Case no.

21
CIR v. CA

Facts:
Respondent is a non-stock and non-profit institution who conducts activities and programs,
that are beneficial to the public pursuant to their religious, educational, and charitable
objectives.
Respondent earned some income from leasing a small portion of their premises, to small
canteen, shop owners and parking fees collected from non-members who park within the area.
The CIR issued an assessment of their tax obligations including their deficiency tax based
on their alleged income from their property.
Respondent filed a petition on the CTA questioning the findings of the CIR. On its decision
the CTA ruled in favor of the respondent on the grounds that:
1. private respondent as a civic organization and not organized for profit was not engaged
in the business of operating or contracting [a] parking lot and there is no legal basis also
for the imposition of [a] deficiency fixed tax and [a] contractor's tax based on sec. 27 of
the NIRC
2. the leasing of private respondent properties is incidental and reasonably necessary for
the accomplishment of their objectives.

On appeal, Petitioner argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the
payment of tax "in respect to income received by them as such," the exemption does not apply
to income derived ". . . from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of such income . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease
of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if
such income [is] exclusively used for the accomplishment of its objectives."

Issue:
 WON the income of the respondent from its real estate is exempt from tax?

Held:

The SC ruled that the income of the respondent is not exempt from tax.
The Court has always applied the doctrine of strict interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest
and unmistakable from the language of the law on which it is based. Thus, the claimed
exemption "must expressly be granted in a statute stated in a language too clear to be
mistaken.
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Section 27 of the NIRC which mandates that the income
of exempt organizations (such as the YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real property, 20 the Court
is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any
convoluted attempt at construction

22. CIR vs SC Johnson Son, Inc.

Topic: Double Taxation
Facts:
SC. JOHNSON AND SON, INC., a domestic corporation organized and operating under the
Philippine laws, entered into a license agreement with SC Johnson and Son, United States of
America (USA), a non-resident foreign corporation was granted the right to use the trademark,
patents and technology owned by the latter including the right to manufacture, package and
distribute the products. License Agreement was duly registered with the Technology Transfer
Board of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of
Registration No. 8064. SC. JOHNSON AND SON, INC was obliged to pay SC Johnson and Son,
USA royalties based on a percentage of net sales and subjected the same to 25% withholding
tax on royalty payments which [respondent] paid from July 1992 to May 1993.
Respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that Since the agreement was
approved by the Technology Transfer Board, the preferential tax rate of 10% should apply
hence royalties paid by the [respondent] to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty.
The Commissioner did not act on said claim for refund. Respondent filed a petition for
review before the CTA to claim a refund of the overpaid withholding tax on royalty payments.
CTA decided for Respondent and ordered CIR to issue a tax credit certificate in the amount of
P963,266.00 representing overpaid withholding tax on royalty payments, beginning July, 1992
to May, 1993. CIR filed a petition for review with CA. CA upheld CTA.
CIR contends that under RP-US Tax Treaty, which is known as the "most favored nation"
clause, the lowest rate of the Philippine tax at 10% may be imposed on royalties derived by a
resident of the United States from sources within the Philippines only if the circumstances of
the resident of the United States are similar to those of the resident of West Germany. Since
the RP-US Tax Treaty contains no "matching credit" provision as that provided in RP-West
Germany Tax Treaty, the tax on royalties under the RP-US Tax Treaty is not paid under similar
circumstances as those obtaining in the RP-West Germany Tax Treaty. Also petitioner argues
that since S.C. Johnson's invocation of the "most favored nation" clause is in the nature of a
claim for exemption from the application of the regular tax rate of 25% for royalties, the
provisions of the treaty must be construed strictly against it.
Respondent countered that the "most favored nation" clause under the RP-US Tax Treaty refers
to royalties paid under similar circumstances as those royalties subject to tax in other treaties;
that the phrase "paid under similar circumstances" does not refer to payment of the tax but to
the subject matter of the tax, that is, royalties, because the "most favored nation" clause is
intended to allow the taxpayer in one state to avail of more liberal provisions contained in
another tax treaty wherein the country of residence of such taxpayer is also a party thereto,
subject to the basic condition that the subject matter of taxation in that other tax treaty is the
same as that in the original tax treaty under which the taxpayer is liable; thus, the RP-US Tax
Treaty speaks of "royalties of the same kind paid under similar circumstances".

ISSUE: Whether the SC Johnson and Son, USA is entitled to the most favored nation tax rate of
10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax
Treaty.

