G.R. No. 97149 March 31, 1992

FIDENCIO Y. BEJA, SR., petitioner, vs.COURT OF APPEALS, HONORABLE REINERIO O. REYES, in his capacity as Secretary of the Department of Transportation and Communications; COMMODORE ROGELIO A. DAYAN, in his capacity as General Manager of the Philippine Ports Authority; DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ADMINISTRATIVE ACTION BOARD; and JUSTICE ONOFRE A. VILLALUZ, in his capacity as Chairman of the Administrative Action Board, DOTC, respondents.

 

ROMERO, J.:

The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of Transportation and Communications (DOTC) and/or its Administrative Action Board (AAB) over administrative cases involving personnel below the rank of Assistant General Manager of the Philippine Ports Authority (PPA), an agency attached to the said Department.

Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975. He became Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In February 1988, as a result of the reorganization of the PPA, he was appointed Terminal Supervisor.

On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case No. 11-04-88 against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave misconduct, willful violation of reasonable office rules and regulations and conduct prejudicial to the best interest of the service. Beja and Villaluz allegedly erroneously assessed storage fees resulting in the loss of P38,150.77 on the part of the PPA. Consequently, they were preventively suspended for the charges. After a preliminary investigation conducted by the district attorney for Region X, Administrative Case No. 11-04-88 was "considered closed for lack of merit."

On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88, was filed against Beja by the PPA General Manager also for dishonesty, grave misconduct, violation of reasonable office rules and regulations, conduct prejudicial to the best interest of the service and for being notoriously undesirable. The charge consisted of six (6) different specifications of administrative offenses including fraud against the PPA in the total amount of P218,000.00. Beja was also placed under preventive suspension pursuant to Sec. 41 of P.D. No. 807.

The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the PPA general manager indorsed it to the AAB for "appropriate action." At the scheduled hearing, Beja asked for continuance on the ground that he needed time to study the charges against him. The AAB proceeded to hear the case and gave Beja an opportunity to present evidence. However, on February 20, 1989, Beja filed a petition for certiorari with preliminary injunction before the Regional Trial Court of Misamis Oriental. 2 Two days later, he filed with the AAB a manifestation and motion to suspend the hearing of Administrative Case No. PPA-AAB-1-049-89 on account of the pendency of the certiorari proceeding before the court. AAB denied the motion and continued with the hearing of the administrative case.

Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before this Court a petition for certiorari with preliminary injunction and/or temporary restraining order. The case was docketed as G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et al." In the en banc resolution of March 30, 1989, this Court referred the case to the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was docketed in the Court of Appeals as CA-G.R. SP No. 17270.

Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89. Its dispositive portion reads:

WHEREFORE, judgment is hereby rendered, adjudging the following, namely:

a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated from the charge against them;

b) That respondent Fidencio Y. Beja be dismissed from the service;

c) That his leave credits and retirement benefits are declared forfeited;

d) That he be disqualified from re-employment in the government service;

e) That his eligibility is recommended to be cancelled.

Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a decision 4 in CA-G.R. SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence, Beja elevated the case back to this Court through an "appeal by certiorari with preliminary injunction and/or temporary restraining order."

We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence, the filing of memoranda has been dispensed with.

In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a way probably not in accord with law or with the applicable decisions" of this Court. 5 Specifically, Beja contends that the Court of Appeals failed to declare that: (a) he was denied due process; (b) the PPA general manager has no power to issue a preventive suspension order without the necessary approval of the PPA board of directors; (c) the PPA general manager has no power to refer the administrative case filed against him to the DOTC-AAB, and (d) the DOTC Secretary, the Chairman of the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no jurisdiction to try the administrative case against him. Simply put, Beja challenges the legality of the preventive suspension and the jurisdiction of the DOTC Secretary and/or the AAB to initiate and hear administrative cases against PPA personnel below the rank of Assistant General Manager.

Petitioner anchors his contention that the PPA general manager cannot subject him to a preventive suspension on the following provision of Sec. 8, Art. V of Presidential Decree No. 857 reorganizing the PPA:

(d) the General Manager shall, subject to the approval of the Board, appoint and remove personnel below the rank of Assistant General Manager. (Emphasis supplied.)

Petitioner contends that under this provision, the PPA Board of Directors and not the PPA General Manager is the "proper disciplining authority. 6

As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive suspension" as a remedial measure with "suspension" as a penalty for administrative dereliction. The imposition of preventive suspension on a government employee charged with an administrative offense is subject to the following provision of the Civil Service Law, P.D. No. 807:

Sec. 41. Preventive Suspension. — The proper disciplining authority may preventively suspend any subordinate officer or employee under his authority pending an investigation, if the charge against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the service.

Imposed during the pendency of an administrative investigation, preventive suspension is not a penalty in itself. It is merely a measure of precaution so that the employee who is charged may be separated, for obvious reasons, from the scene of his alleged misfeasance while the same is being investigated. 7 Thus, preventive suspension is distinct from the administrative penalty of removal from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While the former may be imposed on a respondent during the investigation of the charges against him, the latter is the penalty which may only be meted upon him at the termination of the investigation or the final disposition of the case.

The PPA general manager is the disciplining authority who may, by himself and without the approval of the PPA Board of Directors, subject a respondent in an administrative case to preventive suspension. His disciplinary powers are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted, but also by Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction to investigate and decide matters involving disciplinary actions against officers and employees" in the PPA.

Parenthetically, the period of preventive suspension is limited. It may be lifted even if the disciplining authority has not finally decided the administrative case provided the ninety-day period from the effectivity of the preventive suspension has been exhausted. The employee concerned may then be reinstated. 8 However, the said ninety-day period may be interrupted. Section 42 of P.D. No. 807 also mandates that any fault, negligence or petition of a suspended employee may not be considered in the computation of the said period. Thus, when a suspended employee obtains from a court of justice a

restraining order or a preliminary injunction inhibiting proceedings in an administrative case, the lifespan of such court order should be excluded in the reckoning of the permissible period of the preventive suspension. 9

With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and hear administrative cases against PPA Personnel below the rank of Assistant General Manager, the Court qualifiedlyrules in favor of petitioner.

The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate powers of the PPA were vested in a governing Board of Directors known as the Philippine Port Authority Council. Sec. 5(i) of the same decree gave the Council the power "to appoint, discipline and remove, and determine the composition of the technical staff of the Authority and other personnel."

On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created the Philippine Ports Authority which would be "attached" to the then Department of Public Works, Transportation and Communication. When Executive Order No. 125 dated January 30, 1987 reorganizing the Ministry of Transportation and Communications was issued, the PPA retained its "attached" status. 10 Even Executive Order No. 292 or the Administrative Code of 1987 classified the PPA as an agency "attached" to the Department of Transportation and Communications (DOTC). Sec. 24 of Book IV, Title XV, Chapter 6 of the same Code provides that the agencies attached to the DOTC "shall continue to operate and function in accordance with the respective charters or laws creating them, except when they conflict with this Code."

Attachment of an agency to a Department is one of the three administrative relationships mentioned in Book IV, Chapter 7 of the Administrative Code of 1987, the other two being supervision and control and administrative supervision. "Attachment" is defined in Sec. 38 thereof as follows:

(3) Attachment. — (a) This refers to the lateral relationship between the Department or its equivalent and the attached agency or corporation for purposes of policy and program coordination. The coordination shall be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency;

(b) Matters of day-to-day administration or all those pertaining to internal operations shall he left to the discretion or judgment of the executive officer of the agency or corporation. In the event that the Secretary and the head of the board or the attached agency or corporation strongly disagree on the interpretation and application of policies, and the Secretary is unable to resolve the disagreement, he shall bring the matter to the President for resolution and direction;

(c) Government-owned or controlled corporations attached to a department shall submit to the Secretary concerned their audited financial statements within sixty (60) days after the close of the fiscal year; and

(d) Pending submission of the required financial statements, the corporation shall continue to operate on the basis of the preceding year's budget until the financial statements shall have been submitted. Should any government-owned or controlled corporation incur an operation deficit at the close of its fiscal year, it shall be subject to administrative supervision of the department; and the corporation's operating and capital budget shall be subject to the department's examination, review, modification and approval. (emphasis supplied.)

