CHAPTER 4 FUNDAMENTAL POWERS OF THE STATE

DECISION 

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,

which seeks to reverse and set aside the Decision [1] dated July 28, 2009 and Resolution[2] dated October 12, 2009 of the

Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the Decision[3] dated September 21, 2007 of the Regional

Trial Court of Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment of building

permit and other fees and ordering respondents to refund the same with interest at the legal rate.

The factual antecedents:

Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25, 1962 and was

converted into a non-stock, non-profit education foundation under the provisions of Republic Act (R.A.) No. 6055 [4] on

December 4, 1975.

Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a building

permit for the construction of an 11-storey building of the Angeles University Foundation Medical Center in its main

campus located at MacArthur Highway, Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in

the amount of P126,839.20. An Order of Payment was also issued by the City Planning and Development Office, Zoning

Administration Unit requiring petitioner to pay the sum of P238,741.64 as Locational Clearance Fee.[5]

In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G. Quinsaat and

Acting City Building Official Donato N. Dizon, petitioner claimed that it is exempt from the payment of the building permit

and locational clearance fees, citing legal opinions rendered by the Department of Justice (DOJ). Petitioner also reminded

the respondents that they have previously issued building permits acknowledging such exemption from payment of

building permit fees on the construction of petitioner’s 4-storey AUF Information Technology Center building and the AUF

Professional Schools building on July 27, 2000 and March 15, 2004, respectively.[6]

Respondent City Treasurer referred the matter to the Bureau of Local Government Finance (BLGF) of the

Department of Finance, which in turn endorsed the query to the DOJ. Then Justice Secretary Raul M. Gonzalez, in his letter-

reply dated December 6, 2005, cited previous issuances of his office (Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982)

declaring petitioner to be exempt from the payment of building permit fees. Under the 1st Indorsement dated January 6,

2006, BLGF reiterated the aforesaid opinion of the DOJ stating further that “xxx the Department of Finance, thru this Bureau,

has no authority to review the resolution or the decision of the DOJ.”[7]  

Petitioner wrote the respondents reiterating its request to reverse the disputed assessments and invoking the DOJ

legal opinions which have been affirmed by Secretary Gonzalez. Despite petitioner’s plea, however, respondents refused to

issue the building permits for the construction of the AUF Medical Center in the main campus and renovation of a school

building located at Marisol Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but no written

response was received by petitioner.[8]  

Consequently, petitioner paid under protest[9] the following:

Medical Center (new construction)Building Permit and Electrical Fee P 217,475.20Locational Clearance Fee 283,741.64Fire Code Fee 144,690.00

Total - P 645,906.84School Building (renovation)Building Permit and Electrical Fee P 37,857.20Locational Clearance Fee 6,000.57Fire Code Fee 5,967.74

Total - P 49,825.51

Petitioner likewise paid the following sums as required by the City Assessor’s Office:

Real Property Tax – Basic Fee P 86,531.10SEF 43,274.54Locational Clearance Fee 1,125.00

Total – P130,930.64[10]

[GRAND TOTAL  -  P 826,662.99]

By reason of the above payments, petitioner was issued the corresponding Building Permit, Wiring Permit, Electrical

Permit and Sanitary Building Permit. On June 9, 2006, petitioner formally requested the respondents to refund the fees it

paid under protest. Under letters dated June 15, 2006 and August 7, 2006, respondent City Treasurer denied the claim for

refund.[11]

On August 31, 2006, petitioner filed a Complaint[12] before the trial court seeking the refund of P826,662.99 plus

interest at the rate of 12% per annum, and also praying for the award of attorney’s fees in the amount of P300,000.00 and

litigation expenses.

In its Answer,[13] respondents asserted that the claim of petitioner cannot be granted because its structures are not

among those mentioned in Sec. 209 of the National Building Code as exempted from the building permit

fee. Respondents argued that R.A. No. 6055 should be considered repealed on the basis of Sec. 2104 of the National

Building Code. Since the disputed assessments are regulatory in nature, they are not taxes from which petitioner is

exempt. As to the real property taxes imposed on petitioner’s property located in Marisol Village, respondents pointed

out that said premises will be used as a school dormitory which cannot be considered as a use exclusively for educational

activities.

Petitioner countered that the subject building permit are being collected on the basis of Art. 244 of

the Implementing Rules and Regulations of the Local Government Code , which impositions are really taxes considering

that they are provided under the chapter on “Local Government Taxation” in reference to the “revenue raising power” of

local government units (LGUs). Moreover, petitioner contended that, as held in Philippine Airlines, Inc. v. Edu,[14] fees may

be regarded as taxes depending on the purpose of its exaction. In any case, petitioner pointed out that the Local

Government Code of 1991 provides in Sec. 193 that non-stock and non-profit educational institutions like petitioner

retained the tax exemptions or incentives which have been granted to them. Under Sec. 8 of R.A. No. 6055 and applicable

jurisprudence and DOJ rulings, petitioner is clearly exempt from the payment of building permit fees. [15]

On September 21, 2007, the trial court rendered judgment in favor of the petitioner and against the

respondents. The dispositive portion of the trial court’s decision[16] reads:

WHEREFORE, premises considered, judgment is rendered as follows:

a. Plaintiff is exempt from the payment of building permit and other fees Ordering the Defendants to refund the total amount of Eight Hundred Twenty Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos (P826,662.99) plus legal interest thereon at the rate of twelve percent (12%) per annum commencing on the date of extra-judicial demand or June 14, 2006, until the aforesaid amount is fully paid.

b. Finding the Defendants liable for attorney’s fees in the amount of Seventy Thousand Pesos (Php70,000.00), plus litigation expenses.

c. Ordering the Defendants to pay the costs of the suit.

SO ORDERED.[17]

Respondents appealed to the CA which reversed the trial court, holding that while petitioner is a tax-free entity, it is

not exempt from the payment of regulatory fees. The CA noted that under R.A. No. 6055, petitioner was granted exemption

only from income tax derived from its educational activities and real property used exclusively for educational

purposes. Regardless of the repealing clause in the National Building Code, the CA held that petitioner is still not exempt

because a building permit cannot be considered as the other “charges” mentioned in Sec. 8 of R.A. No. 6055 which refers to

impositions in the nature of tax, import duties, assessments and other collections for revenue purposes, following

theejusdem generisrule. The CA further stated that petitioner has not shown that the fees collected were excessive and

more than the cost of surveillance, inspection and regulation. And while petitioner may be exempt from the payment of

real property tax, petitioner in this case merely alleged that “the subject property is to be used actually, directly and

exclusively for educational purposes,” declaring merely that such premises is intended to house the sports and other facilities

of the university but by reason of the occupancy of informal settlers on the area, it cannot yet utilize the same for its

intended use. Thus, the CA concluded that petitioner is not entitled to the refund of building permit and related fees, as well

as real property tax it paid under protest.

Petitioner filed a motion for reconsideration which was denied by the CA.

Hence, this petition raising the following grounds:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT

AND HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS NECESSITATING THE HONORABLE COURT’S EXERCISE OF ITS POWER OF SUPERVISION CONSIDERING THAT:

I. IN REVERSING THE TRIAL COURT’S DECISION DATED 21 SEPTEMBER 2007, THE COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE AUTHORITY OF THE COURT OF APPEALS TO DO.

A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND EFFECT. HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED IN THE QUESTIONED DECISION THAT NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT.

B. THE COURT OF APPEALS’ APPLICATION OF THE PRINCIPLE OF EJUSDEM GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM “OTHER CHARGES IMPOSED BY THE GOVERNMENT” UNDER SECTION 8 OF RA 6055 DOES NOT INCLUDE BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES IS BASED ON ITS ERRONEOUS AND UNWARRANTED ASSUMPTION THAT THE TAXES, IMPORT DUTIES AND ASSESSMENTS AS PART OF THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS ARE LIMITED TO COLLECTIONS FOR REVENUE PURPOSES.

C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES ARE NOT INCLUDED IN THE TERM “OTHER CHARGES IMPOSED BY THE GOVERNMENT” UNDER SECTION 8 OF RA 6055, ITS IMPOSITION IS GENERALLY A TAX MEASURE AND THEREFORE, STILL COVERED UNDER THE PRIVILEGE OF EXEMPTION.

II. THE COURT OF APPEALS’ DENIAL OF PETITIONER AUF’S EXEMPTION FROM REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE LAW AND JURISPRUDENCE.[18]

Petitioner stresses that the tax exemption granted to educational stock corporations which have converted into non-

profit foundations was broadened to include any other charges imposed by the Government as one of the incentives for

such conversion. These incentives necessarily included exemption from payment of building permit and related fees as

otherwise there would have been no incentives for educational foundations if the privilege were only limited to

exemption from taxation, which is already provided under the Constitution.

Petitioner further contends that this Court has consistently held in several cases that the primary purpose of the

exaction determines its nature. Thus, a charge of a fixed sum which bears no relation to the cost of inspection and which

is payable into the general revenue of the state is a tax rather than an exercise of the police power. The standard set by

law in the determination of the amount that may be imposed as license fees is such that is commensurate with the cost of

regulation, inspection and licensing. But in this case, the amount representing the building permit and related fees

and/or charges is such an exorbitant amount as to warrant a valid imposition; such amount exceeds the probable cost of

regulation. Even with the alleged criteria submitted by the respondents (e.g., character of occupancy or use of

building/structure, cost of construction, floor area and height), and the construction by petitioner of an 11-storey

building, the costs of inspection will not amount to P645,906.84, presumably for the salary of inspectors or employees,

the expenses of transportation for inspection and the preparation and reproduction of documents. Petitioner thus

concludes that the disputed fees are substantially and mainly for purposes of revenue rather than regulation, so that even

these fees cannot be deemed “charges” mentioned in Sec. 8 of R.A. No. 6055, they should properly be treated as tax from

which petitioner is exempt.

In their Comment, respondents maintain that petitioner is not exempt from the payment of building permit and

related fees since the only exemptions provided in the National Building Code are public buildings and traditional

indigenous family dwellings. Inclusio unius est exclusio alterius. Because the law did not include petitioner’s buildings

from those structures exempt from the payment of building permit fee, it is therefore subject to the regulatory fees

imposed under the National Building Code.

Respondents assert that the CA correctly distinguished a building permit fee from those “other charges” mentioned

in Sec. 8 of R.A. No. 6055. As stated by petitioner itself, charges refer to pecuniary liability, as rents, and fees against

persons or property. Respondents point out that a building permit is classified under the term “fee.” A fee is generally

imposed to cover the cost of regulation as activity or privilege and is essentially derived from the exercise of police power;

on the other hand, impositions for services rendered by the local government units or for conveniences furnished, are

referred to as “service charges”.

Respondents also disagreed with petitioner’s contention that the fees imposed and collected are exorbitant and

exceeded the probable expenses of regulation. These fees are based on computations and assessments made by the

responsible officials of the City Engineer’s Office in accordance with the Schedule of Fees and criteria provided in

theNational Building Code. The bases of assessment cited by petitioner (e.g. salary of employees, expenses of

transportation and preparation and reproduction of documents) refer to charges and fees on business and occupation

under Sec. 147 of the Local Government Code, which do not apply to building permit fees. The parameters set by

the National Building Code can be considered as complying with the reasonable cost of regulation in the assessment and

collection of building permit fees. Respondents likewise contend that the presumption of regularity in the performance of

official duty applies in this case. Petitioner should have presented evidence to prove its allegations that the amounts

collected are exorbitant or unreasonable.

For resolution are the following issues: (1) whether petitioner is exempt from the payment of building permit and

related fees imposed under the National Building Code; and (2) whether the parcel of land owned by petitioner which has

been assessed for real property tax is likewise exempt.

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to non-stock, non-

profit educational foundations. Section 8 of said law provides:

SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties, assessments, and other charges imposed by the Government onall income derived from orproperty, real or personal, used exclusively for the educational activities of the Foundation.(Emphasis supplied.)

On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National Building Code of the

Philippines. The said Code requires every person, firm or corporation, including any agency or instrumentality of the

government to obtain a building permit for any construction, alteration or repair of any building or structure. [19]Building

permit refers to “a document issued by the Building Official x x x to an owner/applicant to proceed with the construction,

installation, addition, alteration, renovation, conversion, repair, moving, demolition or other work activity of a

specific project/building/structure or portions thereof after the accompanying principal plans, specifications and other

pertinent documents with the duly notarized application are found satisfactory and substantially conforming with the

National Building Code of the Philippines x x x and its Implementing Rules and Regulations (IRR).” [20] Building permit fees

refers to the basic permit fee and other charges imposed under the National Building Code.

Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional indigenous family

dwellings.[21] Not being expressly included in the enumeration of structures to which the building permit fees do not

apply, petitioner’s claim for exemption rests solely on its interpretation of the term “other charges imposed by the

National Government” in the tax exemption clause of R.A. No. 6055.

A “charge” is broadly defined as the “price of, or rate for, something,” while the word “fee” pertains to a “charge

fixed by law for services of public officers or for use of a privilege under control of government.” [22] As used in the Local

Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary liability, as rents or fees against persons or

property, while fee means a charge fixed by law or ordinance for the regulation or inspection of a business or activity.[23]

That “charges” in its ordinary meaning appears to be a general term which could cover a specific “fee” does not

support petitioner’s position that building permit fees are among those “other charges” from which it was expressly

exempted. Note that the “other charges” mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words “imposed by

theGovernment on all x x x property used exclusively for the educational activities of the foundation.” Building permit fees

are not impositions on property but on the activity subject of government regulation. While it may be argued that the fees

relate to particular properties, i.e., buildings and structures, they are actually imposed on certain activities the owner may

conduct either to build such structures or to repair, alter, renovate or demolish the same. This is evident from the

following provisions of the National Building Code:

            Section 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health, property, and public welfare, consistent with theprinciples of sound environmental management and control; and tothis end, make it the purpose of this Code to provide for allbuildings and structures, a framework of minimum standards and requirements to regulate and control their location, site, design quality of materials, construction, use, occupancy, and maintenance.

            Section 103. Scope and Application

(a) The provisions of this Code shall apply to the design,location, sitting, construction, alteration, repair,conversion, use, occupancy, maintenance, moving, demolitionof, and addition to public and private buildings andstructures, except traditional indigenous family dwellingsas defined herein.

x x x x

Section 301. Building Permits

No person, firm or corporation, including any agency orinstrumentality of the government shall erect, construct, alter, repair, move, convert or demolish any building or structure or causethe same

to be done without first obtaining a building permittherefor from the Building Official assigned in the place where thesubject building is located or the building work is to be done. (Italics supplied.)

That a building permit fee is a regulatory imposition is highlighted by the fact that in processing an application for a

building permit, the Building Official shall see to it that the applicant satisfies and conforms with approved standard

requirements on zoning and land use, lines and grades, structural design, sanitary and sewerage, environmental health,

electrical and mechanical safety as well as with other rules and regulations implementing the National Building Code. [24] Thus,

ancillary permits such as electrical permit, sanitary permit and zoning clearance must also be secured and the corresponding

fees paid before a building permit may be issued. And as can be gleaned from the implementing rules and regulations of the

National Building Code, clearances from various government authorities exercising and enforcing regulatory functions affecting

buildings/structures, like local government units, may be further required before a building permit may be issued.[25]  

Since building permit fees are not charges on property, they are not impositions from which petitioner is exempt.

As to petitioner’s argument that the building permit fees collected by respondents are in reality taxes because

the primary purpose is to raise revenues for the local government unit, the same does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a

tax rather than an exercise of the police power.[26] In this case, the Secretary of Public Works and Highways who is

mandated to prescribe and fix the amount of fees and other charges that the Building Official shall collect in connection

with the performance of regulatory functions,[27] has promulgated and issued the Implementing Rules and

Regulations[28] which provide for the bases of assessment of such fees, as follows:1. Character of occupancy or use of building2. Cost of construction “ 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)3. Floor area4. Height

Petitioner failed to demonstrate that the above bases of assessment were arbitrarily determined or unrelated to

the activity being regulated. Neither has petitioner adduced evidence to show that the rates of building permit fees

imposed and collected by the respondents were unreasonable or in excess of the cost of regulation and inspection.

In Chevron Philippines, Inc. v. Bases Conversion Development Authority,[29] this Court explained:

In distinguishing tax and regulation as a form of police power, the determining factor is the purpose of the implemented measure. If the purpose is primarily to raise revenue, then it will be deemed a tax even though the measure results in some form of regulation. On the other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police power of the   state,   even   though   incidentally,   revenue   is   generated. Thus, in Gerochi v. Department of Energy, the Court stated:

“The conservative and pivotal distinction between these two (2) powers rests in the purpose for which the charge is made. If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is

the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax.”[30] (Emphasis supplied.)

Concededly, in the case of building permit fees imposed by the National Government under the National Building

Code, revenue is incidentally generated for the benefit of local government units. Thus:

Section 208. Fees

Every Building Official shall keep a permanent record and accurate account of all fees and other charges fixed and authorized by the Secretary to be collected and received under this Code.

Subject to existing budgetary, accounting and auditing rules and regulations, the Building Official is hereby authorized to retain not more than twenty percent of his collection for the operating expenses of his office.

The remaining eighty percent shall be deposited with the provincial, city or municipal treasurer and shall accrue to the General Fund of the province, city or municipality concerned.

Petitioner’s reliance on Sec. 193 of the Local Government Code of 1991 is likewise misplaced. Said provision

states:

SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied.)

Considering that exemption from payment of regulatory fees was not among those “incentives” granted to

petitioner under R.A. No. 6055, there is no such incentive that is retained under the Local Government Code of

1991. Consequently, no reversible error was committed by the CA in ruling that petitioner is liable to pay the subject

building permit and related fees.

Now, on petitioner’s claim that it is exempted from the payment of real property tax assessed against its real

property presently occupied by informal settlers.

Section 28(3), Article VI of the 1987 Constitution provides:

x x x x

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,   directly   and exclusively used for religious, charitable or educational purposes shall be exempt from taxation.

x x x x (Emphasis supplied.)

Section 234(b) of the Local Government Code of 1991 implements the foregoing constitutional provision by

declaring that --

SECTION 234. Exemptions from Real Property Tax.– The following are exempted from payment of the real property tax:

x x x x

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually,  directly,  and exclusively used for religious, charitable or educational purposes;

x x x x (Emphasis supplied.)

In Lung Center of the Philippines v. Quezon City,[31] this Court held that only portions of the hospital actually, directly

and exclusively used for charitable purposes are exempt from real property taxes, while those portions leased to private

entities and individuals are not exempt from such taxes. We explained the condition for the tax exemption privilege of

charitable and educational institutions, as follows:

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable   institution   is  organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. [32] (Emphasis and underscoring supplied.)

Petitioner failed to discharge its burden to prove that its real property is actually, directly and exclusively used for

educational purposes. While there is no allegation or proof that petitioner leases the land to its present occupants, still

there is no compliance with the constitutional and statutory requirement that said real property is actually, directly and

exclusively used for educational purposes. The respondents correctly assessed the land for real property taxes for the

taxable period during which the land is not being devoted solely to petitioner’s educational activities. Accordingly, the CA

did not err in ruling that petitioner is likewise not entitled to a refund of the real property tax it paid under protest.

WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution dated October 12, 2009 of

the Court of Appeals in CA-G.R. CV No. 90591 areAFFIRMED.

No pronouncement as to costs.

PAL vs. EDU

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the National Government during the life of this franchise a tax of two per cent of the gross revenue or gross earning derived by the grantee from its operations under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national automobiles, Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten days from the receipt of the assessment. The grantee shall pay the tax on its real property in conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of "registration fees." The term is repeated four times in the body thereof. Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts with a categorical statement "No fees shall be charged." (lbid.,Subsection H) The conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power. Hence the incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It is not held liable for a tax but for a registration fee. It therefore cannot make use of a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of additional tax on privately-owned passenger automobiles, motorcycles and scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was thereby created and its title expressly sets forth that a tax on privately-owned passenger automobiles, motorcycles and scooters was imposed. The rates thereof were provided for in its Section 3 which clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the registration fee under the Motor Vehicle Act. There cannot be any clearer expression therefore of the legislative will, even on the assumption that the earlier legislation could by subdivision the point be susceptible of the interpretation that a tax rather than a fee was levied. What is thus most apparent is that where the legislative body relies on its authority to tax it expressly so states, and where it is enacting a regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles are in section 8 of that law called "fees". But the appellation is no impediment to their being considered taxes if taxes they really are. For not the name but the object of the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas fees are exceptional. for purposes of regulation and inspection and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by statute for the service to be person,-When by an officer, where the charge has no relation to the value of the services performed and where the amount collected eventually finds its way into the treasury of the branch of the government whose officer or officers collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle Office are but a small portion—about 5 per centum—of the total collections from motor vehicle registration fees. And as proof that the money collected is not intended for the expenditures of that office, the law itself provides that all such money shall accrue to the funds for the construction and maintenance of public roads, streets and bridges. It is thus obvious that the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, for their express object is to provide revenue with which the Government is to discharge one of its principal functions—the construction and maintenance of public highways for everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no other taxes or fees than those prescribed in this Act shall be imposed," thus implying that the charges therein imposed—though called fees—are of the category of taxes. The provision is contained in section 70, of subsection (b), of the law, as amended by section 17 of Republic Act 587, which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur, by any municipal corporation, the provisions of any city charter to the contrary notwithstanding: Provided, however, That any provincial board, city or municipal council or board, or other competent authority may exact and collect such reasonable and equitable toll fees for the use of such bridges and ferries, within their respective jurisdiction, as may be authorized and approved by the Secretary of Public Works and Communications, and also for the use of such public roads, as may be authorized by the President of the Philippines upon the recommendation of the Secretary of Public Works and Communications, but in none of these cases, shall any toll fee." be charged or collected until and unless the approved schedule of tolls shall have been posted levied, in a conspicuous place at such toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money collected under the provisions of this Act shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum shall during the next previous year and the remaining eighty per centum shall be deposited in the Philippine Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges. as well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and Communications for projects recommended by the Director of Public Works in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this Act shall be deposited in a special trust account in the National Treasury to constitute the Highway Special Fund, which shall be apportioned and expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and equip the Land Transportation Commission but not to exceed twenty per cent of the total collection during one year, shall be set aside for the purpose. (As amended by RA 64-67, approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand, thePhilippine Rabbit case mentions a presumption arising from the use of the term "fees," which appears to have been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles subject to payment of taxes, customs s duties or other charges shall be accepted unless proof of payment of the taxes due thereon has been presented to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees. Isabela such case, the fees may properly be regarded as taxes even though they also serve as an instrument of regulation. 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. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-593).