RULING: NO.
The tax rates on royalties and the circumstances of payment thereof are the same for all
the recipients of such royalties and there is no disparity based on nationality in the
circumstances of such payment. On the other hand, a cursory reading of the various tax
treaties will show that there is no similarity in the provisions on relief from or avoidance of
double taxation as this is a matter of negotiation between the contracting parties. This
dissimilarity is true particularly in the treaties between the Philippines and the United States
and between the Philippines and West Germany.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has
entered into for the avoidance of double taxation. The purpose of these international
agreements is to reconcile the national fiscal legislations of the contracting parties in order to
help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely,
the tax conventions are drafted with a view towards the elimination of international juridical
double taxation, which is defined as the imposition of comparable taxes in two or more states
on the same taxpayer in respect of the same subject matter and for identical periods. The
apparent rationale for doing away with double taxation is of encourage the free flow of goods
and services and the movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic economies.
Double taxation usually takes place when a person is resident of a contracting state and
derives income from, or owns capital in, the other contracting state and both states impose tax
on that income or capital. In order to eliminate double taxation, a tax treaty resorts to several
methods. First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some cases, an
exclusive right to tax is conferred on one of the contracting states; however, for other items of
income or capital, both states are given the right to tax, although the amount of tax that may
be imposed by the state of source is limited.
Double taxation usually takes place when a person is resident of a contracting state and
derives income from, or owns capital in, the other contracting state and both states impose tax
on that income or capital. In order to eliminate double taxation, a tax treaty resorts to several
methods. First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some cases, an
exclusive right to tax is conferred on one of the contracting states; however, for other items of
income or capital, both states are given the right to tax, although the amount of tax that may
be imposed by the state of source is limited. On the other hand, in the credit method, although
the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter. The basic
difference between the two methods is that in the exemption method, the focus is on the
income or capital itself, whereas the credit method focuses upon the tax.
The phrase "royalties paid under similar circumstances" in the most favored nation clause
of the US-RP Tax Treaty necessarily contemplated "circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the royalties are paid for
the right to use property or rights, i.e. trademarks, patents and technology, located within the
Philippines. The United States is the state of residence since the taxpayer, S. C. Johnson and
Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of residence and the state of
source are both permitted to tax the royalties, with a restraint on the tax that may be collected
by the state of source.

The concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should
apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany
Tax Treaty are paid under similar circumstances. This would mean that private respondent
must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States
in respect of the taxes imposable upon royalties earned from sources within the Philippines as
those allowed to their German counterparts under the RP-Germany Tax Treaty. The RP-US and
the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting.

If the rates of tax are lowered by the state of source, in this case, by the Philippines, there
should be a concomitant commitment on the part of the state of residence to grant some form
of tax relief, whether this be in the form of a tax credit or exemption. Otherwise, the tax
which could have been collected by the Philippine government will simply be collected by
another state, defeating the object of the tax treaty since the tax burden imposed upon the
investor would remain unrelieved. If the state of residence does not grant some form of tax
relief to the investor, no benefit would redound to the Philippines, i.e., increased investment
resulting from a favorable tax regime, should it impose a lower tax rate on the royalty earnings
of the investor, and it would be better to impose the regular rate rather than lose much-
needed revenues to another country.

The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit
(20% for royalties) would derogate from the design behind the most grant equality of
international treatment since the tax burden laid upon the income of the investor is not the
same in the two countries. The similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most favored nation treatment precisely to underscore the
need for equality of treatment.

Respondent cannot be deemed entitled to the 10 percent rate granted under the RP-West
Germany Tax Treaty for the reason that there is no payment of taxes on royalties under similar
circumstances in RP-US treaty.

Wherefore, for all the foregoing, the instant petition is granted. The decisions of the Court
of Tax Appeals and Court of Appeals are hereby set aside.

Case No. 23

Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue

Petition: Petition for Review
Petitioner: Deutsche Bank AG Manila
Branch Respondent: Commissioner of Internal

Facts:
Pursuant to the National Internal Revenue Code of 1997, on October 21, 2003, the petitioner
remitted to the respondent the amount of Php 67,688,553.51, representing fifteen (15)
percent of the branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income
remitted to the Deutsche Bank of Germany (DB Germany) for 2002 and prior taxable years.
Believing that they made an overpayment of the BPRT, on October 4, 2005, the petitioner
filed with the BIR Large Taxpayers Assessment and Investigation Division an administrative
claim for refund or a tax credit certificate representing the alleged excess BPRT paid (amount
of Php22,562,851.17). The petitioners also requested from the International Tax Affairs
Division (ITAD) for a confirmation of its entitlement to a preferential tax rate of 10% under the
RP-Germany Tax Treaty.
Because of the alleged inaction of the BIR on the administrative claim, on October 18,
2005, the petitioner filed a petition for review with the Court of Tax Appeals (CTA), reiterating
its claim for refund or tax credit certificate representing the alleged excess BPRT paid. The
claim was denied on the ground that application for tax treaty relief was not filed with ITAD
prior to the payment of BPRT, thereby violating the fifteen-day period mandated under Section
III, paragraph2 of the Revenue Memorandum Order No. 1-2000. Also, the CTA Second Division
relied on an en banc decision of the CTA that before the benefits of a tax treaty may be
extended to a foreign corporation, the latter should first invoke the provisions of the tax treaty
and prove that they indeed apply to the corporation (Mirant Operations Corporation v
Commissioner of Internal Revenue).Hence this petition.