An attached agency has a larger measure of independence from the Department to which it is attached than one which is under departmental supervision and control or administrative supervision. This is borne out by the "lateral relationship" between the Department and the attached agency. The attachment is merely for "policy and program coordination." With respect to administrative matters, the independence of an attached agency from Departmental control and supervision is further reinforced by the fact that even an agency under a Department's administrative supervision is free from Departmental interference with respect to appointments and other personnel actions "in accordance with the decentralization of personnel functions" under the Administrative Code of 1987. 11 Moreover, the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to chartered institutions attached to a Department. 12

Hence, the inescapable conclusion is that with respect to the management of personnel, an attached agency is, to a certain extent, free from Departmental interference and control. This is more explicitly shown by P.D. No. 857 which provides:

Sec. 8. Management and Staff. — a) The President shall, upon the recommendation of the Board, appoint the General Manager and the Assistant General Managers.

(b) All other officials and employees of the Authority shall be selected and appointed on the basis of merit and fitness based on a comprehensive and progressive merit system to be established by the Authority immediately upon its organization and consistent with Civil Service rules and regulations.The recruitment, transfer, promotion, and dismissal of all personnel of the Authority, including temporary workers, shall be governed by such merit system.

(c) The General Manager shall, subject to the approval of the Board, determine the staffing pattern and the number of personnel of the Authority, define their duties and responsibilities, and fix their salaries and emoluments. For professional and technical positions, the General Manager shall recommend salaries and emoluments that are comparable to those of similar positions in other government-owned corporations, the provisions of existing rules and regulations on wage and position classification notwithstanding.

(d) The General Manager shall, subject to the approval by the Board, appoint and remove personnel below the rank of Assistant General Manager.

xxx xxx xxx

(emphasis supplied.)

Although the foregoing section does not expressly provide for a mechanism for an administrative investigation of personnel, by vesting the power to remove erring employees on the General Manager, with the approval of the PPA Board of Directors, the law impliedly grants said officials the power to investigate its personnel below the rank of Assistant Manager who may be charged with an administrative offense. During such investigation, the PPA General Manager, as earlier stated, may subject the employee concerned to preventive suspension. The investigation should be conducted in accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering sufficient facts may the PPA General Manager impose the proper penalty in accordance with law. It is the latter action which requires the approval of the PPA Board of Directors. 14

From an adverse decision of the PPA General Manager and the Board of Directors, the employee concerned mayelevate the matter to the Department Head or Secretary. Otherwise, he may appeal directly to the Civil Service Commission. The permissive recourse to the Department Secretary is sanctioned by the Civil Service Law (P.D. No. 807) under the following provisions:

Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon appeal all administrative disciplinary cases involving the imposition of a penalty of suspension for more than thirty days, or fine in an amount exceeding thirty days salary, demotion in rank or salary or transfer, removal or dismissal from office. A complaint may be filed directly with the Commission by a private citizen against a government official or employee in which case it may hear and decide the case or it may deputize any department or agency or official or group of officials to conduct the investigation. The results of the investigation shall be submitted to the Commission with recommendation as to the penalty to be imposed or other action to be taken.

(b) The heads of departments, agencies and instrumentalities, provinces, cities and municipalities shall have jurisdiction to investigate and decide matters involving disciplinary action against officers and employees under their jurisdiction. The decisions shall be final in case the penalty imposed is suspension for not more than thirty days or fine in an amount not exceeding thirty days' salary. In case the decision rendered by a bureau or office head is appealable to the Commission, the same may be initially appealed to the department and finally to the Commission and pending appeal, the same shall be executory except when the penalty is removal, in which case the same shall be executory only after confirmation by the department head.

xxx xxx xxx

(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the AAB was premature. The PPA General Manager should have first conducted an investigation, made the proper recommendation for the imposable penalty and sought its approval by the PPA Board of Directors. It was discretionary on the part of the herein petitioner to elevate the case to the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction of the case.

The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-318 dated July 1, 1988, was designed to act, decide and recommend to him "all cases of administrative malfeasance, irregularities, grafts and acts of corruption in the Department." Composed of a Chairman and two (2) members, the AAB came into being pursuant to Administrative Order No. 25 issued by the President on May 25, 1987. 15 Its special nature as a quasi-judicial administrative body notwithstanding, the AAB is not exempt from the observance of due process in its proceedings. 16 We are not satisfied that it did so in this case the respondents protestation that petitioner waived his right to be heard notwithstanding. It should be observed that petitioner was precisely questioning the AAB's jurisdiction when it sought judicial recourse.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the power of the PPA General Manager to subject petitioner to preventive suspension and REVERSED insofar as it validates the jurisdiction of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1-049-89 and rules that due process has been accorded the petitioner.

The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED to the PPA whose General Manager shall conduct with dispatch its reinvestigation.

The preventive suspension of petitioner shall continue unless after a determination of its duration, it is found that he had served the total of ninety (90) days in which case he shall be reinstated immediately.

SO ORDERED.

SECOND DIVISION

[G.R. No. 135548. September 29, 2000]

FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. COURT OF APPEALS and SMP, INC., Respondents.

D E C I S I O N

BELLOSILLO, J.:

FAR EAST BANK AND TRUST COMPANY filed a Complaint against Clothespak Manufacturing Phils., Inc. (hereafter CLOTHESPAK) for recovery of sums of money before the Regional Trial Court of Pasig City.1

On 14 March 1995 the trial court issued a Writ of Preliminary Attachment by virtue of which the Sheriff levied on the personal properties found in the premises of CLOTHESPAK. On 28 March 1995 respondent

SMP, Inc. (hereafter SMP) filed an Affidavit of Third-Party Claim asserting ownership over 4,000 bags of General Purpose (GPS) polystyrene products included among the attached properties. On 6 April 1995 petitioner posted a Sheriff's Indemnity Bond issued by Siddcor Insurance Corporation (hereafter SIDDCOR).

On 21 May 1996 the trial courtruled that the third-party claim can be best and fully ventilated in a vindicatory action under Sec. 17, Rule 39, of the Rules of Court.2 On 13 January and 7 March 1997 it denied reconsideration.3Thereafter, a Decision was rendered in favor of petitioner and a Writ of Execution was accordingly issued upon the judgment becoming final and executory. Petitioner acquired the attached goods as highest bidder in the public auction.

Meanwhile, on 26 February 1997 respondent SMP filed a Complaint for damages against petitioner, the Sheriff and SIDDCOR before the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-97-30372, pertinent portions of which read -

5. Plaintiff is engaged in the manufacture, production, formulation, tolling, distribution, trading, selling, import and export of polystyrene products and such other businesses related to or connected with polystyrene products.

6. On January 19, 1995, Maria Teresa Michaela Ong, one of the Sales Executives of plaintiff, personally undertook the acceptance and servicing of a purchase order of CLOTHESPAK MANUFACTURING PHILS., INC. (CLOTHESPAK for brevity) for 4,000 bags or sacks of General Purpose (GPS) polystyrene products to be made by CLOTHESPAK into "plastic hangers" x x x x

7. Pursuant to such Purchase Order, the ordered products (4,000 bags) were delivered on January 23, 24, 25, and 27, 1995 to the plant of CLOTHESPAK located at Bo. Panungyanan, General Trias, Cavite City, for which Delivery Receipts were issued x x x x

8. The total selling price of the above delivered products amounted to U.S. $118,500, as evidenced by Sales Invoices Nos. 5509, 5510, and 5511 x x x x

9. As "payment" for the goods ordered and duly delivered, CLOTHESPAK issued postdated checks in favor of plaintiff SMP, INC. and delivered the same to Maria Teresa Michaela Ong upon delivery of the ordered goods x x x x As agreed upon, the ownership over the goods delivered was explicitly retained by SMP until all the above-enumerated postdated checks shall have cleared and honored as good by the bank, with the understanding that SMP can get back the goods delivered at any time in case the check(s) are dishonored and returned by the bank for any reason, as contained in the Provisional Receipt issued by SMP to CLOTHESPAK upon receipt by SMP of the above postdated checks x x x x

10. When the above checks were deposited by SMP on their maturity dates, the drawee bank dishonored and returned them for the reason "Account Closed" x x x x

