Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

191109 July 18, 2012

REPUBLIC OF THE PHILIPPINES, !" !#!$%!& 'y %(! PHILIPPINE RECL)M)TION )UTHORIT* +PR),,Petitioner, vs. CIT* OF P)R)N)-UE, Respondent. DECISION MENDO.), J.: This is a petition for revie on certiorari under Rule !" of the #$$% Rules of Civil Procedure, on pure &uestions of la , assailin' the (anuar) *, +,#, Order# of the Re'ional Trial Court, -ranch #$", Parafia&ue Cit) .RTC/, hich ruled that petitioner Philippine Recla0ation 1uthorit) .PR1/ is a 'overn0ent2o ned and controlled corporation .3OCC/, a ta4able entit), and, therefore, . not e4e0pt fro0 pa)0ent of real propert) ta4es. The pertinent portion of the said order reads5 In vie of the findin' of this court that petitioner is not e4e0pt fro0 pa)0ent of real propert) ta4es, respondent Para6a&ue Cit) Treasurer 7iberato M. Carabeo did not act 444 ithout or in e4cess of 8urisdiction, or ith 'rave abuse of discretion a0ountin' to lac9 or in e4cess of 8urisdiction in issuin' the arrants of lev) on the sub8ect properties. :;ERE<ORE, the instant petition is dis0issed. The Motion for 7eave to <ile and 1d0it 1ttached Supple0ental Petition is denied and the supple0ental petition attached thereto is not ad0itted. The Public Estates 1uthorit) .PE1/ is a 'overn0ent corporation created b) virtue of Presidential Decree .P.D./ No. #,*! .Creatin' the Public Estates 1uthorit), Definin' its Po ers and <unctions, Providin' <unds Therefor and <or Other Purposes/ hich too9 effect on <ebruar) !, #$%% to provide a coordinated, econo0ical and efficient recla0ation of lands, and the ad0inistration and operation of lands belon'in' to, 0ana'ed and=or operated b), the 'overn0ent ith the ob8ect of 0a4i0i>in' their utili>ation and hastenin' their develop0ent consistent ith public interest. On <ebruar) #!, #$%$, b) virtue of E4ecutive Order .E.O./ No. "+" issued b) then President <erdinand Marcos, PE1 as desi'nated as the a'enc) pri0aril) responsible for inte'ratin', directin' and coordinatin' all recla0ation pro8ects for and on behalf of the National 3overn0ent. On October +?, +,,!, then President 3loria Macapa'al21rro)o issued E.O. No. @*, transfor0in' PE1 into PR1, hich shall perfor0 all the po ers and functions of the PE1 relatin' to recla0ation activities.

-) virtue of its 0andate, PR1 reclai0ed several portions of the foreshore and offshore areas of Manila -a), includin' those located in Para6a&ue Cit), and as issued Ori'inal Certificates of Title .OCT Nos. #*,, +,+, +,?, +,%, +*$, ""%, and ""$/ and Transfer Certificates of Title .TCT Nos. #,!?+*, %@#+, %@,$, %@##, $?*", and $?*?/ over the reclai0ed lands. On <ebruar) #$, +,,@, then Para6a&ue Cit) Treasurer 7iberato M. Carabeo .Carabeo/ issued :arrants of 7ev) on PR1As reclai0ed properties .Central -usiness Par9 and -aran'a) San Dionisio/ located in Para6a&ue Cit) based on the assess0ent for delin&uent real propert) ta4es 0ade b) then Para6a&ue Cit) 1ssessor Soledad Medina Cue for ta4 )ears +,,# and +,,+. On March +?, +,,@, PR1 filed a petition for prohibition ith pra)er for te0porar) restrainin' order .TRO/ and=or rit of preli0inar) in8unction a'ainst Carabeo before the RTC. On 1pril @, +,,@, after due hearin', the RTC issued an order den)in' PR1As petition for the issuance of a te0porar) restrainin' order. On 1pril !, +,,@, PR1 sent a letter to Carabeo re&uestin' the latter not to proceed ith the public auction of the sub8ect reclai0ed properties on 1pril %, +,,@. In response, Carabeo sent a letter statin' that the public auction could not be deferred because the RTC had alread) denied PR1As TRO application. On 1pril +", +,,@, the RTC denied PR1As pra)er for the issuance of a rit of preli0inar) in8unction for bein' 0oot and acade0ic considerin' that the auction sale of the sub8ect properties on 1pril %, +,,@ had alread) been consu00ated. On 1u'ust @, +,,$, after an e4chan'e of several pleadin's and the failure of both parties to arrive at a co0pro0ise a'ree0ent, PR1 filed a Motion for 7eave to <ile and 1d0it 1ttached Supple0ental Petition hich sou'ht to declare as null and void the assess0ent for real propert) ta4es, the lev) based on the said assess0ent, the public auction sale conducted on 1pril %, +,,@, and the Certificates of Sale issued pursuant to the auction sale. On (anuar) *, +,#,, the RTC rendered its decision dis0issin' PR1As petition. In rulin' that PR1 as not e4e0pt fro0 pa)0ent of real propert) ta4es, the RTC reasoned out that it as a 3OCC under Section @ of P.D. No. #,*!. It as or'ani>ed as a stoc9 corporation because it had an authori>ed capital stoc9 divided into no par value shares. In fact, PR1 ad0itted its corporate personalit) and that said properties ere re'istered in its na0e as sho n b) the certificates of title. Therefore, as a 3OCC, local ta4 e4e0ption is ithdra n b) virtue of Section #$@ of Republic 1ct .R.1./ No. %#?, 7ocal 3overn0ent Code .73C/ hich as the prevailin' la in +,,# and +,,+ ith respect to real propert) ta4ation. The RTC also ruled that the ta4 e4e0ption clai0ed b) PR1 under E.O. No. ?"! had alread) been e4pressl) repealed b) R.1. No. %#?, and that PR1 failed to co0pl) ith the procedural re&uire0ents in Section +,? thereof. Not in confor0it), PR1 filed this petition for certiorari assailin' the (anuar) *, +,#, RTC Order based on the follo in' 3ROBNDS I

