the "great and irreparable injury" that PASEI members face
should the Order be further enforced.
On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of
Labor and Administrator of the Philippine Overseas Employment Administration,
filed a Comment informing the Court that on March 8, 1988, the respondent Labor
Secretary lifted the deployment ban in the states of Iraq, Jordan, Qatar, Canada,
Hongkong, United States, Italy, Norway, Austria, and Switzerland. * In submitting
the validity of the challenged "guidelines," the Solicitor General invokes the police
power of the Philippine State.
"Its scope, ever-expanding to meet the exigencies of the times, even to anticipate
the future where it could be done, provides enough room for an efficient and flexible
response to conditions and circumstances thus assuring the greatest benefits." 6
It finds no specific Constitutional grant for the plain reason that it does not owe its
origin to the Charter. Along with the taxing power and eminent domain, it is inborn
in the very fact of statehood and sovereignty. It is a fundamental attribute of
government that has enabled it to perform the most vital functions of governance.
Marshall, to whom the expression has been credited, 7 refers to it succinctly as the
plenary power of the State "to govern its citizens." 8
"The police power of the State ... is a power coextensive with self- protection, and
it is not inaptly termed the "law of overwhelming necessity." It may be said to be
that inherent and plenary power in the State which enables it to prohibit all things
hurtful to the comfort, safety, and welfare of society." 9
itself, the greatest of all rights, is not unrestricted license to act according to one's
will." 11 It is subject to the far more overriding demands and requirements of the
greater number.
Notwithstanding its extensive sweep, police power is not without its own
limitations. For all its awesome consequences, it may not be exercised
arbitrarily or unreasonably. Otherwise, and in that event, it defeats the purpose
for which it is exercised, that is, to advance the public good. Thus, when the power
is used to further private interests at the expense of the citizenry, there is a
clear misuse of the power. 12
The petitioner has shown no satisfactory reason why the contested measure should
be nullified. There is no question that Department Order No. 1 applies
only to "female contract workers," 14 but it does not thereby make an
undue discrimination between the sexes. It is well-settled that "equality before
the law" under the Constitution 15 does not import a perfect Identity of rights among
all men and women. It admits of classifications, provided that (1) such
classifications rest on substantial distinctions; (2) they are germane to the
purposes of the law; (3) they are not confined to existing conditions; and (4)
they apply equally to all members of the same class. 16
The Court is satisfied that the classification made-the preference for female
workers rests on substantial distinctions.
As a matter of judicial notice, the Court is well aware of the unhappy plight that has
befallen our female labor force abroad, especially domestic servants, amid
exploitative working conditions marked by, in not a few cases, physical and
personal abuse. The sordid tales of maltreatment suffered by migrant Filipina
workers, even rape and various forms of torture, confirmed by testimonies of
returning workers, are compelling motives for urgent Government action. As
precisely the caretaker of Constitutional rights, the Court is called upon to protect
victims of exploitation. In fulfilling that duty, the Court sustains the Government's
efforts.
The same, however, cannot be said of our male workers. In the first place, there is
no evidence that, except perhaps for isolated instances, our men abroad have been
afflicted with an Identical predicament. The petitioner has proffered no argument
that the Government should act similarly with respect to male workers. The Court,
of course, is not impressing some male chauvinistic notion that men are superior to
women. What the Court is saying is that it was largely a matter of evidence
(that women domestic workers are being ill-treated abroad in massive
instances) and not upon some fanciful or arbitrary yardstick that the
Government acted in this case. It is evidence capable indeed of unquestionable
demonstration and evidence this Court accepts. The Court cannot, however, say
the same thing as far as men are concerned. There is simply no evidence to justify
such an inference. Suffice it to state, then, that insofar as classifications are
concerned, this Court is content that distinctions are borne by the evidence.
Discrimination in this case is justified.
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The Court finds, finally, the impugned guidelines to be applicable to all female
domestic overseas workers. That it does not apply to "all Filipina workers" 20 is
not an argument for unconstitutionality. Had the ban been given universal
applicability, then it would have been unreasonable and arbitrary. For obvious
reasons, not all of them are similarly circumstanced. What the Constitution prohibits
is the singling out of a select person or group of persons within an existing class, to
the prejudice of such a person or group or resulting in an unfair advantage to
another person or group of persons. To apply the ban, say exclusively to workers
deployed by A, but not to those recruited by B, would obviously clash with the equal
protection clause of the Charter. It would be a classic case of what Chase refers to
as a law that "takes property from A and gives it to B." 21 It would be an unlawful
invasion of property rights and freedom of contract and needless to state, an invalid
act. 22 (Fernando says: "Where the classification is based on such distinctions that
make a real difference as infancy, sex, and stage of civilization of minority groups,
the better rule, it would seem, is to recognize its validity only if the young, the
women, and the cultural minorities are singled out for favorable treatment. There
would be an element of unreasonableness if on the contrary their status that calls
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for the law ministering to their needs is made the basis of discriminatory legislation
against them. If such be the case, it would be difficult to refute the assertion of
denial of equal protection." 23 In the case at bar, the assailed Order clearly accords
protection to certain women workers, and not the contrary.)
It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas
deployment. From scattered provisions of the Order, it is evident that such a total
ban has hot been contemplated. We quote:
Sec. 3. The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality
of employment opportunities for all. 30
"Protection to labor" does not signify the promotion of employment alone. What
concerns the Constitution more paramountly is that such an employment be above
all, decent, just, and humane. It is bad enough that the country has to send its sons
and daughters to strange lands because it cannot satisfy their employment needs
at home. Under these circumstances, the Government is duty-bound to insure that
our toiling expatriates have adequate protection, personally and economically,
while away from home. In this case, the Government has evidence, an evidence
the petitioner cannot seriously dispute, of the lack or inadequacy of such protection,
and as part of its duty, it has precisely ordered an indefinite ban on deployment.
The Court finds furthermore that the Government has not indiscriminately made
use of its authority. It is not contested that it has in fact removed the prohibition with
respect to certain countries as manifested by the Solicitor General.
The non-impairment clause of the Constitution, invoked by the petitioner, must yield
to the loftier purposes targetted by the Government. 31 Freedom of contract
and enterprise, like all other freedoms, is not free from
restrictions, more so in this jurisdiction, where laissez
faire has never been fully accepted as a controlling
economic way of life.
This Court understands the grave implications the questioned Order has on the
business of recruitment. The concern of the Government, however, is not
necessarily to maintain profits of business firms. In the ordinary sequence of events,
it is profits that suffer as a result of Government regulation. The interest of the State
is to provide a decent living to its citizens. The Government has convinced the Court
in this case that this is its intent. We do not find the impugned Order to be tainted
with a grave abuse of discretion to warrant the extraordinary relief prayed for.
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SO ORDERED.
ROMERO, J.:
The instant petition seeks a ruling from this Court on the validity of two
Administrative Orders issued by the Secretary of the Department of
Environment and Natural Resources to carry out the provisions of certain
Executive Orders promulgated by the President in the lawful exercise of legislative
powers.
The adoption of the concept of jura regalia 2 that all natural resources are owned
by the State embodied in the 1935, 1973 and 1987 Constitutions, as well as the
recognition of the importance of the country's natural resources, not only for
national economic development, but also for its security and national
defense, 3 ushered in the adoption of the constitutional policy of "full control and
supervision by the State" in the exploration, development and utilization of the
country's natural resources. The options open to the State are through direct
undertaking or by entering into co-production, joint venture; or production-sharing
agreements, or by entering into agreement with foreign-owned corporations for
large-scale exploration, development and utilization.
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, fisheries, forests
or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint
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The President shall notify the Congress of every contract entered into
in accordance with this provision, within thirty days from its execution.
(Emphasis supplied)
On July 10, 1987, President Corazon C. Aquino, in the exercise of her then
legislative powers under Article II, Section 1 of the Provisional Constitution
and Article XIII, Section 6 of the 1987 Constitution, promulgated Executive
Order No. 211 prescribing the interim procedures in the processing and
approval of applications for the exploration, development and utilization of
minerals pursuant to the 1987 Constitution in order to ensure the continuity
of mining operations and activities and to hasten the development of mineral
resources. The pertinent provisions read as follows:
On July 25, 1987, President Aquino likewise promulgated Executive Order No.
279 authorizing the DENR Secretary to negotiate and conclude joint venture,
co-production, or production-sharing agreements for the exploration,
development and utilization of mineral resources, and prescribing the guidelines for
such agreements and those agreements involving technical or financial assistance
by foreign-owned corporations for large-scale exploration, development, and
utilization of minerals. The pertinent provisions relevant to this petition are as
follows:
Pursuant to Section 6 of Executive Order No. 279, the DENR Secretary issued on
June 23, 1989 DENR Administrative Order No. 57, series of 1989, captioned
"Guidelines of Mineral Production Sharing Agreement under Executive Order
No. 279." 6 Under the transitory provision of said DENR Administrative Order No.
57, embodied in its Article 9, all existing mining leases or agreements which were
granted after the effectivity of the 1987 Constitution pursuant to Executive Order
No. 211, except small scale mining leases and those pertaining to sand and gravel
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and quarry resources covering an area of twenty (20) hectares or less, shall be
converted into production-sharing agreements within one (1) year from the
effectivity of these guidelines.
On November 20, 1980, the Secretary of the DENR Administrative Order No. 82,
series of 1990, laying down the "Procedural Guidelines on the Award of Mineral
Production Sharing Agreement (MPSA) through Negotiation." 7
ii. All holders of DOL acquired after the effectivity of DENR A.O. No. 57.
In this petition for certiorari, petitioner Miners Association of the Philippines, Inc.
mainly contends that respondent Secretary of DENR issued both Administrative
Order Nos. 57 and 82 in excess of his rule-making power under Section 6 of
Executive Order No. 279. On the assumption that the questioned administrative
orders do not conform with Executive Order Nos. 211 and 279, petitioner
contends that both orders violate the
non-impairment of contract provision under Article III, Section 10 of the 1987
Constitution on the ground that Administrative Order No. 57 unduly pre-
terminates existing mining agreements and automatically converts them into
production-sharing agreements within one (1) year from its effectivity date.
On the other hand, Administrative Order No. 82 declares that failure to submit
Letters of Intent and Mineral Production-Sharing Agreements within two (2)
years from the date of effectivity of said guideline or on July 17, 1991 shall
cause the abandonment of their mining, quarry and sand gravel permits.
On July 2, 1991, the Court, acting on petitioner's urgent ex-parte petition for
issuance of a restraining order/preliminary injunction, issued a Temporary
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Now to the main petition. If its argued that Administrative Order Nos. 57 and 82
have the effect of repealing or abrogating existing mining laws 13 which are not
inconsistent with the provisions of Executive Order No. 279. Invoking Section 7 of
said Executive Order No. 279, 14 petitioner maintains that respondent DENR
Secretary cannot provide guidelines such as Administrative Order Nos. 57 and 82
which are inconsistent with the provisions of Executive Order No. 279 because both
Executive Order Nos. 211 and 279 merely reiterated the acceptance and
registration of declarations of location and all other kinds of mining applications by
the Bureau of Mines and Geo-Sciences under the provisions of Presidential Decree
No. 463, as amended, until Congress opts to modify or alter the same.
In other words, petitioner would have us rule that DENR Administrative Order
Nos. 57 and 82 issued by the DENR Secretary in the exercise of his rule-
making power are tainted with invalidity inasmuch as both contravene or
subvert the provisions of Executive Order Nos. 211 and 279 or embrace
matters not covered, nor intended to be covered, by the aforesaid laws.
We disagree.
We reiterate the principle that the power of administrative officials to
promulgate rules and regulations in the implementation of a statute is
necessarily limited only to carrying into effect what is provided in the
legislative enactment. The principle was enunciated as early as 1908 in the case
of United States v. Barrias. 15 The scope of the exercise of such rule-making power
was clearly expressed in the case of United States v. Tupasi Molina, 16 decided in
1914, thus: "Of course, the regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the law, and for the
sole purpose of carrying into effect its general provisions. By such regulations, of
course, the law itself can not be extended. So long, however, as the regulations
relate solely to carrying into effect its general provisions. By such regulations, of
course, the law itself can not be extended. So long, however, as the regulations
relate solely to carrying into effect the provision of the law, they are valid."
Recently, the case of People v. Maceren 17 gave a brief delienation of the scope of
said power of administrative officials:
and should be for the sole purpose of carrying into effect its general
provision. By such regulations, of course, the law itself cannot be
extended (U.S. v. Tupasi Molina, supra). An administrative agency
cannot amend an act of Congress (Santos vs. Estenzo, 109 Phil. 419,
422; Teoxon vs. Members of the Board of Administrators, L-25619,
June 30, 1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-
28952, December 29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906,
August 29, 1969, 29 SCRA 350).
Considering that administrative rules draw life from the statute which they
seek to implement, it is obvious that the spring cannot rise higher than its
source. We now examine petitioner's argument that DENR Administrative Order
Nos. 57 and 82 contravene Executive Order Nos. 211 and 279 as both operate to
repeal or abrogate Presidential Decree No. 463, as amended, and other mining
laws allegedly acknowledged as the principal law under Executive Order Nos. 211
and 279.
Upon the effectivity of the 1987 Constitution on February 2, 1987, 18 the State
assumed a more dynamic role in the exploration, development and utilization of the
natural resources of the country. Article XII, Section 2 of the said Charter explicitly
ordains that the exploration, development and utilization of natural resources shall
be under the full control and supervision of the State. Consonant therewith, the
exploration, development and utilization of natural resources may be undertaken
by means of direct act of the State, or it may opt to enter into co-production, joint
venture, or production-sharing agreements, or it may enter into agreements with
foreign-owned corporations involving either technical or financial assistance for
large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law,
based on real contributions to the economic growth and general welfare of the
country.
During the transition period or after the effectivity of the 1987 Constitution on
February 2, 1987 until the first Congress under said Constitution was convened on
July 27, 1987, two (2) successive laws, Executive Order Nos. 211 and 279, were
promulgated to govern the processing and approval of applications for the
exploration, development and utilization of minerals. To carry out the purposes of
said laws, the questioned Administrative Order Nos. 57 and 82, now being assailed,
were issued by the DENR Secretary.
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ARTICLE 9
TRANSITORY PROVISION
9.1. All existing mining leases or agreements which were granted after
the effectivity of the 1987 Constitution pursuant to Executive Order No.
211, except small scale mining leases and those pertaining to sand and
gravel and quarry resources covering an area of twenty (20) hectares
or less shall be subject to these guidelines. All such leases or
agreements shall be converted into production sharing agreement
within one (1) year from the effectivity of these guidelines. However,
any minimum firm which has established mining rights under
Presidential Decree 463 or other laws may avail of the provisions of EO
279 by following the procedures set down in this document.
Clearly, Executive Order No. 279 issued on July 25, 1987 by President Corazon C.
Aquino in the exercise of her legislative power has the force and effect of a statute
or law passed by Congress. As such, it validly modified or altered the privileges
granted, as well as the terms and conditions of mining leases and agreements
under Executive Order No. 211 after the effectivity of the 1987 Constitution by
authorizing the DENR Secretary to negotiate and conclude joint venture, co-
production, or production-sharing agreements for the exploration, development and
utilization of mineral resources and prescribing the guidelines for such agreements
and those agreements involving technical or financial assistance by foreign-owned
corporations for large-scale exploration, development, and utilization of minerals.
Well -settled is the rule, however, that regardless of the reservation clause,
mining leases or agreements granted by the State, such as those granted
subject
pursuant to Executive Order No. 211 referred to this petition, are
to alterations through a reasonable exercise of the
police power of the State. In the 1950 case of Ongsiako v.
Gamboa, 21 where the constitutionality of Republic Act No. 34 changing the 50-50
sharecropping system in existing agricultural tenancy contracts to 55-45 in favor of
tenants was challenged, the Court, upholding the constitutionality of the law,
emphasized the superiority of the police power of the State over the sanctity of this
contract:
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The economic policy on the exploration, development and utilization of the country's
natural resources under Article XII, Section 2 of the 1987 Constitution could not be
any clearer. As enunciated in Article XII, Section 1 of the 1987 Constitution, the
exploration, development and utilization of natural resources under the new system
mandated in Section 2, is geared towards a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
Accordingly, the State, in the exercise of its police power in this regard, may
not be precluded by the constitutional restriction on non-impairment of
contract from altering, modifying and amending the mining leases or
agreements granted under Presidential Decree No. 463, as amended, pursuant to
Executive Order No. 211. Police Power, being co-extensive with the necessities of
the case and the demands of public interest; extends to all the vital public needs.
The passage of Executive Order No. 279 which superseded Executive Order No.
211 provided legal basis for the DENR Secretary to carry into effect the mandate
of Article XII, Section 2 of the 1987 Constitution.
Nowhere in Administrative Order No. 57 is there any provision which would lead us
to conclude that the questioned order authorizes the automatic conversion of
mining leases and agreements granted after the effectivity of the 1987 Constitution,
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We, therefore, rule that the questioned administrative orders are reasonably
directed to the accomplishment of the purposes of the law under which they were
issued and were intended to secure the paramount interest of the public, their
economic growth and welfare. The validity and constitutionality of Administrative
Order Nos. 57 and 82 must be sustained, and their force and effect upheld.
SO ORDERED.
Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Bellosillo, Melo,
Quiason, Puno, Vitug, Kapunan and Mendoza, JJ., concur.
x --------------------------------------------- x
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DECISION
Vehicles have increased in number. Traffic congestion has moved from bad
to worse, from tolerable to critical. The number of people who use the
thoroughfares has multiplied x x x,1
have remained unchecked and have reverberated to this day. Traffic jams
continue to clog the streets of Metro Manila, bringing vehicles to a standstill at
main road arteries during rush hour traffic and sapping peoples energies and
patience in the process.
The present petition for review on certiorari, rooted in the traffic congestion problem,
questions the authority of the Metropolitan Manila Development Authority
(MMDA) to order the closure of provincial bus
terminals along Epifanio de los Santos Avenue
(EDSA) and major thoroughfares of Metro Manila.
Specifically challenged are two Orders issued by Judge Silvino T. Pampilo, Jr. of
the Regional Trial Court (RTC) of Manila, Branch 26 in Civil Case Nos. 03-105850
and 03-106224.
The first assailed Order of September 8, 2005,2 which resolved a motion for
reconsideration filed by herein respondents, declared Executive Order
(E.O.) No. 179, hereafter referred to as the E.O., "unconstitutional as it
constitutes an unreasonable exercise of police power." The second assailed Order
of November 23, 20053 denied petitioners motion for reconsideration.
President Gloria Macapagal Arroyo issued the E.O. on February 10, 2003,
"Providing for the Establishment of Greater Manila Mass Transport System," the
pertinent portions of which read:
WHEREAS, the traffic situation in Metro Manila has affected the adjacent
provinces of Bulacan, Cavite, Laguna, and Rizal, owing to the continued
movement of residents and industries to more affordable and economically
viable locations in these provinces;
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b) Coordinate the use of the land and/or properties needed for the
project with the respective agencies and/or entities owning them;
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As the above-quoted portions of the E.O. noted, the primary cause of traffic
congestion in Metro Manila has been the numerous buses plying the streets and
the inefficient connectivity of the different transport modes;5 and the MMDA had
"recommended a plan to decongest traffic by eliminating the bus terminals now
located along major Metro Manila thoroughfares and providing more and
convenient access to the mass transport system to the commuting public through
the provision of mass transport terminal facilities"6 which plan is referred to under
the E.O. as the Greater Manila Mass Transport System Project (the Project).
The E.O. thus designated the MMDA as the implementing agency for the Project.
Pursuant to the E.O., the Metro Manila Council (MMC), the governing board and
policymaking body of the MMDA, issued Resolution No. 03-07 series of
20037 expressing full support of the Project. Recognizing the imperative to integrate
the different transport modes via the establishment of common bus parking terminal
areas, the MMC cited the need to remove the bus terminals located along major
thoroughfares of Metro Manila.8
On February 24, 2003, Viron Transport Co., Inc. (Viron), a domestic corporation
engaged in the business of public transportation with a provincial bus
operation,9 filed a petition for declaratory relief10 before the RTC11 of Manila.
In its petition which was docketed as Civil Case No. 03-105850, Viron alleged that
the MMDA, through Chairman Fernando, was "poised to issue a Circular,
Memorandum or Order closing, or tantamount to closing, all provincial bus terminals
along EDSA and in the whole of the Metropolis under the pretext of traffic
regulation."12 This impending move, it stressed, would mean the closure of its bus
terminal in Sampaloc, Manila and two others in Quezon City.
Alleging that the MMDAs authority does not include the power to direct provincial
bus operators to abandon their existing bus terminals to thus deprive them of the
use of their property, Viron asked the court to construe the scope, extent and
limitation of the power of the MMDA to regulate traffic under R.A. No. 7924, "An Act
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Creating the Metropolitan Manila Development Authority, Defining its Powers and
Functions, Providing Funds Therefor and For Other Purposes."
Viron also asked for a ruling on whether the planned closure of provincial bus
terminals would contravene the Public Service Act and related laws which mandate
public utilities to provide and maintain their own terminals as a requisite for the
privilege of operating as common carriers.13
Mencorp asked the court to declare the E.O. unconstitutional and illegal for
transgressing the possessory rights of owners and operators of public land
transportation units over their respective terminals.
Averring that MMDA Chairman Fernando had begun to implement a plan to close
and eliminate all provincial bus terminals along EDSA and in the whole of the
metropolis and to transfer their operations to common bus terminals,15 Mencorp
prayed for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary injunction to restrain the impending closure of its bus terminals which it
was leasing at the corner of EDSA and New York Street in Cubao and at the
intersection of Blumentritt, Laon Laan and Halcon Streets in Quezon City. The
petition was docketed as Civil Case No. 03-106224 and was raffled to Branch 47
of the RTC of Manila.
Mencorps petition was consolidated on June 19, 2003 with Virons petition which
was raffled to Branch 26 of the RTC, Manila.
Mencorps prayer for a TRO and/or writ of injunction was denied as was its
application for the issuance of a preliminary injunction.16
In the Pre-Trial Order17 issued by the trial court, the issues were narrowed down to
whether 1) the MMDAs power to regulate traffic in Metro Manila included the power
to direct provincial bus operators to abandon and close their duly established and
existing bus terminals in order to conduct business in a common terminal; (2) the
E.O. is consistent with the Public Service Act and the Constitution; and (3) provincial
bus operators would be deprived of their real properties without due process of law
should they be required to use the common bus terminals.
Upon the agreement of the parties, they filed their respective position papers in lieu
of hearings.
By Decision18 of January 24, 2005, the trial court sustained the constitutionality and
legality of the E.O. pursuant to R.A. No. 7924, which empowered the MMDA to
administer Metro Manilas basic services including those of transport and traffic
management.
The trial court held that the E.O. was a valid exercise of the police power of the
State as it satisfied the two tests of lawful subject matter and lawful means, hence,
Virons and Mencorps property rights must yield to police power.
On the separate motions for reconsideration of Viron and Mencorp, the trial court,
by Order of September 8, 2005, reversed its Decision, this time holding that the
E.O. was "an unreasonable exercise of police power"; that the authority of the
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MMDA under Section (5)(e) of R.A. No. 7924 does not include the power to order
the closure of Virons and Mencorps existing bus terminals; and that the E.O. is
inconsistent with the provisions of the Public Service Act.
Hence, this petition, which faults the trial court for failing to rule that: (1) the
requisites of declaratory relief are not present, there being no justiciable
controversy in Civil Case Nos. 03-105850 and 03-106224; and (2) the President
has the authority to undertake or cause the implementation of the Project.19
In bringing their petitions before the trial court, both respondents pleaded the
existence of the essential requisites for their respective petitions for declaratory
relief,23 and refuted petitioners contention that a justiciable controversy was
lacking.24 There can be no denying, therefore, that the issue was raised and
discussed by the parties before the trial court.
The following are the essential requisites for a declaratory relief petition: (a) there
must be a justiciable controversy; (b) the controversy must be between persons
whose interests are adverse; (c) the party seeking declaratory relief must have a
legal interest in the controversy; and (d) the issue invoked must be ripe for judicial
determination.25
In the present cases, respondents resort to court was prompted by the issuance of
the E.O. The 4th Whereas clause of the E.O. sets out in clear strokes the MMDAs
plan to "decongest traffic by eliminating the bus terminals now located along major
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Metro Manila thoroughfares and providing more convenient access to the mass
transport system to the commuting public through the provision of mass transport
terminal facilities x x x." (Emphasis supplied)
Section 2 of the E.O. thereafter lays down the immediate establishment of common
bus terminals for north- and south-bound commuters. For this purpose, Section 8
directs the Department of Budget and Management to allocate funds of not more
than one hundred million pesos (P100,000,000) to cover the cost of the construction
of the north and south terminals. And the E.O. was made effective immediately.
The MMDAs resolve to immediately implement the Project, its denials to the
contrary notwithstanding, is also evident from telltale circumstances, foremost of
which was the passage by the MMC of Resolution No. 03-07, Series of 2003
expressing its full support of the immediate implementation of the Project.
Notable from the 5th Whereas clause of the MMC Resolution is the plan to "remove
the bus terminals located along major thoroughfares of Metro Manila and an urgent
need to integrate the different transport modes." The 7th Whereas clause proceeds
to mention the establishment of the North and South terminals.
It thus appears that the issue has already transcended the boundaries of what is
merely conjectural or anticipatory.lawphil
Under the circumstances, for respondents to wait for the actual issuance by the
MMDA of an order for the closure of respondents bus terminals would be foolhardy
for, by then, the proper action to bring would no longer be for declaratory relief
which, under Section 1, Rule 6330 of the Rules of Court, must be
brought before there is a breach or violation of rights.
As for petitioners contention that the E.O. is a mere administrative issuance which
creates no relation with third persons, it does not persuade. Suffice it to stress that
to ensure the success of the Project for which the concerned government agencies
are directed to coordinate their activities and resources, the existing bus terminals
owned, operated or leased by third persons like respondents would have to be
eliminated; and respondents would be forced to operate from the common bus
terminals.
It cannot be gainsaid that the E.O. would have an adverse effect on respondents.
The closure of their bus terminals would mean, among other things, the loss of
income from the operation and/or rentals of stalls thereat. Precisely, respondents
claim a deprivation of their constitutional right to property without due process of
law.
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Petitioners submit, however, that the real issue concerns the Presidents authority
to undertake or to cause the implementation of the Project. They assert that the
authority of the President is derived from E.O. No. 125, "Reorganizing the Ministry
of Transportation and Communications Defining its Powers and Functions and for
Other Purposes," her residual power and/or E.O. No. 292, otherwise known as the
Administrative Code of 1987. They add that the E.O. is also a valid exercise of the
police power.
E.O. No. 125,32 which former President Corazon Aquino issued in the exercise of
legislative powers, reorganized the then Ministry (now Department) of
Transportation and Communications. Sections 4, 5, 6 and 22 of E.O. 125, as
amended by E.O. 125-A,33 read:
To accomplish such mandate, the Ministry shall have the following objectives:
xxxx
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xxxx
As may be seen further, the Minister (now Secretary) of the DOTC is vested with
the authority and responsibility to exercise the mandate given to the
department. Accordingly, the DOTC Secretary is authorized to issue such orders,
rules, regulations and other issuances as may be necessary to ensure the effective
implementation of the law.
Since, under the law, the DOTC is authorized to establish and administer programs
and projects for transportation, it follows that the President may exercise the same
power and authority to order the implementation of the Project, which admittedly is
one for transportation.
Such authority springs from the Presidents power of control over all executive
departments as well as the obligation for the faithful execution of the laws under
Article VII, Section 17 of the Constitution which provides:
SECTION 17. The President shall have control of all the executive
departments, bureaus and offices. He shall ensure that the laws be faithfully
executed.
the Presidents power of supervision and control over the executive departments,
viz:
It bears stressing that under the provisions of E.O. No. 125, as amended, it is the
DOTC, and not the MMDA, which is authorized to establish and implement a project
such as the one subject of the cases at bar. Thus, the President, although
authorized to establish or cause the implementation of the Project, must exercise
the authority through the instrumentality of the DOTC which, by law, is the
primary implementing and administrative entity in the promotion, development and
regulation of networks of transportation, and the one so authorized to establish and
implement a project such as the Project in question.
In another vein, the validity of the designation of MMDA flies in the absence of a
specific grant of authority to it under R.A. No. 7924.
To recall, R.A. No. 7924 declared the Metropolitan Manila area39 as a "special
development and administrative region" and placed the administration of "metro-
wide" basic services affecting the region under the MMDA.
Section 2 of R.A. No. 7924 specifically authorizes the MMDA to perform "planning,
monitoring and coordinative functions, and in the process exercise regulatory and
supervisory authority over the delivery of metro-wide services," including transport
and traffic management.40 Section 5 of the same law enumerates the powers and
functions of the MMDA as follows:
(e) The MMDA shall set the policies concerning traffic in Metro
Manila, and shall coordinate and regulate the implementation of all
programs and projects concerning traffic management,
specifically pertaining to enforcement, engineering and
education. Upon request, it shall be extended assistance and
cooperation, including but not limited to, assignment of personnel, by
all other government agencies and offices concerned;
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(f) Install and administer a single ticketing system, fix, impose and
collect fines and penalties for all kinds of violations of traffic rules
and regulations, whether moving or non-moving in nature, and
confiscate and suspend or revoke drivers licenses in the enforcement
of such traffic laws and regulations, the provisions of RA 4136 and PD
1605 to the contrary notwithstanding. For this purpose, the Authority
shall impose all traffic laws and regulations in Metro Manila, through its
traffic operation center, and may deputize members of the PNP, traffic
enforcers of local government units, duly licensed security guards, or
members of non-governmental organizations to whom may be
delegated certain authority, subject to such conditions and
requirements as the Authority may impose; and
Clearly, the scope of the MMDAs function is limited to the delivery of the
seven (7) basic services. One of these is transport and traffic
management which includes the formulation and monitoring of policies,
standards and projects to rationalize the existing transport operations,
infrastructure requirements, the use of thoroughfares and promotion of the
safe movement of persons and goods. It also covers the mass transport
system and the institution of a system of road regulation, the administration
of all traffic enforcement operations, traffic engineering services and traffic
education programs, including the institution of a single ticketing system in
Metro Manila for traffic violations. Under this service, the MMDA is expressly
authorized to "to set the policies concerning traffic" and "coordinate and
regulate the implementation of all traffic management programs." In addition,
the MMDA may install and administer a single ticketing system," fix, impose
and collect fines and penalties for all traffic violations.
It will be noted that the powers of the MMDA are limited to the following acts:
formulation, coordination, regulation, implementation, preparation,
management, monitoring, setting of policies, installation of a system and
administration. There is no syllable in R.A. No. 7924 that grants the MMDA
police power, let alone legislative power. Even the Metro Manila Council has
not been delegated any legislative power. Unlike the legislative bodies of
the local government units, there is no provision in R.A. No. 7924 that
empowers the MMDA or its Council to enact ordinances, approve
resolutions and appropriate funds for the general welfare of the
inhabitants of Metro Manila. The MMDA is, as termed in the charter itself,
a development authority. It is an agency created for the purpose of
laying down policies and coordinating with the various national
government agencies, peoples organizations, non-governmental
organizations and the private sector for the efficient and expeditious
delivery of basic services in the vast metropolitan area. All its functions
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In light of the administrative nature of its powers and functions, the MMDA is devoid
of authority to implement the Project as envisioned by the E.O; hence, it could not
have been validly designated by the President to undertake the Project. It follows
that the MMDA cannot validly order the elimination of respondents terminals.
Even the MMDAs claimed authority under the police power must necessarily fail in
consonance with the above-quoted ruling in MMDA v. Bel-Air Village Association,
Inc. and this Courts subsequent ruling in Metropolitan Manila Development
Authority v. Garin43 that the MMDA is not vested with police power.
Even assuming arguendo that police power was delegated to the MMDA, its
exercise of such power does not satisfy the two tests of a valid police power
measure, viz: (1) the interest of the public generally, as distinguished from that 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.44 Stated differently, the police power legislation must be firmly
grounded on public interest and welfare and a reasonable relation must exist
between the purposes and the means.
Likewise, in Luque v. Villegas,46 this Court emphasized that public welfare lies at
the bottom of any regulatory measure designed "to relieve congestion of traffic,
which is, to say the least, a menace to public safety."47 As such, measures
calculated to promote the safety and convenience of the people using the
thoroughfares by the regulation of vehicular traffic present a proper subject for the
exercise of police power.
Notably, the parties herein concede that traffic congestion is a public concern that
needs to be addressed immediately. Indeed, the E.O. was issued due to the felt
need to address the worsening traffic congestion in Metro Manila which, the MMDA
so determined, is caused by the increasing volume of buses plying the major
thoroughfares and the inefficient connectivity of existing transport systems. It is thus
beyond cavil that the motivating force behind the issuance of the E.O. is the interest
of the public in general.
Are the means employed appropriate and reasonably necessary for the
accomplishment of the purpose. Are they not duly oppressive?
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With the avowed objective of decongesting traffic in Metro Manila, the E.O. seeks
to "eliminate[e] the bus terminals now located along major Metro Manila
thoroughfares and provid[e] more convenient access to the mass transport system
to the commuting public through the provision of mass transport terminal facilities
x x x."48 Common carriers with terminals along the major thoroughfares of Metro
Manila would thus be compelled to close down their existing bus terminals and use
the MMDA-designated common parking areas.
In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,49 two city ordinances
were passed by the Sangguniang Panlungsod of Lucena, directing public utility
vehicles to unload and load passengers at the Lucena Grand Central Terminal,
which was given the exclusive franchise to operate a single common terminal.
Declaring that no other terminals shall be situated, constructed, maintained or
established inside or within the city of Lucena, the sanggunian declared as
inoperable all temporary terminals therein.
The ordinances were challenged before this Court for being unconstitutional on the
ground that, inter alia, the measures constituted an invalid exercise of police power,
an undue taking of private property, and a violation of the constitutional prohibition
against monopolies.
Citing De la Cruz v. Paras50 and Lupangco v. Court of Appeals,51 this Court held
that the assailed ordinances were characterized by overbreadth, as they went
beyond what was reasonably necessary to solve the traffic problem in the city. And
it found that the compulsory use of the Lucena Grand Terminal was unduly
oppressive because it would subject its users to fees, rentals and charges.
A due deference to the rights of the individual thus requires a more careful
formulation of solutions to societal problems.
From the memorandum filed before this Court by petitioner, it is gathered that
the Sangguniang Panlungsod had identified the cause of traffic congestion to
be the indiscriminate loading and unloading of passengers by buses on the
streets of the city proper, hence, the conclusion that the terminals contributed
to the proliferation of buses obstructing traffic on the city streets.
Bus terminals per se do not, however, impede or help impede the flow of
traffic. How the outright proscription against the existence of all
terminals, apart from that franchised to petitioner, can be considered
as reasonably necessary to solve the traffic problem, this Court has not
been enlightened. If terminals lack adequate space such that bus drivers are
compelled to load and unload passengers on the streets instead of inside the
terminals, then reasonable specifications for the size of terminals could be
instituted, with permits to operate the same denied those which are unable to
meet the specifications.
As in Lucena, this Court fails to see how the prohibition against the existence of
respondents terminals can be considered a reasonable necessity to ease traffic
congestion in the metropolis. On the contrary, the elimination of respondents bus
terminals brings forth the distinct possibility and the equally harrowing reality of
traffic congestion in the common parking areas, a case of transference from one
site to another.
Less intrusive measures such as curbing the proliferation of "colorum" buses, vans
and taxis entering Metro Manila and using the streets for parking and passenger
pick-up points, as respondents suggest, might even be more effective in easing the
traffic situation. So would the strict enforcement of traffic rules and the removal of
obstructions from major thoroughfares.
As to the alleged confiscatory character of the E.O., it need only to be stated that
respondents certificates of public convenience confer no property right, and are
mere licenses or privileges.52 As such, these must yield to legislation safeguarding
the interest of the people.
Even then, for reasons which bear reiteration, the MMDA cannot order the closure
of respondents terminals not only because no authority to implement the Project
has been granted nor legislative or police power been delegated to it, but also
because the elimination of the terminals does not satisfy the standards of a valid
police power measure.
Finally, an order for the closure of respondents terminals is not in line with the
provisions of the Public Service Act.
Paragraph (a), Section 13 of Chapter II of the Public Service Act (now Section 5 of
Executive Order No. 202, creating the Land Transportation Franchising and
Regulatory Board or LFTRB) vested the Public Service Commission (PSC, now the
LTFRB) with "x x x jurisdiction, supervision and control over all public services and
their franchises, equipment and other properties x x x."
Consonant with such grant of authority, the PSC was empowered to "impose such
conditions as to construction, equipment, maintenance, service, or operation
as the public interests and convenience may reasonably require"53 in approving any
franchise or privilege.
Further, Section 16 (g) and (h) of the Public Service Act54 provided that the
Commission shall have the power, upon proper notice and hearing in accordance
with the rules and provisions of this Act, subject to the limitations and exceptions
mentioned and saving provisions to the contrary:
(g) To compel any public service to furnish safe, adequate, and proper
service as regards the manner of furnishing the same as well as the
maintenance of the necessary material and equipment.
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This Court commiserates with the MMDA for the roadblocks thrown in the way of
its efforts at solving the pestering problem of traffic congestion in Metro Manila.
These efforts are commendable, to say the least, in the face of the abominable
traffic situation of our roads day in and day out. This Court can only interpret, not
change, the law, however. It needs only to be reiterated that it is the DOTC as
the primary policy, planning, programming, coordinating, implementing, regulating
and administrative entity to promote, develop and regulate networks of
transportation and communications which has the power to establish and
administer a transportation project like the Project subject of the case at bar.
No matter how noble the intentions of the MMDA may be then, any plan, strategy
or project which it is not authorized to implement cannot pass muster.
WHEREFORE, the Petition is, in light of the foregoing disquisition, DENIED. E.O.
No. 179 is declared NULL and VOID for being ultra vires.
SO ORDERED.
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
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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
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, 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, 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
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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, the rationale and mechanics of the proposed ordinance were fully
presented to the attendees and no vehement objection was presented to the
municipal government;
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.
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)
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.
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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:
(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 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.
(Emphases supplied)
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Not in conformity, the respondents filed a petition for prohibition with an application
for a writ of preliminary injunction and temporary restraining order before the
Regional Trial Court, Marikina, Branch 273 (RTC), docketed as SCA Case No.
2000-381-MK.11
The respondents argued that the petitioners were acting in excess of jurisdiction
in enforcing Ordinance No. 192, asserting that such contravenes Section 1, Article
III of the 1987 Constitution. That demolishing their fence and constructing it six
(6) meters back would result in the loss of at least 1,808.34 square meters,
worth about P9,041,700.00, along West Drive, and at least 1,954.02 square meters,
worth roughly P9,770,100.00, along East Drive. It would also result in the
destruction of the garbage house, covered walk, electric house, storage
house, comfort rooms, guards room, guards post, waiting area for visitors,
waiting area for students, Blessed Virgin Shrine, P.E. area, and the multi-purpose
hall, resulting in the permanent loss of their beneficial use. The respondents, thus,
asserted that the implementation of the ordinance on their property would be
tantamount to an appropriation of property without due process of law; and
that the petitioners could only appropriate a portion of their property through
eminent domain. They also pointed out that the goal of the provisions to deter
lawless elements and criminality did not exist as the solid concrete walls of the
school had served as sufficient protection for many years.12
The petitioners, on the other hand, countered that the ordinance was a valid
exercise of police power, by virtue of which, they could restrain property
rights for the protection of public safety, health, morals, or the promotion of
public convenience and general prosperity.13
On June 30, 2000, the RTC issued a writ of preliminary injunction, enjoining the
petitioners from implementing the demolition of the fence at SSCs Marikina
property.14
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
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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.
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.
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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.
SO ORDERED.18
Aggrieved by the decision of the CA, the petitioners are now before this Court
presenting the following
ASSIGNMENT OF ERRORS
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.
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.
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"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
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;
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 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
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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.
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.
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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.
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
The
clearly the prevention of crime to ensure public safety and security.
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. `
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
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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
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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.
No pronouncement as to costs.
THIRD DIVISION
Promulgated:
FERTIPHIL CORPORATION,
Respondent. March 14, 2008
x--------------------------------------------------x
DECISION
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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
[2]
the RTC in Makati City, 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
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:
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.
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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:
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:
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.
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 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.
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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]).
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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:
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
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
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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.
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
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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]
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.
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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:
xxxx
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]
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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]
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
xxxx
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
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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.
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
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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:
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.
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
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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:
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
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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:
LETTER OF UNDERTAKING
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.
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xxxx
xxxx
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.
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
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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)
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.
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.
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]
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.
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.
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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
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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
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:
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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.
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]
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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:
....
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.
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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
[22]
zone. 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 Decisionreads:[27]
SO ORDERED.[28]
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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
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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 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]
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]
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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.
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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-
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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]
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
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Modality employed is
unlawful taking
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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.
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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]
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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]
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:
...
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:
...
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.
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]
(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.
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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.
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It is well to point out that petitioners also cannot seek cover under the general
welfare clause authorizing the abatement of nuisances without judicial proceedings.
That tenet applies to a nuisance per se, or one which affects the immediate safety
of persons and property and may be summarily abated under the undefined law of
necessity. It can not be said that motels are injurious to the rights of property, health
or comfort of the community. It is a legitimate business. If it be a nuisance per
accidens it may be so proven in a hearing conducted for that purpose. A motel is
not per se a nuisance warranting its summary abatement without judicial
intervention.[119]
Notably, the City Council was conferred powers to prevent and prohibit certain
activities and establishments in another section of the Code which is reproduced
as follows:
Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang
panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions
and appropriate funds for the general welfare of the city and its inhabitants pursuant to
Section 16 of this Code and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient and effective city
government, and in this connection, shall:
...
(v) Enact ordinances intended to prevent, suppress and impose appropriate penalties for
habitual drunkenness in public places, vagrancy, mendicancy, prostitution, establishment
and maintenance of houses of ill repute, gambling and other prohibited games of chance,
fraudulent devices and ways to obtain money or property, drug addiction, maintenance of
drug dens, drug pushing, juvenile delinquency, the printing, distribution or exhibition of
obscene or pornographic materials or publications, and such other activities inimical to the
welfare and morals of the inhabitants of the city;
...
If it were the intention of Congress to confer upon the City Council the power to
prohibit the establishments enumerated in Section 1 of the Ordinance, it would have
so declared in uncertain terms by adding them to the list of the matters it may
prohibit under the above-quoted Section. The Ordinance now vainly attempts to
lump these establishments with houses of ill-repute and expand the City Councils
powers in the second and third clauses of Section 458 (a) 4 (vii) of the Code in an
effort to overreach its prohibitory powers. It is 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
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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
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DECISION
CARPIO MORALES, J.:
Respondent, JAC Liner, Inc., a common carrier operating buses which ply
various routes to and from Lucena City, assailed, via a petition for prohibition and
injunction[1] against the City of Lucena, its Mayor, and the Sangguniang Panlungsod
of Lucena before the Regional Trial Court (RTC) of Lucena City, City Ordinance
Nos. 1631 and 1778 as unconstitutional on the ground that, inter alia, the same
constituted an invalid exercise of police power, an undue taking of private property,
and a violation of the constitutional prohibition against monopolies. The salient
provisions of the ordinances are:
xxx
SECTION 1. There is hereby granted to the Lucena Grand Central Terminal, Inc., its
successors or assigns, hereinafter referred to as the grantee, a franchise to construct, finance,
establish, operate, and maintain a common bus-jeepney terminal facility in the City of
Lucena.
SECTION 2. This franchise shall continue for a period of twenty-five years, counted from
the approval of this Ordinance, and renewable at the option of the grantee for another period
of twenty-five (25) years upon such expiration.
xxx
xxx
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(c) It shall not grant any third party any privilege and/or concession to operate a bus, mini-
bus and/or jeepney terminal.
xxx
xxx
SECTION 1. The entrance to the City of Lucena of all buses, mini-buses and out-of-town
passenger jeepneys is hereby regulated as follows:
(a) All buses, mini-buses and out-of-town passenger jeepneys shall be prohibited from
entering the city and are hereby directed to proceed to the common terminal, for picking-
up and/or dropping of their passengers.
(b) All temporary terminals in the City of Lucena are hereby declared inoperable starting
from the effectivity of this ordinance.
xxx
SECTION 3. a) Section 1 of Ordinance No. 1557, Series of 1995, is hereby amended to read
as follows:
Buses, mini-buses, and jeepney type mini-buses from other municipalities and/or local
government units going to Lucena City are directed to proceed to the Common Terminal
located at Diversion Road, Brgy. Ilayang Dupay, to unload and load passengers.
xxx
c) Section 3 of Ordinance No. 1557, Series of 1995, is hereby amended to read as follows:
Passenger buses, mini-buses, and jeepney type mini-buses coming from other municipalities
and/or local government units shall utilize the facilities of the Lucena Grand Central
Terminal at Diversion Road, Brgy. Ilayang Dupay, this City, and no other terminals shall
be situated inside or within the City of Lucena;
d) Section 4 of Ordinance No. 1557, Series of 1995, is hereby amended to read as follows:
Passenger buses, mini-buses, and jeepney type mini-buses coming from other municipalities
and/or local government units shall avail of the facilities of the Lucena Grand Central
Terminal which is hereby designated as the officially sanctioned common terminal for the
City of Lucena;
e) Section 5 of Ordinance No. 1557, Series of 1995, is hereby amended to read as follows:
The Lucena Grand Central Terminal is the permanent common terminal as this is th
e entity which was given the exclusive franchise by the Sangguniang Panglungsod un
der Ordinance No. 1631;(Emphasis and underscoring supplied)
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WHEREAS, in line with the worsening traffic condition of the City of Lucena, and with the
purpose of easing and regulating the flow of the same, it is imperative that the Buses, Mini-
Buses and out-of-town jeepneys be prohibited from maintaining terminals within the City,
but instead directing to proceed to the Lucena Grand Central Terminal for purposes of
picking-up and/or dropping off their passengers;[4]
Respondent, who had maintained a terminal within the city, was one of those
affected by the ordinances.
Petitioner, Lucena Grand Central Terminal, Inc., claiming legal interest as the
grantee of the exclusive franchise for the operation of the common terminal,[5] was
allowed to intervene in the petition before the trial court.
In the hearing conducted on November 25, 1998, all the parties agreed to
dispense with the presentation of evidence and to submit the case for resolution
solely on the basis of the pleadings filed.[6]
By Order of March 31, 1999,[7] Branch 54 of the Lucena RTC rendered
judgment, the dispositive portion of which reads:
1. Declaring City Ordinance No. 1631 as valid, having been issued in the exercise of the
police power of the City Government of Lucena insofar as the grant of franchise to the
Lucena Grand Central Terminal, Inc., to construct, finance, establish, operate and maintain
common bus-jeepney terminal facility in the City of Lucena;
2. But however, declaring the provision of Sec. 4(c) of Ordinance No. 1631 to the effect
that the City Government shall not grant any third party any privilege and/or concession to
operate a bus, mini-bus and/or jeepney terminal, as illegal and ultra vires because it
contravenes the provisions of Republic Act No. 7160, otherwise known as The Local
Government Code;
3. Declaring City Ordinance No. 1778 as null and void, the same being also an ultra vires
act of the City Government of Lucena arising from an invalid, oppressive and unreasonable
exercise of the police power, more specifically, declaring illegal [sections 1(b), 3(c) and
3(e)];
4. Ordering the issuance of a Writ of Prohibition and/or Injunction directing the respondents
public officials, the City Mayor and the Sangguniang Panglungsod of Lucena, to cease and
desist from implementing Ordinance No. 1778 insofar as said ordinance prohibits or
curtails petitioner from maintaining and operating its own bus terminal subject to the
conditions provided for in Ordinance No. 1557, Sec. 3, which authorizes the construction
of terminal outside the poblacion of Lucena City; and likewise, insofar as said ordinance
directs and compels the petitioner to use the Lucena Grand Central Terminal Inc.,
and furthermore, insofar as it declares that no other terminals shall be situated,
constructed, maintained or established inside or within the City of Lucena; and
furthermore,
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5. The Motion to Dismiss filed by the Intervenor, Lucena Grand Central Terminal Inc.,
dated October 19, 1998, is hereby DENIED for lack of merit.