Issue:
Whether or not the failure to strictly comply with the provisions of RMO No. 1-2000 will
deprive persons or corporations the benefit of a tax treaty.
Ruling:
No. The constitution provides for the adherence to the general principles of international law
as part of the law of the land (Article II, Section 2). Every treaty is binding upon the parties, and
obligations must be performed (Article 26, Vienna Convention on the Law on Treaties). There is
nothing in RMO 1-2000 indicating a deprivation of entitlement to a tax treaty for failure to
comply with the fifteen-day period. The denial of availment of tax relief for the failure to apply
within the prescribed period (under the administrative issuance) would impair the value of the
tax treaty. Also, the obligation to comply with the tax treaty must take precedence over the
objective of RMO 1-2000 because the non-compliance with tax treaties would have negative
implications on international affairs and would discourage foreign investments.

24. NURSERY CARE CORPORATION vs. ANTHONY ACEVEDO (G.R. No. 180651; July 30, 2014)
Facts:
City of Manila assessed and collected taxes from the petitioners pursuant to Section 15 (Tax
on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code
of Manila (RCM). Moreover, they imposed additional taxes upon the petitioners pursuant to
Section 21 of the Same ordinance as a condition for the renewal of their respective business
licenses for the year 1999.
To comply under Section 21, the petitioners paid under protest contending double taxation
in the narrow, strict or obnoxious sense, in the imposition of taxes. Petitioners formally
requested the Office of the City Treasurer for the tax credit or refund of the local business
taxes paid under protest but was denied by City Treasurer Acevedo.
Petitioners filed for certiorari in the RTC, and the latter ruled that there is no double
taxation, thus upheld the constitutionality of the assailed sections of Ordinance No. 7807 of
the City of Manila.
RTC said that the tax imposed under Section 15 and 17, as against that imposed under
Section 21, are levied against different tax objects or subject matter; the former, is a tax on the
business of wholesalers, distributors, dealers and retailers, while the latter (Section 21) is a tax
against consumers or end-users of the articles sold by petitioners
Petitioners appealed to the CA but was denied, ruling that the present case involves a
question of law thus dismissed for lack of jurisdiction.

Petitioner’s contention:
They pointed out that although Section 21 of the RCM was not itself unconstitutional or
invalid, its enforcement against the petitioners constituted double taxation because the local
business taxes under Section 15 and Section 17 were already paid by them. The proviso in
Section 21 exempted all registered businesses in the City of Manila from paying the tax
imposed under Section 21; and that the exemption was more in accord with Section 143 of the
Local Government Code, the law that vested in the municipal and city governments the power
to impose business taxes.

Respondent’s contention:
The respondents countered that double taxation did not occur from the imposition and
collection of the tax pursuant to Section 21 of the Revenue Code of Manila; that the taxes
imposed pursuant to Section 21 were in the concept of indirect taxes upon the consumers of
the goods and services sold by a business establishment.

Issue: Whether or not the petitioners were entitled to the tax credit or tax refund for the taxes
paid under Section 21, RCM.

Ruling: Yes.
Collection of the taxes under Section 21 of the RCM constituted double taxation, and the
taxes collected pursuant thereto must be refunded.
There is double taxation when the same taxpayer is taxed twice when he should be taxed
only once for the same purpose by the same taxing authority within the same jurisdiction
during the same taxing period, and the taxes are of the same kind or character. Double taxation
is obnoxious.
Using the aforementioned test in Coca-Cola Bottlers Philippines, Inc. and Swedish Match
Philippines, Inc, the Court finds that there is indeed double taxation if respondent is subjected
to the taxes under both Sections 15 and 17, and 21 of Tax Ordinance No. 7807, 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’s revenues; (3) by the same taxing authority – respondent 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.
Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis.
Petitioner is indeed liable to pay business taxes to the City of Manila; nevertheless, considering
that the former has already paid these taxes under Section 14 of the Manila Revenue Code, it
is exempt from the same payments under Section 21 of the same code. Hence, payments
made under Section 21 must be refunded in favor of petitioner.

25. City of Manila vs Coca-Cola Bottlers Phils. GR. No. 181845 August 4, 2009
Facts:
Respondent had been paying the City of Manila local business tax only under Section 14 of
Tax Ordinance No. 7794, being expressly exempted from the business tax under Section 21 of
the same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:
Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby
imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or
 manufacturers of any article of commerce of whatever kind or nature, in accordance with
any of the following schedule:
xxxx
Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes
under the NIRC. On any of the following businesses and articles of commerce subject to
excise, value-added or percentage taxes under the National Internal Revenue Code
hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE
PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is
hereby imposed:

(A) On 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
PROVIDED, that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No.
7988, amending certain sections of Tax Ordinance No. 7794, particularly:
Section 21, by deleting the proviso found therein, which stated that all registered
businesses in the City of Manila that are already paying the aforementioned tax shall be
exempted from payment thereof. And later on approved another tax ordinance, Tax
Ordinance No. 8011, amending Tax Ordinance No. 7988.
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 (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, under Sections 14 and 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011.