14. Deputy Sheriff Alejandro Loquinario of RTC-Pasig City x x x made an actual levy/attachment on the properties found on the premises of CLOTHESPAK at Panungyanan, Gen. Trias, Cavite on various dates in March 1995 before several witnesses including the representative of FEBTC. Among the properties levied/attached were "plastic resins" and "plastic hangers," as evidenced by the Notice of Levy/Attachment issued and submitted by Deputy Sheriff Loquinario for March 14, 1995 (plastic resins), March 15, 1995 (plastic resins) and March 16, 1995 (plastic hangers) x x x x

The LISTS OF INVENTORY attached to the Notice of Levy/Attachment did not fully describe with specificity the materials or goods attached; most of the sacks were described merely as "RAW MATERIALS' and 'GRINDED;' a few were labeled "DOW" which indicates a foreign brand and therefore probably imported. This would seem to indicate that FEBTC directed the Sheriff to attach any and all goods found in the premises of CLOTHESPAK without regard as to whether they are those "goods intended to be attached," and most likely in order to make it difficult to trace, verify or check, the Sheriff just listed the goods without detailed description or identification. Since FEBTC was desperate in recovering whatever it can recover from its credit exposure to CLOTHESPAK, even goods clearly not owned by FEBTC by virtue of its alleged Trust Receipts just had to be attached for any reason.

Yet, it is clear from the allegations made in FEBTC's Complaint (Annex "G") that it was only after goods imported by CLOTHESPAK and allegedly paid for through LC/TR. Hence, FEBTC should have attached only those plastic products that were imported and not those that are locally produced like those of SMP.

15. Yet, the main bulk of the plastic goods/materials attached by the sheriff belonged to the plaintiff as can easily be seen from the pictures of the sacks of goods attached which show clearly the labels "TOPRENE" (a brand name) and "SMP INCORPORATED" and Paseo de Blas, Valenzuela, Philippines", all of which

indicate that the goods/materials are owned by plaintiff and locally made. The pictures were taken in the place where the sheriff brought the goods for safe-keeping, i.e, at the Tacoma Warehouse, Port Area, Manila x x x x4

On 8 April 1997 SIDDCOR filed a Motion to Dismiss the Complaint on the assertion that no action was filed by respondent SMP against the Sheriff within 120 days from the filing of the bond as provided in Sec. 17, Rule 39, of the Rules of Court. On 10 April 1997 petitioner and the Sheriff filed a Manifestation and Motion for a Bill of Particulars and Production of Documents. Movants averred that CLOTHESPAK was an indispensable party; that the Complaint did not state a cause of action; and, that certain allegations therein should be particularized.

On 15 July 1997 the trial court granted the Motion of SIDDCOR. It found that indeed the case was filed beyond the 120-day period, relieving SIDDCOR from any liability. On the other hand, it denied the Motion of petitioner and the Sheriff. It expressed the view that CLOTHESPAK was not responsible for the attachment and necessarily could not be made defendant in the present case; that the allegations in the Complaint were sufficient bases for them to properly formulate their defenses; and, that the matters they sought to be particularized were evidentiary in character and should therefore be threshed out during the trial proper.

On 12 August 1997 petitioner filed another Motion this time seeking the dismissal of the Complaint anchored on these grounds: (a) the Complaint stated no cause of action; and, (b) the cause of action, if any, was barred by prior judgment since the third-party claim of respondent SMP was denied in Civil Case No. 65006.

On 24 October 1997 the trial court denied petitioner's Motion explaining that the Complaint alleged ultimate facts constituting a cause of action and that from the denial of respondent SMP's third- party claim, SMP could file a separate action to vindicate its claim to the properties.5 On 25 November 1997 reconsideration was denied.6

Through a Petition for Certiorari and Mandamus petitioner assailed the 24 October and 25 November 1997 Orders of the trial court before the Court of Appeals. On 31 July 1998 the Petition was dismissed. The appellate court concurred in the finding of the trial court that the Complaint stated a cause of action and held that neither certiorarinor mandamus was a proper remedy.7 On 16 September 1998 reconsideration was denied.8

Petitioner asserts that the Complaint of respondent SMP does not state a cause of action because on the basis of the allegations therein, subject goods were already owned by CLOTHESPAK at the time of attachment. Petitioner also claims that respondent SMP raised a new theory in Civil Case No. Q-97-30372, i.e., that respondent SMP retained ownership of the goods based on a provisional receipt wherein its collector acknowledged having received postdated checks drawn by CLOTHESPAK and wherein the same collector placed a handwritten statement thereon that "materials belong to SMP until your checks clear." Petitioner argues that the statement is a unilateral condition inserted by a mere collector after delivery of the goods which cannot supersede the covering Sales Invoices prepared before delivery and signed by CLOTHESPAK stating that the sale was on credit "60 PDC."9 Petitioner thus maintains that the trial court acted with grave abuse of discretion tantamount to lack or excess of jurisdiction when it did not dismiss the Complaint and respondent Court of Appeals committed serious error by sustaining the trial court.

There is no merit in the petition. A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are: (a) the existence of a legal right in the plaintiff; (b) a correlative legal duty in the defendant; and, (c) an act or omission of the defendant in violation of plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief.10 Readily discernible from the face of respondent SMP's Complaint is that there is a statement of causes of action. Assuming the facts to be true, (a) respondent SMP still owns subject goods on account of an agreement with CLOTHESPAK contained in a provisional receipt that "SMP can get back the goods delivered at any time in case the check(s) are dishonored and returned by the bank for any reason;" (b) petitioner has a correlative duty to respect such ownership; and, (c) the act of petitioner in including the goods among the attached properties violated the right of respondent SMP and entitled it to recover damages or other appropriate relief. On the basis of those allegations, the trial court can render a valid judgment.

It appears that petitioner outrightly regards as untrue the claim of respondent SMP that it retained ownership of subject goods; in effect, petitioner contradicts the allegations in the Complaint. This is improper. In a motion to dismiss a complaint based on lack of cause of action, the question submitted to the court for determination is the sufficiency of the allegations in the complaint to constitute a cause of action and not whether those allegations of fact are true, for such motion must hypothetically admit the

truth of the facts alleged in the complaint.11 Otherwise stated, the test of the sufficiency of the facts alleged in the complaint is whether, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the complaint.12 An inquiry regarding the veracity of respondent SMP's allegations is not proper in resolving the Motion to Dismiss. As to whether respondent SMP is still the owner of subject goods is an issue necessitating a full-blown trial on the merits.

An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition forcertiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire case by appeal in due course.13 However, the rule is not ironclad. Under certain situations, recourse to certiorari ormandamus is considered appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction;14 (b) where there is patent grave abuse of discretion by the trial court;15 or, (c) appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and compelling the defendant needlessly to go through a protracted trial and clogging the court dockets by another futile case.16 At any rate, we find that the Petition for Certiorari and Mandamus filed by petitioner before the Court of Appeals is not the available remedy. The trial court did not issue the assailed Orders with grave abuse of discretion, or without or in excess of jurisdiction. The Orders did not produce any injurious effect on petitioner. Rather, the trial court issued the Orders based on a correct appreciation of the evidence which made them withstand appellate scrutiny twice.

WHEREFORE,the petition is DENIED. The Decision of the Court of Appeals of 31 July 1998 sustaining the Orders of the Regional Trial Court-Br.92, Quezon City, which denied petitioner Far East Bank and Trust Company's Motion to Dismiss respondent SMP, Inc.'s Complaint, and its Resolution of 16 September 1998 denying reconsideration are AFFIRMED. Costs against petitioner.

SO ORDERED.

[G.R. No. 86695, September 03, 1992] 

MARIA ELENA MALAGA, DOING BUSINESS UNDER THE NAME B.E. CONSTRUCTION; JOSIELEEN NAJARRO, DOING BUSINESS UNDER THE NAME BEST BUILT CONSTRUCTION; JOSE N. OCCEÑA, DOING BUSINESS UNDER THE NAME THE FIRM OF JOSE N. OCCEÑA; AND THE ILOILO BUILDERS CORPORATION, PETITIONERS, VS. MANUEL R. PENACHOS, JR., ALFREDO MATANGGA, ENRICO TICAR AND TERESITA VILLANUEVA, IN THEIR RESPECTIVE CAPACITIES AS CHAIRMAN AND MEMBERS OF THE PRE-QUALIFICATION BIDS AND AWARDS COMMITTEE (PBAC) - BENIGNO PANISTANTE, IN HIS CAPACITY AS PRESIDENT OF ILOILO STATE COLLEGE OF FISHERIES, AS WELL AS IN THEIR RESPECTIVE PERSONAL CAPACITIES; AND HON. LODRIGIO L. LEBAQUIN, RESPONDENTS. 

