PFDA vs.

CA
PFDA WHICH MANAGED THE LUCENA FISHING PORT COMPLEX WAS ORDERED BY LUCENA CITY TO PAY
REAL PROPERTY TAX ON THE FISHING PORT. LBAA, CBAA AND CTA ALL AFFIRMED THE ORDER OF LUCENA
CITY. SC RULED THAT PFDA IS EXEMPT BECAUSE IT IS A GOVERNMENT INSTRUMENTALITY NOT A
GOVERNMENT OWNED AND CONTROLLED CORPORATION. BUT PORTIONS OF THE PORT LEASED TO PRIVATE
ENTITIES NOT EXEMPT FROM REAL PROPERTY TAX.
DOCTRINES:
PFDA, NOT BEING A GOVERNMENT OWNED OR CONTROLLED CORPORATION IS NOT SUBJECT TO REAL
PROPERTY TAX.
The ruling of the Court of Tax Appeals is anchored on the wrong premise that the PFDA is a governmentowned or controlled corporation. On the contrary, this Court has already ruled that the PFDA is a
government instrumentality and not a government-owned or controlled corporation.
WHY PFDA IS NOT A GOCC; PROPERTY OF GOVT INSTRUMENTALITY CANNOT BE SOLD AT PUBLIC AUCTION
TO SATISFY TAX DILINQUENCY;
In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals,6 the Court resolved the
issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the
national government. In that case, the City of Iloilo assessed real property taxes on the Iloilo Fishing Port
Complex (IFPC), which was managed and operated by PFDA. The Court held that PFDA is an instrumentality
of the government and is thus exempt from the payment of real property tax, thus:
The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national government
which is generally exempt from payment of real property tax. However, said exemption does not apply to
the portions of the IFPC which the Authority leased to private entities. With respect to these properties, the
Authority is liable to pay property tax. Nonetheless, the IFPC, being a property of public dominion cannot
be sold at public auction to satisfy the tax delinquency.
xxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital
stock but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence it is not
a stock corporation. Neither is it a non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as an agency of the
national government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers.7 (Emphasis supplied)
BUT PORTIONS OF THE PORT BEING LEASED TO PRIVATE ENTITIES ARE SUBJECT TO REAL ESTATE TAX.
The exercise of the taxing power of local government units is subject to the limitations enumerated in
Section 133 of the Local Government Code.9 Under Section 133(o)10 of the Local Government Code, local
government units have no power to tax instrumentalities of the national government like the PFDA. Thus,
PFDA is not liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the
Lucena Fishing Port Complex, except those portions which are leased to private persons or entities.
(UNDERSCORING SUPPLIED).
Manila International Airport Authority vs. Court of Appeals
Doctrine: The term ports includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
Facts: Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
Complex in Paraaque City. As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA
approximately 600 hectares of land,including the runways and buildings (Airport Lands and Buildings)
then under the Bureau of Air Transportation. The MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by
the President of the Philippines.The Office of the Government Corporate Counsel issued Opinion No. 061, in
which it said that the Local Government Code of 1991 withdrew the exemption for real estate tax granted
to MIAA under Section 21 of the MIAA charter. Therefore, MIAA was held to be delinquent in paying its
taxes. The City of Paraaque Levied upon the properties of MIAA, and posted invitations for public biddings
of MIAAs properties. The City of Paraaque averred that Section 193 of the Local Government code
expressly withdrew tax exemptions from government owned and controlled corporations (GOCCs).
Issue: Whether properties of the MIAA are subject to real estate taxes.

Held: No. In the first place, MIAA is not a GOCC, it is an instrumentality of the government. MIAA is a
government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers. As operator of the international airport, MIAA administers the land, improvements
and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600
hectares of land, including the runways and buildings (Airport Lands and Buildings) then under the
Bureau of Air Transportation. The MIAA Charter further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of
the Philippines.
Furthermore, Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by
the State or the Republic of the Philippines. Article 419 of the Civil Code provides, The Airport Lands and
Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the
Philippines.
The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the State. The
term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute a port
constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees and
other charges from the public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway does not change the character of
the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for
public use. Even if the government collects toll fees, the road is still intended for public use if anyone
can use the road under the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does
not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This
means taxing those among the public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A users tax is more equitable a principle of
taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA, which its Charter calls the principal airport of the Philippines for
both international and domestic air traffic, are properties of public dominion because they are intended
for public use. As properties of public dominion, they indisputably belong to the State or the Republic of
the Philippines.
Being a property of public dominion, the properties of MIAA are beyond the commerce of man.
MIAA vs. CA
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter
of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21
July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and
2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air
Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by the President of the
Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax
already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque
for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABLE YEAR TAX DUE
PENALTY
TOTAL
DECLARATION
E-016-01370
1992-2001
19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374
1992-2001
111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375
1992-2001
20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376
1992-2001
58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377
1992-2001
18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378
1992-2001
111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379
1992-2001
4,322,340.00
2,637,360.00
6,959,700.00
E-016-01380
1992-2001
7,776,436.00
4,744,944.00
12,521,380.00
*E-016-013-85 1998-2001
6,444,810.00
2,900,164.50
9,344,974.50
*E-016-01387
1998-2001
34,876,800.00 5,694,560.00
50,571,360.00
*E-016-01396
1998-2001
75,240.00
33,858.00
109,098.00
GRAND TOTAL
P392,435,861.9 P232,070,863.4 P 624,506,725.4
5
7
2
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell
at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency.
MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed
out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show
proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the
City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the
Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the
60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the
present petition for review.7
Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and
in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10
January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines.
The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on
7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion
sought to restrain respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang
Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque
("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately.
The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents
received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently
submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner
of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and
Buildings are devoted to public use and public service, the ownership of these properties remains with the
State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the
Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the
tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of
the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA
cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held
that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real estate
tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from
real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from
real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of
Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other
issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from
real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so
exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax
exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a)
of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as
follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation

because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section
10 of the MIAA Charter9provides:
SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other properties,
movable and immovable[,] which may be contributed by the National Government or transferred by it from
any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and
Management and the Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum
(70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the
equity of the National Government in the Authority. Thereafter, the Government contribution to the capital
of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x."
MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA
Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. 11 This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized
for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic
airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative
Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, 12 police authority13 and the
levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." 15
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock
or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities. However, they
are not government-owned or controlled corporations in the strict sense as understood under the