Indeed, 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 (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593). 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." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. 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. 591-593). of the Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio Communications of the Philippines, Inc., was subject to both the franchise tax and income tax. In 1964, however, petitioner's franchise was amended by Republic Act No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby expressly exempted." The issue raised to this Court now is the validity of the respondent court's decision which ruled that the exemption under Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections 24 (c) (1) of this Code shall pay the rates provided in this section. All corporations, agencies, or instrumentalities owned or controlled by the government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all corporate taxpayers to pay income tax as provided by the statute. There can be no doubt as to the power of Congress to repeal the earlier exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no franchise shall be granted to any individual, firm, or corporation except under the condition that it shall be subject to amendment, alteration, or repeal by the legislature when the public interest so requires. There is no question as to the public interest involved. The country needs increased revenues. The repealing clause is clear and unambiguous. There is a listing of entities entitled to tax exemption. The petitioner is not covered by the provision. Considering the foregoing, the Court Resolved to DENY the petition for lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the lifetime of this franchise whichever of subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues. derived by the grantees from all specific. without distinction as to transport or nontransport corporations; provided that with respect to international airtransport service, only the gross passengers, mail, and freight revenues. from its outgoing flights shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government, agency, now or in the future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of airtransport equipment, motor vehicles, and all other personal or real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

CHAPTER 5: POLICE POWER

EXERCISE OF THE POLICE POWER

White Light Corporation vs. City of Manila

D E C I S I O N 

TINGA, J.:

With another city ordinance of Manila also principally involving the tourist district as subject, the Court is confronted

anew with the incessant clash between government power and individual liberty in tandem with the archetypal tension

between law and morality.

In City of Manila v. Laguio, Jr.,[1] the Court affirmed the nullification of a city ordinance barring the operation of

motels and inns, among other establishments, within the Ermita-Malate area. The petition at bar assails a similarly-

motivated city ordinance that prohibits those same establishments from offering short-time admission, as well as pro-

rated or “wash up” rates for such abbreviated stays. Our earlier decision tested the city ordinance against our sacred

constitutional rights to liberty, due process and equal protection of law. The same parameters apply to the present

petition.

This Petition[2] under Rule 45 of the Revised Rules on Civil Procedure, which seeks the reversal of the Decision [3] in

C.A.-G.R. S.P. No. 33316 of the Court of Appeals, challenges the validity of Manila City Ordinance No. 7774 entitled, “An

Ordinance Prohibiting Short-Time Admission, Short-Time Admission Rates, and Wash-Up Rate Schemes in Hotels, Motels,

Inns, Lodging Houses, Pension Houses, and Similar Establishments in the City of Manila” (the Ordinance).

I.

The facts are as follows:

On December 3, 1992, City Mayor Alfredo S. Lim (Mayor Lim) signed into law the Ordinance. [4] The Ordinance is

reproduced in full, hereunder:

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

SEC. 2. Title. This ordinance shall be known as “An Ordinance” prohibiting short time admission in hotels, motels, lodging houses, pension houses and similar establishments in the City of Manila. SEC. 3. Pursuant to the above policy, short-time admission and rate [sic], wash-up rate or other similarly concocted terms, are hereby prohibited in hotels, motels, inns, lodging houses, pension houses and similar establishments in the City of Manila. SEC. 4. Definition of Term[s]. Short-time admission shall mean admittance and charging of room rate for less than twelve (12) hours at any given time or the renting out of rooms more than twice a day or any other term that may be concocted by owners or managers of said establishments but would mean the same or would bear the same meaning. SEC. 5. Penalty Clause. Any person or corporation who shall violate any provision of this ordinance shall upon conviction thereof be punished by a fine of Five Thousand (P5,000.00) Pesos or imprisonment for a period of not exceeding one (1) year or both such fine and imprisonment at the discretion of the court; Provided, That in case of [a] juridical person, the president, the manager, or the persons in charge of the operation thereof shall be liable: Provided, further, That in case of subsequent conviction for the same offense, the business license of the guilty party shall automatically be cancelled. SEC. 6. Repealing Clause. Any or all provisions of City ordinances not consistent with or contrary to this measure or any portion hereof are hereby deemed repealed. SEC. 7. Effectivity. This ordinance shall take effect immediately upon approval. Enacted by the city Council of Manila at its regular session today, November 10, 1992. Approved by His Honor, the Mayor on December 3, 1992.

On December 15, 1992, the Malate Tourist and Development Corporation (MTDC) filed a complaint for

declaratory relief with prayer for a writ of preliminary injunction and/or temporary restraining order ( TRO)[5] with the

Regional Trial Court (RTC) of Manila, Branch 9 impleading as defendant, herein respondent City of Manila (the City)

represented by Mayor Lim.[6] MTDC prayed that the Ordinance, insofar as it includes motels and inns as among its

prohibited establishments, be declared invalid and unconstitutional. MTDC claimed that as owner and operator of the

Victoria Court in Malate, Manila it was authorized by Presidential Decree (P.D.) No. 259 to admit customers on a short

time basis as well as to charge customers wash up rates for stays of only three hours.

On December 21, 1992, petitioners White Light Corporation (WLC), Titanium Corporation (TC) and Sta. Mesa

Tourist and Development Corporation (STDC) filed a motion to intervene and to admit attached complaint-in-

intervention[7] on the ground that the Ordinance directly affects their business interests as operators of drive-in-hotels

and motels inManila.[8] The three companies are components of the Anito Group of Companies which owns and operates

several hotels and motels in Metro Manila.[9]

On December 23, 1992, the RTC granted the motion to intervene.[10] The RTC also notified the Solicitor General of

the proceedings pursuant to then Rule 64, Section 4 of the Rules of Court. On the same date, MTDC moved to withdraw

as plaintiff.[11]

On December 28, 1992, the RTC granted MTDC's motion to withdraw. [12] The RTC issued a TRO on January 14, 1993,

directing the City to cease and desist from enforcing the Ordinance.[13] The City filed an Answer dated January 22,

1993 alleging that the Ordinance is a legitimate exercise of police power.[14]

On February 8, 1993, the RTC issued a writ of preliminary injunction ordering the city to desist from the enforcement

of the Ordinance.[15] A month later, on March 8, 1993, the Solicitor General filed his Comment arguing that the Ordinance

is constitutional.

During the pre-trial conference, the WLC, TC and STDC agreed to submit the case for decision without trial as the

case involved a purely legal question.[16] On October 20, 1993, the RTC rendered a decision declaring the Ordinance null

and void. The dispositive portion of the decision reads:

WHEREFORE, in view of all the foregoing, [O]rdinance No. 7774 of the City of Manila is hereby declared null and void. Accordingly, the preliminary injunction heretofor issued is hereby made permanent. SO ORDERED.[17]

The RTC noted that the ordinance “strikes at the personal liberty of the individual guaranteed and jealously

guarded by the Constitution.”[18] Reference was made to the provisions of the Constitution encouraging private

enterprises and the incentive to needed investment, as well as the right to operate economic enterprises. Finally, from

the observation that the illicit relationships the Ordinance sought to dissuade could nonetheless be consummated by

simply paying for a 12-hour stay, the RTC likened the law to the ordinance annulled in Ynot v. Intermediate Appellate

Court,[19] where the legitimate purpose of preventing indiscriminate slaughter of carabaos was sought to be effected

through an inter-province ban on the transport of carabaos and carabeef.

The City later filed a petition for review on certiorari with the Supreme Court.[20] The petition was docketed as

G.R. No. 112471. However in a resolution dated January 26, 1994, the Court treated the petition as a petition

for certiorari and referred the petition to the Court of Appeals.[21]

Before the Court of Appeals, the City asserted that the Ordinance is a valid exercise of police power pursuant to

Section 458 (4)(iv) of the Local Government Code which confers on cities, among other local government units, the

power:

[To] regulate the establishment, operation and maintenance of cafes, restaurants,

beerhouses, hotels, motels, inns, pension houses, lodging houses and other similar establishments, including tourist guides and transports.[22]

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

Revised Manila Charter, thus:

“to enact all ordinances it may deem necessary and proper for the sanitation and safety,

the furtherance of the prosperity and the promotion of the morality, peace, good order, comfort, convenience and general welfare of the city and its inhabitants, and such others as be necessary to carry into effect and discharge the powers and duties conferred by this Chapter; and to fix penalties for the violation of ordinances which shall not exceed two hundred pesos fine or six months imprisonment, or both such fine and imprisonment for a single offense.[23]

Petitioners argued that the Ordinance is unconstitutional and void since it violates the right to privacy and the

freedom of movement; it is an invalid exercise of police power; and it is an unreasonable and oppressive interference in

their business.

The Court of Appeals reversed the decision of the RTC and affirmed the constitutionality of the Ordinance. [24] First, it

held that the Ordinance did not violate the right to privacy or the freedom of movement, as it only penalizes the owners

or operators of establishments that admit individuals for short time stays. Second, the virtually limitless reach of police

power is only constrained by having a lawful object obtained through a lawful method. The lawful objective of the

Ordinance is satisfied since it aims to curb immoral activities. There is a lawful method since the establishments are still

allowed to operate. Third, the adverse effect on the establishments is justified by the well-being of its constituents in

general. Finally, as held in Ermita-Malate Motel Operators Association v. City Mayor of Manila, liberty is regulated by law.

TC, WLC and STDC come to this Court via petition for review on certiorari.[25] In their petition and Memorandum,

petitioners in essence repeat the assertions they made before the Court of Appeals. They contend that the assailed

Ordinance is an invalid exercise of police power.

II.

We must address the threshold issue of petitioners’ standing. Petitioners allege that as owners of establishments

offering “wash-up” rates, their business is being unlawfully interfered with by the Ordinance. However, petitioners also

allege that the equal protection rights of their clients are also being interfered with. Thus, the crux of the matter is

whether or not these establishments have the requisite standing to plead for protection of their patrons' equal protection

rights.

Standing or locus standi is the ability of a party to demonstrate to the court sufficient connection to and harm

from the law or action challenged to support that party's participation in the case. More importantly, the doctrine of

standing is built on the principle of separation of powers,[26] sparing as it does unnecessary interference or invalidation by

the judicial branch of the actions rendered by its co-equal branches of government.

The requirement of standing is a core component of the judicial system derived directly from the Constitution.[27] The constitutional component of standing doctrine incorporates concepts which concededly are not susceptible of

precise definition.[28] In this jurisdiction, the extancy of “a direct and personal interest” presents the most obvious cause,

as well as the standard test for a petitioner's standing. [29] In a similar vein, the United States Supreme Court reviewed and

elaborated on the meaning of the three constitutional standing requirements of injury, causation, and redressability

in Allen v. Wright.[30]

Nonetheless, the general rules on standing admit of several exceptions such as the overbreadth doctrine, taxpayer

suits, third party standing and, especially in the Philippines, the doctrine of transcendental importance.[31]

For this particular set of facts, the concept of third party standing as an exception and the overbreadth doctrine are

appropriate. In Powers v. Ohio,[32] the United States Supreme Court wrote that: “We have recognized the right of litigants

to bring actions on behalf of third parties, provided three important criteria are satisfied: the litigant must have suffered

an ‘injury-in-fact,’ thus giving him or her a "sufficiently concrete interest" in the outcome of the issue in dispute; the

litigant must have a close relation to the third party; and there must exist some hindrance to the third party's ability to

protect his or her own interests."[33] Herein, it is clear that the business interests of the petitioners are likewise injured by

the Ordinance. They rely on the patronage of their customers for their continued viability which appears to be threatened

by the enforcement of the Ordinance. The relative silence in constitutional litigation of such special interest groups in our

nation such as the American Civil Liberties Union in the United States may also be construed as a hindrance for customers

to bring suit.[34]

American jurisprudence is replete with examples where parties-in-interest were allowed standing to advocate or

invoke the fundamental due process or equal protection claims of other persons or classes of persons injured by state

action. In Griswold v. Connecticut,[35] the United States Supreme Court held that physicians had standing to challenge a

reproductive health statute that would penalize them as accessories as well as to plead the constitutional protections

available to their patients. The Court held that: “The rights of husband and wife, pressed here, are likely to be diluted or adversely affected unless those rights are considered in a suit involving those who have this kind of confidential relation to them."[36]

An even more analogous example may be found in Craig v. Boren,[37] wherein the United States Supreme Court held

that a licensed beverage vendor has standing to raise the equal protection claim of a male customer challenging a

statutory scheme prohibiting the sale of beer to males under the age of 21 and to females under the age of 18. The

United States High Court explained that the vendors had standing "by acting as advocates of the rights of third parties

who seek access to their market or function."[38]

Assuming arguendo that petitioners do not have a relationship with their patrons for the former to assert the rights

of the latter, the overbreadth doctrine comes into play. In overbreadth analysis, challengers to government action are in

effect permitted to raise the rights of third parties. Generally applied to statutes infringing on the freedom of speech, the

overbreadth doctrine applies when a statute needlessly restrains even constitutionally guaranteed rights. [39] In this case,

the petitioners claim that the Ordinance makes a sweeping intrusion into the right to liberty of their clients. We can see

that based on the allegations in the petition, the Ordinance suffers from overbreadth.

We thus recognize that the petitioners have a right to assert the constitutional rights of their clients to patronize

their establishments for a “wash-rate” time frame.

III.

To students of jurisprudence, the facts of this case will recall to mind not only the recent City of Manila ruling, but

our 1967 decision in Ermita-Malate Hotel and Motel Operations Association, Inc., v. Hon. City Mayor of Manila.[40] Ermita-

Malate concerned the City ordinance requiring patrons to fill up a prescribed form stating personal information such as

name, gender, nationality, age, address and occupation before they could be admitted to a motel, hotel or lodging house.

This earlier ordinance was precisely enacted to minimize certain practices deemed harmful to public morals. A purpose

similar to the annulled ordinance in City of Manila which sought a blanket ban on motels, inns and similar establishments

in the Ermita-Malate area. However, the constitutionality of the ordinance in Ermita-Malate was sustained by the Court.

The common thread that runs through those decisions and the case at bar goes beyond the singularity of the

localities covered under the respective ordinances. All three ordinances were enacted with a view of regulating public

morals including particular illicit activity in transient lodging establishments. This could be described as the middle case,

wherein there is no wholesale ban on motels and hotels but the services offered by these establishments have been

severely restricted. At its core, this is another case about the extent to which the State can intrude into and regulate the

lives of its citizens.

          The test of a valid ordinance is well established. A long line of decisions including City of Manila has held that for an

ordinance to be valid, it must not only be within the corporate powers of the local government unit to enact and pass

according to the procedure prescribed by law, it must also conform to the following substantive requirements: (1) must

not contravene the Constitution or any statute; (2) must not be unfair or oppressive; (3) must not be partial or

discriminatory; (4) must not prohibit but may regulate trade; (5) must be general and consistent with public policy; and (6)

must not be unreasonable.[41]

The Ordinance prohibits two specific and distinct business practices, namely wash rate admissions and renting

out a room more than twice a day. The ban is evidently sought to be rooted in the police power as conferred on local

government units by the Local Government Code through such implements as the general welfare clause.

A.

Police power, while incapable of an exact definition, has been purposely veiled in general terms to underscore its

comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response as the

conditions warrant.[42] Police power is based upon the concept of necessity of the State and its corresponding right to

protect itself and its people.[43] Police power has been used as justification for numerous and varied actions by the State.

These range from the regulation of dance halls, [44] movie theaters,[45] gas stations[46] and cockpits.[47] The awesome scope of

police power is best demonstrated by the fact that in its hundred or so years of presence in our nation’s legal system, its

use has rarely been denied.

The apparent goal of the Ordinance is to minimize if not eliminate the use of the covered establishments for illicit

sex, prostitution, drug use and alike. These goals, by themselves, are unimpeachable and certainly fall within the ambit of

the police power of the State. Yet the desirability of these ends do not sanctify any and all means for their achievement.

Those means must align with the Constitution, and our emerging sophisticated analysis of its guarantees to the people.

The Bill of Rights stands as a rebuke to the seductive theory of Macchiavelli, and, sometimes even, the political majorities

animated by his cynicism.

Even as we design the precedents that establish the framework for analysis of due process or equal protection

questions, the courts are naturally inhibited by a due deference to the co-equal branches of government as they exercise

their political functions. But when we are compelled to nullify executive or legislative actions, yet another form of caution

emerges. If the Court were animated by the same passing fancies or turbulent emotions that motivate many political

decisions, judicial integrity is compromised by any perception that the judiciary is merely the third political branch of

government. We derive our respect and good standing in the annals of history by acting as judicious and neutral arbiters

of the rule of law, and there is no surer way to that end than through the development of rigorous and sophisticated legal

standards through which the courts analyze the most fundamental and far-reaching constitutional questions of the day.

B.

The primary constitutional question that confronts us is one of due process, as guaranteed under Section 1,

Article III of the Constitution. Due process evades a precise definition. [48] The purpose of the guaranty is to prevent

arbitrary governmental encroachment against the life, liberty and property of individuals. The due process guaranty

serves as a protection against arbitrary regulation or seizure. Even corporations and partnerships are protected by the

guaranty insofar as their property is concerned.

The due process guaranty has traditionally been interpreted as imposing two related but distinct restrictions on

government, "procedural due process" and "substantive due process." Procedural due process refers to the procedures

that the government must follow before it deprives a person of life, liberty, or property. [49] Procedural due process

concerns itself with government action adhering to the established process when it makes an intrusion into the private

sphere. Examples range from the form of notice given to the level of formality of a hearing.

If due process were confined solely to its procedural aspects, there would arise absurd situation of arbitrary

government action, provided the proper formalities are followed. Substantive due process completes the protection

envisioned by the due process clause. It inquires whether the government has sufficient justification for depriving a

person of life, liberty, or property.[50]

The question of substantive due process, moreso than most other fields of law, has reflected dynamism in

progressive legal thought tied with the expanded acceptance of fundamental freedoms. Police power, traditionally

awesome as it may be, is now confronted with a more rigorous level of analysis before it can be upheld. The vitality

though of constitutional due process has not been predicated on the frequency with which it has been utilized to achieve

a liberal result for, after all, the libertarian ends should sometimes yield to the prerogatives of the State. Instead, the due

process clause has acquired potency because of the sophisticated methodology that has emerged to determine the

proper metes and bounds for its application.

C.

The general test of the validity of an ordinance on substantive due process grounds is best tested when assessed

with the evolved footnote 4 test laid down by the U.S. Supreme Court in U.S. v. Carolene Products.[51] Footnote 4 of

the Carolene Products case acknowledged that the judiciary would defer to the legislature unless there is a discrimination

against a “discrete and insular” minority or infringement of a “fundamental right.” [52] Consequently, two standards of

judicial review were established: strict scrutiny for laws dealing with freedom of the mind or restricting the political

process, and the rational basis standard of review for economic legislation.

A third standard, denominated as heightened or immediate scrutiny, was later adopted by the U.S. Supreme

Court for evaluating classifications based on gender [53] and legitimacy.[54] Immediate scrutiny was adopted by the U.S.

Supreme Court in Craig,[55] after the Court declined to do so in Reed v. Reed.[56] While the test may have first been

articulated in equal protection analysis, it has in the United States since been applied in all substantive due process cases

as well.

We ourselves have often applied the rational basis test mainly in analysis of equal protection challenges. [57] Using

the rational basis examination, laws or ordinances are upheld if they rationally further a legitimate governmental interest.[58] Under intermediate review, governmental interest is extensively examined and the availability of less restrictive

measures is considered.[59] Applying strict scrutiny, the focus is on the presence of compelling, rather than substantial,

governmental interest and on the absence of less restrictive means for achieving that interest.

In terms of judicial review of statutes or ordinances, strict scrutiny refers to the standard for determining the

quality and the amount of governmental interest brought to justify the regulation of fundamental freedoms. [60] Strict

scrutiny is used today to test the validity of laws dealing with the regulation of speech, gender, or race as well as other

fundamental rights as expansion from its earlier applications to equal protection. [61] The United States Supreme Court has

expanded the scope of strict scrutiny to protect fundamental rights such as suffrage, [62] judicial access[63] and interstate

travel.[64]

If we were to take the myopic view that an Ordinance should be analyzed strictly as to its effect only on the

petitioners at bar, then it would seem that the only restraint imposed by the law which we are capacitated to act upon is

the injury to property sustained by the petitioners, an injury that would warrant the application of the most deferential

standard – the rational basis test. Yet as earlier stated, we recognize the capacity of the petitioners to invoke as well the

constitutional rights of their patrons – those persons who would be deprived of availing short time access or wash-up

rates to the lodging establishments in question.