T;E TRI17 COBRT 3R1CE7D ERRED IN <INDIN3 T;1T PETITIONER IS 7I1-7E TO P1D RE17 PROPERTD T1E ON T;E SB-(ECT REC71IMED 71NDS CONSIDERIN3 T;1T PETITIONER IS 1N INCORPOR1TED INSTRBMENT17ITD O< T;E N1TION17 3OCERNMENT 1ND IS, T;ERE<ORE, EEEMPT <ROM P1DMENT O< RE17 PROPERTD T1E BNDER SECTIONS +@!.1/ 1ND #@@.O/ O< REPB-7IC 1CT %#?, OR T;E 7OC17 3OCERNMENT CODE CIS2F2CIS M1NI71 INTERN1TION17 1IRPORT 1BT;ORITD C. COBRT O< 1PPE17S. II T;E TRI17 COBRT 3R1CE7D ERRED IN <1I7IN3 TO CONSIDER T;1T REC71IMED 71NDS 1RE P1RT O< T;E PB-7IC DOM1IN 1ND, ;ENCE, EEEMPT <ROM RE17 PROPERTD T1E. PR1 asserts that it is not a 3OCC under Section +.#@/ of the Introductor) Provisions of the 1d0inistrative Code. Neither is it a 3OCC under Section #?, 1rticle EII of the #$*% Constitution because it is not re&uired to 0eet the test of econo0ic viabilit). Instead, PR1 is a 'overn0ent instru0entalit) vested ith corporate po ers and perfor0in' an essential public service pursuant to Section +.#,/ of the Introductor) Provisions of the 1d0inistrative Code. 1lthou'h it has a capital stoc9 divided into shares, it is not authori>ed to distribute dividends and allot0ent of surplus and profits to its stoc9holders. Therefore, it 0a) not be classified as a stoc9 corporation because it lac9s the second re&uisite of a stoc9 corporation hich is the distribution of dividends and allot0ent of surplus and profits to the stoc9holders. It insists that it 0a) not be classified as a non2stoc9 corporation because it has no 0e0bers and it is not or'ani>ed for charitable, reli'ious, educational, professional, cultural, recreational, fraternal, literar), scientific, social, civil service, or si0ilar purposes, li9e trade, industr), a'riculture and li9e cha0bers as provided in Section ** of the Corporation Code. Moreover, PR1 points out that it as not created to co0pete in the 0ar9et place as there as no co0petin' recla0ation co0pan) operated b) the private sector. 1lso, hile PR1 is vested ith corporate po ers under P.D. No. #,*!, such circu0stance does not 0a9e it a corporation but 0erel) an incorporated instru0entalit) and that the 0ere fact that an incorporated instru0entalit) of the National 3overn0ent holds title to real propert) does not 0a9e said instru0entalit) a 3OCC. Section !*, Chapter #+, -oo9 I of the 1d0inistrative Code of #$*% reco'ni>es a scenario here a piece of land o ned b) the Republic is titled in the na0e of a depart0ent, a'enc) or instru0entalit). Thus, PR1 insists that, as an incorporated instru0entalit) of the National 3overn0ent, it is e4e0pt fro0 pa)0ent of real propert) ta4 e4cept hen the beneficial use of the real propert) is 'ranted to a ta4able person. PR1 clai0s that based on Section #@@.o/ of the 73C, local 'overn0ents cannot ta4 the national 'overn0ent hich dele'ate to local 'overn0ents the po er to ta4. It e4plains that reclai0ed lands are part of the public do0ain, o ned b) the State, thus, e4e0pt fro0 the pa)0ent of real estate ta4es. Reclai0ed lands retain their inherent potential as areas