Issue: WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO.
7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION.
Ruling: Yes.
The enforcement of Section 21 of the tax ordinance no. 7794 constitutes double taxation.
The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No.
8011 were null and void, which this Court resolved in the affirmative.
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.
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 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.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No.
7794, to their own detriment. Said exempting proviso was precisely included in said section so
as to avoid double taxation.
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].

Additional Information:
Double taxation means taxing the same property twice when it should be taxed only once;
that is, taxing the same person twice by the same jurisdiction for the same thing. It is
obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described
as direct duplicate taxation, the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or character.
Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed:
on the same subject matter the privilege of doing business in the City of Manila;
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.

26. CIR v. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators
Lorna Kapunan and Mario Luza Bautista. G.R. NO. 147188 (September 14, 2004)

Facts
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of
its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land
on which the building stands for an amount of not less than P90 million. Toda purportedly sold
the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on
the same day to Royal Match Inc. (RMI) for P200 million. Deeds of Absolute Sale notarized on
the same day by the same notary public evidenced these two transactions. For the sale of the
property to RMI, Altonaga paid capital gains tax in the amount of P10 million. On 16 April 1990,
CIC filed its corporate annual income tax return for the year 1989, declaring, among other
things, its gain from the sale of real property in the amount of P75,728.021. After crediting
withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income
of P75,987,725.
On 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million.
Three and a half years later, Toda died. On 29 March 1994, the Bureau of Internal Revenue
(BIR) sent an assessment notice and demand letter to the CIC for deficiency income tax for the
year 1989 in the amount of P79,099,999.22. The new CIC asked for reconsideration, asserting
that the assessment should be directed against the old CIC, and not against the new CIC, which
is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold
the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-
1989.
On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-
administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment dated
9 January 1995 from the Commissioner of Internal Revenue for deficiency income tax for the
year 1989. The Estate thereafter filed a letter of protest. The Commissioner dismissed the
protest. Upon review, the CTA held that the Commissioner failed to prove that CIC committed
fraud to deprive the government of the taxes due it. It ruled in favor of the Heirs of Toda. The
CTA denied also denied the motion for reconsideration, prompting the Commissioner to file a
Petition for Review with the Court of Appeals. The CA affirmed the decision of the CTA
reasoning that the CTA, being more advantageously situated and having the necessary
expertise in matters of taxation, is "better situated to determine the correctness, propriety,
and legality of the income tax assessments assailed by the Toda Estate.” Thus this petition.

Issue
1. Whether or not the tax planning scheme adopted by the corporation constitutes tax evasion
that would justify an assessment of deficiency income tax or tax avoidance.
2. Whether or not the period for assessment of deficiency income tax for the year 1989
prescribed.
3. Whether or not the estate of Benigno Toda can be held liable for the tax deficiency for the
year 1989.

Ruling
The tax planning scheme adopted by the corporation constitutes tax evasion. Tax avoidance
and tax evasion are the two most common ways used by taxpayers in escaping from taxation.
Tax avoidance is the tax saving device within the means sanctioned by law. This method should
be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the
integration of three factors: (1) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax
is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith,"
"willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action
which is unlawful.
All these factors are present in the instant case. As early as 4 May 1989, prior to the
purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40
million from RMI, and not from Altonaga. Also, as of 31 July 1989, another P40 million was
debited. This would show that the real buyer of the properties was RMI, and not the
intermediary Altonaga. The sale to Altonaga was part of the tax planning scheme of CIC.
Tax planning is a change the structure of the funds to pay a lower tax. Precisely, Sec. 40 (2)
of the Tax Code exists, allowing tax free transfers of property for stock, changing the structure
of the property and the tax to be paid. As long as it is done legally, changing the structure of a
transaction to achieve a lower tax is not against the law. It is absolutely allowed. Tax planning is
by definition to reduce, if not eliminate altogether, a tax. The scheme resorted to by CIC in
making it appear that there were two sales of the subject properties, cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud. Fraud in its general sense, "is
deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and unconscionable advantage is
taken of another."
Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of
tax to be paid especially that the transfer from him to RMI would then subject the income to
only 5% individual capital gains tax, and not the 35% corporate income tax. Altonaga's sole
purpose of acquiring and transferring title was to create a tax shelter. The sale to him was
merely a tax ploy, a sham, and without business purpose and economic substance. The
execution of the two sales was calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability. Hence, the sale to Altonaga should be disregarded for
income tax purposes. The two sale transactions should be treated as a single direct sale by CIC
to RMI.
The period of assessment has not yet prescribed. Sec 269 of the NIRC of 1986 (now Section
222 of the Tax Reform Act of 1997) provides that in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, the period within which to
assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be.
The two transactions were tainted with fraud. And even assuming arguendo that there was no
fraud, the income tax return filed by CIC for the year 1989 was false. The prescriptive period to
assess the correct taxes in case of false returns is ten years from the discovery of the falsity so
the issuance of the correct assessment was well within the prescriptive period.
The Estate is liable for the 1989 deficiency income tax of CIC. A corporation has a juridical
personality distinct and separate from the persons owning or composing it. Thus, the owners
or stockholders of a corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. However, there are certain instances in which personal liability may
arise. When the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and
voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer which
read the “SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all
income tax liabilities of Cibeles for the fiscal years 1987, 1988 and 1989. ” Respondent estate
cannot, therefore, deny liability for CIC's deficiency income tax for the year 1989 by invoking
the separate corporate personality of CIC, since its obligation arose from Toda's contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.
 The petition is hereby GRANTED and ordering respondent Estate of Benigno P. Toda Jr. to
pay P79,099,999.22 as deficiency income tax of CIC for the year 1989, plus legal interest from 1
May 1994 until the amount is fully paid.