Viewed cynically, one might say that the infringed rights of these customers were are trivial since they seem

shorn of political consequence. Concededly, these are not the sort of cherished rights that, when proscribed, would impel

the people to tear up their cedulas. Still, the Bill of Rights does not shelter gravitas alone. Indeed, it is those “trivial” yet

fundamental freedoms – which the people reflexively exercise any day without the impairing awareness of their

constitutional consequence – that accurately reflect the degree of liberty enjoyed by the people. Liberty, as integrally

incorporated as a fundamental right in the Constitution, is not a Ten Commandments-style enumeration of what may or

what may not be done; but rather an atmosphere of freedom where the people do not feel labored under a Big Brother

presence as they interact with each other, their society and nature, in a manner innately understood by them as inherent,

without doing harm or injury to others.

D.

The rights at stake herein fall within the same fundamental rights to liberty which we upheld in City of Manila v.

Hon. Laguio, Jr. We expounded on that most primordial of rights, thus:

Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include "the right

to exist and the right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere freedom from physical restraint of the person of the citizen, but is deemed to embrace the right of man to enjoy the facilities with which he has been endowed by his Creator, subject only to such restraint as are necessary for the common welfare."[ [65]] In accordance with this case, the rights of the citizen to be free to use his faculties in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; and to pursue any avocation are all deemed embraced in the concept of liberty.[[66]]

The U.S. Supreme Court in the case of Roth v. Board of Regents, sought to clarify the meaning

of "liberty." It said:

While the Court has not attempted to define with exactness the liberty . . .

guaranteed [by the Fifth and Fourteenth Amendments], the term denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of his own conscience, and generally to enjoy those privileges long recognized . . . as essential to the orderly pursuit of happiness by free men. In a Constitution for a free people, there can be no doubt that the meaning of "liberty" must be broad indeed.[67] [Citations omitted]

It cannot be denied that the primary animus behind the ordinance is the curtailment of sexual behavior. The City

asserts before this Court that the subject establishments “have gained notoriety as venue of ‘prostitution, adultery and

fornications’ in Manila since they ‘provide the necessary atmosphere for clandestine entry, presence and exit and thus

became the ‘ideal haven for prostitutes and thrill-seekers.’” [68] Whether or not this depiction of a mise-en-scene of vice is

accurate, it cannot be denied that legitimate sexual behavior among willing married or consenting single adults which is

constitutionally protected[69] will be curtailed as well, as it was in the City of Manila case. Our holding therein retains

significance for our purposes:

The concept of liberty compels respect for the individual whose claim to privacy and

interference demands respect. As the case of Morfe v. Mutuc, borrowing the words of Laski, so very aptly stated:

Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation, are indefeasible; indeed, they are so fundamental that they are the basis on which his civic obligations are built. He cannot abandon the consequences of his isolation, which are, broadly speaking, that his experience is private, and the will built out of that experience personal to himself. If he surrenders his will to others, he surrenders himself. If his will is set by the will of others, he ceases to be a master of himself. I cannot believe that a man no longer a master of himself is in any real sense free.

Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of

which should be justified by a compelling state interest. Morfe accorded recognition to the right to privacy independently of its identification with liberty; in itself it is fully deserving of constitutional protection. Governmental powers should stop short of certain intrusions into the personal life of the citizen.[70]

We cannot discount other legitimate activities which the Ordinance would proscribe or impair. There are very

legitimate uses for a wash rate or renting the room out for more than twice a day. Entire families are known to choose

pass the time in a motel or hotel whilst the power is momentarily out in their homes. In transit passengers who wish to

wash up and rest between trips have a legitimate purpose for abbreviated stays in motels or hotels. Indeed any person or

groups of persons in need of comfortable private spaces for a span of a few hours with purposes other than having sex or

using illegal drugs can legitimately look to staying in a motel or hotel as a convenient alternative.

E.

That the Ordinance prevents the lawful uses of a wash rate depriving patrons of a product and the petitioners of

lucrative business ties in with another constitutional requisite for the legitimacy of the Ordinance as a police power

measure. It must appear that the interests of the public generally, as distinguished from those of a particular class, require

an interference with private rights and the means must be reasonably necessary for the accomplishment of the purpose

and not unduly oppressive of private rights.[71] It must also be evident that no other alternative for the accomplishment of

the purpose less intrusive of private rights can work. More importantly, a reasonable relation must exist between the

purposes of the measure and the means employed for its accomplishment, for even under the guise of protecting the

public interest, personal rights and those pertaining to private property will not be permitted to be arbitrarily invaded. [72]

Lacking a concurrence of these requisites, the police measure shall be struck down as an arbitrary intrusion into

private rights. As held in Morfe v. Mutuc, the exercise of police power is subject to judicial review when life, liberty or

property is affected.[73] However, this is not in any way meant to take it away from the vastness of State police power

whose exercise enjoys the presumption of validity.[74]

Similar to the Comelec resolution requiring newspapers to donate advertising space to candidates, this

Ordinance is a blunt and heavy instrument.[75] The Ordinance makes no distinction between places frequented by patrons

engaged in illicit activities and patrons engaged in legitimate actions. Thus it prevents legitimate use of places where illicit

activities are rare or even unheard of. A plain reading of section 3 of the Ordinance shows it makes no classification

of places of lodging, thus deems them all susceptible to illicit patronage and subject them without exception to the

unjustified prohibition.

The Court has professed its deep sentiment and tenderness of the Ermita-Malate area, its longtime home, [76] and

it is skeptical of those who wish to depict our capital city – the Pearl of the Orient – as a modern-

day Sodom or Gomorrah for the Third World set. Those still steeped in Nick Joaquin-dreams of the grandeur of

Old Manila will have to accept that Manila like all evolving big cities, will have its problems. Urban decay is a fact of mega

cities such as Manila, and vice is a common problem confronted by the modern metropolis wherever in the world. The

solution to such perceived decay is not to prevent legitimate businesses from offering a legitimate product. Rather, cities

revive themselves by offering incentives for new businesses to sprout up thus attracting the dynamism of individuals that

would bring a new grandeur to Manila.

The behavior which the Ordinance seeks to curtail is in fact already prohibited and could in fact be diminished

simply by applying existing laws. Less intrusive measures such as curbing the proliferation of prostitutes and drug dealers

through active police work would be more effective in easing the situation. So would the strict enforcement of existing

laws and regulations penalizing prostitution and drug use. These measures would have minimal intrusion on the

businesses of the petitioners and other legitimate merchants. Further, it is apparent that the Ordinance can easily be

circumvented by merely paying the whole day rate without any hindrance to those engaged in illicit activities. Moreover,

drug dealers and prostitutes can in fact collect “wash rates” from their clientele by charging their customers a portion of

the rent for motel rooms and even apartments.

IV.

We reiterate that individual rights may be adversely affected only to the extent that may fairly be required by the

legitimate demands of public interest or public welfare. The State is a leviathan that must be restrained from needlessly

intruding into the lives of its citizens. However well-intentioned the Ordinance may be, it is in effect an arbitrary and

whimsical intrusion into the rights of the establishments as well as their patrons. The Ordinance needlessly restrains the

operation of the businesses of the petitioners as well as restricting the rights of their patrons without sufficient

justification. The Ordinance rashly equates wash rates and renting out a room more than twice a day with immorality

without accommodating innocuous intentions.

The promotion of public welfare and a sense of morality among citizens deserves the full endorsement of the

judiciary provided that such measures do not trample rights this Court is sworn to protect. [77] The notion that the

promotion of public morality is a function of the State is as old as Aristotle. [78] The advancement of moral relativism as a

school of philosophy does not de-legitimize the role of morality in law, even if it may foster wider debate on which

particular behavior to penalize. It is conceivable that a society with relatively little shared morality among its citizens could

be functional so long as the pursuit of sharply variant moral perspectives yields an adequate accommodation of different

interests.[79]

To be candid about it, the oft-quoted American maxim that “you cannot legislate morality” is ultimately

illegitimate as a matter of law, since as explained by Calabresi, that phrase is more accurately interpreted as meaning that

efforts to legislate morality will fail if they are widely at variance with public attitudes about right and wrong. [80] Our penal

laws, for one, are founded on age-old moral traditions, and as long as there are widely accepted distinctions between

right and wrong, they will remain so oriented.

Yet the continuing progression of the human story has seen not only the acceptance of the right-wrong

distinction, but also the advent of fundamental liberties as the key to the enjoyment of life to the fullest. Our democracy

is distinguished from non-free societies not with any more extensive elaboration on our part of what is moral and

immoral, but from our recognition that the individual liberty to make the choices in our lives is innate, and protected by

the State. Independent and fair-minded judges themselves are under a moral duty to uphold the Constitution as the

embodiment of the rule of law, by reason of their expression of consent to do so when they take the oath of office, and

because they are entrusted by the people to uphold the law.[81]

Even as the implementation of moral norms remains an indispensable complement to governance, that

prerogative is hardly absolute, especially in the face of the norms of due process of liberty. And while the tension may

often be left to the courts to relieve, it is possible for the government to avoid the constitutional conflict by employing

more judicious, less drastic means to promote morality.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals is REVERSED, and the Decision of

the Regional Trial Court of Manila, Branch 9, isREINSTATED. Ordinance No. 7774 is hereby declared UNCONSTITUTIONAL.

No pronouncement as to costs.

SO ORDERED.

OSG vs. AYALA LANDD E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of Court, filed by petitioner Office of the Solicitor General (OSG), seeking the reversal and setting aside of the Decision [2] dated 25 January 2007 of the Court of Appeals in CA-G.R. CV No. 76298, which affirmed in toto the Joint Decision[3] dated 29 May 2002 of the Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the Resolution[4] dated 14 March 2007 of the appellate court in the same case which denied the Motion for Reconsideration of the OSG. The RTC adjudged that respondents Ayala Land Incorporated (Ayala Land), Robinsons Land Corporation (Robinsons), Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could not be obliged to provide free parking spaces in their malls to their patrons and the general public.

Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in various locations in

Metro Manila. Respondent SM Prime constructs, operates, and leases out commercial buildings and other structures, among which, are SM City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM City, North Avenue, Quezon City; and SM Southmall, Las Piñas.

The shopping malls operated or leased out by respondents have parking facilities for all kinds of motor vehicles,

either by way of parking spaces inside the mall buildings or in separate buildings and/or adjacent lots that are solely devoted for use as parking spaces. Respondents Ayala Land, Robinsons, and SM Prime spent for the construction of their own parking facilities. Respondent Shangri-la is renting its parking facilities, consisting of land and building specifically used as parking spaces, which were constructed for the lessor’s account.

Respondents expend for the maintenance and administration of their respective parking facilities. They provide

security personnel to protect the vehicles parked in their parking facilities and maintain order within the area. In turn, they collect the following parking fees from the persons making use of their parking facilities, regardless of whether said persons are mall patrons or not:

Respondent Parking Fees

Ayala Land On weekdays, P25.00 for the first four hours andP10.00 for every succeeding hour; on weekends, flat rate of P25.00 per day

Robinsons P20.00 for the first three hours and P10.00 for every

succeeding hour

Shangri-la Flat rate of P30.00 per day

SM Prime P10.00 to P20.00 (depending on whether the parking space is outdoors or indoors) for the first three hours and 59 minutes, and P10.00 for every succeeding hour or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that respondents shall not be responsible for any loss or damage to the vehicles parked in respondents’ parking facilities.

In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights conducted a joint investigation for the following purposes: (1) to inquire into the legality of the prevalent practice of shopping malls of charging parking fees; (2) assuming arguendo that the collection of parking fees was legally authorized, to find out the basis and reasonableness of the parking rates charged by shopping malls; and (3) to determine the legality of the policy of shopping malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver clause at the back of the parking tickets. Said Senate Committees invited the top executives of respondents, who operate the major malls in the country; the officials from the Department of Trade and Industry (DTI), Department of Public Works and Highways (DPWH), Metro Manila Development Authority (MMDA), and other local government officials; and the Philippine Motorists Association (PMA) as representative of the consumers’ group.

After three public hearings held on 30 September, 3 November, and 1 December 1999, the afore-mentioned

Senate Committees jointly issued Senate Committee Report No. 225[5] on 2 May 2000, in which they concluded:

In view of the foregoing, the Committees find that the collection of parking fees by shopping malls is contrary to the National Building Code and is therefor [sic] illegal. While it is true that the Code merely requires malls to provide parking spaces, without specifying whether it is free or not, both Committees believe that the reasonable and logical interpretation of the Code is that the parking spaces are for free. This interpretation is not only reasonable and logical but finds support in the actual practice in other countries like the United States of America where parking spaces owned and operated by mall owners are free of charge.

Figuratively speaking, the Code has “expropriated” the land for parking – something similar to

the subdivision law which require developers to devote so much of the land area for parks. Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines) provides that “it is the

policy of the State to protect the interest of the consumers, promote the general welfare and establish standards of conduct for business and industry.” Obviously, a contrary interpretation (i.e., justifying the collection of parking fees) would be going against the declared policy of R.A. 7394.

Section 201 of the National Building Code gives the responsibility for the administration and

enforcement of the provisions of the Code, including the imposition of penalties for administrative violations thereof to the Secretary of Public Works. This set up, however, is not being carried out in reality.

In the position paper submitted by the Metropolitan Manila Development Authority (MMDA),

its chairman, Jejomar C. Binay, accurately pointed out that the Secretary of the DPWH is responsible for the implementation/enforcement of the National Building Code. After the enactment of the Local Government Code of 1991, the local government units (LGU’s) were tasked to discharge the regulatory powers of the DPWH. Hence, in the local level, the Building Officials enforce all rules/ regulations

formulated by the DPWH relative to all building plans, specifications and designs including parking space requirements. There is, however, no single national department or agency directly tasked to supervise the enforcement of the provisions of the Code on parking, notwithstanding the national character of the law.[6]

Senate Committee Report No. 225, thus, contained the following recommendations: In light of the foregoing, the Committees on Trade and Commerce and Justice and Human

Rights hereby recommend the following:

1. The Office of the Solicitor General should institute the necessary action to enjoin the collection of parking fees as well as to enforce the penal sanction provisions of the National Building Code. The Office of the Solicitor General should likewise study how refund can be exacted from mall owners who continue to collect parking fees.

2. The Department of Trade and Industry pursuant to the provisions of R.A. No. 7394, otherwise

known as the Consumer Act of the Philippines should enforce the provisions of the Code relative to parking. Towards this end, the DTI should formulate the necessary implementing rules and regulations on parking in shopping malls, with prior consultations with the local government units where these are located. Furthermore, the DTI, in coordination with the DPWH, should be empowered to regulate and supervise the construction and maintenance of parking establishments.

3. Finally, Congress should amend and update the National Building Code to expressly prohibit

shopping malls from collecting parking fees by at the same time, prohibit them from invoking the waiver of liability.[7]

Respondent SM Prime thereafter received information that, pursuant to Senate Committee Report No. 225, the

DPWH Secretary and the local building officials of Manila, Quezon City, and Las Piñas intended to institute, through the OSG, an action to enjoin respondent SM Prime and similar establishments from collecting parking fees, and to impose upon said establishments penal sanctions under Presidential Decree No. 1096, otherwise known as the National Building Code of the Philippines (National Building Code), and its Implementing Rules and Regulations (IRR). With the threatened action against it, respondent SM Prime filed, on 3 October 2000, a Petition for Declaratory Relief [8] under Rule 63 of the Revised Rules of Court, against the DPWH Secretary and local building officials of Manila, Quezon City, and Las Piñas. Said Petition was docketed as Civil Case No. 00-1208 and assigned to the RTC of Makati City, Branch 138, presided over by Judge Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:

a) Declaring Rule XIX of the Implementing Rules and Regulations of the National Building

Code as ultra vires, hence, unconstitutional and void; b) Declaring [herein respondent SM Prime]’s clear legal right to lease parking spaces

appurtenant to its department stores, malls, shopping centers and other commercial establishments; and

c) Declaring the National Building Code of the Philippines Implementing Rules and

Regulations as ineffective, not having been published once a week for three (3) consecutive weeks in a newspaper of general circulation, as prescribed by Section 211 of Presidential Decree No. 1096.

[Respondent SM Prime] further prays for such other reliefs as may be deemed just and

equitable under the premises.[9]

The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and Injunction (with Prayer for

Temporary Restraining Order and Writ of Preliminary Injunction) [10] against respondents. This Petition was docketed as Civil Case No. 00-1210 and raffled to the RTC of Makati, Branch 135, presided over by Judge Francisco B. Ibay (Judge Ibay). Petitioner prayed that the RTC:

1. After summary hearing, a temporary restraining order and a writ of preliminary

injunction be issued restraining respondents from collecting parking fees from their customers; and 2. After hearing, judgment be rendered declaring that the practice of respondents in

charging parking fees is violative of the National Building Code and its Implementing Rules and Regulations and is therefore invalid, and making permanent any injunctive writ issued in this case.

Other reliefs just and equitable under the premises are likewise prayed for. [11]

On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order consolidating Civil Case No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of RTC of Makati, Branch 138.

As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a Pre-Trial Order[12] of

even date which limited the issues to be resolved in Civil Cases No. 00-1208 and No. 00-1210 to the following:

1. Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute the present proceedings and relative thereto whether the controversy in the collection of parking fees by mall owners is a matter of public welfare.

2. Whether declaratory relief is proper. 3. Whether respondent Ayala Land, Robinsons, Shangri-La and SM Prime are obligated

to provide parking spaces in their malls for the use of their patrons or the public in general, free of charge.

4. Entitlement of the parties of [sic] award of damages.[13]

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 00-1210. The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case No. 00-1210 under

Presidential Decree No. 478 and the Administrative Code of 1987. [14] It also found that all the requisites for an action for declaratory relief were present, to wit:

The requisites for an action for declaratory relief are: (a) there is a justiciable controversy; (b)

the controversy is between persons whose interests are adverse; (c) the party seeking the relief has a legal interest in the controversy; and (d) the issue involved is ripe for judicial determination.

SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who stands to be affected

directly by the position taken by the government officials sued namely the Secretary of Public Highways and the Building Officials of the local government units where it operates shopping malls. The OSG on the other hand acts on a matter of public interest and has taken a position adverse to that of the mall owners whom it sued. The construction of new and bigger malls has been announced, a matter which the Court can take judicial notice and the unsettled issue of whether mall operators should provide parking facilities, free of charge needs to be resolved.[15]

As to the third and most contentious issue, the RTC pronounced that:

The Building Code, which is the enabling law and the Implementing Rules and Regulations do not impose that parking spaces shall be provided by the mall owners free of charge. Absent such directive[,] Ayala Land, Robinsons, Shangri-la and SM [Prime] are under no obligation to provide them for free. Article 1158 of the Civil Code is clear:

“Obligations derived from law are not presumed. Only those expressly

determined in this Code or in special laws are demandable and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book (1090).[”] x x x x The provision on ratios of parking slots to several variables, like shopping floor area or

customer area found in Rule XIX of the Implementing Rules and Regulations cannot be construed as a directive to provide free parking spaces, because the enabling law, the Building Code does not so provide. x x x.

To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide parking spaces for free

can be considered as an unlawful taking of property right without just compensation. Parking spaces in shopping malls are privately owned and for their use, the mall operators

collect fees. The legal relationship could be either lease or deposit. In either case[,] the mall owners have the right to collect money which translates into income. Should parking spaces be made free, this right of mall owners shall be gone. This, without just compensation. Further, loss of effective control over their property will ensue which is frowned upon by law.

The presence of parking spaces can be viewed in another light. They can be looked at as

necessary facilities to entice the public to increase patronage of their malls because without parking spaces, going to their malls will be inconvenient. These are[,] however[,] business considerations which mall operators will have to decide for themselves. They are not sufficient to justify a legal conclusion, as the OSG would like the Court to adopt that it is the obligation of the mall owners to provide parking spaces for free.[16]

The RTC then held that there was no sufficient evidence to justify any award for damages. The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-1210 that:

FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc., Robinsons Land Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,] Inc. are not obligated to provide parking spaces in their malls for the use of their patrons or public in general, free of charge.

All counterclaims in Civil Case No. 00-1210 are dismissed. No pronouncement as to costs.[17]

CA-G.R. CV No. 76298 involved the separate appeals of the OSG [18] and respondent SM Prime[19] filed with the Court of Appeals. The sole assignment of error of the OSG in its Appellant’s Brief was:

THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID NOT INTEND MALL PARKING SPACES TO BE FREE OF CHARGE[;][20]

while the four errors assigned by respondent SM Prime in its Appellant’s Brief were:

I

THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING RULES AS HAVING BEEN ENACTED ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND VOID.

II

THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED AS REQUIRED BY LAW.

III

THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSG’S PETITION FOR DECLARATORY RELIEF AND INJUNCTION FOR FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES.

IV

THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL CAPACITY TO SUE AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN THE INSTANT CASE.[21]

Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone issue raised therein involved a pure question of law, not reviewable by the Court of Appeals. The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The appellate court agreed with respondent Robinsons that the appeal of the OSG should suffer the fate of dismissal, since “the issue on whether or not the National Building Code and its implementing rules require shopping mall operators to provide parking facilities to the public for free” was evidently a question of law. Even so, since CA-G.R. CV No. 76298 also included the appeal of respondent SM Prime, which raised issues worthy of consideration, and in order to satisfy the demands of substantial justice, the Court of Appeals proceeded to rule on the merits of the case. In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-1210 before the RTC as the legal representative of the government,[22]and as the one deputized by the Senate of the Republic of the Philippines through Senate Committee Report No. 225.