for public use or public service. :hile the sub8ect reclai0ed lands are still in its hands, these lands re0ain public lands and for0 part of the public do0ain. ;ence, the assess0ent of real propert) ta4es 0ade on said lands, as ell as the lev) thereon, and the public sale thereof on 1pril %, +,,@, includin' the issuance of the certificates of sale in favor of the respondent Para6a&ue Cit), are invalid and of no force and effect. On the other hand, the Cit) of Para6a&ue .respondent/ ar'ues that PR1 since its creation consistentl) represented itself to be a 3OCC. PR1As ver) o n charter .P.D. No. #,*!/ declared it to be a 3OCC and that it has entered into several thousands of contracts here it represented itself to be a 3OCC. In fact, PR1 ad0itted in its ori'inal and a0ended petitions and pre2trial brief filed ith the RTC of Para6a&ue Cit) that it as a 3OCC. Respondent further ar'ues that PR1 is a stoc9 corporation ith an authori>ed capital stoc9 divided into @ 0illion no par value shares, out of hich + 0illion shares have been subscribed and full) paid up. Section #$@ of the 73C of #$$# has ithdra n ta4 e4e0ption privile'es 'ranted to or presentl) en8o)ed b) all persons, hether natural or 8uridical, includin' 3OCCs. ;ence, since PR1 is a 3OCC, it is not e4e0pt fro0 the pa)0ent of real propert) ta4. T;E COBRTAS RB7IN3 The Court finds 0erit in the petition. Section +.#@/ of the Introductor) Provisions of the 1d0inistrative Code of #$*% defines a 3OCC as follo s5 SEC. +. 3eneral Ter0s Defined. G 4 4 4 4 .#@/ 3overn0ent2o ned or controlled corporation refers to an) a'enc) or'ani>ed as a stoc9 or non2stoc9 corporation, vested ith functions relatin' to public needs hether 'overn0ental or proprietar) in nature, and o ned b) the 3overn0ent directl) or throu'h its instru0entalities either holl), or, here applicable as in the case of stoc9 corporations, to the e4tent of at least fift)2one ."#/ percent of its capital stoc95 4 4 4. On the other hand, Section +.#,/ of the Introductor) Provisions of the 1d0inistrative Code defines a 'overn0ent Hinstru0entalit)H as follo s5 SEC. +. 3eneral Ter0s Defined. GG 4 4 4 4 .#,/ Instru0entalit) refers to an) a'enc) of the National 3overn0ent, not inte'rated ithin the depart0ent fra0e or9, vested ith special functions or 8urisdiction b) la , endo ed ith so0e if not all corporate po ers, ad0inisterin' special funds, and en8o)in' operational autono0), usuall) throu'h a charter. 4 4 4 <ro0 the above definitions, it is clear that a 3OCC 0ust be Hor'ani>ed as a stoc9 or non2stoc9 corporationH hile an instru0entalit) is vested b) la ith corporate po ers. 7i9e ise, hen the

la 0a9es a 'overn0ent instru0entalit) operationall) autono0ous, the instru0entalit) re0ains part of the National 3overn0ent 0achiner) althou'h not inte'rated ith the depart0ent fra0e or9. :hen the la vests in a 'overn0ent instru0entalit) corporate po ers, the instru0entalit) does not necessaril) beco0e a corporation. Bnless the 'overn0ent instru0entalit) is or'ani>ed as a stoc9 or non2stoc9 corporation, it re0ains a 'overn0ent instru0entalit) e4ercisin' not onl) 'overn0ental but also corporate po ers. Man) 'overn0ent instru0entalities are vested ith corporate po ers but the) do not beco0e stoc9 or non2stoc9 corporations, hich is a necessar) condition before an a'enc) or instru0entalit) is dee0ed a 3OCC. E4a0ples are the Mactan International 1irport 1uthorit), the Philippine Ports 1uthorit), the Bniversit) of the Philippines, and -an'9o Sentral n' Pilipinas. 1ll these 'overn0ent instru0entalities e4ercise corporate po ers but the) are not or'ani>ed as stoc9 or non2stoc9 corporations as re&uired b) Section +.#@/ of the Introductor) Provisions of the 1d0inistrative Code. These 'overn0ent instru0entalities are so0eti0es loosel) called 'overn0ent corporate entities. The) are not, ho ever, 3OCCs in the strict sense as understood under the 1d0inistrative Code, hich is the 'overnin' la definin' the le'al relationship and status of 'overn0ent entities.+ Correlativel), Section @ of the Corporation Code defines a stoc9 corporation as one hose Hcapital stoc9 is divided into shares and 4 4 4 authori>ed to distribute to the holders of such shares dividends 4 4 4.H Section *% thereof defines a non2stoc9 corporation as Hone here no part of its inco0e is distributable as dividends to its 0e0bers, trustees or officers.H <urther, Section ** provides that non2stoc9 corporations are Hor'ani>ed for charitable, reli'ious, educational, professional, cultural, recreational, fraternal, literar), scientific, social, civil service, or si0ilar purposes, li9e trade, industr), a'riculture and li9e cha0bers.H T o re&uisites 0ust concur before one 0a) be classified as a stoc9 corporation, na0el)5 .#/ that it has capital stoc9 divided into sharesI and .+/ that it is authori>ed to distribute dividends and allot0ents of surplus and profits to its stoc9holders. If onl) one re&uisite is present, it cannot be properl) classified as a stoc9 corporation. 1s for non2stoc9 corporations, the) 0ust have 0e0bers and 0ust not distribute an) part of their inco0e to said 0e0bers.@ In the case at bench, PR1 is not a 3OCC because it is neither a stoc9 nor a non2stoc9 corporation. It cannot be considered as a stoc9 corporation because althou'h it has a capital stoc9 divided into no par value shares as provided in Section %! of P.D. No. #,*!, it is not authori>ed to distribute dividends, surplus allot0ents or profits to stoc9holders. There is no provision hatsoever in P.D. No. #,*! or in an) of the subse&uent e4ecutive issuances pertainin' to PR1, particularl), E.O. No. "+"," E.O. No. ?"!? and EO No. %$*% that authori>es PR1 to distribute dividends, surplus allot0ents or profits to its stoc9holders. PR1 cannot be considered a non2stoc9 corporation either because it does not have 0e0bers. 1 non2stoc9 corporation 0ust have 0e0bers.* Moreover, it as not or'ani>ed for an) of the purposes 0entioned in Section ** of the Corporation Code. Specificall), it as created to 0ana'e all 'overn0ent recla0ation pro8ects.