Petitioners Motion for Reconsideration[9] of the trial courts order having been
denied by Order of August 6, 1999,[10] it elevated it via petition for review under Rule
45 before this Court.[11] This Court, by Resolution of November 24, 1999,[12] referred
the petition to the Court of Appeals with which it has concurrent jurisdiction, no
special and important reason having been cited for it to take cognizance thereof in
the first instance.
By Decision of December 15, 2000,[13] the appellate court dismissed the petition
and affirmed the challenged orders of the trial court. Its motion for
reconsideration[14] having been denied by the appellate court by Resolution dated
June 5, 2001,[15] petitioner once again comes to this Court via petition for
review,[16] this time assailing the Decision and Resolution of the Court of Appeals.
Decision on the petition hinges on two issues, to wit: (1) whether the trial court
has jurisdiction over the case, it not having furnished the Office of the Solicitor
General copy of the orders it issued therein, and (2) whether the City of Lucena
properly exercised its police power when it enacted the subject ordinances.
Petitioner argues that since the trial court failed to serve a copy of its assailed
orders upon the Office of the Solicitor General, it never acquired jurisdiction over
the case, it citing Section 22, Rule 3 of the Rules which provides:
SEC. 22. Notice to the Solicitor General.In any action involving the validity of any treaty,
law, ordinance, executive order, presidential decree, rules or regulations, the court in its
discretion, may require the appearance of the Solicitor General who may be heard in person
or through representative duly designated by him. (Emphasis and underscoring supplied)
SEC. 3. Notice on Solicitor General. In any action which involves the validity of a statute,
executive order or regulation, or any other governmental regulation, the Solicitor General
shall be notified by the party assailing the same and shall be entitled to be heard upon such
question.
SEC. 4. Local government ordinances. In any action involving the validity of a local
government ordinance, the corresponding prosecutor or attorney of the local government
unit involved shall be similarly notified and entitled to be heard. If such ordinance is alleged
to be unconstitutional, the Solicitor General shall also be notified and entitled to be heard.
(Emphasis and underscoring supplied)
Nowhere, however, is it stated in the above-quoted rules that failure to notify the
Solicitor General about the action is a jurisdictional defect.
In fact, Rule 3, Section 22 gives the courts in any action involving the validity of
any ordinance, inter alia, discretion to notify the Solicitor General.
Section 4 of Rule 63, which more specifically deals with cases assailing
the constitutionality, not just the validity, of a local government ordinance, directs
that the Solicitor General shall also be notified and entitled to be heard. Who will
notify him, Sec. 3 of the same rule provides it is the party which is assailing the local
governments ordinance.
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More importantly, however, this Court finds that no procedural defect, fatal or
otherwise, attended the disposition of the case. For respondent actually served a
copy of its petition upon the Office of the Solicitor General on October 1, 1998, two
days after it was filed. The Solicitor General has issued a Certification to that
effect.[17] There was thus compliance with above-quoted rules.
Respecting the issue of whether police power was properly exercised when the
subject ordinances were enacted: As with the State, the local government may be
considered as having properly exercised its 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 the interference of the State, and (2) the means
employed are reasonably necessary for the attainment of the object sought to be
accomplished and not unduly oppressive upon individuals. Otherwise stated, there
must be a concurrence of a lawful subject and lawful method.[18]
That traffic congestion is a public, not merely a private, concern, cannot be
gainsaid. In Calalang v. Williams[19] which involved a statute authorizing the
Director of Public Works to promulgate rules and regulations to regulate and control
traffic on national roads, this Court held:
In enacting said law, therefore, the National Assembly was prompted by considerations
of public convenience and welfare. It was inspired by a desire to relieve congestion of
traffic, which is, to say the least, a menace to public safety. Public welfare, then, lies at the
bottom of the enactment of said law, and the state in order to promote the general welfare
may interfere with personal liberty, with property, and with business and
occupations.[20] (Emphasis supplied)
The questioned ordinances having been enacted with the objective of relieving
traffic congestion in the City of Lucena, they involve public interest warranting the
interference of the State. The first requisite for the proper exercise of police power
is thus present.
Respondents suggestion to have this Court look behind the explicit objective of
the ordinances which, to it, was actually to benefit the private interest of petitioner
by coercing all bus operators to patronize its terminal does not lie.[21] Lim v.
Pacquing[22] instructs:
. . . [T]his Court cannot look into allegations that PD No. 771 was enacted to benefit a select
group which was later given authority to operate the jai-alai under PD No. 810. The
examination of legislative motivation is generally prohibited. (Palmer v. Thompson, 403
U.S. 217, 29 L. Ed. 2d 438 [1971] per Black, J.) There is, in the first place, absolute lack of
evidence to support ADCs allegation of improper motivation in the issuance of PD No. 771.
In the second place, as already averred, this Court cannot go behind the expressed and
proclaimed purposes of PD No. 771, which are reasonable and even laudable. (Underscoring
supplied)[23]
This leaves for determination the issue of whether the means employed by the
Lucena Sangguniang Panlungsod to attain its professed objective were reasonably
necessary and not unduly oppressive upon individuals.
With the aim of localizing the source of traffic congestion in the city to a single
location,[24] the subject ordinances prohibit the operation of all bus and jeepney
terminals within Lucena, including those already existing, and allow the operation
of only one common terminal located outside the city proper, the franchise for which
was granted to petitioner. The common carriers plying routes to and from Lucena
City are thus compelled to close down their existing terminals and use the facilities
of petitioner.
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It cannot be said that such a sweeping exercise of a lawmaking power by Bocaue could qu
alify under the term reasonable. The objective of fostering public morals, a worthy and des
irable end can be attainedby a measure that does not encompass too wide a field. Certainly
the ordinance on its face is characterized by overbreadth. The purpose sought to be achiev
ed could have been attained by reasonablerestrictions rather than by an absolute prohibitio
n. The admonition in Salaveria should be heeded: The Judiciary should not lightly set aside
legislative action when there is not a clear invasion of personal or property rights under the
guise of police regulation. It is clear that in the guise of a police regulation, there was in this
instance a clear invasion of personal or property rights, personal in the case of those
individuals desirous of patronizing those night clubs and property in terms of the
investments made and salaries to be earned by those therein employed. (Underscoring
supplied)[26]
Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged
leakages in the licensure examinations will be eradicated or at least minimized. Making the
examinees suffer by depriving them of legitimate means of review or preparation on those
last three precious days when they should be refreshing themselves with all that they have
learned in the review classes and preparing their mental and psychological make-up for the
examination day itself would be like uprooting the tree to get rid of a rotten branch.
What is needed to be done by the respondent is to find out the source of such leakages
and stop it right there. If corrupt officials or personnel should be terminated from their
loss, then so be it. Fixers or swindlers should be flushed out. Strict guidelines to be observed
by examiners should be set up and if violations are committed, then licenses should be
suspended or revoked. x x x (Emphasis and underscoring supplied)[28]
The true role of Constitutional Law is to effect an equilibrium between authority and
liberty so that rights are exercised within the framework of the law and the laws are enacted
with due deference to rights. (Underscoring supplied)[32]
A due deference to the rights of the individual thus requires a more careful
formulation of solutions to societal problems.
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From the memorandum[33] filed before this Court by petitioner, it is gathered that
the Sangguniang Panlungsod had identified the cause of traffic congestion to be
the indiscriminate loading and unloading of passengers by buses on the streets of
the city proper, hence, the conclusion that the terminals contributed to the
proliferation of buses obstructing traffic on the city streets.
Bus terminals per se do not, however, impede or help
impede the flow of traffic. How the outright proscription against the
existence of all terminals, apart from that franchised to petitioner, can be considered
as reasonably necessary to solve the traffic problem, this Court has not been
enlightened. If terminals lack adequate space such that bus drivers are compelled
to load and unload passengers on the streets instead of inside the terminals, then
reasonable specifications for the size of terminals could be instituted, with permits
to operate the same denied those which are unable to meet the specifications.
In the subject ordinances, however, the scope of the proscription against the
maintenance of terminals is so broad that even entities which might be able to
provide facilities better than the franchised terminal are barred from operating at all.
Petitioner argues, however, that other solutions for the traffic problem have
already been tried but proven ineffective. But the grant of an exclusive franchise
to petitioner has not been shown to be the only solution to the problem.
While the Sangguniang Panlungsod, via Ordinance No. 1557,[34] previously
directed bus owners and operators to put up their terminals outside the poblacion
of Lucena City, petitioner informs that said ordinance only resulted in the relocation
of terminals to other well-populated barangays, thereby giving rise to traffic
congestion in those areas.[35] Assuming that information to be true, the
Sangguniang Panlungsod was not without remedy. It could have defined, among
other considerations, in a more precise manner, the area of relocation to avoid such
consequences.
As for petitioners argument that the challenged ordinances were enacted
pursuant to the power of the Sangguniang Panlungsod to [r]egulate traffic on all
streets and bridges; prohibitencroachments or obstacles thereon and, when
necessary in the interest of public welfare, authorize the removal of encroachments
and illegal constructions in public places:[36] Absent any showing, nay allegation,
that the terminals are encroaching upon public roads, they are not obstacles. The
buses which indiscriminately load and unload passengers on the city streets are.
The power then of the Sangguniang Panlungsod to prohibit encroachments and
obstacles does not extend to terminals.
Neither are terminals public nuisances as petitioner argues. For their
operation is a legitimate business which, by itself, cannot be said to be injurious to
the rights of property, health, or comfort of the community.
But even assuming that terminals are nuisances due to their alleged indirect
effects upon the flow of traffic, at most they are nuisance per accidens, not per se.
Unless a thing is nuisance per se, however, it may not be abated via an
ordinance, without judicial proceedings, as was done in the case at bar.
In Estate of Gregoria Francisco v. Court of Appeals,[37] this Court held:
Respondents can not 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 (Monteverde v. Generoso, 52 Phil. 123 [1982]). The
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storage of copra in the quonset building is a legitimate business. By its nature, it can not be
said to be injurious to rights of property, of health or of comfort of the community. If it be
a nuisance per accidens it may be so proven in a hearing conducted for that purpose. It is
not per se a nuisance warranting its summary abatement without judicial intervention.
(Underscoring supplied)[38]
There is no question that not even the strongest moral conviction or the most urgent public
need, subject only to a few notable exceptions, will excuse the bypassing of an individual's
rights. It is no exaggeration to say that a person invoking a right guaranteed under Article
III of the Constitution is a majority of one even as against the rest of the nation who would
deny him that right.[40]
EN BANC
CRUZ, J.:
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The issue before us is mediocrity. The question is whether a person who has thrice
failed the National Medical Admission Test (NMAT) is entitled to take it again.
h) A student shall be allowed only three (3) chances to take the NMAT.
After three (3) successive failures, a student shall not be allowed to take
the NMAT for the fourth time.
The private respondent is a graduate of the University of the East with a degree of
Bachelor of Science in Zoology. The petitioner claims that he took the NMAT three
times and flunked it as many times. 1 When he applied to take it again, the petitioner
rejected his application on the basis of the aforesaid rule. He then went to the
Regional Trial Court of Valenzuela, Metro Manila, to compel his admission to the
test.
In his original petition for mandamus, he first invoked his constitutional rights to
academic freedom and quality education. By agreement of the parties, the private
respondent was allowed to take the NMAT scheduled on April 16, 1989, subject to
the outcome of his petition. 2 In an amended petition filed with leave of court, he
squarely challenged the constitutionality of MECS Order No. 12, Series of 1972,
containing the above-cited rule. The additional grounds raised were due process
and equal protection.
After hearing, the respondent judge rendered a decision on July 4, 1989, declaring
the challenged order invalid and granting the petition. Judge Teresita Dizon-
Capulong held that the petitioner had been deprived of his right to pursue a medical
education through an arbitrary exercise of the police power. 3
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 pratice of medicine in all its branches
has long been recognized as a reasonable method of protecting the
health and safety of the public. 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. Similarly, the establishment of minimum medical
educational requirements-i.e., the completion of prescribed courses in
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However, the respondent judge agreed with the petitioner that the said case was
not applicable. Her reason was that it upheld only the requirement for the admission
test and said nothing about the so-called "three-flunk rule."
We see no reason why the rationale in the Tablarin case cannot apply to the case
at bar. The issue raised in both cases is the academic preparation of the applicant.
This may be gauged at least initially by the admission test and, indeed with more
reliability, by the three-flunk rule. The latter cannot be regarded any less valid than
the former in the regulation of the medical profession.
There is no need to redefine here the police power of the State. Suffice it to repeat
that the power is validly exercised if (a) the interests of the public generally, as
distinguished from those of a particular class, require the interference of the State,
and (b) the means employed are reasonably necessary to the attainment of the
object sought to be accomplished and not unduly oppressive upon individuals. 5
In other words, the proper exercise of the police power requires the concurrence of
a lawful subject and a lawful method.
The subject of the challenged regulation is certainly within the ambit of the police
power. It is the right and indeed the responsibility of the State to insure that the
medical profession is not infiltrated by incompetents to whom patients may unwarily
entrust their lives and health.
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The method employed by the challenged regulation is not irrelevant to the purpose
of the law nor is it arbitrary or oppressive. The three-flunk rule is intended to insulate
the medical schools and ultimately the medical profession from the intrusion of
those not qualified to be doctors.
The right to quality education invoked by the private respondent is not absolute.
The Constitution also provides that "every citizen has the right to choose a
profession or course of study, subject to fair, reasonable and equitable admission
and academic requirements. 6
The private respondent must yield to the challenged rule and give way to those
better prepared. Where even those who have qualified may still not be
accommodated in our already crowded medical schools, there is all the more
reason to bar those who, like him, have been tested and found wanting.
The contention that the challenged rule violates the equal protection clause is not
well-taken. A law does not have to operate with equal force on all persons or things
to be conformable to Article III, Section 1 of the Constitution.
There would be unequal protection if some applicants who have passed the tests
are admitted and others who have also qualified are denied entrance. In other
words, what the equal protection requires is equality among equals.
The Court feels that it is not enough to simply invoke the right to quality education
as a guarantee of the Constitution: one must show that he is entitled to it because
of his preparation and promise. The private respondent has failed the NMAT five
times. 7 While his persistence is noteworthy, to say the least, it is certainly
misplaced, like a hopeless love.
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for any work or occupation. The only inference is that he is a probably better, not
for the medical profession, but for another calling that has not excited his interest.
We cannot have a society of square pegs in round holes, of dentists who should
never have left the farm and engineers who should have studied banking and
teachers who could be better as merchants.
It is time indeed that the State took decisive steps to regulate and enrich our system
of education by directing the student to the course for which he is best suited as
determined by initial tests and evaluations. Otherwise, we may be "swamped with
mediocrity," in the words of Justice Holmes, not because we are lacking in
intelligence but because we are a nation of misfits.
EN BANC
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x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
NACHURA, J.:
SECTION 34. Universal Charge. Within one (1) year from the
effectivity of this Act, a universal charge to be determined, fixed and approved
by the ERC, shall be imposed on all electricity end-users for the following
purposes:
(a) Payment for the stranded debts[4] in excess of the amount assumed by the
National Government and stranded contract costs of NPC[5] and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
(e) A charge to account for all forms of cross-subsidies for a period not
exceeding three (3) years.
The Facts
Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]
On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-
194, praying that the proposed share from the Universal Charge for the Environmental
charge of P0.0025 per kilowatt-hour (/kWh), or a total of P119,488,847.59, be approved for
withdrawal from the Special
Trust Fund (STF) managed by respondent Power SectorAssets and
On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165
provisionally approving the computed amount of P0.0168/kWh as the share of the NPC-
SPUG from the Universal Charge for Missionary Electrification and authorizing the
National Transmission Corporation (TRANSCO) and Distribution Utilities to collect the
same from its end-users on a monthly basis.
On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-165)
modifying its Order of December 20, 2002, thus:
Relative thereto, TRANSCO and Dus are directed to collect the UC-ME
in the amount of P0.0373 per kilowatt-hour and remit the same to PSALM on
or before the 15th day of the succeeding month.
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SO ORDERED.
On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC,
among others,[14] to set aside the above-mentioned Decision, which the ERC granted in its
Order dated October 7, 2003, disposing:
Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC
to draw up to P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget
subject to the availability of funds for the Environmental Fund component of the Universal
Charge.[16]
On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO)
charged petitioner Romeo P. Gerochi and all other
end-users with the Universal Charge as reflected in their respective electric bills starting
from the month of July 2003.[17]
Hence, this original action.
Petitioners submit that the assailed provision of law and its IRR which sought to implement
the same are unconstitutional on the following grounds:
1) The universal charge provided for under Sec. 34 of the EPIRA and
sought to be implemented under Sec. 2, Rule 18 of the IRR of the said law
is a tax which is to be collected from all electric end-users and self-
generating entities. The power to tax is strictly a legislative function and as
such, the delegation of said power to any executive or administrative agency
like the ERC is unconstitutional, giving the same unlimited authority. The
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2) The ERC is also empowered to approve and determine where the funds
collected should be used.
Petitioners contend that the Universal Charge has the characteristics of a tax and is
collected to fund the operations of the NPC. They argue that the cases[19] invoked by the
respondents clearly show the regulatory purpose of the charges imposed therein, which is
not so in the case at bench. In said cases, the respective funds [20] were created in order to
balance and stabilize the prices of oil and sugar, and to act as buffer to counteract the
changes and adjustments in prices, peso devaluation, and other variables which cannot be
adequately and timely monitored by the legislature. Thus, there was a need to delegate
powers to administrative bodies.[21] Petitioners posit that the Universal Charge is imposed
not for a similar purpose.
On the other hand, respondent PSALM through the Office of the Government Corporate
Counsel (OGCC) contends that unlike a tax which is imposed to provide income for public
purposes, such as support of the government, administration of the law, or payment of public
expenses, the assailed Universal Charge is levied for a specific regulatory purpose, which
is to ensure the viability of the country's electric power industry. Thus, it is exacted by the
State in the exercise of its inherent police power. On this premise, PSALM submits that
there is no undue delegation of legislative power to the ERC since the latter merely exercises
a limited authority or discretion as to the execution and implementation of the provisions of
the EPIRA.[22]
Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the
Solicitor General (OSG), share the same view that the Universal Charge is not a tax because
it is levied for a specific regulatory purpose, which is to ensure the viability of the country's
electric power industry, and is, therefore, an exaction in the exercise of the State's police
power. Respondents further contend that said Universal Charge does not possess the
essential characteristics of a tax, that its imposition would redound to the benefit of the
electric power industry and not to the public, and that its rate is uniformly levied on
electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability
to pay. Moreover, respondents deny that there is undue delegation of legislative power to
the ERC since the EPIRA sets forth sufficient determinable standards which would guide
the ERC in the exercise of the powers granted to it. Lastly, respondents argue that the
imposition of the Universal Charge is not oppressive and confiscatory since it is an exercise
of the police power of the State and it complies with the requirements of due process.[23]
On its part, respondent PECO argues that it is duty-bound to collect and remit the amount
pertaining to the Missionary Electrification and Environmental Fund components of the
Universal Charge, pursuant to Sec. 34 of the EPIRA and the Decisions in ERC Case Nos.
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2002-194 and 2002-165. Otherwise, PECO could be held liable under Sec. 46[24] of the
EPIRA, which imposes fines and penalties for any violation of its provisions or its IRR.[25]
The Issues
Before we discuss the issues, the Court shall first deal with an obvious procedural
lapse.
However, petitioners violated the doctrine of hierarchy of courts when they filed this
Complaint directly with us. Furthermore, the Complaint is bereft of any allegation of grave
abuse of discretion on the part of the ERC or any of the public respondents, in order for the
Court to consider it as a petition for certiorari or prohibition.
Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically provides
that:
But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
warranto, and habeas corpus, while concurrent with that of the regional trial courts and the
Court of Appeals, does not give litigants unrestrained freedom of choice of forum from
which to seek such relief.[28] It has long been established 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
call for the exercise of our primary jurisdiction.[29] This circumstance alone warrants the
outright dismissal of the present action.
To resolve the first issue, it is necessary to distinguish the States power of taxation
from the police power.
The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency that is to pay
it.[30] It is based on the principle that taxes are the lifeblood of the government, and their
prompt and certain availability is an imperious need.[31] Thus, the theory behind the exercise
of the power to tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.[32]
On the other hand, police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property.[33] It is the most pervasive, the
least limitable, and the most demanding of the three fundamental powers of the State. The
justification is found in the Latin maxims salus populi est suprema lex (the welfare of the
people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as
not to injure the property of others). As an inherent attribute of sovereignty which virtually
extends to all public needs, police power grants a wide panoply of instruments through
which the State, as parens patriae, gives effect to a host of its regulatory powers.[34] We
have held that the power to "regulate" means the power to protect, foster, promote, preserve,
and control, with due regard for the interests, first and foremost, of the public, then of the
utility and of its patrons.[35]
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The conservative and pivotal distinction between these two powers rests in the
purpose for which the charge is made. If generation of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised does not make the imposition a tax.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police
power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34
which enumerates the purposes for which the Universal Charge is imposed[37] and which
can be amply discerned as regulatory in character. The EPIRA resonates such regulatory
purposes, thus:
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is
not a tax, but an exaction in the exercise of the State's police power. Public welfare is surely
promoted.
aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also
created under the administration of PSALM.[42] The STF has some notable characteristics
similar to the OPSF and the SSF, viz.:
Evidently, the establishment and maintenance of the Special Trust Fund, under
the last paragraph of Section 34, R.A. No. 9136, is well within the pervasive
and non-waivable power and responsibility of the government to secure the
physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the
State.[46]
This feature of the Universal Charge further boosts the position that the same is an exaction
imposed primarily in pursuit of the State's police objectives. The STF reasonably serves and
assures the attainment and perpetuity of the purposes for which the Universal Charge is
imposed, i.e., to ensure the viability of the country's electric power industry.
The principle of separation of powers ordains that each of the three branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the doctrine of separation of powers
is the principle of non-delegation of powers, as expressed in the Latin maxim potestas
delegata non delegari potest (what has been delegated cannot be delegated). This is based
on the ethical principle that such delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another. [47]
In the face of the increasing complexity of modern life, delegation of legislative power to
various specialized administrative agencies is allowed as an exception to this
principle.[48] Given the volume and variety of interactions in today's society, it is doubtful if
the legislature can promulgate laws that will deal adequately with and respond promptly to
the minutiae of everyday life. Hence, the need to delegate to administrative bodies - the
principal agencies tasked to execute laws in their specialized fields - the authority to
promulgate rules and regulations to implement a given statute and effectuate its policies.
All that is required for the valid exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and that the regulation be not
in contradiction to, but in conformity with, the standards prescribed by the law. These
requirements are denominated as the completeness test and the sufficient standard test.
Under the first test, the law must be complete in all its terms and conditions when it leaves
the legislature such that when it reaches the delegate, the only thing he will have to do is to
enforce it. The second test mandates adequate guidelines or limitations in the law to
determine the boundaries of the delegate's authority and prevent the delegation from running
riot.[49]
The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34
thereof, is complete in all its essential terms and conditions, and that it contains sufficient
standards.
Although Sec. 34 of the EPIRA merely provides that within one (1) year from the effectivity
thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be
imposed on all electricity end-users, and therefore, does not state the specific amount to be
paid as Universal Charge, the amount nevertheless is made certain by the legislative
parameters provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides:
SECTION 43. Functions of the ERC. The ERC shall promote competition,
encourage market development, ensure customer choice and penalize abuse of
market power in the restructured electricity industry. In appropriate cases, the
ERC is authorized to issue cease and desist order after due notice and hearing.
Towards this end, it shall be responsible for the following key functions in the
restructured industry:
xxxx
(b) Within six (6) months from the effectivity of this Act, promulgate and
enforce, in accordance with law, a National Grid Code and a Distribution Code
which shall include, but not limited to the following:
xxxx
notice and public hearings the universal charge, to be imposed on all electricity
end-users pursuant to Section 34 hereof;
Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude of
discretion in the determination of the Universal Charge. Sec. 51(d) and (e) of the
EPIRA[50] clearly provides:
SECTION 51. Powers. The PSALM Corp. shall, in the performance of its
functions and for the attainment of its objective, have the following powers:
xxxx
(d) To calculate the amount of the stranded debts and stranded contract costs
of NPC which shall form the basis for ERC in the determination of the
universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from
sales and other property contributed to it, including the proceeds from the
universal charge.
Thus, the law is complete and passes the first test for valid delegation of legislative
power.
As to the second test, this Court had, in the past, accepted as sufficient standards the
following: "interest of law and order;"[51] "adequate and efficient instruction;"[52] "public
interest;"[53] "justice and equity;"[54] "public convenience and welfare;"[55] "simplicity,
economy and efficiency;"[56] "standardization and regulation of medical education;"[57] and
"fair and equitable employment practices."[58] Provisions of the EPIRA such as, among
others, to ensure the total electrification of the country and the quality, reliability, security
and affordability of the supply of electric power[59] and watershed rehabilitation and
management[60] meet the requirements for valid delegation, as they provide the limitations
on the ERCs power to formulate the IRR. These are sufficient standards.
It may be noted that this is not the first time that the ERC's conferred powers were
challenged. In Freedom from Debt Coalition v. Energy Regulatory Commission,[61] the
Court had occasion to say:
In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice, now
Chief Justice, Reynato S. Puno described the immensity of police power in relation to the
delegation of powers to the ERC and its regulatory functions over electric power as a vital
public utility, to wit:
Over the years, however, the range of police power was no longer limited
to the preservation of public health, safety and morals, which used to be the
primary social interests in earlier times. Police power now requires the State
to "assume an affirmative duty to eliminate the excesses and injustices that are
the concomitants of an unrestrained industrial economy." Police power is now
exerted "to further the public welfare a concept as vast as the good of society
itself." Hence, "police power is but another name for the governmental
authority to further the welfare of society that is the basic end of all
government." When police power is delegated to administrative bodies with
regulatory functions, its exercise should be given a wide latitude. Police power
takes on an even broader dimension in developing countries such as ours,
where the State must take a more active role in balancing the many conflicting
interests in society. The Questioned Order was issued by the ERC, acting as an
agent of the State in the exercise of police power. We should have
exceptionally good grounds to curtail its exercise. This approach is more
compelling in the field of rate-regulation of electric power rates. Electric
power generation and distribution is a traditional instrument of economic
growth that affects not only a few but the entire nation. It is an important factor
in encouraging investment and promoting business. The engines of progress
may come to a screeching halt if the delivery of electric power is impaired.
Billions of pesos would be lost as a result of power outages or unreliable
electric power services. The State thru the ERC should be able to exercise its
police power with great flexibility, when the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms v. Energy
Regulatory Commission[63] where the Court held that the ERC, as regulator, should have
sufficient power to respond in real time to changes wrought by multifarious factors affecting
public utilities.
From the foregoing disquisitions, we therefore hold that there is no undue delegation of
legislative power to the ERC.
As a penultimate statement, it may be well to recall what this Court said of EPIRA:
Thus, the EPIRA provides a framework for the restructuring of the industry,
including the privatization of the assets of the National Power Corporation
(NPC), the transition to a competitive structure, and the delineation of the roles
of various government agencies and the private entities. The law ordains the
division of the industry into four (4) distinct
sectors, namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its transmission
business spun off and privatized thereafter.[67]
Finally, every law has in its favor the presumption of constitutionality, and to justify its
nullification, there must be a clear and unequivocal breach of the Constitution and not one
that is doubtful, speculative, or argumentative.[68] Indubitably, petitioners failed to
overcome this presumption in favor of the EPIRA. We find no clear violation of the
Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18
of its IRR are unconstitutional and void.
SO ORDERED.
Commonwealth v. Alger,
61 Mass. (7 Cush) 53
It was decided by the Supreme Judicial Court of Massachusetts in 1851. The majority
opinion was written by Justice Lemuel Shaw.
Brief
Parties: The defendant, Alger, was a Boston resident who owned property along the
Boston harbor. The Plaintiff is the Commonwealth of Massachusetts.
Relevant Statutes: There are two statutes involved in this case
1) Colony Ordinance of 1647 which stated that owners of waterfront property also owned
the adjoining land above the low water mark and within 100 rods of the land, with power
to erect wharves and other buildings thereon; subject to the reasonable use of other
individuals and of the public's ability to navigate. Construction was also subject to the
restraints and limitations as the legislature may see fit to impose for the preservation and
protection of public and private rights. 61 Mass. 53 (1851).[1]
2) Massachusetts legislature enacted a subsequent statute pursuant to the Colony
Ordinance of 1647 which established lines in the Boston harbor limiting how far out
wharves may extend. The statutes stated that if a wharf extended beyond an established
line, then it will be considered a public nuisance. In establishing these lines, the legislature
overruled the Colony Ordinance of 1647 which allowed owners of Harbor-front land to
build a wharf extending 100 rods into the harbor.
Story: In this case, Alger (Defendant) built a wharf in the Boston Harbor that extended
beyond a line established by the Massachusetts legislature. Alger's wharf was otherwise
within the geographical limits of the colony ordinance of 1647 and it did not impede or
obstruct the public's navigation.
Issue: The issue in Commonwealth v. Alger is "What are the just powers of the legislature
to limit, control, or regulate the exercises and enjoyment of a property owner's rights." 61
Mass. 53, 65 (1851).[1] In short, when, if ever can a regulation be a taking? The
Massachusetts Supreme Court held the Massachusetts Legislature's statutes creating the
lines was constitutional law, and the legislature had the authority to make that statute. The
statute establishing the line was binding on Alger and he violated the line. Id. at 102.[1]
Sources of Regulatory Power
Justice Shaw held it is settled principle that, "every holder of property...holds it under the
implied liability that his use of it may be so regulated, that it shall not be injurious to the
equal enjoyment of others having an equal right to the enjoyment of their property, not
injurious to the rights of the community." Id. at 84.[1]
Police power today is, "generally, but vaguely understood in American jurisprudence to
refer to state regulatory power," but really encompasses more. 58 U. Miami L. Rev. 471,
473(2004).[2] In an attempt to define police power, Shaw stated, "the government's power
to enact such regulations for the good and welfare of the community as it sees fit, subject
to the limitations that the regulation be both reasonable and constitutional." Id. at 479-
80.[2] Shaw goes on to explain that, "It is much easier to perceive and realize the existence
and sources of this power, then to mark its boundaries, or prescribe limits to its exercise."
61 Mass 53, 85(1851).[1]
Eminent Domain vs. Police Power
Most notably, the court also attempts to differentiate between eminent domain and police
power. In what is often referred to as the most important paragraph of the opinion, the
court explains that police power, "is very different from the right of eminent doman, 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 therefore. The power we allude to is rather the police power, the power
vested in the legislature by the constitution, to make, ordain, and establish all manner of
wholesome and reasonable laws, statutes and ordinance, either with penalties or without,
not repugnant to the constitution, as they shall judge to be for the good and welfare of the
commonwealth, and of the subjects of the same." Id.[1]
It is often hard to distinguish between police power and eminent domain, Professor
Benjamin Barros states, "Shaw's attempt to make a principled distinction between eminent
domain and the police power was understandable. In the 19th century, it was widely
accepted that just compensation was required only for physical takings, and regulatory
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restraints on property were generally considered to be outside of the scope of the Takings
clause. Categorizing the law that prohibited Alger from building his wharf as a regulation
allowed Shaw to deny Alger's claim for compensation. By using the new term 'police
power,' Shaw tried to explain this rule in terms of two distinct government powers, each
serving a different purpose." 58 U. Miami L. Rev. 471, 480-81(2004).[2] Shaw provides
obvious uses of police power, such as prohibiting the use of warehouses for the storage
of gunpowder when the warehouses are located near homes or highways, placing
restraints on the height of wooden buildings in crowded areas and requiring them to be
covered with incombustible material, and prohibiting buildings from being used as
hospitals for contagious diseases or carrying on of noxious or offensive trades. 61 Mass.
53, 85-86(1851).[1]
Justice Shaw reasoned the Massachusetts statute was, "not an appropriation of the
property to a public use, but the restraint of an injurious private use by the owner, and is
therefore not within the principle of property taken under the right of eminent domain." Id.
at 86.[1] Shaw also thought the court's holding in this case would promote certainty,
"Things done may or may not be wrong in themselves, or necessarily injurious and
punishable as such at common law; but laws are passed declaring them offenses, and
making them punishable, because they tend to injurious consequences; but more
especially for the sake of having a definite, known and authoritative rule which all can
understand and obey." 58 U. Miami L. Rev. 471, 481 (2004).[2] Shaw gave an example of
the certainty outcome he expected to obtain with this holding: "The trademan needs to
know, before incurring expenses, how near he may build his works without violating the
law or committing a nuisance; builders of houses to know, to what distance they must
keep from the obnoxious works already erected, in order to be sure of the protection of
the law for their habitations. This requisite certainty and precision can only be obtained by
a positive enactment...enforcing the rule thus fixed, by penalties." 61 Mass. 53, 96-97
(1851).[1]Applying this reasoning to the facts in Alger, Professor Barros concluded that,
"the law challenged in Alger thus legitimately established a point beyond which wharves
could not be built, and Alger's wharf was subject to such regulation even though it was
not intrinsically harmful." 58 U. Miami L. Rev. 471, 482 (2004).[2]
Compensation
Justice Shaw states that even though these prohibitions and restraints resulting from the
Massachusetts statute may diminish the profits of the owner, the owners are not entitled
to compensation because they are exercises of police power. (61 Mass. 53, 86).[1] Justice
Shaw's statement regarding compensation was generally accepted doctrine at the time,
namely that the obligation to compensate was limited to exercises of eminent domain. 58
U. Miami L. Rev 471, 480(2004).[2]However, passage of time "would show this rule to be
flawed." Id. at 481.[2]
Impact
Commonwealth v. Alger helped signify a shift from community-based common-law
regulation toward the modern regulatory state. Id. at 471 (2004).[2] The case helped define
what we now think of as the broad scope of policing regulations. The decision in
Commonwealth v. Alger also breaks "with a laissez-faire tradition and ushers in an era of
positivist regulation." Id. at 482.[2] Finally, the court's decision in Commonwealth v. Alger
demonstrated an expanded interpretation of the new term "police power" with Shaw
holding, "that state authority to enact police regulations includes, but is not limited to, such
doctrines as" use your own as not to injure another's property, "and that the legislature
has broad authority to exercise this power." Id.[2]
Post Alger Adjudications
Mugler v. Kansas, 123 U.S. 623 (1887):[3] Justice Harlan, delivering the opinion of the U.S.
Supreme Court held, "If something was so harmful as to justify regulation under the police
power, it could be regulated without compensation, regardless of the effect of the
regulation on value." Id. at 504.[3] This was consistent with Justice Shaw's holdings in Alger
of "police power" as a very broad, sweeping concept and his recognition that
compensation was not due when the government was exercising their police power as
opposed to declaring a government action eminent domain.
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Pennsylvania Coal Co v. Mahon, 43 Sup Ct 158 (1922):[4] Justice Holmes, delivering the
opinion of the U.S. Supreme Court effectively overrules the holding in Commonwealth v.
Alger and Mugler v. Kansas, stating that an exercise of police power which, as the court
decided that it did on the facts of this case, prohibited all economic use of a piece of land
owned by the plaintiff was a taking and compensation was due. This decision helped
explain the concept of a "regulatory taking".
EN BANC
DECISION
When a party challeges the constitutionality of a law, the burden of proof rests upon
him.
Before us is a Petition for Prohibition2 under Rule 65 of the Rules of Court filed by
petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc., domestic
corporations engaged in the business of providing funeral and burial services,
against public respondents Secretaries of the Department of Social Welfare and
Development (DSWD) and the Department of Finance (DOF).
Factual Antecedents
On April 23, 1992, RA 7432 was passed into law, granting senior citizens the
following privileges:
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled
to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment[s],
restaurants and recreation centers and purchase of medicine anywhere in the
country: Provided, That private establishments may claim the cost as tax credit;
c) exemption from the payment of individual income taxes: Provided, That their
annual taxable income does not exceed the property level as determined by the
National Economic and Development Authority (NEDA) for that year;
f) to the extent practicable and feasible, the continuance of the same benefits and
privileges given by the Government Service Insurance System (GSIS), Social
Security System (SSS) and PAG-IBIG, as the case may be, as are enjoyed by those
in actual service.
On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to
implement RA 7432. Sections 2(i) and 4 of RR No. 02-94 provide:
RA 7432 specifically allows private establishments to claim as tax credit the amount
of discounts they grant. In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment. To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate,
is indefensible. First, the definition given by petitioner is erroneous. It refers to tax
credit as the amount representing the 20 percent discount that "shall be deducted
by the said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax purposes." In
ordinary business language, the tax credit represents the amount of such discount.
However, the manner by which the discount shall be credited against taxes has not
been clarified by the revenue regulations. By ordinary acceptation, a discount is an
"abatement or reduction made from the gross amount or value of anything." To be
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xxxx
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the
20 percent discount deductible from gross income for income tax purposes, or from
gross sales for VAT or other percentage tax purposes. In effect, the tax credit
benefit under RA 7432 is related to a sales discount. This contrived definition is
improper, considering that the latter has to be deducted from gross sales in order
to compute the gross income in the income statement and cannot be deducted
again, even for purposes of computing the income tax. When the law says that the
cost of the discount may be claimed as a tax credit, it means that the amount
when claimed shall be treated as a reduction from any tax liability, plain and
simple. The option to avail of the tax credit benefit depends upon the existence of
a tax liability, but to limit the benefit to a sales discount which is not even identical
to the discount privilege that is granted by law does not define it at all and serves
no useful purpose. The definition must, therefore, be stricken down.
Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with the statute is a mere nullity;" it cannot
prevail. It is a cardinal rule that courts "will and should respect the
contemporaneous construction placed upon a statute by the executive officers
whose duty it is to enforce it x x x." In the scheme of judicial tax administration, the
need for certainty and predictability in the implementation of tax laws is crucial. Our
tax authorities fill in the details that "Congress may not have the opportunity or
competence to provide." The regulations these authorities issue are relied upon by
taxpayers, who are certain that these will be followed by the courts. Courts,
however, will not uphold these authorities interpretations when clearly absurd,
erroneous or improper. In the present case, the tax authorities have given the term
tax credit in Sections 2.i and 4 of RR 2-94 a meaning utterly in contrast to what RA
7432 provides. Their interpretation has muddled x x x the intent of Congress in
granting a mere discount privilege, not a sales discount. The administrative agency
issuing these regulations may not enlarge, alter or restrict the provisions of the law
it administers; it cannot engraft additional requirements not contemplated by the
legislature.
In case of conflict, the law must prevail. A "regulation adopted pursuant to law is
law." Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.7
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled
to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to
the utilization of services in hotels and similar lodging establishments, restaurants
and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral and burial services
for the death of senior citizens;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided,
That the cost of the discount shall be allowed as deduction from gross income for
the same taxable year that the discount is granted. Provided, further, That the total
amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as
amended.
(1) Only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR
ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales
discount.
(2) The gross selling price and the sales discount MUST BE SEPARATELY
INDICATED IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the
establishment for the sale of goods or services to the senior citizen.
(3) Only the actual amount of the discount granted or a sales discount not
exceeding 20% of the gross selling price can be deducted from the gross income,
net of value added tax, if applicable, for income tax purposes, and from gross sales
or gross receipts of the business enterprise concerned, for VAT or other percentage
tax purposes.
(4) The discount can only be allowed as deduction from gross income for the same
taxable year that the discount is granted.
(5) The business establishment giving sales discounts to qualified senior citizens is
required to keep separate and accurate record[s] of sales, which shall include the
name of the senior citizen, TIN, OSCA ID, gross sales/receipts, sales discount
granted, [date] of [transaction] and invoice number for every sale transaction to
senior citizen.
(6) Only the following business establishments which granted sales discount to
senior citizens on their sale of goods and/or services may claim the said discount
granted as deduction from gross income, namely:
xxxx
(i) Funeral parlors and similar establishments The beneficiary or any person who
shall shoulder the funeral and burial expenses of the deceased senior citizen shall
claim the discount, such as casket, embalmment, cremation cost and other related
services for the senior citizen upon payment and presentation of [his] death
certificate.
The DSWD likewise issued its own Rules and Regulations Implementing RA 9257,
to wit:
Provided, That the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall
be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended; Provided, finally, that the implementation of the tax
deduction shall be subject to the Revenue Regulations to be issued by the Bureau
of Internal Revenue (BIR) and approved by the Department of Finance (DOF).
Feeling aggrieved by the tax deduction scheme, petitioners filed the present
recourse, praying that Section 4 of RA 7432, as amended by RA 9257, and the
implementing rules and regulations issued by the DSWD and the DOF be declared
unconstitutional insofar as these allow business establishments to claim the 20%
discount given to senior citizens as a tax deduction; that the DSWD and the DOF
be prohibited from enforcing the same; and that the tax credit treatment of the 20%
discount under the former Section 4 (a) of RA 7432 be reinstated.
Issues
A.
B.
Petitioners Arguments
Petitioners emphasize that they are not questioning the 20% discount granted to
senior citizens but are only assailing the constitutionality of the tax deduction
scheme prescribed under RA 9257 and the implementing rules and regulations
issued by the DSWD and the DOF.10
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of
the Constitution, which provides that: "[p]rivate property shall not be taken for public
use without just compensation."11
In support of their position, petitioners cite Central Luzon Drug Corporation,12 where
it was ruled that the 20% discount privilege constitutes taking of private property for
public use which requires the payment of just compensation,13 and Carlos
Superdrug Corporation v. Department of Social Welfare and Development,14 where
it was acknowledged that the tax deduction scheme does not meet the definition of
just compensation.15
They assert that "[a]lthough both police power and the power of eminent domain
have the general welfare for their object, there are still traditional distinctions
between the two"18 and that "eminent domain cannot be made less supreme than
police power."19
Petitioners also contend that the tax deduction scheme violates Article XV, Section
421 and Article XIII, Section 1122of the Constitution because it shifts the States
constitutional mandate or duty of improving the welfare of the elderly to the private
sector.23
Under the tax deduction scheme, the private sector shoulders 65% of the discount
because only 35%24 of it is actually returned by the government.25
Respondents Arguments
Respondents, on the other hand, question the filing of the instant Petition directly
with the Supreme Court as this disregards the hierarchy of courts.28
More important, respondents maintain that the tax deduction scheme is a legitimate
exercise of the States police power.31
Our Ruling
We shall first resolve the procedural issue. When the constitutionality of a law is put
in issue, judicial review may be availed of only if the following requisites concur: "(1)
the existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the [question of constitutionality];
(3) recourse to judicial review is made at the earliest opportunity; and (4) the
[question of constitutionality] is the lis mota of the case."32
In this case, petitioners are challenging the constitutionality of the tax deduction
scheme provided in RA 9257 and the implementing rules and regulations issued by
the DSWD and the DOF. Respondents, however, oppose the Petition on the ground
that there is no actual case or controversy. We do not agree with respondents. An
actual case or controversy exists when there is "a conflict of legal rights" or "an
assertion of opposite legal claims susceptible of judicial resolution."33
The Petition must therefore show that "the governmental act being challenged has
a direct adverse effect on the individual challenging it."34
In this case, the tax deduction scheme challenged by petitioners has a direct
adverse effect on them. Thus, it cannot be denied that there exists an actual case
or controversy.
The validity of the 20% senior citizen discount and tax deduction scheme
under RA 9257, as an exercise of police power of the State, has already been
settled in Carlos Superdrug Corporation.
Petitioners posit that the resolution of this case lies in the determination of whether
the legally mandated 20% senior citizen discount is an exercise of police power or
eminent domain. If it is police power, no just compensation is warranted. But if it is
eminent domain, the tax deduction scheme is unconstitutional because it is not a
peso for peso reimbursement of the 20% discount given to senior citizens. Thus, it
constitutes taking of private property without payment of just compensation. At the
outset, we note that this question has been settled in Carlos Superdrug
Corporation.35
a peso for peso basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income
of the private establishments concerned. The discounts given would have entered
the coffers and formed part of the gross sales of the private establishments, were
it not for R.A. No. 9257. The permanent reduction in their total revenues is a forced
subsidy corresponding to the taking of private property for public use or benefit.
This constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is
not the takers gain but the owners loss. The word just is used to intensify the
meaning of the word compensation, and to convey the idea that the equivalent to
be rendered for the property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount. As
such, it would not meet the definition of just compensation. Having said that, this
raises the question of whether the State, in promoting the health and welfare of a
special group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program. The Court believes so. The Senior
Citizens Act was enacted primarily to maximize the contribution of senior citizens
to nation-building, and to grant benefits and privileges to them for their improvement
and well-being as the State considers them an integral part of our society. The
priority given to senior citizens finds its basis in the Constitution as set forth in the
law itself. Thus, the Act provides: SEC. 2. Republic Act No. 7432 is hereby
amended to read as follows:
(f) To recognize the important role of the private sector in the improvement of the
welfare of senior citizens and to actively seek their partnership.
To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees;
admission fees charged by theaters, concert halls, circuses, carnivals, and other
similar places of culture, leisure and amusement; fares for domestic land, air and
sea travel; utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers; and purchases of medicines for the exclusive
use or enjoyment of senior citizens. As a form of reimbursement, the law provides
that business establishments extending the twenty percent discount to senior
citizens may claim the discount as a tax deduction. The law is a legitimate exercise
of police power which, similar to the power of eminent domain, has general welfare
for its object. Police power is not capable of an exact definition, but 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 to
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Furthermore, it is unfair for petitioners to criticize the law because they cannot raise
the prices of their medicines given the cutthroat nature of the players in the industry.
It is a business decision on the part of petitioners to peg the mark-up at 5%. Selling
the medicines below acquisition cost, as alleged by petitioners, is merely a result
of this decision. Inasmuch as pricing is a property right, petitioners cannot reproach
the law for being oppressive, simply because they cannot afford to raise their prices
for fear of losing their customers to competition. The Court is not oblivious of the
retail side of the pharmaceutical industry and the competitive pricing component of
the business. While the Constitution protects property rights, petitioners must
accept the realities of business and the State, in the exercise of police power, can
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Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and
public utilities, continuously serve as x x x reminder[s] that the right to property can
be relinquished upon the command of the State for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the private
sector, in order to achieve the purpose or objective of the law, is reasonably and
directly related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is
arbitrary, and that the continued implementation of the same would be
unconscionably detrimental to petitioners, the Court will refrain from quashing a
legislative act.36 (Bold in the original; underline supplied)
We, thus, found that the 20% discount as well as the tax deduction scheme is a
valid exercise of the police power of the State.