The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to exhaust administrative remedies. The appellate court explained that an administrative review is not a condition precedent to judicial relief where the question in dispute is purely a legal one, and nothing of an administrative nature is to be or can be done.

The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building Code, as such

issue was not among those the parties had agreed to be resolved by the RTC during the pre-trial conference for Civil Cases No. 00-1208 and No. 00-1210. Issues cannot be raised for the first time on appeal. Furthermore, the appellate court found that the controversy could be settled on other grounds, without touching on the issue of the validity of the IRR. It

referred to the settled rule that courts should refrain from passing upon the constitutionality of a law or implementing rules, because of the principle that bars judicial inquiry into a constitutional question, unless the resolution thereof is indispensable to the determination of the case.

Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule XIX of the IRR were

clear and needed no further construction. Said provisions were only intended to control the occupancy or congestion of areas and structures. In the absence of any express and clear provision of law, respondents could not be obliged and expected to provide parking slots free of charge.

The fallo of the 25 January 2007 Decision of the Court of Appeals reads:

 WHEREFORE, premises considered, the instant appeals are DENIED. Accordingly, appealed

Decision is hereby AFFIRMED in toto.[23]

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for Reconsideration of the OSG, finding that the grounds relied upon by the latter had already been carefully considered, evaluated, and passed upon by the appellate court, and there was no strong and cogent reason to modify much less reverse the assailed judgment.

The OSG now comes before this Court, via the instant Petition for Review, with a single assignment of error: THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THAT RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE PARKING SPACES TO THEIR CUSTOMERS OR THE PUBLIC.[24]

The OSG argues that respondents are mandated to provide free parking by Section 803 of the National Building

Code and Rule XIX of the IRR. According to Section 803 of the National Building Code:

SECTION 803.  Percentage of Site Occupancy

(a) Maximum site occupancy shall be governed by the use, type of construction, and height of the building and the use, area, nature, and location of the site; and subject to the provisions of the local zoning requirements and in accordance with the rules and regulations promulgated by the Secretary.

In connection therewith, Rule XIX of the old IRR,[25] provides: RULE XIX – PARKING AND LOADING SPACE REQUIREMENTS

Pursuant to Section 803 of the National Building Code (PD 1096) providing for maximum site occupancy, the following provisions on parking and loading space requirements shall be observed:

1. The parking space ratings listed below are minimum off-street requirements for specific

uses/occupancies for buildings/structures:

1.1 The size of an average automobile parking slot shall be computed as 2.4 meters by 5.00 meters for perpendicular or diagonal parking, 2.00 meters by 6.00

meters for parallel parking. A truck or bus parking/loading slot shall be computed at a minimum of 3.60 meters by 12.00 meters. The parking slot shall be drawn to scale and the total number of which shall be indicated on the plans and specified whether or not parking accommodations, are attendant-managed. (See Section 2 for computation of parking requirements).

x x x x

1.7 Neighborhood shopping center – 1 slot/100 sq. m. of shopping floor area

The OSG avers that the aforequoted provisions should be read together with Section 102 of the National Building Code, which declares:

SECTION 102.  Declaration of Policy It is hereby declared to be the policy of the State to safeguard life, health, property, and public

welfare, consistent with the principles of sound environmental management and control; and to this end, make it the purpose of this Code to provide for all buildings and structures, a framework of minimum standards and requirements to regulate and control their location, site, design, quality of materials, construction, use, occupancy, and maintenance.

The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of safeguarding “life, health, property, and public welfare, consistent with the principles of sound environmental management and control.” Adequate parking spaces would contribute greatly to alleviating traffic congestion when complemented by quick and easy access thereto because of free-charge parking. Moreover, the power to regulate and control the use, occupancy, and maintenance of buildings and structures carries with it the power to impose fees and, conversely, to control -- partially or, as in this case, absolutely -- the imposition of such fees.

The Court finds no merit in the present Petition. The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a plain reading

thereof, is that respondents, as operators/lessors of neighborhood shopping centers, should provide parking and loading spaces, in accordance with the minimum ratio of one slot per 100 square meters of shopping floor area. There is nothing therein pertaining to the collection (or non-collection) of parking fees by respondents. In fact, the term “parking fees” cannot even be found at all in the entire National Building Code and its IRR.

Statutory construction has it that if a statute is clear and unequivocal, it must be given its literal meaning and

applied without any attempt at interpretation.[26] Since Section 803 of the National Building Code and Rule XIX of its IRR do not mention parking fees, then simply, said provisions do not regulate the collection of the same. The RTC and the Court of Appeals correctly applied Article 1158 of the New Civil Code, which states:

Art. 1158. Obligations derived from law are not presumed. Only those expressly 

determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (Emphasis ours.)

Hence, in order to bring the matter of parking fees within the ambit of the National Building Code and its IRR, the OSG had to resort to specious and feeble argumentation, in which the Court cannot concur.

The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of Section 803 of the

same Code and Rule XIX of the IRR, so as to include the regulation of parking fees. The OSG limits its citation to the first part of Section 102 of the National Building Code declaring the policy of the State “to safeguard life, health, property, and public welfare, consistent with the principles of sound environmental management and control”; but totally ignores the second part of said provision, which reads, “and to this end, make it the purpose of this Code to provide for all buildings and structures, a framework of minimum standards and requirements to regulate and control their location, site, design, quality of materials, construction, use, occupancy, and maintenance.” While the first part of Section 102 of the National Building Code lays down the State policy, it is the second part thereof that explains how said policy shall be carried out in the Code. Section 102 of the National Building Code is not an all-encompassing grant of regulatory power to the DPWH Secretary and local building officials in the name of life, health, property, and public welfare. On the contrary, it limits the regulatory power of said officials to ensuring that the minimum standards and requirements for all buildings and structures, as set forth in the National Building Code, are complied with.

Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for parking spaces for

buildings, Rule XIX of the IRR also mandates that such parking spaces be provided by building owners free of charge. If Rule XIX is not covered by the enabling law, then it cannot be added to or included in the implementing rules. The rule-making power of administrative agencies must be confined to details for regulating the mode or proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in favor of the basic law. [27]

From the RTC all the way to this Court, the OSG repeatedly referred to Republic v. Gonzales[28] and City of Ozamis

v. Lumapas[29] to support its position that the State has the power to regulate parking spaces to promote the health, safety, and welfare of the public; and it is by virtue of said power that respondents may be required to provide free parking facilities. The OSG, though, failed to consider the substantial differences in the factual and legal backgrounds of these two cases from those of the Petition at bar.

In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of the public

domain to give way to a road-widening project. It was in this context that the Court pronounced: Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was prevalent; this, of course, caused the build up of traffic in the surrounding area to the great discomfort and inconvenience of the public who use the streets. Traffic congestion constitutes a threat to the health, welfare, safety and convenience of the people and it can only be substantially relieved by widening streets and providing adequate parking areas. The Court, in City of Ozamis, declared that the City had been clothed with full power to control and regulate its

streets for the purpose of promoting public health, safety and welfare. The City can regulate the time, place, and manner of parking in the streets and public places; and charge minimal fees for the street parking to cover the expenses for supervision, inspection and control, to ensure the smooth flow of traffic in the environs of the public market, and for the safety and convenience of the public.

Republic and City of Ozamis involved parking in the local streets; in contrast, the present case deals with privately owned parking facilities available for use by the general public. In Republic and City of Ozamis, the concerned local governments regulated parking pursuant to their power to control and regulate their streets; in the instant case, the DPWH Secretary and local building officials regulate parking pursuant to their authority to ensure compliance with the minimum standards and requirements under the National Building Code and its IRR. With the difference in subject matters and the bases for the regulatory powers being invoked, Republic and City of Ozamis do not constitute precedents for this case.

Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of the OSG in the

case at bar. In Republic, the Court, instead of placing the burden on private persons to provide parking facilities to the general public, mentioned the trend in other jurisdictions wherein the municipal governments themselves took the initiative to make more parking spaces available so as to alleviate the traffic problems, thus:

Under the Land Transportation and Traffic Code, parking in designated areas along public

streets or highways is allowed which clearly indicates that provision for parking spaces serves a useful purpose. In other jurisdictions where traffic is at least as voluminous as here, the provision by municipal governments of parking space is not limited to parking along public streets or highways. There has been a marked trend to build off-street parking facilities with the view to removing parked cars from the streets. While the provision of off-street parking facilities or carparks has been commonly undertaken by private enterprise, municipal governments have been constrained to put up carparks in response to public necessity where private enterprise had failed to keep up with the growing public demand. American courts have upheld the right of municipal governments to construct off-street parking facilities as clearly redounding to the public benefit.[30]

In City of Ozamis, the Court authorized the collection by the City of minimal fees for the parking of vehicles along the streets: so why then should the Court now preclude respondents from collecting from the public a fee for the use of the mall parking facilities? Undoubtedly, respondents also incur expenses in the maintenance and operation of the mall parking facilities, such as electric consumption, compensation for parking attendants and security, and upkeep of the physical structures.

It is not sufficient for the OSG to claim that “the power to regulate and control the use, occupancy, and maintenance of buildings and structures carries with it the power to impose fees and, conversely, to control, partially or, as in this case, absolutely, the imposition of such fees.” Firstly, the fees within the power of regulatory agencies to impose areregulatory fees. It has been settled law in this jurisdiction that this broad and all-compassing governmental competence to restrict rights of liberty and property carries with it the undeniable power to collect a regulatory fee. It looks to the enactment of specific measures that govern the relations not only as between individuals but also as between private parties and the political society.[31] True, if the regulatory agencies have the power to impose regulatory fees, then conversely, they also have the power to remove the same. Even so, it is worthy to note that the present case does not involve the imposition by the DPWH Secretary and local building officials of regulatory fees upon respondents; but the collection by respondents of parking   fees from persons who use the mall parking facilities. Secondly, assuming arguendo that the DPWH Secretary and local building officials do have regulatory powers over the collection of parking fees for the use of privately owned parking facilities, they cannot allow or prohibit such collection arbitrarily or whimsically. Whether allowing or prohibiting the collection of such parking fees, the action of the DPWH Secretary and local building officials must pass the test of classic reasonableness and propriety of the measures or means in the promotion of the ends sought to be accomplished.[32]

Keeping in mind the aforementioned test of reasonableness and propriety of measures or means, the Court notes that Section 803 of the National Building Code falls under Chapter 8 on Light and Ventilation. Evidently, the Code deems it necessary to regulate site occupancy to ensure that there is proper lighting and ventilation in every building. Pursuant thereto, Rule XIX of the IRR requires that a building, depending on its specific use and/or floor area, should provide a minimum number of parking spaces. The Court, however, fails to see the connection between regulating site occupancy to ensure proper light and ventilation in every building vis-à-vis regulating the collection by building owners of fees for the use of their parking spaces. Contrary to the averment of the OSG, the former does not necessarily include or imply the latter. It totally escapes this Court how lighting and ventilation conditions at the malls could be affected by the fact that parking facilities thereat are free or paid for.

The OSG attempts to provide the missing link by arguing that:

Under Section 803 of the National Building Code, complimentary parking spaces are required

to enhance light and ventilation, that is, to avoid traffic congestion in areas surrounding the building, which certainly affects the ventilation within the building itself, which otherwise, the annexed parking spaces would have served. Free-of-charge parking avoids traffic congestion by ensuring quick and easy access of legitimate shoppers to off-street parking spaces annexed to the malls, and thereby removing the vehicles of these legitimate shoppers off the busy streets near the commercial establishments. [33]

The Court is unconvinced. The National Building Code regulates buildings, by setting the minimum specifications and requirements for the same. It does not concern itself with traffic congestion in areas surrounding the building. It is already a stretch to say that the National Building Code and its IRR also intend to solve the problem of traffic congestion around the buildings so as to ensure that the said buildings shall have adequate lighting and ventilation. Moreover, the Court cannot simply assume, as the OSG has apparently done, that the traffic congestion in areas around the malls is due to the fact that respondents charge for their parking facilities, thus, forcing vehicle owners to just park in the streets. The Court notes that despite the fees charged by respondents, vehicle owners still use the mall parking facilities, which are even fully occupied on some days. Vehicle owners may be parking in the streets only because there are not enough parking spaces in the malls, and not because they are deterred by the parking fees charged by respondents. Free parking spaces at the malls may even have the opposite effect from what the OSG envisioned: more people may be encouraged by the free parking to bring their own vehicles, instead of taking public transport, to the malls; as a result, the parking facilities would become full sooner, leaving more vehicles without parking spaces in the malls and parked in the streets instead, causing even more traffic congestion.

Without using the term outright, the OSG is actually invoking police power to justify the regulation by the State,

through the DPWH Secretary and local building officials, of privately owned parking facilities, including the collection by the owners/operators of such facilities of parking fees from the public for the use thereof. The Court finds, however, that in totally prohibiting respondents from collecting parking fees from the public for the use of the mall parking facilities, the State would be acting beyond the bounds of police power.

Police power is the power of promoting the public welfare by restraining and regulating the use of liberty and

property. It is usually exerted in order to merely regulate the use and enjoyment of the property of the owner. The power to regulate, however, does not include the power to prohibit. A fortiori, the power to regulate does not include the power to confiscate. Police power does not involve the taking or confiscation of property, with the exception of a few cases where there is a necessity to confiscate private property in order to destroy it for the purpose of protecting peace and order and of promoting the general welfare; for instance, the confiscation of an illegally possessed article, such as opium and firearms. [34]

When there is a taking or confiscation of private property for public use, the State is no longer exercising police

power, but another of its inherent powers, namely, eminent domain. Eminent domain enables the State to forcibly acquire private lands intended for public use upon payment of just compensation to the owner. [35]

Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and

possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of only to impose a burden upon the owner of condemned property, without loss of title and possession. [36] It is a settled rule that neither acquisition of title nor total destruction of value is essential to taking. It is usually in cases where title remains with the private owner that inquiry should be made to determine whether the impairment of a property is merely regulated or amounts to a compensable taking. A regulation that deprives any person of the profitable use of his property constitutes a taking and entitles him to compensation, unless the invasion of rights is so slight as to permit the regulation to be justified under the police power. Similarly, a police regulation that unreasonably restricts the right to use business property for business purposes amounts to a taking of private property, and the owner may recover therefor. [37]

Although in the present case, title to and/or possession of the parking facilities remain/s with respondents, the

prohibition against their collection of parking fees from the public, for the use of said facilities, is already tantamount to a taking or confiscation of their properties. The State is not only requiring that respondents devote a portion of the latter’s properties for use as parking spaces, but is also mandating that they give the public access to said parking spaces for free. Such is already an excessive intrusion into the property rights of respondents. Not only are they being deprived of the right to use a portion of their properties as they wish, they are further prohibited from profiting from its use or even just recovering therefrom the expenses for the maintenance and operation of the required parking facilities.

The ruling of this Court in City Government of Quezon City v. Judge Ericta[38] is edifying. Therein, the City

Government of Quezon City passed an ordinance obliging private cemeteries within its jurisdiction to set aside at least six percent of their total area for charity, that is, for burial grounds of deceased paupers. According to the Court, the ordinance in question was null and void, for it authorized the taking of private property without just compensation:

There is no reasonable relation between the setting aside of at least six (6) percent of the total

area of all private cemeteries for charity burial grounds of deceased paupers and the promotion of' health, morals, good order, safety, or the general welfare of the people. The ordinance is actually a taking without compensation of a certain area from a private cemetery to benefit paupers who are charges of the municipal corporation. Instead of' building or maintaining a public cemetery for this purpose, the city passes the burden to private cemeteries.

'The expropriation without compensation of a portion of private cemeteries is not covered by

Section 12(t) of Republic Act 537, the Revised Charter of Quezon City which empowers the city council to prohibit the burial of the dead within the center of population of the city and to provide for their burial in a proper place subject to the provisions of general law regulating burial grounds and cemeteries. When the Local Government Code, Batas Pambansa Blg. 337 provides in Section 177(q) that a sangguniang panlungsod may "provide for the burial of the dead in such place and in such manner as prescribed by law or ordinance" it simply authorizes the city to provide its own city owned land or to buy or expropriate private properties to construct public cemeteries. This has been the law, and practise in the past. It continues to the present. Expropriation, however, requires payment of just compensation. The questioned ordinance is different from laws and regulations requiring owners of subdivisions to set aside certain areas for streets, parks, playgrounds, and other public facilities from the land they sell to buyers of subdivision lots. The necessities of public safety, health, and convenience are very clear from said requirements which are intended to insure the development of communities with

salubrious and wholesome environments. The beneficiaries of the regulation, in turn, are made to pay by the subdivision developer when individual lots are sold to homeowners.

In conclusion, the total prohibition against the collection by respondents of parking fees from persons who use the mall parking facilities has no basis in the National Building Code or its IRR. The State also cannot impose the same prohibition by generally invoking police power, since said prohibition amounts to a taking of respondents’ property without payment of just compensation. Given the foregoing, the Court finds no more need to address the issue persistently raised by respondent SM Prime concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said issue was not among those that the parties, during the pre-trial conference for Civil Cases No. 12-08 and No. 00-1210, agreed to submit for resolution of the RTC. It is likewise axiomatic that the constitutionality of a law, a regulation, an ordinance or an act will not be resolved by courts if the controversy can be, as in this case it has been, settled on other grounds.[39]

WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision dated 25 January

2007 and Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No. 76298, affirming in toto the Joint Decision dated 29 May 2002 of the Regional Trial Court of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210 are hereby AFFIRMED. No costs.

SO ORDERED.

GANCAYCO vs. CITY GOVT OF QUEZON CITY

DECISION 

SERENO, J.:

Before us are consolidated Petitions for Review under Rule 45 of the Rules of Court assailing the

Decision[1] promulgated on 18 July 2006 and the Resolution[2] dated 10 May 2007 of the Court of Appeals in CA-G.R. SP No.

84648.

The Facts

In the early 1950s, retired Justice Emilio A. Gancayco bought a parcel of land located at 746 Epifanio delos Santos

Avenue (EDSA),[3] Quezon City with an area of 375 square meters and covered by Transfer Certificate of Title (TCT) No.

RT114558.

On 27 March 1956, the Quezon City Council issued Ordinance No. 2904, entitled “An Ordinance Requiring the

Construction of Arcades, for Commercial Buildings to be Constructed in Zones Designated as Business Zones in the Zoning

Plan of Quezon City, and Providing Penalties in Violation Thereof.”[4]

An arcade is defined as any portion of a building above the first floor projecting over the sidewalk beyond the

first storey wall used as protection for pedestrians against rain or sun.[5]

Ordinance No. 2904 required the relevant property owner to construct an arcade with a width of 4.50 meters

and height of 5.00 meters along EDSA, from the north side ofSantolan Road to one lot after Liberty Avenue, and from one

lot before Central Boulevard to the Botocan transmission line.

At the outset, it bears emphasis that at the time Ordinance No. 2904 was passed by the city council, there was

yet no building code passed by the national legislature. Thus, the regulation of the construction of buildings was left to the

discretion of local government units. Under this particular ordinance, the city council required that the arcade is to be

created by constructing the wall of the ground floor facing the sidewalk a few meters away from the property line. Thus,

the building owner is not allowed to construct his wall up to the edge of the property line, thereby creating a space or

shelter under the first floor. In effect, property owners relinquish the use of the space for use as an arcade for

pedestrians, instead of using it for their own purposes.

The ordinance was amended several times. On 8 August 1960, properties located at the Quezon City-San Juan

boundary were exempted by Ordinance No. 60-4477 from the construction of arcades. This ordinance was further

amended by Ordinance No. 60-4513, extending the exemption to commercial buildings from Balete Street to Seattle

Street. Ordinance No. 6603 dated 1 March 1966 meanwhile reduced the width of the arcades to three meters for

buildings along V. Luna Road, Central District, Quezon City.

The ordinance covered the property of Justice Gancayco. Subsequently, sometime in 1965, Justice Gancayco

sought the exemption of a two-storey building being constructed on his property from the application of Ordinance No.

2904 that he be exempted from constructing an arcade on his property.

On 2 February 1966, the City Council acted favorably on Justice Gancayco’s request and issued Resolution No.

7161, S-66, “subject to the condition that upon notice by the City Engineer, the owner shall, within reasonable time,

demolish the enclosure of said arcade at his own expense when public interest so demands.” [6]

Decades after, in March 2003, the Metropolitan Manila Development Authority (MMDA) conducted operations

to clear obstructions along the sidewalk of EDSA in Quezon City pursuant to Metro Manila Council’s (MMC) Resolution No.

02-28, Series of 2002.[7] The resolution authorized the MMDA and local government units to “clear the sidewalks, streets,

avenues, alleys, bridges, parks and other public places in Metro Manila of all illegal structures and obstructions.” [8]

On 28 April 2003, the MMDA sent a notice of demolition to Justice Gancayco alleging that a portion of his

building violated the National Building Code of the Philippines(Building Code)[9] in relation to Ordinance No. 2904. The

MMDA gave Justice Gancayco fifteen (15) days to clear the portion of the building that was supposed to be an arcade

along EDSA.[10]

Justice Gancayco did not comply with the notice. Soon after the lapse of the fifteen (15) days, the MMDA

proceeded to demolish the party wall, or what was referred to as the “wing walls,” of the ground floor structure. The

records of the present case are not entirely clear on the extent of the demolition; nevertheless, the fact of demolition was

not disputed. At the time of the demolition, the affected portion of the building was being used as a restaurant.