<urther0ore, there is another reason h) the PR1 cannot be classified as a 3OCC. Section #?, 1rticle EII of the #$*% Constitution provides as follo s5 Section #?. The Con'ress shall not, e4cept b) 'eneral la , provide for the for0ation, or'ani>ation, or re'ulation of private corporations. 3overn0ent2o ned or controlled corporations 0a) be created or established b) special charters in the interest of the co00on 'ood and sub8ect to the test of econo0ic viabilit). The funda0ental provision above authori>es Con'ress to create 3OCCs throu'h special charters on t o conditions5 #/ the 3OCC 0ust be established for the co00on 'oodI and +/ the 3OCC 0ust 0eet the test of econo0ic viabilit). In this case, PR1 0a) have passed the first condition of co00on 'ood but failed the second one 2 econo0ic viabilit). Bndoubtedl), the purpose behind the creation of PR1 as not for econo0ic or co00ercial activities. Neither as it created to co0pete in the 0ar9et place considerin' that there ere no other co0petin' recla0ation co0panies bein' operated b) the private sector. 1s 0entioned earlier, PR1 as created essentiall) to perfor0 a public service considerin' that it as pri0aril) responsible for a coordinated, econo0ical and efficient recla0ation, ad0inistration and operation of lands belon'in' to the 'overn0ent ith the ob8ect of 0a4i0i>in' their utili>ation and hastenin' their develop0ent consistent ith the public interest. Sections + and ! of P.D. No. #,*! reads, as follo s5 Section +. Declaration of polic). It is the declared polic) of the State to provide for a coordinated, econo0ical and efficient recla0ation of lands, and the ad0inistration and operation of lands belon'in' to, 0ana'ed and=or operated b) the 'overn0ent, ith the ob8ect of 0a4i0i>in' their utili>ation and hastenin' their develop0ent consistent ith the public interest. Section !. Purposes. The 1uthorit) is hereb) created for the follo in' purposes5 .a/ To reclai0 land, includin' foreshore and sub0er'ed areas, b) dred'in', fillin' or other 0eans, or to ac&uire reclai0ed landI .b/ To develop, i0prove, ac&uire, ad0inister, deal in, subdivide, dispose, lease and sell an) and all 9inds of lands, buildin's, estates and other for0s of real propert), o ned, 0ana'ed, controlled and=or operated b) the 'overn0ent. .c/ To provide for, operate or ad0inister such services as 0a) be necessar) for the efficient, econo0ical and beneficial utili>ation of the above properties. The t in re&uire0ent of co00on 'ood and econo0ic viabilit) as len'thil) discussed in the case of Manila International 1irport 1uthorit) v. Court of 1ppeals,$ the pertinent portion of hich reads5 Third, the 'overn0ent2o ned or controlled corporations created throu'h special charters are those that 0eet the t o conditions prescribed in Section #?, 1rticle EII of the Constitution. The first condition is that the 'overn0ent2o ned or controlled corporation 0ust be established for the co00on 'ood. The second condition is that the 'overn0ent2o ned or controlled

corporation 0ust 0eet the test of econo0ic viabilit). Section #?, 1rticle EII of the #$*% Constitution provides5 SEC. #?. The Con'ress shall not, e4cept b) 'eneral la , provide for the for0ation, or'ani>ation, or re'ulation of private corporations. 3overn0ent2o ned or controlled corporations 0a) be created or established b) special charters in the interest of the co00on 'ood and sub8ect to the test of econo0ic viabilit). The Constitution e4pressl) authori>es the le'islature to create H'overn0ent2o ned or controlled corporationsH throu'h special charters onl) if these entities are re&uired to 0eet the t in conditions of co00on 'ood and econo0ic viabilit). In other ords, Con'ress has no po er to create 'overn0ent2o ned or controlled corporations ith special charters unless the) are 0ade to co0pl) ith the t o conditions of co00on 'ood and econo0ic viabilit). The test of econo0ic viabilit) applies onl) to 'overn0ent2o ned or controlled corporations that perfor0 econo0ic or co00ercial activities and need to co0pete in the 0ar9et place. -ein' essentiall) econo0ic vehicles of the State for the co00on 'ood J 0eanin' for econo0ic develop0ent purposes J these 'overn0ent2o ned or controlled corporations ith special charters are usuall) or'ani>ed as stoc9 corporations 8ust li9e ordinar) private corporations. In contrast, 'overn0ent instru0entalities vested ith corporate po ers and perfor0in' 'overn0ental or public functions need not 0eet the test of econo0ic viabilit). These instru0entalities perfor0 essential public services for the co00on 'ood, services that ever) 0odern State 0ust provide its citi>ens. These instru0entalities need not be econo0icall) viable since the 'overn0ent 0a) even subsidi>e their entire operations. These instru0entalities are not the H'overn0ent2o ned or controlled corporationsH referred to in Section #?, 1rticle EII of the #$*% Constitution. Thus, the Constitution i0poses no li0itation hen the le'islature creates 'overn0ent instru0entalities vested ith corporate po ers but perfor0in' essential 'overn0ental or public functions. Con'ress has plenar) authorit) to create 'overn0ent instru0entalities vested ith corporate po ers provided these instru0entalities perfor0 essential 'overn0ent functions or public services. ;o ever, hen the le'islature creates throu'h special charters corporations that perfor0 econo0ic or co00ercial activities, such entities J 9no n as H'overn0ent2o ned or controlled corporationsH J 0ust 0eet the test of econo0ic viabilit) because the) co0pete in the 0ar9et place. This is the situation of the 7and -an9 of the Philippines and the Develop0ent -an9 of the Philippines and si0ilar 'overn0ent2o ned or controlled corporations, hich derive their inco0eto 0eet operatin' e4penses solel) fro0 co00ercial transactions in co0petition ith the private sector. The intent of the Constitution is to prevent the creation of 'overn0ent2o ned or controlled corporations that cannot survive on their o n in the 0ar9et place and thus 0erel) drain the public coffers. Co00issioner -las <. Ople, proponent of the test of econo0ic viabilit), e4plained to the Constitutional Co00ission the purpose of this test, as follo s5