They also point out that Carlos Superdrug Corporation40 recognized that the tax
deduction scheme under the assailed law does not provide for sufficient just
compensation. We agree with petitioners observation that there are statements in
Central Luzon Drug Corporation41 describing the 20% discount as an exercise of
the power of eminent domain, viz.:
[T]he privilege enjoyed by senior citizens does not come directly from the State, but
rather from the private establishments concerned. Accordingly, the tax credit benefit
granted to these establishments can be deemed as their just compensation for
private property taken by the State for public use. The concept of public use is no
longer confined to the traditional notion of use by the public, but held synonymous
with public interest, public benefit, public welfare, and public convenience. The
discount privilege to which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong. The discounts given
would have entered the coffers and formed part of the gross sales of the private
establishments concerned, were it not for RA 7432. The permanent reduction in
their total revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit. As a result of the 20 percent discount imposed by
RA 7432, respondent becomes entitled to a just compensation. This term refers not
only to the issuance of a tax credit certificate indicating the correct amount of the
discounts given, but also to the promptness in its release. Equivalent to the payment
of property taken by the State, such issuance when not done within a reasonable
time from the grant of the discounts cannot be considered as just compensation.
In effect, respondent is made to suffer the consequences of being immediately
deprived of its revenues while awaiting actual receipt, through the certificate, of the
equivalent amount it needs to cope with the reduction in its revenues. Besides, the
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taxation power can also be used as an implement for the exercise of the power of
eminent domain. Tax measures are but "enforced contributions exacted on pain of
penal sanctions" and "clearly imposed for a public purpose." In recent years, the
power to tax has indeed become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth. While it is a declared commitment
under Section 1 of RA 7432, social justice "cannot be invoked to trample on the
rights of property owners who under our Constitution and laws are also entitled to
protection. The social justice consecrated in our [C]onstitution [is] not intended to
take away rights from a person and give them to another who is not entitled thereto."
For this reason, a just compensation for income that is taken away from respondent
becomes necessary. It is in the tax credit that our legislators find support to realize
social justice, and no administrative body can alter that fact. To put it differently, a
private establishment that merely breaks even without the discounts yet will
surely start to incur losses because of such discounts. The same effect is expected
if its mark-up is less than 20 percent, and if all its sales come from retail purchases
by senior citizens. Aside from the observation we have already raised earlier, it will
also be grossly unfair to an establishment if the discounts will be treated merely as
deductions from either its gross income or its gross sales. Operating at a loss
through no fault of its own, it will realize that the tax credit limitation under RR 2-94
is inutile, if not improper. Worse, profit-generating businesses will be put in a better
position if they avail themselves of tax credits denied those that are losing, because
no taxes are due from the latter.42 (Italics in the original; emphasis supplied)
such, it would not meet the definition of just compensation. Having said that, this
raises the question of whether the State, in promoting the health and welfare of a
special group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program. The Court believes so.44
Police power is the inherent power of the State to regulate or to restrain the use of
liberty and property for public welfare.58
The only limitation is that the restriction imposed should be reasonable, not
oppressive.59
In other words, to be a valid exercise of police power, it must have a lawful subject
or objective and a lawful method of accomplishing the goal.60
Under the police power of the State, "property rights of individuals may be subjected
to restraints and burdens in order to fulfill the objectives of the government."61
The State "may interfere with personal liberty, property, lawful businesses and
occupations to promote the general welfare [as long as] the interference [is]
reasonable and not arbitrary."62
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Eminent domain, on the other hand, is the inherent power of the State to take or
appropriate private property for public use.63
The Constitution, however, requires that private property shall not be taken without
due process of law and the payment of just compensation.64
Traditional distinctions exist between police power and eminent domain. In the
exercise of police power, a property right is impaired by regulation,65 or the use of
property is merely prohibited, regulated or restricted66 to promote public welfare. In
such cases, there is no compensable taking, hence, payment of just compensation
is not required. Examples of these regulations are property condemned for being
noxious or intended for noxious purposes (e.g., a building on the verge of collapse
to be demolished for public safety, or obscene materials to be destroyed in the
interest of public morals)67 as well as zoning ordinances prohibiting the use of
property for purposes injurious to the health, morals or safety of the community
(e.g., dividing a citys territory into residential and industrial areas).68
It has, thus, been observed that, in the exercise of police power (as distinguished
from eminent domain), although the regulation affects the right of ownership, none
of the bundle of rights which constitute ownership is appropriated for use by or for
the benefit of the public.69
On the other hand, in the exercise of the power of eminent domain, property
interests are appropriated and applied to some public purpose which necessitates
the payment of just compensation therefor. Normally, the title to and possession of
the property are transferred to the expropriating authority. Examples include the
acquisition of lands for the construction of public highways as well as agricultural
lands acquired by the government under the agrarian reform law for redistribution
to qualified farmer beneficiaries. However, it is a settled rule that the acquisition of
title or total destruction of the property is not essential for "taking" under the power
of eminent domain to be present.70
In these cases, although the private property owner is not divested of ownership or
possession, payment of just compensation is warranted because of the burden
placed on the property for the use or benefit of the public.
In turn, this affects the amount of profits or income/gross sales that a private
establishment can derive from senior citizens. In other words, the subject regulation
affects the pricing, and, hence, the profitability of a private establishment. However,
it does not purport to appropriate or burden specific properties, used in the
operation or conduct of the business of private establishments, for the use or benefit
of the public, or senior citizens for that matter, but merely regulates the pricing of
goods and services relative to, and the amount of profits or income/gross sales that
such private establishments may derive from, senior citizens. The subject
regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded
as police power measures.77
establishments in order to pursue legitimate State objectives for the common good,
provided that the regulation does not go too far as to amount to "taking."79
The impact or effect of a regulation, such as the one under consideration, must,
thus, be determined on a case-to-case basis. Whether that line between
permissible regulation under police power and "taking" under eminent domain has
been crossed must, under the specific circumstances of this case, be subject to
proof and the one assailing the constitutionality of the regulation carries the heavy
burden of proving that the measure is unreasonable, oppressive or confiscatory.
The time-honored rule is that the burden of proving the unconstitutionality of a law
rests upon the one assailing it and "the burden becomes heavier when police power
is at issue."82
The 20% senior citizen discount has not been shown to be unreasonable,
oppressive or confiscatory.
On its face, we find that there are at least two conceivable bases to sustain the
subject regulations validity absent clear and convincing proof that it is
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Conclusion
The main points of Justice Carpios Dissent may be summarized as follows: (1) the
discussion on eminent domain in Central Luzon Drug Corporation89 is not obiter
dicta ; (2) allowable taking, in police power, is limited to property that is destroyed
or placed outside the commerce of man for public welfare; (3) the amount of
mandatory discount is private property within the ambit of Article III, Section 990 of
the Constitution; and (4) the permanent reduction in a private establishments total
revenue, arising from the mandatory discount, is a taking of private property for
public use or benefit, hence, an exercise of the power of eminent domain requiring
the payment of just compensation. I We maintain that the discussion on eminent
domain in Central Luzon Drug Corporation91 is obiter dicta. As previously
discussed, in Central Luzon Drug Corporation,92 the BIR, pursuant to Sections 2.i
and 4 of RR No. 2-94, treated the senior citizen discount in the previous law, RA
7432, as a tax deduction instead of a tax credit despite the clear provision in that
law which stated
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled
to the following:
a) The grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishment,
restaurants and recreation centers and purchase of medicines anywhere in the
country: Provided, That private establishments may claim the cost as tax credit;
(Emphasis supplied)
Thus, the Court ruled that the subject revenue regulation violated the law, viz:
The 20 percent discount required by the law to be given to senior citizens is a tax
credit, not merely a tax deduction from the gross income or gross sale of the
establishment concerned. A tax credit is used by a private establishment only after
the tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule
that administrative regulations cannot amend or revoke the law.93
As can be readily seen, the discussion on eminent domain was not necessary in
order to arrive at this conclusion. All that was needed was to point out that the
revenue regulation contravened the law which it sought to implement. And,
precisely, this was done in Central Luzon Drug Corporation94 by comparing the
wording of the previous law vis--vis the revenue regulation; employing the rules of
statutory construction; and applying the settled principle that a regulation cannot
amend the law it seeks to implement. A close reading of Central Luzon Drug
Corporation95 would show that the Court went on to state that the tax credit "can be
deemed" as just compensation only to explain why the previous law provides for a
tax credit instead of a tax deduction. The Court surmised that the tax credit was a
form of just compensation given to the establishments covered by the 20%
discount. However, the reason why the previous law provided for a tax credit and
not a tax deduction was not necessary to resolve the issue as to whether the
revenue regulation contravenes the law. Hence, the discussion on eminent domain
is obiter dicta.
A court, in resolving cases before it, may look into the possible purposes or reasons
that impelled the enactment of a particular statute or legal provision. However,
statements made relative thereto are not always necessary in resolving the actual
controversies presented before it. This was the case in Central Luzon Drug
Corporation96resulting in that unfortunate statement that the tax credit "can be
deemed" as just compensation. This, in turn, led to the erroneous conclusion, by
deductive reasoning, that the 20% discount is an exercise of the power of eminent
domain. The Dissent essentially adopts this theory and reasoning which, as will be
shown below, is contrary to settled principles in police power and eminent domain
analysis. II The Dissent discusses at length the doctrine on "taking" in police power
which occurs when private property is destroyed or placed outside the commerce
of man. Indeed, there is a whole class of police power measures which justify the
destruction of private property in order to preserve public health, morals, safety or
welfare. As earlier mentioned, these would include a building on the verge of
collapse or confiscated obscene materials as well as those mentioned by the
Dissent with regard to property used in violating a criminal statute or one which
constitutes a nuisance. In such cases, no compensation is required. However, it is
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equally true that there is another class of police power measures which do not
involve the destruction of private property but merely regulate its use. The minimum
wage law, zoning ordinances, price control laws, laws regulating the operation of
motels and hotels, laws limiting the working hours to eight, and the like would fall
under this category. The examples cited by the Dissent, likewise, fall under this
category: Article 157 of the Labor Code, Sections 19 and 18 of the Social Security
Law, and Section 7 of the Pag-IBIG Fund Law. These laws merely regulate or, to
use the term of the Dissent, burden the conduct of the affairs of business
establishments. In such cases, payment of just compensation is not required
because they fall within the sphere of permissible police power measures. The
senior citizen discount law falls under this latter category. III The Dissent proceeds
from the theory that the permanent reduction of profits or income/gross sales, due
to the 20% discount, is a "taking" of private property for public purpose without
payment of just compensation. At the outset, it must be emphasized that petitioners
never presented any evidence to establish that they were forced to suffer enormous
losses or operate at a loss due to the effects of the assailed law. They came directly
to this Court and provided a hypothetical computation of the loss they would
allegedly suffer due to the operation of the assailed law. The central premise of the
Dissents argument that the 20% discount results in a permanent reduction in profits
or income/gross sales, or forces a business establishment to operate at a loss is,
thus, wholly unsupported by competent evidence. To be sure, the Court can
invalidate a law which, on its face, is arbitrary, oppressive or confiscatory. 97
Under the assailed law, the aforesaid product would have to be sold at P8.00 to
senior citizens yet the business would still earn P3.00102 or a 30%103 profit margin.
On the other hand, if the product costs P9.00 to produce and is required to be sold
at P8.00 to senior citizens, then the business would experience a loss of P1.00.104
But note that since not all customers of a business establishment are senior
citizens, the business establishment may continue to earn P1.00 from non-senior
citizens which, in turn, can offset any loss arising from sales to senior citizens.
Fourth, when the law imposes the 20% discount in favor of senior citizens, it does
not prevent the business establishment from revising its pricing strategy.
By revising its pricing strategy, a business establishment can recoup any reduction
of profits or income/gross sales which would otherwise arise from the giving of the
20% discount. To illustrate, suppose A has two customers: X, a senior citizen, and
Y, a non-senior citizen. Prior to the law, A sells his products at P10.00 a piece to X
and Y resulting in income/gross sales of P20.00 (P10.00 + P10.00). With the
passage of the law, A must now sell his product to X at P8.00 (i.e., P10.00 less
20%) so that his income/gross sales would be P18.00 (P8.00 + P10.00) or lower
by P2.00. To prevent this from happening, A decides to increase the price of his
products to P11.11 per piece. Thus, he sells his product to X at P8.89 (i.e. , P11.11
less 20%) and to Y at P11.11. As a result, his income/gross sales would still
be P20.00105 (P8.89 + P11.11). The capacity, then, of business establishments to
revise their pricing strategy makes it possible for them not to suffer any reduction
in profits or income/gross sales, or, in the alternative, mitigate the reduction of their
profits or income/gross sales even after the passage of the law. In other words,
business establishments have the capacity to adjust their prices so that they may
remain profitable even under the operation of the assailed law.
The Dissent, however, states that The explanation by the majority that private
establishments can always increase their prices to recover the mandatory discount
will only encourage private establishments to adjust their prices upwards to the
prejudice of customers who do not enjoy the 20% discount. It was likewise
suggested that if a company increases its prices, despite the application of the 20%
discount, the establishment becomes more profitable than it was before the
implementation of R.A. 7432. Such an economic justification is self-defeating, for
more consumers will suffer from the price increase than will benefit from the 20%
discount. Even then, such ability to increase prices cannot legally validate a
violation of the eminent domain clause.106
But, if it is possible that the business establishment, by adjusting its prices, will
suffer no reduction in its profits or income/gross sales (or suffer some reduction but
continue to operate profitably) despite giving the discount, what would be the basis
to strike down the law? If it is possible that the business establishment, by adjusting
its prices, will not be unduly burdened, how can there be a finding that the assailed
law is an unconstitutional exercise of police power or eminent domain? That there
may be a burden placed on business establishments or the consuming public as a
result of the operation of the assailed law is not, by itself, a ground to declare it
unconstitutional for this goes into the wisdom and expediency of the law.
The cost of most, if not all, regulatory measures of the government on business
establishments is ultimately passed on to the consumers but that, by itself, does
not justify the wholesale nullification of these measures. It is a basic postulate of
our democratic system of government that the Constitution is a social contract
whereby the people have surrendered their sovereign powers to the State for the
common good.107
All persons may be burdened by regulatory measures intended for the common
good or to serve some important governmental interest, such as protecting or
improving the welfare of a special class of people for which the Constitution affords
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preferential concern. Indubitably, the one assailing the law has the heavy burden
of proving that the regulation is unreasonable, oppressive or confiscatory, or has
gone "too far" as to amount to a "taking." Yet, here, the Dissent would have this
Court nullify the law without any proof of such nature.
Further, this Court is not the proper forum to debate the economic theories or
realities that impelled Congress to shift from the tax credit to the tax deduction
scheme. It is not within our power or competence to judge which scheme is more
or less burdensome to business establishments or the consuming public and,
thereafter, to choose which scheme the State should use or pursue. The shift from
the tax credit to tax deduction scheme is a policy determination by Congress and
the Court will respect it for as long as there is no showing, as here, that the subject
regulation has transgressed constitutional limitations. Unavoidably, the lack of
evidence constrains the Dissent to rely on speculative and hypothetical
argumentation when it states that the 20% discount is a significant amount and not
a minimal loss (which erroneously assumes that the discount automatically results
in a loss when it is possible that the profit margin is greater than 20% and/or the
pricing strategy can be revised to prevent or mitigate any reduction in profits or
income/gross sales as illustrated above),108 and not all private establishments
make a 20% profit margin (which conversely implies that there are those who make
more and, thus, would not be greatly affected by this regulation).109
In fine, because of the possible scenarios discussed above, we cannot assume that
the 20% discount results in a permanent reduction in profits or income/gross sales,
much less that business establishments are forced to operate at a loss under the
assailed law. And, even if we gratuitously assume that the 20% discount results in
some degree of reduction in profits or income/gross sales, we cannot assume that
such reduction is arbitrary, oppressive or confiscatory. To repeat, there is no actual
proof to back up this claim, and it could be that the loss suffered by a business
establishment was occasioned through its fault or negligence in not adapting to the
effects of the assailed law. The law uniformly applies to all business establishments
covered thereunder. There is, therefore, no unjust discrimination as the aforesaid
business establishments are faced with the same constraints. The necessity of
proof is all the more pertinent in this case because, as similarly observed by Justice
Velasco in his Concurring Opinion, the law has been in operation for over nine years
now. However, the grim picture painted by petitioners on the unconscionable losses
to be indiscriminately suffered by business establishments, which should have led
to the closure of numerous business establishments, has not come to pass. Verily,
we cannot invalidate the assailed law based on assumptions and conjectures.
Without adequate proof, the presumption of constitutionality must prevail. IV At this
juncture, we note that the Dissent modified its original arguments by including a
new paragraph, to wit:
Section 9, Article III of the 1987 Constitution speaks of private property without any
distinction. It does not state that there should be profit before the taking of property
is subject to just compensation. The private property referred to for purposes of
taking could be inherited, donated, purchased, mortgaged, or as in this case, part
of the gross sales of private establishments. They are all private property and any
taking should be attended by corresponding payment of just compensation. The
20% discount granted to senior citizens belong to private establishments, whether
these establishments make a profit or suffer a loss. In fact, the 20% discount applies
to non-profit establishments like country, social, or golf clubs which are open to the
public and not only for exclusive membership. The issue of profit or loss to the
establishments is immaterial.110
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Two things may be said of this argument. First, it contradicts the rest of the
arguments of the Dissent. After it states that the issue of profit or loss is immaterial,
the Dissent proceeds to argue that the 20% discount is not a minimal loss 111 and
that the 20% discount forces business establishments to operate at a loss.112
Even the obiter in Central Luzon Drug Corporation,113 which the Dissent essentially
adopts and relies on, is premised on the permanent reduction of total revenues and
the loss that business establishments will be forced to suffer in arguing that the 20%
discount constitutes a "taking" under the power of eminent domain. Thus, when the
Dissent now argues that the issue of profit or loss is immaterial, it contradicts itself
because it later argues, in order to justify that there is a "taking" under the power of
eminent domain in this case, that the 20% discount forces business establishments
to suffer a significant loss or to operate at a loss. Second, this argument suffers
from the same flaw as the Dissent's original arguments. It is an erroneous
characterization of the 20% discount. According to the Dissent, the 20% discount
is part of the gross sales and, hence, private property belonging to business
establishments. However, as previously discussed, the 20% discount is not private
property actually owned and/or used by the business establishment. It should be
distinguished from properties like lands or buildings actually used in the operation
of a business establishment which, if appropriated for public use, would amount to
a "taking" under the power of eminent domain. Instead, the 20% discount is a
regulatory measure which impacts the pricing and, hence, the profitability of
business establishments. At the time the discount is imposed, no particular property
of the business establishment can be said to be "taken." That is, the State does not
acquire or take anything from the business establishment in the way that it takes a
piece of private land to build a public road. While the 20% discount may form part
of the potential profits or income/gross sales114 of the business establishment, as
similarly characterized by Justice Bersamin in his Concurring Opinion, potential
profits or income/gross sales are not private property, specifically cash or money,
already belonging to the business establishment. They are a mere expectancy
because they are potential fruits of the successful conduct of the business. Prior to
the sale of goods or services, a business establishment may be subject to State
regulations, such as the 20% senior citizen discount, which may impact the level or
amount of profits or income/gross sales that can be generated by such
establishment. For this reason, the validity of the discount is to be determined based
on its overall effects on the operations of the business establishment.
Again, as previously discussed, the 20% discount does not automatically result in
a 20% reduction in profits, or, to align it with the term used by the Dissent, the 20%
discount does not mean that a 20% reduction in gross sales necessarily results.
Because (1) the profit margin of a product is not necessarily less than 20%, (2) not
all customers of a business establishment are senior citizens, and (3) the
establishment may revise its pricing strategy, such reduction in profits or
income/gross sales may be prevented or, in the alternative, mitigated so that the
business establishment continues to operate profitably. Thus, even if we
gratuitously assume that some degree of reduction in profits or income/gross sales
occurs because of the 20% discount, it does not follow that the regulation is
unreasonable, oppressive or confiscatory because the business establishment may
make the necessary adjustments to continue to operate profitably. No evidence
was presented by petitioners to show otherwise. In fact, no evidence was presented
by petitioners at all. Justice Leonen, in his Concurring and Dissenting Opinion,
characterizes "profits" (or income/gross sales) as an inchoate right. Another way to
view it, as stated by Justice Velasco in his Concurring Opinion, is that the business
establishment merely has a right to profits. The Constitution adverts to it as the right
of an enterprise to a reasonable return on investment.115
Undeniably, this right, like any other right, may be regulated under the police power
of the State to achieve important governmental objectives like protecting the
interests and improving the welfare of senior citizens. It should be noted though that
potential profits or income/gross sales are relevant in police power and eminent
domain analyses because they may, in appropriate cases, serve as an indicia when
a regulation has gone "too far" as to amount to a "taking" under the power of
eminent domain. When the deprivation or reduction of profits or income/gross sales
is shown to be unreasonable, oppressive or confiscatory, then the challenged
governmental regulation may be nullified for being a "taking" under the power of
eminent domain. In such a case, it is not profits or income/gross sales which are
actually taken and appropriated for public use. Rather, when the regulation causes
an establishment to incur losses in an unreasonable, oppressive or confiscatory
manner, what is actually taken is capital and the right of the business establishment
to a reasonable return on investment. If the business losses are not halted because
of the continued operation of the regulation, this eventually leads to the destruction
of the business and the total loss of the capital invested therein. But, again,
petitioners in this case failed to prove that the subject regulation is unreasonable,
oppressive or confiscatory.
V.
The Dissent further argues that we erroneously used price and rate of return on
investment control laws to justify the senior citizen discount law. According to the
Dissent, only profits from industries imbued with public interest may be regulated
because this is a condition of their franchises. Profits of establishments without
franchises cannot be regulated permanently because there is no law regulating
their profits. The Dissent concludes that the permanent reduction of total revenues
or gross sales of business establishments without franchises is a taking of private
property under the power of eminent domain. In making this argument, it is
unfortunate that the Dissent quotes only a portion of the ponencia The subject
regulation may be said to be similar to, but with substantial distinctions from, price
control or rate of return on investment control laws which are traditionally regarded
as police power measures. These laws generally regulate public utilities or
industries/enterprises imbued with public interest in order to protect consumers
from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that
they have a monopoly over the goods or services that they provide to the general
public. The subject regulation differs therefrom in that (1) the discount does not
prevent the establishments from adjusting the level of prices of their goods and
services, and (2) the discount does not apply to all customers of a given
establishment but only to the class of senior citizens. x x x116
The subject regulation may be said to be similar to, but with substantial distinctions
from, price control or rate of return on investment control laws which are traditionally
regarded as police power measures. These laws generally regulate public utilities
or industries/enterprises imbued with public interest in order to protect consumers
from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that
they have a monopoly over the goods or services that they provide to the general
public. The subject regulation differs therefrom in that (1) the discount does not
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prevent the establishments from adjusting the level of prices of their goods and
services, and (2) the discount does not apply to all customers of a given
establishment but only to the class of senior citizens.
Nonetheless, to the degree material to the resolution of this case, the 20% discount
may be properly viewed as belonging to the category of price regulatory measures
which affects the profitability of establishments subjected thereto. (Emphasis
supplied)
The point of this paragraph is to simply show that the State has, in the past,
regulated prices and profits of business establishments. In other words, this type of
regulatory measures is traditionally recognized as police power measures so that
the senior citizen discount may be considered as a police power measure as well.
What is more, the substantial distinctions between price and rate of return on
investment control laws vis--vis the senior citizen discount law provide greater
reason to uphold the validity of the senior citizen discount law. As previously
discussed, the ability to adjust prices allows the establishment subject to the senior
citizen discount to prevent or mitigate any reduction of profits or income/gross sales
arising from the giving of the discount. In contrast, establishments subject to price
and rate of return on investment control laws cannot adjust prices accordingly.
Certainly, there is no intention to say that price and rate of return on investment
control laws are the justification for the senior citizen discount law. Not at all. The
justification for the senior citizen discount law is the plenary powers of Congress.
The legislative power to regulate business establishments is broad and covers a
wide array of areas and subjects. It is well within Congress legislative powers to
regulate the profits or income/gross sales of industries and enterprises, even those
without franchises. For what are franchises but mere legislative enactments? There
is nothing in the Constitution that prohibits Congress from regulating the profits or
income/gross sales of industries and enterprises without franchises. On the
contrary, the social justice provisions of the Constitution enjoin the State to regulate
the "acquisition, ownership, use, and disposition" of property and its increments.117
This may cover the regulation of profits or income/gross sales of all businesses,
without qualification, to attain the objective of diffusing wealth in order to protect
and enhance the right of all the people to human dignity.118
Thus, under the social justice policy of the Constitution, business establishments
may be compelled to contribute to uplifting the plight of vulnerable or marginalized
groups in our society provided that the regulation is not arbitrary, oppressive or
confiscatory, or is not in breach of some specific constitutional limitation. When the
Dissent, therefore, states that the "profits of private establishments which are non-
franchisees cannot be regulated permanently, and there is no such law regulating
their profits permanently,"119 it is assuming what it ought to prove. First, there are
laws which, in effect, permanently regulate profits or income/gross sales of
establishments without franchises, and RA 9257 is one such law. And, second,
Congress can regulate such profits or income/gross sales because, as previously
noted, there is nothing in the Constitution to prevent it from doing so. Here, again,
it must be emphasized that petitioners failed to present any proof to show that the
effects of the assailed law on their operations has been unreasonable, oppressive
or confiscatory. The permanent regulation of profits or income/gross sales of
business establishments, even those without franchises, is not as uncommon as
the Dissent depicts it to be. For instance, the minimum wage law allows the State
to set the minimum wage of employees in a given region or geographical area.
Because of the added labor costs arising from the minimum wage, a permanent
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reduction of profits or income/gross sales would result, assuming that the employer
does not increase the prices of his goods or services. To illustrate, suppose it costs
a company P5.00 to produce a product and it sells the same at P10.00 with a 50%
profit margin. Later, the State increases the minimum wage. As a result, the
company incurs greater labor costs so that it now costs P7.00 to produce the same
product. The profit per product of the company would be reduced to P3.00 with a
profit margin of 30%. The net effect would be the same as in the earlier example of
granting a 20% senior citizen discount. As can be seen, the minimum wage law
could, likewise, lead to a permanent reduction of profits. Does this mean that the
minimum wage law should, likewise, be declared unconstitutional on the mere plea
that it results in a permanent reduction of profits? Taking it a step further, suppose
the company decides to increase the price of its product in order to offset the effects
of the increase in labor cost; does this mean that the minimum wage law, following
the reasoning of the Dissent, is unconstitutional because the consuming public is
effectively made to subsidize the wage of a group of laborers, i.e., minimum wage
earners? The same reasoning can be adopted relative to the examples cited by the
Dissent which, according to it, are valid police power regulations. Article 157 of the
Labor Code, Sections 19 and 18 of the Social Security Law, and Section 7 of the
Pag-IBIG Fund Law would effectively increase the labor cost of a business
establishment. This would, in turn, be integrated as part of the cost of its goods or
services. Again, if the establishment does not increase its prices, the net effect
would be a permanent reduction in its profits or income/gross sales. Following the
reasoning of the Dissent that "any form of permanent taking of private property
(including profits or income/gross sales)120 is an exercise of eminent domain that
requires the State to pay just compensation,"121 then these statutory provisions
would, likewise, have to be declared unconstitutional. It does not matter that these
benefits are deemed part of the employees legislated wages because the net effect
is the same, that is, it leads to higher labor costs and a permanent reduction in the
profits or income/gross sales of the business establishments.122
The point then is this most, if not all, regulatory measures imposed by the State
on business establishments impact, at some level, the latters prices and/or profits
or income/gross sales.123
If the Court were to sustain the Dissents theory, then a wholesale nullification of
such measures would inevitably result. The police power of the State and the social
justice provisions of the Constitution would, thus, be rendered nugatory. There is
nothing sacrosanct about profits or income/gross sales. This, we made clear in
Carlos Superdrug Corporation:124
xxxx
The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects
property rights petitioners must the realities of business and the State, in the
exercise of police power, can intervene in the operations of a business which may
result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the percept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and
public utilities, continously serve as a reminder for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being
the case, the means employed in invoking the active participation of the private
sector, in order to achieve the purpose or objective of the law, is reasonably and
directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is
arbitrary, and that the continued implementation of the same would be
unconscionably detrimental to petitioners, the Court will refrain form quashing a
legislative act.125
In conclusion, we maintain that the correct rule in determining whether the subject
regulatory measure has amounted to a "taking" under the power of eminent domain
is the one laid down in Alalayan v. National Power Corporation126 and followed
in Carlos Superdurg Corporation127 consistent with long standing principles in
police power and eminent domain analysis. Thus, the deprivation or reduction of
profits or income. Gross sales must be clearly shown to be unreasonable,
oppressive or confiscatory. Under the specific circumstances of this case, such
determination can only be made upon the presentation of competent proof which
petitioners failed to do. A law, which has been in operation for many years and
promotes the welfare of a group accorded special concern by the Constitution,
cannot and should not be summarily invalidated on a mere allegation that it reduces
the profits or income/gross sales of business establishments.
SO ORDERED.
EMINENT DOMAIN
C.A. Mendoza & A. V. Raquiza and Alberto Cacnio & Associates for defendant-
appellees.
ZALDIVAR, J.:p
Appeal from the decision of the Court of First Instance of Pampanga in its Civil Case
No. 1623, an expropriation proceeding.
A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo 23666.
Bounded on the NE by Maria Nieves Toledo-Gozun; on the SE by
national road; on the SW by AFP reservation, and on the NW by AFP
reservation. Containing an area of 759,299 square meters, more or
less, and registered in the name of Alfonso Castellvi under TCT No.
13631 of the Register of Pampanga ...;
A parcel of land (Portion Lot Blk-1, Bureau of Lands Plan Psd, 26254.
Bounded on the NE by Lot 3, on the SE by Lot 3; on the SW by Lot 1-
B, Blk. 2 (equivalent to Lot 199-B Swo 23666; on the NW by AFP
military reservation. Containing an area of 450,273 square meters,
more or less and registered in the name of Maria Nieves Toledo-Gozun
under TCT No. 8708 of the Register of Deeds of Pampanga. ..., and
In its complaint, the Republic alleged, among other things, that the fair market value
of the above-mentioned lands, according to the Committee on Appraisal for the
Province of Pampanga, was not more than P2,000 per hectare, or a total market
value of P259,669.10; and prayed, that the provisional value of the lands be fixed
at P259.669.10, that the court authorizes plaintiff to take immediate possession of
the lands upon deposit of that amount with the Provincial Treasurer of Pampanga;
that the court appoints three commissioners to ascertain and report to the court the
just compensation for the property sought to be expropriated, and that the court
issues thereafter a final order of condemnation.
On June 29, 1959 the trial court issued an order fixing the provisional value of the
lands at P259,669.10.
In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other
things, that the land under her administration, being a residential land, had a fair
market value of P15.00 per square meter, so it had a total market value of
P11,389,485.00; that the Republic, through the Armed Forces of the Philippines,
particularly the Philippine Air Force, had been, despite repeated demands, illegally
occupying her property since July 1, 1956, thereby preventing her from using and
disposing of it, thus causing her damages by way of unrealized profits. This
defendant prayed that the complaint be dismissed, or that the Republic be ordered
to pay her P15.00 per square meter, or a total of P11,389,485.00, plus interest
thereon at 6% per annum from July 1, 1956; that the Republic be ordered to pay
her P5,000,000.00 as unrealized profits, and the costs of the suit.
By order of the trial court, dated August, 1959, Amparo C. Diaz, Dolores G. viuda
de Gil, Paloma Castellvi, Carmen Castellvi, Rafael Castellvi, Luis Castellvi,
Natividad Castellvi de Raquiza, Jose Castellvi and Consuelo Castellvi were allowed
to intervene as parties defendants. Subsequently, Joaquin V. Gozun, Jr., husband
of defendant Nieves Toledo Gozun, was also allowed by the court to intervene as
a party defendant.
After the Republic had deposited with the Provincial Treasurer of Pampanga the
amount of P259,669.10, the trial court ordered that the Republic be placed in
possession of the lands. The Republic was actually placed in possession of the
lands on August 10,
1
1959.
In her "motion to dismiss", dated October 22, 1959, Toledo-Gozun alleged, among
other things, that her two parcels of land were residential lands, in fact a portion
with an area of 343,303 square meters had already been subdivided into different
lots for sale to the general public, and the remaining portion had already been set
aside for expansion sites of the already completed subdivisions; that the fair market
value of said lands was P15.00 per square meter, so they had a total market value
of P8,085,675.00; and she prayed that the complaint be dismissed, or that she be
paid the amount of P8,085,675.00, plus interest thereon at the rate of 6% per
annum from October 13, 1959, and attorney's fees in the amount of P50,000.00.
Intervenors Jose Castellvi and Consuelo Castellvi in their answer, filed on February
11, 1960, and also intervenor Joaquin Gozun, Jr., husband of defendant Maria
Nieves Toledo-Gozun, in his motion to dismiss, dated May 27, 1960, all alleged that
the value of the lands sought to be expropriated was at the rate of P15.00 per
square meter.
The trial Court appointed three commissioners: Atty. Amadeo Yuzon, Clerk of
Court, as commissioner for the court; Atty. Felicisimo G. Pamandanan, counsel of
the Philippine National Bank Branch at Floridablanca, for the plaintiff; and Atty.
Leonardo F. Lansangan, Filipino legal counsel at Clark Air Base, for the defendants.
The Commissioners, after having qualified themselves, proceeded to the
performance of their duties.
After the parties-defendants and intervenors had filed their respective memoranda,
and the Republic, after several extensions of time, had adopted as its memorandum
its objections to the report of the Commissioners, the trial court, on May 26, 1961,
rendered its decision 6 the dispositive portion of which reads as follows:
The plaintiff will pay 6% interest per annum on the total value of the
lands of defendant Toledo-Gozun since (sic) the amount deposited as
provisional value from August 10, 1959 until full payment is made to
said defendant or deposit therefor is made in court.
On June 21, 1961 the Republic filed a motion for a new trial and/or reconsideration,
upon the grounds of newly-discovered evidence, that the decision was not
supported by the evidence, and that the decision was against the law, against which
motion defendants Castellvi and Toledo-Gozun filed their respective oppositions.
On July 8, 1961 when the motion of the Republic for new trial and/or reconsideration
was called for hearing, the Republic filed a supplemental motion for new trial upon
the ground of additional newly-discovered evidence. This motion for new trial and/or
reconsideration was denied by the court on July 12, 1961.
On July 17, 1961 the Republic gave notice of its intention to appeal from the
decision of May 26, 1961 and the order of July 12, 1961. Defendant Castellvi also
filed, on July 17, 1961, her notice of appeal from the decision of the trial court.
The Republic filed various ex-parte motions for extension of time within which to file
its record on appeal. The Republic's record on appeal was finally submitted on
December 6, 1961.
Defendants Castellvi and Toledo-Gozun filed not only a joint opposition to the
approval of the Republic's record on appeal, but also a joint memorandum in
support of their opposition. The Republic also filed a memorandum in support of its
prayer for the approval of its record on appeal. On December 27, 1961 the trial
court issued an order declaring both the record on appeal filed by the Republic, and
the record on appeal filed by defendant Castellvi as having been filed out of time,
thereby dismissing both appeals.
On January 11, 1962 the Republic filed a "motion to strike out the order of
December 27, 1961 and for reconsideration", and subsequently an amended record
on appeal, against which motion the defendants Castellvi and Toledo-Gozun filed
their opposition. On July 26, 1962 the trial court issued an order, stating that "in the
interest of expediency, the questions raised may be properly and finally determined
by the Supreme Court," and at the same time it ordered the Solicitor General to
submit a record on appeal containing copies of orders and pleadings specified
therein. In an order dated November 19, 1962, the trial court approved the
Republic's record on appeal as amended.
Defendant Castellvi did not insist on her appeal. Defendant Toledo-Gozun did not
appeal.
The motion to dismiss the Republic's appeal was reiterated by appellees Castellvi
and Toledo-Gozun before this Court, but this Court denied the motion.
In her motion of August 11, 1964, appellee Castellvi sought to increase the
provisional value of her land. The Republic, in its comment on Castellvi's motion,
opposed the same. This Court denied Castellvi's motion in a resolution dated
October 2,1964.
On February 14, 1972, Attys. Alberto Cacnio, and Associates, counsel for the estate
of the late Don Alfonso de Castellvi in the expropriation proceedings, filed a notice
of attorney's lien, stating that as per agreement with the administrator of the estate
of Don Alfonso de Castellvi they shall receive by way of attorney's fees, "the sum
equivalent to ten per centum of whatever the court may finally decide as the
expropriated price of the property subject matter of the case."
---------
Before this Court, the Republic contends that the lower court erred:
1. In finding the price of P10 per square meter of the lands subject of
the instant proceedings as just compensation;
In its brief, the Republic discusses the second error assigned as the first issue to
be considered. We shall follow the sequence of the Republic's discussion.
1. In support of the assigned error that the lower court erred in holding that the
"taking" of the properties under expropriation commenced with the filing of the
complaint in this case, the Republic argues that the "taking" should be reckoned
from the year 1947 when by virtue of a special lease agreement between the
Republic and appellee Castellvi, the former was granted the "right and privilege" to
buy the property should the lessor wish to terminate the lease, and that in the event
of such sale, it was stipulated that the fair market value should be as of the time of
occupancy; and that the permanent improvements amounting to more that half a
million pesos constructed during a period of twelve years on the land, subject of
expropriation, were indicative of an agreed pattern of permanency and stability of
occupancy by the Philippine Air Force in the interest of national Security. 7
Appellee Castellvi, on the other hand, maintains that the "taking" of property under
the power of eminent domain requires two essential elements, to wit: (1) entrance
and occupation by condemn or upon the private property for more than a
momentary or limited period, and (2) devoting it to a public use in such a way as to
oust the owner and deprive him of all beneficial enjoyment of the property. This
appellee argues that in the instant case the first element is wanting, for the contract
of lease relied upon provides for a lease from year to year; that the second element
is also wanting, because the Republic was paying the lessor Castellvi a monthly
rental of P445.58; and that the contract of lease does not grant the Republic the
"right and privilege" to buy the premises "at the value at the time of occupancy." 8
In order to better comprehend the issues raised in the appeal, in so far as the
Castellvi property is concerned, it should be noted that the Castellvi property had
been occupied by the Philippine Air Force since 1947 under a contract of lease,
typified by the contract marked Exh. 4-Castellvi, the pertinent portions of which
read:
CONTRACT OF LEASE
WITNESSETH:
2. The term of this lease shall be for the period beginning July 1, 1952
the date the premises were occupied by the PHILIPPINE AIR FORCE,
AFP until June 30, 1953, subject to renewal for another year at the
option of the LESSEE or unless sooner terminated by the LESSEE as
hereinafter provided.
3. The LESSOR hereby warrants that the LESSEE shall have quiet,
peaceful and undisturbed possession of the demised premises
throughout the full term or period of this lease and the LESSOR
undertakes without cost to the LESSEE to eject all trespassers, but
should the LESSOR fail to do so, the LESSEE at its option may proceed
to do so at the expense of the LESSOR. The LESSOR further agrees
that should he/she/they sell or encumber all or any part of the herein
described premises during the period of this lease, any conveyance will
be conditioned on the right of the LESSEE hereunder.
4. The LESSEE shall pay to the LESSOR as monthly rentals under this
lease the sum of FOUR HUNDRED FIFTY-FIVE PESOS & 58/100
(P455.58) ...
5. The LESSEE may, at any time prior to the termination of this lease,
use the property for any purpose or purposes and, at its own costs and
expense make alteration, install facilities and fixtures and errect
additions ... which facilities or fixtures ... so placed in, upon or attached
to the said premises shall be and remain property of the LESSEE and
may be removed therefrom by the LESSEE prior to the termination of
this lease. The LESSEE shall surrender possession of the premises
upon the expiration or termination of this lease and if so required by the
LESSOR, shall return the premises in substantially the same condition
as that existing at the time same were first occupied by the AFP,
reasonable and ordinary wear and tear and damages by the elements
or by circumstances over which the LESSEE has no control excepted:
PROVIDED, that if the LESSOR so requires the return of the premises
in such condition, the LESSOR shall give written notice thereof to the
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POLITICAL LAW REVIEW CASES INHERENT POWERS
LESSEE at least twenty (20) days before the termination of the lease
and provided, further, that should the LESSOR give notice within the
time specified above, the LESSEE shall have the right and privilege to
compensate the LESSOR at the fair value or the equivalent, in lieu of
performance of its obligation, if any, to restore the premises. Fair value
is to be determined as the value at the time of occupancy less fair wear
and tear and depreciation during the period of this lease.
6. The LESSEE may terminate this lease at any time during the term
hereof by giving written notice to the LESSOR at least thirty (30) days
in advance ...
It was stipulated by the parties, that "the foregoing contract of lease (Exh. 4,
Castellvi) is 'similar in terms and conditions, including the date', with the annual
contracts entered into from year to year between defendant Castellvi and the
Republic of the Philippines (p. 17, t.s.n., Vol. III)". 11 It is undisputed, therefore, that
the Republic occupied Castellvi's land from July 1, 1947, by virtue of the above-
mentioned contract, on a year to year basis (from July 1 of each year to June 30 of
the succeeding year) under the terms and conditions therein stated.
Before the expiration of the contract of lease on June 30, 1956 the Republic sought
to renew the same but Castellvi refused. When the AFP refused to vacate the
leased premises after the termination of the contract, on July 11, 1956, Castellvi
wrote to the Chief of Staff, AFP, informing the latter that the heirs of the property
had decided not to continue leasing the property in question because they had
decided to subdivide the land for sale to the general public, demanding that the
property be vacated within 30 days from receipt of the letter, and that the premises
be returned in substantially the same condition as before occupancy (Exh. 5
Castellvi). A follow-up letter was sent on January 12, 1957, demanding the delivery
and return of the property within one month from said date (Exh. 6 Castellvi). On
January 30, 1957, Lieutenant General Alfonso Arellano, Chief of Staff, answered
the letter of Castellvi, saying that it was difficult for the army to vacate the premises
in view of the permanent installations and other facilities worth almost P500,000.00
that were erected and already established on the property, and that, there being no
other recourse, the acquisition of the property by means of expropriation
proceedings would be recommended to the President (Exhibit "7" Castellvi).
Defendant Castellvi then brought suit in the Court of First Instance of Pampanga,
in Civil Case No. 1458, to eject the Philippine Air Force from the land. While this
ejectment case was pending, the Republic instituted these expropriation
proceedings, and, as stated earlier in this opinion, the Republic was placed in
possession of the lands on August 10, 1959, On November 21, 1959, the Court of
First Instance of Pampanga, dismissed Civil Case No. 1458, upon petition of the
parties, in an order which, in part, reads as follows:
The Republic urges that the "taking " of Castellvi's property should be deemed as
of the year 1947 by virtue of afore-quoted lease agreement. In American
Jurisprudence, Vol. 26, 2nd edition, Section 157, on the subject of "Eminent
Domain, we read the definition of "taking" (in eminent domain) as follows:
First, the expropriator must enter a private property. This circumstance is present
in the instant case, when by virtue of the lease agreement the Republic, through
the AFP, took possession of the property of Castellvi.
Second, the entrance into private property must be for more than a momentary
period. "Momentary" means, "lasting but a moment; of but a moment's duration"
(The Oxford English Dictionary, Volume VI, page 596); "lasting a very short time;
transitory; having a very brief life; operative or recurring at every moment"
(Webster's Third International Dictionary, 1963 edition.) The word "momentary"
when applied to possession or occupancy of (real) property should be construed to
mean "a limited period" not indefinite or permanent. The aforecited lease contract
was for a period of one year, renewable from year to year. The entry on the
property, under the lease, is temporary, and considered transitory. The fact that the
Republic, through the AFP, constructed some installations of a permanent nature
does not alter the fact that the entry into the land was transitory, or intended to last
a year, although renewable from year to year by consent of 'The owner of the land.
By express provision of the lease agreement the Republic, as lessee, undertook to
return the premises in substantially the same condition as at the time the property
was first occupied by the AFP. It is claimed that the intention of the lessee was to
occupy the land permanently, as may be inferred from the construction of
permanent improvements. But this "intention" cannot prevail over the clear and
Page 142 of 305
POLITICAL LAW REVIEW CASES INHERENT POWERS
express terms of the lease contract. Intent is to be deduced from the language
employed by the parties, and the terms 'of the contract, when unambiguous, as in
the instant case, are conclusive in the absence of averment and proof of mistake
or fraud the question being not what the intention was, but what is expressed in
the language used. (City of Manila v. Rizal Park Co., Inc., 53 Phil. 515, 525);
Magdalena Estate, Inc. v. Myrick, 71 Phil. 344, 348). Moreover, in order to judge
the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered (Art. 1371, Civil Code). If the intention of the lessee
(Republic) in 1947 was really to occupy permanently Castellvi's property, why was
the contract of lease entered into on year to year basis? Why was the lease
agreement renewed from year to year? Why did not the Republic expropriate this
land of Castellvi in 1949 when, according to the Republic itself, it expropriated the
other parcels of land that it occupied at the same time as the Castellvi land, for the
purpose of converting them into a jet air base? 14 It might really have been the
intention of the Republic to expropriate the lands in question at some future time,
but certainly mere notice - much less an implied notice of such intention on the
part of the Republic to expropriate the lands in the future did not, and could not,
bind the landowner, nor bind the land itself. The expropriation must be actually
commenced in court (Republic vs. Baylosis, et al., 96 Phil. 461, 484).
Third, the entry into the property should be under warrant or color of legal authority.
This circumstance in the "taking" may be considered as present in the instant case,
because the Republic entered the Castellvi property as lessee.
Fifth, the utilization of the property for public use must be in such a way as to oust
the owner and deprive him of all beneficial enjoyment of the property. In the instant
case, the entry of the Republic into the property and its utilization of the same for
public use did not oust Castellvi and deprive her of all beneficial enjoyment of the
property. Castellvi remained as owner, and was continuously recognized as owner
by the Republic, as shown by the renewal of the lease contract from year to year,
and by the provision in the lease contract whereby the Republic undertook to return
the property to Castellvi when the lease was terminated. Neither was Castellvi
deprived of all the beneficial enjoyment of the property, because the Republic was
bound to pay, and had been paying, Castellvi the agreed monthly rentals until the
time when it filed the complaint for eminent domain on June 26, 1959.
It is clear, therefore, that the "taking" of Catellvi's property for purposes of eminent
domain cannot be considered to have taken place in 1947 when the Republic
commenced to occupy the property as lessee thereof. We find merit in the
contention of Castellvi that two essential elements in the "taking" of property under
the power of eminent domain, namely: (1) that the entrance and occupation by the
condemnor must be for a permanent, or indefinite period, and (2) that in devoting
the property to public use the owner was ousted from the property and deprived of
its beneficial use, were not present when the Republic entered and occupied the
Castellvi property in 1947.