On 29 May 2003, Justice Gancayco filed a Petition[11] with prayer for a temporary restraining order and/or writ of

preliminary injunction before the Regional Trial Court (RTC) of Quezon City, docketed as Civil Case No. Q03-49693, seeking

to prohibit the MMDA and the City Government of Quezon City from demolishing his property. In his Petition, [12] he

alleged that the ordinance authorized the taking of private property without due process of law and just compensation,

because the construction of an arcade will require 67.5 square meters from the 375 square meter property. In addition,

he claimed that the ordinance was selective and discriminatory in its scope and application when it allowed the owners of

the buildings located in the Quezon City-San Juan boundary to Cubao Rotonda, and Balete to Seattle Streets to construct

arcades at their option. He thus sought the declaration of nullity of Ordinance No. 2904 and the payment of damages.

Alternately, he prayed for the payment of just compensation should the court hold the ordinance valid.

The City Government of Quezon City claimed that the ordinance was a valid exercise of police power, regulating

the use of property in a business zone. In addition, it pointed out that Justice Gancayco was already barred by estoppel,

laches and prescription.

Similarly, the MMDA alleged that Justice Gancayco could not seek the nullification of an ordinance that he had

already violated, and that the ordinance enjoyed the presumption of constitutionality. It further stated that the

questioned property was a public nuisance impeding the safe passage of pedestrians. Finally, the MMDA claimed that it

was merely implementing the legal easement established by Ordinance No. 2904. [13]

The RTC rendered its Decision on 30 September 2003 in favor of Justice Gancayco.[14] It held that the questioned

ordinance was unconstitutional, ruling that it allowed the taking of private property for public use without just

compensation. The RTC said that because 67.5 square meters out of Justice Gancayco’s 375 square meters of property

were being taken without compensation for the public’s benefit, the ordinance was confiscatory and oppressive. It

likewise held that the ordinance violated owners’ right to equal protection of laws. The dispositive portion thus states:

WHEREFORE, the petition is hereby granted and the Court hereby declares Quezon City Ordinance No. 2094,[15] Series of 1956 to be unconstitutional, invalid and void ab initio. The respondents are hereby permanently enjoined from enforcing and implementing the said ordinance, and the respondent MMDA is hereby directed to immediately restore the portion of the party wall or wing wall of the building of the petitioner it destroyed to its original condition.

IT IS SO ORDERED.

The MMDA thereafter appealed from the Decision of the trial court. On 18 July 2006, the Court of Appeals (CA)

partly granted the appeal.[16] The CA upheld the validity of Ordinance No. 2904 and lifted the injunction against the

enforcement and implementation of the ordinance. In so doing, it held that the ordinance was a valid exercise of the right

of the local government unit to promote the general welfare of its constituents pursuant to its police powers. The CA also

ruled that the ordinance established a valid classification of property owners with regard to the construction of arcades in

their respective properties depending on the location. The CA further stated that there was no taking of private property,

since the owner still enjoyed the beneficial ownership of the property, to wit:

Even with the requirement of the construction of arcaded sidewalks within his commercial lot, appellee still retains the beneficial ownership of the said property. Thus, there is no “taking” for public use which must be subject to just compensation. While the arcaded sidewalks contribute to the public good, for providing safety and comfort to passersby, the ultimate benefit from the same still redounds to appellee, his commercial establishment being at the forefront of a busy thoroughfare like EDSA. The arcaded sidewalks, by their nature, assure clients of the commercial establishments thereat some kind of protection from accidents and other hazards. Without doubt, this sense of protection can be a boon to the business activity therein engaged. [17]

Nevertheless, the CA held that the MMDA went beyond its powers when it demolished the subject property. It

further found that Resolution No. 02-28 only refers to sidewalks, streets, avenues, alleys, bridges, parks and other public

places in Metro Manila, thus excluding Justice Gancayco’s private property. Lastly, the CA stated that the MMDA is not

clothed with the authority to declare, prevent or abate nuisances. Thus, the dispositive portion stated:

WHEREFORE, the appeals are PARTLY GRANTED. The Decision dated September 30, 2003 of the Regional Trial Court, Branch 224, Quezon City, is MODIFIED, as follows:

1) The validity and constitutionality of Ordinance No. 2094, [18] Series of 1956, issued by the City Council of Quezon City, is UPHELD; and

2) The injunction against the enforcement and implementation of the said Ordinance is LIFTED.SO ORDERED. 

This ruling prompted the MMDA and Justice Gancayco to file their respective Motions for Partial

Reconsideration.[19]

On 10 May 2007, the CA denied the motions stating that the parties did not present new issues nor offer grounds

that would merit the reconsideration of the Court.[20]

Dissatisfied with the ruling of the CA, Justice Gancayco and the MMDA filed their respective Petitions for Review

before this Court. The issues raised by the parties are summarized as follows:

I. WHETHER OR NOT JUSTICE GANCAYCO WAS ESTOPPED FROM ASSAILING THE VALIDITY OF ORDINANCE NO. 2904.

II. WHETHER OR NOT ORDINANCE NO. 2904 IS CONSTITUTIONAL.III. WHETHER OR NOT THE WING WALL OF JUSTICE GANCAYCO’S BUILDING IS A PUBLIC NUISANCE.IV. WHETHER OR NOT THE MMDA LEGALLY DEMOLISHED THE PROPERTY OF JUSTICE GANCAYCO. 

The Court’s RulingEstoppel 

The MMDA and the City Government of Quezon City both claim that Justice Gancayco was estopped from

challenging the ordinance, because, in 1965, he asked for an exemption from the application of the ordinance. According

to them, Justice Gancayco thereby recognized the power of the city government to regulate the construction of buildings.

To recall, Justice Gancayco questioned the constitutionality of the ordinance on two grounds: (1) whether the

ordinance “takes” private property without due process of law and just compensation; and (2) whether the ordinance

violates the equal protection of rights because it allowed exemptions from its application.

On the first ground, we find that Justice Gancayco may still question the constitutionality of the ordinance to

determine whether or not the ordinance constitutes a “taking” of private property without due process of law and just

compensation. It was only in 2003 when he was allegedly deprived of his property when the MMDA demolished a portion

of the building. Because he was granted an exemption in 1966, there was no “taking” yet to speak of.

Moreover, in Acebedo Optical Company, Inc. v. Court of Appeals,[21] we held:

It is therefore decisively clear that estoppel cannot apply in this case. The fact that petitioner acquiesced in the special conditions imposed by the City Mayor in subject business permit does not preclude it from challenging the said imposition, which is ultra vires or beyond the ambit of authority of respondent City Mayor. Ultra vires acts or acts which are clearly beyond the scope of one's authority are null and void and cannot be given any effect. The doctrine of estoppel cannot operate to give effect to an act which is otherwise null and void or ultra vires. (Emphasis supplied.)

Recently, in British American Tobacco v. Camacho,[22] we likewise held:

We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR, which at that time it considered as valid, petitioner did not commit any false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination, and the fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later . (Emphasis supplied.)

Anent the second ground, we find that Justice Gancayco may not question the ordinance on the ground of equal

protection when he also benefited from the exemption. It bears emphasis that Justice Gancayco himself requested for an

exemption from the application of the ordinance in 1965 and was eventually granted one. Moreover, he was still enjoying

the exemption at the time of the demolition as there was yet no valid notice from the city engineer. Thus, while the

ordinance may be attacked with regard to its different treatment of properties that appears to be similarly situated,

Justice Gancayco is not the proper person to do so.

Zoning and the regulation of theconstruction of buildings are validexercises of police power .

In MMDA v. Bel-Air Village Association,[23] we discussed the nature of police powers exercised by local

government units, to wit:

Police power is an inherent attribute of sovereignty. It has been defined as the power vested by the Constitution in the legislature to make, ordain, and establish all manner of wholesome and reasonable laws, statutes and ordinances, 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 for the subjects of the same. The power is plenary and its scope is vast and pervasive, reaching and justifying measures for public health, public safety, public morals, and the general welfare.

It bears stressing that police power is lodged primarily in the National Legislature. It cannot be

exercised by any group or body of individuals not possessing legislative power. The National Legislature, however, may delegate this power to the President and administrative boards as well as the lawmaking bodies of municipal corporations or local government units. Once delegated, the agents can exercise only such legislative powers as are conferred on them by the national lawmaking body.

To resolve the issue on the constitutionality of the ordinance, we must first determine whether there was a valid

delegation of police power. Then we can determine whether the City Government of Quezon City acted within the limits

of the delegation.

It is clear that Congress expressly granted the city government, through the city council, police power by virtue of

Section 12(oo) of Republic Act No. 537, or the Revised Charter of Quezon City,[24] which states:

To make such further ordinances and regulations not repugnant to law as may be necessary to carry into effect and discharge the powers and duties conferred by this Act and such as it shall deem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the city and the inhabitants thereof, and for the protection of property therein; and enforce obedience thereto with such lawful fines or penalties as the City Council may prescribe under the provisions of subsection (jj) of this section.

Specifically, on the powers of the city government to regulate the construction of buildings, the Charter also

expressly provided that the city government had the power to regulate the kinds of buildings and structures that may be

erected within fire limits and the manner of constructing and repairing them. [25]

With regard meanwhile to the power of the local government units to issue zoning ordinances, we apply Social

Justice Society v. Atienza.[26] In that case, the Sangguniang Panlungsod of Manila City enacted an ordinance on 28

November 2001 reclassifying certain areas of the city from industrial to commercial. As a result of the zoning ordinance,

the oil terminals located in those areas were no longer allowed. Though the oil companies contended that they stood to

lose billions of pesos, this Court upheld the power of the city government to pass the assailed ordinance, stating:

In the exercise of police power, property rights of individuals may be subjected to restraints and burdens in order to fulfil the objectives of the government. Otherwise stated, the government may enact legislation that may interfere with personal liberty, property, lawful businesses and occupations to promote the general welfare. However, the interference must be reasonable and not arbitrary. And to   forestall  arbitrariness,   the methods or  means  used to  protect  public  health,  morals,   safety  or welfare must have a reasonable relation to the end in view.

The means adopted by the Sanggunian was the enactment of a zoning ordinance which reclassified the area where the depot is situated from industrial to commercial. A zoning ordinance is defined   as   a   local   city   or  municipal   legislation  which   logically   arranges,   prescribes,   defines   and apportions a given political  subdivision into specific land uses as present and future projection of needs. As a result of the zoning, the continued operation of the businesses of the oil companies in their present location will no longer be permitted. The power to establish zones for industrial, commercial and residential uses is derived from the police power itself and is exercised for the protection and benefit of the residents of a locality. Consequently, the enactment of Ordinance No. 8027 is within the power of the Sangguniang Panlungsod of the City of Manila and any resulting burden on those affected cannot be said to be unjust... (Emphasis supplied)

In Carlos Superdrug v. Department of Social Welfare and Development,[27] we also held:For this reason, when the conditions so demand as determined by the legislature, property 

rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of  petitioners that  they will  suffer loss of earnings and capital,   the questioned provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory 

effect of the provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor. (Emphasis supplied.)

In the case at bar, it is clear that the primary objectives of the city council of Quezon City when it issued the

questioned ordinance ordering the construction of arcades were the health and safety of the city and its inhabitants; the

promotion of their prosperity; and the improvement of their morals, peace, good order, comfort, and the convenience.

These arcades provide safe and convenient passage along the sidewalk for commuters and pedestrians, not just the

residents of Quezon City. More especially so because the contested portion of the building is located on a busy segment

of the city, in a business zone along EDSA.

Corollarily, the policy of the Building Code, [28] which was passed after the Quezon City Ordinance, supports the

purpose for the enactment of Ordinance No. 2904. The Building Code states: Section 102. Declaration of Policy. – It is hereby declared to be the policy of the State to safeguard life, health, property, and public welfare, consistent with the principles of sound environmental management and control; and to this end, make it the purpose of this Code to provide for all buildings and structures, a framework of minimum standards and requirements to regulate and control their location, site, design quality of materials, construction, occupancy, and maintenance.

Section 1004 likewise requires the construction of arcades whenever existing or zoning ordinances require it.

Apparently, the law allows the local government units to determine whether arcades are necessary within their respective

jurisdictions.

Justice Gancayco argues that there is a three-meter sidewalk in front of his property line, and the arcade should

be constructed above that sidewalk rather than within his property line. We do not need to address this argument

inasmuch as it raises the issue of the wisdom of the city ordinance, a matter we will not and need not delve into.

To reiterate, at the time that the ordinance was passed, there was no national building code enforced to guide

the city council; thus, there was no law of national application that prohibited the city council from regulating the

construction of buildings, arcades and sidewalks in their jurisdiction.

The “wing walls” of the building are notnuisances per se.  

The MMDA claims that the portion of the building in question is a nuisance per se.

We disagree.

The fact that in 1966 the City Council gave Justice Gancayco an exemption from constructing an arcade is an

indication that the wing walls of the building are not nuisancesper se. The wing walls do not per se immediately and

adversely affect the safety of persons and property. The fact that an ordinance may declare a structure illegal does not

necessarily make that structure a nuisance.

Article 694 of the Civil Code defines nuisance as any act, omission, establishment, business, condition or

property, or anything else that (1) injures or endangers the health or safety of others; (2) annoys or offends the senses; (3)

shocks, defies or disregards decency or morality; (4) obstructs or interferes with the free passage of any public highway or

street, or any body of water; or, (5) hinders or impairs the use of property. A nuisance may be per se or per accidens. A

nuisance per se is that which affects the immediate safety of persons and property and may summarily be abated under

the undefined law of necessity.[29]

Clearly, when Justice Gancayco was given a permit to construct the building, the city council or the city engineer

did not consider the building, or its demolished portion, to be a threat to the safety of persons and property. This fact

alone should have warned the MMDA against summarily demolishing the structure.

Neither does the MMDA have the power to declare a thing a nuisance. Only courts of law have the power to

determine whether a thing is a nuisance. In AC Enterprises v. Frabelle Properties Corp.,[30] we held:

We agree with petitioner's contention that, under Section 447(a)(3)(i) of R.A. No. 7160, otherwise known as the Local Government Code, the Sangguniang Panglungsod is empowered to enact ordinances declaring, preventing or abating noise and other forms of nuisance. It bears stressing, however, that the Sangguniang Bayan cannot declare a particular thing as a nuisance per seand order its condemnation. It does not have the power to find, as a fact, that a particular thing is a nuisance when such   thing   is   not   a   nuisance per   se;   nor   can   it   authorize   the   extrajudicial   condemnation   and destruction of that as a nuisance which in its nature, situation or use is not such. Those things must be determined and resolved in the ordinary courts of law. If a thing be in fact, a nuisance due to the manner of its operation, that question cannot be determined by a mere resolution of the Sangguniang Bayan. (Emphasis supplied.)

MMDA illegally demolishedthe property of Justice Gancayco. 

MMDA alleges that by virtue of MMDA Resolution No. 02-28, Series of 2002, it is empowered to demolish Justice

Gancayco’s property. It insists that the Metro Manila Council authorized the MMDA and the local government units to

clear the sidewalks, streets, avenues, alleys, bridges, parks and other public places in Metro Manila of all illegal structures

and obstructions. It further alleges that it demolished the property pursuant to the Building Code in relation to Ordinance

No. 2904 as amended.

However, the Building Code clearly provides the process by which a building may be demolished . The authority

to order the demolition of any structure lies with the Building Official. The pertinent provisions of the Building Code

provide:

SECTION 205. Building Officials. — Except as otherwise provided herein, the Building Official shall be responsible for carrying out the provisions of this Code in the field as well as the enforcement of orders and decisions made pursuant thereto. Due to the exigencies of the service, the Secretary may designate incumbent Public Works District Engineers, City Engineers and Municipal Engineers act as Building Officials in their respective areas of jurisdiction.The designation made by the Secretary under this Section shall continue until regular positions of Building Official are provided or unless sooner terminated for causes provided by law or decree.

xxx xxx xxx

SECTION 207. Duties of a Building Official. — In his respective territorial jurisdiction, the Building Official shall be primarily responsible for the enforcement of the provisions of this Code as well as of the implementing rules and regulations issued therefor. He is the official charged with the duties of issuing building permits. In the performance of his duties, a Building Official may enter any building or its premises at all reasonable times to inspect and determine compliance with the requirements of this Code, and the terms and conditions provided for in the building permit as issued. When any building work is found to be contrary to the provisions of this Code, the Building Official may  order   the  work   stopped and prescribe   the  terms  and/or  conditions  when  the  work  will  be allowed to resume. Likewise, the Building Official  is authorized to order the discontinuance of the occupancy  or  use  of  any  building  or   structure  or  portion   thereof   found   to  be  occupied  or  used contrary to the provisions of this Code.

xxx xxx xxx

SECTION 215. Abatement of Dangerous Buildings. — When any building or structure is found or declared   to   be   dangerous   or   ruinous,   the   Building   Official   shall   order   its   repair,   vacation   or demolition depending upon the degree of danger to life, health, or safety. This is without prejudice to further action that may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines. (Emphasis supplied.)

MMDA v. Trackworks Rail Transit Advertising, Vending and Promotions, Inc. [31] is applicable to the case at bar. In

that case, MMDA, invoking its charter and the Building Code, summarily dismantled the advertising media installed on the

Metro Rail Transit (MRT) 3. This Court held: It is futile for MMDA to simply invoke its legal mandate to justify the dismantling of

Trackworks' billboards, signages and other advertising media. MMDA simply had no power on its own to dismantle, remove, or destroy the billboards, signages and other advertising media installed on the MRT3 structure by Trackworks. In Metropolitan Manila Development Authority v. Bel-Air Village Association, Inc., Metropolitan Manila Development Authority v. Viron Transportation Co., Inc., and Metropolitan Manila Development Authority v. Garin, the  Court  had   the  occasion   to   rule   that MMDA's   powers   were   limited   to   the   formulation,   coordination,   regulation,   implementation, preparation,  management,  monitoring,  setting of  policies,   installing  a  system, and administration. Nothing in Republic Act No. 7924 granted MMDA police power, let alone legislative power.

Clarifying the real nature of MMDA, the Court held: ...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, people's 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 are administrative in nature and these are actually summed up in the charter itself, viz:

Sec.2. Creation of the Metropolitan Manila Development Authority.- xxx.The MMDA shall perform planning, monitoring and coordinative functions, and in the process exercise regulatory and supervisory authority over the delivery of metro-wide services within Metro Manila, without diminution of the autonomy of local government units concerning purely local matters.

The Court also agrees with the CA's ruling that MMDA Regulation No. 96-009 and MMC

Memorandum Circular No. 88-09 did not apply to Trackworks' billboards, signages and other advertising media. The prohibition against posting, installation and display of billboards, signages and other advertising media applied only to public areas, but MRT3, being private property pursuant to the BLT agreement between the Government and MRTC, was not one of the areas as to which the prohibition applied. Moreover, MMC Memorandum Circular No. 88-09 did not apply to Trackworks' billboards, signages and other advertising media in MRT3, because it did not specifically cover MRT3, and because it was issued a year prior to the construction of MRT3 on the center island of EDSA. Clearly, MMC Memorandum Circular No. 88-09 could not have included MRT3 in its prohibition.

MMDA's insistence that it was only implementing Presidential Decree No. 1096 (Building

Code) and its implementing rules and regulations is not persuasive. The power to enforce the provisions of the Building Code was lodged in the Department of Public Works and Highways (DPWH), not in MMDA, considering the law's following provision, thus:

Sec. 201. Responsibility for Administration and Enforcement. -The administration and enforcement of the provisions of this Code including the imposition of penalties for administrative violations thereof is hereby vested in the Secretary of Public Works, Transportation and Communications, hereinafter referred to as the "Secretary." There is also no evidence showing that MMDA had been delegated by DPWH to implement 

the Building Code. (Emphasis supplied.)

Additionally, the penalty prescribed by Ordinance No. 2904 itself does not include the demolition of illegally

constructed buildings in case of violations. Instead, it merely prescribes a punishment of “a fine of not more than two

hundred pesos (P200.00) or by imprisonment of not more than thirty (30) days, or by both such fine and imprisonment at 

the discretion of the Court, Provided, that if the violation is committed by a corporation, partnership, or any juridical

entity, the Manager, managing partner, or any person charged with the management thereof shall be held responsible

therefor.” The ordinance itself also clearly states that it is the regular courts that will determine whether there was a

violation of the ordinance.

As pointed out in Trackworks, the MMDA does not have the power to enact ordinances. Thus, it cannot

supplement the provisions of Quezon City Ordinance No. 2904 merely through its Resolution No. 02-28.

Lastly, the MMDA claims that the City Government of Quezon City may be considered to have approved the

demolition of the structure, simply because then Quezon City Mayor Feliciano R. Belmonte signed MMDA Resolution No.

02-28. In effect, the city government delegated these powers to the MMDA. The powers referred to are those that include

the power to declare, prevent and abate a nuisance[32] and to further impose the penalty of removal or demolition of the

building or structure by the owner or by the city at the expense of the owner.[33]

MMDA’s argument does not hold water. There was no valid delegation of powers to the MMDA. Contrary to the

claim of the MMDA, the City Government of Quezon City washed its hands off the acts of the former. In its Answer, [34] the

city government stated that “the demolition was undertaken by the MMDA only, without the participation and/or

consent of Quezon City.” Therefore, the MMDA acted on its own and should be held solely liable for the destruction of

the portion of Justice Gancayco’s building.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. SP No. 84648

is AFFIRMED.