Administrative Code, which is the governing law defining the legal relationship and status of government
entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government,
which historically merely delegated to local governments the power to tax. While the 1987 Constitution
now includes taxation as one of the powers of local governments, local governments may only exercise
such power "subject to such guidelines and limitations as the Congress may provide." 18
When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is
taxable is resolved against taxation. This rule applies with greater force when local governments seek to
tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national government instrumentality. As this
Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be construed liberally, in favor of non taxliability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when the
legislature clearly intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the
State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service,
shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the
State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway does not change the character of
the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for
public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone
can use the road under the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does
not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This
means taxing those among the public who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user's tax is more equitable a principle of
taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for
both international and domestic air traffic,"22 are properties of public dominion because they are intended
for public use. As properties of public dominion, they indisputably belong to the State or the
Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the
defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use
the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a
thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be
the object of a contract, and plazas and streets are outside of this commerce, as was decided by the
supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot
be sold because they are by their very nature outside of commerce are those for public use,
such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside
the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed of or
even leased by the municipality to private parties. While in case of war or during an emergency, town

plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also
cease, and the town officials should see to it that the town plazas should ever be kept open to the public
and free from encumbrances or illegal private constructions. 24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of
public dominion is void for being contrary to public policy. Essential public services will stop if properties of
public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of
Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for nonpayment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from
public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth
Act No. 141, which "remains to this day the existing general law governing the classification and
disposition of lands of the public domain other than timber and mineral lands," 27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as reservations
for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the
public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power
sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three
shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands
and Buildings are inalienable in their present status as properties of public dominion, they are not subject
to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public
use, their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to withdraw such
public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which
states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the Republic
and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter
12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real
properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government
by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President,
unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head of the
agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the
Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter
provides:
SECTION 3. Creation of the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of
Lands and other appropriate government agencies shall undertake an actual survey of the area transferred
within one year from the promulgation of this Executive Order and the corresponding title to be issued in
the name of the Authority. Any portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and
all assets, powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are necessary for
the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation
and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a
division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and
Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of airport accommodation and service comparable
with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to
meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President
of the Philippines is given continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not
meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a separate and autonomous
body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and
Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a
thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands
and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is
the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only
confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by
the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;
x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its
agencies andinstrumentalities x x x." The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is
not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that
the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not
make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt
from real estate tax. For example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land
area for a consideration to ataxable person and therefore such land area is subject to real estate tax.
In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether paying or nonpaying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical"
upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real
estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay
down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The
reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws,
natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative
test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis
and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status
whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be
examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and
local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax
the national government, its agencies and instrumentalities. The taxing powers of local governments do

not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in
this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national government, which
itself is a juridical person, subject to tax by local governments since the national government is not
included in the enumeration of exempt entities in Section 193. Under this theory, local governments can
impose any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will
also be subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine
Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does
not distinguish between national government instrumentalities with or without juridical personalities.
Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all
national government instrumentalities, with or without juridical personalities. The determinative test
whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a
national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is
the specific provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in
this Code." This means that unless the Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies and instrumentalities. Clearly,
the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code,
which makes the national government subject to real estate tax when it gives the beneficial use of its real
properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to
this exemption is when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its
agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The justification for the exception to the
exemption is that the real property, although owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under
Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law.
(Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one

presenteda persuasive argument that there is such a conflict. The minority's assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits
its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in
this Code." By its own words, Section 193 admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in Section 193. When a provision of law
grants a power but withholds such power on certain matters, there is no conflict between the grant of
power and the withholding of power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units."
Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend
to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section
133 logically prevails over Section 193 which grants local governments such taxing powers. By their very
meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of
the taxing power. If the taxing power of local governments in Section 193 prevails over the limitations on
such taxing power in Section 133, then local governments can impose any kind of tax on the national
government, its agencies and instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities,
except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133
stating "[u]nless otherwise provided in this Code." This exception which is an exception to the
exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of
the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic,
whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax
if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned
or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory
Provisions of the Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a
statute may require a different meaning than that defined in the Administrative Code. However, this does
not automatically mean that the definition in the Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x
of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative
Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative Code,
the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative Code.
Indeed, there is none. The Local Government Code is silent on the definition of the phrase "governmentowned or controlled corporation." The Administrative Code, however, expressly defines the phrase
"government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code
definition of the phrase "government-owned or controlled corporation" applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus, the
Administrative Code is the governing law defining the status and relationship of government departments,
bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status
and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply
only to corporations organized under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why government corporations with
special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative
Code refer to those corporations owned by the government or its instrumentalities which are created not
by legislative enactment, but formed and organized under the Corporation Code through registration with
the Securities and Exchange Commission. In short, these are GOCCs without original charters.

xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs
whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does
not distinguish between one incorporated under the Corporation Code or under a special charter. Where
the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized
as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of
the Philippines. The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into
seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully
subscribed by the Government, and one hundred and twenty million preferred shares with a par value of
ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and
eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos
to be divided into Fifty Million common shares with par value of P100 per share. These shares are available
for subscription by the National Government. Upon the effectivity of this Charter, the National Government
shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which
shall be deemed paid for by the Government with the net asset values of the Bank remaining after the
transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine
National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these
government-owned corporations organized under special charters as stock corporations are subject to real
estate tax on real properties owned by them. To rule that they are not government-owned or controlled
corporations because they are not registered with the Securities and Exchange Commission would remove
them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate
tax.
Third, the government-owned or controlled corporations created through special charters are those that
meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that
the government-owned or controlled corporation must be established for the common good. The second
condition is that the government-owned or controlled corporation must meet the test of economic viability.
Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin conditions of
common good and economic viability. In other words, Congress has no power to create government-owned
or controlled corporations with special charters unless they are made to comply with the two conditions of
common good and economic viability. The test of economic viability applies only to government-owned or
controlled corporations that perform economic or commercial activities and need to compete in the market
place. Being essentially economic vehicles of the State for the common good meaning for economic
development purposes these government-owned or controlled corporations with special charters are
usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or
public functions need not meet the test of economic viability. These instrumentalities perform essential
public services for the common good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even subsidize their entire
operations. These instrumentalities are not the "government-owned or controlled corporations" referred to
in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities
vested with corporate powers but performing essential governmental or public functions. Congress has
plenary authority to create government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services. However, when the legislature
creates through special charters corporations that perform economic or commercial activities, such entities

 known as "government-owned or controlled corporations" must meet the test of economic viability
because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
similar government-owned or controlled corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition with the private sector. The intent of the
Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive
on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers' money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social
services like health and education, to augment the salaries of grossly underpaid public employees. And yet
this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility
of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the
insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common
good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The
1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic viability."
The addition includes the ideas that they must show capacity to function efficiently in business and that
they should not go into activities which the private sector can do better. Moreover, economic viability is
more than financial viability but also includes capability to make profit and generate benefits not
quantifiable in financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers
and performing essential public services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The non-economic viability of rendering such
essential public service does not excuse the State from withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for
economic or commercial objectives, must meet the test of economic viability. These are the governmentowned or controlled corporations that are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are
the government-owned or controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the definition of "government-owned or
controlled corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to
compete in the market place. MIAA does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs an essential public service as the
primary domestic and international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers,
screening out those without visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the spread of
infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases
into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and
the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to
enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for the government
personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives
its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines.
The terminal fees that MIAA charges every passenger are regulatory or administrative fees 47 and not
income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it need not comply with the test of
economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or
controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle
this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article
420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the
legal relation and status of government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation.
Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a
taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real property leased becomes subject to real estate
tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use,
are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions "ports x x x constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly

exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport
Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed
by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices
of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila International Airport
Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects,
of the Airport Lands and Buildings of the Manila International Airport Authority.
Manila International Airport Authority vs. City of Pasay
Facts: Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport(NAIA) Complex under Executive Order No.903 (EO 903), otherwise known as the
Revised Charter of the Manila International Airport Authority. Under Sections 3 and22 of EO 903,
approximately 600 hectares of land, including the runways, the airport tower, and other airport buildings,
were transferred to MIAA. The NAIA Complex is located along the border between Pasay City and
Paraaque City. MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the
taxable years 1992 to 2001. The City of Pasay, through its City Treasurer, issued notices of levy and
warrants of levy for the NAIA Pasay properties. Thereafter, the City Mayor of Pasay threatened to sell at
public auction the NAIA Pasay properties if the delinquent real property taxes remain unpaid. MIAA filed
with the Court of Appeals a petition for prohibition and injunction withprayer for preliminary injunction or
temporary restraining order. The petition sought to enjoin the City of Pasay fromimposing real property
taxes on, levying against, and auctioning for public sale the NAIA Pasay properties.
Court of Appeals: Upheld the power of the City of Pasay to impose and collect realty taxes on the NAIA
Pasay properties. Sections 193 and 234 of Republic Act No.7160 or the Local Government Code withdrew
the exemption from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations. Since MIAA is a government-owned corporation, it follows
that its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local
Government Code.
Issue: WON the NAIA Pasay properties of MIAA are exempt from real property tax YES.
Held:
1. MIAA is a government "instrumentality" that does not qualify as a "government-owned or controlled
corporation. Under Section 133(o) of the Local Government Code, local government units have no power to
tax instrumentalities of the national government. Therefore, MIAA is exempt from any kind of tax from the
local governments. A government "instrumentality" may or may not be a "government-owned or controlled
corporation" (Section 2(10) of the Introductory Provisions of the Administrative Code of 1987). A
government-owned or controlled corporation must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. It is not a stock corporation because it has no
capital stock divided into shares. It is also not a non-stock corporation because it has no members. The
Government cannot be considered as the sole member of MIAA because non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to
remit 20% of its annual gross operating income to the National Treasury. MIAA is like any other government
instrumentality, but is vested with corporate powers to perform efficiently its governmental functions.
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation.
2. The airport lands and buildings of MIAA are properties of public dominion intended for public use, and as
such are exempt from real property tax under Section 234(a) of the Local Government Code.
(Note: In Manila International Airport Authority v. Court of Appeals(2006 MIAA
case), the Court already resolved the issue of whether the airport lands and buildings f MIAA are exempt
from tax under existing laws. The court merely reiterated its ruling in that case.)
MANILA INTERNATIONAL AIRPORT AUTHORITY vs.CITY OF PASAY, SANGGUNIANG PANGLUNGSOD
NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY ASSESSOR OF PASAY,
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport (NAIA) Complex under Executive Order No. 903 (EO 903), 3 otherwise known as the
Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately 600 hectares of land,
including the runways, the airport tower, and other airport buildings, were transferred to MIAA. The NAIA
Complex is located along the border between Pasay City and Paraaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay
for the taxable years 1992 to 2001. MIAAs real property tax delinquency for its real properties located in
NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:
TAX DECLA-RATION