D E C I S I O N 

CRUZ, J.:

This controversy involves the extent and applicability of P.D. 1818, which prohibits any court from issuing injunctions in cases involving infrastructure projects of the government.

The facts are not disputed.

The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification, Bids and Awards Committee (henceforth PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the

Western Visayas Daily an Invitation to Bid for the construction of a Micro Laboratory Building at ISCOF. The notice announced that the last day for the submission of pre-qualification requirements (PRE C-1)* was December 2, 1988, and that the bids would be received and opened on December 12, 1988, at 3 o'clock in the afternoon.[1]

Petitioners Maria Elena Malaga and Josieleen Najarro, respectively doing business under the name of B.E. Construction and Best Built Construction, submitted their pre-qualification documents at two o'clock in the afternoon of December 2, 1988. Petitioner Jose Occeña submitted his own PRE-C1 on December 5, 1988. All three of them were not allowed to participate in the bidding because their documents were considered late, having been submitted after the cut-off time of ten o'clock in the morning of December 2, 1988.

On December 12, 1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo against the chairman and members of PBAC in their official and personal capacities. The plaintiffs claimed that although they had submitted their PRE-C1 on time, the PBAC refused without just cause to accept them. As a result, they were not included in the list of pre-qualified bidders, could not secure the needed plans and other documents, and were unable to participate in the scheduled bidding.

In their prayer, they sought the resetting of the December 12, 1988 bidding and the acceptance of their PRE-C1 documents. They also asked that if the bidding had already been conducted, the defendants be directed not to award the project pending resolution of their complaint.

On the same date, Judge Lodrigio L. Lebaquin issued a restraining order prohibiting PBAC from conducting the bidding and awarding the project.[2]

On December 16, 1988, the defendants filed a motion to lift the restraining order on the ground that the court was prohibited from issuing restraining orders, preliminary injunctions and preliminary mandatory injunctions by P.D. 1818.

The decree reads pertinently as follows:

Section 1. No Court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure project, or a mining, fishery, forest or other natural resource development project of the government, or any public utility operated by the government, including among others public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such publicutility, or pursuing any lawful activity necessary for such execution, implementation or operation.

The movants also contended that the question of the propriety of a preliminary injunction had become moot and academic because the restraining order was received late, at 2 o'clock in the afternoon of December 12, 1988, after the bidding had been conducted and closed at eleven thirty in the morning of that date.

In their opposition to the motion, the plaintiffs argued against the applicability of P.D. 1818, pointing out that while ISCOF was a state college, it had its own charter and separate existence and was not part of the national government or of any local political subdivision. Even if P.D.1818 were applicable, the prohibition presumed a valid and legal government project, not one tainted with anomalies like the project at bar.

They also cited Filipinas Marble Corp. vs. IAC,[3] where the Court allowed the issuance of a writ of preliminary injunction despite a similar prohibition found in P.D. 385. The Court therein stated that:

The government, however, is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government-lending institutions who take over the management of a borrower corporation, lead that corporation to bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use the   mandatory provisions of the decree to avoid the consequences of their misdeeds (p. 188, underscoring supplied).

On January 2, 1989, the trial court lifted the restraining order and denied the petition for preliminary injunction. It declared that the building sought to be constructed at the ISCOF was an infrastructure project of the government falling within the coverage of P.D. 1818. Even if it were not, the petition for the issuance of a writ of preliminaryinjunction would still fail because the sheriff's return showed that PBAC was served a copy of the restraining order after the bidding sought to be restrained had already been held.

Furthermore, the members of the PBAC could not be restrained from awarding the project because the authority to do so was lodged in the President of the ISCOF, who was not a party to the case.[4]

In the petition now before us, it is reiterated that P.D. 1818 does not cover the ISCOF because of its separate and distinct corporate personality. It is also stressed again that the prohibition under P.D. 1818 could not apply to the present controversy because the project was vitiated with irregularities, to wit:

1. The invitation to bid as published fixed the deadline of submission of pre-qualification document on December 2, 1988 without indicating any time, yet after 10:00 o'clock of the given date, the PBAC already refused to accept petitioners' documents.2. The time and date of bidding was published as December 12, 1988 at 3:00 p.m. yet it was held at 10:00 o'clock in the morning.3. Private respondents, for the purpose of inviting bidders to participate, issued a mimeographed "Invitation to Bid" form, which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain the particulars of the project subject of bidding for the purposes of(i) enabling bidders to make an intelligent and accurate bids;(ii) for PBAC to have a uniform basis for evaluating the bids;(iii) to prevent collusion between a bidder and the PBAC, by opening to all the particulars of a project.

Additionally, the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein were left blank.[5] And although the project in question was a "Construction," the private respondents used an Invitation to Bid form for "Materials."[6]

The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot and academic because even if the bids had been opened before the restraining order was issued, the project itself had not yet been awarded. The ISCOF president was not an indispensable party because the signing of the award was merely a ministerial function which he could perform only upon the recommendation of the Award Committee. At any rate, the complaint had already been duly amended to include him as a party defendant.

In their Comment, the private respondents maintain that since the members of the board of trustees of the ISCOF are all government officials under Section 7 of P.D. 1523 and since the operations and maintenance of the ISCOF are provided for in the General Appropriations Law, it should be considered a government institution whose infrastructure project is covered by P.D. 1818.

Regarding the schedule for pre-qualification, the private respondents insist that PBAC posted on the ISCOF bulletin board an announcement that the deadline for the submission of pre-qualification documents was at 10 o'clock of December 2, 1988, and the opening of bids would be held at 1 o'clock in the afternoon of December 12, 1988. As of ten o'clock in the morning of December 2, 1988, B.E. Construction and Best Built Construction had filed only their letters of intent. At two o'clock in the afternoon, B.E. and Best Built file through their common representative, Nenette Garuello, their pre-qualification documents which were admitted but stamped "submitted late." The petitioners were informed of their disqualification on the same date, and the disqualification became final on December 6, 1988. Having failed to take immediate action to compel PBAC to pre-qualify them despite their notice of disqualification, they cannot now come to this Court to question the bidding proper in which they had not participated.

In the petitioners' Reply, they raise as an additional irregularity the violation of the rule that where the estimated project cost is from P1M to P5M, the issuance of plans, specifications and proposal book forms should be made thirty days before the date of bidding. [7] They point out that these forms were issued only on December 2, 1988, and not at the latest on November 12, 1988, the beginning of the 30-day period prior to the scheduled bidding.

In their Rejoinder, the private respondents aver that the documents of B.E. and Best Built were received although filed late and were reviewed by the Award Committee, which discovered that the contractors had expired licenses. B.E.'s temporary certificate of Renewal of Contractor's License was valid only until September 30, 1988, while Best Built's license was valid only up to June 30, 1988.

The Court has considered the arguments of the parties in light of their testimonial and documentary evidence and the applicable laws and jurisprudence. It finds for the petitioners.

The 1987 Administrative Code defines a government instrumentality as follows:

Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with specialfunctions or jurisdiction by law, endowed with some if not all corporate

powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions, and government-owned or controlled corporations. (Sec. 2 (5) Introductory Provisions).

The same Code describes a chartered institution thus:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the state. (Sec. 2 (12) Introductory Provisions).

It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P.D. 1818.