SO ORDERED.  

D E C I S I O NVELASCO, JR., J.:

 The Case

This petition[1] for certiorari, mandamus and prohibition under Rule 65 assails and seeks to nullify the Non-

Surrender Agreement concluded by and between the Republic of the Philippines (RP) and the United States of America (USA).

The Facts 

Petitioner Bayan Muna is a duly registered party-list group established to represent the marginalized sectors of

society. Respondent Blas F. Ople, now deceased, was the Secretary of Foreign Affairs during the period material to this

case. Respondent Alberto Romulo was impleaded in his capacity as then Executive Secretary.[2]

Rome Statute of the International Criminal Court

Having a key determinative bearing on this case is the Rome Statute [3] establishing the International Criminal

Court (ICC) with “the power to exercise its jurisdiction over persons for the most serious crimes of international concern x x

x and shall be complementary to the national criminal jurisdictions.”[4] The serious crimes adverted to coverthose

considered grave under international law, such as genocide, crimes against humanity, war crimes, and crimes of

aggression.[5]

On December 28, 2000, the RP, through Charge d’Affaires Enrique A. Manalo, signed the Rome Statute which, by

its terms, is “subject to ratification, acceptance or approval” by the signatory states. [6] As of the filing of the instant

petition, only 92 out of the 139 signatory countries appear to have completed the ratification, approval and concurrence

process. The Philippines is not among the 92.

 

RP-US Non-Surrender Agreement

On May 9, 2003, then Ambassador Francis J. Ricciardone sent US Embassy Note No. 0470 to the Department of

Foreign Affairs (DFA) proposing the terms of the non-surrender bilateral agreement (Agreement, hereinafter) between the

USA and the RP.

Via Exchange of Notes No. BFO-028-03[7] dated May 13, 2003 (E/N BFO-028-03, hereinafter), the RP, represented by then DFA Secretary Ople, agreed with and accepted the US proposals embodied under the US Embassy Note adverted to and put in effect the Agreement with the US government. In esse, the Agreement aims to protect what it refers to and defines as “persons” of the RP and US from frivolous and harassment suits that might be brought against them in international tribunals.[8] It is reflective of the increasing pace of the strategic security and defense partnership between the two countries. As of May 2, 2003, similar bilateral agreements have been effected by and between the US and 33 other countries.[9]

The Agreement pertinently provides as follows:

1. For purposes of this Agreement, “persons” are current or former Government officials,

employees (including contractors), or military personnel or nationals of one Party. 2. Persons of one Party present in the territory of the other shall not, absent the express

consent of the first Party, (a) be surrendered or transferred by any means to any international tribunal for any purpose,

unless such tribunal has been established by the UN Security Council, or

(b) be surrendered or transferred by any means to any other entity or third country, or expelled to a third country, for the purpose of surrender to or transfer to any international tribunal, unless such tribunal has been established by the UN Security Council.

3. When the [US] extradites, surrenders, or otherwise transfers a person of the Philippines to a

third country, the [US] will not agree to the surrender or transfer of that person by the third country to any international tribunal, unless such tribunal has been established by the UN Security Council, absent the express consent of the Government of the Republic of the Philippines [GRP].

4. When the [GRP] extradites, surrenders, or otherwise transfers a person of the [USA] to a

third country, the [GRP] will not agree to the surrender or transfer of that person by the third country to any international tribunal, unless such tribunal has been established by the UN Security Council, absent the express consent of the Government of the [US].

5. This Agreement shall remain in force until one year after the date on which one party

notifies the other of its intent to terminate the Agreement. The provisions of this Agreement shall continue to apply with respect to any act occurring, or any allegation arising, before the effective date of termination.

In response to a query of then Solicitor General Alfredo L. Benipayo on the status of the non-surrender

agreement, Ambassador Ricciardone replied in his letter of October 28, 2003 that the exchange of diplomatic notes

constituted a legally binding agreement under international law; and that, under US law, the said agreement did not

require the advice and consent of the US Senate.[10]

In this proceeding, petitioner imputes grave abuse of discretion to respondents in concluding and ratifying

the Agreement and prays that it be struck down as unconstitutional, or at least declared as without force and effect.

For their part, respondents question petitioner’s standing to maintain a suit and counter that the Agreement,

being in the nature of an executive agreement, does not require Senate concurrence for its efficacy. And for reasons

detailed in their comment, respondents assert the constitutionality of the Agreement.

 

The Issues I. WHETHER THE [RP] PRESIDENT AND THE [DFA] SECRETARY x x x GRAVELY ABUSED THEIR DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION FOR CONCLUDING THE RP-US   NON SURRENDER   AGREEMENT BY MEANS OF [E/N] BFO-028-03 DATED 13 MAY 2003, WHEN THE PHILIPPINE GOVERNMENT HAS ALREADY SIGNED THE ROME STATUTE OF THE [ICC] ALTHOUGH THIS IS PENDING RATIFICATION BY THE PHILIPPINE SENATE.A. Whether by entering into the x x x Agreement Respondents gravely abused their discretion

when they capriciously abandoned, waived and relinquished our only legitimate recourse through the Rome Statute of the [ICC] to prosecute and try “persons” as defined in the x x x Agreement, x x x or literally any conduit of American interests, who have committed crimes of genocide, crimes against humanity, war crimes and the crime of aggression, thereby abdicating Philippine Sovereignty.

B. Whether after the signing and pending ratification of the Rome Statute of the [ICC] the [RP]

President and the [DFA] Secretary x x x are obliged by the principle of good faith to refrain from doing all acts which would substantially impair the value of the undertaking as signed.

C. Whether the x x x Agreement constitutes an act which defeats the object and purpose of

the Rome Statute of the International Criminal Court and contravenes the obligation of good faith inherent in the signature of the President affixed on the Rome Statute of the International Criminal Court, and if so whether the x x x Agreement is void and unenforceable on this ground.

D. Whether the RP-US Non-Surrender Agreement is void and unenforceable for grave abuse of

discretion amounting to lack or excess of jurisdiction in connection with its execution.

II. WHETHER THE RP-US   NON   SURRENDER   AGREEMENT IS VOID AB INITIO FOR CONTRACTING OBLIGATIONS THAT ARE EITHER IMMORAL OR OTHERWISE AT VARIANCE WITH UNIVERSALLY RECOGNIZED PRINCIPLES OF INTERNATIONAL LAW.

III. WHETHER THE x x x AGREEMENT IS VALID, BINDING AND EFFECTIVE WITHOUT THE CONCURRENCE

BY AT LEAST TWO-THIRDS (2/3) OF ALL THE MEMBERS OF THE SENATE x x x.[11]

  

The foregoing issues may be summarized into two: first, whether or not the Agreement was contracted validly,

which resolves itself into the question of whether or not respondents gravely abused their discretion in concluding it;

and second, whether or not the Agreement, which has not been submitted to the Senate for concurrence, contravenes

and undermines the Rome Statute and other treaties. But because respondents expectedly raised it, we shall first tackle

the issue of petitioner’s legal standing.

The Court’s Ruling

This petition is bereft of merit.

Procedural Issue:  Locus Standi of Petitioner

Petitioner, through its three party-list representatives, contends that the issue of the validity or invalidity of

the Agreement carries with it constitutional significance and is of paramount importance that justifies its standing. Cited

in this regard is what is usually referred to as the emergency powers cases, [12] in which ordinary citizens and taxpayers

were accorded the personality to question the constitutionality of executive issuances.

Locus standi is “a right of appearance in a court of justice on a given question.” [13] Specifically, it is “a party’s

personal and substantial interest in a case where he has sustained or will sustain direct injury as a result” [14] of the act

being challenged, and “calls for more than just a generalized grievance.” [15] The term “interest” refers to material interest,

as distinguished from one that is merely incidental. [16] The rationale for requiring a party who challenges the validity of a

law or international agreement to allege such a personal stake in the outcome of the controversy is “to assure the

concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination

of difficult constitutional questions.”[17]

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. [18] Consequently, in a catena of cases,[19] this Court has invariably adopted a liberal stance on locus standi.

Going by the petition, petitioner’s representatives pursue the instant suit primarily as concerned citizens raising

issues of transcendental importance, both for the Republic and the citizenry as a whole.

When suing as a citizen to question the validity of a law or other government action, a petitioner needs to meet

certain specific requirements before he can be clothed with standing. Francisco, Jr. v. Nagmamalasakit na mga

Manananggol ng mga Manggagawang Pilipino, Inc.[20] expounded on this requirement, thus:

In a long line of cases, however, concerned citizens, taxpayers and legislators when specific requirements have been met have been given standing by this Court.

When suing as a citizen, the interest of the petitioner assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of. In fine, when the proceeding involves the assertion of a public right, the mere fact that he is a citizen satisfies the requirement of personal interest.[21]

In the case at bar, petitioner’s representatives have complied with the qualifying conditions or specific

requirements exacted under the locus standi rule. As citizens, their interest in the subject matter of the petition is direct

and personal. At the very least, their assertions questioning the Agreement are made of a public right, i.e., to ascertain

that theAgreement did not go against established national policies, practices, and obligations bearing on the State’s

obligation to the community of nations.

At any event, the primordial importance to Filipino citizens in general of the issue at hand impels the Court to

brush aside the procedural barrier posed by the traditional requirement of locus standi, as we have done in a long line of

earlier cases, notably in the old but oft-cited emergency powers cases [22] and Kilosbayan v. Guingona, Jr.[23] In cases of

transcendental importance, we wrote again in Bayan v. Zamora,[24] “The Court may relax the standing requirements and

allow a suit to prosper even where there is no direct injury to the party claiming the right of judicial review.”

Moreover, bearing in mind what the Court said in Tañada v. Angara, “that it will not shirk, digress from or

abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of discretion

brought before it in appropriate cases, committed by any officer, agency, instrumentality or department of the

government,”[25] we cannot but resolve head on the issues raised before us. Indeed, where an action of any branch of

government is seriously alleged to have infringed the Constitution or is done with grave abuse of discretion, it becomes

not only the right but in fact the duty of the judiciary to settle it. As in this petition, issues are precisely raised putting to

the fore the propriety of the Agreement pending the ratification of the Rome Statute.

Validity of the RP-US Non-Surrender Agreement

Petitioner’s initial challenge against the Agreement relates to form, its threshold posture being that E/N BFO-028-

03 cannot be a valid medium for concluding the Agreement.

Petitioners’ contention––perhaps taken unaware of certain well-recognized international doctrines, practices,

and jargons––is untenable. One of these is the doctrine of incorporation, as expressed in Section 2, Article II of the

Constitution, wherein the Philippines adopts the generally accepted principles of international law and international

jurisprudence as part of the law of the land and adheres to the policy of peace, cooperation, and amity with all nations.[26] An exchange of notes falls “into the category of inter-governmental agreements,” [27] which is an internationally

accepted form of international agreement. The United Nations Treaty Collections (Treaty Reference Guide) defines the

term as follows: An “exchange of notes” is a record of a routine agreement, that has many similarities with the

private law contract. The agreement consists of the exchange of two documents, each of the parties being in the possession of the one signed by the representative of the other. Under the usual procedure, the accepting State repeats the text of the offering State to record its assent. The signatories of the letters may be government Ministers, diplomats or departmental heads. The technique of exchange of notes is frequently resorted to, either because of its speedy procedure, or, sometimes, to avoid the process of legislative approval.[28]

In another perspective, the terms “exchange of notes” and “executive agreements” have been used

interchangeably, exchange of notes being considered a form of executive agreement that becomes binding through

executive action.[29] On the other hand, executive agreements concluded by the President “sometimes take the form of

exchange of notes and at other times that of more formal documents denominated ‘agreements’ or ‘protocols.’” [30] As

former US High Commissioner to the Philippines Francis B. Sayre observed in his work, The Constitutionality of

Trade Agreement Acts:The point where ordinary correspondence between this and other governments ends

and agreements – whether denominated executive agreements or exchange of notes or otherwise – begin, may sometimes be difficult of ready ascertainment.[31] x x x

It is fairly clear from the foregoing disquisition that E/N BFO-028-03––be it viewed as the Non-Surrender

Agreement itself, or as an integral instrument of acceptance thereof or as consent to be bound––is a recognized mode of

concluding a legally binding international written contract among nations.

Senate Concurrence Not Required

Article 2 of the Vienna Convention on the Law of Treaties defines a treaty as “an international agreement

concluded between states in written form and governed by international law, whether embodied in a single instrument or

in two or more related instruments and whatever its particular designation.”[32] International agreements may be in the

form of (1) treaties that require legislative concurrence after executive ratification; or (2) executive agreements that are

similar to treaties, except that they do not require legislative concurrence and are usually less formal and deal with a

narrower range of subject matters than treaties.[33]

Under international law, there is no difference between treaties and executive agreements in terms of their

binding effects on the contracting states concerned,[34] as long as the negotiating functionaries have remained within their

powers.[35] Neither, on the domestic sphere, can one be held valid if it violates the Constitution. [36] Authorities are,

however, agreed that one is distinct from another for accepted reasons apart from the concurrence-requirement aspect.[37] As has been observed by US constitutional scholars, a treaty has greater “dignity” than an executive agreement,

because its constitutional efficacy is beyond doubt, a treaty having behind it the authority of the President, the Senate,

and the people;[38] a ratified treaty, unlike an executive agreement, takes precedence over any prior statutory enactment.[39]

Petitioner parlays the notion that the Agreement is of dubious validity, partaking as it does of the nature of a

treaty; hence, it must be duly concurred in by the Senate. Petitioner takes a cue from Commissioner of Customs v. Eastern

Sea Trading, in which the Court reproduced the following observations made by US legal scholars: “[I]nternational

agreements involving political issues or changes of national policy and those involving international arrangements of a

permanent character usually take the form of treaties [while] those embodying adjustments of detail carrying out well

established national policies and traditions and those involving arrangements of a more or less temporary nature take the

form of executive agreements.” [40]

Pressing its point, petitioner submits that the subject of the Agreement does not fall under any of the subject-

categories that are enumerated in the Eastern Sea Trading case, and that may be covered by an executive agreement,

such as commercial/consular relations, most-favored nation rights, patent rights, trademark and copyright protection,

postal and navigation arrangements and settlement of claims.

In addition, petitioner foists the applicability to the instant case of Adolfo v. CFI of Zambales and Merchant,[41] holding that an executive agreement through an exchange of notes cannot be used to amend a treaty.

We are not persuaded.

The categorization of subject matters that may be covered by international agreements mentioned in Eastern

Sea Trading is not cast in stone. There are no hard and fast rules on the propriety of entering, on a given subject, into a

treaty or an executive agreement as an instrument of international relations. The primary consideration in the choice of

the form of agreement is the parties’ intent and desire to craft an international agreement in the form they so wish to

further their respective interests. Verily, the matter of form takes a back seat when it comes to effectiveness and binding

effect of the enforcement of a treaty or an executive agreement, as the parties in either international agreement each

labor under the pacta sunt servanda[42] principle.

As may be noted, almost half a century has elapsed since the Court rendered its decision in Eastern Sea

Trading. Since then, the conduct of foreign affairs has become more complex and the domain of international law wider,

as to include such subjects as human rights, the environment, and the sea. In fact, in the US alone, the executive

agreements executed by its President from 1980 to 2000 covered subjects such as defense, trade, scientific cooperation,

aviation, atomic energy, environmental cooperation, peace corps, arms limitation, and nuclear safety, among others.[43] Surely, the enumeration in Eastern Sea Trading cannot circumscribe the option of each state on the matter of which

the international agreement format would be convenient to serve its best interest. As Francis Sayre said in his work

referred to earlier:x x x It would be useless to undertake to discuss here the large variety of executive agreements

as such concluded from time to time. Hundreds of executive agreements, other than those entered into under the trade-agreement act, have been negotiated with foreign governments. x x x They cover such subjects as the inspection of vessels, navigation dues, income tax on shipping profits, the admission of civil air craft, custom matters and commercial relations generally, international claims, postal matters, the registration of trademarks and copyrights, etc. x x x

And lest it be overlooked, one type of executive agreement is a treaty-authorized [44] or a treaty-implementing

executive agreement,[45] which necessarily would cover the same matters subject of the underlying treaty.

But over and above the foregoing considerations is the fact that––save for the situation and matters

contemplated in Sec. 25, Art. XVIII of the Constitution[46]––when a treaty is required, the Constitution does not classify any

subject, like that involving political issues, to be in the form of, and ratified as, a treaty. What the Constitution merely

prescribes is that treaties need the concurrence of the Senate by a vote defined therein to complete the ratification

process.

Petitioner’s reliance on Adolfo[47] is misplaced, said case being inapplicable owing to different factual

milieus. There, the Court held that an executive agreement cannot be used to amend a duly ratified and existing

treaty, i.e., the Bases Treaty. Indeed, an executive agreement that does not require the concurrence of the Senate for its

ratification may not be used to amend a treaty that, under the Constitution, is the product of the ratifying acts of the

Executive and the Senate. The presence of a treaty, purportedly being subject to amendment by an executive agreement,

does not obtain under the premises.

Considering the above discussion, the Court need not belabor at length the third main issue raised, referring to

the validity and effectivity of the Agreement without the concurrence by at least two-thirds of all the members of the

Senate. The Court has, in Eastern Sea Trading,[48] as reiterated in Bayan,[49] given recognition to the obligatory effect of

executive agreements without the concurrence of the Senate:

x x x [T]he right of the Executive to enter into binding agreements without the necessity of

subsequent Congressional approval has been confirmed by long usage. From the earliest days of our history, we have entered executive agreements covering such subjects as commercial and consular relations, most favored-nation rights, patent rights, trademark and copyright protection, postal and navigation arrangements and the settlement of claims. The validity of these has never been seriously questioned by our courts.

The Agreement Not in Contravention of the Rome Statute

It is the petitioner’s next contention that the Agreement undermines the establishment of the ICC and is null and

void insofar as it unduly restricts the ICC’s jurisdiction and infringes upon the effectivity of the Rome Statute. Petitioner

posits that the Agreement was constituted solely for the purpose of providing individuals or groups of individuals with

immunity from the jurisdiction of the ICC; and such grant of immunity through non-surrender agreements allegedly does

not legitimately fall within the scope of Art. 98 of theRome Statute. It concludes that state parties with non-surrender

agreements are prevented from meeting their obligations under the Rome Statute, thereby constituting a breach of Arts.

27,[50] 86,[51] 89[52] and 90[53] thereof.

Petitioner stresses that the overall object and purpose of the Rome Statute is to ensure that those responsible

for the worst possible crimes are brought to justice in all cases, primarily by states, but as a last resort, by the ICC; thus,

any agreement—like the non-surrender agreement—that precludes the ICC from exercising its complementary function

of acting when a state is unable to or unwilling to do so, defeats the object and purpose of the Rome Statute.

Petitioner would add that the President and the DFA Secretary, as representatives of a signatory of the Rome

Statute, are obliged by the imperatives of good faith to refrain from performing acts that substantially devalue the

purpose and object of the Statute, as signed. Adding a nullifying ingredient to the Agreement, according to petitioner, is

the fact that it has an immoral purpose or is otherwise at variance with a priorly executed treaty.

Contrary to petitioner’s pretense, the Agreement does not contravene or undermine, nor does it differ from, the

Rome Statute. Far from going against each other, one complements the other. As a matter of fact, the principle of

complementarity underpins the creation of the ICC. As aptly pointed out by respondents and admitted by petitioners, the

jurisdiction of the ICC is to “be complementary to national criminal jurisdictions [of the signatory states].” [54] Art. 1 of the

Rome Statute pertinently provides:

Article 1

The Court

An International Crimininal Court (“the Court”) is hereby established. It x x x shall  have the 

power to exercise its jurisdiction over persons for the most serious crimes of international concern, as referred to in this Statute, and shall   be   complementary   to   national   criminal   jurisdictions. The jurisdiction and functioning of the Court shall be governed by the provisions of this Statute. (Emphasis ours.)

Significantly, the sixth preambular paragraph of the Rome Statute declares that “it is the duty of every State to

exercise its criminal jurisdiction over those responsible for international crimes.” This provision indicates that primary

jurisdiction over the so-called international crimes rests, at the first instance, with the state where the crime was

committed; secondarily, with the ICC in appropriate situations contemplated under Art. 17, par. 1 [55] of the Rome Statute.

Of particular note is the application of the principle of ne bis in idem[56] under par. 3 of Art. 20, Rome Statute,

which again underscores the primacy of the jurisdiction of a state vis-a-vis that of the ICC. As far as relevant, the provision

states that “no person who has been tried by another court for conduct x x x [constituting crimes within its jurisdiction]

shall be tried by the [International Criminal] Court with respect to the same conduct x x x.”

The foregoing provisions of the Rome Statute, taken collectively, argue against the idea of jurisdictional conflict

between the Philippines, as party to the non-surrender agreement, and the ICC; or the idea of

the Agreement substantially impairing the value of the RP’s undertaking under the Rome Statute. Ignoring for a while the

fact that the RP signed the Rome Statute ahead of the Agreement, it is abundantly clear to us that the Rome Statute

expressly recognizes the primary jurisdiction of states, like the RP, over serious crimes committed within their respective

borders, the complementary jurisdiction of the ICC coming into play only when the signatory states are unwilling or

unable to prosecute.