27. abaya v ebdane

FACTS:
The Government of Japan and the Government of the Philippines, through their respective
representatives, namely, Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of
Japan to the Republic of the Philippines, and then Secretary of Foreign Affairs Domingo L.
Siazon, have reached an understanding concerning Japanese loans to be extended to the
Philippines. These loans were aimed at promoting our country’s economic stabilization and
development efforts.
The proceeds of Loan Agreement No. PH-P204 was to be used to finance the Arterial Road
Links Development Project (Phase IV), of which the Catanduanes Circumferential Road was a
part. This road section, in turn, was divided into four contract packages (CP), The CP I project is
one of the four packages comprising the project for the improvement/rehabilitation of the
Catanduanes Circumferential Road.
Subsequently, the DPWH, as the government agency tasked to implement the project,
caused the publication of the "Invitation to Prequalify and to Bid" for the implementation of
the CP I project in two leading national newspapers, namely, the Manila Times and Manila
Standard. A total of twenty-three (23) foreign and local contractors responded to the invitation
by submitting their accomplished prequalification documents on January 23, 2003. In
accordance with the established prequalification criteria, eight contractors were evaluated or
considered eligible to bid as concurred by the JBIC. Prior to the opening of the respective bid
proposals, it was announced that the Approved Budget for the Contract (ABC) was in the
amount of P738,710,563.67.
The petitioners anchor the instant petition on the contention that the award of the
contract to private respondent China Road & Bridge Corporation violates RA 9184,
particularly Section 31 thereof which reads:
SEC. 31. Ceiling for Bid Prices. – The ABC shall be the upper limit or ceiling for the Bid
prices. Bid prices that exceed this ceiling shall be disqualified outright from further
participating in the bidding. There shall be no lower limit to the amount of the award.
Petitioner Plaridel M. Abaya claims that he filed the instant petition as a taxpayer, former
lawmaker, and a Filipino citizen. Petitioner Plaridel C. Garcia likewise claims that he filed the
suit as a taxpayer, former military officer, and a Filipino citizen. Petitioner PMA ’59 Foundation,
Inc., on the other hand, is a non-stock, non-profit corporation organized under the existing
Philippine laws. It claims that its members are all taxpayers and alumni of the Philippine
Military Academy. It is represented by its President, Carlos L. Agustin.

ISSUE: Whether or not Petitioners, as taxpayers, possess locus standi to file the present suit

RULING: Petitioners, as taxpayers, possess locus standi to file the present suit
 Briefly stated, locus standi is "a right of appearance in a court of justice on a given
question."More particularly, it is a party’s personal and substantial interest in a case such that
he has sustained or will sustain direct injury as a result of the governmental act being
challenged. It calls for more than just a generalized grievance. Locus standi, however, is merely
a matter of procedure and it has been recognized that in some cases, suits are not brought by
parties who have been personally injured by the operation of a law or any other government
act but by concerned citizens, taxpayers or voters who actually sue in the public interest.
The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts
entered into by the national government or government- owned or controlled corporations
allegedly in contravention of law. A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected to any improper
purpose, or that there is a wastage of public funds through the enforcement of an invalid or
unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge
its validity.
In the present case, the petitioners are suing as taxpayers. They have sufficiently
demonstrated that, notwithstanding the fact that the CP I project is primarily financed from
loans obtained by the government from the JBIC, nonetheless, taxpayers’ money would be or
is being spent on the project considering that the Philippine Government is required to allocate
a peso-counterpart therefor. The public respondents themselves admit that appropriations for
these foreign-assisted projects in the GAA are composed of the loan proceeds and the peso-
counterpart. The counterpart funds, the Solicitor General explains, refer to the component of
the project cost to be financed from government-appropriated funds, as part of the
government’s commitment in the implementation of the project. Hence, the petitioners
correctly asserted their standing since a part of the funds being utilized in the implementation
of the CP I project partakes of taxpayers’ money.
Further, the serious legal questions raised by the petitioners, e.g., whether RA 9184 applies
to the CP I project, in particular, and to foreign-funded government projects, in general, and
the fact that public interest is indubitably involved considering the public expenditure of
millions of pesos, warrant the Court to adopt in the present case its liberal policy on locus
standi.