There are also indications in its charter that ISCOF is a government instrumentality. First, it was created in pursuance of the integrated fisheries development policy of the State, a priority program of the government to effect the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines shall also be the ex-officio Treasurer of the state college with its accounts and expenses to be audited by the Commission on Audit or its duly authorized representative. Third, heads of bureaus and offices of the National Government are authorized to loan or transfer to it, upon request of the president of the state college, such apparatus, equipment, or supplies and even the services of such employees as can be spared without serious detriment to public service. Lastly, an additional amount of P1.5M had been appropriated out of the funds of the National Treasury and it was also decreed in its charter that the funds and maintenance of the state college would henceforth be included in the General Appropriations Law.[8]

Nevertheless, it does not automatically follow that ISCOF is covered by the prohibition in the said decree.

In the case of Datiles and Co. vs. Sucaldito,[9] this Court interpreted a similar prohibition contained in P.D. 605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the issuance of injunctions or restraining orders by courts against administrative acts in controversies involving facts or the exercise of discretion in technical cases. The Court observed that to allow the courts to judge these matters would disturb the smooth functioning of the administrative machinery. Justice Teodoro Padilla made it clear, however, that on issues definitely outside of this dimension and involving questions of law, courts could not be prevented by P.D. No. 605 from exercising their power to restrain or prohibit administrative acts.

We see no reason why the above ruling should not apply to P.D. 1818.

There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award of the project.

First, PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these deadlines without prior notice to prospective participants.

Under the Rules Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure contracts, PBAC shall provide prospective bidders with the Notice to Pre-qualification and other relevant information regarding the proposed work. Prospective contractors shall be required to file their ARC-Contractors Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-qualification Statement for the Project (prior to the amendment of the rules, this was referred to as Pre-C1) not later than the deadline set in the published Invitation to Bid, after which date no PRE-C2 shall be submitted and received. Invitations to Bid shall be advertised for at least three times within a reasonable period but in no case less than two weeks in at least two newspapers of general circulations.[10]

PBAC advertised the pre-qualification deadline as December 2, 1988, without stating the hour thereof, and announced that the opening of bids would be at 3 o'clock in the afternoon of December 12, 1988. This schedule was changed and a notice of such change was merely posted at the ISCOF bulletin board. The notice advanced the cut-off time for the submission of pre-qualification documents to 10 o'clock in the morning of December 2, 1988, and the opening of bids to 1 o'clock in the afternoon of December 12, 1988.

The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC meeting held on December 6, 1988. While it may be true that there were fourteen contractors who were pre-qualified despite the change in schedule, this fact did not cure the defect of the irregular notice. Notably, the petitioners were disqualified because they failed to meet the new deadline and not because of their expired licenses.**

We have held that where the law requires a previous advertisement before government contracts can be awarded, non-compliance with the requirement will, as a general rule, render the same void and of no effect.[11] The fact that an invitation forbids has been communicated to a number of possible bidders is not necessarily sufficient to establish compliance with the requirements of the law if it is shown that other possible bidders have not been similarly notified.[12]

Second, PBAC was required to issue to pre-qualified applicants the plans, specifications and proposal book forms for the project to be bid thirty days before the date of bidding if the estimated project cost was between P1M and P5M. PBAC has not denied that these forms were issued only on December 2, 1988, or only ten days before the bidding scheduled for December 12, 1988. At the very latest, PBAC should have issued them on November 12, 1988, or 30 days before the scheduled bidding.

It is apparent that the present controversy did not arise from the discretionary acts of the administrative body nor does it involve merely technical matters. What is involved here is non-compliance with the procedural rules on bidding which required strict observance. The purpose of the rules implementing P.D. 1594 is to secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these contracts to the detriment of the public. This purpose was defeated by the irregularities committed by PBAC.

It has been held that the three principles in public bidding are the offer to the public, an opportunity for competition and a basis for exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption.[13]

In the case at bar, it was the lack of proper notice regarding the pre-qualification requirement and the bidding that caused the elimination of petitioners B.E. and Best Built. It was not because of their expired licenses, as private respondents now claim. Moreover, the plans and specifications which are the contractors' guide to an intelligent bid, were not issued on time, thus defeating the guaranty that contractors be placed on equal footing when they submit their bids. The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of the plans and specifications that are to be the subject of their bids.

P.D. 1818 was not intended to shield from judicial scrutiny irregularites committed by administrative agencies such as the anomalies above described. Hence, the challenged restraining order was not improperly issued by the respondent judge and the writ of preliminary injunction should not have been denied. We note from Annex Q of the private respondent's memorandum, however, that the subject project has already been "100% completed as to the Engineering Standard." This fait accomplihas made the petition for a writ of preliminary injunction moot and academic.

We come now to the liabilities of the private respondents.

It has been held in a long line of cases that a contract granted without the competitive bidding required by law is void, and the party to whom it is awarded cannot benefit from it.[14] It has not been shown that the irregularities committed by PBAC were induced by or participated in by any of the contractors. Hence, liability shall attach only to the private respondents for the prejudice sustained by the petitioners as a result of the anomalies described above.

As there is no evidence of the actual loss suffered by the petitioners, compensatory damage may not be awarded to them. Moral damages do not appear to be due either. Even so, the Court cannot close its eyes to the evident bad faith that characterized the conduct of the private respondents, including the irregularities in the announcement of the bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of the restraining order and before they moved to lift such order. For such questionable acts, they are liable in nominal damages at least in accordance with Article 2221 of the Civil Code, which states:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant may be vindicated or, recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

These damages are to be assessed against the private respondents in the amount of P10,000.00 each, to be paid separately for each of petitioners B.E. Construction and Best Built Construction. The other petitioner, Occeña Builders, is not entitled to relief because it admittedly submitted its pre-qualification documents on December 5, 1988, or three days after the deadline.

WHEREFORE, judgment is hereby rendered: a) upholding the restraining order dated December 12, 1988, as not covered by the prohibition in P.D. 1818; b) ordering the chairman and the members of the PBAC board of trustees, namely, Manuel R. Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to each pay separately to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages of P10,000.00 each; and c) removing the said chairman and members from the PBAC board of trustees, or whoever among them is still incumbent therein, for their malfeasance in office. Costs against PBAC.

G.R. No. L-10759             May 20, 1957

LEONARDO MONTES, petitioner-appellant, vs.THE CIVIL SERVICE BOARD OF APPEALS and THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, respondents-appellees.

Gonzalo U. Garcia for appellant.Office of the Solicitor General Ambrosia Padilla and Solicitor Eriberto D. Ignacio for appellees.

LABRADOR, J.:

Petitioner-appellant was on and before January, 1953, a watchman of the Floating Equipment Section, Ports and Harbors Division, Bureau of Public Works. In Administrative Case No. R-8182 instituted against him for negligence in the performance of duty (Dredge No. 6 under him had sunk because of water in the bilge, which he did not pump out while under his care), the Commissioner of Civil Service exonerated him, on the basis of findings made by a committee. But the Civil Service Board of Appeals modified the decision, finding petitioner guilty of contributory negligence in not pumping the water from the bilge, and ordered that he be considered resigned effective his last day of duty with pay, without prejudice to reinstatement at the discretion of the appointing officer.

Petitioner filed an action in the Court of First Instance of Manila to review the decision, but the said court dismissed the action on a motion to dismiss, on the ground that petitioner had not exhausted all his administrative remedies before he instituted the action. The case is now before us on appeal against the order of dismissal.

The law which was applied by the lower court is Section 2 of Commonwealth Act No. 598, which provides:

The Civil Service Board of Appeals shall have the power and authority to hear and decide all administrative cases brought before it on appeal, and its decisions in such cases shall be final, unless revised or modified by the President of the Philippines.

It is urged on the appeal that there is no duty imposed on a party against whom a decision has been rendered by the Civil Service Board of Appeals to appeal to the President, and that the tendency of the courts has been not to subject the decision of the President to judicial review. It is further argued that if decisions of the Auditor General may be appealed to the courts, those of the Civil Service Board of Appeals need not be acted upon by the President also, before recourse may be had to the courts because such a courts. It is also argued that if a case is appealed to the President, his action should be final and not reviewable by the courts because such a course of action, would be derogatory to the high office of the President.