TAXABLE YEAR

TAX DUE

PENALTY

TOTAL

A7-183-08346

1997-2001

243,522,855.00

123,351,728.18

366,874,583.18

A7-183-05224

1992-2001

113,582,466.00

71,159,414.98

184,741,880.98

A7-191-00843

1992-2001

54,454,800.00

34,115,932.20

88,570,732.20

A7-191-00140

1992-2001

1,632,960.00

1,023,049.44

2,656,009.44

A7-191-00139

1992-2001

6,068,448.00

3,801,882.85

9,870,330.85

A7-183-05409

1992-2001

59,129,520.00

37,044,644.28

96,174,164.28

A7-183-05410

1992-2001

20,619,720.00

12,918,254.58

33,537,974.58

A7-183-05413

1992-2001

7,908,240.00

4,954,512.36

12,862,752.36

A7-183-05412

1992-2001

18,441,981.20

11,553,901.13

29,995,882.33

A7-183-05411

1992-2001

109,946,736.00

68,881,630.13

178,828,366.13

A7-183-05245

1992-2001

7,440,000.00

4,661,160.00

12,101,160.00

P642,747,726.20

P373,466,110.13

P1,016,213,836.33

GRAND TOTAL

On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of
levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001.
Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the
delinquent real property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with
prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of
Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay
properties.
On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of Pasay
to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for reconsideration,
which the Court of Appeals denied. Hence, this petition.
The Court of Appeals Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local
Government Code, which took effect on 1 January 1992, withdrew the exemption from payment of real
property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under Republic Act No. 6938, nonstock and non-profit hospitals and educational institutions. Since MIAA is a government-owned corporation,
it follows that its tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the
Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real
property tax.
The Courts Ruling
The petition is meritorious.
In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193
and 234 of the Local Government Code which read:
SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environment protection.
Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
controlled corporations are hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under
Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code in
1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already resolved
the issue of whether the airport lands and buildings of MIAA are exempt from tax under existing laws. The
2006 MIAA case originated from a petition for prohibition and injunction which MIAA filed with the Court of
Appeals, seeking to restrain the City of Paraaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in Paraaque City. The only difference
between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings
located in Paraaque City while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local government can impose
real property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of
MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of
the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article
420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridgesconstructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public service.
Whether intended for public use or public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and
thus exempt from real estate tax under Section 234(a) of the Local Government Code. 7 (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a "government-owned
or controlled corporation." Obviously, the term government "instrumentality" is broader than the term
"government-owned or controlled corporation." Section 2(10) provides:
SEC. 2. General Terms Defined. x x x
(10) Instrumentality refers to any agency of the national Government, not integrated within the
department framework, vested with special functions 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.
The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8 of
the Introductory Provisions of the Administrative Code of 1987:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable

as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: Provided, That government-owned or controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the
exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.
The fact that two terms have separate definitions means that while a government "instrumentality" may
include a "government-owned or controlled corporation," there may be a government "instrumentality"
that will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13)
will show that MIAA would not fall under such definition. MIAA is a government "instrumentality" that
does not qualify as a "government-owned or controlled corporation." As explained in the 2006
MIAA case:
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has
no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA
has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence,
MIAA is not a stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation
Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to
its members, trustees or officers." A non-stock corporation must have members. Even if we assume that
the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to their members. Section
11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National
Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a governmentowned or controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers. x x x
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." 9
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which
is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of
local government units is subject to the limitations enumerated in Section 133 of the Local Government
Code.10 Under Section 133(o)11 of the Local Government Code, local government units have no power to
tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under Section 234(a) of the Local Government
Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific
property leased becomes subject to real property tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport Authority EXEMPT from real property tax imposed by
the City of Pasay. We declare VOID all the real property tax assessments, including the final notices of real
property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of the Manila
International Airport Authority, except for the portions that the Manila International Airport Authority has
leased to private parties.

No costs.
Bagatsing v. RamirezG.R. No. L-41631 (December 17, 1976)
FACTS: The Municipal Board of Manila enacted Ordinance No. 7522, An Ordinance Regulating the
Operation of Public Markets and Prescribing Fees for the Rentals of Stalls and Providing Penalties for
Violation thereof and for other Purposes. Respondent were seeking the declaration of nullity of the
Ordinance for the reason that a) the publication requirement under the Revised Charter of the City
of Manila has not been complied with, b) the Market Committee was not given any participation in the
enactment, c) Sec. 3(e) of the Anti-Graft and Corrupt Practices Act has been violated, and d) the ordinance
would violate P.D. 7 prescribing the collection of fees and charges on livestock and animal products.
ISSUE: What law shall govern the publication of tax ordinance enacted by the Municipal Board of Manila,
the Revised City Charter or the Local Tax Code.
HELD:The fact that one is a special law and the other a general law creates the presumption that the
special law is to be considered an exception to the general. The Revised Charter of Manila speaks of
ordinance in general whereas the Local Tax Code relates to ordinances levying or imposing taxes, fees
or other charges in particular. In regard therefore, the Local Tax Code controls.
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as
Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, vs.HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First
Instance of Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS,
INC., respondents.
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended),
which requires publication of the ordinance before its enactment and after its approval, or the Local Tax
Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS
AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City
Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787
before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of
nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter
of the City of Manila has not been complied with; (b) the Market Committee was not given any
participation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of
the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate Presidential
Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock and animal
products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation of
Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the
nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the
requirement of publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published at all in two daily
newspapers of general circulation in the City of Manila before its enactment. Neither was it published in
the same manner after approval, although it was posted in the legislative hall and in all city public markets
and city public libraries. There being no compliance with the mandatory requirement of publication before
and after approval, the ordinance in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a postpublication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of
Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board
of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and
shall not be discussed or enacted by the Board until after the third day following such publication. * *
* Each approved ordinance * * * shall be published in two daily newspapers of general circulation in the