Untenable also is the Republic's contention that although the contract between the
parties was one of lease on a year to year basis, it was "in reality a more or less
permanent right to occupy the premises under the guise of lease with the 'right and
privilege' to buy the property should the lessor wish to terminate the lease," and
Page 143 of 305
POLITICAL LAW REVIEW CASES INHERENT POWERS
"the right to buy the property is merged as an integral part of the lease relationship
... so much so that the fair market value has been agreed upon, not, as of the time
of purchase, but as of the time of occupancy" 15 We cannot accept the Republic's
contention that a lease on a year to year basis can give rise to a permanent right to
occupy, since by express legal provision a lease made for a determinate time, as
was the lease of Castellvi's land in the instant case, ceases upon the day fixed,
without need of a demand (Article 1669, Civil Code). Neither can it be said that the
right of eminent domain may be exercised by simply leasing the premises to be
expropriated (Rule 67, Section 1, Rules of Court). Nor can it be accepted that the
Republic would enter into a contract of lease where its real intention was to buy, or
why the Republic should enter into a simulated contract of lease ("under the guise
of lease", as expressed by counsel for the Republic) when all the time the Republic
had the right of eminent domain, and could expropriate Castellvi's land if it wanted
to without resorting to any guise whatsoever. Neither can we see how a right to buy
could be merged in a contract of lease in the absence of any agreement between
the parties to that effect. To sustain the contention of the Republic is to sanction a
practice whereby in order to secure a low price for a land which the government
intends to expropriate (or would eventually expropriate) it would first negotiate with
the owner of the land to lease the land (for say ten or twenty years) then expropriate
the same when the lease is about to terminate, then claim that the "taking" of the
property for the purposes of the expropriation be reckoned as of the date when the
Government started to occupy the property under the lease, and then assert that
the value of the property being expropriated be reckoned as of the start of the lease,
in spite of the fact that the value of the property, for many good reasons, had in the
meantime increased during the period of the lease. This would be sanctioning what
obviously is a deceptive scheme, which would have the effect of depriving the
owner of the property of its true and fair market value at the time when the
expropriation proceedings were actually instituted in court. The Republic's claim
that it had the "right and privilege" to buy the property at the value that it had at the
time when it first occupied the property as lessee nowhere appears in the lease
contract. What was agreed expressly in paragraph No. 5 of the lease agreement
was that, should the lessor require the lessee to return the premises in the same
condition as at the time the same was first occupied by the AFP, the lessee would
have the "right and privilege" (or option) of paying the lessor what it would fairly cost
to put the premises in the same condition as it was at the commencement of the
lease, in lieu of the lessee's performance of the undertaking to put the land in said
condition. The "fair value" at the time of occupancy, mentioned in the lease
agreement, does not refer to the value of the property if bought by the lessee, but
refers to the cost of restoring the property in the same condition as of the time when
the lessee took possession of the property. Such fair value cannot refer to the
purchase price, for purchase was never intended by the parties to the lease
contract. It is a rule in the interpretation of contracts that "However general the
terms of a contract may be, they shall not be understood to comprehend things that
are distinct and cases that are different from those upon which the parties intended
to agree" (Art. 1372, Civil Code).
We hold, therefore, that the "taking" of the Castellvi property should not be reckoned
as of the year 1947 when the Republic first occupied the same pursuant to the
contract of lease, and that the just compensation to be paid for the Castellvi property
should not be determined on the basis of the value of the property as of that year.
The lower court did not commit an error when it held that the "taking" of the property
under expropriation commenced with the filing of the complaint in this case.
2. Regarding the first assigned error discussed as the second issue the
Republic maintains that, even assuming that the value of the expropriated lands is
to be determined as of June 26, 1959, the price of P10.00 per square meter fixed
by the lower court "is not only exhorbitant but also unconscionable, and almost
fantastic". On the other hand, both Castellvi and Toledo-Gozun maintain that their
lands are residential lands with a fair market value of not less than P15.00 per
square meter.
The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun
are residential lands. The finding of the lower court is in consonance with the
unanimous opinion of the three commissioners who, in their report to the court,
declared that the lands are residential lands.
The Republic assails the finding that the lands are residential, contending that the
plans of the appellees to convert the lands into subdivision for residential purposes
were only on paper, there being no overt acts on the part of the appellees which
indicated that the subdivision project had been commenced, so that any
compensation to be awarded on the basis of the plans would be speculative. The
Republic's contention is not well taken. We find evidence showing that the lands in
question had ceased to be devoted to the production of agricultural crops, that they
had become adaptable for residential purposes, and that the appellees had actually
taken steps to convert their lands into residential subdivisions even before the
Republic filed the complaint for eminent domain. In the case of City of Manila vs.
Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in determining the
value of the property expropriated for public purposes. This Court said:
In expropriation proceedings, therefore, the owner of the land has the right to its
value for the use for which it would bring the most in the market. 17 The owner may
thus show every advantage that his property possesses, present and prospective,
in order that the price it could be sold for in the market may be satisfactorily
determined. 18 The owner may also show that the property is suitable for division
into village or town lots. 19
The trial court, therefore, correctly considered, among other circumstances, the
proposed subdivision plans of the lands sought to be expropriated in finding that
those lands are residential lots. This finding of the lower court is supported not only
by the unanimous opinion of the commissioners, as embodied in their report, but
also by the Provincial Appraisal Committee of the province of Pampanga composed
of the Provincial Treasurer, the Provincial Auditor and the District Engineer. In the
minutes of the meeting of the Provincial Appraisal Committee, held on May 14,
1959 (Exh. 13-Castellvi) We read in its Resolution No. 10 the following:
3. Since 1957 the land has been classified as residential in view of its
proximity to the air base and due to the fact that it was not being devoted
to agriculture. In fact, there is a plan to convert it into a subdivision for
residential purposes. The taxes due on the property have been paid
based on its classification as residential land;
The evidence shows that Castellvi broached the idea of subdividing her land into
residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the
Armed Forces of the Philippines. (Exh. 5-Castellvi) As a matter of fact, the layout
of the subdivision plan was tentatively approved by the National Planning
Commission on September 7, 1956. (Exh. 8-Castellvi). The land of Castellvi had
not been devoted to agriculture since 1947 when it was leased to the Philippine
Army. In 1957 said land was classified as residential, and taxes based on its
classification as residential had been paid since then (Exh. 13-Castellvi). The
location of the Castellvi land justifies its suitability for a residential subdivision. As
found by the trial court, "It is at the left side of the entrance of the Basa Air Base
and bounded on two sides by roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh.
12-Castellvi), the poblacion, (of Floridablanca) the municipal building, and the
Pampanga Sugar Mills are closed by. The barrio schoolhouse and chapel are also
near (T.S.N. November 23,1960, p. 68)." 20
The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of the same condition
as the land of Castellvi. The lands of Toledo-Gozun adjoin the land of Castellvi.
They are also contiguous to the Basa Air Base, and are along the road. These lands
are near the barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills, and
the poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-Gozun). As a matter of
fact, regarding lot 1-B it had already been surveyed and subdivided, and its
conversion into a residential subdivision was tentatively approved by the National
Planning Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As early as
June, 1958, no less than 32 man connected with the Philippine Air Force among
them commissioned officers, non-commission officers, and enlisted men had
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POLITICAL LAW REVIEW CASES INHERENT POWERS
requested Mr. and Mrs. Joaquin D. Gozun to open a subdivision on their lands in
question (Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21
We agree with the findings, and the conclusions, of the lower court that the lands
that are the subject of expropriation in the present case, as of August 10, 1959
when the same were taken possession of by the Republic, were residential lands
and were adaptable for use as residential subdivisions. Indeed, the owners of these
lands have the right to their value for the use for which they would bring the most
in the market at the time the same were taken from them. The most important issue
to be resolved in the present case relates to the question of what is the just
compensation that should be paid to the appellees.
The Republic asserts that the fair market value of the lands of the appellees is P.20
per square meter. The Republic cites the case of Republic vs. Narciso, et al., L-
6594, which this Court decided on May 18, 1956. The Narciso case involved lands
that belonged to Castellvi and Toledo-Gozun, and to one Donata Montemayor,
which were expropriated by the Republic in 1949 and which are now the site of the
Basa Air Base. In the Narciso case this Court fixed the fair market value at P.20 per
square meter. The lands that are sought to be expropriated in the present case
being contiguous to the lands involved in the Narciso case, it is the stand of the
Republic that the price that should be fixed for the lands now in question should
also be at P.20 per square meter.
We can not sustain the stand of the Republic. We find that the price of P.20 per
square meter, as fixed by this Court in the Narciso case, was based on the
allegation of the defendants (owners) in their answer to the complaint for eminent
domain in that case that the price of their lands was P2,000.00 per hectare and that
was the price that they asked the court to pay them. This Court said, then, that the
owners of the land could not be given more than what they had asked,
notwithstanding the recommendation of the majority of the Commission on
Appraisal which was adopted by the trial court that the fair market value of
the lands was P3,000.00 per hectare. We also find that the price of P.20 per square
meter in the Narciso case was considered the fair market value of the lands as of
the year 1949 when the expropriation proceedings were instituted, and at that time
the lands were classified as sugar lands, and assessed for taxation purposes at
around P400.00 per hectare, or P.04 per square meter. 22 While the lands involved
in the present case, like the lands involved in the Narciso case, might have a fair
market value of P.20 per square meter in 1949, it can not be denied that ten years
later, in 1959, when the present proceedings were instituted, the value of those
lands had increased considerably. The evidence shows that since 1949 those lands
were no longer cultivated as sugar lands, and in 1959 those lands were already
classified, and assessed for taxation purposes, as residential lands. In 1959 the
land of Castellvi was assessed at P1.00 per square meter. 23
The Republic also points out that the Provincial Appraisal Committee of Pampanga,
in its resolution No. 5 of February 15, 1957 (Exhibit D), recommended the sum of
P.20 per square meter as the fair valuation of the Castellvi property. We find that
this resolution was made by the Republic the basis in asking the court to fix the
provisional value of the lands sought to be expropriated at P259,669.10, which was
approved by the court. 24 It must be considered, however, that the amount fixed as
the provisional value of the lands that are being expropriated does not necessarily
represent the true and correct value of the land. The value is only "provisional" or
"tentative", to serve as the basis for the immediate occupancy of the property being
expropriated by the condemnor. The records show that this resolution No. 5 was
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The Republic further relied on the certification of the Acting Assistant Provincial
Assessor of Pampanga, dated February 8, 1961 (Exhibit K), to the effect that in
1950 the lands of Toledo-Gozun were classified partly as sugar land and partly as
urban land, and that the sugar land was assessed at P.40 per square meter, while
part of the urban land was assessed at P.40 per square meter and part at P.20 per
square meter; and that in 1956 the Castellvi land was classified as sugar land and
was assessed at P450.00 per hectare, or P.045 per square meter. We can not also
consider this certification of the Acting Assistant Provincial Assessor as a basis for
fixing the fair market value of the lands of Castellvi and Toledo-Gozun because, as
the evidence shows, the lands in question, in 1957, were already classified and
assessed for taxation purposes as residential lands. The certification of the
assessor refers to the year 1950 as far as the lands of Toledo-Gozun are
concerned, and to the year 1956 as far as the land of Castellvi is concerned.
Moreover, this Court has held that the valuation fixed for the purposes of the
assessment of the land for taxation purposes can not bind the landowner where the
latter did not intervene in fixing it. 25
On the other hand, the Commissioners, appointed by the court to appraise the lands
that were being expropriated, recommended to the court that the price of P10.00
per square meter would be the fair market value of the lands. The commissioners
made their recommendation on the basis of their observation after several ocular
inspections of the lands, of their own personal knowledge of land values in the
province of Pampanga, of the testimonies of the owners of the land, and other
witnesses, and of documentary evidence presented by the appellees. Both Castellvi
and Toledo-Gozun testified that the fair market value of their respective land was
at P15.00 per square meter. The documentary evidence considered by the
commissioners consisted of deeds of sale of residential lands in the town of San
Fernando and in Angeles City, in the province of Pampanga, which were sold at
prices ranging from P8.00 to P20.00 per square meter (Exhibits 15, 16, 17, 18, 19,
20, 21, 22, 23-Castellvi). The commissioners also considered the decision in Civil
Case No. 1531 of the Court of First Instance of Pampanga, entitled Republic vs.
Sabina Tablante, which was expropriation case filed on January 13, 1959, involving
a parcel of land adjacent to the Clark Air Base in Angeles City, where the court fixed
the price at P18.00 per square meter (Exhibit 14-Castellvi). In their report, the
commissioners, among other things, said:
From the above and considering further that the lowest as well as the
highest price per square meter obtainable in the market of Pampanga
relative to subdivision lots within its jurisdiction in the year 1959 is very
well known by the Commissioners, the Commission finds that the
lowest price that can be awarded to the lands in question is P10.00 per
square meter. 26
The lower court did not altogether accept the findings of the Commissioners based
on the documentary evidence, but it considered the documentary evidence as basis
for comparison in determining land values. The lower court arrived at the conclusion
that "the unanimous recommendation of the commissioners of ten (P10.00) pesos
per square meter for the three lots of the defendants subject of this action is fair
and just". 27 In arriving at its conclusion, the lower court took into consideration,
among other circumstances, that the lands are titled, that there is a rising trend of
land values, and the lowered purchasing power of the Philippine peso.
In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, this Court said:
A court of first instance or, on appeal, the Supreme Court, may change
or modify the report of the commissioners by increasing or reducing the
amount of the award if the facts of the case so justify. While great weight
is attached to the report of the commissioners, yet a court may
substitute therefor its estimate of the value of the property as gathered
from the record in certain cases, as, where the commissioners have
applied illegal principles to the evidence submitted to them, or where
they have disregarded a clear preponderance of evidence, or where the
amount allowed is either palpably inadequate or excessive. 28
facilities that obtain because of their nearness to the big sugar central of the
Pampanga Sugar mills, and to the flourishing first class town of Floridablanca. It is
true that the lands in question are not in the territory of San Fernando and Angeles
City, but, considering the facilities of modern communications, the town of
Floridablanca may be considered practically adjacent to San Fernando and
Angeles City. It is not out of place, therefore, to compare the land values in
Floridablanca to the land values in San Fernando and Angeles City, and form an
idea of the value of the lands in Floridablanca with reference to the land values in
those two other communities.
The important factor in expropriation proceeding is that the owner is awarded the
just compensation for his property. We have carefully studied the record, and the
evidence, in this case, and after considering the circumstances attending the lands
in question We have arrived at the conclusion that the price of P10.00 per square
meter, as recommended by the commissioners and adopted by the lower court, is
quite high. It is Our considered view that the price of P5.00 per square meter would
be a fair valuation of the lands in question and would constitute a just compensation
to the owners thereof. In arriving at this conclusion We have particularly taken into
consideration the resolution of the Provincial Committee on Appraisal of the
province of Pampanga informing, among others, that in the year 1959 the land of
Castellvi could be sold for from P3.00 to P4.00 per square meter, while the land of
Toledo-Gozun could be sold for from P2.50 to P3.00 per square meter. The Court
has weighed all the circumstances relating to this expropriations proceedings, and
in fixing the price of the lands that are being expropriated the Court arrived at a
happy medium between the price as recommended by the commissioners and
approved by the court, and the price advocated by the Republic. This Court has
also taken judicial notice of the fact that the value of the Philippine peso has
considerably gone down since the year 1959. 30 Considering that the lands of
Castellvi and Toledo-Gozun are adjoining each other, and are of the same nature,
the Court has deemed it proper to fix the same price for all these lands.
In ordering the Republic to pay 6% interest on the total value of the land of Castellvi
from July 1, 1956 to July 10, 1959, the lower court held that the Republic had
illegally possessed the land of Castellvi from July 1, 1956, after its lease of the land
had expired on June 30, 1956, until August 10, 1959 when the Republic was placed
in possession of the land pursuant to the writ of possession issued by the court.
What really happened was that the Republic continued to occupy the land of
Castellvi after the expiration of its lease on June 30, 1956, so much so that Castellvi
filed an ejectment case against the Republic in the Court of First Instance of
Pampanga. 31 However, while that ejectment case was pending, the Republic filed
the complaint for eminent domain in the present case and was placed in possession
of the land on August 10, 1959, and because of the institution of the expropriation
proceedings the ejectment case was later dismissed. In the order dismissing the
ejectment case, the Court of First Instance of Pampanga said:
rent of the lands, subject matter of the instant case from June 30, 1956
up to 1959 when the Philippine Air Force was placed in possession by
virtue of an order of the Court upon depositing the provisional amount
as fixed by the Provincial Appraisal Committee with the Provincial
Treasurer of
Pampanga; ...
If Castellvi had agreed to receive the rentals from June 30, 1956 to August 10,
1959, she should be considered as having allowed her land to be leased to the
Republic until August 10, 1959, and she could not at the same time be entitled to
the payment of interest during the same period on the amount awarded her as the
just compensation of her land. The Republic, therefore, should pay Castellvi interest
at the rate of 6% per annum on the value of her land, minus the provisional value
that was deposited, only from July 10, 1959 when it deposited in court the
provisional value of the land.
4. The fourth error assigned by the Republic relates to the denial by the lower court
of its motion for a new trial based on nearly discovered evidence. We do not find
merit in this assignment of error.
After the lower court had decided this case on May 26, 1961, the Republic filed a
motion for a new trial, supplemented by another motion, both based upon the
ground of newly discovered evidence. The alleged newly discovered evidence in
the motion filed on June 21, 1961 was a deed of absolute sale-executed on January
25, 1961, showing that a certain Serafin Francisco had sold to Pablo L. Narciso a
parcel of sugar land having an area of 100,000 square meters with a sugar quota
of 100 piculs, covered by P.A. No. 1701, situated in Barrio Fortuna, Floridablanca,
for P14,000, or P.14 per square meter.
In the supplemental motion, the alleged newly discovered evidence were: (1) a
deed of sale of some 35,000 square meters of land situated at Floridablanca for
P7,500.00 (or about P.21 per square meter) executed in July, 1959, by the spouses
Evelyn D. Laird and Cornelio G. Laird in favor of spouses Bienvenido S. Aguas and
Josefina Q. Aguas; and (2) a deed of absolute sale of a parcel of land having an
area of 4,120,101 square meters, including the sugar quota covered by Plantation
Audit No. 161 1345, situated at Floridablanca, Pampanga, for P860.00 per hectare
(a little less than P.09 per square meter) executed on October 22, 1957 by Jesus
Toledo y Mendoza in favor of the Land Tenure Administration.
We find that the lower court acted correctly when it denied the motions for a new
trial.
To warrant the granting of a new trial based on the ground of newly discovered
evidence, it must appear that the evidence was discovered after the trial; that even
with the exercise of due diligence, the evidence could not have been discovered
and produced at the trial; and that the evidence is of such a nature as to alter the
result of the case if admitted. 32 The lower court correctly ruled that these requisites
were not complied with.
The lower court, in a well-reasoned order, found that the sales made by Serafin
Francisco to Pablo Narciso and that made by Jesus Toledo to the Land Tenure
Administration were immaterial and irrelevant, because those sales covered
sugarlands with sugar quotas, while the lands sought to be expropriated in the
instant case are residential lands. The lower court also concluded that the land sold
by the spouses Laird to the spouses Aguas was a sugar land.
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We agree with the trial court. In eminent domain proceedings, in order that evidence
as to the sale price of other lands may be admitted in evidence to prove the fair
market value of the land sought to be expropriated, the lands must, among other
things, be shown to be similar.
But even assuming, gratia argumenti, that the lands mentioned in those deeds of
sale were residential, the evidence would still not warrant the grant of a new trial,
for said evidence could have been discovered and produced at the trial, and they
cannot be considered newly discovered evidence as contemplated in Section 1(b)
of Rule 37 of the Rules of Court. Regarding this point, the trial court said:
The Court will now show that there was no reasonable diligence
employed.
in the offices that would have naturally come to his mind such as the
offices mentioned above, and had counsel for the movant really
exercised the reasonable diligence required by the Rule' undoubtedly
they would have been able to find these documents and/or caused the
issuance of subpoena duces tecum. ...
It is also recalled that during the hearing before the Court of the Report
and Recommendation of the Commissioners and objection thereto,
Solicitor Padua made the observation:
I understand, Your Honor, that there was a sale that took place in this
place of land recently where the land was sold for P0.20 which is
contiguous to this land.
The Court gave him permission to submit said document subject to the
approval of the Court. ... This was before the decision was rendered,
and later promulgated on May 26, 1961 or more than one month after
Solicitor Padua made the above observation. He could have, therefore,
checked up the alleged sale and moved for a reopening to adduce
further evidence. He did not do so. He forgot to present the evidence at
a more propitious time. Now, he seeks to introduce said evidence under
the guise of newly-discovered evidence. Unfortunately the Court cannot
classify it as newly-discovered evidence, because tinder the
circumstances, the correct qualification that can be given is 'forgotten
evidence'. Forgotten however, is not newly-discovered
33
evidence.
The granting or denial of a motion for new trial is, as a general rule, discretionary
with the trial court, whose judgment should not be disturbed unless there is a clear
showing of abuse of discretion. 34 We do not see any abuse of discretion on the
part of the lower court when it denied the motions for a new trial.
(a) the lands of appellees Carmen Vda. de Castellvi and Maria Nieves
Toledo-Gozun, as described in the complaint, are declared
expropriated for public use;
(b) the fair market value of the lands of the appellees is fixed at P5.00
per square meter;
(c) the Republic must pay appellee Castellvi the sum of P3,796,495.00
as just compensation for her one parcel of land that has an area of
759,299 square meters, minus the sum of P151,859.80 that she
withdrew out of the amount that was deposited in court as the
provisional value of the land, with interest at the rate of 6% per annum
from July 10, 1959 until the day full payment is made or deposited in
court;
IT IS SO ORDERED.
JOHNSON, J.:
On the 11th day of December, 1916, the city of Manila presented a petition in the
Court of First Instance of said city, praying that certain lands, therein particularly
described, be expropriated for the purpose of constructing a public improvement.
The petitioner, in the second paragraph of the petition, alleged:
of the street or road should be considered a public necessity, other routes were
available, which would fully satisfy the plaintiff's purposes, at much less expense
and without disturbing the resting places of the dead; that it had a Torrens title for
the lands in question; that the lands in question had been used by the defendant
for cemetery purposes; that a great number of Chinese were buried in said
cemetery; that if said expropriation be carried into effect, it would disturb the resting
places of the dead, would require the expenditure of a large sum of money in the
transfer or removal of the bodies to some other place or site and in the purchase of
such new sites, would involve the destruction of existing monuments and the
erection of new monuments in their stead, and would create irreparable loss and
injury to the defendant and to all those persons owning and interested in the graves
and monuments which would have to be destroyed; that the plaintiff was without
right or authority to expropriate said cemetery or any part or portion thereof for street
purposes; and that the expropriation, in fact, was not necessary as a public
improvement.
The defendant Ildefonso Tambunting, answering the petition, denied each and
every allegation of the complaint, and alleged that said expropriation was not a
public improvement; that it was not necessary for the plaintiff to acquire the parcels
of land in question; that a portion of the lands in question was used as a cemetery
in which were the graves of his ancestors; that monuments and tombstones of great
value were found thereon; that the land had becomequasi-public property of a
benevolent association, dedicated and used for the burial of the dead and that many
dead were buried there; that if the plaintiff deemed it necessary to extend Rizal
Avenue, he had offered and still offers to grant a right of way for the said extension
over other land, without cost to the plaintiff, in order that the sepulchers, chapels
and graves of his ancestors may not be disturbed; that the land so offered, free of
charge, would answer every public necessity on the part of the plaintiff.
The defendant Feliza Concepcion de Delgado, with her husband, Jose Maria
Delgado, and each of the other defendants, answering separately, presented
substantially the same defense as that presented by the Comunidad de Chinos de
Manila and Ildefonso Tambunting above referred to.
The foregoing parts of the defense presented by the defendants have been inserted
in order to show the general character of the defenses presented by each of the
defendants. The plaintiff alleged that the expropriation was necessary. The
defendants each alleged (a) that no necessity existed for said expropriation and (b)
that the land in question was a cemetery, which had been used as such for many
years, and was covered with sepulchres and monuments, and that the same should
not be converted into a street for public purposes.
Upon the issue thus presented by the petition and the various answers, the
Honorable Simplicio del Rosario, judge, in a very elucidated opinion, with very clear
and explicit reasons, supported by ambulance of authorities, decided that there
was no necessity for the expropriation of the particular strip of land in question, and
absolved each and all of the defendants from all liability under the complaint,
without any finding as to costs.
From that judgment the plaintiff appealed and presented the above question as its
principal ground of appeal.
The theory of the plaintiff is, that once it has established the fact, under the law,
that it has authority to expropriate land, it may expropriate any land it may desire;
that the only function of the court in such proceedings is to ascertain the value of
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the land in question; that neither the court nor the owners of the land can inquire
into the advisible purpose of purpose of the expropriation or ask any questions
concerning the necessities therefor; that the courts are mere appraisers of the land
involved in expropriation proceedings, and, when the value of the land is fixed by
the method adopted by the law, to render a judgment in favor of the defendant for
its value.
The Charter of the city of Manila contains no procedure by which the said authority
may be carried into effect. We are driven, therefore, to the procedure marked out
by Act No. 190 to ascertain how the said authority may be exercised. From an
examination of Act No. 190, in its section 241, we find how the right of eminent
domain may be exercised. Said section 241 provides that, "The Government of the
Philippine Islands, or of any province or department thereof, or of any municipality,
and any person, or public or private corporation having, by law, the right to
condemn private property for public use, shall exercise that right in the manner
hereinafter prescribed."
Section 243 provides that if the court shall find upon trial that the right to expropriate
the land in question exists, it shall then appoint commissioners.
Sections 244, 245 and 246 provide the method of procedure and duty of the
commissioners. Section 248 provides for an appeal from the judgment of the Court
of First Instance to the Supreme Court. Said section 248 gives the Supreme Court
authority to inquire into the right of expropriation on the part of the plaintiff. If the
Supreme Court on appeal shall determine that no right of expropriation existed, it
shall remand the cause to the Court of First Instance with a mandate that the
defendant be replaced in the possession of the property and that he recover
whatever damages he may have sustained by reason of the possession of the
plaintiff.
It is contended on the part of the plaintiff that the phrase in said section, "and if the
court shall find the right to expropriate exists," means simply that, if the court finds
that there is some law authorizing the plaintiff to expropriate, then the courts have
no other function than to authorize the expropriation and to proceed to ascertain
the value of the land involved; that the necessity for the expropriation is a legislative
and not a judicial question.
a certain or particular parcel of land for some specified public purpose, that the
courts would be without jurisdiction to inquire into the purpose of that legislation.
If, upon the other hand, however, the Legislature should grant general authority to
a municipal corporation to expropriate private land for public purposes, we think the
courts have ample authority in this jurisdiction, under the provisions above quoted,
to make inquiry and to hear proof, upon an issue properly presented, concerning
whether or not the lands were private and whether the purpose was, in fact, public.
In other words, have no the courts in this jurisdiction the right, inasmuch as the
questions relating to expropriation must be referred to them (sec. 241, Act No. 190)
for final decision, to ask whether or not the law has been complied with? Suppose
in a particular case, it should be denied that the property is not private property
but public, may not the courts hear proof upon that question? Or, suppose the
defense is, that the purpose of the expropriation is not public but private, or that
there exists no public purpose at all, may not the courts make inquiry and hear proof
upon that question?
The city of Manila is given authority to expropriate private lands for public purposes.
Can it be possible that said authority confers the right to determine for itself that the
land is private and that the purpose is public, and that the people of the city of
Manila who pay the taxes for its support, especially those who are directly affected,
may not question one or the other, or both, of these questions? Can it be
successfully contended that the phrase used in Act No. 190, "and if the court upon
trial shall find that such right exists," means simply that the court shall examine
thestatutes simply for the purpose of ascertaining whether a law exists authorizing
the petitioner to exercise the right of eminent domain? Or, when the case arrives in
the Supreme Court, can it be possible that the phrase, "if the Supreme Court shall
determine that no right of expropriation exists," that that simply means that the
Supreme Court shall also examine the enactments of the legislature for the purpose
of determining whether or not a law exists permitting the plaintiff to expropriate?
We are of the opinion that the power of the court is not limited to that question. The
right of expropriation is not an inherent power in a municipal corporation, and before
it can exercise the right some law must exist conferring the power upon it. When
the courts come to determine the question, they must only find (a) that a law or
authority exists for the exercise of the right of eminent domain, but (b) also that the
right or authority is being exercised in accordance with the law. In the present case
there are two conditions imposed upon the authority conceded to the City of
Manila: First, the land must be private; and, second, the purpose must be public. If
the court, upon trial, finds that neither of these conditions exists or that either one
of them fails, certainly it cannot be contended that the right is being exercised in
accordance with law.
Whether the purpose for the exercise of the right of eminent domain is public, is a
question of fact. Whether the land is public, is a question of fact; and, in our opinion,
when the legislature conferred upon the courts of the Philippine Islands the right to
ascertain upon trial whether the right exists for the exercise of eminent domain, it
intended that the courts should inquire into, and hear proof upon, those questions.
Is it possible that the owner of valuable land in this jurisdiction is compelled to stand
mute while his land is being expropriated for a use not public, with the right simply
to beg the city of Manila to pay him the value of his land? Does the law in this
jurisdiction permit municipalities to expropriate lands, without question, simply for
the purpose of satisfying the aesthetic sense of those who happen for the time
being to be in authority? Expropriation of lands usually calls for public expense. The
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POLITICAL LAW REVIEW CASES INHERENT POWERS
taxpayers are called upon to pay the costs. Cannot the owners of land question
the public use or the public necessity?
As was said above, there is a wide divergence of opinion upon the authority of the
court to question the necessity or advisability of the exercise of the right of eminent
domain. The divergence is usually found to depend upon particular statutory or
constitutional provisions.
It has been contended and many cases are cited in support of that contention,
and section 158 of volume 10 of Ruling Case Law is cited as conclusive that the
necessity for taking property under the right of eminent domain is not a judicial
question. But those who cited said section evidently overlooked the section
immediately following (sec. 159), which adds: "But it is obvious that if the property
is taken in the ostensible behalf of a public improvementwhich it can never by any
possibility serve, it is being taken for a use not public, and the owner's constitutional
rights call for protection by the courts. While many courts have used sweeping
expression in the decisions in which they have disclaimed the power of supervising
the power of supervising the selection of the sites of public improvements, it may
be safely said that the courts of the various states would feel bound to interfere to
prevent an abuse of the discretion delegated by the legislature, by an attempted
appropriation of land in utter disregard of the possible necessity of its use, or when
the alleged purpose was a cloak to some sinister scheme." (Norwich City vs.
Johnson, 86 Conn., 151; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544;
Wheeling, etc. R. R. Co. vs. Toledo Ry. etc. Co., 72 Ohio St., 368; State vs. Stewart,
74 Wis., 620.)
Said section 158 (10 R. C. L., 183) which is cited as conclusive authority in support
of the contention of the appellant, says:
Practically every case cited in support of the above doctrine has been examined,
and we are justified in making the statement that in each case the legislature directly
determined the necessity for the exercise of the right of eminent domain in the
particular case. It is not denied that if the necessity for the exercise of the right of
eminent domain is presented to the legislative department of the government and
that department decides that there exists a necessity for the exercise of the right in
a particular case, that then and in that case, the courts will not go behind the action
of the legislature and make inquiry concerning the necessity. But, in the case
of Wheeling, etc. R. R. Co. vs. Toledo, Ry, etc., Co. (72 Ohio St., 368 [106 Am. St.
rep., 622, 628]), which was cited in support of the doctrine laid down in section 158
above quoted, the court said:
But when the statute does not designate the property to be taken nor how
may be taken, then the necessity of taking particular property is a question
for the courts. Where the application to condemn or appropriate is made
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directly to the court, the question (of necessity) should be raised and
decided in limene.
Volume 15 of the Cyclopedia of Law and Procedure (Cyc.), page 629, is cited as a
further conclusive authority upon the question that the necessity for the exercise of
the right of eminent domain is a legislative and not a judicial question. Cyclopedia,
at the page stated, says:
The volume of Cyclopedia, above referred to, cites many cases in support of the
doctrine quoted. While time has not permitted an examination of all of said citations,
many of them have been examined, and it can be confidently asserted that said
cases which are cited in support of the assertion that, "the necessity and
expediency of exercising the right of eminent domain are questions essentially
political and not judicial," show clearly and invariably that in each case the
legislature itself usually, by a special law, designated the particular case in which
the right of eminent domain might be exercised by the particular municipal
corporation or entity within the state. (Eastern R. Co. vs.Boston, etc., R. Co., 11
Mass., 125 [15 Am. Rep., 13]; Brooklyn Park Com'rs vs. Armstrong, 45 N.Y., 234
[6 Am. Rep., 70]; Hairston vs. Danville, etc. Ry. Co., 208 U. S. 598;
Cincinnati vs. Louisville, etc. Ry. Co., 223 U. S., 390; U.S. vs. Chandler-Dunbar
Water Power Co., 229 U. S., 53; U.S. vs. Gettysburg, etc. Co., 160 U. S., 668;
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Traction Co. vs. Mining Co., 196 U.S., 239; Sears vs. City of Akron, 246 U.S., 351
[erroneously cited as 242 U.S.].)
In the case of Traction Co. vs. Mining Co. (196 U.S., 239), the Supreme Court of
the United States said: "It is erroneous to suppose that the legislature is beyond the
control of the courts in exercising the power of eminent domain, either as to
the nature of the use or the necessity to the use of any particular property. For if
the use be not public or no necessity for the taking exists, the legislature cannot
authorize the taking of private property against the will of the owner,
notwithstanding compensation may be required."
In the case of School Board of Carolina vs. Saldaa (14 Porto Rico, 339, 356), we
find the Supreme Court of Porto Rico, speaking through Justice MacLeary, quoting
approvingly the following, upon the question which we are discussing: "It is well
settled that although the legislature must necessarily determine in the first instance
whether the use for which they (municipalities, etc.) attempt to exercise the power
is a public one or not, their (municipalities, etc.) determination is not final, but is
subject to correction by the courts, who may undoubtedly declare the statute
unconstitutional, if it shall clearly appear that the use for which it is proposed to
authorize the taking of private property is in reality not public but private." Many
cases are cited in support of that doctrine.
Later, in the same decision, we find the Supreme Court of Porto Rico says: "At any
rate, the rule is quite well settled that in the cases under consideration the
determination of the necessity of taking a particular piece or a certain amount of
land rests ultimately with the courts." (Spring Valley etc. Co. vs. San Mateo, etc.
Co., 64 Cal., 123.) .
In the case of Board of Water Com'rs., etc. vs. Johnson (86 Conn., 571 [41 L. R.
A., N. S., 1024]), the Supreme Court of Connecticut approvingly quoted the
following doctrine from Lewis on Eminent Domain (3d ed.), section 599: "In all such
cases the necessity of public utility of the proposed work or improvement is a judicial
question. In all such cases, where the authority is to take property necessary for
the purpose, the necessity of taking particular property for a particular purpose is a
judicial one, upon which the owner is entitled to be heard." (Riley vs.Charleston,
etc. Co., 71 S. C., 457, 489 [110 Am. St. Rep., 579]; Henderson vs. Lexington 132
Ky., 390, 403.)
The taking of private property for any use which is not required by the necessities
or convenience of the inhabitants of the state, is an unreasonable exercise of the
right of eminent domain, and beyond the power of the legislature to delegate.
(Bennett vs. Marion, 106 Iowa, 628, 633; Wilson vs. Pittsburg, etc. Co., 222 Pa. St.,
541, 545; Greasy, etc. Co. vs. Ely, etc. Co., 132 Ky., 692, 697.)
In the case of New Central Coal Co. vs. George's etc. Co. (37 Md., 537, 564), the
Supreme Court of the State of Maryland, discussing the question before us, said:
"To justify the exercise of this extreme power (eminent domain) where the
legislature has left it to depend upon the necessity that may be found to exist, in
order to accomplish the purpose of the incorporation, as in this case, the party
claiming the right to the exercise of the power should be required to show at least
a reasonable degree of necessity for its exercise. Any rule less strict than this, with
the large and almost indiscriminate delegation of the right to corporations, would
likely lead to oppression and the sacrifice of private right to corporate power."
In the case of Dewey vs. Chicago, etc. Co. (184 Ill., 426, 433), the court said: "Its
right to condemn property is not a general power of condemnation, but is limited to
cases where a necessity for resort to private property is shown to exist. Such
necessity must appear upon the face of the petition to condemn. If the necessary
is denied the burden is upon the company (municipality) to establish it." (Highland,
etc. Co. vs. Strickley, 116 Fed., 852, 856; Kiney vs.Citizens' Water & Light Co., 173
Ind., 252, 257 ; Bell vs. Mattoon Waterworks, etc. Co., 245 Ill., 544 [137 Am. St.
Rep. 338].)
It is true that naby decisions may be found asserting that what is a public use is a
legislative question, and many other decisions declaring with equal emphasis that
it is a judicial question. But, as long as there is a constitutional or statutory provision
denying the right to take land for any use other than a public use, it occurs to us
that the question whether any particular use is a public one or not is ultimately, at
least, a judicial question. The legislative may, it is true, in effect declare certain uses
to be public, and, under the operation of the well-known rule that a statute will not
be declared to be unconstitutional except in a case free, or comparatively free, from
doubt, the courts will certainly sustain the action of the legislature unless it appears
that the particular use is clearly not of a public nature. The decisions must be
understood with this limitation; for, certainly, no court of last resort will be willing to
declare that any and every purpose which the legislative might happen to designate
as a public use shall be conclusively held to be so, irrespective of the purpose in
question and of its manifestly private character Blackstone in his Commentaries on
the English Law remarks that, so great is the regard of the law for private property
that it will not authorize the least violation of it, even for the public good, unless
there exists a very great necessity therefor.
In the case of Wilkinson vs. Leland (2 Pet. [U.S.], 657), the Supreme Court of the
United States said: "That government can scarcely be deemed free where the rights
of property are left solely defendant on the legislative body, without restraint. The
fundamental maxims of free government seem to require that the rights of personal
liberty and private property should be held sacred. At least no court of justice in this
country would be warranted in assuming that the power to violate and disregard
them a power so repugnant to the common principles of justice and civil liberty
lurked in any general grant of legislature authority, or ought to be implied from
any general expression of the people. The people ought no to be presumed to part
with rights so vital to their security and well-being without very strong and direct
expression of such intention." (Lewis on Eminent Domain, sec. 603;
Lecoul vs.Police Jury 20 La. Ann., 308; Jefferson vs. Jazem, 7 La. Ann., 182.)
Blackstone, in his Commentaries on the English Law said that the right to own and
possess land a place to live separate and apart from others to retain it as a
home for the family in a way not to be molested by others is one of the most
sacred rights that men are heirs to. That right has been written into the organic law
of every civilized nation. The Acts of Congress of July 1, 1902, and of August 29,
1916, which provide that "no law shall be enacted in the Philippine Islands which
shall deprive any person of his property without due process of law," are but a
restatement of the time-honored protection of the absolute right of the individual to
his property. Neither did said Acts of Congress add anything to the law already
existing in the Philippine Islands. The Spaniard fully recognized the principle and
adequately protected the inhabitants of the Philippine Islands against the
encroachment upon the private property of the individual. Article 349 of the Civil
Code provides that: "No one may be deprived of his property unless it be by
competent authority, for some purpose of proven public utility, and after payment
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of the proper compensation Unless this requisite (proven public utility and payment)
has been complied with, it shall be theduty of the courts to protect the owner of
such property in its possession or to restore its possession to him , as the case may
be."
The exercise of the right of eminent domain, whether directly by the State, or by its
authorized agents, is necessarily in derogation of private rights, and the rule in that
case is that the authority must be strictly construed. No species of property is held
by individuals with greater tenacity, and none is guarded by the constitution and
laws more sedulously, than the right to the freehold of inhabitants. When the
legislature interferes with that right, and, for greater public purposes, appropriates
the land of an individual without his consent, the plain meaning of the law should
not be enlarged by doubtly interpretation. (Bensely vs. Mountainlake Water Co., 13
Cal., 306 and cases cited [73 Am. Dec., 576].)
The statutory power of taking property from the owner without his consent is one of
the most delicate exercise of government authority. It is to be watched with jealous
scrutiny. Important as the power may be to the government, the inviolable sanctity
which all free constitutions attach to the right of property of the citizens, constrains
the strict observance of the substantial provisions of the law which
are prescribed as modes of the exercise of the power, and to protect it from abuse.
Not only must the authority of municipal corporations to take property be expressly
conferred and the use for which it is taken specified, but the power, with all
constitutional limitation and directions for its exercise, must be strictly pursued.
(Dillon on Municipal Corporations [5th Ed.], sec. 1040, and cases cited;
Tenorio vs. Manila Railroad Co., 22 Phil., 411.)
The Charter of the city of Manila authorizes the taking of private property
for public use. Suppose the owner of the property denies and successfully proves
that the taking of his property serves no public use: Would the courts not be justified
in inquiring into that question and in finally denying the petition if no public purpose
was proved? Can it be denied that the courts have a right to inquire into that
question? If the courts can ask questions and decide, upon an issue properly
presented, whether the use is public or not, is not that tantamount to permitting the
courts to inquire into the necessity of the appropriation? If there is no public use,
then there is no necessity, and if there is no necessity, it is difficult to understand
how a public use can necessarily exist. If the courts can inquire into the question
whether a public use exists or not, then it seems that it must follow that they can
examine into the question of the necessity.
The very foundation of the right to exercise eminent domain is a genuine necessity,
and that necessity must be of a public character. The ascertainment of the necessity
must precede or accompany, and not follow, the taking of the
land. (Morrison vs. Indianapolis, etc. Ry. Co., 166 Ind., 511; Stearns vs. Barre, 73
Vt., 281; Wheeling, etc. R. R. Co. vs. Toledo, Ry. etc. Co., 72 Ohio St., 368.)
The general power to exercise the right of eminent domain must not be confused
with the right to exercise it in aparticular case. The power of the legislature to confer,
upon municipal corporations and other entities within the State, general authority to
exercise the right of eminent domain cannot be questioned by the courts, but that
general authority of municipalities or entities must not be confused with the right to
exercise it in particular instances. The moment the municipal corporation or entity
attempts to exercise the authority conferred, it must comply with the conditions
accompanying the authority. The necessity for conferring the authority upon a
municipal corporation to exercise the right of eminent domain is admittedly within
the power of the legislature. But whether or not the municipal corporation or entity
is exercising the right in a particular case under the conditions imposed by the
general authority, is a question which the courts have the right to inquire into.
The conflict in the authorities upon the question whether the necessity for the
exercise of the right of eminent domain is purely legislative and not
judicial, arises generally in the wisdom and propriety of the legislature in authorizing
the exercise of the right of eminent domain instead of in the question of the right to
exercise it in a particular case. (Creston Waterworks Co. vs. McGrath, 89 Iowa,
502.)
By the weight of authorities, the courts have the power of restricting the exercise of
eminent domain to the actual reasonable necessities of the case and for the
purposes designated by the law. (Fairchild vs. City of St. Paul. 48 Minn., 540.)
And, moreover, the record does not show conclusively that the plaintiff has
definitely decided that their exists a necessity for the appropriation of the particular
land described in the complaint. Exhibits 4, 5, 7, and E clearly indicate that the
municipal board believed at one time that other land might be used for the proposed
improvement, thereby avoiding the necessity of distributing the quiet resting place
of the dead.
Aside from insisting that there exists no necessity for the alleged improvements,
the defendants further contend that the street in question should not be opened
through the cemetery. One of the defendants alleges that said cemetery
is public property. If that allegations is true, then, of course, the city of Manila cannot
appropriate it for public use. The city of Manila can only
expropriate private property.
It is a well known fact that cemeteries may be public or private. The former is a
cemetery used by the general community, or neighborhood, or church, while the
latter is used only by a family, or a small portion of the community or neighborhood.
(11 C. J., 50.)
Where a cemetery is open to public, it is a public use and no part of the ground can
be taken for other public uses under a general authority. And this immunity extends
to the unimproved and unoccupied parts which are held in good faith for future use.
(Lewis on Eminent Domain, sec. 434, and cases cited.)
The cemetery and general hospital for indigent Chinese having been founded
and maintained by the spontaneous and fraternal contribution of their
protector, merchants and industrials, benefactors of mankind, in
consideration of their services to the Government of the Islands its internal
administration, government and regime must necessarily be adjusted to the
taste and traditional practices of those born and educated in China in order
that the sentiments which animated the founders may be perpetually
effectuated.
It is alleged, and not denied, that the cemetery in question may be used by the
general community of Chinese, which fact, in the general acceptation of the
definition of a public cemetery, would make the cemetery in question public
property. If that is true, then, of course, the petition of the plaintiff must be denied,
for the reason that the city of Manila has no authority or right under the law to
expropriate public property.
But, whether or not the cemetery is public or private property, its appropriation for
the uses of a public street, especially during the lifetime of those specially interested
in its maintenance as a cemetery, should be a question of great concern, and its
appropriation should not be made for such purposes until it is fully established that
the greatest necessity exists therefor.
While we do not contend that the dead must not give place to the living, and while
it is a matter of public knowledge that in the process of time sepulchres may become
the seat of cities and cemeteries traversed by streets and daily trod by the feet of
millions of men, yet, nevertheless such sacrifices and such uses of the places of
the dead should not be made unless and until it is fully established that there exists
an eminent necessity therefor. While cemeteries and sepulchres and the places of
the burial of the dead are still within
the memory and command of the active care of the living; while they are still
devoted to pious uses and sacred regard, it is difficult to believe that even the
legislature would adopt a law expressly providing that such places, under such
circumstances, should be violated.
In the present case, even granting that a necessity exists for the opening of the
street in question, the record contains no proof of the necessity of opening the same
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through the cemetery. The record shows that adjoining and adjacent lands have
been offered to the city free of charge, which will answer every purpose of the
plaintiff.
For all of the foregoing, we are fully persuaded that the judgment of the lower court
should be and is hereby affirmed, with costs against the appellant. So ordered.
Separate Opinions
As narrowing our inquiry still further, let it be noted that cemeteries are of two
classes, public and private. A public cemetery is one used by the general
community, or neighborhood, or church; while a private cemetery is one used only
by a family, or small portion of a community. (Lay vs. State, 12 Ind. App., 362;
Cemetery Association vs.Meninger [1875], 14 Kan., 312.) Our specific question,
then, is, whether the Chinese Cemetery in the city of Manila is a public, or a private
graveyard. If it be found to be the former, it is not subject to condemnation by the
city of Manila; if it be found to be the latter, it is subject to condemnation.
From the time of its creation until the present the cemetery has been used by the
Chinese community for the burial of their dead. It is said that not less than four
hundred graves, many of them with handsome monuments, would be destroyed by
the proposed street. This desecration is attempted as to the las t resting places of
the dead of a people who, because of their peculiar and ingrained ancestral
workship, retain more than the usual reverence for the departed. These facts lead
us straight to the conclusion that the Chinese Cemetery is not used by a family or
a small portion of a community but by a particular race long existing in the country
and of considerable numbers. The case, then, is one of where the city of Manila,
under a general authority permitting it to condemn private property for public use,
is attempting to convert a property already dedicated to a public use to an entirely
different public use; and this, not directly pursuant to legislative authority, but
primarily through the sole advice of the consulting architect.