The objection to a judicial review of a Presidential act arises from a failure to recognize the most important principle in our system of government, i.e., the separation of powers into three co-equal departments, the executive, the legislative and the judicial, each supreme within its own assigned powers and duties. When a presidential act is challenged before the courts of justice, it is not to be implied therefrom that the Executive is being made subject and subordinate to the courts. The legality of his acts are under judicial review, not because the Executive is inferior to the courts, but because the law is above the Chief Executive himself, and the courts seek only to interpret, apply or implement it (the law). A judicial review of the President's decision on a case of an employee decided by the Civil Service Board of Appeals should be viewed in this light and the bringing of the case to the courts should be governed by the same principles as govern the judicial review of all administrative acts of all administrative officers.

The doctrine of exhaustion, of administrative remedies requires where an administrative remedy is provided by statute, as in this case, relief must be sought by exhausting this remedy before the courts will act. (42 Am. Jur. 580-581.) The doctrine is a device based on considerations of comity and convenience. If a remedy is still available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to the courts. (Ibid.)

Section 2 of Commonwealth Act No. 598 above-quoted is a clear expression of the policy or principle of exhaustion of administrative remedies. If the President, under whom the Civil Service directly falls in our administrative system as head of the executive department, may be able to grant the remedy that petitioner pursues, reasons of comity and orderly procedure demand that resort be made to him before recourse can be had to the courts. We have applied this same rule in De la Paz, vs. Alcaraz, et al., 99 Phil., 130, 52 Off. Gaz., 3037, Miguel et al., vs. Reyes, et al., 93 Phil., 542, and especially in Ang Tuan Kai & Co. vs. The Import Control Commission, 91 Phil., 143, and we are loathe to deviate from the rule we have consistently followed, especially in view of the express provision of the law (section 2, Commonwealth Act No. 598).

The judgment appealed from is affirmed, with costs against appellant.

G.R. Nos. L-10123 and L-10355             April 26, 1957

GENARO URSAL, as City Assessor of Cebu, petitioner, vs.COURT OF TAX APPEALS and CONSUELO NOEL, respondents.

GENARO URSAL, as City Assessor of Cebu, petitioner, vs.COURT OF TAX APPEALS and JESUSA SAMSON, respondents.

City Fiscal of Cebu Jose L. Abad for petitioner.Francisco M. Alonso for respondents.

BENGZON, J.:

In these two cases Genaro Ursal as City Assessor of Cebu challenges the correctness of the order of the Court of Tax Appeals dismissing his appeals to that body from two rulings of the Cebu Board of Assessment Appeals.

The record shows that said city assessors in the exercise of his powers assessed for taxation certain real properties of Consuelo Noel and Jesusa Samson in the City of Cebu, and that upon protest of the taxpayers, the Cebu Board of Assessment Appeals reduced the assessments. It also shows he took the matter to the Court of Tax Appeals insisting on his valuation; but said Court refused to entertain the appeal saying it was late, and, besides, the assessor had no personality to bring the matter before it under section 11 of Republic Act No. 1125, which reads as follows:

SEC. 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was the City of Cebu 1 that had been adversely affected in the sense that it could not thereafter collect higher realty taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not created to decide mere conflicts of opinion between administrative officers or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals whenever the Collector of Internal Revenue modifies, or lower his assessment on the return of a tax payer!

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and all tax disputes. Defining such special court's jurisdiction, the Act necessarily limited its authority to those matters enumerated therein. In line with this idea we recently approved said court's order rejecting an appeal to it by Lopez & Sons from the decision of the Collector of Customs, because in our opinion its jurisdiction extended only to a review of the decisions of the Commissioner of Customs, as provided by the statute — and not to decisions of theCollector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).

The appellant invites attention to the fact that the Court of Appeals is the successor of the former Central Board of Tax Appeals created by Commonwealth Act No. 530 and of the Board of Tax Appeals established by Executive Order No. 401-A, and that said Commonwealth Act No. 530 (section 2) explicitly authorized the city assessor to appeal to the Central Board of Tax Appeals. Here is precisely another argument against his position: as Republic Act No. 1125 failed to reenact such express permission, it is deemed with held.

Oversight could not have been the clause of such withholding, since there were proper grounds therefor: (a) discipline and command responsibility in the executive branches; and (b) instead of being another superior administrative agency as was the former Board of Tax Appeals2 the Court of Tax Appeals as created by Republic Act No. 1125 is a part of the judicial system presumably to act only on protests of private persons adversely affected by the tax, custom, or assessment.

There is no merit to the contention that section 2 of Commonwealth Act No. 530 is still in force and justifies Ursal's appeal. Apart from the reasons already advanced, Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may consider; such enumeration excludes all others by implication. Expressio unius est exclusio alterius.

parts of an original act which act omitted from the act as revised are to be considered as annulled and repealed, provided it clearly appears to have been the intention of the legislature to cover the whole subject by the revision. (82 C. J. S. p. 501.)

Inasmuch as we agree to the appellant's lack of personality before the Court of Tax Appeals, we find it unnecessary to review the question whether or not his appeal had been perfected in due time.

Wherefore, the challenge order is hereby affirmed.

LUZ R. YAMANE, in her           G.R. No.  154993capacity as the         CITY                        TREASURER OF MAKATI         Present:CITY,                      Petitioner,                      PUNO, J.,

                                      Chairman,                                                           AUSTRIA-MARTINEZ,                                                           CALLEJO, SR.,               -  versus  -                                   TINGA,  and

           CHICO-NAZARIO, JJ.                   

       BA LEPANTO CONDOMINUM   Promulgated:CORPORATION,                             Respondent.               October 25, 2005 x-------------------------------------------------------------------x  D E C I S I O N TINGA, J.: 

 

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this

Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The

first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts

resolving the denial of tax protests made by local government treasurers, pursuant to the Local

Government Code. The second is whether a local government unit can, under the Local Government Code,

impel a condominium corporation to pay business taxes.[1]

While we agree with the City Treasurer’s position on the first issue, there ultimately is sufficient

justification for the Court to overlook what is essentially a procedural error.  We uphold respondents on the

second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the

attempts by the City of Makati to flex its taxing muscle. Considering that the tax imposition now in

question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for

the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim,

and not on law. 

 

        The facts, as culled from the record, follow. 

        Respondent BA-Lepanto Condominium Corporation (the “Corporation”) is a duly organized

condominium corporation constituted in accordance with the Condominium Act,[2] which owns and holds

title to the common and limited common areas of the BA-Lepanto Condominium (the “Condominium”),

situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the

Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular

assessments from its members for operating expenses, capital expenditures on the common areas, and

other special assessments as provided for in the Master Deed with Declaration of Restrictions of the

Condominium. 

        On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998

signed by the City Treasurer. The Notice of Assessment stated that the Corporation is “liable to pay the

correct city business taxes, fees and charges,” computed as totaling P1,601,013.77 for the years 1995 to

1997.[3]  The Notice of Assessment was silent as to the statutory basis of the business taxes assessed.

Through counsel, the Corporation responded with a written tax protest dated 12 February 1999,

addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the

statutory basis of the tax assessment.

 With due respect, we submit that the Assessment has no basis as the Corporation is not

liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code.

 The Makati [Revenue] Code and the [Local Government] Code do not contain any

provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.[4]

 

 Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati

Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local

Government Code, “business” is defined as “trade or commercial activity regularly engaged in as a means

of livelihood or with a view to profit.” It was submitted that the Corporation, as a condominium corporation,

was organized not for profit, but to hold title over the common areas of the Condominium, to manage the

Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was

located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in

profit-making activities. The assessments it did collect from the unit owners were for capital expenditures

and operating expenses.[5]

 The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the

collection of dues from the unit owners was effected primarily “to sustain and maintain the expenses of

the common areas, with the end in view [sic] of getting full appreciative living values [sic] for the

individual condominium occupants and to command better marketable [sic] prices for those occupants”

who would in the future sell their respective units.[6] Thus, she concluded since the “chances of getting

higher prices for well-managed common areas of any condominium are better and more effective that

condominiums with poor [sic] managed common areas,” the corporation activity “is a profit venture

making [sic]”.[7]

        From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of

Makati.[8] On 1 March 2000, the Makati RTC Branch 57 rendered a Decision[9] dismissing the appeal for lack

of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible

language:

                    Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members.  Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.[10]

        

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of

“business” under Section 13(b) of the Local Government Code, and thus subject to local business taxation.