MR. OP7E5 Mada0 President, the reason for this concern is reall) that hen the 'overn0ent creates a corporation, there is a sense in hich this corporation beco0es e4e0pt fro0 the test of econo0ic perfor0ance. :e 9no hat happened in the past. If a 'overn0ent corporation loses, then it 0a9es its clai0 upon the ta4pa)ersK 0one) throu'h ne e&uit) infusions fro0 the 'overn0ent and hat is al a)s invo9ed is the co00on 'ood. That is the reason h) this )ear, out of a bud'et of P##" billion for the entire 'overn0ent, about P+* billion of this ill 'o into e&uit) infusions to support a fe 'overn0ent financial institutions. 1nd this is all ta4pa)ersK 0one) hich could have been relocated to a'rarian refor0, to social services li9e health and education, to au'0ent the salaries of 'rossl) underpaid public e0plo)ees. 1nd )et this is all 'oin' do n the drain. Therefore, hen e insert the phrase HECONOMIC CI1-I7ITDH to'ether ith the Hco00on 'ood,H this beco0es a restraint on future enthusiasts for state capitalis0 to e4cuse the0selves fro0 the responsibilit) of 0eetin' the 0ar9et test so that the) beco0e viable. 1nd so, Mada0 President, I reiterate, for the co00itteeKs consideration and I a0 'lad that I a0 8oined in this proposal b) Co00issioner <o>, the insertion of the standard of HECONOMIC CI1-I7ITD OR T;E ECONOMIC TEST,H to'ether ith the co00on 'ood.1wphi1 <ather (oa&uin 3. -ernas, a leadin' 0e0ber of the Constitutional Co00ission, e4plains in his te4tboo9 The #$*% Constitution of the Republic of the Philippines5 1 Co00entar)5 The second sentence as added b) the #$*? Constitutional Co00ission. The si'nificant addition, ho ever, is the phrase Hin the interest of the co00on 'ood and sub8ect to the test of econo0ic viabilit).H The addition includes the ideas that the) 0ust sho capacit) to function efficientl) in business and that the) should not 'o into activities hich the private sector can do better. Moreover, econo0ic viabilit) is 0ore than financial viabilit) but also includes capabilit) to 0a9e profit and 'enerate benefits not &uantifiable in financial ter0s. Clearl), the test of econo0ic viabilit) does not appl) to 'overn0ent entities vested ith corporate po ers and perfor0in' essential public services. The State is obli'ated to render essential public services re'ardless of the econo0ic viabilit) of providin' such service. The non2 econo0ic viabilit) of renderin' such essential public service does not e4cuse the State fro0 ithholdin' such essential services fro0 the public. ;o ever, 'overn0ent2o ned or controlled corporations ith special charters, or'ani>ed essentiall) for econo0ic or co00ercial ob8ectives, 0ust 0eet the test of econo0ic viabilit). These are the 'overn0ent2o ned or controlled corporations that are usuall) or'ani>ed under their special charters as stoc9 corporations, li9e the 7and -an9 of the Philippines and the Develop0ent -an9 of the Philippines. These are the 'overn0ent2o ned or controlled corporations, alon' ith 'overn0ent2o ned or controlled corporations or'ani>ed under the Corporation Code, that fall under the definition of H'overn0ent2o ned or controlled corporationsH in Section +.#,/ of the 1d0inistrative Code. LE0phases suppliedM This Court is convinced that PR1 is not a 3OCC either under Section +.@/ of the Introductor) Provisions of the 1d0inistrative Code or under Section #?, 1rticle EII of the #$*% Constitution. The facts, the evidence on record and 8urisprudence on the issue support the position that PR1