Two well considered decisions coming from the American state courts on almost
identical facts are worthy of our consideration. The first is the case of The Evergreen
Cemetery Association vs. The City of New Haven ([1875], 43 Conn., 234), of cited
by other courts. Here the City of New Haven, Connecticut, under the general power
conferred upon it to lay out, construct, and maintain all necessary highways within
its limits, proceeded to widen and straighten one of its streets and in so doing took
a small piece of land belonging to the Evergreen Cemetery Association. This
association was incorporated under the general statute. The city had no special
power to take any part of the cemetery for such purposes. It was found that the land
taken was needed for the purposes of the cemetery and was not needed for the
purpose of widening and straightening the avenue. The court said that it is
unquestionable that the Legislature has the power to authorize the taking of land
already applied to one public use and devote it to another. When the power is
granted to municipal or private corporations in express words, no question can
arise. But, it was added, "The same land cannot properly be used for burial lots and
for a public highway at the same time. . . . Land therefore applied to one use should
not be taken for the other except in cases on necessity. . . . There is no difficulty in
effecting the desired improvement by taking land on the other side of the street. . .
. The idea of running a public street, regardless of graves, monuments, and the
feelings of the living, through one of our public cemeteries, would be shocking to
the moral sense of the community, and would not be tolerated except upon the
direst necessity." It was then held that land already devoted to a public use cannot
be taken by the public for another use which is inconsistent with the first, without
special authority from the Legislature, or authority granted by necessary and
reasonable implication.
The second decision is that of Memphis State Line Railroad Company vs. Forest
Hill Cemetery Co. ([1906], 116 Tenn., 400.) Here the purpose of the proceedings
was to condemn a right of way for the railway company through the Forest Hill
Cemetery. The railroad proposed to run through the southeast corner of the
cemetery where no bodies were interred. The cemetery had been in use for about
eight years, and during this period thirteen hundred bodies had been buried therein.
The cemetery was under the control of a corporation which, by its character, held
itself out as being willing to sell lots to any one who applies therefor and pays the
price demanded, except to members of the Negro race.1awph!l.net
It was found that there were two other routes along which the railroad might be
located without touching the cemetery, while the present line might be pursued
without interfering with Forest Hill Cemetery by making a curve around it. In the
court below the railroad was granted the right of condemnation through the
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cemetery and damages were assessed. On appeal, the certiorari applied for was
granted, and the supersedeas awarded. The court, in effect, found that the land of
the Cemetery Company was devoted to a public purpose, and that under the
general language of the Tennessee statute of eminent domain it could not be taken
for another public purpose. The court said that in process of time the sepulchres of
the dead "are made the seats of cities, and are traversed by streets, and daily
trodden by the feet of man. This is inevitable in the course of ages. But while these
places are yet within the memory and under the active care of the living, while they
are still devoted to pious uses, they are sacred, and we cannot suppose that the
legislature intended that they should be violated, in the absence of special
provisions upon the subject authorizing such invasion, and indicating a method for
the disinterment, removal, and reinterment of the bodies buried, and directing how
the expense thereof shall be borne." Two members of the court, delivering a
separate concurring opinion, concluded with this significant and eloquent sentence:
"The wheels of commerce must stop at the grave."
For the foregoing reasons, and for others which are stated in the principal decision,
I am of the opinion that the judgment of the lower court should be affirmed.
It may be admitted that, upon the evidence before us, the projected condemnation
of the Chinese Cemetery is unnecessary and perhaps ill-considered. Nevertheless
I concur with Justice Moir in the view that the authorities of the city of Manila are
the proper judges of the propriety of the condemnation and that this Court should
have nothing to do with the question of the necessity of the taking.
I dissent from the majority opinion in this case, which has not yet been written, and
because of the importance of the question involved, present my dissent for the
record.
This is an action by the city of Manila for the expropriation of land for an extension
of Rizal Avenue north. The petition for condemnation was opposed by the
"Comunidad de Chinos de Manila" and Ildefonso Tambunting and various other
who obtained permission of the trial court to intervene in the case.
All of the defendants allege in their opposition that the proposed extension of Rizal
Avenue cuts through a part of the Chinese Cemetery, North of Manila, and
necessitates the destruction of many monuments and the removal of many graves.
The Court of First Instance of Manila, Honorable S. del Rosario, judge after hearing
the parties, decided that there was no need for constructing the street as and where
proposed by the city, and dismissed the petition.
1. The court erred in deciding that the determination of the necessity and
convenience of the expropriation of the lands of the defendants lies with the
court and not with the Municipal Board of the city of Manila.
2. The court erred in permitting the presentation of proofs over the objection
and exception of the plaintiff tending to demonstrate the lack of necessity of
the projected street and the need of the lands in question.
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3. The court erred in declaring that the plaintiff had no right to expropriate the
lands in question.
The right of the plaintiff to expropriate property for public use cannot be denied. The
"right of eminent domain is inherent in all sovereignties and therefore would exist
without any constitutional recognition . . . . The right of eminent domain antedates
constitutions . . . . The right can only be denied or restricted by fundamental law
and is right inherent in society." (15 Cyc., pp. 557-8.) .
This general right was recognized in the Philippine Code of Civil Procedure effective
October 1st, 1901, which prescribed the manner of exercising the right. (Sections
241 et seq.)
It was further recognized in the Organic Act of July 1st, 1902, which provides in
section 74 "that the Government of the Philippine Islands may grant franchises . . .
including the authority to exercise the right of eminent domain for the construction
and operation of works of public utility and service, and may authorize said works
to be constructed and maintained over and across the public property of the United
States including . . . reservations." This provisions is repeated in the Jones Law of
August, 1916.
The legislature of the Islands conferred the right on the city of Manila. (Section
2429, Administrative Code of 1917; section 2402, Administrative Code of 1916.)
Clearly having the right of expropriation, the city of Manila selected the line of its
street and asked the court by proper order to place the plaintiff in possession of the
land described in the complaint, and to appoint Commissioners to inspect the
property, appraise the value, and assess the damages. Instead of doing so, the
court entered upon the question of the right of the city to take the property and the
necessity for the taking.
Relative to the first point, it is not necessary for the court to pass upon its
consideration, in view of the conclusion it has arrived at the appreciation of
the other points connected with each other.
city of Manila would have to remove and transfer to other places about four
hundred graves and monuments, make some grubbings, undergo some
leveling and build some bridges the works thereon, together with the
construction of the road and the value of the lands expropriated, would mean
an expenditure which will not be less than P180,000.
Beside that considerable amount, the road would have a declivity of 3 per
cent which, in order to cover a distance of one kilometer, would require an
energy equivalent to that which would be expanded in covering a distance of
two and one-half kilometers upon a level road.
On the other hand, if the road would be constructed with the deviation
proposed by Ildefonso Tambunting, one of the defendants, who even offered
to donate gratuitously to the city of Manila part of the land upon which said
road will have to be constructed, the plaintiff entity would be able to save more
than hundreds of thousand of pesos, which can be invested in other
improvements of greater pressure and necessity for the benefit of the
taxpayers; and it will not have to employ more time and incur greater
expenditures in the removal and transfer of the remains buried in the land of
the Chinese Community and of Sr. Tambunting, although with the insignificant
disadvantage that the road would be little longer by a still more insignificant
extension of 426 meters and 55 centimeters less than one-half kilometer,
according to the plan included in the records; but it would offer a better
panorama to those who would use it, and who would not have to traverse in
their necessary or pleasure-making trips or walks any cemetery which, on
account of its nature, always deserves the respect of the travellers. It should
be observed that the proposed straight road over the cemetery, which the city
of Manila is proposing to expropriate, does not lead to any commercial,
industrial, or agricultural center, and if with said road it is endeavored to
benefit some community or created interest, the same object may be obtained
by the proposed deviation of the road by the defendants. The road traced by
the plaintiffs has the disadvantage that the lands on both sides thereof would
not serve for residential purposes, for the reason that no one has the pleasure
to construct buildings upon cemeteries, unless it be in very overcrowded
cities, so exhausted of land that every inch thereof represents a dwelling
house.
And it is against the ruling, that it lies with the court to determine the necessity of
the proposed street and not with the municipal board, that the appellant directs its
first assignment of error.
It is a right of the city government to determine whether or not it will construct streets
and where, and the court's sole duty was to see that the value of the property was
paid the owners after proper legal proceedings ascertaining the value.
The law gives the city the right to take private property for public use. It is assumed
it is unnecessary to argue that a public road is a public use.
But it is argued that plaintiff must show that it is necessary to take this land for a
public improvement. The law does not so read, and it is believed that the great
weight of authority, including the United States Supreme Court, is against the
contention.
The question of necessity is distinct from the question of public use, and
former question is exclusively for the legislature, except that if the constitution
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While the legislature may itself exercise the right of determining the necessity
for the exercise of the power of eminent domain, it may, unless prohibited by
the constitution, delegate this power to public officers or to private
corporations established to carry on enterprises in which the public are
interested, and their determination that a necessity for the exercise of the
power exists is conclusive. There is no restraint upon the power except that
requiring compensation to be made. And when the power has been so
delegated it is a subject of legislative discretion to determine what prudential
regulations shall be established to secure a discreet and judicious exercise
of the authority. It has been held that in the absence of any statutory provision
submitting the matter to a court or jury the decision of the question of
necessity lies with the body of individuals to whom the state has delegated
the authority to take, and the legislature may be express provision confer this
power on a corporation to whom the power of eminent domain is
delegated unless prohibited by the constitution. It is of course competent for
the legislature to declare that the question shall be a judicial one, in which
case the court and not the corporation determines the question of necessity.
(15 Cyc., pp. 629-632.)
To the same effect is Lewis on Eminen Domain (3d Edition, section 597).
I quote from the notes to Vol. 5, Encyclopedia of United States Supreme Court
Reports, p. 762, as follows:
Neither can it be said that there is any fundamental right secured by the
constitution of the United States to have the questions of compensation and
necessity both passed upon by one and the same jury. In many states the
question of necessity is never submitted to the jury which passes upon the
question of compensation. It is either settled affirmatively by the legislature,
or left to the judgment of the corporation invested with the right to take
property by condemnation. The question of necessity is not one of a judicial
character, but rather one for determination by the lawmaking branch of the
government. (Boom Co. vs.Patterson, 98 U.S., 403, 406 [25 L. ed., 206];
United States vs. Jones, 109 U.S., 513 [27 L. ed., 1015]; Backus vs. Fort
Street Union Depot Co., 169 U.S., 557, 568 [42 L. ed., 853].)
Speaking generally, it is for the state primarily and exclusively, to declare for
what local public purposes private property, within its limits may be taken
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158. Necessity for taking ordinarily not judicial question. The legislature, in
providing for the exercise the power of eminent domain, may directly
determine the necessity for appropriating private property for a particular
improvement or 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 these of the
representatives of the people. Similarly, when the legislature has delegated
the power of eminent domain to municipal or public service corporation or
other tribunals or bodies, and has given them discretion as to when the power
is to be called into exercise and to what extent, the court will not inquire into
the necessity or propriety of the taking.
The uses to which this land are to be put are undeniably public uses. When
that is the case the propriety or expediency of the appropriation cannot be
called in question by any other authority. (Cinnati vs. S. & N. R. R. Co., 223
U.S., 390, quoting U.S. vs. Jones, 109, U.S., 519.)
And in Sears vs. City of Akron (246 U.S., 242), decided March 4th, 1918, it said:
Plaintiff contends that the ordinance is void because the general statute which
authorized the appropriation violates both Article 1, paragraph 10, of the
Federal Constitution, and the Fourteenth Amendment, in that it authorizes the
municipality to determine the necessity for the taking of private
property without the owners having an opportunity to be hear as to such
necessity; that in fact no necessity existed for any taking which would interfere
with the company's project; since the city might have taken water from the
Little Cuyahoga or the Tuscarawas rivers; and furthermore, that it has taken
ten times as much water as it can legitimately use. It is well settled that while
the question whether the purpose of a taking is a public one is judicial
(Hairston vs.Danville & W. R. Co., 208 U.S. 598 [52 L. ed., 637; 28 Sup. Ct.
Rep., 331; 13 Ann. Cas., 1008]), the necessityand the proper extent of a
taking is a legislative question. (Shoemaker vs. United States, 147 U.S., 282,
298 [57 L. ed., 170, 184; 13 Supt. Ct. Rep., 361]; United States vs. Gettysburg
Electric R. Co., 160 U.S. 668, 685 [40 L. ed., 576, 582; 16 Sup. Ct. Rep., 427];
United States vs. Chandler-Dunbar Water Power Co., 229 U.S., 53, 65 [57 L.
ed., 1063, 1076; 33 Sup. Ct. Rep., 667].)
I think the case should be decided in accordance with foregoing citations, but one
other point has been argued so extensively that it ought to be considered.
It is contended for the defense that this Chinese Cemetery is a public cemetery and
that it cannot therefore be taken for public use. In its answer the "Comunidad de
Chinos de Manila" says it is "a corporation organized and existing under and by
virtue of the laws of the Philippine Islands," and that it owns the land which plaintiff
seeks to acquire. The facts that it is private corporation owning land would seem of
necessity to make the land it owns private land. The fact that it belongs to the
Chinese community deprives it of any public character.
But admitting that it is a public cemetery, although limited in its use to the Chinese
Community of the city of Manila, can it not be taken for public use? Must we let the
reverence we feel for the dead and the sanctity of their final resting-place obstruct
the progress of the living? It will be instructive to inquire what other jurisdictions
have held on that point.
On the Application of Board of Street Openings of New York City to acquire St.
Johns Cemetery (133 N.Y., 329) the court of appeal said:
. . . The board instituted this proceeding under the act to acquire for park
purposes the title to land below One Hundred and Fifty-fifth street known as
St. John's cemetery which belonged to a religious corporation in the city of
New York, commonly called Trinity Church. It was established as a cemetery
as early as 1801, and used for that purpose until 1839, during which time
about ten thousand human bodies had been buried therein. In 1839 an
ordinance was passed by the city of New York forbidding interments south of
Eighty-sixth street, and since that time no interments have been made in the
cemetery, but Trinity Church has preserved and kept it in order and prevented
any disturbance thereof.
The fact that lands have previously been devoted to cemetery purposes does
not place them beyond the reach of the power of eminent domain. That is an
absolute transcendent power belonging to the sovereign which can be
exercised for the public welfare whenever the sovereign authority shall
determine that a necessity for its exercise exists. By its existence the homes
and the dwellings of the living, and the resting-places of the dead may be
alike condemned.
It seems always to have been recognized in the laws of this state, that under
the general laws streets and highways could be laid out through cemeteries,
in the absence of special limitation or prohibition. . . .
This was an action for the opening of a street through a cemetery in the City
of Philadelphia. It was contended for the United American Mechanics and
United Daughters of America Cemetery Association that by an act of the
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POLITICAL LAW REVIEW CASES INHERENT POWERS
legislature of the State approved March 20th, 1849, they were forever exempt
from the taking of any their property for streets, roads or alleys and this Act
was formally accepted by the Cemetery Company on April 9th, 1849, and
there was, therefore, a contract between the Cemetery Company and the
State of Pennsylvania, which would be violated by the taking of any part of
their property for street purposes. It was further contended that there were
11,000 persons buried in the cemetery.
The court held that property and contracts of all kinds must yield to the
demand of the sovereign and that under the power of eminent domain all
properties could be taken, and that if there was a contract between the State
of Pennsylvania and the Cemetery Association, the contract itself could be
taken for public use, and ordered the opening of the street through the
cemetery.
In Vol. 5, Encyclopedia of United States Supreme Court Reports (p. 759), it is said:
Although it has been held, that where a state has delegated the power of
eminent domain to a person or corporation and where by its exercise lands
have been subject to a public use, they cannot be applied to another public
use without specific authority expressed or implied to that effect, yet, the
general rule seems to be that the fact that property is already devoted to a
public use, does not exempt it from being appropriated under the right of
eminent domain but it may be so taken for a use which is clearly superior or
paramount to the one to which it is already devoted. (Citing many United
States Supreme Court decisions.)
A few cases have been cited where the courts refused to allow the opening of
streets through cemeteries, but in my opinion they are not as well considered as
the cases and authorities relied upon herein.
The holding of this court in this case reverses well settled principles of law of long
standing and almost universal acceptance.
The other assignments of error need not be considered as they are involved in the
foregoing.
The decision should be reversed and the record returned to the Court of First
Instance with instructions to proceed with the case in accordance with this decision.
SECOND DIVISION
DECISION
QUISUMBING, J.:
This is a petition for review of the Decision[1] dated October 30, 2003 of the Court of
Appeals in CA-G.R. CV No. 65066 affirming with modification the Decision[2] of
the Regional Trial Court of Butuan City, Branch 33 in Civil Case No. 4378, for enforcement
of easement of right-of-way (or eminent domain).
On December 10, 1998, the Board reported that the project would affect a total of 10,380
square meters of Andayas properties, 4,443 square meters of which will be for the 60-
meter easement. The Board also reported that the easement would diminish the value of
the remaining 5,937 square meters. As a result, it recommended the payment of
consequential damages amounting to P2,820,430 for the remaining area.[5]
Andaya objected to the report because although the Republic reduced the
easement to 10 meters or an equivalent of 701 square meters, the Board still granted it
4,443 square meters. He contended that the consequential damages should be based on
the remaining area of 9,679 square meters. Thus, the just compensation should
be P11,373,405. The Republic did not file any comment, opposition, nor objection.
After considering the Boards report, the trial court decreed on April 29, 1999, as
follows:
Page 174 of 305
POLITICAL LAW REVIEW CASES INHERENT POWERS
NO COSTS.
IT IS SO ORDERED.[6]
Both parties appealed to the Court of Appeals. The Republic contested the awards
of severance damages and attorneys fees while Andaya demanded just compensation for
his entire property minus the easement. Andaya alleged that the easement would prevent
ingress and egress to his property and turn it into a catch basin for the floodwaters coming
from the Agusan River. As a result, his entire property would be rendered unusable and
uninhabitable. He thus demanded P11,373,405 as just compensation based on the total
compensable area of 9,679 square meters.
The Court of Appeals modified the trial courts decision by imposing a 6% interest on
the consequential damages from the date of the writ of possession or the actual taking,
and by deleting the attorneys fees.
Hence, the instant petition. Simply put, the sole issue for resolution may be stated
thus: Is the Republic liable for just compensation if in enforcing the legal easement of right-
of-way on a property, the remaining area would be rendered unusable and uninhabitable?
We are, however, unable to sustain the Republics argument that it is not liable to
pay consequential damages if in enforcing the legal easement on Andayas property, the
remaining area would be rendered unusable and uninhabitable. Taking, in the exercise of
the power of eminent domain, occurs not only when the government actually deprives or
dispossesses the property owner of his property or of its ordinary use, but also when there
is a practical destruction or material impairment of the value of his property.[12] Using this
standard, there was undoubtedly a taking of the remaining area of Andayas property. True,
no burden was imposed thereon and Andaya still retained title and possession of the
property. But, as correctly observed by the Board and affirmed by the courts a quo, the
nature and the effect of the floodwalls would deprive Andaya of the normal use of the
remaining areas. It would prevent ingress and egress to the property and turn it into a
catch basin for the floodwaters coming from the Agusan River.
For this reason, in our view, Andaya is entitled to payment of just compensation,
which must be neither more nor less than the monetary equivalent of the land.[13] One of
the basic principles enshrined in our Constitution is that no person shall be deprived of his
private property without due process of law; and in expropriation cases, an essential
element of due process is that there must be just compensation whenever private
property is taken for public use. Noteworthy, Section 9, Article III of our Constitution
mandates that private property shall not be taken for public use without just
compensation.[14]
Finally, we affirm the findings of the Court of Appeals and the trial court that just
compensation should be paid only for 5,937 square meters of the total area of 10,380
square meters. Admittedly, the Republic needs only a 10-meter easement or an equivalent
of 701 square meters. Yet, it is also settled that it is legally entitled to a 60-meter wide
easement or an equivalent of 4,443 square meters. Clearly, although the Republic will use
only 701 square meters, it should not be liable for the 3,742 square meters, which
constitute the difference between this area of 701 square meters and the 4,443 square
meters to which it is fully entitled to use as easement, free of charge except for damages
to affected existing improvements, if any, under Section 112 of the Public Land Act.
In effect, without such damages alleged and proved, the Republic is liable for just
compensation of only the remaining areas consisting of 5,937 square meters, with interest
thereon at the legal rate of 6% per annum from the date of the writ of possession or the actual
taking until full payment is made. For the purpose of determining the final just compensation,
the case is remanded to the trial court. Said court is ordered to make the determination of
just compensation payable to respondent Andaya with deliberate dispatch.
Page 176 of 305
POLITICAL LAW REVIEW CASES INHERENT POWERS
WHEREFORE, the Decision of the Court of Appeals dated October 30, 2003 in CA-G.R. CV
No. 65066, modifying the Decision of the Regional Trial Court of Butuan City, Branch 33 in
Civil Case No. 4378, is AFFIRMED with MODIFICATION as herein set forth.
The case is hereby REMANDED to the Regional Trial Court of Butuan City, Branch 33 for
the determination of the final just compensation of the compensable area consisting of
5,937 square meters, with interest thereon at the legal rate of 6% per annum from the
date of the writ of possession or actual taking until fully paid.
No pronouncement as to costs.
SO ORDERED.
DECISION
CARPIO MORALES, J.:
NAMES ADDRESS
(Underscoring supplied)
The complaint covers (a) 7,281 square meters of the 25,758 square meters of
land co-owned by herein respondents Petrona O. Dilao (Dilao) and the above-listed
defendant Nos. 2-10 who are her siblings, and (b) 7,879 square meters of the
17,019 square meters of land owned by Estefania Enriquez (Enriquez).[8]
A day after the complaint was filed or on March 20, 1996, NPC filed an urgent ex
parte motion for the issuance of writ of possession of the lands.
Dilao filed her Answer with Counterclaim on April 19, 1996.[9] Enriquez did
not.[10]
On May 9, 1996, Branch 25 of the RTC Danao, issued an Order[11] granting
NPCs motion for the issuance of writ of possession. It then appointed a Board of
Commissioners to determine just compensation.[12]
The commissioners submitted on April 15, 1999 their report[13] to the trial court
containing, among other things, their recommended appraisal of the parcel of land
co-owned by defendants Dilao and her siblings at P516.66 per square meter.
To the Commissioners Report, the NPC filed its
[14]
Comment/Opposition assailing the correctness of the appraisal for failing to take
into account Republic Act (R.A.) No. 6395 (AN ACT REVISING THE CHARTER OF
THE NATIONAL POWER CORPORATION), as amended, specifically Section
3A[15] thereof which provides that the just compensation for right-of-way easement
(for which that portion of the Dilao property is being expropriated) shall be
equivalent to ten percent (10%) of the market value of the property. The traversed
land, NPC asserted, could still be used for agricultural purposes by the defendants,
subject only to its easement. It added that the lots were of no use to its operations
except for its transmission lines.[16]
By Decision of November 10, 1999, the trial court rendered a decision on the
complaint, adopting the commissioners recommended appraisal of the land co-
owned by Dilao and her siblings. The dispositive portion of the decision reads:
honest mistake and excusable neglect, it having believed that a record on appeal
was not required in light of the failure of the other defendant, Enriquez, to file an
answer to the complaint.[24]
The trial court denied NPCs petition for relief for lack of factual and legal
basis.[25]
On August 17, 2001, the trial court granted Dilao et al.s motion for execution of
judgment.[26] NPC thereupon filed a petition for certiorari with the Court of Appeals
with prayer for temporary restraining order and a writ of preliminary
injunction[27] assailing the trial courts order denying its appeal and other orders
related thereto, as well as the order granting Dilao et al.s motion for execution. The
appellate court, however, denied NPCs petition,[28] it holding that under Rule 41,
Section 2 of the 1997 Rules of Civil Procedure, the filing of a record on appeal is
required in special proceedings and other cases of multiple or separate appeals, as
in an action for expropriation in which the order determining the right of the plaintiff
to expropriate and the subsequent adjudication on the issue of just compensation
may be the subject of separate appeals.[29]
Aggrieved, NPC challenged the appellate courts decision via the present
petition,[30] it contending that the trial courts questioned orders effectively deprived
it of its constitutional right to due process.
NPC argues that a complaint for expropriation is a Special Civil Action under
Rule 67 of the Rules of Civil Procedure, not a special proceeding as contemplated
under Rule 41, Section 2 of the Rules of Civil Procedure; that there is no law or
rules specifically requiring that a record on appeal shall be filed in expropriation
cases; and of the two sets of defendants in the present case, the Dilaos and
Enriquez, the first, while they filed an answer, did not appeal the trial courts
decision, while with respect to the second, there is no showing that summons was
served upon her, hence, the trial court did not acquire jurisdiction over her and,
therefore, no appeal could arise whatsoever with respect to the complaint against
her. Ergo, petitioner concludes, no possibility of multiple appeals arose from the
case.
The petition fails.
Rule 41, Section 2 of the 1997 Rules of Civil Procedure, as amended, clearly
provides:
(a) Ordinary appeal. The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from and serving a copy thereof upon
the adverse party. No record on appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these Rules so require. In such cases, the
record on appeal shall be filed and served in like manner.
1. There are two (2) stages in every action of expropriation. The first is concerned with the
determination of the authority of the plaintiff to exercise the power of eminent domain and the
propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if not
of dismissal of the action, "of condemnation declaring that the plaintiff has a lawful right to take
the property sought to be condemned, for the public use or purpose described in the complaint,
upon the payment of just compensation to be determined as of the date of the filing of the
complaint." An order of dismissal, if this be ordained, would be a final one, of course, since it
finally disposes of the action and leaves nothing more to be done by the Court on the merits. So,
too, would an order of condemnation be a final one, for thereafter, as the Rules expressly state, in
the proceedings before the Trial Court, "no objection to the exercise of the right of condemnation
(or the propriety thereof) shall be filed or heard.
The second phase of the eminent domain action is concerned with the determination by the Court
of "the just compensation for the property sought to be taken." This is done by the Court with the
assistance of not more than three (3) commissioners. The order fixing the just compensation on the
basis of the evidence before, and findings of, the commissioners would be final, too. It would
finally dispose of the second stage of the suit, and leave nothing more to be done by the Court
regarding the issue. Obviously, one or another of the parties may believe the order to be erroneous
in its appreciation of the evidence or findings of fact or otherwise. Obviously, too, such a
dissatisfied party may seek reversal of the order by taking an appeal therefrom. (Underscoring
supplied).
Thus, in Municipality of Bian, this Court held that in actions for eminent domain,
since no less than two appeals are allowed by law, the period for appeal from an
order of condemnation is thirty days counted from notice thereof and not the
ordinary period of fifteen days prescribed for actions in general.[33] As such, the
complaint falls under the classification of other cases of multiple or separate appeal
where the law or these rules so require in above-quoted Section 2(a) of Rule 41 of
the Rules of Civil Procedure in which a record on appeal is required to be filed and
served.
Respecting NPCs claim that the trial court did not acquire jurisdiction over the
other defendant, Enriquez, there being no evidence that summons was served on
her and, therefore, no appeal with respect to the case against her arose, the trial
courts Order[34] of May 9, 1996 belies said claim:
xxx
That the defendant Enriquez did not file an answer to the complaint did not
foreclose the possibility of an appeal arising therefrom. For Section 3 of Rule 67
provides:
Sec. 3. Defenses and objections. If a defendant has no objection or defense to the action or the
taking of his property, he may file and serve a notice of appearance and a manifestation to that
effect, specifically designating or identifying the property in which he claims to be interested,
within the time stated in the summons. Thereafter, he shall be entitled to notice of all proceedings
affecting the same.
If a defendant has any objection to the filing of or the allegations in the complaint, or any objection
or defense to the taking of his property, he shall serve his answer within the time stated in the
summons. The answer shall specifically designate or identify the property in which he claims to
have an interest, state the nature and extent of the interest claimed, and adduce all his objections
and defenses to the taking of his property. No counterclaim, cross-claim or third-party complaint
shall be alleged or allowed in the answer or any subsequent pleading.
A defendant waives all defenses and objections not so alleged but the court, in the interest of justice,
may permit amendments to the answer to be made not later than ten (10) days from the filing
thereof. However, at the trial of the issue of just compensation, whether or not a defendant has
previously appeared or answered, he may present evidence as to the amount of the compensation
to be paid for his property, and he may share in the distribution of the award. (Emphasis and
underscoring supplied).
In other words, once the compensation for Enriquez property is placed in issue
at the trial, she could, following the third paragraph of the immediately-quoted
Section 3 of Rule 67, participate therein and if she is not in conformity with the trial
courts determination of the compensation, she can appeal therefrom.
Multiple or separate appeals being existent in the present expropriation case,
NPC should have filed a record on appeal within 30 days from receipt of the trial
courts decision. The trial courts dismissal of its appeal, which was affirmed by the
appellate court, was thus in order.
En passant, glossing over NPCs failure to file record on appeal, its appeal would
still not prosper on substantive grounds.
NPC anchored its appeal[35] on the alleged overvalued appraisal by the
commissioners of the compensation to be awarded to Dilao et al., the
commissioners having allegedly lost sight of the already mentioned 10% limit
provided under Section 3A of R.A. No. 6395.
In National Power Corporation v. Chiong,[36] petitioner similarly argued therein
that the Court of Appeals gravely erred in upholding the RTC order requiring it to
pay the full market value of the expropriated properties, despite the fact that it was
only acquiring an easement of right-of-way for its transmission lines. It pointed out,
as it does in the present case, that under Section 3A of RA No. 6395, as amended,
where only an easement of right-of-way shall be acquired, with the principal
purpose for which the land is actually devoted is unimpaired, the
compensation should not exceed ten percent (10%) of the market value of the
property. Upholding the trial court and the Court of Appealss approval of the
commissioners recommendation in that case, this Court declared:
In fixing the valuation at P500.00 per square meter, the Court of Appeals noted that the trial
court had considered the reports of the commissioners and the proofs submitted by the
parties. This includes the fair market value of P1,100.00 per square meter proffered by the
respondents. This valuation by owners of the property may not be binding upon the
petitioner or the court, although it should at least set a ceiling price for the compensation to
be awarded. The trial court found that the parcels of land sought to be expropriated are
agricultural land, with minimal improvements. It is the nature and character of the land at
the time of its taking that is the principal criterion to determine just compensation to the
landowner. Hence, the trial court accepted not the owners valuation of P1,100 per square
meter but only P500 as recommended in the majority report of the commissioners.
xxx
In finding that the trial court did not abuse its authority in evaluating the evidence and the reports
placed before it nor did it misapply the rules governing fair valuation, the Court of Appeals found
the majority reports valuation of P500 per square meter to be fair. Said factual finding of the
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POLITICAL LAW REVIEW CASES INHERENT POWERS
Court of Appeals, absent any showing that the valuation is exorbitant or otherwise
unjustified, is binding on the parties as well as this Court. (Emphasis and underscoring
supplied).
The trial courts observation shared by the appellate court show that x x x While it is true that
plaintiff [is] 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. (Emphasis and underscoring supplied).
xxx
1. The parcel of land owned by the defendant PETRONA O. DILAO, et al. is very fertile,
plain, suited for any crops production, portion of which planted with coco trees and mango
trees, portion planted with corn, sometimes planted with sugar cane, the said land has a
distance of about 1 kilometer from the trading center, about 100 meters from an industrial
land (Shemberg Biotech Corp.) adjacent to a Poultry Farm and lies along the Provincial
Road.
xxx
IMPROVEMENTS AFFECTED
Per ocular inspection made on lot own by PETRONA O. DILAO, et al. traversed by a transmission
line of NPC and with my verification as to the number of improvements, the following trees had
been damaged.
x x x,[39]
it cannot be gainsaid that NPCs complaint merely involves a simple case of mere
passage of transmission lines over Dilao et al.s property. Aside from the actual
damage done to the property traversed by the transmission lines, the agricultural
and economic activity normally undertaken on the entire property is unquestionably
restricted and perpetually hampered as the environment is made dangerous to the
occupants life and limb.
The determination of just compensation in expropriation proceedings being a
judicial function,[40] this Court finds the commissioners recommendation of P516.66
per square meter, which was approved by the trial court, to be just and reasonable
compensation for the expropriated property of Dilao and her siblings.
In fine, the appeal sought by NPC does not stand on both procedural and
substantive grounds.
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.
Garcia, J., no part.
R E S O L U T I ON
TINGA, J.:
(b) MOTION FOR LEAVE (To File Motion for Partial Reconsideration-in-
Intervention), dated 5 January 2006 filed by counsel for petitioner-intervenor
Asahikosan Corporation praying that the attached Motion for Partial
Reconsideration and Intervention dated January 5, 2006 be admitted;
(c) MOTION FOR LEAVE (To File Motion for Partial Reconsideration-in-
Intervention), dated 5 January 2006 filed by counsel for petitioner-intervenor
Takenaka Corp.;
On the newly raised arguments, there are considerable factual elements brought
up by the Government. In the main, the Government devotes significant effort in
diminishing PIATCOs right to just compensation as builder or owner of the NAIA 3.
Particularly brought to fore are the claims relating to two entities, Takenaka
Corporation (Takenaka) and Asahikosan (Asahikosan) Corporation, who allegedly
claim "significant liens" on the terminal, arising from their alleged unpaid bills by
virtue of an Engineering, Procurement and Construction Contract they had with
PIATCO. On account of these adverse claims, the Government now claims as
controvertible the question of who is the builder of the NAIA 3.
The Governments concerns that impelled the filing of its Motion for
Reconsideration are summed up in the following passage therein: "The situation
the Republic now faces is that if any part of its Php3,002,125,000 deposit is
released directly to PIATCO, and PIATCO, as in the past, does not wish to settle
its obligations directly to Takenaka, Asahikosan and Fraport, the Republic may end
up having expropriated a terminal with liens and claims far in excess of its actual
value, the liens remain unextinguished, and PIATCO on the other hand, ends up
with the Php3,0002,125,000 in its pockets gratuitously."
The Court is not wont to reverse its previous rulings based on factual premises that
are not yet conclusive or judicially established. Certainly, whatever claims or
purported liens Takenaka and Asahikosan against PIATCO or over the NAIA 3 have
not been judicially established. Neither Takenaka nor Asahikosan are parties to the
present action, and thus have not presented any claim which could be acted upon
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It must be emphasized that the conclusive ruling in the Resolution dated 21 January
2004 in Agan v. PIATCO (Agan 2004) is that PIATCO, as builder of the facilities,
must first be justly compensated in accordance with law and equity for the
Government to take over the facilities. It is on that premise that the Court
adjudicated this case in its 19 December 2005 Decision.
There are other judicial avenues outside of this Motion for Reconsideration wherein
all other claims relating to the airport facilities may be ventilated, proved and
determined. Since such claims involve factual issues, they must first be established
by the appropriate trier of facts before they can be accorded any respect by or
binding force on this Court.
The other grounds raised in the Motion for Reconsideration are similarly flawed.
The Government argues that the 2004 Resolution in Agan did not strictly require
the payment of just compensation before the Government can take over the airport
facilities. Reliance is placed on the use by the Court of the word "for", instead of
"before." Yet the clear intent of that ruling is to mandate payment of just
compensation as a condition precedent before the Government could acquire
physical possession over the airport facilities. The qualification was made out of
due consideration of the fact that PIATCO had already constructed the facilities at
its own expense when its contracts with the Government were nullified.
Even assuming that "for" may be construed as not necessarily meaning "prior to",
it cannot be denied that Rep. Act No. 8974 does require prior payment to the owner
before the Government may acquire possession over the property to be
expropriated. Even Rule 67 requires the disbursement of money by way of deposit
as a condition precedent prior to entitlement to a writ of possession. As the instant
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case is one for expropriation, our pronouncement is worthily consistent with the
principles and laws that govern expropriation cases.
The Government likewise adopts the position raised by the Dissenting Opinion of
Mr. Justice Corona that Rep. Act No. 8974 could not repeal Rule 67 of the Rules of
Court, since the deposit of the assessed value is a procedural matter. It adds that
otherwise, Rep. Act No. 8974 is unconstitutional.
Of course it is too late in the day to question the constitutionality of Rep. Act No.
8974, an issue that was not raised in the petition. Still, this point was already
addressed in the Decision, which noted that the determination of the appropriate
standards for just compensation is a substantive matter well within the province of
the legislature to fix.3As held in Fabian v. Desierto, if the rule takes away a vested
right, it is not procedural,4 and so the converse certainly holds that if the rule or
provision creates a right, it should be properly appreciated as substantive in nature.
Indubitably, a matter is substantive when it involves the creation of rights to be
enjoyed by the owner of property to be expropriated. The right of the owner to
receive just compensation prior to acquisition of possession by the State of the
property is a proprietary right, appropriately classified as a substantive matter and,
thus, within the sole province of the legislature to legislate on.
The Government also exhaustively cites the Dissenting Opinion in arguing that the
application of Rule 67 would violate the 2004 Resolution of the Court in Agan. It
claims that it is not possible to determine with reasonable certainty the proper
amount of just compensation to be paid unless it first acquires possession of the
NAIA 3. Yet what the Decision mandated to be paid to PIATCO before the writ of
possession could issue is merely the provisionally determined amount of just
compensation which, under the auspices of Rep. Act No. 8974, constitutes the
proffered value as submitted by the Government itself. There is thus no need for
the determination with reasonable certainty of the final amount of just compensation
before the writ of possession may be issued. Specifically in this case, only the
payment or release by the Government of the proffered value need be made to
trigger the operability of the writ of possession.
Admittedly, the 2004 Resolution in Agan could be construed as mandating the full
payment of the final amount of just compensation before the Government may be
permitted to take over the NAIA 3. However, the Decision ultimately rejected such
a construction, acknowledging the public good that would result from the immediate
operation of the NAIA 3. Instead, the Decision adopted an interpretation which is in
consonance with Rep. Act No. 8974 and with equitable standards as well, that
allowed the Government to take possession of the NAIA 3 after payment of the
proffered value of the facilities to PIATCO. Such a reading is substantially compliant
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with the pronouncement in the 2004 Agan Resolution, and is in accord with law and
equity. In contrast, the Governments position, hewing to the strict application of
Rule 67, would permit the Government to acquire possession over the NAIA 3 and
implement its operation without having to pay PIATCO a single centavo, a situation
that is obviously unfair. Whatever animosity the Government may have towards
PIATCO does not acquit it from settling its obligations to the latter, particularly those
which had already been previously affirmed by this Court.
We now turn to the three (3) motions for intervention all of which were filed after the
promulgation of the Courts Decision. All three (3) motions must be denied. Under
Section 2, Rule 19 of the 1997 Rules of Civil Procedure the motion to intervene may
be filed at any time before rendition of judgment by the court.6 Since this case
originated from an original action filed before this Court, the appropriate time to file
the motions-in-intervention in this case if ever was before and not after resolution
of this case. To allow intervention at this juncture would be highly irregular. It is
extremely improbable that the movants were unaware of the pendency of the
present case before the Court, and indeed none of them allege such lack of
knowledge.
Takenaka and Asahikosan rely on Mago v. Court of Appeals7 wherein the Court
took the extraordinary step of allowing the motion for intervention even after the
challenged order of the trial court had already become final.8 Yet it was apparent
in Mago that the movants therein were not impleaded despite being indispensable
parties, and had not even known of the existence of the case before the trial court9 ,
and the effect of the final order was to deprive the movants of their land.10 In this
case, neither Takenaka nor Asahikosan stand to be dispossessed by reason of the
Courts Decision. There is no palpable due process violation that would militate the
suspension of the procedural rule.
SO ORDERED.
DANTE O. TINGA
EN BANC
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DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to
reverse, annul, and set aside the Decision[1] dated February 28, 2006 and the
Resolution[2] dated February 7, 2007 of the Court of Appeals (CA) (Cebu City), Twentieth
Division, in CA-G.R. CV No. 65796.
Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square
meters, more or less, located in Lahug, Cebu City. Its original owner was Anastacio
Deiparine when the same was subject to expropriation proceedings, initiated by the
Republic of the Philippines (Republic), represented by the then Civil Aeronautics
Administration (CAA), for the expansion and improvement of the Lahug Airport. The case
was filed with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil
Case No. R-1881.
As early as 1947, the lots were already occupied by the U.S. Army. They were turned over
to the Surplus Property Commission, the Bureau of Aeronautics, the National Airport
Corporation and then to the CAA.
During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr.
acquired Lot No. 88 from Deiparine. Consequently, Transfer Certificate of Title (TCT) No.
9045 was issued in Lozadas name.
On December 29, 1961, the trial court rendered judgment in favor of the Republic and
ordered the latter to pay Lozada the fair market value of Lot No. 88, adjudged at P3.00 per
square meter, with consequential damages by way of legal interest computed from
November 16, 1947the time when the lot was first occupied by the airport. Lozada
received the amount of P3,018.00 by way of payment.
The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO),
formerly CAA, proposed a compromise settlement whereby the owners of the lots affected
by the expropriation proceedings would either not appeal or withdraw their respective
appeals in consideration of a commitment that the expropriated lots would be resold at
the price they were expropriated in the event that the ATO would abandon the Lahug
Airport, pursuant to an established policy involving similar cases. Because of this promise,
Lozada did not pursue his appeal. Thereafter, Lot No. 88 was transferred and registered in
the name of the Republic under TCT No. 25057.
The projected improvement and expansion plan of the old Lahug Airport, however, was
not pursued.
Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr.,
requesting to repurchase the lots, as per previous agreement. The CAA replied that there
might still be a need for the Lahug Airport to be used as an emergency DC-3 airport. It
reiterated, however, the assurance that should this Office dispose and resell the properties
which may be found to be no longer necessary as an airport, then the policy of this Office
is to give priority to the former owners subject to the approval of the President.
On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the
Department of Transportation, directing the transfer of general aviation operations of
the Lahug Airport to the Mactan International Airport before the end of 1990 and, upon
such transfer, the closure of the Lahug Airport.
Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958,
entitled An Act Creating the Mactan-Cebu International Airport Authority, Transferring
Existing Assets of the Mactan International Airport and the Lahug Airport to the Authority,
Vesting the Authority with Power to Administer and Operate the Mactan International
Airport and the Lahug Airport, and For Other Purposes.
From the date of the institution of the expropriation proceedings up to the present, the
public purpose of the said expropriation (expansion of the airport) was never actually
initiated, realized, or implemented. Instead, the old airport was converted into a
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commercial complex. Lot No. 88 became the site of a jail known as Bagong Buhay
Rehabilitation Complex, while a portion thereof was occupied by squatters.[3] The old
airport was converted into what is now known as the Ayala I.T. Park, a commercial area.
Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and
reconveyance of ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-
18823 and was raffled to the Regional Trial Court (RTC), Branch 57, Cebu City. The
complaint substantially alleged as follows:
(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot
No. 88 covered by TCT No. 9045;
(b) In the early 1960s, the Republic sought to acquire by expropriation Lot No.
88, among others, in connection with its program for the improvement
and expansion of the Lahug Airport;
(c) A decision was rendered by the Court of First Instance in favor of the
Government and against the land owners, among whom was Bernardo
Lozada, Sr. appealed therefrom;
(d) During the pendency of the appeal, the parties entered into a compromise
settlement to the effect that the subject property would be resold to the
original owner at the same price when it was expropriated in the event
that the Government abandons the Lahug Airport;
(f) The projected expansion and improvement of the Lahug Airport did not
materialize;
(g) Plaintiffs sought to repurchase their property from then CAA Director
Vicente Rivera. The latter replied by giving as assurance that priority
would be given to the previous owners, subject to the approval of the
President, should CAA decide to dispose of the properties;
(i) Since the public purpose for the expropriation no longer exists, the
property must be returned to the plaintiffs.[4]
In their Answer, petitioners asked for the immediate dismissal of the complaint. They
specifically denied that the Government had made assurances to reconvey Lot No. 88 to
respondents in the event that the property would no longer be needed for airport
operations. Petitioners instead asserted that the judgment of condemnation was
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unconditional, and respondents were, therefore, not entitled to recover the expropriated
property notwithstanding non-use or abandonment thereof.
After pretrial, but before trial on the merits, the parties stipulated on the following set of
facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated
in the City of Cebu, containing an area of One Thousand Seventeen
(1,017) square meters, more or less;
(2) The property was expropriated among several other properties in Lahug
in favor of the Republic of the Philippines by virtue of a Decision dated
December 29, 1961 of the CFI of Cebu in Civil Case No. R-1881;
(3) The public purpose for which the property was expropriated was for the
purpose of the Lahug Airport;
(4) After the expansion, the property was transferred in the name of MCIAA;
[and]
(5) On November 29, 1989, then President Corazon C. Aquino directed the
Department of Transportation and Communication to transfer general
aviation operations of the Lahug Airport to the Mactan-Cebu
International Airport Authority and to close the Lahug Airport after such
transfer[.][5]
During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while
petitioners presented their own witness, Mactan-Cebu International Airport Authority
legal assistant Michael Bacarisas.
On October 22, 1999, the RTC rendered its Decision, disposing as follows:
WHEREFORE, in the light of the foregoing, the Court hereby renders judgment
in favor of the plaintiffs, Bernardo L. Lozada, Sr., and the heirs of Rosario
Mercado, namely, Vicente M. Lozada, Marcia L. Godinez, Virginia L. Flores,
Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M.
Lozada, represented by their attorney-in-fact Marcia Lozada Godinez, and
against defendants Cebu-Mactan International Airport Authority (MCIAA) and
Air Transportation Office (ATO):
No pronouncement as to costs.
SO ORDERED.[6]
Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary
appellate briefs, the CA rendered its assailed Decision dated February 28, 2006, denying
petitioners appeal and affirming in toto the Decision of the RTC, Branch
57, Cebu City. Petitioners motion for reconsideration was, likewise, denied in the
questioned CA Resolution dated February 7, 2007.
Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was
a repurchase agreement or compromise settlement between them and the Government;
(2) the judgment in Civil Case No. R-1881 was absolute and unconditional, giving title in
fee simple to the Republic; and (3) the respondents claim of verbal assurances from
government officials violates the Statute of Frauds.
Petitioners anchor their claim to the controverted property on the supposition that the
Decision in the pertinent expropriation proceedings did not provide for the condition that
should the intended use of Lot No. 88 for the expansion of the Lahug Airport be aborted
or abandoned, the property would revert to respondents, being its former
owners.Petitioners cite, in support of this position, Fery v. Municipality of
Cabanatuan,[7] which declared that the Government acquires only such rights in
expropriated parcels of land as may be allowed by the character of its title over the
properties
When land has been acquired for public use in fee simple,
unconditionally, either by the exercise of eminent domain or by purchase, the
former owner retains no right in the land, and the public use may be
abandoned, or the land may be devoted to a different use, without any
Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of
Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport Authority,[9] thus
While in the trial in Civil Case No. R-1881 [we] could have simply
acknowledged the presence of public purpose for the exercise of eminent
domain regardless of the survival of Lahug Airport, the trial court in
its Decision chose not to do so but instead prefixed its finding of public
purpose upon its understanding that Lahug Airport will continue to be in
operation. Verily, these meaningful statements in the body of
the Decision warrant the conclusion that the expropriated properties would
remain to be so until it was confirmed that Lahug Airport was no longer in
operation. This inference further implies two (2) things: (a) after
the Lahug Airport ceased its undertaking as such and the expropriated lots
were not being used for any airport expansion project, the rights vis--vis the
expropriated Lots Nos. 916 and 920 as between the State and their former
owners, petitioners herein, must be equitably adjusted; and (b) the foregoing
unmistakable declarations in the body of the Decision should merge with and
become an intrinsic part of the fallo thereof which under the premises is
clearly inadequate since the dispositive portion is not in accord with the
findings as contained in the body thereof.[10]
Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is
apparent that the acquisition by the Republic of the expropriated lots was subject to the
condition that the Lahug Airport would continue its operation. The condition not having
materialized because the airport had been abandoned, the former owner should then be
allowed to reacquire the expropriated property.[11]
On this note, we take this opportunity to revisit our ruling in Fery, which involved an
expropriation suit commenced upon parcels of land to be used as a site for a public
market.Instead of putting up a public market, respondent Cabanatuan constructed
residential houses for lease on the area. Claiming that the municipality lost its right to the
property taken since it did not pursue its public purpose, petitioner Juan Fery, the former
owner of the lots expropriated, sought to recover his properties. However, as he had
admitted that, in 1915, respondent Cabanatuan acquired a fee simple title to the lands in
question, judgment was rendered in favor of the municipality, following American
jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co.,[12] McConihay
v. Theodore Wright,[13] and Reichling v. Covington Lumber Co.,[14] all uniformly holding that
the transfer to a third party of the expropriated real property, which necessarily resulted
in the abandonment of the particular public purpose for which the property was taken, is
not a ground for the recovery of the same by its previous owner, the title of the
expropriating agency being one of fee simple.