[11]

        From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of

Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright[12] on the ground that

only decisions of the RTC brought on appeal from a first level court could be elevated for review under the

mode of review prescribed under Rule 42.[13] However, the Corporation pointed out in its Motion for

Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the

denial of the protest filed with the local treasurer is to appeal the denial with the court of competent

jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the petition.[15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now

assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not

liable to pay business taxes to the City of Makati.[17] In doing so, the Court of Appeals delved into

jurisprudential definitions of profit,[18] and concluded that the Corporation was not engaged in profit. For

one, it was held that the very statutory concept of a condominium corporation showed that it was not a

juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the

condominium and to maintain the condominium.[19]

The Court of Appeals likewise cited provisions from the Corporation’s Amended Articles of

Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not

engaged in business and the assessment collected from unit owners limited to those necessary to defray

the expenses in the maintenance of the common areas and management the condominium.[20]

Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition for

Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from

the different unit owners is utilized towards the beautification and maintenance of the Condominium,

resulting in “full appreciative living values” for the condominium units which would command better

market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for

business taxes is not on the income received or  profit  earned  by the business, but the privilege   to 

engage  in   business.   The   fact   that   the

Corporation is empowered “to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell,

transfer or otherwise dispose of real or personal property” allegedly qualifies “as incident to the fact of [the

Corporation’s] act of engaging in business.[22]

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the

Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision

of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took

cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal,

the RTC Decision is deemed to have become final and executory.

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in

deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local

Government Code, exercises “original jurisdiction” or “appellate jurisdiction.” The question assumes a

measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode

of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means

that the decision of the RTC would have long become final and executory by reason of the failure of the

Corporation to file a notice of appeal.[23]

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals,

holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This

position is anchored on the language of Section 195 of the Local Government Code which states that the

remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of

competent jurisdiction.”[24] Apparently though, the Local Government Code does not elaborate on how such

“appeal” should be undertaken. 

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is

original in character. This is the first time that the position has been presented to the court for adjudication.

Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,[25] where the Court

proffered the following distinction between original jurisdiction and appellate jurisdiction: “Original

jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for

the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in

rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for

judicial review.”[26]

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz

Regalado.  With the definitions as beacon, the review taken by the RTC over the denial of the protest by

the local treasurer would fall within that court’s original jurisdiction. In short, the review is the initial judicial

cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is

inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local

government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997

Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial

tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its

appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),

[27]ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial

agencies, instrumentalities, boards or commission, by explicitly using the phrase “appellate

jurisdiction.”[28] The power to create or characterize jurisdiction of courts belongs to the legislature. While

the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to

yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of

officers in the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not

expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by

a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction

of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by

Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P.

129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial

entities.

From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law,

and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41

to the Court of Appeals. However, we make this pronouncement subject to two important qualifications.

First, in this particular case there are nonetheless significant reasons for the Court to overlook the

procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of

Appeals  in this case. Second, the doctrinal weight of the pronouncement is confined to cases and

controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the

jurisdiction of the Court of Tax Appeals (CTA).

Republic Act No.  9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive

appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in

local tax cases original decided or resolved by them in the exercise of their originally or appellate

jurisdiction. Moreover, the provision also states that the review is triggered “by filing a petition for review

under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.”[29]

Republic Act No.  9282, however, would not apply to this case simply because it arose prior to the

effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from

express statutory grant, but from implication.  The jurisdiction of a court to take cognizance of a case

should be clearly conferred and should not be deemed to exist on mere implications, [30] and this settled rule

would be needlessly emasculated should we declare that the Corporation’s position is correct in law.

Be that as it may, characteristic of all procedural rules is adherence to the precept that they should

not be enforced blindly, especially if mechanical application would defeat the higher ends that animates

our civil procedure—the just, speedy and inexpensive disposition of every action and proceeding. [31]Indeed,

we have repeatedly upheld—and utilized ourselves—the discretion of courts to nonetheless take

cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the

manner as they should have appropriately been filed.[32] The Court of Appeals could very well have treated

the Corporation’s petition for review as an ordinary appeal.

Moreover, we recognize that the Corporation’s error in elevating the RTC decision for review via

Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court

of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an

ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an

ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or

when the docket fees were not paid.[33] On the other hand, Section 6, Rule 42 provides that in order that

the Court of Appeals may allow due course to the petition for review, it must first make a prima

facie finding that the lower court has committed an error that would warrant the reversal or modification of

the decision under review.[34] There is no similar requirement of a prima facie determination of error in the

case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.[35]

Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having

its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41.

This was not an error that worked to the prejudice of the City Treasurer.

We now proceed to the substantive issue, on whether the City of Makati may collect business taxes

on condominium corporations.

        We begin with an overview of the power of a local government unit to impose business taxes.

        The power of local government units to impose taxes within its territorial jurisdiction derives from the

Constitution itself, which recognizes the power of these units “to create its own sources of revenue and to

levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,

consistent with the basic policy of local autonomy.”[36] These guidelines and limitations as provided by

Congress are in main contained in the Local Government Code of 1991 (the “Code”), which provides for

comprehensive instances when and how local government units may impose taxes. The significant

limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition

on the imposition of income taxes except when levied on banks and other financial institutions. [37] None of

the other general limitations under Section 133 find application to the case at bar.

        The most well-known mode of local government taxation is perhaps the real property tax, which is

governed by Title II, Book II of the Code, and which bears no application in this case. A different set of

provisions, found under Title I of Book II, governs other taxes imposable by local government units,

including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the

same taxes fees and charges as provinces and municipalities. It is in Article II, Title II, Book II of the Code,

governing municipal taxes, where the provisions on business taxation relevant to this petition may be

found.[38]

        Section 143 of the Code specifically enumerates several types of business on which municipalities and

cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of

commerce of whatever nature; those engaged in the export or commerce of essential commodities;

contractors and other independent contractors; banks and financial institutions; and peddlers engaged in

the sale of any merchandise or article of commerce. Moreover, the local sanggunianis also authorized to

impose taxes on any other businesses not otherwise specified under Section 143 which

the sanggunian concerned may deem proper to tax.

The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue

Code (“Revenue Code”), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in

effect as of this

writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific

as to the particular businesses which are covered by business taxes. To give a sample of the specified

businesses under the Revenue Code which are not enumerated under the Local Government Code, we cite

Section 3A.02(f) of the Code, which levies a gross receipt tax :           (f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on owners or operators of business establishments rendering or offering services such as:  advertising agencies; animal hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting animals belonging to others; business management services; collecting agencies; escort services; feasibility studies; consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment agencies; landscaping contractors; lathe machine shops; management consultants not subject to professional tax; medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands; painting shops; perma press establishments; rent-a-plant services; polo players; school for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard  for repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals and/or coverage services; dancing schools/speed

reading/EDP; nursery, vocational and other schools not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.[39]

 

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and

operators[40], real estate dealers, and lessors of real estate[41] to business taxes.

Should the comprehensive listing not prove encompassing enough, there is also a catch-all

provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the

Revenue Code, which provides:

 (m) On owners or operators of any business not specified above shall pay the tax at the

rate of two percent (2%) for 1993, two and one-half percent (2 ½%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.[42] 

 

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to

make the Corporation liable for business taxes. Even at this point, there already stands a problem with the

City Treasurer’s cause of action.

Our careful examination of the record reveals a highly disconcerting fact. At no point has the City

Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for

that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the

levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City

Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the

communications by the City Treasurer to the Corporation which form part of the record. Nowhere therein is

there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as

the legal authority for the collection of business taxes from condominiums in Makati.

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially

made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal

basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that

the notice of assessment specifically cite the provision of the ordinance involved but it does require that it

state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In

this case, the notice of assessment sent to the Corporation did state that the assessment was for business

taxes, as well as the amount of the assessment. There may have been prima faciecompliance with the

requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on

business taxes, and at varying rates. Hence, we could appreciate the Corporation’s confusion, as expressed

in its protest, as to the exact legal basis for the tax. [43] Reference to the local tax ordinance is vital, for the

power of local government units to impose local taxes is exercised through the appropriate ordinance

enacted by the sanggunian, and not by the Local Government Code alone.[44]What determines tax liability

is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. 

Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems

designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the

former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in

enumerating the class of businesses taxed under the provision, the listing, while it does not include

condominium-related enterprises, ends with the abbreviation “etc.”, or “et cetera”.