Given the above consideration, petitioner’s suggestion––that the RP, by entering into the Agreement, violated its

duty required by the imperatives of good faith and breached its commitment under the Vienna Convention [57] to refrain

from performing any act tending to impair the value of a treaty, e.g., the Rome Statute––has to be rejected outright. For

nothing in the provisions of the Agreement, in relation to the Rome Statute, tends to diminish the efficacy of the Statute,

let alone defeats the purpose of the ICC. Lest it be overlooked, the Rome Statute contains a proviso that enjoins the ICC

from seeking the surrender of an erring person, should the process require the requested state to perform an act that

would violate some international agreement it has entered into. We refer to Art. 98(2) of the Rome Statute, which

reads:

Article 98

Cooperation with respect to waiver of immunity

and consent to surrender

x x x x

2. The Court may not proceed with a request for surrender which would require the requested State to act inconsistently with its obligations under international agreements pursuant to which the consent of a sending State is required to surrender a person of that State to the Court, unless the Court can first obtain the cooperation of the sending State for the giving of consent for the surrender.

Moreover, under international law, there is a considerable difference between a State-Party and a signatory to a

treaty. Under the Vienna Convention on the Law of Treaties, a signatory state is only obliged to refrain from acts which

would defeat the object and purpose of a treaty;[58] whereas a State-Party, on the other hand, is legally obliged to follow

all the provisions of a treaty in good faith.

In the instant case, it bears stressing that the Philippines is only a signatory to the Rome Statute and not a State-

Party for lack of ratification by the Senate. Thus, it is only obliged to refrain from acts which would defeat the object and

purpose of the Rome Statute. Any argument obliging the Philippines to follow any provision in the treaty would be

premature.

As a result, petitioner’s argument that State-Parties with non-surrender agreements are prevented from meeting

their obligations under the Rome Statute, specifically Arts. 27, 86, 89 and 90, must fail. These articles are only legally

binding upon State-Parties, not signatories.

Furthermore, a careful reading of said Art. 90 would show that the Agreement is not incompatible with the Rome

Statute. Specifically, Art. 90(4) provides that “[i]f the requesting State is a State not Party to this Statute the requested

State, if it is not under an international obligation to extradite the person to the requesting State, shall give priority to the

request for surrender from the Court. x x x” In applying the provision, certain undisputed facts should be pointed

out: first, the US is neither a State-Party nor a signatory to the Rome Statute; and second, there is an international

agreement between the US and the Philippines regarding extradition or surrender of persons, i.e., the Agreement. Clearly,

even assuming that the Philippines is a State-Party, the Rome Statute still recognizes the primacy of international

agreements entered into between States, even when one of the States is not a State-Party to the Rome Statute.

 

Sovereignty Limited by International Agreements

Petitioner next argues that the RP has, through the Agreement, abdicated its sovereignty by bargaining away the

jurisdiction of the ICC to prosecute US nationals, government officials/employees or military personnel who commit

serious crimes of international concerns in the Philippines. Formulating petitioner’s argument a bit differently, the RP, by

entering into the Agreement, does thereby abdicate its sovereignty, abdication being done by its waiving or abandoning

its right to seek recourse through the Rome Statute of the ICC for erring Americans committing international crimes in the

country.

We are not persuaded. As it were, the Agreement is but a form of affirmance and confirmance of the Philippines’

national criminal jurisdiction. National criminal jurisdiction being primary, as explained above, it is always the

responsibility and within the prerogative of the RP either to prosecute criminal offenses equally covered by the Rome

Statute or to accede to the jurisdiction of the ICC. Thus, the Philippines may decide to try “persons” of the US, as the term

is understood in the Agreement, under our national criminal justice system. Or it may opt not to exercise its criminal

jurisdiction over its erring citizens or over US “persons” committing high crimes in the country and defer to the secondary

criminal jurisdiction of the ICC over them. As to “persons” of the US whom the Philippines refuses to prosecute, the

country would, in effect, accord discretion to the US to exercise either its national criminal jurisdiction over the “person”

concerned or to give its consent to the referral of the matter to the ICC for trial. In the same breath, the USmust extend

the same privilege to the Philippines with respect to “persons” of the RP committing high crimes within US territorial

jurisdiction.

In the context of the Constitution, there can be no serious objection to the Philippines agreeing to undertake the

things set forth in the Agreement. Surely, one State can agree to waive jurisdiction—to the extent agreed upon—to

subjects of another State due to the recognition of the principle of extraterritorial immunity. What the Court wrote

in Nicolas v. Romulo[59]—a case involving the implementation of the criminal jurisdiction provisions of the RP-US Visiting

Forces Agreement—is apropos:

Nothing in the Constitution prohibits such agreements recognizing immunity from jurisdiction

or some aspects of jurisdiction (such as custody), in relation to long-recognized subjects of such immunity like Heads of State, diplomats and members of the armed forces contingents of a foreign State allowed to enter another State’s territory. x x x

To be sure, the nullity of the subject non-surrender agreement cannot be predicated on the postulate that some

of its provisions constitute a virtual abdication of its sovereignty. Almost every time a state enters into an international

agreement, it voluntarily sheds off part of its sovereignty. The Constitution, as drafted, did not envision a

reclusive Philippines isolated from the rest of the world. It even adheres, as earlier stated, to the policy of cooperation

and amity with all nations.[60]

By their nature, treaties and international agreements actually have a limiting effect on the otherwise

encompassing and absolute nature of sovereignty. By their voluntary act, nations may decide to surrender or waive some

aspects of their state power or agree to limit the exercise of their otherwise exclusive and absolute jurisdiction. The usual

underlying consideration in this partial surrender may be the greater benefits derived from a pact or a reciprocal

undertaking of one contracting party to grant the same privileges or immunities to the other. On the rationale that the

Philippines has adopted the generally accepted principles of international law as part of the law of the land, a portion of

sovereignty may be waived without violating the Constitution. [61] Such waiver does not amount to an unconstitutional

diminution or deprivation of jurisdiction of Philippine courts.[62]

Agreement Not Immoral/Not at Variance

with Principles of International Law

Petitioner urges that the Agreement be struck down as void ab initio for imposing immoral obligations and/or

being at variance with allegedly universally recognized principles of international law. The immoral aspect proceeds from

the fact that the Agreement, as petitioner would put it, “leaves criminals immune from responsibility for unimaginable

atrocities that deeply shock the conscience of humanity; x x x it precludes our country from delivering an American

criminal to the [ICC] x x x.”[63]

The above argument is a kind of recycling of petitioner’s earlier position, which, as already discussed, contends

that the RP, by entering into the Agreement, virtually abdicated its sovereignty and in the process undermined its treaty

obligations under the Rome Statute, contrary to international law principles.[64]

The Court is not persuaded. Suffice it to state in this regard that the non-surrender agreement, as aptly described

by the Solicitor General, “is an assertion by the Philippinesof its desire to try and punish crimes under its national law. x x

x The agreement is a recognition of the primacy and competence of the country’s judiciary to try offenses under its

national criminal laws and dispense justice fairly and judiciously.”

Petitioner, we believe, labors under the erroneous impression that the Agreement would allow Filipinos and

Americans committing high crimes of international concern to escape criminal trial and punishment. This is manifestly

incorrect. Persons who may have committed acts penalized under the Rome Statute can be prosecuted and punished in

thePhilippines or in the US; or with the consent of the RP or the US, before the ICC, assuming, for the nonce, that all the

formalities necessary to bind both countries to the Rome Statute have been met. For perspective, what

the Agreement contextually prohibits is the surrender by either party of individuals to international tribunals, like the ICC,

without the consent of the other party, which may desire to prosecute the crime under its existing laws. With the view

we take of things, there is nothing immoral or violative of international law concepts in the act of the Philippines of

assuming criminal jurisdiction pursuant to the non-surrender agreement over an offense considered criminal by both

Philippine laws and the Rome Statute.

No Grave Abuse of Discretion

Petitioner’s final point revolves around the necessity of the Senate’s concurrence in the Agreement. And without

specifically saying so, petitioner would argue that the non-surrender agreement was executed by the President, thru the

DFA Secretary, in grave abuse of discretion.

The Court need not delve on and belabor the first portion of the above posture of petitioner, the same having

been discussed at length earlier on. As to the second portion, We wish to state that petitioner virtually faults the

President for performing, through respondents, a task conferred the President by the Constitution—the power to enter

into international agreements.

By constitutional fiat and by the nature of his or her office, the President, as head of state and government, is

the sole organ and authority in the external affairs of the country. [65] The Constitution vests in the President the power to

enter into international agreements, subject, in appropriate cases, to the required concurrence votes of the Senate. But

as earlier indicated, executive agreements may be validly entered into without such concurrence. As the President wields

vast powers and influence, her conduct in the external affairs of the nation is, as Bayan would put it, “executive

altogether.” The right of the President to enter into or ratify binding executive agreements has been confirmed by long

practice.[66]

In thus agreeing to conclude the Agreement thru E/N BFO-028-03, then President Gloria Macapagal-Arroyo,

represented by the Secretary of Foreign Affairs, acted within the scope of the authority and discretion vested in her by the

Constitution. At the end of the day, the President––by ratifying, thru her deputies, the non-surrender agreement––did

nothing more than discharge a constitutional duty and exercise a prerogative that pertains to her office.

While the issue of ratification of the Rome Statute is not determinative of the other issues raised herein, it may

perhaps be pertinent to remind all and sundry that about the time this petition was interposed, such issue of ratification

was laid to rest in Pimentel, Jr. v. Office of the Executive Secretary.[67] As the Court emphasized in said case, the power to

ratify a treaty, the Statute in that instance, rests with the President, subject to the concurrence of the Senate, whose role

relative to the ratification of a treaty is limited merely to concurring in or withholding the ratification. And concomitant

with this treaty-making power of the President is his or her prerogative to refuse to submit a treaty to the Senate; or

having secured the latter’s consent to the ratification of the treaty, refuse to ratify it. [68] This prerogative, the Court

hastened to add, is the President’s alone and cannot be encroached upon via a writ of mandamus. Barring intervening

events, then, the Philippines remains to be just a signatory to the Rome Statute. Under Art. 125[69] thereof, the final acts

required to complete the treaty process and, thus, bring it into force, insofar as the Philippines is concerned, have yet to

be done.

Agreement Need Not Be in the Form of a Treaty

On December 11, 2009, then President Arroyo signed into law Republic Act No. (RA) 9851, otherwise known as

the “Philippine Act on Crimes Against International Humanitarian Law, Genocide, and Other Crimes Against

Humanity.” Sec. 17 of RA 9851, particularly the second paragraph thereof, provides:

Section 17. Jurisdiction. – x x x xIn the interest of justice, the relevant Philippine authorities may dispense with the investigation

or prosecution of a crime punishable under this Act if another court or international tribunal is already conducting the investigation or undertaking the prosecution of such crime. Instead,   the authorities may surrender   or   extradite   suspected   or   accused   persons   in   the Philippines to   the appropriate international court, if any, or to another State pursuant to the applicable extradition laws and treaties. (Emphasis supplied.)

A view is advanced that the Agreement amends existing municipal laws on the State’s obligation in relation to

grave crimes against the law of nations, i.e., genocide, crimes against humanity and war crimes. Relying on the above-

quoted statutory proviso, the view posits that the Philippine is required to surrender to the proper international tribunal

those persons accused of the grave crimes defined under RA 9851, if it does not exercise its primary jurisdiction to

prosecute them.

The basic premise rests on the interpretation that if it does not decide to prosecute a foreign national for

violations of RA 9851, the Philippines has only two options, to wit: (1) surrender the accused to the proper international

tribunal; or (2) surrender the accused to another State if such surrender is “pursuant to the applicable extradition laws

and treaties.” But the Philippines may exercise these options only in cases where “another court or international tribunal

is already conducting the investigation or undertaking the prosecution of such crime;” otherwise, the Philippines must

prosecute the crime before its own courts pursuant to RA 9851.

Posing the situation of a US national under prosecution by an international tribunal for any crime under RA 9851,

the Philippines has the option to surrender such US national to the international tribunal if it decides not to prosecute

such US national here. The view asserts that this option of the Philippines under Sec. 17 of RA 9851 is not subject to the

consent of the US, and any derogation of Sec. 17 of RA 9851, such as requiring the consent of the US before

the Philippines can exercise such option, requires an amendatory law. In line with this scenario, the view strongly argues

that the Agreement prevents the Philippines—without the consent of the US—from surrendering to any international

tribunal US nationals accused of crimes covered by RA 9851, and, thus, in effect amends Sec. 17 of RA

9851. Consequently, the view is strongly impressed that the Agreement cannot be embodied in a simple executive

agreement in the form of an exchange of notes but must be implemented through an extradition law or a treaty with the

corresponding formalities.

Moreover, consonant with the foregoing view, citing Sec. 2, Art. II of the Constitution, where

the Philippines adopts, as a national policy, the “generally accepted principles of international law as part of the law of 

the land,” the Court is further impressed to perceive the Rome Statute as declaratory of customary international law. In

other words, the Statute embodies principles of law which constitute customary international law or custom and for

which reason it assumes the status of an enforceable domestic law in the context of the aforecited constitutional

provision. As a corollary, it is argued that any derogation from the Rome Statute principles cannot be undertaken via a

mere executive agreement, which, as an exclusive act of the executive branch, can only implement, but cannot amend or

repeal, an existing law. The Agreement, so the argument goes, seeks to frustrate the objects of the principles of law or

alters customary rules embodied in the Rome Statute.

Prescinding from the foregoing premises, the view thus advanced considers the Agreement inefficacious, unless

it is embodied in a treaty duly ratified with the concurrence of the Senate, the theory being that a Senate- ratified treaty

partakes of the nature of a municipal law that can amend or supersede another law, in this instance Sec. 17 of RA 9851

and the status of the Rome Statute as constitutive of enforceable domestic law under Sec. 2, Art. II of the Constitution.

We are unable to lend cogency to the view thus taken. For one, we find that the Agreement does not amend or is

repugnant to RA 9851. For another, the view does not clearly state what precise principles of law, if any, the Agreement alters. And for a third, it does not demonstrate in the concrete how the Agreement seeks to frustrate the objectives of the principles of law subsumed in the Rome Statute.

Far from it, as earlier explained, the Agreement does not undermine the Rome Statute as the former merely

reinforces the primacy of the national jurisdiction of the US and the Philippines in prosecuting criminal offenses committed by their respective citizens and military personnel, among others. The jurisdiction of the ICC pursuant to the Rome Statute over high crimes indicated thereat is clearly and unmistakably complementary to the national criminal jurisdiction of the signatory states.

Moreover, RA 9851 clearly: (1) defines and establishes the crimes against international humanitarian law,

genocide and other crimes against humanity;[70] (2) provides penal sanctions and criminal liability for their commission;[71] and (3) establishes special courts for the prosecution of these crimes and for the State to exercise primary criminal jurisdiction.[72] Nowhere in RA 9851 is there a proviso that goes against the tenor of the Agreement.

The view makes much of the above quoted second par. of Sec. 17, RA 9851 as requiring the Philippine State to

surrender to the proper international tribunal those persons accused of crimes sanctioned under said law if it does not exercise its primary jurisdiction to prosecute such persons. This view is not entirely correct, for the above quoted proviso clearly provides discretion to the Philippine State on whether to surrender or not a person accused of the crimes under RA 9851. The statutory proviso uses the word “may.” It is settled doctrine in statutory construction that the word “may”

denotes discretion, and cannot be construed as having mandatory effect. [73] Thus, the pertinent second pararagraph of Sec. 17, RA 9851 is simply permissive on the part of the Philippine State.

Besides, even granting that the surrender of a person is mandatorily required when the Philippines does not

exercise its primary jurisdiction in cases where “another court or international tribunal is already conducting the investigation or undertaking the prosecution of such crime,” still, the tenor of the Agreement is not repugnant to Sec. 17 of RA 9851. Said legal proviso aptly provides that the surrender may be made “to another State pursuant to the applicable extradition laws and treaties.” The Agreement can already be considered a treaty following this Court’s decision in Nicolas v. Romulo[74] which cited Weinberger v. Rossi.[75] In Nicolas, We held that “an executive agreement is a ‘treaty’ within the meaning of that word in international law and constitutes enforceable domestic law vis-à-vis the United States.”[76]

Likewise, the Philippines and the US already have an existing extradition treaty, i.e., RP-US Extradition Treaty,

which was executed on November 13, 1994. The pertinent Philippine law, on the other hand, is Presidential Decree No. 1069, issued on January 13, 1977. Thus, the Agreement, in conjunction with the RP-US Extradition Treaty, would neither violate nor run counter to Sec. 17 of RA 9851.

The view’s reliance on Suplico v. Neda[77] is similarly improper. In that case, several petitions were filed

questioning the power of the President to enter into foreign loan agreements. However, before the petitions could be resolved by the Court, the Office of the Solicitor General filed a Manifestation and Motion averring that the Philippine Government decided not to continue with the ZTE National Broadband Network Project, thus rendering the petition moot. In resolving the case, the Court took judicial notice of the act of the executive department of the Philippines (the President) and found the petition to be indeed moot. Accordingly, it dismissed the petitions.

In his dissent in the abovementioned case, Justice Carpio discussed the legal implications of an executive

agreement. He stated that “an executive agreement has the force and effect of law x x x [it] cannot amend or repeal prior laws.”[78] Hence, this argument finds no application in this case seeing as RA 9851 is a subsequent law, not a prior one. Notably, this argument cannot be found in the ratio decidendi of the case, but only in the dissenting opinion.

The view further contends that the RP-US Extradition Treaty is inapplicable to RA 9851 for the reason that under

par. 1, Art. 2 of the RP-US Extradition Treaty, “[a]n offense shall be an extraditable offense if it is punishable under the laws in both Contracting Parties x x x,”[79] and thereby concluding that while the Philippines has criminalized under RA 9851 the acts defined in the Rome Statute as war crimes, genocide and other crimes against humanity, there is no similar legislation in the US. It is further argued that, citing U.S. v. Coolidge, in the US, a person cannot be tried in the federal courts for an international crime unless Congress adopts a law defining and punishing the offense.

This view must fail. On the contrary, the US has already enacted legislation punishing the high crimes mentioned earlier. In fact, as

early as October 2006, the US enacted a law criminalizing war crimes. Section 2441, Chapter 118, Part I, Title 18 of the United States Code Annotated (USCA) provides for the criminal offense of “war crimes” which is similar to the war crimes found in both the Rome Statute and RA 9851, thus:

(a) Offense – Whoever, whether inside or outside the United States, commits a war crime, in any of

the circumstances described in subsection (b), shall be fined under this title or imprisoned for life or

any term of years, or both, and if death results to the victim, shall also be subject to the penalty of death.

(b) Circumstances – The circumstances referred to in subsection (a) are that the person committing such war crime or the victim of such war crime is a member of the Armed Forces of the United States or a national of the United States (as defined in Section 101 of the Immigration and Nationality Act).

(c) Definition – As used in this Section the term “war crime” means any conduct –(1) Defined as a grave breach in any of the international conventions signed at Geneva 12 August

1949, or any protocol to such convention to which the United States is a party;(2) Prohibited by Article 23, 25, 27 or 28 of the Annex to the Hague Convention IV, Respecting the

Laws and Customs of War on Land, signed 18 October 1907;(3) Which constitutes a grave breach of common Article 3 (as defined in subsection [d]) when

committed in the context of and in association with an armed conflict not of an international character; or

(4) Of a person who, in relation to an armed conflict and contrary to the provisions of the Protocol on Prohibitions or Restrictions on the Use of Mines, Booby-Traps and Other Devices as amended at Geneva on 3 May 1996 (Protocol II as amended on 3 May 1996), when the United States is a party to such Protocol, willfully kills or causes serious injury to civilians. [80]

Similarly, in December 2009, the US adopted a law that criminalized genocide, to wit:

§1091. Genocide (a) Basic Offense – Whoever, whether in the time of peace or in time of war and with specific intent to destroy, in whole or in substantial part, a national, ethnic, racial or religious group as such–

(1) kills members of that group;(2) causes serious bodily injury to members of that group;(3) causes the permanent impairment of the mental faculties of members of the group through drugs, torture, or similar techniques;(4) subjects the group to conditions of life that are intended to cause the physical destruction of the group in whole or in part;(5) imposes measures intended to prevent births within the group; or(6) transfers by force children of the group to another group;

shall be punished as provided in subsection (b).[81]

Arguing further, another view has been advanced that the current US laws do not cover every crime listed within

the jurisdiction of the ICC and that there is a gap between the definitions of the different crimes under the US laws versus the Rome Statute. The view used a report written by Victoria K. Holt and Elisabeth W. Dallas, entitled “On Trial: The US Military and the International Criminal Court,” as its basis.

At the outset, it should be pointed out that the report used may not have any weight or value under international law. Article 38 of the Statute of the International Court of Justice (ICJ) lists the sources of international law, as follows: (1) international conventions, whether general or particular, establishing rules expressly recognized by the contesting states; (2) international custom, as evidence of a general practice accepted as law; (3) the general principles of law recognized by civilized nations; and (4) subject to the provisions of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law. The report does not fall under any of the foregoing enumerated sources. It cannot even be considered as the “teachings of highly qualified publicists.” A highly qualified publicist is a scholar of public international law and the term usually refers to legal scholars or “academic writers.”[82] It has not been shown that the authors[83] of this report are highly qualified publicists.