28. DAVID vs. ARROYO G.R. No. 171396 May 3, 2006

Facts:
On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People
Power I, President Arroyo issued PP 1017 declaring a state of national emergency, due to the
alleged conspiracy among some military officers, leftist insurgents of the New People’s Army
(NPA), and some members of the political opposition in a plot to unseat or assassinate
President Arroyo. On the same day, the President issued G. O. No. 5 implementing PP 1017
calling out the AFP and PNP, to immediately carry out the necessary and appropriate actions
and measures to suppress and prevent acts of terrorism and lawless violence. On March 3,
2006, exactly one week after the declaration of a state of national emergency and after all
these petitions had been filed, the President lifted PP 1017.
 These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing
Presidential Proclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President
Gloria Macapagal-Arroyo committed grave abuse of discretion.
Petitioners contend that the Office of the President revoked the permits to hold rallies issued
earlier by the local governments. Presidential Chief of Staff Michael Defensor announced that
warrantless arrests and take-over of facilities, including media, can already be implemented.
Several protesters near the EDSA site were violently dispersed by huge clusters of anti-riot
police while several participants were arrested.
Also at around 12:20 in the early morning of February 25, 2006, operatives of the Criminal
Investigation and Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5,
raided the Daily Tribune offices in Manila without warrants. The raiding team confiscated news
stories by reporters, documents, pictures, and mock-ups of the Saturday issue. A few minutes
after the search and seizure at the Daily Tribune offices, the police surrounded the premises of
another pro-opposition paper, Malaya, and its sister publication, the tabloid Abante.
The Solicitor General argued that the intent of the Constitution is to give full discretionary
powers to the President in determining the necessity of calling out the armed forces. He
emphasized that none of the petitioners has shown that PP 1017 was without factual bases.

Issues:
A. PROCEDURAL:
1) Whether the issuance of PP 1021 renders the petitions moot and academic.
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos. 171400 (ALGI), 171483 (KMU et
al.), 171489 (Cadiz et al.), and 171424 (Legarda) have legal standing.
B. SUBSTANTIVE:
1) Whether the Supreme Court can review the factual bases of PP 1017.
2) Whether PP 1017 and G.O. No. 5 are unconstitutional.
a. Constitutional Basis
b. As Applied Challenge

Held:
The Court rules that PP 1017 is CONSTITUTIONAL insofar as it constitutes a call by President
Gloria Macapagal-Arroyo on the AFP to prevent or suppress lawless violence. However, the
provisions of PP 1017 commanding the AFP to enforce laws not related to lawless violence, as
well as decrees promulgated by the President, are declared UNCONSTITUTIONAL.
G.O. No. 5 is partly CONSTITUTIONAL since it provides a standard by which the AFP and the
PNP should implement PP 1017.
PROCEDURAL ISSUES
1. Whether the issuance of PP 1021 renders the petitions moot and academic.
No. the case is not moot and academic.
The Court holds that President Arroyo’s issuance of PP 1021 did not render the petitions
moot and academic. During the eight (8) days that PP 1017 was operative, the police officers,
according to petitioners, committed illegal acts in implementing it which should be resolved.
 The moot and academic principle is not a magical formula that can automatically dissuade
the courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first,
there is a grave violation of the Constitution; second, the exceptional character of the situation
and the paramount public interest is involved; third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public; and fourth,
the case is capable of repetition yet evading review. All the foregoing exceptions are present
here and justify this Court’s assumption of jurisdiction over the instant petitions.

2. Whether petitioners in 171485 (Escudero et al.), G.R. Nos. 171400 (ALGI), 171483 (KMU et
al.), 171489 (Cadiz et al.), and 171424 (Legarda) have legal standing.
Yes. The petitioners have locus standi.
In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative
powers. They also raised the issue of whether or not the concurrence of Congress is
necessary whenever the alarming powers incident to Martial Law are used.
In G.R. No. 171400, (ALGI), this Court applied the liberality rule that when the issue concerns a
public right, it is sufficient that the petitioner is a citizen and has an interest in the execution of
the laws.
In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar
of the Philippines (IBP) have no legal standing, having failed to allege any direct or potential
injury which the IBP as an institution or its members may suffer as a consequence of the
issuance of PP No. 1017 and G.O. No. 5. However, in view of the transcendental importance of
the issue, this Court declares that petitioner have locus standi.
In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant
petition as there are no allegations of illegal disbursement of public funds. But considering
once more the transcendental importance of the issue involved, this Court may relax the
standing rules.