as not or'ani>ed either as a stoc9 or a non2stoc9 corporation. Neither as it created b) Con'ress to operate co00erciall) and co0pete in the private 0ar9et. Instead, PR1 is a 'overn0ent instru0entalit) vested ith corporate po ers and perfor0in' an essential public service pursuant to Section +.#,/ of the Introductor) Provisions of the 1d0inistrative Code. -ein' an incorporated 'overn0ent instru0entalit), it is e4e0pt fro0 pa)0ent of real propert) ta4. Clearl), respondent has no valid or le'al basis in ta4in' the sub8ect reclai0ed lands 0ana'ed b) PR1. On the other hand, Section +@!.a/ of the 73C, in relation to its Section #@@.o/, e4e0pts PR1 fro0 pa)in' realt) ta4es and protects it fro0 the ta4in' po ers of local 'overn0ent units. Sections +@!.a/ and #@@.o/ of the 73C provide, as follo s5 SEC. +@!. E4e0ptions fro0 Real Propert) Ta4 G The follo in' are e4e0pted fro0 pa)0ent of the real propert) ta45 .a/ Real propert) o ned b) the Republic of the Philippines or an) of its political subdivisions e4cept hen the beneficial use thereof has been 'ranted, for consideration or other ise, to a ta4able person. 4444 SEC. #@@. Co00on 7i0itations on the Ta4in' Po ers of 7ocal 3overn0ent Bnits. G Bnless other ise provided herein, the e4ercise of the ta4in' po ers of provinces, cities, 0unicipalities, and baran'a)s shall not e4tend to the lev) of the follo in'5 4444 .o/ Ta4es, fees or char'es of an) 9inds on the National 3overn0ent, its a'encies and instru0entalities, and local 'overn0ent units. LE0phasis suppliedM It is clear fro0 Section +@! that real propert) o ned b) the Republic of the Philippines .the Republic/ is e4e0pt fro0 real propert) ta4 unless the beneficial use thereof has been 'ranted to a ta4able person. In this case, there is no proof that PR1 'ranted the beneficial use of the sub8ect reclai0ed lands to a ta4able entit). There is no sho in' on record either that PR1 leased the sub8ect reclai0ed properties to a private ta4able entit). This e4e0ption should be read in relation to Section #@@.o/ of the sa0e Code, hich prohibits local 'overn0ents fro0 i0posin' Hta4es, fees or char'es of an) 9ind on the National 3overn0ent, its a'encies and instru0entalities 4 4 4.H The 1d0inistrative Code allo s real propert) o ned b) the Republic to be titled in the na0e of a'encies or instru0entalities of the national 'overn0ent. Such real properties re0ain o ned b) the Republic and continue to be e4e0pt fro0 real estate ta4. Indeed, the Republic 'rants the beneficial use of its real propert) to an a'enc) or instru0entalit) of the national 'overn0ent. This happens hen the title of the real propert) is transferred to an a'enc) or instru0entalit) even as the Republic re0ains the o ner of the real propert). Such

arran'e0ent does not result in the loss of the ta4 e4e0ption, unless Hthe beneficial use thereof has been 'ranted, for consideration or other ise, to a ta4able person.H#, The rationale behind Section #@@.o/ has also been e4plained in the case of the Manila International 1irport 1uthorit), ## to it5 Section #@@.o/ reco'ni>es the basic principle that local 'overn0ents cannot ta4 the national 'overn0ent, hich historicall) 0erel) dele'ated to local 'overn0ents the po er to ta4. :hile the #$*% Constitution no includes ta4ation as one of the po ers of local 'overn0ents, local 'overn0ents 0a) onl) e4ercise such po er Hsub8ect to such 'uidelines and li0itations as the Con'ress 0a) provide.H :hen local 'overn0ents invo9e the po er to ta4 on national 'overn0ent instru0entalities, such po er is construed strictl) a'ainst local 'overn0ents. The rule is that a ta4 is never presu0ed and there 0ust be clear lan'ua'e in the la i0posin' the ta4. 1n) doubt hether a person, article or activit) is ta4able is resolved a'ainst ta4ation. This rule applies ith 'reater force hen local 'overn0ents see9 to ta4 national 'overn0ent instru0entalities. 1nother rule is that a ta4 e4e0ption is strictl) construed a'ainst the ta4pa)er clai0in' the e4e0ption. ;o ever, hen Con'ress 'rants an e4e0ption to a national 'overn0ent instru0entalit) fro0 local ta4ation, such e4e0ption is construed liberall) in favor of the national 'overn0ent instru0entalit). 1s this Court declared in Maceda v. Macarai', (r.5 The reason for the rule does not appl) in the case of e4e0ptions runnin' to the benefit of the 'overn0ent itself or its a'encies. In such case the practical effect of an e4e0ption is 0erel) to reduce the a0ount of 0one) that has to be handled b) 'overn0ent in the course of its operations. <or these reasons, provisions 'rantin' e4e0ptions to 'overn0ent a'encies 0a) be construed liberall), in favor of non ta42liabilit) of such a'encies. There is, 0oreover, no point in national and local 'overn0ents ta4in' each other, unless a sound and co0pellin' polic) re&uires such transfer of public funds fro0 one 'overn0ent poc9et to another. There is also no reason for local 'overn0ents to ta4 national 'overn0ent instru0entalities for renderin' essential public services to inhabitants of local 'overn0ents. The onl) e4ception is hen the le'islature clearl) intended to ta4 'overn0ent instru0entalities for the deliver) of essential public services for sound and co0pellin' polic) considerations. There 0ust be e4press lan'ua'e in the la e0po erin' local 'overn0ents to ta4 national 'overn0ent instru0entalities. 1n) doubt hether such po er e4ists is resolved a'ainst local 'overn0ents. Thus, Section #@@ of the 7ocal 3overn0ent Code states that Hunless other ise providedH in the Code, local 'overn0ents cannot ta4 national 'overn0ent instru0entalities. 1s this Court held in -asco v. Philippine 10use0ents and 3a0in' Corporation5 The states have no po er b) ta4ation or other ise, to retard, i0pede, burden or in an) 0anner control the operation of constitutional la s enacted b) Con'ress to carr) into e4ecution the po ers vested in the federal 'overn0ent. .MC Culloch v. Mar)land, ! :heat @#?, ! 7 Ed. "%$/