city, within ten days after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city, municipal and
barrioordinances levying or imposing taxes, fees or other charges shall be published for three consecutive
days in a newspaper or publication widely circulated within the jurisdiction of the local government, or
posted in the local legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio
ordinances shall be furnished the treasurers of the respective component and mother units of a local
government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the enactment of
the ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the
Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes,
fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the
local government or by posting the ordinance in the local legislative hall or premises and in two other
conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance with
the Local Tax Code rather than with the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all
local governments. Blackstone defines general law as a universal rule affecting the entire community and
special law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a
prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and
the other general creates a presumption that the special is to be considered as remaining an exception of
the general, one as a general law of the land, the other as the law of a particular case. 2 However, the rule
readily yields to a situation where the special statute refers to a subject in general, which the general
statute treats in particular. The exactly is the circumstance obtaining in the case at bar. Section 17 of the
Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and
scope thereof,whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes,
fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of
the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches
the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local
Tax Code controls. Here, as always, a general provision must give way to a particular provision. 3 Special
provision governs. 4 This is especially true where the law containing the particular provision was enacted
later than the one containing the general provision. The City Charter of Manila was promulgated on June
18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power cannot
be said to have intended the establishment of conflicting and hostile systems upon the same subject, or to
leave in force provisions of a prior law by which the new will of the legislating power may be thwarted and
overthrown. Such a result would render legislation a useless and Idle ceremony, and subject the law to the
reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin
or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A.
409) exempting the City of Manila from any liability for damages or injury to persons or property arising
from the failure of the city officers to enforce the provisions of the charter or any other law or ordinance, or
from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to
enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189 of
the Civil Code makes cities liable for damages for the death of, or injury suffered by any persons by reason
of the defective condition of roads, streets, bridges, public buildings, and other public works under their
control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as its
territorial application is concerned, the Revised City Charter is a special law and the subject matter of the
two laws, the Revised City Charter establishes a general rule of liability arising from negligence in general,
regardless of the object thereof, whereas the Civil Code constitutes a particularprescription for liability due
to defective streets in particular. In the same manner, the Revised Charter of the City prescribes a rule for
the publication of "ordinance" in general, while the Local Tax Code establishes a rule for the publication of
"ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and
where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision. 8 A subsequent general law similarly applicable to all cities prevails over any conflicting charter
provision, for the reason that a charter must not be inconsistent with the general laws and public policy of
the state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it

is to have read into it that general law which governs the municipal corporation and which the corporation
cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been
violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local Tax
Code provides that any question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of
the city fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless
contested before a competent court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised
Charter of the City of Manila or the Local Tax Code that should govern the publication of the tax ordinance.
In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local
Tax Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of
administrative remedies before resort to judicial bodies is not an absolute rule. It admits of exceptions.
Where the question litigated upon is purely a legal one, the rule does not apply. 11 The principle may also
be disregarded when it does not provide a plain, speedy and adequate remedy. It may and should be
relaxed when its application may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising
function, so that the procedure for publication under the Local Tax Code finds no application. The pretense
bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under
Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And
one of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may
collect fees or rentals for the occupancy or use of public markets and premises * * *." 14 They can provide
for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They
can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing
privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and postmortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the
Secretary of Agriculture and Natural Resources." 16Clearly, even the exception clause of the decree itself
permits the collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1, 1973)
authorizes in its Section 31: "Local governments may collect fees for the slaughter of animals and the use
of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in
accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the
market committee shall formulate, recommend and adopt, subject to the ratification of the municipal
board, and approval of the mayor, policies and rules or regulation repealing or maneding existing
provisions of the market code" does not infect the ordinance with any germ of invalidity. 17 The function of
the committee is purely recommendatory as the underscored phrase suggests, its recommendation is
without binding effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or
proposed city ordinance is not a condition sine qua non before the Municipal Board could enact such
ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the slightest
degree. It can move in its own initiative and the Market Committee cannot demur. At most, the Market
Committee may serve as a legislative aide of the Municipal Board in the enactment of city ordinances
affecting the city markets or, in plain words, in the gathering of the necessary data, studies and the
collection of consensus for the proposal of ordinances regarding city markets. Much less could it be said
that Republic Act 6039 intended to delegate to the Market Committee the adoption of regulatory measures
for the operation and administration of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to
the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let
by the City of Manila to the said corporation in a "Management and Operating Contract." The assumption is
of course saddled on erroneous premise. The fees collected do not go direct to the private coffers of the
corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues
for the city. That is the object it serves. The entrusting of the collection of the fees does not destroy the
public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency
through which the money is dispensed is public or private. The right to tax depends upon the ultimate use,
purpose and object for which the fund is raised. It is not dependent on the nature or character of the
person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for
a public purpose, although it be under the direction of an individual or private corporation. 18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices
Act because the increased rates of market stall fees as levied by the ordinance will necessarily inure to the
unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether
the ordinance in question is intra vires. Once determined in the affirmative, the measure may not be
invalidated because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the
City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.
Pascual vs secretary of public works and communication
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such
expenditure, is merely incidental in the promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction,
upon the ground that RA No. 920, which apropriates funds for public works particularly for the construction
and improvement of Pasig feeder road terminals. Some of the feeder roads, however, as alleged and as
contained in the tracings attached to the petition, were nothing but projected and planned subdivision
roads, not yet constructed within the Antonio Subdivision, belonging to private respondent Zulueta,
situated at Pasig, Rizal; and which projected feeder roads do not connect any government property or any
important premises to the main highway. The respondents' contention is that there is public purpose
because people living in the subdivision will directly be benefitted from the construction of the roads, and
the government also gains from the donation of the land supposed to be occupied by the streets, made by
its owner to the government.
ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an
expenditure of the government?
HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure which
must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental to the public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or business, does not justify their aid by the use
public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public.
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal vs. THE
SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued, without
costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act
Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an
item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of
Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo
Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act,
the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet
constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings
attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection
between the latter and Highway 54), which projected feeder roads "do not connect any government
property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as
well as the lands on which said feeder roads were to be construed) were private properties of respondent
Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of
the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of
Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June
13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a
plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of
the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another
letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00
appropriated therein for the construction of the projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the
present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question
were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of