SUBSTANTIVE ISSUES
1. Whether the Supreme Court can review the factual bases of PP 1017.
Yes, the Supreme Court can review factual bases and it found that Arroyo’s issuances were
justified.
While the Court considered the President’s calling-out power as a discretionary power
solely vested in his wisdom, it stressed that this does not prevent an examination of whether
such power was exercised within permissible constitutional limits or whether it was exercised
in a manner constituting grave abuse of discretion. The broadening of judicial power under the
1987 Constitution enables the courts of justice to review the discretion of the political
departments of the government.
Petitioners failed to show that President Arroyo’s exercise of the calling-out power, by issuing
PP 1017, is totally bereft of factual basis. A reading of the Solicitor General’s Consolidated
Comment and Memorandum shows a detailed narration of the events leading to the issuance
of PP 1017. The Court is convinced that the President was justified in issuing PP 1017 calling for
military aid. However, the exercise of such power or duty must not stifle liberty.
2. Whether PP 1017 and G.O. No. 5 are unconstitutional.
A. Constitutional Basis of PP 1017
Calling-out Power
Citing Integrated Bar of the Philippines v. Zamora, the Court ruled that the only criterion for
the exercise of the calling-out power is that whenever it becomes necessary, the President
may call the armed forces to prevent or suppress lawless violence, invasion or rebellion.
Considering the circumstances then prevailing, President Arroyo found it necessary to issue PP
1017. Owing to her Office’s vast intelligence network, she is in the best position to determine
the actual condition of the country.

Take Care Power

The second provision pertains to the power of the President to ensure that the laws be
faithfully executed.
Petitioners argue that PP 1017 is unconstitutional as it gave President Arroyo the power to
enact laws and decrees in violation of Section 1, Article VI of the Constitution, which vests the
power to enact laws in Congress. The Court agrees with the petitioners and rules that the
assailed PP 1017 is unconstitutional insofar as it grants President Arroyo the authority to
promulgate decrees. It follows that these decrees are void and, therefore, cannot be enforced.
With respect to laws, she cannot call the military to enforce or implement certain laws, such as
customs laws, laws governing family and property relations, laws on obligations and contracts
and the like. She can only order the military, under PP 1017, to enforce laws pertinent to its
duty to suppress lawless violence.

Power to Take Over

Sec. 17. In times of national emergency, when the public interest so requires, the State
may, during the emergency and under reasonable terms prescribed by it, temporarily take over
or direct the operation of any privately-owned public utility or business affected with public
interest.
The Court rules that such Proclamation does not authorize her during the emergency to
temporarily take over or direct the operation of any privately owned public utility or business
affected with public interest without authority from Congress.
While the President alone can declare a state of national emergency, however, without
legislation, he has no power to take over privately-owned public utility or business affected
with public interest. Likewise, without legislation, the President has no power to point out the
types of businesses affected with public interest that should be taken over. In short, the
President has no absolute authority to exercise all the powers of the State under Section 17,
Article VII in the absence of an emergency powers act passed by Congress.
B. As Applied Challenge
The Court finds G.O. No. 5 valid. It is an Order issued by the President acting as
Commander-in-Chief addressed to the AFP to carry out the provisions of PP 1017. The validity
of a statute or ordinance is to be determined from its general purpose and its efficiency to
accomplish the end desired, not from its effects in a particular case. PP 1017 is merely an
invocation of the President’s calling-out power. Its general purpose is to command the AFP to
suppress all forms of lawless violence, invasion or rebellion. It had accomplished the end
desired which prompted President Arroyo to issue PP 1021. The Court cannot adjudge a law or
ordinance unconstitutional on the ground that its implementor committed illegal acts.

29. Gonzales vs Marcos GR No. L-31685 July 31, 1975

Facts:
Petitioner questioned the validity of EO No. 30 for benefit of the Filipino people under the
name and style of the Cultural Center of the Philippines entrusted with the task to construct a
national theatre, a national music hall, an arts building and facilities, to awaken our people's
consciousness in the nation's cultural heritage and to encourage its assistance in the
preservation, promotion, enhancement and development thereof, with the Board of Trustees
to be appointed by the President, the Center having as its estate the real and personal
property vested in it as well as donations received, financial commitments that could
thereafter be collected, and gifts that may be forthcoming in the future. Intended for the
construction of the Cultural Center building estimated to cost P48 million.

Petitioner’s contention:
EO No. 30 was invalid for it is impermissible encroachment by the President of the
Philippines on the legislative prerogative

Defendant’s contention:
Petitioner did not have the requisite personality to contest as a taxpayer the validity of the
executive order in question, as the funds held by the Cultural Center came from donations and
contributions, not one centavo being raised by taxation
T
rial Court’s ruling:
Petition was dismissed and the lower court stressed that the funds administered by the
Center came from donations and contributions, not by taxation.

Issue: WON petitioner can validly question EO 30 under a taxpayer’s suit?

Held:
A suit filed a taxpayer questioning the validity of an Executive Order creating a trust, the
funds of which came from donations and contributions and not from taxation, fails to satisfy
the elemental requisite for a taxpayer's suit. It was therein pointed out as "one more valid
reason" why such an outcome was unavoidable that "the funds administered by the President
of the Philippines came from donations [and] contributions [not] by taxation." Accordingly,
there was that absence of the"requisite pecuniary or monetary interest."
 The Presidential alone cannot and need not personally handle the duties of a trustee for
and in behalf of the Filipino people in relation with the trust in establishing the Cultural Center
of the Philippines as the instrumentality to carry out the agreement between the Republic of
the Philippines and the United States as to the use of a special fund coming from the latter for
a Philippine Cultural development project. He can, through an executive order, set up a group
of persons who would receive and administer the trust estate responsible to him.
Public funds that accrued by way of donation from the United States and financial
contributions for the Cultural Center project could be legally considered as "governmental
property." They may be acquired under the concept of dominium ,the State as a person in law
not being deprived of such an attribute, thereafter to be administered by virtue of its
prerogative of imperium , through the Executive, the department precisely entrusted with
management functions.
The passage of Presidential Decree No. 15 on October 15, 1972 creating the Cultural Center
superseding Executive Order No. 30, rendered moot and academic the issue whether the
creation of trust fund by executive order constitutes an encroachment by the President on the
legislative prerogative. The institution known as the Cultural Center is other than that assailed
in the instant case. In that sense a coup de grace was administered to this proceeding.