Obviously, Fery was not decided pursuant to our now sacredly held constitutional right
that private property shall not be taken for public use without just compensation. [15] It is
well settled that the taking of private property by the Governments power of eminent
domain is subject to two mandatory requirements: (1) that it is for a particular public
purpose; and (2) that just compensation be paid to the property owner. These
requirements partake of the nature of implied conditions that should be complied with to
enable the condemnor to keep the property expropriated.[16]
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 owners right to justice,
fairness, and equity.
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.[17]
Even without the foregoing declaration, in the instant case, on the question of whether
respondents were able to establish the existence of an oral compromise agreement that
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entitled them to repurchase Lot No. 88 should the operations of the Lahug Airport be
abandoned, we rule in the affirmative.
It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this
factual issue and have declared, in no uncertain terms, that a compromise agreement was,
in fact, entered into between the Government and respondents, with the former
undertaking to resell Lot No. 88 to the latter if the improvement and expansion of the
Lahug Airport would not be pursued. In affirming the factual finding of the RTC to this
effect, the CA declared
As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v.
Court of Appeals,[20] cited by petitioners, where respondent therein offered testimonies
which were hearsay in nature, the testimony of Lozada was based on personal knowledge
as the assurance from the government was personally made to him. His testimony on
cross-examination destroyed neither his credibility as a witness nor the truthfulness of his
words.
Verily, factual findings of the trial court, especially when affirmed by the CA, are
binding and conclusive on this Court and may not be reviewed. A petition
for certiorariunder Rule 45 of the Rules of Court contemplates only questions of law and
not of fact.[21] Not one of the exceptions to this rule is present in this case to warrant a
reversal of such findings.
As regards the position of petitioners that respondents testimonial evidence violates the
Statute of Frauds, suffice it to state that the Statute of Frauds operates only with respect
to executory contracts, and does not apply to contracts which have been completely or
partially performed, the rationale thereof being as follows:
In executory contracts there is a wide field for fraud because unless they be
in writing there is no palpable evidence of the intention of the contracting
parties. The statute has precisely been enacted to prevent fraud. However, if
a contract has been totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would enable the defendant
to keep the benefits already delivered by him from the transaction in litigation,
and, at the same time, evade the obligations, responsibilities or liabilities
assumed or contracted by him thereby.[22]
In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents
for the reacquisition of Lot No. 88, cannot apply, the oral compromise settlement having
been partially performed. By reason of such assurance made in their favor, respondents
relied on the same by not pursuing their appeal before the CA. Moreover, contrary to the
claim of petitioners, the fact of Lozadas eventual conformity to the appraisal of Lot No. 88
and his seeking the correction of a clerical error in the judgment as to the true area of Lot
No. 88 do not conclusively establish that respondents absolutely parted with their
property. To our mind, these acts were simply meant to cooperate with the government,
particularly because of the oral promise made to them.
Although the symmetry between the instant case and the situation
contemplated by Art. 1454 is not perfect, the provision is undoubtedly
applicable. For, as explained by an expert on the law of trusts: The only
problem of great importance in the field of constructive trust is to decide
whether in the numerous and varying fact situations presented to the courts
there is a wrongful holding of property and hence a threatened unjust
enrichment of the defendant. Constructive trusts are fictions of equity which
are bound by no unyielding formula when they are used by courts as devices
to remedy any situation in which the holder of legal title may not in good
conscience retain the beneficial interest.
The rights and obligations between the constructive trustee and the
beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos.
916 and 920, are echoed in Art. 1190 of the Civil Code, When the conditions
have for their purpose the extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to each other what they
have received x x x In case of the loss, deterioration or improvement of the
thing, the provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return x x x.[23]
On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No.
88 to respondents, the latter must return to the former what they received as just
compensation for the expropriation of the property, plus legal interest to be computed
from default, which in this case runs from the time petitioners comply with their obligation
to respondents.
Respondents must likewise pay petitioners the necessary expenses they may have
incurred in maintaining Lot No. 88, as well as the monetary value of their services in
managing it to the extent that respondents were benefited thereby.
Following Article 1187[24] of the Civil Code, petitioners may keep whatever income or fruits
they may have obtained from Lot No. 88, and respondents need not account for the
interests that the amounts they received as just compensation may have earned in the
meantime.
In accordance with Article 1190[25] of the Civil Code vis--vis Article 1189, which provides
that (i)f a thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor x x x, respondents, as creditors, do not have to pay, as part of the
process of restitution, the appreciation in value of Lot No. 88, which is a natural
consequence of nature and time.[26]
WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of
Appeals, affirming the October 22, 1999 Decision of the Regional Trial Court, Branch 87,
Cebu City, and its February 7, 2007 Resolution are AFFIRMED with MODIFICATION as
follows:
1. Respondents are ORDERED to return to petitioners the just compensation they received
for the expropriation of Lot No. 88, plus legal interest, in the case of default, to be
computed from the time petitioners comply with their obligation to reconvey Lot No. 88
to them;
2. Respondents are ORDERED to pay petitioners the necessary expenses the latter
incurred in maintaining Lot No. 88, plus the monetary value of their services to the extent
that respondents were benefited thereby;
3. Petitioners are ENTITLED to keep whatever fruits and income they may have
obtained from Lot No. 88; and
4. Respondents are also ENTITLED to keep whatever interests the amounts they received
as just compensation may have earned in the meantime, as well as the appreciation in
value of Lot No. 88, which is a natural consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court,
Branch 57, Cebu City, only for the purpose of receiving evidence on the amounts that
respondents will have to pay petitioners in accordance with this Courts decision. No costs.
SO ORDERED.
Brief Fact Summary. In 2000, the city of New London approved a development
plan that, in the words of the Supreme Court of Connecticut, was projected to
create in excess of 1,000 jobs, to increase tax and other revenues, and to revitalize
an economically distressed city, including its downtown and waterfront areas. The
city purchased property and seeks to enforce eminent domain to acquire the
remaining parcels from unwilling owners.
Synopsis of Rule of Law. The court had previously held in the Midkiff case that
such economic development qualified as a valid public use under both the Federal
and State Constitutions. The court has to meet two burdens for eminent domain-
(1) that the takings of the particular properties at issue were reasonably necessary
to achieve the Citys intended public use and (2) that the takings were for
reasonably foreseeable needs.
Facts. In 2000, the city of New London approved a development plan that, in the
words of the Supreme Court of Connecticut, was projected to create in excess of
1,000 jobs, to increase tax and other revenues, and to revitalize an economically
distressed city, including its downtown and waterfront areas. The city purchased
property and seeks to enforce eminent domain to acquire the remaining parcels
from unwilling owners. The City did not plan to open the condemned land to the
general public, nor were the private lessees of the land required to operate like
common carriers.
Issue. Whether the citys proposed disposition of this property qualifies as a public
use within the meaning of the Takings Clause of the Fifth Amendment.
Dissent. OConnor, J., filed a dissenting opinion, in which Rehnquist, C. J., and
Scalia and Thomas, JJ., joined. Thomas, J., filed a dissenting opinion. The three
dissenting justices would have imposed a heightened standard of judicial review
for takings justified for economic development.
Concurrence Kennedy, J., filed a concurring opinion adding that even with a
deferential standard of review, a taking should not survive the public use test if there
is a clear showing that its purpose is to favor a particular private party, with only
incidental or pretextual public benefits.
Discussion. This jurisprudence has long recognized the needs of society vary
greatly between different parts of the Nation. Earlier cases embodied a strong
theme of federalism, emphasizing the great respect owed to state legislatures and
state courts in discerning local public needs. Public needs used to be according to
rigid formulas and intrusive scrutiny in favor of affording legislatures broad latitude
in determining what public needs justified the use of the takings power. The court
must look to the entire Plans importance and the Citys overall interest in the
economic benefits derived from the development.
SECOND DIVISION
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DECISION
The Case
For review before the Court in a petition for certiorari under Rule 45 are the May 30,
2001 Decision[1] and October 26, 2001 Resolution[2] of the Court of Appeals (CA), reversing
and setting aside the August 2, 1990 Order[3] of the San Fernando, Pampanga Regional Trial
Court (RTC), Branch 43. The CA Resolution denied petitioners Motion for Reconsideration
of the May 30, 2001 Decision and in effect, the appellate court dismissed petitioners
Complaint for eminent domain.
The Facts
On April 8, 1983, pursuant to a resolution passed by the barangay council,
petitioner Barangay Sindalan, San Fernando, Pampanga, represented by Barangay Captain
Ismael Gutierrez, filed a Complaint for eminent domain against respondents spouses Jose
Magtoto III and Patricia Sindayan, the registered owners of a parcel of land covered by
Transfer Certificate of Title No. 117674-R. The Complaint was docketed as Civil Case No.
6756 and raffled to the San Fernando, Pampanga RTC, Branch 43. Petitioner sought to
convert a portion of respondents land into Barangay Sindalans feeder road. The alleged
WHEREAS, said lots, used as outlet or inlet road, shall contribute greatly
to the general welfare of the people residing therein social, cultural and
health among other things, beside economic.[4]
Petitioner claimed that respondents property was the most practical and nearest way
to the municipal road. Pending the resolution of the case at the trial court, petitioner
deposited an amount equivalent to the fair market value of the property. [5]
On the other hand, respondents stated that they owned the 27,000- square meter
property, a portion of which is the subject of this case. In their Memorandum,[6] they alleged
that their lot is adjacent to Davsan II Subdivision privately owned by Dr. Felix David and
his wife. Prior to the filing of the expropriation case, said subdivision was linked
to MacArthur Highway through a pathway across the land of a certain Torres family. Long
before the passage of the barangay resolution, the wives of the subdivision owner and
the barangay captain, who were known to be agents of the subdivision, had proposed
buying a right-of-way for the subdivision across a portion of respondents property. These
prospective buyers, however, never returned after learning of the price which the
respondents ascribed to their property.
Respondents alleged that the expropriation of their property was for private use, that
is, for the benefit of the homeowners of Davsan II Subdivision. They contended that
petitioner deliberately omitted the name of Davsan II Subdivision and, instead, stated that
the expropriation was for the benefit of the residents of Sitio Paraiso in order to conceal the
fact that the access road being proposed to be built across the respondents land was to serve
a privately owned subdivision and those who would purchase the lots of said subdivision.
They also pointed out that under Presidential Decree No. (PD) 957, it is the subdivision
owner who is obliged to provide a feeder road to the subdivision residents.[7]
Upon the entry of this Order of Condemnation, let three (3) competent
and disinterested persons be appointed as Commissioners to ascertain and
report to the Court the just compensation for the property condemned.[8]
xxxx
SO ORDERED.[9]
The Issues
Petitioner imputes errors to the CA for (1) allegedly violating its power of eminent
domain, (2) finding that the expropriation of the property is not for public use but for a
privately owned subdivision, (3) finding that there was no payment of just compensation,
and (4) failing to accord respect to the findings of the trial court. Stated briefly, the main
issue in this case is whether the proposed exercise of the power of eminent domain would
be for a public purpose.
The Courts Ruling
In general, eminent domain is defined as the power of the nation or a sovereign state to take,
or to authorize the taking of, private property for a public use without the owners consent,
conditioned upon payment of just compensation.[10] It is acknowledged as an inherent
political right, founded on a common necessity and interest of appropriating the property of
individual members of the community to the great necessities of the whole community. [11]
However, there is no precise meaning of public use and the term is susceptible of myriad
meanings depending on diverse situations. The limited meaning attached to public use is
use by the public or public employment, that a duty must devolve on the person or
corporation holding property appropriated by right of eminent domain to furnish the public
with the use intended, and that there must be a right on the part of the public, or some portion
of it, or some public or quasi-public agency on behalf of the public, to use the property after
it is condemned.[12] The more generally accepted view sees public use as public advantage,
convenience, or benefit, and that anything which tends to enlarge the resources, increase the
industrial energies, and promote the productive power of any considerable number of the
inhabitants of a section of the state, or which leads to the growth of towns and the creation
of new resources for the employment of capital and labor, [which] contributes to the general
welfare and the prosperity of the whole community.[13] In this jurisdiction, public use is
defined as whatever is beneficially employed for the community.[14]
It is settled that the public nature of the prospective exercise of expropriation cannot depend
on the numerical count of those to be served or the smallness or largeness of the community
to be benefited.[15] The number of people is not determinative of whether or not it constitutes
public use, provided the use is exercisable in common and is not limited to particular
individuals.[16] Thus, the first essential requirement for a valid exercise of eminent domain
is for the expropriator to prove that the expropriation is for a public use. In Municipality of
Bian v. Garcia, this Court explicated that expropriation ends with an order of condemnation
declaring that the plaintiff has a lawful right to take the property sought to be
condemned, for the public use or purpose described in the complaint, upon the payment
of just compensation.[17]
Another vital requisite for a valid condemnation is the payment of just compensation to the
property owner. In the recent case of APO Fruits Corporation v. The Honorable Court of
Appeals,[18] just compensation has been defined as the full and fair equivalent of the property
taken from its owner by the expropriator, and that the gauge for computation is not the takers
gain but the owners loss. In order for the payment to be just, it must be real, substantial, full,
and ample. Not only must the payment be fair and correctly determined, but also, the Court
in Estate of Salud Jimenez v. Philippine Export Processing Zone stressed that the payment
should be made within a reasonable time from the taking of the property. [19] It succinctly
explained that without prompt payment, compensation cannot be considered just inasmuch
as the property owner is being made to suffer the consequences of being immediately
deprived of the land while being made to wait for a decade or more before actually receiving
the amount necessary to cope with the loss.Thus, once just compensation is finally
determined, the expropriator must immediately pay the amount to the lot owner. In Reyes
v. National Housing Authority, it was ruled that 12% interest per annum shall be imposed
on the final compensation until paid.[20] Thus, any further delay in the payment will result
in the imposition of 12% interest per annum. However, in the recent case of Republic v.
Lim, the Court enunciated the rule that where the government failed to pay just
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compensation within five (5) years from the finality of the judgment in the expropriation
proceedings, the owners concerned shall have the right to recover possession of their
property.[21]
Since the individual stands to lose the property by compulsion of the law, the expropriation
authority should not further prejudice the owners rights by delaying payment of just
compensation. To obviate any possibility of delay in the payment, the expropriator should
already make available, at the time of the filing of the expropriation complaint, the amount
equal to the BIR zonal valuation or the fair market value of the property per tax declaration
whichever is higher.
The delayed payment of just compensation in numerous cases results from lack of funds or
the time spent in the determination of the legality of the expropriation and/or the fair
valuation of the property, and could result in dismay, disappointment, bitterness, and even
rancor on the part of the lot owners. It is not uncommon for the expropriator to take
possession of the condemned property upon deposit of a small amount equal to the
assessed value of the land per tax declaration and then challenge the valuation fixed by the
trial court resulting in an expropriate now, pay later situation. In the event the expropriating
agency questions the reasonability of the compensation fixed by the trial court before the
appellate court, then the latter may, upon motion, use its sound discretion to order the
payment to the lot owner of the amount equal to the valuation of the property, as proposed
by the condemnor during the proceedings before the commissioners under Sec. 6, Rule 67
of the Rules of Court, subject to the final valuation of the land. This way, the damage and
prejudice to the property owner would be considerably pared down.
On due process, it is likewise basic under the Constitution that the property owner must be
afforded a reasonable opportunity to be heard on the issues of public use and just
compensation and to present objections to and claims on them.[22] It is settled that taking of
property for a private use or without just compensation is a deprivation of property without
due process of law.[23] Moreover, it has to be emphasized that taking of private property
without filing any complaint before a court of law under Rule 67 of the Rules of Court or
existing laws is patently felonious, confiscatory, and unconstitutional. Judicial notice can
be taken of some instances wherein some government agencies or corporations peremptorily
took possession of private properties and usurped the owners real rights for their immediate
use without first instituting the required court action. Running roughshod over the property
rights of individuals is a clear and gross breach of the constitutional guarantee of due
process, which should not be countenanced in a society where the rule of law holds sway.
Petitioners delegated power to expropriate is not at issue. The legal question in this
petition, however, is whether the taking of the land was for a public purpose or use. In the
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exercise of the power of eminent domain, it is basic that the taking of private property must
be for a public purpose. A corollary issue is whether private property can be taken by law
from one person and given to another in the guise of public purpose.
Petitioner alleges that there are at least 80 houses in the place and about 400 persons
will be benefited with the use of a barangay road. The trial court believed that the
expropriation will not benefit only the residents of the subdivision, but also the residents of
Sitio or Purok Paraiso and the residents of the entire Barangay of Sindalan x x x.[25]The trial
court held that the subdivision is covered by Sitio or Purok Paraiso which is a part or parcel
of Barangay Sindalan. However, this finding was not supported by evidence.On the
contrary, it is Sitio Paraiso which is within Davsan II Subdivision based on the testimony of
petitioners own witness, Ruben Palo, as follows:
Atty. Mangiliman: Mr. Palo, you said that you have been residing at Sitio
Paraiso since 1973, is this Sitio Paraiso within the Davson [sic]
Subdivision?
xxxx
Atty. Mangiliman: And before you purchased that or at the time you
purchased it in 1972, I am referring to the lot where you are now
residing, the Davson [sic] Subdivision did not provide for a road
linking from the subdivision to the barrio road, am I correct?
Atty. Mangiliman: And despite [sic] of that you purchased a lot inside
Davson [sic] Subdivision?
Atty. Mangiliman: Did you not demand from the developer of Davson
[sic] Subdivision that he should provide a road linking from the
subdivision to the barrio road of Sindalan?
Witness: No, sir, because I know they will provide for the road.
Atty. Mangiliman: And when you said that they will provide for that road,
you mean to tell us that it is the developer of Davson [sic]
Subdivision who will provide a road linking from the subdivision
to the barrio road of Sindalan?
Atty. Mangiliman: Now, Mr. Witness, you will agree with me that the
proposed road which will connect from Davson [sic] Subdivision
to the barrio road of Sindalan would benefit mainly the lot buyers
and home owners of Davson [sic] Subdivision?
Atty. Mangiliman: And you also agree with me that there is no portion of
Davson [sic] Subdivision which is devoted to the production of
agricultural products?
Atty. Mangiliman: When the road which is the subject of this case and
sought to be expropriated has not yet been opened and before a
Writ of Possession was issued by the Court to place the plaintiff in
this case in possession, the residents of Davson [sic] Subdivision
have other way in going to the barrio road?
Witness: We passed to the lot own [sic] by Mr. Torres which is near the
subdivision in going to the barrio road, sir.
Witness: We have been telling that and he was promising that there will
be a road, sir.[26]
Firstly, based on the foregoing transcript, the intended feeder road sought to serve the
residents of the subdivision only. It has not been shown that the other residents
of Barangay Sindalan, San Fernando, Pampanga will be benefited by the contemplated road
to be constructed on the lot of respondents spouses Jose Magtoto III and Patricia Sindayan.
While the number of people who use or can use the property is not determinative of whether
or not it constitutes public use or purpose, the factual milieu of the case reveals that the
intended use of respondents lot is confined solely to the Davsan II Subdivision residents
and is not exercisable in common.[27] Worse, the expropriation will actually benefit the
subdivisions owner who will be able to circumvent his commitment to provide road access
to the subdivision in conjunction with his development permit and license to sell from the
Housing and Land Use Regulatory Board, and also be relieved of spending his own funds
for a right-of-way. In this factual setting, the Davsan II Subdivision homeowners are able
to go to the barrio road by passing through the lot of a certain Torres family. Thus, the
inescapable conclusion is that the expropriation of respondents lot is for the actual benefit
of the Davsan II Subdivision owner, with incidental benefit to the subdivision homeowners.
The intended expropriation of private property for the benefit of a private individual
is clearly proscribed by the Constitution, declaring that it should be for public use or
purpose. In Charles River Bridge v. Warren, the limitation on expropriation was
underscored, hence:
US case law also points out that a member of the public cannot acquire a certain
private easement by means of expropriation for being unconstitutional, because even if
every member of the public should acquire the easement, it would remain a bundle of private
easements.[29]
Considering that the residents who need a feeder road are all subdivision lot owners,
it is the obligation of the Davsan II Subdivision owner to acquire a right-of-way for
them. However, the failure of the subdivision owner to provide an access road does not shift
the burden to petitioner. To deprive respondents of their property instead of compelling the
subdivision owner to comply with his obligation under the law is an abuse of the power of
eminent domain and is patently illegal. Without doubt, expropriation cannot be justified on
the basis of an unlawful purpose.
Thirdly, public funds can be used only for a public purpose. In this proposed
condemnation, government funds would be employed for the benefit of a private individual
without any legal mooring. In criminal law, this would constitute malversation.
Lastly, the facts tend to show that the petitioners proper remedy is to require the
Davsan II Subdivision owner to file a complaint for establishment of the easement of right-
of-way under Articles 649 to 656 of the Civil Code. Respondents must be granted the
opportunity to show that their lot is not a servient estate. Plainly, petitioners resort to
expropriation is an improper cause of action.
One last word: the power of eminent domain can only be exercised for public use and
with just compensation. Taking an individuals private property is a deprivation which can
only be justified by a higher goodwhich is public useand can only be counterbalanced by
just compensation. Without these safeguards, the taking of property would not only be
unlawful, immoral, and null and void, but would also constitute a gross and condemnable
transgression of an individuals basic right to property as well.
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For this reason, courts should be more vigilant in protecting the rights of the property
owner and must perform a more thorough and diligent scrutiny of the alleged public purpose
behind the expropriation. Extreme caution is called for in resolving complaints for
condemnation, such that when a serious doubt arises regarding the supposed public use of
property, the doubt should be resolved in favor of the property owner and against the State.
WHEREFORE, we AFFIRM the May 30, 2001 Decision and the October 26, 2001
Resolution of the CA, with costs against petitioner.
SO ORDERED.
SECOND DIVISION
DECISION
This Petition for Review on Certiorari3 assails the July 10, 2006 Decision4 of the
Court of Appeals (CA) in CA-G.R. CV No. 85396 which affirmed the June 28, 2004
Partial Decision5 of the Regional Trial Court (RTC), Branch 2, Balanga City in an
eminent domain case,6 ordering petitioner National Power Corporation ( Napocor)
to pay respondents spouses Rodolfo Zabala and Lilia Baylon (spouses Zabala) just
compensation ofP-150.00 per square meter for the 6,820-square meter portion of
the spouses' property which was traversed by transmission lines of Napocor under
its 230 KV Limay-Hermosa Permanent Transmission Lines Project.
Factual Antecedents
The facts of this case as found by the CA and adopted by Napocor are as follows:
an agreement with the latter; it has the right to take or enter upon the possession
of the subject properties pursuant to Presidential Decree No. 42, which repealed
Section 2, Rule 67 of the Rules of Court upon the filing of the expropriation
complaint before the proper court or at anytime thereafter, after due notice to
defendants-appellees, and upon deposit with the Philippine National Bank of the
amount equal to the assessed value of the subject properties for taxation purposes
which is to be held by said bank subject to the orders and final disposition of the
court; and it is willing to deposit the provisional value representing the said
assessed value of the affected portions of the subject property x x x. It prayed for
the issuance of a writ of possession authorizing it to enter and take possession of
the subject property, to demolish all the improvements x x x thereon, and to
commence with the construction of the transmission lines project on the subject
properties, and to appoint not more than three (3) commissioners to ascertain and
report the just compensation for the said easement of right of way.
xxxx
On February 25, 1998, the lower court recommitted the report to the
Commissioners for further report on the points raised by the parties.
On August 20, 2003, the Commissioners submitted their Final Report fixing the just
compensation at P500.00 per square meter.7
Since the Commissioners had already submitted their Final Report8 on the
valuation of the subject property, spouses Zabala moved for the resolution of the
case insofar as their property was concerned. Thus, on June 28, 2004, the RTC
rendered its Partial Decision,9 ruling that Napocor has the lawful authority to take
for public purpose and upon payment of just compensation a portion of spouses
Zabalas property. The RTC likewise ruled that since the spouses Zabala were
deprived of the beneficial use of their property, they are entitled to the actual or
basic value of their property. Thus, it fixed the just compensation at P150.00 per
square meter. The dispositive portion of the RTCs Partial Decision reads:
SO ORDERED.10
Napocor appealed to the CA. It argued that the Commissioners reports upon which
the RTC based the just compensation are not supported by documentary evidence.
Necessarily, therefore, the just compensation pegged by the RTC at P150.00 per
square meter also lacked basis. Napocor likewise imputed error on the part of the
RTC in not applying Section 3A of Republic Act (RA) No. 639511 which limits its
liability to easement fee of not more than 10% of the market value of the property
traversed by its transmission lines.
On July 10, 2006, the CA rendered the assailed Decision affirming the RTCs Partial
Decision.
Issue
Napocor contends that under Section 3A of RA No. 6395, it is not required to pay
the full market value of the property when the principal purpose for which it is
actually devoted will not be impaired by its transmission lines. It is enough for
Napocor to pay easement fee which, under the aforementioned law, should not
exceed 10% of the market value of the affected property. Napocor argues that when
it installed its transmission lines, the property of spouses Zabala was classified as
riceland and was in fact devoted to the cultivation of palay. Its transmission lines
will not, therefore, affect the primary purpose for which the subject land is devoted
as the same only pass through it. The towers to which such lines are connected are
not even built on the property of spouses Zabala, who will remain the owner of and
continue to enjoy their property. Hence, the RTC and the CA, according to Napocor,
both erred in not applying Section 3A of RA No. 6395.
Napocor further argues that even assuming that spouses Zabala are entitled to the
full market value of their property, the award of P150.00 per square meter as just
compensation lacks basis because the recommendation of the Commissioners is
not supported by documentary evidence.
Our Ruling
In insisting that the just compensation cannot exceed 10% of the market value of
the affected property, Napocor relies heavily on Section 3A of RA No. 6395, the
pertinent portions of which read:
(a) With respect to the acquired land or portion thereof, not to exceed the
market value declared by the owner or administrator or anyone having legal
interest in the property, or such market value as determined by the assessor,
whichever is lower.
(b) With respect to the acquired right-of-way easement over the land or
portion thereof, not to exceed ten percent (10%) of the market value declared
xxxx
Just compensation has been defined as "the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the taker's gain, but
the owners loss. The word just is used to qualify the meaning of the word
compensation and to convey thereby the idea that the amount to be tendered for
the property to be taken shall be real, substantial, full and ample." 13 The payment
of just compensation for private property taken for public use is guaranteed no less
by our Constitution and is included in the Bill of Rights.14 As such, no legislative
enactments or executive issuances can prevent the courts from determining
whether the right of the property owners to just compensation has been violated. It
is a judicial function that cannot "be usurped by any other branch or official of the
government."15 Thus, we have consistently ruled that statutes and executive
issuances fixing or providing for the method of computing just compensation are
not binding on courts and, at best, are treated as mere guidelines in ascertaining
the amount thereof.16 In National Power Corporation v. Bagui,17 where the same
petitioner also invoked the provisions of Section 3A of RA No. 6395, we held that:
Moreover, Section 3A-(b) of R.A. No. 6395, as amended, is not binding on the
Court. It has been repeatedly emphasized that the determination of just
compensation in eminent domain cases is a judicial function and that any valuation
for just compensation laid down in the statutes may serve only as a guiding principle
or one of the factors in determining just compensation but it may not substitute the
courts own judgment as to what amount should be awarded and how to arrive at
such amount.18
It has likewise been our consistent ruling that just compensation cannot be arrived
at arbitrarily. Several factors must be considered, such as, but not limited to,
acquisition cost, current market value of like properties, tax value of the condemned
property, its size, shape, and location. But before these factors can be considered
and given weight, the same must be supported by documentary evidence.
In the case before us, it appears that the Commissioners November 28, 1997
Report/Recommendation22 is not supported by any documentary evidence. There
is nothing therein which would show that before arriving at the recommended just
compensation of P150.00, the Commissioners considered documents relevant and
pertinent thereto. Their Report/Recommendation simply states that on November
17, 1997, the Commissioners conducted an ocular inspection; that they interviewed
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POLITICAL LAW REVIEW CASES INHERENT POWERS
persons in the locality; that the adjacent properties have market value of P150.00
per square meter; and, that the property of Nobel Philippine which is farther from
the Roman Expressway is being sold for P200.00 per square meter. No
documentary evidence whatsoever was presented to support their report that
indeed the market value of the adjacent properties are P150.00 and that of Nobel
Philippine is P200.00.
2. To date the land is properly secured, contained and fenced with concrete
hollow blocks.
3. The property is not tenanted and the area covered and affected by the
transmission lines has not been tilled and planted x x x.
4. Upon inquiry from the landowners, the Sps. Rodolfo and Lilia Zabala, they
intimated that they are proposing to develop the property into a subdivision,
as they already fenced and contained the area.
5. At present, another property which is very far from the Roman Expressway
was subdivided, known as the St. Elizabeth Country Homes. Lots are being
sold there at P1,700.00 per square meter.
6. The property of the Sps. Zabala is only some meters away from the Roman
Expressway compared to the St. Elizabeth Country Homes which is very far
from the highway.
7. Moreover, the other subdivisions, Maria Lourdes and Vicarville which are
within the vicinity sell their lots now ranging from P1,800.00 per square meter
to P2,500.00.
8. As already stated, the property of the Sps. Zabala is within the built-up area
classified as residential, commercial and industrial.
10. But considering the considerable lapse of time and increase in the
valuation of the properties within the area, the commissioners are impelled to
increase the recommended valuation to P500.00 per square meter.
The statement in the 1970 report of the commissioners that according to the owners
of adjoining lots the prices per square meter ranged from P150 to P200 and that
subdivision lots in the vicinity were being sold at P85 to P120 a square meter was
not based on any documentary evidence. It is manifestly hearsay. Moreover, those
prices refer to 1970 or more than a year after the expropriation was effected. 30
It is evident that the above conclusions are highly speculative and devoid of any
actual and reliable basis. First, the market values of the subject propertys
neighboring lots were mere estimates and unsupported by any corroborative
documents, such as sworn declarations of realtors in the area concerned, tax
declarations or zonal valuation from the Bureau of Internal Revenue for the
contiguous residential dwellings and commercial establishments. The report also
failed to elaborate on how and by how much the community centers and
convenience facilities enhanced the value of respondents property. Finally, the
market sales data and price listings alluded to in the report were not even appended
thereto.32
Under Section 8,33 Rule 67 of the Rules of Court, the trial court may accept or reject,
whether in whole or in part, the commissioners report which is merely advisory and
recommendatory in character. It may also recommit the report or set aside the same
and appoint new commissioners. In the case before us, however, in spite of the
insufficient and flawed reports of the Commissioners and Napocors objections
thereto, the RTC eventually adopted the same. It shrugged off Napocors
protestations and limited itself to the reports submitted by the Commissioners. It
neither considered nor required the submission of additional evidence to support
the recommended P150.00 per square meter just compensation. Ergo, insofar as
just compensation is concerned, we cannot sustain the RTCs Partial Decision for
want of documentary support.1wphi1
Lastly, it should be borne in mind that just compensation should be computed based
on the fair value of the subject property at the time of its taking or the filing of the
complaint, whichever came first.34 Since in this case the filing of the eminent
domain case came ahead of the taking, just compensation should be based on the
fair market value of spouses Zabalas property at the time of the filing of Napocors
Complaint on October 27, 1994 or thereabouts.
SO ORDERED.
WE CONCUR:
EN BANC
CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
- versus - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
LAND BANK OF THE MENDOZA, and
PHILIPPINES, SERENO, JJ.
Respondent. Promulgated:
RESOLUTION
BRION, J.:
For a fuller and clearer presentation and appreciation of this Resolution, we hark back to
the roots of this case.
Factual Antecedents
Apo Fruits Corporation (AFC) and Hijo Plantation, Inc. (HPI), together also referred
to as petitioners, were registered owners of vast tracks of land; AFC owned 640.3483
hectares, while HPI owned 805.5308 hectares. On October 12, 1995, they voluntarily
offered to sell these landholdings to the government via Voluntary Offer to Sell applications
filed with the Department of Agrarian Reform (DAR).
On October 16, 1996, AFC and HPI received separate notices of land acquisition and
valuation of their properties from the DARs Provincial Agrarian Reform Officer
(PARO). At the assessed valuation of P165,484.47 per hectare, AFCs land was valued
at P86,900,925.88, while HPIs property was valued at P164,478,178.14. HPI and AFC
rejected these valuations for being very low.
In its follow through action, the DAR requested the Land Bank of the Philippines
(LBP) to deposit P26,409,549.86 in AFCs bank account and P45,481,706.76 in HPIs bank
account, which amounts the petitioners then withdrew. The titles over AFC and HPIs
properties were thereafter cancelled, and new ones were issued on December 9, 1996 in the
name of the Republic of the Philippines.
On February 14, 1997, AFC and HPI filed separate petitions for determination of just
compensation with the DAR Adjudication Board (DARAB). When the DARAB failed to act
on these petitions for more than three years, AFC and HPI filed separate complaints for
determination and payment of just compensation with the Regional Trial Court (RTC)
of Tagum City, acting as a Special Agrarian Court. These complaints were subsequently
consolidated.
On September 25, 2001, the RTC resolved the consolidated cases, fixing the just
compensation for the petitioners 1,338.6027 hectares of land [1] at P1,383,179,000.00, with
interest on this amount at the prevailing market interest rates, computed from the taking of
the properties on December 9, 1996 until fully paid, minus the amounts the petitioners
already received under the initial valuation. The RTC also awarded attorneys fees.
LBP moved for the reconsideration of the decision. The RTC, in its order of December 5,
2001, modified its ruling and fixed the interest at the rate of 12% per annum from the
time the complaint was filed until finality of the decision. The Third Division of this
Court, in its Decision of February 6, 2007, affirmed this RTC decision.
On motion for reconsideration, the Third Division issued its Resolution of December 19,
2007, modifying its February 6, 2007 Decision by deleting the 12% interest due on the
balance of the awarded just compensation. The Third Division justified the deletion by the
finding that the LBP did not delay the payment of just compensation as it had deposited the
pertinent amounts due to AFC and HPI within fourteen months after they filed their
complaints for just compensation with the RTC. The Court also considered that AFC had
already collected approximately P149.6 million, while HPI had already collected
approximately P262 million from the LBP. The Third Division also deleted the award of
attorneys fees.
All parties moved for the reconsideration of the modified ruling. The Court uniformly
denied all the motions in its April 30, 2008 Resolution. Entry of Judgment followed on May
16, 2008.
Notwithstanding the Entry of Judgment, AFC and HPI filed the following motions on May
28, 2008: (1) Motion for Leave to File and Admit Second Motion for Reconsideration; (2)
Second Motion for Reconsideration, with respect to the denial of the award of legal interest
and attorneys fees; and (3) Motion to Refer the Second Motion for Reconsideration to the
Honorable Court En Banc.
The Third Division found the motion to admit the Second Motion for Reconsideration
and the motion to refer this second motion to the Court En Banc meritorious, and
accordingly referred the case to the Court En Banc. On September 8, 2009, the Court En
Banc accepted the referral.
On December 4, 2009, the Court En Banc, by a majority vote, denied the petitioners second
motion for reconsideration based on two considerations.
First, the grant of the second motion for reconsideration runs counter to the immutability of
final decisions. Moreover, the Court saw no reason to recognize the case as an exception to
the immutability principle as the petitioners private claim for the payment of interest does
not qualify as either a substantial or transcendental matter or an issue of paramount public
interest.
Second, on the merits, the petitioners are not entitled to recover interest on the just
compensation and attorneys fees because they caused the delay in the payment of the just
compensation due them; they erroneously filed their complaints with the DARAB when
they should have directly filed these with the RTC acting as an agrarian court. Furthermore,
the Court found it significant that the LBP deposited the pertinent amounts in the petitioners
favor within fourteen months after the petitions were filed with the RTC. Under these
circumstances, the Court found no unreasonable delay on the part of LBP to warrant the
award of 12% interest.
Justice Minita V. Chico-Nazario,[2] the ponente of the original December 19, 2007
Resolution (deleting the 12% interest), dissented from the Court En Bancs December 4,
2009 Resolution.
On these premises, Justice Nazario pointed out that the government deprived the
petitioners of their property on December 9, 1996, and paid the balance of the just
compensation due them only on May 9, 2008. The delay of almost twelve years earned the
petitioners interest in the total amount of P1,331,124,223.05.
Despite this finding, Justice Chico-Nazario did not see it fit to declare the computed
interest to be totally due; she found it unconscionable to apply the full force of the law on
the LBP because of the magnitude of the amount due. She thus reduced the awarded
interest to P400,000,000.00, or approximately 30% of the computed interest.
In their motion to reconsider the Court En Bancs December 4, 2009 Resolution (the present
Motion for Reconsideration), the petitioners principally argue that: (a) the principle of
immutability of judgment does not apply since the Entry of Judgment was issued even
before the lapse of fifteen days from the parties receipt of the April 30, 2008 Resolution and
the petitioners timely filed their second motion for reconsideration within fifteen days from
their receipt of this resolution; (b) the April 30, 2008 Resolution cannot be considered
immutable considering the special and compelling circumstances attendant to the present
case which fall within the exceptions to the principle of immutability of judgments; (c) the
legal interest due is at 12% per annum, reckoned from the time of the taking of the subject
properties and this rate is not subject to reduction. The power of the courts to equitably
reduce interest rates applies solely to liquidated damages under a contract and not to interest
set by the Honorable Court itself as due and owing in just compensation cases; and (d) the
Honorable Courts fears that the interest payments due to the petitioners will produce more
harm than good to the system of agrarian reform are misplaced and are based merely on
conjectures.
The LBP commented on the petitioners motion for reconsideration on April 28, 2010. It
maintained that: (a) the doctrine of immutability of the decisions of the Supreme Court
clearly applies to the present case; (b) the LBP is not guilty of undue delay in the payment
of just compensation as the petitioners were promptly paid once the Court had determined
the final value of the properties expropriated; (c) the Supreme Court rulings invoked by the
petitioners are inapplicable to the present case; (d) since the obligation to pay just
compensation is not a forbearance of money, interest should commence only after the
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amount due becomes ascertainable or liquidated, and the 12% interest per annum applies
only to the liquidated amount, from the date of finality of judgment; (e) the imposition of
12% interest on the balance of P971,409,831.68 is unwarranted because there was no
unjustified refusal by LBP to pay just compensation, and no contractual breach is involved;
(f) the deletion of the attorneys fees equivalent to 10% of the amount finally awarded as just
compensation is proper; (g) this case does not involve a violation of substantial justice to
justify the alteration of the immutable resolution dated December 19, 2007 that deleted the
award of interest and attorneys fees.
At the heart of the present controversy is the Third Divisions December 19, 2007
Resolution which held that the petitioners are not entitled to 12% interest on the balance of
the just compensation belatedly paid by the LBP. In the presently assailed December 4,
2009 Resolution, we affirmed the December 19, 2007 Resolutions findings that: (a) the LBP
deposited pertinent amounts in favor of the petitioners within fourteen months after they
filed their complaint for determination of just compensation; and (b) the LBP had already
paid the petitioners P411,769,168.32. We concluded then that these circumstances refuted
the petitioners assertion of unreasonable delay on the part of the LBP.
A re-evaluation of the circumstances of this case and the parties arguments, viewed
in light of the just compensation requirement in the exercise of the States inherent power of
eminent domain, compels us to re-examine our findings and conclusions.
Eminent domain is the power of the State to take private property for public use.[3] It
is an inherent power of State as it is a power necessary for the States existence; it is a power
the State cannot do without.[4] As an inherent power, it does not need at all to be embodied
in the Constitution; if it is mentioned at all, it is solely for purposes of limiting what is
otherwise an unlimited power. The limitation is found in the Bill of Rights[5] that part of the
Constitution whose provisions all aim at the protection of individuals against the excessive
exercise of governmental powers.
Section 9, Article III of the 1987 Constitution (which reads No private property shall
be taken for public use without just compensation.) provides two essential limitations to the
power of eminent domain, namely, that (1) the purpose of taking must be for public use and
(2) just compensation must be given to the owner of the private property.
It is not accidental that Section 9 specifies that compensation should be just as the
safeguard is there to ensure a balance property is not to be taken for public use at the expense
of private interests; the public, through the State, must balance the injury that the taking of
property causes through compensation for what is taken, value for value.
Nor is it accidental that the Bill of Rights is interpreted liberally in favor of the
individual and strictly against the government. The protection of the individual is the reason
for the Bill of Rights being; to keep the exercise of the powers of government within
reasonable bounds is what it seeks.[6]
The concept of just compensation is not new to Philippine constitutional law,[7] but is
not original to the Philippines; it is a transplant from the American Constitution.[8] It found
fertile application in this country particularly in the area of agrarian reform where the taking
of private property for distribution to landless farmers has been equated to the public use
that the Constitution requires. In Land Bank of the Philippines v. Orilla,[9] a valuation case
under our agrarian reform law, this Court had occasion to state:
In the present case, while the DAR initially valued the petitioners landholdings at a
total of P251,379,104.02,[11] the RTC, acting as a special agrarian court, determined the
actual value of the petitioners landholdings to be P1,383,179,000.00. This valuation, a
finding of fact, has subsequently been affirmed by this Court, and is now beyond question. In
eminent domain terms, this amount is the real, substantial, full and ample compensation the
government must pay to be just to the landowners.
Significantly, this final judicial valuation is far removed from the initial valuation
made by the DAR; their values differ by P1,131,799,897.00 in itself a very substantial sum
that is roughly four times the original DAR valuation. We mention these valuations as they
indicate to us how undervalued the petitioners lands had been at the start, particularly at
the time the petitioners landholdings were taken. This reason apparently compelled the
petitioners to relentlessly pursue their valuation claims all they way up to the level of this
Court.
While the LBP deposited the total amount of P71,891,256.62 into the petitioners
accounts (P26,409,549.86 for AFC and P45,481,706.76 for HPI) at the time the
landholdings were taken, these amounts were mere partial payments that only amounted to
5% of the P1,383,179,000.00 actual value of the expropriated properties. We point this
aspect out to show that the initial payments made by the LBP when the petitioners
landholdings were taken, although promptly withdrawn by the petitioners, could not by any
means be considered a fair exchange of values at the time of taking; in fact, the LBPs actual
deposit could not be said to be substantial even from the original LBP valuation
of P251,379,103.90.
Thus, the deposits might have been sufficient for purposes of the immediate taking
of the landholdings but cannot be claimed as amounts that would excuse the LBP from the
payment of interest on the unpaid balance of the compensation due. As discussed at length
below, they were not enough to compensate the petitioners for the potential income the
landholdings could have earned for them if no immediate taking had taken place. Under the
circumstances, the State acted oppressively and was far from just in their position to deny
the petitioners of the potential income that the immediate taking of their properties entailed.
Apart from the requirement that compensation for expropriated land must be fair and
reasonable, compensation, to be just, must also be made without delay.[12]Without
prompt payment, compensation cannot be considered "just" if the property is immediately
taken as the property owner suffers the immediate deprivation of both his land and its fruits
or income.
This is the principle at the core of the present case where the petitioners were made
to wait for more than a decade after the taking of their property before they actually received
the full amount of the principal of the just compensation due them.[13] What they have not
received to date is the income of their landholdings corresponding to what they would
have received had no uncompensated taking of these lands been immediately
made. This income, in terms of the interest on the unpaid principal, is the subject of the
current litigation.
We recognized in Republic v. Court of Appeals[14] the need for prompt payment and
the necessity of the payment of interest to compensate for any delay in the payment of
compensation for property already taken. We ruled in this case that:
In Republic, the Court recognized that the just compensation due to the landowners for
their expropriated property amounted to an effective forbearance on the part of the
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State. Applying the Eastern Shipping Lines ruling,[17] the Court fixed the applicable interest
rate at 12% per annum, computed from the time the property was taken until the full amount
of just compensation was paid, in order to eliminate the issue of the constant fluctuation and
inflation of the value of the currency over time. In the Courts own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing interest[s]
on the zonal value of the property to be computed from the time petitioner
instituted condemnation proceedings and took the property in September
1969. This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective
forbearance, at 12% per annum should help eliminate the issue of the
constant fluctuation and inflation of the value of the currency over
time.[18] [Emphasis supplied.]
We subsequently upheld Republics 12% per annum interest rate on the unpaid
expropriation compensation in the following cases: Reyes v. National Housing
Authority,[19]Land Bank of the Philippines v. Wycoco,[20] Republic v. Court of
Appeals,[21] Land Bank of the Philippines v. Imperial,[22] Philippine Ports Authority v.
Rosales-Bondoc,[23]and Curata v. Philippine Ports Authority.[24]
These were the established rulings that stood before this Court issued the currently
assailed Resolution of December 4, 2009. These would be the rulings this Court shall
reverse and de-establish if we maintain and affirm our ruling deleting the 12% interest
on the unpaid balance of compensation due for properties already taken.
Under the circumstances of the present case, we see no compelling reason to depart
from the rule that Republic firmly established. Let it be remembered that shorn of its
eminent domain and social justice aspects, what the agrarian land reform program involves
is the purchase by the government, through the LBP, of agricultural lands for sale and
distribution to farmers. As a purchase, it involves an exchange of values the landholdings
in exchange for the LBPs payment. In determining the just compensation for this
exchange, however, the measure to be borne in mind is not the taker's gain but the
owner's loss[25] since what is involved is the takeover of private property under the
States coercive power. As mentioned above, in the value-for-value exchange in an eminent
domain situation, the State must ensure that the individual whose property is taken is not
shortchanged and must hence carry the burden of showing that the just compensation
requirement of the Bill of Rights is satisfied.
The owners loss, of course, is not only his property but also its income-generating
potential. Thus, when property is taken, full compensation of its value must immediately be
paid to achieve a fair exchange for the property and the potential income lost. The just
compensation is made available to the property owner so that he may derive income from
this compensation, in the same manner that he would have derived income from his
expropriated property. If full compensation is not paid for property taken, then the State
must make up for the shortfall in the earning potential immediately lost due to the taking,
and the absence of replacement property from which income can be derived; interest on the
unpaid compensation becomes due as compliance with the constitutional mandate on
eminent domain and as a basic measure of fairness.