P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said
projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was
made by Congress because its members were made to believe that the projected feeder roads in question
were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed
of donation copy of which is annexed to the petition of the four (4) parcels of land constituting said
projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged
deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to
an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated
the provision of our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null
and void ab initio, for the construction of the projected feeder roads in question with public funds would
greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside
from relieving him from the burden of constructing his subdivision streets or roads at his own expense";
that the construction of said projected feeder roads was then being undertaken by the Bureau of Public
Highways; and that, unless restrained by the court, the respondents would continue to execute, comply
with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage,
detriment and prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and,
therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and
securing any new and further releases on the aforementioned item of Republic Act No. 920, and the
disbursing officers of the Department of Public Works and Highways from making any further payments out
of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a writ of
preliminary injunction be issued enjoining the aforementioned parties respondent from making and
securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any
further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province
of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware
of any law which makes illegal the appropriation of public funds for the improvements of . . . private
property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in
question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained
that petitioner could not assail the appropriation in question because "there is no actual bona fide case . . .
in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he
has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him
a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of
Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to
question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without
power appropriate public revenues for anything but a public purpose", that the instructions and
improvement of the feeder roads in question, if such roads where private property, would not be a public
purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic of the
Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes
whatsoever; it being expressly understood that should the Government of the Republic of the Philippines
violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such
violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that,
accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically the
allegations of fact made in the petition of appellant herein. According to said petition, respondent Zulueta

is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned,
which, admittedly, were private property of said respondent when Republic Act No. 920, appropriating
P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was
passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition
further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation
of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his
subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the
subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in
question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because Congress is
the source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the
appropriation of public funds for the improvement of what we, in the meantime, may assume as private
property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court
invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for anything but a
public purpose. . . . It is the essential character of the direct object of the expenditure which must
determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the
degree to which the general advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental to the public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or business, does not justify their aid by the use
public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussedsupra sec. 14, money raised by taxation can be expended only for public purposes and not for
the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used
only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax,
and, under constitutional provisions against taxation except for public purposes and prohibiting the
collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state
funds can be made for other than for a public purpose.
xxx
xxx
xxx
The test of the constitutionality of a statute requiring the use of public funds is whether the statute
is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis
supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such, exists
primarily for the promotion of the general welfare. Besides, reflecting as they do, the established
jurisprudence in the United States, after whose constitutional system ours has been patterned, said views
and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the same
does not affect him directly. This conclusion is, presumably, based upon the following premises, namely:
(1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2)
that the latter may not be annulled without a previous declaration of unconstitutionality of the said
donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no
exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of
an amendment of the organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in
question, the legality thereof depended upon whether said roads were public or private property when the
bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved

by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13
of said Act). Inasmuch as the land on which the projected feeder roads were to be constructed belonged
then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was
null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of
said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing,
the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial
nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions set forth
in Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though such
creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of
taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of
public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes
a misapplication of such funds," which may be enjoined at the request of a taxpayer. 6Although there are
some decisions to the contrary, 7the prevailing view in the United States is stated in the American
Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but
alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation
and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11
Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer
of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government existing in the U.S., the states of the
Union are integral part of the Federation from an international viewpoint, but, each state enjoys internally
a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In
fact, the same was made by representatives ofeach state of the Union, not of the people of the U.S.,
except insofar as the former represented the people of the respective States, and the people of each State
has, independently of that of the others, ratified said Constitution. In other words, the Federal Constitution
and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of,
and, in this sense, through the respective states of the Union of which they are citizens. The peculiar
nature of the relation between said people and the Federal Government of the U.S. is reflected in the
election of its President, who is chosen directly, not by the people of the U.S., but by electors chosen
by each State, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal
Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing
between the people and taxpayers of each state and the government thereof, except that the authority of
the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states
of the Union, insofar as the simple and unitarytype of our national government is not subject to limitations
analogous to those imposed by the Federal Constitution upon the states of the Union, and those imposed
upon the Federal Government in the interest of the Union. For this reason, the rule recognizing the right of
taxpayers to assail the constitutionality of a legislation appropriating local or state public funds which
has been upheld by the Federal Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater
application in the Philippines than that adopted with respect to acts of Congress of the United States
appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting
the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of
the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to
question the constitutionality of an appropriation for backpay of members of Congress. However, in
Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off.
Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of
public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position
in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again,
like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political

subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not have
been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.
Meralco v Yatco GR No. 45697, November 1, 1939