This doctrine e0anates fro0 the Hsupre0ac)H of the National 3overn0ent over local 'overn0ents. H(ustice ;ol0es, spea9in' for the Supre0e Court, 0ade reference to the entire absence of po er on the part of the States to touch, in that a) .ta4ation/ at least, the instru0entalities of the Bnited States .(ohnson v. Mar)land, +"! BS "#/ and it can be a'reed that no state or political subdivision can re'ulate a federal instru0entalit) in such a a) as to prevent it fro0 consu00atin' its federal responsibilities, or even to seriousl) burden it in the acco0plish0ent of the0.H .1ntieau, Modern Constitutional 7a , Col. +, p. #!,, e0phasis supplied/ Other ise, 0ere creatures of the State can defeat National policies thru e4ter0ination of hat local authorities 0a) perceive to be undesirable activities or enterprise usin' the po er to ta4 as Ha tool for re'ulation.H .B.S. v. Sanche>, @!, BS !+/ The po er to ta4 hich as called b) (ustice Marshall as the Hpo er to destro)H .McCulloch v. Mar)land, supra/ cannot be allo ed to defeat an instru0entalit) or creation of the ver) entit) hich has the inherent po er to ield it. LE0phases suppliedM The Court a'rees ith PR1 that the sub8ect reclai0ed lands are still part of the public do0ain, o ned b) the State and, therefore, e4e0pt fro0 pa)0ent of real estate ta4es. Section +, 1rticle EII of the #$*% Constitution reads in part, as follo s5 Section +. 1ll lands of the public do0ain, aters, 0inerals, coal, petroleu0, and other 0ineral oils, all forces of potential ener'), fisheries, forests or ti0ber, ildlife, flora and fauna, and other natural resources are o ned b) the State. :ith the e4ception of a'ricultural lands, all other natural resources shall not be alienated. The e4ploration, develop0ent, and utili>ation of natural resources shall be under the full control and supervision of the State. The State 0a) directl) underta9e such activities, or it 0a) enter into co2production, 8oint venture, or production2sharin' a'ree0ents ith <ilipino citi>ens, or corporations or associations at least ?, per centu0 of hose capital is o ned b) such citi>ens. Such a'ree0ents 0a) be for a period not e4ceedin' t ent)2five )ears, rene able for not 0ore than t ent)2five )ears, and under such ter0s and conditions as 0a) provided b) la . In cases of ater ri'hts for irri'ation, ater suppl), fisheries, or industrial uses other than the develop0ent of aterpo er, beneficial use 0a) be the 0easure and li0it of the 'rant. Si0ilarl), 1rticle !+, of the Civil Code enu0erates properties belon'in' to the State5 1rt. !+,. The follo in' thin's are propert) of public do0inion5 .#/ Those intended for public use, such as roads, canals, rivers, torrents, ports and brid'es constructed b) the State, ban9s, shores, roadsteads, and others of si0ilar characterI .+/ Those hich belon' to the State, ithout bein' for public use, and are intended for so0e public service or for the develop0ent of the national ealth. LE0phases suppliedM ;ere, the sub8ect lands are reclai0ed lands, specificall) portions of the foreshore and offshore areas of Manila -a). 1s such, these lands re0ain public lands and for0 part of the public

do0ain. In the case of Chave> v. Public Estates 1uthorit) and 1M1RI Coastal Develop0ent Corporation,#+ the Court held that foreshore and sub0er'ed areas irrefutabl) belon'ed to the public do0ain and ere inalienable unless reclai0ed, classified as alienable lands open to disposition and further declared no lon'er needed for public service. The fact that alienable lands of the public do0ain ere transferred to the PE1 .no PR1/ and issued land patents or certificates of title in PE1As na0e did not auto0aticall) 0a9e such lands private. This Court also held therein that reclai0ed lands retained their inherent potential as areas for public use or public service. 1s the central i0ple0entin' a'enc) tas9ed to underta9e recla0ation pro8ects nation ide, ith authorit) to sell reclai0ed lands, PE1 too9 the place of DENR as the 'overn0ent a'enc) char'ed ith leasin' or sellin' reclai0ed lands of the public do0ain. The reclai0ed lands bein' leased or sold b) PE1 are not private lands, in the sa0e 0anner that DENR, hen it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public do0ain. Onl) hen &ualified private parties ac&uire these lands ill the lands beco0e private lands. In the hands of the 'overn0ent a'enc) tas9ed and authori>ed to dispose of alienable of disposable lands of the public do0ain, these lands are still public, not private lands. <urther0ore, PE1Ks charter e4pressl) states that PE1 Hshall hold lands of the public do0ainH as ell as Han) and all 9inds of lands.H PE1 can hold both lands of the public do0ain and private lands. Thus, the 0ere fact that alienable lands of the public do0ain li9e the <reedo0 Islands are transferred to PE1 and issued land patents or certificates of title in PE1Ks na0e does not auto0aticall) 0a9e such lands private.#@ 7i9e ise, it is orth) to 0ention Section #!, Chapter !, Title I, -oo9 III of the 1d0inistrative Code of #$*%, thus5 SEC #!. Po er to Reserve 7ands of the Public and Private Do0inion of the 3overn0ent.2 .#/The President shall have the po er to reserve for settle0ent or public use, and for specific public purposes, an) of the lands of the public do0ain, the use of hich is not other ise directed b) la . The reserved land shall thereafter re0ain sub8ect to the specific public purpose indicated until other ise provided b) la or procla0ation. Reclai0ed lands such as the sub8ect lands in issue are reserved lands for public use. The) are properties of public do0inion. The o nership of such lands re0ains ith the State unless the) are ithdra n b) la or presidential procla0ation fro0 public use. Bnder Section +, 1rticle EII of the #$*% Constitution, the foreshore and sub0er'ed areas of Manila -a) are part of the Hlands of the public do0ain, aters 4 4 4 and other natural resourcesH and conse&uentl) Ho ned b) the State.H 1s such, foreshore and sub0er'ed areas Hshall not be alienated,H unless the) are classified as Ha'ricultural landsH of the public do0ain. The 0ere recla0ation of these areas b) PE1 does not convert these inalienable natural resources of the State into alienable or disposable lands of the public do0ain. There 0ust be a la or presidential procla0ation officiall) classif)in' these reclai0ed lands as alienable or disposable