30. LIWAYWAY VINZONS-CHATO, vs. FORTUNE TOBACCO CORPORATION, G.R. No. 141309
June 19, 2007
FACTS:
RA 7654 was enacted which provided that locally manufactured cigarettes which are
currently classified and taxed at 55% shall be charged an ad valorem tax of “55% provided that
the maximum tax shall not be less than Five Pesos per pack.” Prior to effectivity of RA 7654,
Liwayway issued a rule, reclassifying “Champion,” “Hope,” and “More” (all manufactured by
Fortune) as locally manufactured cigarettes bearing foreign brand subject to the 55% ad
valorem tax. Thus, when RA 7654 was passed, these cigarette brands were already covered.
Respondent was assessed for ad valorem tax deficiency amounting to P9,598,334.00
(computed on the basis of RMC 37-93) and demanded payment within 10 days from receipt
thereof. Respondent filed a petition for review with CTA, which issued an injunction enjoining
the implementation of RMC 37-93.The CTA ruled that RMC 37-93 is defective, invalid, and
unenforceable and further enjoined petitioner from collecting the deficiency tax assessment
issued pursuant to RMC No. 37-93. This ruling was affirmed by the CA, and finally by the SC in
Commissioner of Internal Revenue v. Court of Appeals. It was held, among others, that RMC
37-93, has fallen short of the requirements for a valid administrative issuance.
Thus, respondent filed before the RTC a complaint for damages against petitioner in her
private capacity, Fortune contended that the issuance of the rule violated its constitutional
right against deprivation of property without due process of law and the right to equal
protection of the laws.

For her part, Liwayway contended in her motion to dismiss that respondent has no cause of
action against her because she issued RMC 37-93 in the performance of her official function
and within the scope of her authority. She claimed that she acted merely as an agent of the
Republic and therefore the latter is the one responsible for her acts. She also contended that
the complaint states no cause of action for lack of allegation of malice or bad faith.
The order denying the motion to dismiss was elevated to the CA, who dismissed the case
on the ground that under Article 32, liability may arise even if the defendant did not act with
malice or bad faith. Hence this appeal.

ISSUES:
1. Whether or not a public officer may be validly sued in his/her private capacity for acts done
in connection with the discharge of the functions of his/her office
2. Whether or not Article 32, NCC, should be applied instead of Sec. 38, Book I, Administrative
Code

HELD:
On the first issue, the general rule is that a public officer is not liable for damages which a
person may suffer arising from the just performance of his official duties and within the scope
of his assigned tasks. An officer who acts within his authority to administer the affairs of the
office which he/she heads is not liable for damages that may have been caused to another, as
it would virtually be a charge against the Republic, which is not amenable to judgment for
monetary claims without its consent. However, a public officer is by law not immune from
damages in his/her personal capacity for acts done in bad faith which, being outside the scope
of his authority, are no longer protected by the mantle of immunity for official actions.
Specifically, under Sec. 38, Book I, Administrative Code, civil liability may arise where there
is bad faith, malice, or gross negligence on the part of a superior public officer. And, under Sec.
39 of the same Book, civil liability may arise where the subordinate public officer’s act is
characterized by willfulness or negligence. In Cojuangco, Jr. V. CA, a public officer who directly
or indirectly violates the constitutional rights of another, may be validly sued for damages
under Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private
capacity for acts done in the course of the performance of the functions of the office, where
said public officer: (1) acted with malice, bad faith, or negligence; or (2) where the public
officer violated a constitutional right of the plaintiff.
On the second issue, SC ruled that the decisive provision is Article 32, it being a special law,
which prevails over a general law (the Administrative Code).Article 32 was patterned after the
“tort” in American law. A tort is a wrong, a tortious act which has been defined as the
commission or omission of an act by one, without right, whereby another receives some injury,
directly or indirectly, in person, property or reputation. There are cases in which it has been
stated that civil liability in tort is determined by the conduct and not by the mental state of the
tortfeasor, and there are circumstances under which the motive of the defendant has been
rendered immaterial. The reason sometimes given for the rule is that otherwise, the mental
attitude of the alleged wrongdoer, and not the act itself, would determine whether the act was
wrongful. Presence of good motive, or rather, the absence of an evil motive, does not render
lawful an act which is otherwise an invasion of another’s legal right; that is, liability in tort in
not precluded by the fact that defendant acted without evil intent.