FACTS: Meralco entered into an insurance contract with a new york based insurance company.
Yatco, the Commissioner of Internal Revenue, levied taxes on the premium paid. Meralco paid
under protest alleging that the Philippines had not jurisdiction.
ISSUE: Whether the CIR exceeded his powers in taxing Meralcos paid premium
RULING: No. Where the risk insured against and certain incidents of the contract are to be
attended in the Philippines such as payment of dividends when received in cash, the Philippines
may impose tax regardless whether the contract is executed abroad. Under such circumstances,
substantial elements of the contract may be said to be so situated in the Philippines as to give its
government the power to tax. Even if it be assumed that the tax imposed upon the insured will
ultimately be passed on to the insurer, thus constituting an indirect tax upon the foreign
corporation, by stipulations of its contract, has subjected itself to the taxing jurisdiction of the
Philippines. After all, the Government of the Philippines, by protecting the properties insured, benefits the
foreign corporation. It is thus reasonable that the latter should pay a just contribution therefor.
MANILA ELECTRIC COMPANY, vs.A.L. YATCO, Collector of Internal Revenue
In 1935, plaintiff Manila Electric Company, a corporation organized and existing under the laws of
the Philippines, with its principal office and place of business in the City of Manila, insured with the city of
New York Insurance Company and the United States Guaranty Company, certain real and personal
properties situated in the Philippines. The insurance was entered into in behalf of said plaintiff by its broker
in New York City. The insurance companies are foreign corporations not licensed to do business in the
Philippines and having no agents therein. The policies contained provisions for the settlement and
payment of losses upon the occurence of any risk insured against, a sample of which is policy No. 20 of the
New York insurance Company attached to and made an integral part of the agreed statement of facts.
Plaintiff through its broker paid, in New York, to said insurance company premiums in the sum of
P91,696. The Collector of Internal Revenue, under the authority of section 192 of act No. 2427, as
amended, assessed and levied a tax of one per centum on said premiums, which plaintiff paid under
protest. The protest having been overruled, plaintiff instituted the present action to recover the tax. The
trial court dismissed the complaint, and from the judgment thus rendered, plaintiff took the instant appeal.
The pertinent portions of the Act here involved read:
SEC. 192. It shall be unlawful for any person, company or corporation, or forward applications for insurance
in or to issue or to deliver or accept policies of or for any company or companies not having been legally
authorized to transact business in the Philippine Islands, as provided in this chapter; and any such person,
company or corporation violating the provisions of this section shall be deemed guilty of a penal offense,
and upon conviction thereof, shall for each such offense be punished by a fine of two hundred pesos, or
imprisonment for two months, or both in the discretion not authorized to transact business in the Philippine
Island may be placed upon terms and conditions as follows:
xxx
xxx
xxx
. . . . And provided further, that the prohibitions of this section shall not affect the right of an owner of
property to apply for and obtain for himself policies in foreign companies in cases were said owner does
not make use of the services of any agent, company or corporation residing or doing business in the
Philippine Islands. In all case where owners of property obtain insurance directly with foreign companies, it
shall be the duty of said owners to report to the insurance commissioner and to the Collector of Internal
Revenue each case where insurance has been so effected, and shall pay the tax of one per centum on
premium paid, in the manner required by law of insurance companies, and shall be subject to the same
penalties for failure to do so.
Appellant maintains that the second paragraph of the provisions of the Act aforecited is unconstitutional,
and has been so declared by the Supreme Court of the United States in the case of Compania General de
Tabacos v. Collector of Internal Revenue, 275 U.S., 87, 48 Sup. Ct. Rep., 100, 72 Law. ed., 177.