and open to disposition or concession. Moreover, these reclai0ed lands cannot be classified as alienable or disposable if the la has reserved the0 for so0e public or &uasi2public use. 1s the Court has repeatedl) ruled, properties of public do0inion are not sub8ect to e4ecution or foreclosure sale.#! Thus, the assess0ent, lev) and foreclosure 0ade on the sub8ect reclai0ed lands b) respondent, as ell as the issuances of certificates of title in favor of respondent, are ithout basis. :;ERE<ORE, the petition is 3R1NTED. The (anuar) *, +,#, Order of the Re'ional Trial Court, -ranch #$", Para6a&ue Cit), is RECERSED and SET 1SIDE. 1ll reclai0ed properties o ned b) the Philippine Recla0ation 1uthorit) are hereb) declared EEEMPT fro0 real estate ta4es. 1ll real estate ta4 assess0ents, includin' the final notices of real estate ta4 delin&uencies, issued b) the Cit) of Para6a&ue on the sub8ect reclai0ed propertiesI the assailed auction sale, dated 1pril %, +,,@I and the Certificates of Sale subse&uentl) issued b) the Para6a&ue Cit) Treasurer in favor of the Cit) of Para6a&ue, are all declared COID. SO ORDERED. JOSE C)TRL) MENDO.) 1ssociate 8ustice :E CONCBR5 DIOSD)DO M. PER)LT) 1ssociate 8ustice 1ctin' Chairperson M)RI)NO C. DEL C)STILLON 1ssociate (ustice ESTEL) M. PERL)S/BERN)BE 1ssociate 8ustice 1TTEST1TION I attest that the conclusions in the above Decision had been reached in consultation before the case as assi'ned to the riter of the opinion of the CourtKs Division. DIOSD)DO M. PER)LT) 1ssociate 8ustice 1ctin' Chairperson, Third Division CERTI<IC1TION I certif) that the conclusions in the above Decision had been reached in consultation before the case as assi'ned to the riter of the opinion of the CourtKs Division. ROBERTO ). )B)D 1ssociate (ustice

)NTONIO T. C)RPIO Senior 1ssociate (ustice .Per Section #+, R.1. No. $+?, The (udiciar) 1ct of #$!*, as a0ended/

Foo%$o%!#
N

Desi'nated 1dditional Me0ber in lieu of 1ssociate (ustice Presbitero (. Celasco, (r., per Raffle dated (ul) #*, +,#+.
#

Rollo, pp. ",2"".

Manila International 1irport 1uthorit) v. Court of 1ppeals, 3.R. No. #""?",, (ul) +,, +,,?, !$" SCR1 ?#*2?#$.
@

Philippine <isheries Develop0ent 1uthorit) v. Court of 1ppeals, 3.R. No. #?$*@?, (ul) @#, +,,%, "+* SCR1 %,?, %#+.
!

Section %. Capital Stoc9. The 1uthorit) shall have an authori>ed capital stoc9 divided into T;REE MI77ION .@,,,,,,,,/ no par value shares to be subscribed and paid for as follo s5 .a/ T:O MI77ION .+,,,,,,,,/ shares shall be ori'inall) subscribed and paid for b) the Republic of the Philippines b) the transfer, conve)ance and assi'n0ent of all the ri'hts and interest of the Republic of the Philippines in that contract e4ecuted b) and bet een the Construction and Develop0ent Corporation of the Philippines and the -ureau of Public ;i'h a)s on Nove0ber +,, #$%@ the fair value of such ri'hts and interests to be deter0ined b) the -oard of Directors and approved b) the President of the Philippines and the a0ount of <ICE MI77ION .P ",,,,,,,,.,,/ PESOS in cashI .b/ The re0ainin' ONE MI77ION .#,,,,,,,,/ shares of stoc9 0a) be subscribed and paid for b) the Republic of the Philippines or b) 'overn0ent financial institutions at values to be deter0ined b) the -oard and approved b) the President of the Philippines. The fair value of the interests hereb) transferred shall, for all intents and purposes, be considered as paid2up capital pertainin' to the 'overn0ent of the Republic of the Philippines in the 1uthorit). The votin' po er pertainin' to the shares of stoc9 subscribed b) the 'overn0ent of the Republic of the Philippines shall be vested in the President of the Philippines or in such person or persons as he 0a) desi'nate.
"

Entitled HDesi'natin' the Public Estates 1uthorit) as the 1'enc) pri0aril) responsible for all Recla0ation Pro8ectsH dated <ebruar) #!, #$%$.
?

Entitled H<urther Definin' Certain <unctions and Po ers of the Public Estates 1uthorit)H dated <ebruar) +?, #$*#.

Entitled HTransferrin' the Philippine Recla0ation 1uthorit) fro0 the Depart0ent of Public :or9s and ;i'h a)s to the Depart0ent of Environ0ent and Natural ResourcesH dated Ma) #!, +,,$.
*

Manila International 1irport 1uthorit) v. Court of 1ppeals, supra note +. Id. 7ocal 3overn0ent Code, Section +@!.a/. Supra note +. !@@ Phil. ",?, "*$ .+,,+/. Id. at "*!2"*". Manila International 1irport 1uthorit) v. Court of 1ppeals, supra note +.

#,

##

#+

#@

#!

The 7a phil Pro8ect 2 1rellano 7a <oundation