We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the

twin hallmarks of the words “et cetera.”  Certainly, we cannot be disposed to uphold any tax imposition

that derives its authority from enigmatic and uncertain words such as “et cetera.” Yet we cannot even say

with definiteness whether the tax imposed on the Corporation in this case is based on “et cetera,” or on

Section 3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on

the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different

complexion. For example, if it is based on “et cetera” under Section 3A.02(f), we would have to examine

whether the Corporation faces analogous comparison with the other businesses listed under that provision.

Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through

out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is

only one thing that prevents this Court from ruling that there has been a due process violation on account

of the City Treasurer’s failure to disclose on paper the statutory basis of the tax–that the Corporation itself

does not allege injury arising from such failure on the part of the City Treasurer.

We do not know why the Corporation chose not to put this issue into litigation, though we can

ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific

statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the

taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the

taxpayer as to the specific tax involved. 

In this case, the Corporation seems confident enough in litigating despite the failure of the City

Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps

because the Corporation has anchored its central argument on the position that the Local Government

Code itself does not sanction the imposition of business taxes against it. This position was sustained by the

Court of Appeals, and now merits our analysis.

As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government

Code. The word “business” itself is defined under Section 131(d) of the Code as “trade or commercial

activity regularly engaged in as a means of livelihood or with a view to profit.” [45]  This definition of

“business” takes on importance, since Section 143 allows local government units to impose local taxes on

businesses other than those specified under the provision. Moreover, even those business activities

specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section

143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of

commerce of whatever kind or nature.

It is thus imperative that in order that the Corporation may be subjected to business taxes, its

activities must fall within the definition of business as provided in the Local Government Code. And to hold

that they do is to ignore the very statutory nature of a condominium corporation.

The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise

known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of

a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in

common, directly or indirectly, in the land on which it is located and in other common areas of the building.

[46] To enable the orderly administration over these common areas which are jointly owned by the various

unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially

formed for the purpose of holding title to the common area, in which the holders of separate interests shall

automatically be members or shareholders, to the exclusion of others, in proportion  to  the appurtenant

interest of their respective

units.[47] The necessity of a condominium corporation has not gained widespread acceptance [48], and even is

merely permissible under the Condominium Act.[49] Nonetheless, the condominium corporation has been

resorted to by many condominium projects, such as the Corporation in this case.

In line with the authority of the condominium corporation to manage the condominium project, it

may be authorized, in the deed of restrictions, “to make reasonable assessments to meet authorized

expenditures, each condominium unit to be assessed separately for its share of such expenses in

proportion (unless otherwise provided) to its owner’s fractional interest in any common areas.” [50] It is the

collection of these assessments from unit owners that form the basis of the City Treasurer’s claim that the

Corporation is doing business.

The Condominium Act imposes several limitations on the condominium corporation that prove

crucial to the disposition of  this case. Under Section 10 of the law, the corporate purposes of a

condominium corporation are limited to the holding of the common areas, either in ownership or any other

interest in real property recognized by law; to the management of the project; and to such other purposes

as may be necessary, incidental or convenient to the accomplishment of such purpose. [51] Further, the

same provision prohibits the articles of incorporation or by-laws of the condominium corporation from

containing any provisions which are contrary to the provisions of the Condominium Act, the enabling or

master deed, or the declaration of restrictions of the condominium project.[52]

We can elicit from the Condominium Act that a condominium corporation is precluded by statute

from engaging in corporate activities other than the holding of the common areas, the administration of the

condominium project, and other acts necessary, incidental or convenient to the accomplishment of such

purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of

permissible corporate purposes of a condominium corporation under the Condominium Act.

The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and

these documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of

Incorporation, the Corporation’s corporate purposes are limited to: (a) owning and holding title to the

common and limited common areas in the Condominium Project; (b) adopting such necessary measures for

the protection and safeguard of the unit owners and their property, including the power to contract for

security services and for insurance coverage on the entire project; (c) making and adopting needful rules

and regulations concerning the use, enjoyment and occupancy of the units and common areas, including

the power to fix penalties and assessments for violation of such rules; (d) to provide for the maintenance,

repair, sanitation, and cleanliness of the common and limited common areas; (e) to provide and contract

for public utilities and other services to the common areas; (f) to contract for the services of persons or

firms to assist in the management and operation of the Condominium Project; (g) to discharge any lien or

encumbrances upon the Condominium Project; (h) to enforce the terms contained in the Master Deed with

Declaration  of  Restrictions  of  the Project; (i) to levy and collect those assessments as provided in the

Master Deed, in order to defray the costs, expenses and losses of the condominium; (j) to acquire, own,

hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real

or personal property in connection with the purposes and activities of the corporation; and (k) to exercise

and perform such other powers reasonably necessary, incidental or convenient to accomplish the foregoing

purposes.[53]

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or

the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the

unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its

members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the

Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which

enumerate the particular expenses to be defrayed by the regular assessments collected from the unit

owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance

and ordinary repairs of the common areas.[54]

The City Treasurer nonetheless contends that the collection of these assessments and dues are

“with the end view of getting full appreciative living values” for the condominium units, and as a result,

profit is obtained once these units are sold at higher prices. The Court cites with approval the two

counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by

the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does

obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the

appreciated value of the condominium unit.[55]

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City

car owner may be considered as being engaged in business, since the repairs or improvements on the car

may be deemed oriented towards appreciating the value of the car upon resale. There is an evident

distinction between persons who spend on repairs and improvements on their personal and real property

for the purpose of increasing its resale value, and those who defray such expenses for the purpose of

preserving the property. The vast majority of persons fall under the second category, and it would be

highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly

the driving factor behind such improvements, if it were contemplated at all. Any profit that would be

derived under such circumstances would merely be incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of “full

appreciative living values”, a phrase that defies statutory explication, commonsensical meaning, the

English language, or even definition from Google.  The exercise of the power of taxation  constitutes  a 

deprivation of property under the due process clause,[56] and the taxpayer’s right to due process is violated

when arbitrary or oppressive methods are used in assessing and collecting taxes.[57]  The fact that the

Corporation did not fall within the enumerated classes of taxable businesses under either the Local

Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on

the part of the City Treasurer on why the Corporation should be taxed anyway. “Full appreciative living

values” is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both

arbitrary and oppressive.

The City Treasurer also contends that the fact that the Corporation is engaged in business is

evinced by the Articles of Incorporation, which specifically empowers the Corporation “to acquire, own,

hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of

real or personal property.”[58] What the  City  Treasurer  fails  to add is that every corporation organized

under the Corporation Code[59] is so specifically empowered. Section 36(7) of the Corporation Code states

that every corporation incorporated under the Code has the power and capacity “to purchase, receive, take

or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal

property . . . as the transaction of the lawful business of the corporation  may  reasonably   and  

necessarily   require . . . .”[60] Without this power, corporations, as juridical persons, would be deprived of

the capacity to engage in most meaningful legal relations.

Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of

ownership over personal and real property is limited by its stated corporate purposes, which are by

themselves further limited by the Condominium Act. A condominium corporation, while enjoying such

powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit.

Accordingly, and with a significant degree of comfort, we hold that condominium corporations are

generally exempt from local business taxation under the Local Government Code, irrespective of any local

ordinance that seeks to declare otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a

condominium would band together to engage in activities for profit under the shelter of the condominium

corporation.[61] Such activity would be prohibited under the Condominium Act, but if the fact is established,

we see no reason why the condominium corporation may be made liable by the local government unit for

business taxes. Even though such activities would be considered as ultra vires, since they are engaged in

beyond the legal capacity of the condominium corporation[62], the principle of estoppel would preclude the

corporation or its officers and members from invoking the void nature of its undertakings for profit as a

means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in business

activities beyond the statutory purposes of a condominium corporation. The assessment appears to be

based solely on the Corporation’s collection of assessments from unit owners, such assessments being

utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no

contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment

has no basis under the Local Government Code or the Makati Revenue Code, and the insistence of the city

in its collection of the void tax constitutes an attempt at deprivation of property without due process of law.

 WHEREFORE, the petition is DENIED. No costs.