The case relied upon involves a suit to recover from the Collector of Internal Revenue certain taxes
in connection with insurance premiums which the Tobacco Barcelona, Spain, paid to the Guardian
Insurance Company of London, England, and to Le Comite des Assurances Maritimes de Paris, of Paris,
France. The Tobacco Company, through its head office in Barcelona, insured against fire with the London
Company the merchandise it had in deposit in the warehouse in the Philippines. As the merchandise were
from time to time shipped to Europe, the head office at Barcelona insured the same with the Paris
Company against marine risks while such merchandise were in transit from the Philippines to Spain. The
London Company, unlike the Paris Company, was licensed to do insurance business in the Philippines and
had an agent therein. Losses, if any, on policies were to be paid to the Tobacco Company in Paris. The tax
assessed and levied by the Collector of Internal Revenue, under the same law now involved, was
challenged as unconstitutional. The Supreme Court of the united States sustained the tax with respect to
premiums paid to the London Company and held it erroneous with respect to premiums paid to the Paris
Company.lawphi1.net
The factual basis upon which the imposition of the tax on premiums paid to the Paris Company was
declared erroneous, is stated by the Supreme Court of the United States thus:
Coming then to the tax on the premiums paid to the Paris Company the contract of insurance on
which the premium was paid was made at Barcelona in Spain, the headquarters of the Tobacco Company
between the Tobacco Company and the Paris Company, and any losses arising thereunder were to be paid
in Paris. The Paris Company had no communication whatever with anyone in the Philippine Islands. The
collection of this tax involves an ex-action upon a company of Spain lawfully doing business in the
Philippine Islands effected by reason of a contract made by that company with a company in Paris on
merchandise shipped from the Philippine Islands for delivery in Barcelona. It is an imposition upon a
contract not made in the Philippines and having no situs there and to be measured by money paid as
premiums in Paris, with the place of payment of loss, if any, in Paris. We are very clear that the contract
and the premiums paid under it are not within the jurisdiction of the government of the Philippine Islands.
And, upon the authority of the cases of Allgeyer v. Lousiana, 165 U.S., 578, 41 Law. ed., 832, and St. Louis
Cotton Compress Company v. Arkansas, 250 U.S., 346, 677 Law. ed., 279, the Supreme Court of the United
States held that "as the state is forbidden to deprive a person of his liberty without due process of law, it
may not compel anyone within its jurisdiction to pay tribute to it for contracts or money paid to secure the
benefits of contract made and to be performed outside of the state."
On the other hand, the Supreme Court of the United States, in sustaining the imposition of the tax upon
premiums paid by the assured to the London Company, says:
. . . . Does the fact that while the Tobacco Company and the London Company were within the jurisdiction
of the Philippines they made a contract outside of the Philippines, prevent the imposition upon the assured
of a tax of 1 per cent upon the money paid by it as a premium to the London Company? We may properly
assume that this tax placed upon the assured must ultimately be paid by the insurer, and treating its real
incidence as such, the question arises whether making and carrying out the policy does not involve an
exercise or use of the right of the London Company to do business in the Philippine Islands under its
license, because the policy covers fire risks no property within the Philippine Islands which may require
adjustment and the activities of agents in the Philippine Islands with respect to settlement of losses arising
thereunder. This we think must be answered affirmatively under Equitable Life Assur. Soc. v. Pennsylvania,
238 U.S., 143 Law. ed., 1239, 35 Sup. Ct. Rep., 829. The case is a close one, but in deference to the
conclusion we reached in the latter case, we affirm the judgment of the court below in respect to the tax
upon the premium paid to the London Company.
The ruling in the Paris Company case is obviously not applicable in the instant one, for there, not
only was the contract executed in a foreign country, but the merchandise insured was in transit from the
Philippines to Spain, and nothing was to be done in the Philippines in pursuance of the contract. However,
the rule laid down in connection with the London Company may, by analogy, be applied in the present
case, the essential facts of both cases being similar. Here, the insured is a corporation organized under the
laws of the Philippines, its principal office and place of business being in the City of Manila. The New York
Insurance Company and the United States Guaranty Company may be said to be doing policies issued by
them cover risks on properties within the Philippines, which may require adjustment and the activities of
agents in the Philippines with respect to the settlement of losses arising thereunder. For instance, it is
therein stipulated that "the insured, as often as may be reasonably required, shall exhibit to any person
designated by the company all the remains of any property therein described and submit to examination
under oath by any person named by the company, and as often as may be reasonably required, shall
exhibit to any person designated by the company all the remains of any property therein described and
submit to an examination all books of accounts . . . at such reasonable time and place as may be
designated by the company or its representative." And, in case of disagreement as to the amount of losses
or damages as to require the appointment of appraisers, the insurance contract provides that "the
appraisers shall first select a competent umpire; and failure for fifteen days to agree to such umpire, then,

on request of the insured or of the company, such umpire shall be selected by a judge of the court of
record in the state in which the property insured is located.".
True it is that the London Company had a license to do business in the Philippines, but this fact was not a
decisive factor in the decision of that case, for reliance was therein placed on the Equitable Life Assurance
Society v. Pennsylvania, 238 U.S., 143, 59 Law. ed., 1239, 35 Sup. Ct. Rep., 829, wherein it was said that
"the Equitable Society was doing business in Pennsylvania when it was annually paying the dividends in
Pennsylvania or sending an adjuster into the state in case of dispute or making proof of death," and
therefore "the taxpayer had subjected itself to the jurisdiction of Pennsylvania in doing business there."
(See Compaia General de Tabacos v. Collector of Internal Revenue, 275 U.S., 87, 72 Law. ed., 177, 182.)
The controlling consideration, therefore, in the decision of the London Company case was that said
company, by making and carrying out policies covering risks located in this country which might require
adjustment or the making of proof of loss therein, did business in the Philippines and subjected itself to its
jurisdiction, a rule that can perfectly be applied in the present case to the new York Insurance Company
and the United States Guaranty Company.
It is argued, however, that the sending of an unjuster to the Philippines to fix the amount of losses, is a
mere contingency and not an actual fact, as such, it cannot be a ground for holding that the insurance
companies subjected themselves to the taxing jurisdiction of the Philippines. This argument could have
been made in the London Company case where no adjuster appears to have ever been sent to the
Philippines nor any adjustment ever made, and yet the stipulations to that effect were held to be sufficient
to bring the foreign corporation within the taxing jurisdiction of the Philippines.
In epitome, then, the whole question involved in this appeal is whether or not the disputed tax is
one imposed by the Commonwealth of the Philippines upon a contract beyond its jurisdiction. We are of
the opinion and so hold that where the insured against also within the Philippines, the risk insured against
also within the Philippines, and certain incidents of the contract are to be attended to in the Philippines,
such as, payment of dividends when received in cash, sending of an unjuster into the Philippines in case of
dispute, or making of proof of loss, the Commonwealth of the Philippines has the power to impose the tax
upon the insured, regardless of whether the contract is executed in a foreign country and with a foreign
corporation. Under such circumstances, substantial elements of the contract may be said to be so situated
in the Philippines as to give its government the power to tax. And, even if it be assumed that the tax
imposed upon the insured will ultimately be passed on the insurer, thus constituting an indirect tax upon
the foreign corporation, it would still be valid, because the foreign corporation, by the stipulations of its
contract, has subjected itself to the taxing jurisdiction of the Philippines. After all, Commonwealth of the
Philippines, by protecting the properties insured, benefits the foreign corporation, and it is but reasonable
that the latter should pay a just contribution therefor. It would certainly be a discrimination against
domestic corporations to hold the tax valid when the policy is given by them and invalid when issued by
foreign corporations.