Assuming arguendo that the report has weight, still, the perceived gaps in the definitions of the crimes are nonexistent. To highlight, the table below shows the definitions of genocide and war crimes under the Rome Statute vis-à-vis the definitions under US laws:

Rome Statute US LawArticle 6Genocide

For the purpose of this Statute, “genocide” means any of the following acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious group, as such:(a) Killing members of the group;(b) Causing serious bodily or mental harm to

members of the group;(c) Deliberately inflicting on the group conditions of

life calculated to bring about its physical destruction in whole or in part;

(d) Imposing measures intended to prevent births within the group;

(e) Forcibly transferring children of the group to another group.

§1091. Genocide

(a) Basic Offense – Whoever, whether in the time of peace or in time of war and with specific intent to destroy, in whole or in substantial part, a national, ethnic, racial or religious group as such– (1) kills members of that group; (2) causes serious bodily injury to members of

that group; (3) causes the permanent impairment of the

mental faculties of members of the group through drugs, torture, or similar techniques;

(4) subjects the group to conditions of life that are intended to cause the physical destruction of the group in whole or in part;

(5) imposes measures intended to prevent births within the group; or

(6) transfers by force children of the group to another group;

shall be punished as provided in subsection (b).Article 8

War Crimes2. For the purpose of this Statute, “war crimes” means:(a) Grave breaches of the Geneva Conventions of 12 August 1949, namely, any of the following acts against persons or property protected under the provisions of the relevant Geneva Convention: x x x[84]

(b) Other serious violations of the laws and customs applicable in international armed conflict, within the established framework of international law, namely, any of the following acts:x x x x(c) In the case of an armed conflict not of an international character, serious violations of article 3 common to the four Geneva Conventions of 12 August 1949, namely, any of the following acts committed against persons taking no active part in the hostilities, including members of armed forces who have laid down their arms and those placed hors de combat by sickness, wounds, detention or any other cause:x x x x(d) Paragraph 2 (c) applies to armed conflicts not of an international character and thus does not apply to situations of internal disturbances and tensions,

(a) Definition – As used in this Section the term “war crime” means any conduct –

(1) Defined as a grave breach in any of the international conventions signed at Geneva12 August 1949, or any protocol to such convention to which the United States is a party;

(2) Prohibited by Article 23, 25, 27 or 28 of the Annex to the Hague Convention IV, Respecting the Laws and Customs of War on Land, signed 18 October 1907;

(3) Which constitutes a grave breach of common Article 3 (as defined in subsection [d][85]) when committed in the context of and in association with an armed conflict not of an international character; or

(4) Of a person who, in relation to an armed conflict and contrary to the provisions of the Protocol on Prohibitions or Restrictions on the Use of Mines, Booby-Traps and Other Devices as amended at Geneva on 3 May 1996 (Protocol II as amended on 3 May 1996), when the United States is a party to such Protocol, willfully kills or causes serious injury to civilians.[86]

such as riots, isolated and sporadic acts of violence or other acts of a similar nature.(e) Other serious violations of the laws and customs applicable in armed conflicts not of an international character, within the established framework of international law, namely, any of the following acts: x x x.

Evidently, the gaps pointed out as to the definition of the crimes are not present. In fact, the report itself stated as much, to wit:

Few believed there were wide differences between the crimes under the jurisdiction of the

Court and crimes within the Uniform Code of Military Justice that would expose US personnel to the Court. Since US military lawyers were instrumental in drafting the elements of crimes outlined in the Rome Statute, they ensured that most of the crimes were consistent with those outlined in the UCMJ and gave strength to complementarity for the US. Small areas of potential gaps between the UCMJ and the Rome Statute, military experts argued, could be addressed through existing military laws. [87] x x x

The report went on further to say that “[a]ccording to those involved, the elements of crimes laid out in the

Rome Statute have been part of US military doctrine for decades.”[88] Thus, the argument proffered cannot stand. Nonetheless, despite the lack of actual domestic legislation, the US notably follows the doctrine of

incorporation. As early as 1900, the esteemed Justice Gray in The Paquete Habana[89] case already held international law as part of the law of the US, to wit:

International law is part of our law, and must be ascertained and administered by the courts

of justice of appropriate jurisdiction as often as questions of right depending upon it are duly presented for their determination. For this purpose, where there is no treaty and no controlling executive or legislative act or judicial decision, resort must be had to the customs and usages of civilized nations, and, as evidence of these, to the works of jurists and commentators who by years of labor, research, and experience have made themselves peculiarly well acquainted with the subjects of which they treat. Such works are resorted to by judicial tribunals, not for the speculations of their authors concerning what the law ought to be, but for the trustworthy evidence of what the law really is.[90] (Emphasis supplied.)

Thus, a person can be tried in the US for an international crime despite the lack of domestic legislation. The cited ruling in U.S. v. Coolidge,[91] which in turn is based on the holding in U.S. v. Hudson,[92] only applies to common law and not to the law of nations or international law. [93] Indeed, the Court in U.S. v. Hudson only considered the question, “whether the Circuit Courts of the United States can exercise a common law jurisdiction in criminal cases.”[94] Stated otherwise, there is no common law crime in the US but this is considerably different from international law.

The US doubtless recognizes international law as part of the law of the land, necessarily including international crimes, even without any local statute.[95] In fact, years later, US courts would apply international law as a source of criminal liability despite the lack of a local statute criminalizing it as such. So it was that in Ex Parte Quirin[96] the US Supreme Court noted that “[f]rom the very beginning of its history this Court has recognized and applied the law of war as including that part of the law of nations which prescribes, for the conduct of war, the status, rights and duties of enemy nations as well as of enemy individuals.” [97] It went on further to explain that Congress had not undertaken the task of codifying the specific offenses covered in the law of war, thus:

It is no objection that Congress in providing for the trial of such offenses has   not   itself undertaken   to   codify   that   branch  of   international   law  or   to  mark   its   precise   boundaries,   or   to enumerate or define by statute all the acts which that law condemns. An Act of Congress punishing ‘the crime of piracy as defined by the law of nations is an appropriate exercise of its constitutional authority, Art. I, s 8, cl. 10, ‘to define and punish’ the offense since it has adopted by reference the sufficiently precise definition of international law. x x x Similarly by the reference in the 15th Article of War to ‘offenders or offenses that x x x by the law of war may be triable by such military commissions. Congress has incorporated by reference, as within the jurisdiction of military commissions, all offenses which are defined as such by the law of war x x x, and which may constitutionally be included within that jurisdiction.[98] x x x (Emphasis supplied.)

This rule finds an even stronger hold in the case of crimes against humanity. It has been held that genocide, war

crimes and crimes against humanity have attained the status of customary international law. Some even go so far as to state that these crimes have attained the status of jus cogens.[99]

Customary international law or international custom is a source of international law as stated in the Statute of

the ICJ.[100] It is defined as the “general and consistent practice of states recognized and followed by them from a sense of legal obligation.”[101] In order to establish the customary status of a particular norm, two elements must concur: State practice, the objective element; and opinio juris sive necessitates, the subjective element.[102]

State practice refers to the continuous repetition of the same or similar kind of acts or norms by States. [103] It is

demonstrated upon the existence of the following elements: (1) generality; (2) uniformity and consistency; and (3) duration.[104] While, opinio juris, the psychological element, requires that the state practice or norm “be carried out in such a way, as to be evidence of a belief that this practice is rendered obligatory by the existence of a rule of law requiring it.”[105]

“The term ‘jus cogens’ means the ‘compelling law.’”[106] Corollary, “a jus cogens norm holds the highest

hierarchical position among all other customary norms and principles.”[107] As a result, jus cogens norms are deemed “peremptory and non-derogable.”[108] When applied to international crimes, “jus cogens crimes have been deemed so fundamental to the existence of a just international legal order that states cannot derogate from them, even by agreement.”[109]

These jus cogens crimes relate to the principle of universal jurisdiction, i.e., “any state may exercise jurisdiction

over an individual who commits certain heinous and widely condemned offenses, even when no other recognized basis for jurisdiction exists.”[110] “The rationale behind this principle is that the crime committed is so egregious that it is considered to be committed against all members of the international community” [111] and thus granting every State jurisdiction over the crime.[112]

Therefore, even with the current lack of domestic legislation on the part of the US, it still has both the doctrine of incorporation and universal jurisdiction to try these crimes.

Consequently, no matter how hard one insists, the ICC, as an international tribunal, found in the Rome Statute is not declaratory of customary international law.

The first element of customary international law, i.e., “established, widespread, and consistent practice on the part of States,”[113] does not, under the premises, appear to be obtaining as reflected in this simple reality: As of October 12, 2010, only 114[114] States have ratified the Rome Statute, subsequent to its coming into force eight (8) years earlier, or

on July 1, 2002. The fact that 114 States out of a total of 194 [115] countries in the world, or roughly 58.76%, have ratified the Rome Statute casts doubt on whether or not the perceived principles contained in the Statute have attained the status of customary law and should be deemed as obligatory international law. The numbers even tend to argue against the urgency of establishing international criminal courts envisioned in the Rome Statute. Lest it be overlooked, the Philippines, judging by the action or inaction of its top officials, does not even feel bound by the Rome Statute. Res ipsa loquitur. More than eight (8) years have elapsed since the Philippine representative signed the Statute, but the treaty has not been transmitted to the Senate for the ratification process.

And this brings us to what Fr. Bernas, S.J. aptly said respecting the application of the concurring elements, thus:

Custom or customary international law means “a general and consistent practice of states followed by them from a sense of legal obligation [opinio juris] x x x.” This statement contains the two basic elements of custom: the material factor, that is how the states behave, and the psychological factor or subjective factor, that is, why they behave the way they do.

x x x x

The initial factor for determining the existence of custom is the actual behavior of states. This includes several elements: duration, consistency, and generality of the practice of states.

The required duration can be either short or long. x x x x x x x Duration therefore is not the most important element. More important is the consistency and

the generality of the practice. x x x x x x x Once the existence of state practice has been established, it becomes necessary to determine 

why states  behave the way they  do. Do states behave the way they do because they consider it obligatory to behave thus or do they do it only as a matter of courtesy? Opinio juris, or the belief that a certain form of behavior is obligatory, is what makes practice an international rule. Without it, practice is not law.[116] (Emphasis added.)

Evidently, there is, as yet, no overwhelming consensus, let alone prevalent practice, among the different

countries in the world that the prosecution of internationally recognized crimes of genocide, etc. should be handled by a 

particular international criminal court. Absent the widespread/consistent-practice-of-states factor, the second or the psychological element must be

deemed non-existent, for an inquiry on why states behave the way they do presupposes, in the first place, that they are actually behaving, as a matter of settled and consistent practice, in a certain manner. This implicitly requires belief that the practice in question is rendered obligatory by the existence of a rule of law requiring it. [117] Like the first element, the second element has likewise not been shown to be present.

Further, the Rome Statute itself rejects the concept of universal jurisdiction over the crimes enumerated therein

as evidenced by it requiring State consent. [118] Even further, the Rome Statute specifically and unequivocally requires that:

“This Statute is subject to ratification, acceptance or approval by signatory States.” [119] These clearly negate the argument that such has already attained customary status.

More importantly, an act of the executive branch with a foreign government must be afforded great respect. The

power to enter into executive agreements has long been recognized to be lodged with the President. As We held in Neri v. Senate Committee on Accountability of Public Officers and Investigations, “[t]he power to enter into an executive agreement is in essence an executive power. This authority of the President to enter into executive agreements without the concurrence of the Legislature has traditionally been recognized in Philippine jurisprudence.” [120] The rationale behind this principle is the inviolable doctrine of separation of powers among the legislative, executive and judicial branches of the government. Thus, absent any clear contravention of the law, courts should exercise utmost caution in declaring any executive agreement invalid.

In light of the above consideration, the position or view that the challenged RP-US Non-Surrender Agreement

ought to be in the form of a treaty, to be effective, has to be rejected.

WHEREFORE, the petition for certiorari, mandamus and prohibition is hereby DISMISSED for lack of merit. No costs.

SO ORDERED. DEUTSCHE BANK vs. CITY OF MANILA

HE FACTS

In accordance with Section 28(A)(5)4 of the National Internal Revenue Code (NIRC) of 1997, petitioner withheld and remitted to respondent on 21 October 2003 the amount of PHP 67,688,553.51, which represented the fifteen percent (15%) branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years.5cralaw virtualaw library

Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large Taxpayers Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or issuance of its tax credit certificate in the total amount of PHP 22,562,851.17. On the same date, petitioner requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty.6cralaw virtualaw library

Alleging the inaction of the BIR on its administrative claim, petitioner filed a Petition for Review7 with the CTA on 18 October 2005. Petitioner reiterated its claim for the refund or issuance of its tax credit certificate for the amount of PHP 22,562,851.17 representing the alleged excess BPRT paid on branch profits remittance to DB Germany.

THE CTA SECOND DIVISION RULING8cralaw virtualaw library

After trial on the merits, the CTA Second Division found that petitioner indeed paid the total amount of PHP 67,688,553.51 representing the 15% BPRT on its RBU profits amounting to PHP 451,257,023.29 for 2002 and prior taxable years. Records also disclose that for the year 2003, petitioner remitted to DB Germany the amount of EURO 5,174,847.38 (or PHP 330,175,961.88 at the exchange rate of PHP 63.804:1 EURO), which is net of the 15% BPRT.

However, the claim of petitioner for a refund was denied on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000.

Further, the CTA Second Division relied on Mirant (Philippines) Operations Corporation (formerly Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal Revenue9(Mirant)where the CTA En Banc ruled that before the benefits of the tax treaty may be extended to a foreign corporation wishing to avail itself thereof, the latter should first invoke the provisions of the tax treaty and prove that they indeed apply to the corporation.

THE CTA EN BANC RULING10cralaw virtualaw library

The CTA En Banc affirmed the CTA Second Division’s Decision dated 29 August 2008 and Resolution dated 14 January 2009. Citing Mirant, the CTA En Banc held that a ruling from the ITAD of the BIR must be secured prior to the availment of a preferential tax rate under a tax treaty. Applying the principle ofstare decisis et non quieta movere, the CTA En Banc took into consideration that this Court had denied the Petition in G.R. No. 168531 filed by Mirant for failure to sufficiently show any reversible error in the assailed judgment.11 The CTA En Banc ruled that once a case has been decided in one way, any other case involving exactly the same point at issue should be decided in the same manner.

The court likewise ruled that the 15-day rule for tax treaty relief application under RMO No. 1-2000 cannot be relaxed for petitioner, unlike in CBK Power Company Limited v. Commissioner of Internal Revenue.12 In that case, the rule was relaxed and the claim for refund of excess final withholding taxes was partially granted. While it issued a ruling to CBK Power Company Limited after the payment of withholding taxes, the ITAD did not issue any ruling to petitioner even if it filed a request for confirmation on 4 October 2005 that the remittance of branch profits to DB Germany is subject to a preferential tax rate of 10% pursuant to Article 10 of the RP-Germany Tax Treaty.

ISSUE

This Court is now confronted with the issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.

THE COURT’S RULING

The Petition is meritorious.

Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of 15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component. However, petitioner invokes paragraph 6, Article 10 of the RP-Germany Tax Treaty, which provides that where a resident of the Federal Republic of Germany has a branch in the Republic of the Philippines, this branch may be subjected to the branch profits remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of the gross amount of the profits remitted by that branch to the head office.

By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines, remitting to its head office in Germany, the benefit of a preferential rate equivalent to 10% BPRT.

On the other hand, the BIR issued RMO No. 1-2000, which requires that any availment of the tax treaty relief must be preceded by an application with ITAD at least 15 days before the transaction. The Order was issued to streamline the processing of the application of tax treaty relief in order to improve efficiency and service to the taxpayers. Further, it also aims to prevent the consequences of an erroneous interpretation and/or application of the treaty provisions (i.e., filing a claim for a tax refund/credit for the overpayment of taxes or for deficiency tax liabilities for underpayment).13cralaw virtualaw library

The crux of the controversy lies in the implementation of RMO No. 1-2000.

Petitioner argues that, considering that it has met all the conditions under Article 10 of the RP-Germany Tax Treaty, the CTA erred in denying its claim solely on the basis of RMO No. 1-2000. The filing of a tax treaty relief application is not a condition precedent to the availment of a preferential tax rate. Further, petitioner posits that, contrary to the ruling of the CTA, Mirant is not a binding judicial precedent to deny a claim for refund solely on the basis of noncompliance with RMO No. 1-2000.

Respondent counters that the requirement of prior application under RMO No. 1-2000 is mandatory in character. RMO No. 1-2000 was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules and regulations for the effective implementation of the NIRC. Thus, courts cannot ignore administrative issuances which partakes the nature of a statute and have in their favor a presumption of legality.

The CTA ruled that prior application for a tax treaty relief is mandatory, and noncompliance with this prerequisite is fatal to the taxpayer’s availment of the preferential tax rate.

We disagree.

A minute resolution is not a binding precedent

At the outset, this Court’s minute resolution on Mirant is not a binding precedent. The Court has clarified this matter in Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue14 as follows:

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final. When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained. But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata. However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution  is  not  binding precedent. Thus, in CIR v. Baier-Nickel, the Court noted that a previous case, CIR v. Baier-Nickel involving the same parties and the same issues, was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case “ha(d) no bearing” on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different taxable years.

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice. (Emphasis supplied)Even if we had affirmed the CTA in Mirant, the doctrine laid down in that Decision cannot bind this Court in cases of a similar nature. There are differences in parties, taxes, taxable periods, and treaties involved; more importantly, the disposition of that case was made only through a minute resolution.

Tax Treaty vs. RMO No. 1-2000

Our Constitution provides for adherence to the general principles of international law as part of the law of the land.15 The time-honored international principle of pacta sunt servandademands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith.16 More importantly, treaties have the force and effect of law in this jurisdiction.17cralaw virtualaw library

Tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions.”18CIR v. S.C. Johnson and Son, Inc. further clarifies that “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 to 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. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate.”19cralaw virtualaw library

Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of international juridical double taxation, which is why they are also known as double tax treaty or double tax agreements.

“A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken.”20 Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.

Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications on international relations, and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief.

Prior Application vs. Claim for Refund

Again, RMO No. 1-2000 was implemented to obviate any erroneous interpretation and/or application of the treaty provisions. The objective of the BIR is to forestall assessments against corporations who erroneously availed themselves of the benefits of the tax treaty but are not legally entitled thereto, as well as to save such investors from the tedious process of claims for a refund due to an inaccurate application of the tax treaty provisions. However, as earlier discussed, noncompliance with the 15-day period for prior application should not operate to automatically divest 

entitlement to the tax treaty relief especially in claims for refund.

The underlying principle of prior application with the BIR becomes moot in refund cases, such as the present case, where the very basis of the claim is erroneous or there is excessive payment arising from non-availment of a tax treaty relief at the first instance. In this case, petitioner should not be faulted for not complying with RMO No. 1-2000 prior to the transaction. It could not have applied for a tax treaty relief within the period prescribed, or 15 days prior to the payment of its BPRT, precisely because it erroneously paid the BPRT not on the basis of the preferential tax rate under

the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior application requirement becomes illogical. Therefore, the fact that petitioner invoked the provisions of the RP-Germany Tax Treaty when it requested for a confirmation from the ITAD before filing an administrative claim for a refund should be deemed substantial compliance with RMO No. 1-2000.

Corollary thereto, Section 22921 of the NIRC provides the taxpayer a remedy for tax recovery when there has been an erroneous payment of tax. The outright denial of petitioner’s claim for a refund, on the sole ground of failure to apply for a tax treaty relief prior to the payment of the BPRT, would defeat the purpose of Section 229.

Petitioner is entitled to a refund

It is significant to emphasize that petitioner applied – though belatedly – for a tax treaty relief, in substantial compliance with RMO No. 1-2000. A ruling by the BIR would have confirmed whether petitioner was entitled to the lower rate of 10% BPRT pursuant to the RP-Germany Tax Treaty.

Nevertheless, even without the BIR ruling, the CTA Second Division found as follows:

Based on the evidence presented, both documentary and testimonial, petitioner was able to establish the following facts:cralawlibrary

a. That petitioner is a branch office in the Philippines of Deutsche Bank AG, a corporation organized and existing under the   laws   of   the   Federal   Republic   of   Germany;chanr0blesvirtualawlibrary

b. That on October 21, 2003, it filed its Monthly Remittance Return of Final Income Taxes Withheld under BIR Form No. 1601-F   and   remitted   the   amount   of   P67,688,553.51   as   branch   profits   remittance   tax   with   the   BIR;   and

c. That on October 29, 2003, the Bangko Sentral ng Pilipinas having issued a clearance, petitioner remitted to Frankfurt Head Office the amount of EUR5,174,847.38 (or P330,175,961.88 at 63.804 Peso/Euro) representing its 2002 profits remittance.22cralaw virtualaw libraryThe amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its RBU net income, due for remittance to DB Germany amounting to PHP 451,257,023.29 for 2002 and prior taxable years.23cralaw virtualaw library

Likewise, both the administrative and the judicial actions were filed within the two-year prescriptive period pursuant to Section 229 of the NIRC.24cralaw virtualaw library

Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.

Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.

WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax Appeals En Banc Decision dated 29 May 2009 and Resolution dated 1 July 2009 areREVERSED and SET ASIDE. A new one is hereby entered ordering respondent Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of 

petitioner Deutsche Bank AG Manila Branch the amount of TWENTY TWO MILLION FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED FIFTY ONE PESOS AND SEVENTEEN CENTAVOS (PHP 22,562,851.17), Philippine currency, representing the erroneously paid BPRT for 2002 and prior taxable years.

SO ORDERED.

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