In the context of this case, when the LBP took the petitioners landholdings without
the corresponding full payment, it became liable to the petitioners for the income the
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landholdings would have earned had they not immediately been taken from the petitioners.
What is interesting in this interplay, under the developments of this case, is that the LBP, by
taking landholdings without full payment while holding on at the same time to the interest
that it should have paid, effectively used or retained funds that should go to the
landowners and thereby took advantage of these funds for its own account.
From this point of view, the December 19, 2007 Resolution deleting the award of
12% interest is not only patently and legally wrong, but is also morally unconscionable for
being grossly unfair and unjust. If the interest on the just compensation due in reality the
equivalent of the fruits or income of the landholdings would have yielded had these lands
not been taken would be denied, the result is effectively a confiscatory action by this Court
in favor of the LBP. We would be allowing the LBP, for twelve long years, to have free use
of the interest that should have gone to the landowners. Otherwise stated, if we continue to
deny the petitioners present motion for reconsideration, we would illogically and
without much thought to the fairness that the situation demands uphold the interests
of the LBP, not only at the expense of the landowners but also that of substantial justice
as well.
Lest this Court be a party to this monumental unfairness in a social program aimed at
fostering balance in our society, we now have to ring the bell that we have muted in the
past, and formally declare that the LBPs position is legally and morally wrong. To do less
than this is to leave the demands of the constitutional just compensation standard (in terms
of law) and of our own conscience (in terms of morality) wanting and unsatisfied.
The Delay in Payment Issue
Separately from the demandability of interest because of the failure to fully pay for
property already taken, a recurring issue in the case is the attribution of the delay.
That delay in payment occurred is not and cannot at all be disputed. While the LBP
claimed that it made initial payments of P411,769,168.32 (out of the principal sum due of
P1,383,179,000.00), the undisputed fact is that the petitioners were deprived of their
lands on December 9, 1996 (when titles to their landholdings were cancelled and
transferred to the Republic of the Philippines), and received full payment of the principal
amount due them only on May 9, 2008.
In the interim, they received no income from their landholdings because these
landholdings had been taken. Nor did they receive adequate income from what should
replace the income potential of their landholdings because the LBP refused to pay interest
while withholding the full amount of the principal of the just compensation due by claiming
a grossly low valuation. This sad state continued for more than a decade. In any language
and by any measure, a lengthy delay in payment occurred.
Presumably, had the landholdings been properly valued, the petitioners would have
accepted the payment of just compensation and there would have been no need for them to
go to the extent of filing a valuation case. But, as borne by the records, the petitioners lands
were grossly undervalued by the DAR, leaving the petitioners with no choice but to file
actions to secure what is justly due them.
The DARs initial gross undervaluation started the cycle of court actions that followed,
where the LBP eventually claimed that it could not be faulted for seeking judicial recourse
to defend the governments and its own interests in light of the petitioners valuation
claims. This LBP claim, of course, conveniently forgets that at the root of all these valuation
claims and counterclaims was the initial gross undervaluation by DAR that the LBP stoutly
defended. At the end, this undervaluation was proven incorrect by no less than this Court;
the petitioners were proven correct in their claim, and the correct valuation more than five-
fold the initial DAR valuation was decreed and became final.
To be sure, the petitioners were not completely correct in the legal steps they took in
their valuation claims. They initially filed their valuation claim before the DARAB instead
of immediately seeking judicial intervention. The DARAB, however, contributed its share
to the petitioners error when it failed or refused to act on the valuation petitions for more
than three (3) years. Thus, on top of the DAR undervaluation was the DARAB inaction after
the petitioners landholdings had been taken. This Courts Decision of February 6, 2007 duly
noted this and observed:
It is not controverted that this case started way back on 12 October 1995,
when AFC and HPI voluntarily offered to sell the properties to the DAR. In
view of the failure of the parties to agree on the valuation of the properties, the
Complaint for Determination of Just Compensation was filed before the
DARAB on 14 February 1997. Despite the lapse of more than three years from
the filing of the complaint, the DARAB failed to render a decision on the
valuation of the land. Meantime, the titles over the properties of AFC and HPI
had already been cancelled and in their place a new certificate of title was
issued in the name of the Republic of the Philippines, even as far back as 9
December 1996. A period of almost 10 years has lapsed. For this reason, there
is no dispute that this case has truly languished for a long period of time, the
delay being mainly attributable to both official inaction and
indecision, particularly on the determination of the amount of just
compensation, to the detriment of AFC and HPI, which to date, have yet to be
fully compensated for the properties which are already in the hands of farmer-
beneficiaries, who, due to the lapse of time, may have already converted or
sold the land awarded to them.
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Verily, these two cases could have been disposed with dispatch were
it not for LBPs counsel causing unnecessary delay. At the inception of this
case, DARAB, an agency of the DAR which was commissioned by law to
determine just compensation, sat on the cases for three years, which was the
reason that AFC and HPI filed the cases before the RTC. We underscore the
pronouncement of the RTC that the delay by DARAB in the determination
of just compensation could only mean the reluctance of the Department of
Agrarian Reform and the Land Bank of the Philippines to pay the claim
of just compensation by corporate landowners.
These statements cannot but be true today as they were when we originally decided
the case and awarded 12% interest on the balance of the just compensation due. While the
petitioners were undisputedly mistaken in initially seeking recourse through the DAR, this
agency itself hence, the government committed a graver transgression when it failed to act
at all on the petitioners complaints for determination of just compensation.
The LBP claims in its Comment that our rulings in Republic v. Court of
Appeals,[26] Reyes v. National Housing Authority,[27] and Land Bank of the Philippines v.
Imperial,[28] cannot be applied to the present case.
As we discussed above, the pertinent amounts allegedly deposited by LBP were mere
partial payments that amounted to a measly 5% of the actual value of the properties
expropriated. They could be the basis for the immediate taking of the expropriated property
but by no stretch of the imagination can these nominal amounts be considered pertinent
enough to satisfy the full requirement of just compensation i.e., the full and fair equivalent
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of the expropriated property, taking into account its income potential and the foregone
income lost because of the immediate taking.
We likewise find no basis to support the LBPs theory that Republic and the present
case have to be treated differently because the first involves a regular expropriation case,
while the present case involves expropriation pursuant to the countrys agrarian reform
program. In both cases, the power of eminent domain was used and private property was
taken for public use. Why one should be different from the other, so that the just
compensation ruling in one should not apply to the other, truly escapes us. If there is to be
a difference, the treatment of agrarian reform expropriations should be stricter and on a
higher plane because of the governments societal concerns and objectives. To be sure, the
government cannot attempt to remedy the ills of one sector of society by sacrificing the
interests of others within the same society.
Finally, we note that the finality of the decision (that fixed the value of just
compensation) in Republic was not a material consideration for the Court in awarding the
landowners 12% interest. The Court, in Republic, simply affirmed the RTC ruling imposing
legal interest on the amount of just compensation due. In the process, the Court determined
that the legal interest should be 12% after recognizing that the just compensation due was
effectively a forbearance on the part of the government. Had the finality of the judgment
been the critical factor, then the 12% interest should have been imposed from the time the
RTC decision fixing just compensation became final. Instead, the 12% interest was
imposed from the time that the Republic commenced condemnation proceedings and took
the property.
The LBP additionally asserts that the petitioners erroneously relied on the ruling
in Reyes v. National Housing Authority. The LBP claims that we cannot
apply Reyesbecause it involved just compensation that remained unpaid despite the finality
of the expropriation decision. LBPs point of distinction is that just compensation was
immediately paid in the present case upon the Courts determination of the actual value of
the expropriated properties. LBP claims, too, that in Reyes, the Court established that the
refusal of the NHA to pay just compensation was unfounded and unjustified, whereas the
LBP in the present case clearly demonstrated its willingness to pay just compensation.
Lastly, in Reyes, the records showed that there was an outstanding balance that ought to be
paid, while the element of an outstanding balance is absent in the present case.
Contrary to the LBPs opinion, the imposition of the 12% interest in Reyes did not depend
on either the finality of the decision of the expropriation court, or on the finding that the
NHAs refusal to pay just compensation was unfounded and unjustified. Quite clearly, the
Court imposed 12% interest based on the ruling in Republic v. Court of Appeals that x xx if
property is taken for public use before compensation is deposited with the court having
jurisdiction over the case, the final compensation must include interest[s] on its just value
to be computed from the time the property is taken to the time when compensation is
actually paid or deposited with the court. In fine, between the taking of the property and
the actual payment, legal interest[s] accrue in order to place the owner in a position as
good as (but not better than) the position he was in before the taking occurred.[29]This is the
same legal principle applicable to the present case, as discussed above.
While the LBP immediately paid the remaining balance on the just compensation due to the
petitioners after this Court had fixed the value of the expropriated properties, it overlooks
one essential fact from the time that the State took the petitioners properties until the time
that the petitioners were fully paid, almost 12 long years passed. This is the rationale for
imposing the 12% interest in order to compensate the petitioners for the income they would
have made had they been properly compensated for their properties at the time of the taking.
Finally, the LBP insists that the petitioners quoted our ruling in Land Bank of the
Philippines v. Imperial out of context. According to the LBP, the Court imposed legal
interest of 12% per annum only after December 31, 2006, the date when the decision on just
compensation became final.
The LBP is again mistaken. The Imperial case involved land that was expropriated pursuant
to Presidential Decree No. 27,[30] and fell under the coverage of DAR Administrative Order
(AO) No. 13.[31] This AO provided for the payment of a 6% annual interest if there is any
delay in payment of just compensation. However, Imperial was decided in 2007 and AO
No. 13 was only effective up to December 2006. Thus, the Court, relying on our ruling in
the Republic case, applied the prevailing 12% interest ruling to the period when the just
compensation remained unpaid after December 2006. It is for this reason that December 31,
2006 was important, not because it was the date of finality of the decision on just
compensation.
To fully reflect the concerns raised in this Courts deliberations on the present case,
we feel it appropriate to discuss the Justice Minita Chico-Nazarios dissent from the Courts
December 4, 2009 Resolution.
While Justice Chico-Nazario admitted that the petitioners were entitled to the 12%
interest, she saw it appropriate to equitably reduce the interest charges
from P1,331,124,223.05 to P400,000,000.00. In support of this proposal, she enumerated
various cases where the Court, pursuant to Article 1229 of the Civil Code,[32] equitably
reduced interest charges.
While we have equitably reduced the amount of interest awarded in numerous cases
in the past, those cases involved interest that was essentially consensual in nature, i.e.,
interest stipulated in signed agreements between the contracting parties. In contrast, the
interest involved in the present case runs as a matter of law and follows as a matter of
course from the right of the landowner to be placed in as good a position as money can
accomplish, as of the date of taking.[33]
Furthermore, the allegedly considerable payments made by the LBP to the petitioners
cannot be a proper premise in denying the landowners the interest due them under the law
and established jurisprudence. If the just compensation for the landholdings is
considerable, this compensation is not undue because the landholdings the owners
gave up in exchange are also similarly considerable AFC gave up an aggregate
landholding of 640.3483 hectares, while HPIs gave up 805.5308 hectares. When the
petitioners surrendered these sizeable landholdings to the government, the incomes they
gave up were likewise sizeable and cannot in any way be considered miniscule. The incomes
due from these properties, expressed as interest, are what the government should return to
the petitioners after the government took over their lands without full payment of just
compensation. In other words, the value of the landholdings themselves should be
equivalent to the principal sum of the just compensation due; interest is due and should
be paid to compensate for the unpaid balance of this principal sum after taking has been
completed. This is the compensation arrangement that should prevail if such compensation
is to satisfy the constitutional standard of being just.
Neither can LBPs payment of the full compensation due before the finality of the
judgment of this Court justify the reduction of the interest due them. To rule otherwise
would be to forget that the petitioners had to wait twelve years from the time they gave up
their lands before the government fully paid the principal of the just compensation due
them. These were twelve years when they had no income from their landholdings because
these landholdings have immediately been taken; no income, or inadequate income, accrued
to them from the proceeds of compensation payment due them because full payment has
been withheld by government.
If the full payment of the principal sum of the just compensation is legally significant
at all under the circumstances of this case, the significance is only in putting a stop to the
running of the interest due because the principal of the just compensation due has been paid.
To close our eyes to these realities is to condone what is effectively a confiscatory action in
favor of the LBP.
That the legal interest due is now almost equivalent to the principal to be paid is
not per se an inequitable or unconscionable situation, considering the length of time the
interest has remained unpaid almost twelve long years. From the perspective of interest
income, twelve years would have been sufficient for the petitioners to double the principal,
even if invested conservatively, had they been promptly paid the principal of the just
compensation due them. Moreover, the interest, however enormous it may be, cannot be
inequitable and unconscionable because it resulted directly from the application of law
and jurisprudence standards that have taken into account fairness and equity in setting the
interest rates due for the use or forebearance of money.
If the LBP sees the total interest due to be immense, it only has itself to blame, as this
interest piled up because it unreasonably acted in its valuation of the landholdings and
consequently failed to promptly pay the petitioners. To be sure, the consequences of this
failure i.e., the enormity of the total interest due and the alleged financial hemorrhage the
LBP may suffer should not be the very reason that would excuse it from full compliance.
To so rule is to use extremely flawed logic. To so rule is to disregard the question of how
the LBP, a government financial institution that now professes difficulty in paying interest
at 12% per annum, managed the funds that it failed to pay the petitioners for twelve long
years.
It would be utterly fallacious, too, to argue that this Court should tread lightly in
imposing liabilities on the LBP because this bank represents the government and,
ultimately, the public interest. Suffice it to say that public interest refers to what will benefit
the public, not necessarily the government and its agencies whose task is to contribute to
the benefit of the public. Greater public benefit will result if government agencies like the
LBP are conscientious in undertaking its tasks in order to avoid the situation facing it in this
case. Greater public interest would be served if it can contribute to the credibility of
the governments land reform program through the conscientious handling of its part
of this program.
As our last point, equity and equitable principles only come into full play when a gap
exists in the law and jurisprudence.[34] As we have shown above, established rulings of this
Court are in place for full application to the present case. There is thus no occasion for the
equitable consideration that Justice Chico-Nazario suggested.
As borne by the records, the 12% interest claimed is only on the difference between
the price of the expropriated lands (determined with finality to be P1,383,179,000.00) and
the amount of P411,769,168.32 already paid to the petitioners. The difference between these
figures amounts to the remaining balance of P971,409,831.68 that was only paid on May 9,
2008.
As above discussed, this amount should bear interest at the rate of 12% per
annum from the time the petitioners properties were taken on December 9, 1996 up to
the time of payment. At this rate, the LBP now owes the petitioners the total amount of
One Billion Three Hundred Thirty-One Million One Hundred Twenty-Four Thousand Two
Hundred Twenty-Three and 05/100 Pesos (P1,331,124,223.05), computed as follows:
P1,331,124,223.05[35]
reversing judgments and recalling their entries in the interest of substantial justice and where
special and compelling reasons called for such actions.
However, this Court has relaxed this rule in order to serve substantial
justice considering (a) matters of life, liberty, honor or property, (b) the
existence of special or compelling circumstances, (c) the merits of the
case, (d) a cause not entirely attributable to the fault or negligence of the party
favored by the suspension of the rules, (e) a lack of any showing that the review
sought is merely frivolous and dilatory, and (f) the other party will not be
unjustly prejudiced thereby.
That the issues posed by this case are of transcendental importance is not hard to
discern from these discussions. A constitutional limitation, guaranteed under no less than
the all-important Bill of Rights, is at stake in this case: how can compensation in an eminent
domain be just when the payment for the compensation for property already taken has been
unreasonably delayed? To claim, as the assailed Resolution does, that only private interest
is involved in this case is to forget that an expropriation involves the government as a
necessary actor. It forgets, too, that under eminent domain, the constitutional limits or
standards apply to government who carries the burden of showing that these standards have
been met. Thus, to simply dismiss this case as a private interest matter is an extremely
shortsighted view that this Court should not leave uncorrected.
As duly noted in the above discussions, this issue is not one of first impression in our
jurisdiction; the consequences of delay in the payment of just compensation have been
settled by this Court in past rulings. Our settled jurisprudence on the issue alone accords
this case primary importance as a contrary ruling would unsettle, on the flimsiest of grounds,
all the rulings we have established in the past.
More than the stability of our jurisprudence, the matter before us is of transcendental
importance to the nation because of the subject matter involved agrarian reform, a societal
objective that the government has unceasingly sought to achieve in the past half
century. This reform program and its objectives would suffer a major setback if the
government falters or is seen to be faltering, wittingly or unwittingly, through lack of good
faith in implementing the needed reforms. Truly, agrarian reform is so important to the
national agenda that the Solicitor General, no less, pointedly linked agricultural lands, its
ownership and abuse, to the idea of revolution.[49] This linkage, to our mind, remains valid
even if the landowner, not the landless farmer, is at the receiving end of the distortion of the
agrarian reform program.
As we have ruled often enough, rules of procedure should not be applied in a very
rigid, technical sense; rules of procedure are used only to help secure, not override,
substantial justice.[50] As we explained in Ginete v. Court of Appeals:[51]
Let it be emphasized that the rules of procedure should be viewed as
mere tools designed to facilitate the attainment of justice. Their strict and
rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be eschewed. Even the
Rules of Court reflect this principle. The power to suspend or even disregard
rules can be so pervasive and compelling as to alter even that which this Court
itself has already declared to be final, as we are now constrained to do in the
instant case.
xxxx
The emerging trend in the rulings of this Court is to afford every party
litigant the amplest opportunity for the proper and just determination of his
cause, free from the constraints of technicalities. Time and again, this Court
has consistently held that rules must not be applied rigidly so as not to override
substantial justice.[52] [Emphasis supplied.]
We made the same recognition in Barnes,[55] on the underlying premise that a courts
primordial and most important duty is to render justice; in discharging the duty to render
substantial justice, it is permitted to re-examine even a final and executory judgment.
Based on all these considerations, particularly the patently illegal and erroneous
conclusion that the petitioners are not entitled to 12% interest, we find that we are duty-
bound to re-examine and overturn the assailed Resolution. We shall completely and
inexcusably be remiss in our duty as defenders of justice if, given the chance to make the
rectification, we shall let the opportunity pass.
Attorneys Fees
We are fully aware that the RTC has awarded the petitioners attorneys fees when it
fixed the just compensation due and decreed that interest of 12% should be paid on the
balance outstanding after the taking of the petitioners landholdings took place. The
petitioners, however, have not raised the award of attorneys fees as an issue in the present
motion for reconsideration. For this reason, we shall not touch on this issue at all in this
Resolution.
WHEREFORE, premises considered, we GRANT the petitioners motion for
reconsideration. The Court En Bancs Resolution dated December 4, 2009, as well as the
Third Divisions Resolutions dated April 30, 2008 and December 19, 2007, are
hereby REVERSED and SET ASIDE.
Unless the parties agree to a shorter payment period, payment shall be in monthly
installments at the rate of P60,000,000.00 per month until the whole amount owing,
including interest on the outstanding balance, is fully paid.
RESOLUTION
SANDOVAL-GUTIERREZ, J.:
Justice is the first virtue of social institutions.[1] When the state wields its power
of eminent domain, there arises a correlative obligation on its part to pay the owner
of the expropriated property a just compensation. If it fails, there is a clear case of
injustice that must be redressed. In the present case, fifty-seven (57) years have
lapsed from the time the Decision in the subject expropriation proceedings
became final, but still the Republic of the Philippines, herein petitioner, has
not compensated the owner of the property. To tolerate such prolonged inaction
on its part is to encourage distrust and resentment among our people the very vices
that corrode the ties of civility and tempt men to act in ways they would otherwise
shun.
A revisit of the pertinent facts in the instant case is imperative.
On September 5, 1938, the Republic of the Philippines (Republic) instituted a
special civil action for expropriation with the Court of First Instance (CFI) of Cebu,
docketed as Civil Case No. 781, involving Lots 932 and 939 of the Banilad Friar
Land Estate, Lahug, Cebu City, for the purpose of establishing a military reservation
for the Philippine Army. Lot 932 was registered in the name of Gervasia Denzon
under Transfer Certificate of Title (TCT) No. 14921 with an area of 25,137 square
meters, while Lot 939 was in the name of Eulalia Denzon and covered by TCT No.
12560 consisting of 13,164 square meters.
After depositing P9,500.00 with the Philippine National Bank, pursuant to the
Order of the CFI dated October 19, 1938, the Republic took possession of the lots.
Thereafter, or on May 14, 1940, the CFI rendered its Decision ordering the Republic
to pay the Denzons the sum of P4,062.10 as just compensation.
The Denzons interposed an appeal to the Court of Appeals but it was dismissed
on March 11, 1948. An entry of judgment was made on April 5, 1948.
In 1950, Jose Galeos, one of the heirs of the Denzons, filed with the National
Airports Corporation a claim for rentals for the two lots, but it denied knowledge of
the matter. Another heir, Nestor Belocura, brought the claim to the Office of then
President Carlos Garcia who wrote the Civil Aeronautics Administration and the
Secretary of National Defense to expedite action on said claim. On September 6,
1961, Lt. Manuel Cabal rejected the claim but expressed willingness to pay the
appraised value of the lots within a reasonable time.
For failure of the Republic to pay for the lots, on September 20, 1961, the
Denzons successors-in-interest, Francisca Galeos-Valdehueza and Josefina
Galeos-Panerio,[2] filed with the same CFI an action for recovery of possession
with damages against the Republic and officers of the Armed Forces of the
Philippines in possession of the property. The case was docketed as Civil Case No.
R-7208.
In the interim or on November 9, 1961, TCT Nos. 23934 and 23935 covering
Lots 932 and 939 were issued in the names of Francisca Valdehueza and Josefina
Panerio, respectively. Annotated thereon was the phrase subject to the priority of
the National Airports Corporation to acquire said parcels of land, Lots 932 and 939
upon previous payment of a reasonable market value.
On July 31, 1962, the CFI promulgated its Decision in favor of Valdehueza and
Panerio, holding that they are the owners and have retained their right as such over
Lots 932 and 939 because of the Republics failure to pay the amount of P4,062.10,
adjudged in the expropriation proceedings. However, in view of the annotation on
their land titles, they were ordered to execute a deed of sale in favor of the Republic.
In view of the differences in money value from 1940 up to the present, the court
adjusted the market value at P16,248.40, to be paid with 6% interest per annum
from April 5, 1948, date of entry in the expropriation proceedings, until full payment.
After their motion for reconsideration was denied, Valdehueza and Panerio
appealed from the CFI Decision, in view of the amount in controversy, directly to
this Court. The case was docketed as No. L-21032.[3] On May 19, 1966, this Court
rendered its Decision affirming the CFI Decision. It held that Valdehueza and
Panerio are still the registered owners of Lots 932 and 939, there having been no
payment of just compensation by the Republic. Apparently, this Court found nothing
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POLITICAL LAW REVIEW CASES INHERENT POWERS
in the records to show that the Republic paid the owners or their successors-in-
interest according to the CFI decision. While it deposited the amount of P9,500,00,
and said deposit was allegedly disbursed, however, the payees could not be
ascertained.
Notwithstanding the above finding, this Court still ruled that Valdehueza and
Panerio are not entitled to recover possession of the lots but may only demand the
payment of their fair market value, ratiocinating as follows:
Appellants would contend that: (1) possession of Lots 932 and 939 should be restored to them as
owners of the same; (2) the Republic should be ordered to pay rentals for the use of said lots, plus
attorneys fees; and (3) the court a quo in the present suit had no power to fix the value of the lots
and order the execution of the deed of sale after payment.
It is true that plaintiffs are still the registered owners of the land, there not having been a transfer
of said lots in favor of the Government. The records do not show that the Government paid the
owners or their successors-in-interest according to the 1940 CFI decision although, as
stated, P9,500.00 was deposited by it, and said deposit had been disbursed. With the records lost,
however, it cannot be known who received the money (Exh. 14 says: It is further certified that the
corresponding Vouchers and pertinent Journal and Cash Book were destroyed during the last
World War, and therefore the names of the payees concerned cannot be ascertained.) And the
Government now admits that there is no available record showing that payment for the value
of the lots in question has been made (Stipulation of Facts, par. 9, Rec. on Appeal, p. 28).
The points in dispute are whether such payment can still be made and, if so, in what amount.
Said lots have been the subject of expropriation proceedings. By final and executory
judgment in said proceedings, they were condemned for public use, as part of an airport, and
ordered sold to the Government. In fact, the abovementioned title certificates secured by
plaintiffs over said lots contained annotations of the right of the National Airports
Corporation (now CAA) to pay for and acquire them. It follows that both by virtue of the
judgment, long final, in the expropriation suit, as well as the annotations upon their title
certificates, plaintiffs are not entitled to recover possession of their expropriated lots which
are still devoted to the public use for which they were expropriated but only to demand the
fair market value of the same.
WHEREFORE, judgment is hereby rendered in favor of plaintiff Vicente Lim and against all
defendants, public and private, declaring plaintiff Vicente Lim the absolute and exclusive
owner of Lot No. 932 with all the rights of an absolute owner including the right to
possession. The monetary claims in the complaint and in the counter claims contained in the
answer of defendants are ordered Dismissed.
Petitioners elevated the case to the Court of Appeals, docketed therein as CA-
G.R. CV No. 72915. In its Decision[5] dated September 18, 2003, the Appellate
Court sustained the RTC Decision, thus:
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Obviously, defendant-appellant Republic evaded its duty of paying what was due to the
landowners. The expropriation proceedings had already become final in the late 1940s and
yet, up to now, or more than fifty (50) years after, the Republic had not yet paid the
compensation fixed by the court while continuously reaping benefits from the expropriated
property to the prejudice of the landowner. x x x. This is contrary to the rules of fair play
because the concept of just compensation embraces not only the correct determination of the
amount to be paid to the owners of the land, but also the payment for the land within a
reasonable time from its taking. Without prompt payment, compensation cannot be
considered just for the property owner is made to suffer the consequence of being
immediately deprived of his land while being made to wait for a decade or more, in this case
more than 50 years, before actually receiving the amount necessary to cope with the loss. To
allow the taking of the landowners properties, and in the meantime leave them empty-handed
by withholding payment of compensation while the government speculates on whether or not
it will pursue expropriation, or worse, for government to subsequently decide to abandon the
property and return it to the landowners, is undoubtedly an oppressive exercise of eminent
domain that must never be sanctioned. (Land Bank of the Philippines vs. Court of Appeals, 258
SCRA 404).
xxxxxx
An action to quiet title is a common law remedy for the removal of any cloud or doubt or
uncertainty on the title to real property. It is essential for the plaintiff or complainant to have a legal
or equitable title or interest in the real property, which is the subject matter of the action. Also the
deed, claim, encumbrance or proceeding that is being alleged as cloud on plaintiffs title must be
shown to be in fact invalid or inoperative despite its prima facie appearance of validity or legal
efficacy (Robles vs. Court of Appeals, 328 SCRA 97). In view of the foregoing discussion,
clearly, the claim of defendant-appellant Republic constitutes a cloud, doubt or uncertainty
on the title of plaintiff-appellee Vicente Lim that can be removed by an action to quiet title.
WHEREFORE, in view of the foregoing, and finding no reversible error in the appealed May 4,
2001 Decision of Branch 9, Regional Trial Court of Cebu City, in Civil Case No. CEB-12701, the
said decision is UPHELD AND AFFIRMED. Accordingly, the appeal is DISMISSED for lack
of merit.
Undaunted, petitioners, through the Office of the Solicitor General, filed with this
Court a petition for review on certiorari alleging that the Republic has remained the
owner of Lot 932 as held by this Court in Valdehueza vs. Republic.[6]
In our Resolution dated March 1, 2004, we denied the petition outright on the
ground that the Court of Appeals did not commit a reversible error. Petitioners filed
an urgent motion for reconsideration but we denied the same with finality in our
Resolution of May 17, 2004.
On May 18, 2004, respondent filed an ex-parte motion for the issuance of an
entry of judgment. We only noted the motion in our Resolution of July 12, 2004.
On July 7, 2004, petitioners filed an urgent plea/motion for clarification, which is
actually a second motion for reconsideration. Thus, in our Resolution of
September 6, 2004, we simply noted without action the motion considering that the
instant petition was already denied with finality in our Resolution of May 17, 2004.
On October 29, 2004, petitioners filed a very urgent motion for leave to file a
motion for reconsideration of our Resolution dated September 6, 2004 (with prayer
to refer the case to the En Banc). They maintain that the Republics right of
ownership has been settled in Valdehueza.
The basic issue for our resolution is whether the Republic has retained
ownership of Lot 932 despite its failure to pay respondents predecessors-in-interest
the just compensation therefor pursuant to the judgment of the CFI rendered as
early as May 14, 1940.
Initially, we must rule on the procedural obstacle.
While we commend the Republic for the zeal with which it pursues the present
case, we reiterate that its urgent motion for clarification filed on July 7, 2004 is
actually a second motion for reconsideration. This motion is prohibited under
Section 2, Rule 52, of the 1997 Rules of Civil Procedure, as amended, which
provides:
Sec. 2. Second motion for reconsideration. No second motion for reconsideration of a judgment or
final resolution by the same party shall be entertained.
The petitioners have been waiting for more than thirty years to be paid for their land which
was taken for use as a public high school. As a matter of fair procedure, it is the duty of the
Government, whenever it takes property from private persons against their will, to supply all
required documentation and facilitate payment of just compensation. The imposition of
unreasonable requirements and vexatious delays before effecting payment is not only galling
and arbitrary but a rich source of discontent with government. There should be some kind
of swift and effective recourse against unfeeling and uncaring acts of middle or lower level
bureaucrats.
Title to property which is the subject of condemnation proceedings does not vest the
condemnor until the judgment fixing just compensation is entered and paid, but the
condemnors title relates back to the date on which the petition under the Eminent Domain Act, or
the commissioners report under the Local Improvement Act, is filed.
x x x Although the right to appropriate and use land taken for a canal is complete at the time
of entry, title to the property taken remains in the owner until payment is actually
made. (Emphasis supplied.)
In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that title to property
does not pass to the condemnor until just compensation had actually been made. In fact, the
decisions appear to be uniform to this effect. As early as 1838, in Rubottom v. McLure, it was held
that actual payment to the owner of the condemned property was a condition precedent to
the investment of the title to the property in the State albeit not to the appropriation of it to
public use. In Rexford v. Knight, the Court of Appeals of New York said that the construction upon
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the statutes was that the fee did not vest in the State until the payment of the compensation although
the authority to enter upon and appropriate the land was complete prior to the payment. Kennedy
further said that both on principle and authority the rule is . . . that the right to enter on and
use the property is complete, as soon as the property is actually appropriated under the
authority of law for a public use, but that the title does not pass from the owner without his
consent, until just compensation has been made to him.
Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, that:
If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this jurisdiction is
such as to afford absolute reassurance that no piece of land can be finally and irrevocably
taken from an unwilling owner until compensation is paid...(Emphasis supplied.)
x x x The first is concerned with the determination of the authority of the plaintiff to exercise the
power of eminent domain and the propriety of its exercise in the context of the facts involved in
the suit. It ends with an order, if not of dismissal of the action, of condemnation declaring that the
plaintiff has a lawful right to take the property sought to be condemned, for the public use or
purpose described in the complaint, upon the payment of just compensation to be determined as of
the date of the filing of the complaint x x x.
The second phase of the eminent domain action is concerned with the determination by the court
of the just compensation for the property sought to be taken. This is done by the court with the
assistance of not more than three (3) commissioners. x x x.
It is only upon the completion of these two stages that expropriation is said to
have been completed. In Republic v. Salem Investment Corporation,[16] we ruled
that, the process is not completed until payment of just compensation. Thus, here,
the failure of the Republic to pay respondent and his predecessors-in-interest for a
period of 57 years rendered the expropriation process incomplete.
The Republic now argues that under Valdehueza, respondent is not entitled to
recover possession of Lot 932 but only to demand payment of its fair market value.
Of course, we are aware of the doctrine that non-payment of just compensation (in
an expropriation proceedings) does not entitle the private landowners to recover
possession of the expropriated lots. This is our ruling in the recent cases
of Republic of the Philippines vs. Court of Appeals, et al.,[17] and Reyes vs. National
Housing Authority.[18] However, the facts of the present case do not justify its
application. It bears stressing that the Republic was ordered to pay just
compensation twice, the first was in the expropriation proceedings and
the second, in Valdehueza. Fifty-seven (57) years have passed since then. We
cannot but construe the Republics failure to pay just compensation as a
deliberate refusal on its part. Under such circumstance, recovery of
possession is in order. In several jurisdictions, the courts held that recovery of
possession may be had when property has been wrongfully taken or is wrongfully
retained by one claiming to act under the power of eminent domain[19] or where a
rightful entry is made and the party condemning refuses to pay the
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One of the basic principles of the democratic system is that where the rights of the individual are
concerned, the end does not justify the means. It is not enough that there be a valid objective; it is
also necessary that the means employed to pursue it be in keeping with the Constitution. Mere
expediency will not excuse constitutional shortcuts. There is no question that not even the
strongest moral conviction or the most urgent public need, subject only to a few notable
exceptions, will excuse the bypassing of an individual's rights. It is no exaggeration to say
that a person invoking a right guaranteed under Article III of the Constitution is a majority
of one even as against the rest of the nation who would deny him that right.
The right covers the persons life, his liberty and his property under Section 1 of Article III
of the Constitution. With regard to his property, the owner enjoys the added protection of
Section 9, which reaffirms the familiar rule that private property shall not be taken for public
use without just compensation.
The Republics assertion that the defense of the State will be in grave danger if
we shall order the reversion of Lot 932 to respondent is an overstatement. First, Lot
932 had ceased to operate as an airport. What remains in the site is just the
National Historical Institutes marking stating that Lot 932 is the former location of
Lahug Airport. And second, there are only thirteen (13) structures located on Lot
932, eight (8) of which are residence apartments of military personnel. Only two
(2) buildings are actually used as training centers. Thus, practically speaking, the
reversion of Lot 932 to respondent will only affect a handful of military personnel. It
will not result to irreparable damage or damage beyond pecuniary estimation, as
what the Republic vehemently claims.
We thus rule that the special circumstances prevailing in this case entitle
respondent to recover possession of the expropriated lot from the Republic. Unless
this form of swift and effective relief is granted to him, the grave injustice committed
against his predecessors-in-interest, though no fault or negligence on their part, will
be perpetuated. Let this case, therefore, serve as a wake-up call to the Republic
that in the exercise of its power of eminent domain, necessarily in derogation of
private rights, it must comply with the Constitutional limitations. This Court, as the
guardian of the peoples right, will not stand still in the face of the Republics
oppressive and confiscatory taking of private property, as in this case.
At this point, it may be argued that respondent Vicente Lim acted in bad faith in
entering into a contract of mortgage with Valdehueza and Panerio despite the clear
annotation in TCT No. 23934 that Lot 932 is subject to the priority of the National
Airports Corporation [to acquire said parcels of land] x x x upon previous
payment of a reasonable market value.
The issue of whether or not respondent acted in bad faith is immaterial
considering that the Republic did not complete the expropriation process. In short,
it failed to perfect its title over Lot 932 by its failure to pay just compensation. The
issue of bad faith would have assumed relevance if the Republic actually acquired
title over Lot 932. In such a case, even if respondents title was registered first, it
would be the Republics title or right of ownership that shall be upheld. But now,
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POLITICAL LAW REVIEW CASES INHERENT POWERS
assuming that respondent was in bad faith, can such fact vest upon the
Republic a better title over Lot 932? We believe not. This is because in the first
place, the Republic has no title to speak of.
At any rate, assuming that respondent had indeed knowledge of the annotation,
still nothing would have prevented him from entering into a mortgage contract
involving Lot 932 while the expropriation proceeding was pending. Any person who
deals with a property subject of an expropriation does so at his own risk, taking
into account the ultimate possibility of losing the property in favor of the government.
Here, the annotation merely served as a caveat that the Republic had
a preferential right to acquire Lot 932 upon its payment of a reasonable market
value. It did not proscribe Valdehueza and Panerio from exercising their rights of
ownership including their right to mortgage or even to dispose of their property.
In Republic vs. Salem Investment Corporation,[24] we recognized the owners
absolute right over his property pending completion of the expropriation proceeding,
thus:
It is only upon the completion of these two stages that expropriation is said to have been completed.
Moreover, it is only upon payment of just compensation that title over the property passes to the
government. Therefore, until the action for expropriation has been completed and terminated,
ownership over the property being expropriated remains with the registered owner. Consequently,
the latter can exercise all rights pertaining to an owner, including the right to dispose of his
property subject to the power of the State ultimately to acquire it through expropriation.
It bears emphasis that when Valdehueza and Panerio mortgaged Lot 932 to
respondent in 1964, they were still the owners thereof and their title had not yet
passed to the petitioner Republic. In fact, it never did. Such title or ownership was
rendered conclusive when we categorically ruled in Valdehueza that: It is true that
plaintiffs are still the registered owners of the land, there not having been a
transfer of said lots in favor of the Government.
For respondents part, it is reasonable to conclude that he entered into the
contract of mortgage with Valdehueza and Panerio fully aware of the extent of his
right as a mortgagee. A mortgage is merely an accessory contract intended to
secure the performance of the principal obligation. One of its characteristics is that
it is inseparable from the property. It adheres to the property regardless of who its
owner may subsequently be.[25] Respondent must have known that even if Lot 932
is ultimately expropriated by the Republic, still, his right as a mortgagee is protected.
In this regard, Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of the property mortgaged,
or in virtue of expropriation for public use, with the declarations, amplifications, and limitations
established by law, whether the estate remains in the possession of the mortgagor or it passes
in the hands of a third person.
government, whenever it takes property from private persons against their will, to
facilitate the payment of just compensation. In Cosculluela v. Court of
Appeals,[29] we defined just compensation as not only the correct determination of
the amount to be paid to the property owner but also the payment of the property
within a reasonable time. Without prompt payment, compensation cannot be
considered just.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV
No. 72915 is AFFIRMED in toto.
The Republics motion for reconsideration of our Resolution dated March 1, 2004
is DENIED with FINALITY. No further pleadings will be allowed.
Let an entry of judgment be made in this case.
SO ORDERED.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court,
assailing the Court of Appeals (CA) Decision1 dated July 31, 2007 in CA-G.R. CV
No. 77997. The assailed decision affirmed with modification the Regional Trial
Court (RTC)2 Decision3 dated March 22, 2002 in Civil Case No. 208-M-95.
The case stemmed from the following factual and procedural antecedents:
In a letter6 dated December 15, 1994, respondents demanded the payment of the
fair market value of the subject parcel of land. Petitioner Celestino R. Contreras
(petitioner Contreras), then District Engineer of the First Bulacan Engineering
District of petitioner Department of Public Works and Highways (DPWH), offered to
pay the subject land at the rate of P0.70 per square meter per Resolution of the
Provincial Appraisal Committee (PAC) of Bulacan.7Unsatisfied with the offer,
respondents demanded for the return of their property or the payment of
compensation at the current fair market value.8
Instead of filing their Answer, petitioners moved for the dismissal of the complaint
on the following grounds: (1) that the suit is against the State which may not be
sued without its consent; (2) that the case has already prescribed; (3) that
respondents have no cause of action for failure to exhaust administrative remedies;
and (4) if respondents are entitled to compensation, they should be paid only the
value of the property in 1940 or 1941.12
On June 28, 1995, the RTC issued an Order13 granting respondents motion to
dismiss based on the doctrine of state immunity from suit. As respondents claim
includes the recovery of damages, there is no doubt that the suit is against the State
for which prior waiver of immunity is required. When elevated to the CA, 14 the
appellate court did not agree with the RTC and found instead that the doctrine of
state immunity from suit is not applicable, because the recovery of compensation
is the only relief available to the landowner. To deny such relief would undeniably
cause injustice to the landowner. Besides, petitioner Contreras, in fact, had earlier
offered the payment of compensation although at a lower rate.Thus, the CA
reversed and set aside the dismissal of the complaint and, consequently, remanded
the case to the trial court for the purpose of determining the just compensation to
which respondents are entitled to recover from the government.15 With the finality
of the aforesaid decision, trial proceeded in the RTC.
The Branch Clerk of Court was initially appointed as the Commissioner and
designated as the Chairman of the Committee that would determine just
compensation,16 but the case was later referred to the PAC for the submission of a
recommendation report on the value of the subject property.17 In PAC Resolution
No. 99-007,18 the PAC recommended the amount of P1,500.00 per square meter
as the just compensation for the subject property.
On March 22, 2002, the RTC rendered a Decision,19 the dispositive portion of which
reads:
SO ORDERED.20
On appeal, the CA affirmed the above decision with the modification that the just
compensation stated above should earn interest of six percent (6%) per annum
computed from the filing of the action on March 17, 1995 until full payment.21
In its appeal before the CA, petitioners raised the issues of prescription and laches,
which the CA brushed aside on two grounds: first, that the issue had already been
raised by petitioners when the case was elevated before the CA in CA-G.R. CV No.
51454. Although it was not squarely ruled upon by the appellate court as it did not
find any reason to delve further on such issues, petitioners did not assail said
decision barring them now from raising exactly the same issues; and second, the
issues proper for resolution had been laid down in the pre-trial order which did not
include the issues of prescription and laches. Thus, the same can no longer be
further considered. As to the propriety of the propertys valuation as determined by
the PAC and adopted by the RTC, while recognizing the rule that the just
compensation should be the reasonable value at the time of taking which is 1940,
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POLITICAL LAW REVIEW CASES INHERENT POWERS
the CA found it necessary to deviate from the general rule. It opined that it would
be obviously unjust and inequitable if respondents would be compensated based
on the value of the property in 1940 which is P0.70 per sq m, but the compensation
would be paid only today. Thus, the appellate court found it just to award
compensation based on the value of the property at the time of payment. It,
therefore, adopted the RTCs determination of just compensation of P1,500.00 per
sq m as recommended by the PAC. The CA further ordered the payment of interest
at the rate of six percent (6%) per annum reckoned from the time of taking, which
is the filing of the complaint on March 17, 1995.
Aggrieved, petitioners come before the Court assailing the CA decision based on
the following grounds:
I.
II.
III.
Petitioners insist that the action is barred by prescription having been filed fifty-four
(54) years after the accrual of the action in 1940. They explain that the court can
motu proprio dismiss the complaint if it shows on its face that the action had already
prescribed. Petitioners likewise aver that respondents slept on their rights for more
than fifty years; hence, they are guilty of laches. Lastly, petitioners claim that the
just compensation should be based on the value of the property at the time of taking
in 1940 and not at the time of payment.23
The instant case stemmed from an action for recovery of possession with damages
filed by respondents against petitioners. It, however, revolves around the taking of
the subject lot by petitioners for the construction of the MacArthur Highway. There
is taking when the expropriator enters private property not only for a momentary
period but for a permanent duration, or for the purpose of devoting the property to
public use in such a manner as to oust the owner and deprive him of all beneficial
enjoyment thereof.24
It is undisputed that the subject property was taken by petitioners without the benefit
of expropriation proceedings for the construction of the MacArthur Highway. After
the lapse of more than fifty years, the property owners sought recovery of the
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POLITICAL LAW REVIEW CASES INHERENT POWERS
As aptly noted by the CA, the issues of prescription and laches are not proper
issues for resolution as they were not included in the pre-trial order. We quote with
approval the CAs ratiocination in this wise:
Procedurally, too, prescription and laches are no longer proper issues in this
appeal. In the pre-trial order issued on May 17, 2001, the RTC summarized the
issues raised by the defendants, to wit: (a) whether or not the plaintiffs were entitled
to just compensation; (b) whether or not the valuation would be based on the
corresponding value at the time of the taking or at the time of the filing of the action;
and (c) whether or not the plaintiffs were entitled to damages. Nowhere did the pre-
trial order indicate that prescription and laches were to be considered in the
adjudication of the RTC.25
To be sure, the pre-trial order explicitly defines and limits the issues to be tried and
controls the subsequent course of the action unless modified before trial to prevent
manifest injustice.26
Even if we squarely deal with the issues of laches and prescription, the same must
still fail. Laches is principally a doctrine of equity which is applied to avoid
recognizing a right when to do so would result in a clearly inequitable situation or in
an injustice.27 This doctrine finds no application in this case, since there is nothing
inequitable in giving due course to respondents claim. Both equity and the law
direct that a property owner should be compensated if his property is taken for
public use.28 Neither shall prescription bar respondents claim following the long-
standing rule "that where private property is taken by the Government for public use
without first acquiring title thereto either through expropriation or negotiated sale,
the owners action to recover the land or the value thereof does not prescribe."29
When a property is taken by the government for public use, jurisprudence clearly
provides for the remedies available to a landowner. The owner may recover his
property if its return is feasible or, if it is not, the aggrieved owner may demand
payment of just compensation for the land taken.30 For failure of respondents to
question the lack of expropriation proceedings for a long period of time, they are
deemed to have waived and are estopped from assailing the power of the
government to expropriate or the public use for which the power was exercised.
What is left to respondents is the right of compensation.31 The trial and appellate
courts found that respondents are entitled to compensation. The only issue left for
determination is the propriety of the amount awarded to respondents.
Just compensation is "the fair value of the property as between one who receives,
and one who desires to sell, x x x fixed at the time of the actual taking by the
government." This rule holds true when the property is taken before the filing of an
expropriation suit, and even if it is the property owner who brings the action for
compensation.32
against PNR. In Eusebio v. Luis,35 respondents parcel of land was taken in 1980
by the City of Pasig and used as a municipal road now known as A. Sandoval
Avenue in Pasig City without the appropriate expropriation proceedings. In 1994,
respondent demanded payment of the value of the property, but they could not
agree on its valuation prompting respondent to file a complaint for reconveyance
and/or damages against the city government and the mayor. In Manila International
Airport Authority v. Rodriguez,36in the early 1970s, petitioner implemented
expansion programs for its runway necessitating the acquisition and occupation of
some of the properties surrounding its premises. As to respondents property, no
expropriation proceedings were initiated.1wphi1 In 1997, respondent demanded
the payment of the value of the property, but the demand remained unheeded
prompting him to institute a case for accion reivindicatoria with damages against
petitioner. In Republic v. Sarabia,37 sometime in 1956, the Air Transportation Office
(ATO) took possession and control of a portion of a lot situated in Aklan, registered
in the name of respondent, without initiating expropriation proceedings. Several
structures were erected thereon including the control tower, the Kalibo crash fire
rescue station, the Kalibo airport terminal and the headquarters of the PNP Aviation
Security Group. In 1995, several stores and restaurants were constructed on the
remaining portion of the lot. In 1997, respondent filed a complaint for recovery of
possession with damages against the storeowners where ATO intervened claiming
that the storeowners were its lessees.
The Court in the above-mentioned cases was confronted with common factual
circumstances where the government took control and possession of the subject
properties for public use without initiating expropriation proceedings and without
payment of just compensation, while the landowners failed for a long period of time
to question such government act and later instituted actions for recovery of
possession with damages. The Court thus determined the landowners right to the
payment of just compensation and, more importantly, the amount of just
compensation. The Court has uniformly ruled that just compensation is the value of
the property at the time of taking that is controlling for purposes of compensation.
In Forfom, the payment of just compensation was reckoned from the time of taking
in 1973; in Eusebio, the Court fixed the just compensation by determining the value
of the property at the time of taking in 1980; in MIAA, the value of the lot at the time
of taking in 1972 served as basis for the award of compensation to the owner; and
in Republic, the Court was convinced that the taking occurred in 1956 and was thus
the basis in fixing just compensation. As in said cases, just compensation due
respondents in this case should, therefore, be fixed not as of the time of payment
but at the time of taking, that is, in 1940.
The reason for the rule has been clearly explained in Republic v. Lara, et al.,38 and
repeatedly held by the Court in recent cases, thus:
x x x "The value of the property should be fixed as of the date when it was taken
and not the date of the filing of the proceedings." For where property is taken ahead
of the filing of the condemnation proceedings, the value thereof may be enhanced
by the public purpose for which it is taken; the entry by the plaintiff upon the property
may have depreciated its value thereby; or, there may have been a natural increase
in the value of the property from the time it is taken to the time the complaint is filed,
due to general economic conditions. The owner of private property should be
compensated only for what he actually loses; it is not intended that his
compensation shall extend beyond his loss or injury. And what he loses is only the
actual value of his property at the time it is taken x x x.39
Both the RTC and the CA recognized that the fair market value of the subject
property in 1940 was P0.70/sq m.40Hence, it should, therefore, be used in
determining the amount due respondents instead of the higher value which
is P1,500.00. While disparity in the above amounts is obvious and may appear
inequitable to respondents as they would be receiving such outdated valuation after
a very long period, it is equally true that they too are remiss in guarding against the
cruel effects of belated claim. The concept of just compensation does not imply
fairness to the property owner alone. Compensation must be just not only to the
property owner, but also to the public which ultimately bears the cost of
expropriation.41
Clearly, petitioners had been occupying the subject property for more than fifty
years without the benefit of expropriation proceedings. In taking respondents
property without the benefit of expropriation proceedings and without payment of
just compensation, petitioners clearly acted in utter disregard of respondents
proprietary rights which cannot be countenanced by the Court.42 For said illegal
taking, respondents are entitled to adequate compensation in the form of actual or
compensatory damages which in this case should be the legal interest of six percent
(6%) per annum on the value of the land at the time of taking in 1940 until full
payment.43 This is based on the principle that interest runs as a matter of law and
follows from the right of the landowner to be placed in as good position as money
can accomplish, as of the date of taking.44
SO ORDERED.
DIOSDADO M. PERALTA
DECISION
BERSAMIN, J.:
Antecedents
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 P9,790.00 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 P1,000.00/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 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 P550.00/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 P550.00 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 P550.00/square meter; (2) legal rate of interest from May 5, 1995 until full
payment; and (3) the costs of suit.27
square meters of the subject real property at the rate of P550.00 per square meter
and to pay legal interest therefrom until fully paid.
SO ORDERED.29
Issue
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
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POLITICAL LAW REVIEW CASES INHERENT POWERS
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."
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
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
46
litigation. (underscoring and emphasis supplied)
Court points to the Memorandum dated December 13, 201249 and the Certificate of
Inspection/Accomplishment dated February 5, 200550 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:
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.
SO ORDERED.
THIRD DIVISION
DECISION
GONZAGA_REYES, J.:
In this petition for review on certiorari under Rule 45, petitioners[1] pray for the
reversal of the Order dated July 28, 1998 issued by Branch 155 of the Regional
Trial Court of Pasig in SCA No. 875 entitled "City of Mandaluyong v. Alberto S.
Suguitan, the dispositive portion of which reads as follows:
SO ORDERED.[2]ella
Mayor Benjamin Abalos wrote Alberto Suguitan a letter dated January 20, 1995
offering to buy his property, but Suguitan refused to sell.[4] Consequently, on March
13, 1995, the city of Mandaluyong filed a complaint[5] for expropriation with the
Regional Trial Court of Pasig. The case was docketed as SCA No. 875. novero
Suguitan filed a motion to dismiss[6] the complaint based on the following grounds
-(1) the power of eminent domain is not being exercised in accordance with law; (2)
there is no public necessity to warrant expropriation of subject property; (3) the City
of Mandaluyong seeks to expropriate the said property without payment of just
compensation; (4) the City of Mandaluyong has no budget and appropriation for the
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POLITICAL LAW REVIEW CASES INHERENT POWERS
On November 14, 1995, acting upon a motion filed by the respondent, the trial court
issued an order allowing the City of Mandaluyong to take immediate possession of
Suguitan's property upon the deposit of P621,000 representing 15% of the fair
market value of the subject property based upon the current tax declaration of such
property. On December 15, 1995, the City of Mandaluyong assumed possession of
the subject property by virtue of a writ of possession issued by the trial court on
December 14, 1995.[8] On July 28, 1998, the court granted the assailed order of
expropriation.
Petitioner assert that the city of Mandaluyong may only exercise its delegated
power of eminent domain by means of an ordinance as required by section 19 of
Republic Act (RA) No. 7160,[9] and not by means of a mere
resolution.[10] Respondent contends, however, that it validly and legally exercised
its power of eminent domain; that pursuant to article 36, Rule VI of the Implementing
Rules and Regulations (IRR) of RA 7160, a resolution is a sufficient antecedent for
the filing of expropriation proceedings with the Regional Trial Court. Respondent's
position, which was upheld by the trial court, was explained, thus:[11]
Since the exercise of the power of eminent domain affects an individual's right to
private property, a constitutionally-protected right necessary for the preservation
and enhancement of personal dignity and intimately connected with the rights to life
and liberty,[20] the need for its circumspect operation cannot be overemphasized.
In City of Manila vs. Chinese Community of Manila we said:[21]
The statutory power of taking property from the owner without his
consent is one of the most delicate exercise of governmental authority.
It is to be watched with jealous scrutiny. Important as the power may be
to the government, the inviolable sanctity which all free constitutions
attach to the right of property of the citizens, constrains the strict
observance of the substantial provisions of the law which
are prescribed as modes of the exercise of the power, and to protect it
from abuse. ...(Dillon on Municipal Corporations [5th Ed.], sec. 1040,
and cases cited; Tenorio vs. Manila Railroad Co., 22 Phil., 411.)
The basis for the exercise of the power of eminent domain by local government
units is section 19 of RA 7160 which provides that:
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 benefits of the poor and the
landless, upon payment of just compensation, pursuant to the
provisions of the Constitution and pertinent laws; Provided,
however, That the power of eminent domain may not be exercised
unless a valid and definite offer has been previously made to the owner,
and such offer was not accepted; Provided, further, That the local
government unit may immediately take possession of the property upon
the filing of the expropriation proceedings and upon making a deposit
with the proper court of at least fifteen percent (15%) of the fair market
value of the property based on the current tax declaration of the
property to be expropriated; Provided, finally, That the amount to be
paid for the expropriated property shall be determined by the proper
court, based on the fair market value at the time of the taking of the
property.
Despite the existence of this legislative grant in favor of local governments, it is still
the duty of the courts to determine whether the power of eminent domain is being
exercised in accordance with the delegating law.[23] In fact, the courts have adopted
a more censorious attitude in resolving questions involving the proper exercise of
this delegated power by local bodies, as compared to instances when it is directly
exercised by the national legislature.[24]
The courts have the obligation to determine whether the following requisites have
been complied with by the local government unit concerned:
4. A valid and definite offer has been previously made to the owner of
the property sought to be expropriated, but said offer was not
accepted.[25]
In the present case, the City of Mandaluyong seeks to exercise the power of
eminent domain over petitioners' property by means of a resolution, in
contravention of the first requisite. The law in this case is clear and free from
ambiguity. Section 19 of the Code requires an ordinance, not a resolution, for the
exercise of the power of eminent domain. We reiterate our ruling in Municipality of
Paraaque v. V.M. Realty Corporation[26] regarding the distinction between an
ordinance and a resolution. In that 1998 case we held that:miso
Rule 67 of the 1997 Revised Rules of Court reveals that expropriation proceedings
are comprised of two stages:
(1) the first is concerned with the determination of the authority of the
plaintiff to exercise the power of eminent domain and the propriety of its
exercise in the context of the facts involved in the suit; it ends with an
order, if not in a dismissal of the action, of condemnation declaring that
the plaintiff has a lawful right to take the property sought to be
condemned, for the public use or purpose described in the complaint,
upon the payment of just compensation to be determined as of the date
of the filing of the complaint;
(2) the second phase is concerned with the determination by the court
of the just compensation for the property sought to be taken; this is done
by the court with the assistance of not more than three (3)
commissioners.[27]
Also, it is noted that as soon as the complaint is filed the plaintiff shall already have
the right to enter upon the possession of the real property involved upon depositing
with the court 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.[28] Therefore, an ordinance promulgated by the local legislative body
authorizing its local chief executive to exercise the power of eminent domain is
necessary prior to the filing by the latter of the complaint with the proper court, and
not only after the court has determined the amount of just compensation to which
the defendant is entitled.basra
Neither is respondent's position improved by its reliance upon Article 36 (a), Rule
VI of the IRR which provides that:
If the LGU fails to acquire a private property for public use, purpose, or
welfare through purchase, LGU may expropriate said property through
a resolution of the sanggunian authorizing its chief executive to initiate
expropriation proceedings.
The Court has already discussed this inconsistency between the Code and the IRR,
which is more apparent than real, in Municipality of Paraaque vs. V.M. Realty
Corporation,[29] which we quote hereunder:
eminent domain, the chief executive of the LGU must act pursuant to
an ordinance.
It should be noted, however, that our ruling in this case will not preclude the City of
Mandaluyong from enacting the necessary ordinance and thereafter reinstituting
expropriation proceedings, for so long as it has complied with all other legal
requirements.[30]
WHEREFORE, the petition is hereby GRANTED. The July 28, 1998 decision of
Branch 155 of the Regional Trial Court of Pasig in SCA No. 875 is hereby
REVERSED and SET ASIDE.akin
SO ORDERED.
FIRST DIVISION
DECISION
AUSTRIA-MARTINEZ, J.:
Before this Court is a petition for review questioning the Decision 1 of the Court of
Appeals (CA) dated March 20, 2002 in CA-G.R. SP No. 47052, as well the
Resolution 2 dated June 11, 2002 denying petitioners Motion for Reconsideration
thereof.
Petitioners are owners of parcels of land with a total area of about 20,424 square
meters, covered by Free Patent Nos. 7265, 7266, 7267, 7268, 7269, and
7270. 3 On November 8, 1995, the Sangguniang Bayan of the Municipality of
Panay issued Resolution No. 95-29 authorizing the municipal government through
the mayor to initiate expropriation proceedings. 4 A petition for expropriation was
thereafter filed on April 14, 1997 by the Municipality of Panay (respondent) before
the Regional Trial Court (RTC), Branch 18 of Roxas City, docketed as Civil Case
No. V-6958. 5
Petitioners filed a Motion to Dismiss alleging that the taking is not for public use but
only for the benefit of certain individuals; that it is politically motivated because
petitioners voted against the incumbent mayor and vice-mayor; and that some of
the supposed beneficiaries of the land sought to be expropriated have not actually
signed a petition asking for the property but their signatures were forged or they
were misled into signing the same. 6
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On July 31, 1997, the trial court denied petitioners Motion to Dismiss and declared
that the expropriation in this case is for "public use" and the respondent has the
lawful right to take the property upon payment of just compensation. 7
Petitioners filed an Answer on August 12, 1997 reasserting the issues they raised
in their Motion to Dismiss. 8
On October 1, 1997, the trial court issued an Order appointing three persons as
Commissioners to ascertain the amount of just compensation for the
property. 9 Petitioners filed a "Motion to Hold in Abeyance the Hearing of the Court
Appointed Commissioners to Determine Just Compensation and for Clarification of
the Courts Order dated October 1, 1997" which was denied by the trial court on
November 3, 1997. 10 Petitioners Motion for Reconsideration was also denied on
December 9, 1997. 11
Petitioners then filed on March 2, 1998 a Petition for Certiorari before the CA
claiming that they were denied due process when the trial court declared that the
taking was for public purpose without receiving evidence on petitioners claim that
the Mayor of Panay was motivated by politics in expropriating their property and in
denying their Motion to Hold in Abeyance the Hearing of the Court Appointed
Commissioners; and that the trial court also committed grave abuse of discretion
when it disregarded the affidavits of persons denying that they signed a petition
addressed to the municipal government of Panay. 12 On January 17, 2001,
petitioners filed a Motion to Admit Attached Memorandum and the Memorandum
itself where they argued that based on the Petition for Expropriation filed by
respondent, such expropriation was based only on a resolution and not on an
ordinance contrary to Sec. 19 of Republic Act (R.A.) No. 7160; there was also no
valid and definite offer to buy the property as the price offered by respondent to the
petitioners was very low. 13
On March 20, 2002, the CA rendered its Decision dismissing the Petition
for Certiorari. It held that the petitioners were not denied due process as they were
able to file an answer to the complaint and were able to adduce their defenses
therein; and that the purpose of the taking in this case constitutes "public
use". 14 Petitioners filed a Motion for Reconsideration which was denied on June
11, 2002. 15
Petitioners argue that: contrary to Sec. 19 of R.A. No. 7160 of the Local
Government Code, which provides that a local government may exercise the power
of eminent domain only by "ordinance," respondents expropriation in this case is
based merely on a "resolution"; while objection on this ground was neither raised
by petitioners in their Motion to Dismiss nor in their Answer, such objection may still
be considered by this Court since the fact upon which it is based is apparent from
the petition for expropriation itself; a defense may be favorably considered even if
not raised in an appropriate pleading so long as the facts upon which it is based
are undisputed; courts have also adopted a more censorious attitude in resolving
questions involving the proper exercise of local bodies of the delegated power of
expropriation, as compared to instances when it is directly exercised by the national
legislature; respondent failed to give, prior to the petition for expropriation, a
previous valid and definite offer to petitioners as the amount offered in this case
was only P10.00 per square meter, when the properties are residential in nature
and command a much higher price; the CA failed to discuss and rule upon the
arguments raised by petitioners in their Memorandum; attached to the Motion to
Dismiss were affidavits and death certificates showing that there were people
whose names were in the supposed petition asking respondent for land, but who
did not actually sign the same, thus showing that the present expropriation was not
for a public purpose but was merely politically motivated; considering the conflicting
claims regarding the purpose for which the properties are being expropriated and
inasmuch as said issue may not be rightfully ruled upon merely on the basis of
petitioners Motion to Dismiss and Answer as well as respondents Petition for
Expropriation, what should have been done was for the RTC to conduct hearing
where each party is given ample opportunity to prove its claim. 17
Respondent for its part contends that its power to acquire private property for public
use upon payment of just compensation was correctly upheld by the trial court; that
the CA was correct in finding that the petitioners were not denied due process, even
though no hearing was conducted in the trial court, as petitioners were still able to
adduce their objections and defenses therein; and that petitioners arguments have
been passed upon by both the trial court and the CA and were all denied for lack of
substantial merit. 18
Sec. 19 of R.A. No. 7160, which delegates to LGUs the power of eminent domain
expressly provides:
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, or purpose, or welfare for the benefit of the poor and the
landless, upon payment of just compensation, pursuant to the provisions of the
Constitution and pertinent laws: Provided, however, That the power of eminent
domain may not be exercised unless a valid and definite offer has been previously
made to the owner, and such offer was not accepted: Provided, further, That the
local government unit may immediately take possession of the property upon the
filing of the expropriation proceedings and upon making a deposit with the proper
court of at least fifteen percent (15%) of the fair market value of the property based
on the current tax declaration of the property to be expropriated: Provided, finally,
That, the amount to be paid for the expropriated property shall be determined by
the proper court, based on the fair market value at the time of the taking of the
property.
It is clear therefore that several requisites must concur before an LGU can exercise
the power of eminent domain, to wit:
1. An ordinance is enacted by the local legislative council authorizing the local chief
executive, in behalf of the local government unit, to exercise the power of eminent
domain or pursue expropriation proceedings over a particular private property.
2. The power of eminent domain is exercised for public use, purpose or welfare, or
for the benefit of the poor and the landless.
4. A valid and definite offer has been previously made to the owner of the property
sought to be expropriated, but said offer was not accepted. 30
The Court in no uncertain terms have pronounced that a local government unit
cannot authorize an expropriation of private property through a mere resolution of
its lawmaking body. 31 R.A. No. 7160 otherwise known as the Local Government
Code expressly requires an ordinance for the purpose and a resolution that merely
expresses the sentiment of the municipal council will not suffice. 32
A resolution will not suffice for an LGU to be able to expropriate private property;
and the reason for this is settled:
The Court notes that petitioners failed to raise this point at the earliest opportunity.
Still, we are not precluded from considering the same. This Court will not hesitate
to consider matters even those raised for the first time on appeal in clearly
meritorious situations, 35 such as in this case.
Thus, the Court finds it unnecessary to resolve the other issues raised by
petitioners.
It is well to mention however that despite our ruling in this case respondent is not
barred from instituting similar proceedings in the future, provided that it complies
with all legal requirements. 36
No costs.
SO ORDERED.
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FIRST DIVISION
MUNICIPALITY OF
MEYCAUAYAN,
Respondent. Promulgated:
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
RESOLUTION
CORONA, J.:
In their answer,[4] petitioners denied that the property sought to be expropriated was raw
land. It was in fact developed[5] and there were plans for further development. For this
reason, respondents offer price of P2,333,500 (or P111.99 per square meter) was too low.
After trial, the RTC ruled that the expropriation was for a public purpose. The construction
of a common terminal for all public utility conveyances (serving as a two-way loading and
unloading point for commuters and goods) would improve the flow of vehicular traffic
during rush hours. Moreover, the property was the best site for the proposed terminal
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POLITICAL LAW REVIEW CASES INHERENT POWERS
because of its accessibility. Thus, on November 8, 2004, the RTC issued the following
order:[6]
WHEREFORE, premises considered, after [respondent] has deposited with
this Court the fifteen percent (15%) of the fair market value of the property
based on the current tax declaration of the property to be expropriated, it
may take immediate possession of the property upon issuance of writ of
possession that this court will issue for that purpose.
SO ORDERED.[7]
Petitioners moved for the reconsideration of the November 8, 2004 order but the motion
was denied in an order dated January 31, 2005.
Aggrieved, petitioners filed a petition for certiorari in the Court of Appeals (CA) contending
that the RTC committed grave abuse of discretion in issuing its November 8, 2004 and
January 31, 2005 orders. They claimed that the trial court issued the orders without
conducting a hearing to determine the existence of a public purpose.
On July 28, 2005, the CA rendered a decision[8] partially granting the petition. Finding that
petitioners were deprived of an opportunity to controvert respondent's allegations, the
appellate court nullified the order of expropriation except with regard to the writ of
possession. According to the CA, a hearing was not necessary because once the
expropriator deposited the required amount (with the Court), the issuance of a writ of
possession became ministerial.
Petitioners moved for partial reconsideration but their motion was denied. Hence, this
recourse.
Petitioners essentially aver that the CA erred in upholding the RTC's orders that, in
expropriation cases, prior determination of the existence of a public purpose was not
necessary for the issuance of a writ of possession.
Section 19. Eminent Domain. A local government unit may, through its
chief executive and acting pursuant to an ordinance, exercise the power of
eminent domain for public use, or purpose, or welfare for the benefit of the
poor and the landless, upon payment of just compensation, pursuant to the
provisions of the Constitution and pertinent laws; Provided, however, That
the power of eminent domain may not be exercised unless a valid and
definite offer has been previously made to the owner, and that such offer
was not accepted; Provided, further, That the local government unit may
immediately take possession of the property upon the filing of the
expropriation proceedings and upon making a deposit with the proper
court of at least fifteen percent (15%) of the fair market value of the
property based on the current tax declaration of the property to be
expropriated; Provided, finally, That, the amount to be paid for the
expropriated property shall be determined by the proper court, based on the
fair market value at the time of the taking of the property. (emphasis
supplied)[10]
Before a local government unit may enter into the possession of the property sought to
be expropriated, it must (1) file a complaint for expropriation sufficient in form and
substance in the proper court and (2) deposit with the said court at least 15% of the
property's fair market value based on its current tax declaration.[11] The law does not make
the determination of a public purpose a condition precedent to the issuance of a writ of
possession.[12]
TAXATION
FIRST DIVISION
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
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interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent Algue
as legitimate business expenses in its income tax returns. The corollary issue is
whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.
The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities,
received a letter from the petitioner assessing it in the total amount of P83,183.85
as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965,
Algue flied a letter of protest or request for reconsideration, which letter was stamp
received on the same day in the office of the petitioner. 2 On March 12, 1965, a
warrant of distraint and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the
pending protest. 3 A search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was
finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be
served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of
the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals. 6
The above chronology shows that the petition was filed seasonably. According to
Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the
decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9 being "tantamount to an outright denial thereof and makes the
said request deemed rejected." 10 But there is a special circumstance in the case
at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was apparently
not taken into account before the warrant of distraint and levy was issued; indeed,
such protest could not be located in the office of the petitioner. It was only after Atty.
Guevara gave the BIR a copy of the protest that it was, if at all, considered by the
tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private
respondent was not pro forma and was based on strong legal considerations. It
thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz.,
January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed
on April 23, 1965, only 20 days of the reglementary period had been consumed.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it
held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These
were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these
promotional fees to be personal holding company income 12 but later conformed to
the decision of the respondent court rejecting this assertion. 13 In fact, as the said
court found, the amount was earned through the joint efforts of the persons among
whom it was distributed It has been established that the Philippine Sugar Estate
Development Company had earlier appointed Algue as its agent, authorizing it to
sell its land, factories and oil manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. 14 Ultimately, after its incorporation largely
through the promotion of the said persons, this new corporation purchased the
PSEDC properties. 15 For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00 promotional fees
were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees
in their income tax returns and paid the corresponding taxes thereon. 17 The Court
of Tax Appeals also found, after examining the evidence, that no distribution of
dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees
are members of the same family in control of Algue. It is argued that no indication
was made as to how such payments were made, whether by check or in cash, and
there is not enough substantiation of such payments. In short, the petitioner
suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.
We find that these suspicions were adequately met by the private respondent when
its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified
that the payments were not made in one lump sum but periodically and in different
amounts as each payee's need arose. 19 It should be remembered that this was a
family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the
fees received by him or her, to make up the total of P75,000.00. 20 Admittedly,
everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family
corporation.
We agree with the respondent court that the amount of the promotional fees was
not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was
a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the
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actual purchase by it of the Sugar Estate properties. This finding of the respondent
court is in accord with the following provision of the Tax Code:
(a) Expenses:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary
paid by a corporation may be a distribution of a dividend on stock. This
is likely to occur in the case of a corporation having few stockholders,
Practically all of whom draw salaries. If in such a case the salaries are
in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings
of the officers of employees, it would seem likely that the salaries are
not paid wholly for services rendered, but the excessive payments are
a distribution of earnings upon the stock. . . . (Promulgated Feb. 11,
1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ
of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case, however, we find
that the onus has been discharged satisfactorily. The private respondent has
proved that the payment of the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors and prominent businessmen
to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate
it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives
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of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that
it is an arbitrary method of exaction by those in the seat of power.
We hold that the appeal of the private respondent from the decision of the petitioner
was filed on time with the respondent court in accordance with Rep. Act No. 1125.
And we also find that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should therefore not have been
disallowed by the petitioner.
SO ORDERED.
PUNO, J.:
This is a petition for review1 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.
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
(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:
On January 25, 1996, the trial court issued an Order15 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:
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:
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 Order17 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
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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.
SO ORDERED."20
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:
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
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
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.
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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:
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
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
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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 charges34 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
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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:
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 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 property54 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,
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(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;
(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;
(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.
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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.
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. 202963 classifies government-owned or controlled corporations
(GOCCs) into those performing governmental functions and those performing
proprietary functions, viz:
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
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:
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.
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
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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.
SYLLABUS
DECISION
PARAS, J.:
The General Lumber Co., Inc., complied with the condition. In view,
however, of its failure and that of the surety to pay the tax liabilities, the
respondent Collector, in his letter dated August 30, 1955, required the
petitioner to pay the total amount of P9,598.72 as sales tax and
incidental penalties in the sale of logs to the General Lumber Co., Inc.
Although the date of receipt by petitioner of this letter does not appear
in the records, it may be presumed to be September 9, 1955, when the
petitioner addressed a letter to the respondent Collector, which was
received on September 12, 1955, wherein the petitioner acknowledged
receipt of the letter of demand and at the same time requested for the
reconsideration of the assessment. This was denied by the respondent
Collector in his letter of December 8, 1955, received by the petitioner on
January 5, 1956. The respondent Collector having denied the second
request for reconsideration in his letter dated January 30, 1956, which
the petitioner received on February 16, 1956, the latter, on March 13,
1956, filed a petition for review with the Court of Tax Appeals. The Court,
after a preliminary hearing on respondent Collectors motion to dismiss,
ruled that, as the petition was filed beyond the 30-day period prescribed
by Section 11 of Republic Act No. 1125, it has no jurisdiction to try the
same. Accordingly, the case was dismissed.
In contending that the Court of Tax Appeals erred, the petitioner points
out that Section 7, and not Section 11, of Republic Act No. 1125 confers
and determines the jurisdiction of the respondent court, and that Section
11 refers merely to the prescriptive period for filing appeals.
The respondent court ruled that the time consumed by the petitioner in
perfecting its appeal after deducting the time during which the period for
appeal was suspended by a pending request for reconsideration is as
follows:chanrob1es virtual 1aw library
Total 33 days
As the petitioner had consumed thirty-three days, its appeal was clearly
filed out of time. It is argued, however, that in computing the 30-day
period fixed in Section 11 of Republic Act No. 1125, the letter of the
respondent Collector dated January 30, 1956, denying the second
request for reconsideration, should be considered as the final decision
contemplated in Section 7, and not the letter of demand dated August
30, 1955.
EN BANC
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts, on various dates, with foreign insurance companies not
doing business in the Philippines namely: Imperio Compaia de Seguros, La Union
y El Fenix Espaol, Overseas Assurance Corp., Ltd., Socieded Anonima de
Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance
Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited.
Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a
portion of the premiums on insurance it has originally underwritten in the
Philippines, in consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. Said reinsurrance contracts were signed by
Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the
Philippines, except the contract with Swiss Reinsurance Company, which was
signed by both parties in Switzerland.
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross
income when it file its income tax returns for 1953 and 1954. Furthermore, it did not
withhold or pay tax on them. Consequently, per letter dated April 13, 1959, the
Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
Compromise for non-filing of withholding
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
Philippine Guaranty Co., Inc., protested the assessment on the ground that
reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are not subject to withholding tax. Its protest was denied and it appealed
to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive
portion:
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the
Commissioner of Internal Revenue's assessment for withholding tax on the
reinsurance premiums ceded in 1953 and 1954 to the foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute
income from sources within the Philippines because the foreign reinsurers did not
engage in business in the Philippines, nor did they have office here.
The reinsurance contracts, however, show that the transactions or activities that
constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against loses
arising from the original insurances in the Philippines were performed in the
Philippines. The liability of the foreign reinsurers commenced simultaneously with
the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
reinsurers. Entries made in such register bound the foreign resinsurers, localizing
in the Philippines the actual cession of the risks and premiums and assumption of
the reinsurance undertaking by the foreign reinsurers. Taxes on premiums imposed
by Section 259 of the Tax Code for the privilege of doing insurance business in the
Philippines were payable by the foreign reinsurers when the same were not
recoverable from the original assured. The foreign reinsurers paid Philippine
Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in
consideration for administration and management by the latter of the affairs of the
former in the Philippines in regard to their reinsurance activities here. Disputes and
differences between the parties were subject to arbitration in the City of Manila. All
the reinsurance contracts, except that with Swiss Reinsurance Company, were
signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the
foreign reinsurers abroad. Although the contract between Philippine Guaranty Co.,
Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland,
the same specifically provided that its provision shall be construed according to the
laws of the Philippines, thereby manifesting a clear intention of the parties to subject
themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income
from sources within the Philippines. The word "sources" has been interpreted as
the activity, property or service giving rise to the income. 1 The reinsurance
premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under
original insurances. Such undertaking, as explained above, took place in the
Philippines. These insurance premiums, therefore, came from sources within the
Philippines and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while
activity may consist of only a single transaction. An activity may occur outside the
place of business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax.
It suffices that the activity creating the income is performed or done in the
Philippines. What is controlling, therefore, is not the place of business but the place
of activity that created an income.
Petitioner further contends that the reinsurance premiums are not income from
sources within the Philippines because they are not specifically mentioned in
Section 37 of the Tax Code. Section 37 is not an all-inclusive enumeration, for it
merely directs that the kinds of income mentioned therein should be treated as
income from sources within the Philippines but it does not require that other kinds
of income should not be considered likewise.1wph1.t
Petitioner would wish to stress that its reliance in good faith on the rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on the
reinsurance premiums in question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding
tax, but it certainly would not exculpate if from liability to pay such withholding tax
The Government is not estopped from collecting taxes by the mistakes or errors of
its agents.3
Finally, petitioner contends that the withholding tax should be computed from the
amount actually remitted to the foreign reinsurers instead of from the total amount
ceded. And since it did not remit any amount to its foreign insurers in 1953 and
1954, no withholding tax was due.
office or place of business therein, and (2) more than eighty-five per
centum of the gross income of such corporation for the three-year period
ending with the close of its taxable year preceding the declaration of such
dividends (or for such part of such period as the corporation has been in
existence)was derived from sources within the Philippines as determined
under the provisions of section thirty-seven: Provided, further, That the
Collector of Internal Revenue may authorize such tax to be deducted and
withheld from the interest upon any securities the owners of which are not
known to the withholding agent.
THIRD DIVISION
COCA-COLA BOTTLERS
Promulgated:
PHILIPPINES, INC.,
Respondent.
August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Civil Procedure seeking to review and reverse the Decision[1] dated 18 January 2008 and
Resolution[2] dated 18 February 2008 of the Court of Tax Appeals en banc (CTA en banc) in
C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for
Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph
Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,[3] 8 June
2007,[4] and 26 July 2007,[5] of the CTA First Division in C.T.A. AC No. 31, which, in turn,
dismissed the Petition for Review of petitioners in said case for being filed out of time. In
its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of
petitioners.
Prior to 25 February 2000, respondent had been paying the City of Manila local
business tax only under Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted
from the business tax under Section 21 of the same tax ordinance. Pertinent provisions of
Tax Ordinance No. 7794 provide:
over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
in excess of P6,500,000.00
xxxx
annum on the gross sales or receipts of the preceding calendar year is hereby
imposed:
(A) On persons who sell goods and services in the course of trade or
business; and those who import goods whether for business or otherwise; as
provided for in Sections 100 to 103 of the NIRC as administered and
determined by the Bureau of Internal Revenue pursuant to the pertinent
provisions of the said Code.
xxxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxxx
xxxx
PROVIDED, that all registered businesses in the City of Manila that are
already paying the aforementioned tax shall be exempted from payment
thereof.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and
void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila[8] (Coca-Cola case) for the
following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the
provisions of the Local Government Code (LGC) of 1991 and its implementing rules and
regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance
No. 7988, which did not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 null and void, petitioner City of Manila assessed respondent on the basis of
Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances,
for deficiency local business taxes, penalties, and interest, in the total amount
of P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a
protest with petitioner Toledo on the ground that the said assessment amounted to
double taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No.
8011. Petitioner Toledo did not respond to the protest of respondent.
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Consequently, respondent filed with the Regional Trial Court (RTC) of Manila,
Branch 47, an action for the cancellation of the assessment against respondent for
business taxes, which was docketed as Civil Case No. 03-107088.
On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03-
107088. The RTC ruled that the business taxes imposed upon the respondent under
Sections 14 and 21 of Tax Ordinance No. 7988, as amended, were not of the same kind or
character; therefore, there was no double taxation. The RTC, though, in an
Order[10]dated 16 November 2006, granted the Motion for Reconsideration of respondent,
decreed the cancellation and withdrawal of the assessment against the latter, and barred
petitioners from further imposing/assessing local business taxes against respondent under
Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax
Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with
the ruling of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were declared null and void. The Motion for Reconsideration of
petitioners was denied by the RTC in an Order[11] dated 4 April 2007. Petitioners received
a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of
the 16 November 2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File
Petition for Review, praying for a 15-day extension or until 20 May 2007 within which to
file their Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC No.
31, raffled to the CTA First Division.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion
for Extension of Time to File a Petition for Review, praying for another 10-day extension,
or until 30 May 2007, within which to file their Petition.
On 24 May 2007, however, the CTA First Division already issued a Resolution
dismissing C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review
on 20 May 2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed
their Petition for Review therewith on 30 May 2007 via registered mail. On 8 June 2007,
the CTA First Division issued another Resolution, reiterating the dismissal of the Petition
for Review of petitioners.
Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed
as C.T.A. EB No. 307, arguing that the CTA First Division erred in dismissing their Petition
for Review in C.T.A. AC No. 31 for being filed out of time, without considering the merits
of their Petition.
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POLITICAL LAW REVIEW CASES INHERENT POWERS
The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition
for Review of petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007,
and 26 July 2007 of the CTA First Division. The CTA en banc similarly denied the Motion for
Reconsideration of petitioners in a Resolution dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:
Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA refers to
certain provisions of the Rules of Court, such as Rule 42 of the latter, and makes them
applicable to the tax court. Petitioners then cannot be faulted in relying on the provisions
of Section 1, Rule 42[13] of the Rules of Court as regards the period for filing a Petition for
Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-
day period, reckoned from receipt of the adverse decision of the trial court, within which
to file a Petition for Review with the Court of Appeals. The same rule allows an additional
15-day period within which to file such a Petition; and, only for the most compelling
reasons, another extension period not to exceed 15 days. Petitioners received on 20 April
2007 a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration
of the 16 November 2006 Order of the same court. On 4 May 2007, believing that they
only had 15 days to file a Petition for Review with the CTA in division, petitioners moved
for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to the
lapse of their first extension period, or on 18 May 2007, petitioners again moved for a 10-
day extension, or until 30 May 2007, within which to file their Petition for Review. Thus,
when petitioners filed their Petition for Review with the CTA First Division on 30 May 2007,
the same was filed well within the reglementary period for doing so.
Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8[14] of
the Revised Rules of the CTA governs the period for filing a Petition for Review with the
CTA in division, still, their Petition for Review was filed within the reglementary
period. Petitioners call attention to the fact that prior to the lapse of the 30-day period for
filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they
had already moved for a 10-day extension, or until 30 May 2007, within which to file their
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POLITICAL LAW REVIEW CASES INHERENT POWERS
Petition. Petitioners claim that there was sufficient justification in equity for the grant of
the 10-day extension they requested, as the primordial consideration should be the
substantive, and not the procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of
the Revised Rules of the CTA, is silent as to whether the 30-day period for filing a Petition
for Review with the CTA in division may be extended or not.
Petitioners also contend that the Coca-Cola case is not determinative of the issues
in the present case because the issue of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 is not the lis mota herein. The Coca-Cola case is not doctrinal and
cannot be considered as the law of the case.
Petitioners finally maintain that imposing upon respondent local business taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct
double taxation. Section 143 of the LGC gives municipal, as well as city governments, the
power to impose business taxes, to wit:
xxxx
xxxx
xxxx
xxxx
(f) On banks and other financial institutions, at a rate not exceeding fifty
percent (50%) of one percent (1%) on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts from lending
activities, income from financial leasing, dividends, rentals on property and
profit from exchange or sale of property, insurance premium.
The Court first addresses the issue raised by petitioners concerning the period
within which to file with the CTA a Petition for Review from an adverse decision or ruling
of the RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a Petition for
Review is specifically governed by Section 11 of Republic Act No. 9282,[15] and Section 3(a),
Rule 8 of the Revised Rules of the CTA.
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party
adversely affected by a decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an Appeal
with the CTA within thirty (30) days after the receipt of such decision or ruling
or after the expiration of the period fixed by law for action as referred to in
Section 7(a)(2) herein.
SEC 3. Who may appeal; period to file petition. (a) A party adversely affected
by a decision, ruling or the inaction of the Commissioner of Internal Revenue
on disputed assessments or claims for refund of internal revenue taxes, or by
a decision or ruling of the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the Secretary of Agriculture, or
a Regional Trial Court in the exercise of its original jurisdiction may appeal to
the Court by petition for review filed within thirty days after receipt of a copy
of such decision or ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed assessments. x x x.
(Emphasis supplied.)
It is crystal clear from the afore-quoted provisions that to appeal an adverse decision
or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the
CTA within 30 days from receipt of said adverse decision or ruling of the RTC.
It is also true that the same provisions are silent as to whether such 30-day period
can be extended or not. However, Section 11 of Republic Act No. 9282 does state that the
Petition for Review shall be filed with the CTA following the procedure analogous to Rule
42 of the Revised Rules of Civil Procedure. Section 1, Rule 42[16] of the Revised Rules of
Civil Procedure provides that the Petition for Review of an adverse judgment or final order
of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period
from receipt of the judgment or final order to be appealed; (2) an extended period of 15
days from the lapse of the original period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days from the lapse of the first
extended period.
Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-
day period within which to file the Petition for Review with the CTA may, indeed, be
extended, thus:
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Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an
additional period of fifteen (15) days for the movant to file a Petition for
Review, upon Motion, and payment of the full amount of the docket fees. A
further extension of fifteen (15) days may be granted on compelling reasons
in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of
Civil Procedure x x x.[17]
In this case, the CTA First Division did indeed err in finding that petitioners failed to
file their Petition for Review in C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order
of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order,
petitioners had 30 days, or until 20 May 2007, within which to file their Petition for Review
with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007
grounded on their belief that the reglementary period for filing their Petition for Review
with the CTA was to expire on 5 May 2007, thus, compelling them to seek an extension of
15 days, or until 20 May 2007, to file said Petition was unnecessary and superfluous. Even
without said Motion for Extension, petitioners could file their Petition for Review until 20
May 2007, as it was still within the 30-day reglementary period provided for under Section
11 of Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules
of the CTA.
The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse
of the 30-day reglementary period on 20 May 2007, in which they prayed for another
extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in
reality, only the first Motion for Extension of petitioners. The CTA First Division should
have granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners
were only praying for a 10-day extension, five days less than the 15-day extended period
allowed by the rules. Thus, when petitioners filed via registered mail their Petition for
Review in C.T.A. AC No. 31 on 30 May 2007, they were able to comply with the
reglementary period for filing such a petition.
Nevertheless, there were other reasons for which the CTA First Division dismissed
the Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform
to Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court
sustains the CTA First Division in this regard.
SEC. 4. Number of copies. The parties shall file eleven signed copies of every
paper for cases before the Court en banc and six signed copies for cases
before a Division of the Court in addition to the signed original copy, except
as otherwise directed by the Court. Papers to be filed in more than one case
shall include one additional copy for each additional case. (Emphasis
supplied.)
Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
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POLITICAL LAW REVIEW CASES INHERENT POWERS
SEC. 2. Petition for review; contents. The petition for review shall contain
allegations showing the jurisdiction of the Court, a concise statement of the
complete facts and a summary statement of the issues involved in the case,
as well as the reasons relied upon for the review of the challenged decision.
The petition shall be verified and must contain a certification against forum
shopping as provided in Section 3, Rule 46 of the Rules of Court. A
clearly legible duplicate original or certified true copy of the decision
appealed from shall be attached to the petition.(Emphasis supplied.)
The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the
Revised Rules of the CTA, which provides:
As found by the CTA First Division and affirmed by the CTA en banc, the Petition for
Review filed by petitioners via registered mail on 30 May 2007 consisted only of one copy
and all the attachments thereto, including the Decision dated 14 July 2006; and that the
assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-
107088 were mere machine copies. Evidently, petitioners did not comply at all with the
requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised
Rules of the CTA. Although the Revised Rules of the CTA do not provide for the
consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be
applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the
CTA. Section 3, Rule 42 of the Rules of Court reads:
Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No.
31 should have been given due course by the CTA First Division, it is still dismissible for lack
of merit.
By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No.
8011 are null and void and without any legal effect. Therefore, respondent cannot be
taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax
Ordinance No. 8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988
and Tax Ordinance No. 8011, respondent could still be made liable for local business taxes
under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read,
without the amendment by the null and void tax ordinances.
Emphasis must be given to the fact that prior to the passage of Tax Ordinance No.
7988 and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and
assessed respondent only for the local business tax under Section 14 of Tax Ordinance No.
7794, but never under Section 21 of the same. This was due to the clear and
unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that all
registered business in the City of Manila that are already paying the aforementioned tax
shall be exempted from payment thereof. The aforementioned tax referred to in
said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance No.
7794 exempts from the payment of the local business tax imposed by said section,
businesses that are already paying such tax under other sections of the same tax
ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No.
7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began
assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794,
as amended.
The Court easily infers from the foregoing circumstances that petitioners
themselves believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011,
respondent was exempt from the local business tax under Section 21 of Tax Ordinance No.
7794. Hence, petitioners had to wait for the deletion of the exempting proviso in Section
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POLITICAL LAW REVIEW CASES INHERENT POWERS
21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011
before they assessed respondent for the local business tax under said section. Yet, with
the pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and
Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax
Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back
in effect. Accordingly, respondent should not have been subjected to the local business
tax under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000,
given its exemption therefrom since it was already paying the local business tax under
Section 14 of the same ordinance.
Double taxation means taxing the same property twice when it should be taxed only
once; that is, taxing the same person twice by the same jurisdiction for the same thing. It
is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise
described as direct duplicate taxation, the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of the same kind or
character.[18]
Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed: (1) on the same subject matter the privilege of doing
business in the City of Manila; (2) for the same purpose to make persons conducting
business within the City of Manila contribute to city revenues; (3) by the same taxing
authority petitioner City of Manila; (4) within the same taxing jurisdiction within the
territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar
year; and (6) of the same kind or character a local business tax imposed on gross sales or
receipts of the business.
The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of
Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very
source of the power of municipalities and cities to impose a local business tax, and to which
any local business tax imposed by petitioner City of Manila must conform. It is apparent
from a perusal thereof that when a municipality or city has already imposed a business tax
on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the
same manufacturers, etc. to a business tax under Section 143(h) of the same Code. Section
143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage
tax under the NIRC, and that are not otherwise specified in preceding paragraphs. In the
same way, businesses such as respondents, already subject to a local business tax under
Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can
no longer be made liable for local business tax under Section 21 of the same Tax Ordinance
[which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
hereby DENIED. No costs.
MONTEMAYOR, J.:
Serafin Saldaa is appealing the decision of the Court of First Instance of Iloilo in
Civil Case No. 2236, dismissing his complaint against the City of Iloilo, for the refund
of taxes paid by him under protest, and upholding the legality of Ordinance No. 28,
Series of 1946, as amended by Ordinance No. 30, same series of the defendant
City.
On May 25, 1946, the defendant City of Iloilo promulgated Ordinance No. 28, series
of 1946, which for purposes of reference we reproduce below:
ORDINANCE No. 28
ART. 2. The City Treasurer shall, for issuance of license permit required in
article one hereof, collect a fee as follows:
Art. 3. It shall be unlawful for any carrier whether land, water, or air, to load
any of the articles mentioned herein which is not provided with the
corresponding permit as required by this ordinance.
Art. 4. Violation of this ordinance shall be punished with a fine of not less
than One Hundred (P100) Pesos, or more than Two Hundred (P200) Pesos,
imprisonment of not less than ten (10) days but not exceeding six (6) months
and to suffer subsidiary imprisonment in case of insolvency to pay the fine. .
..
One question involved in the appeal is whether the licensed fees imposed and
collected were in reality taxes. The following authorities are illuminating:
. . . . The differences between the license and the property tax are well
established. The license represents the permission conceded to do an act, is
not supposed to be imposed for revenue, and is in the main for police
purposes. A property tax, on the other hand, is a tax in the ordinary sense,
assessed according to the value of property. (City of Manila vs. Tanquintic,
58 Phil. 297, 300).
. . . . So-called license taxes are of two kinds. The one is a tax for the purpose
of revenue. The other, which is, strictly speaking, not a tax at all but merely
an exercise of the police power, is a fee imposed for the purpose of regulation.
. . . But a charge of a fixed sum which bears no relation to the cost of
inspection and which is payable into the general revenue of the state is a tax
rather than an exercise of the police power. (Cooley, Taxation, 4th ed., Vol. I,
pp. 97-98).
Judging from the amount of the fees fixed in the ordinances in question, we do not
hesitate to find and to hold that the so-called fees were in reality taxes for city
revenue. For instance, the P10.00 fee for every head of large cattle, whether alive
or slaughtered, and the P5.00 fee for every pig, goat, or sheep, whether alive or
slaughtered, cannot possibly be considered as mere expense incurred for, or the
cost of the inspection of each animal and the issuance of the corresponding permit.
If a pig, goat, or sheep costs, say, P15 or even P20, then the P5.00 fee would
constitute quite a considerable slice or portion of said cost; and if the animals and
articles listed in the ordinances were sent out from the City of Iloilo in large
quantities and numbers, there would be no doubt that the fees collected would
amount to a sizable sum and augment greatly the revenues of the municipal
corporation, way in excess of the cost of inspections and the issuance of the
permits.
Another important question is that Article 1 of the ordinance also strictly prohibits
the sending out of the City of Iloilo, of the animals and articles enumerated therein,
like large cattle, pigs, fowl, fish, eggs, fruits, etc., without first obtaining the
necessary license permit from the mayor; and Article 3 declares it unlawful for any
carrier whether land water or air, to load any of said animals or articles without the
corresponding permit. The ordinance fails to provide for any regulations or
conditions under which the permit can be granted or denied. In other words, the
mayor has absolute power to refuse to issue any permit, practically making him
absolute dictator over the subject matter. With merely telling the applicant and
prospective licensee that said animals and articles are needed in the City of Iloilo,
the mayor could refuse to grant the permit. To realize the danger of the grant of
said absolute power is not difficult.
As to the reasonableness of the prohibition of selling and taking out of the City of
Iloilo of any of the animals and articles enumerated in the ordinance, appellant asks
us to consider or take judicial notice of the fact that those animals and articles are
not all produced in the City of Iloilo, but come from other towns of the province,
even from other provinces adjacent, and are taken to the City of Iloilo only for the
purpose of transportation to other places, like Manila. In other words, they are not
brought into the City of Iloilo for the consumption of the residents thereof, but for
export to other places. But once inside the city limits, under the ordinance, the
mayor takes absolute control and has jurisdiction to allow or disallow their being
taken out of the city, and in case he issues the permit for their being taken away,
taxes are imposed thereon under the guise of license fees.
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POLITICAL LAW REVIEW CASES INHERENT POWERS
As correctly argued by the appellant, nowhere in the charter of the defendant City
is it authors to regulate and collect fees or taxes for, the taking out of the city, of
animals and articles listed in the ordinance. On the other hand, a municipal
corporation like the defendant City has no inherent power of taxation. To enact a
valid ordinance, the City must find in its charter the power to do so, for said power
cannot be assumed.
It shall not be in the power of the municipal council to impose a tax in any
form whatever upon goods and merchandise into the municipality, or out of
the same, and any attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for wharfage, use of bridges or
otherwise, shall be void. (Emphasis supplied).
In view of the foregoing, the appealed decision is hereby reversed and the City of
Iloilo is hereby ordered to reimburse plaintiff the amount of P1,359.80, with legal
interest and costs.
Paras, C. J., Bengzon, Reyes, A., Bautista Angelo, Concepcion, Reyes, J. B. L.,
Endencia, and Felix, JJ., concur.