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1. 1. G.R. No. 120324 April 21, 1999
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,AND THE COURTOF APPEALS, respondents.
QUISUMBING,
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to set aside the May 18,1995 Decision 1 of the Court of Appeals in CA-GR. SP No. 34988,which affirmed the Decision ofthe Court of
Tax Appeals in CTA Case No. 3547.The Court ofTax Appeals disposed of the case as follows:
WHEREFORE, the respondent,COMMISSIONER OF INTERNAL REVENUE is hereby ordered to REFUND in favor of petitioner, PHILEX MINING CORP., the sum of P16,747.36
without interest, equivalent to 25%partial refund of specific taxes paid on its purchases of gasoline,oils and lubricants,diesel and fuel oils pursuant to the provision of Section 5 of
Republic ActNo. 1435, in relation to Section 132 (b) and (c) ofthe National Internal Revenue Code and Section 145 as prescribed under Sections 1 and 2 of R.A. No. 1435.
No pronouncement as to costs.
SO ORDERED." 2
As set forth in the decision ofthe Court of Appeals, the following relevant incidents took place:
Petitioner as a domestic mining corporation had entered into a Mining License Agreementwith the then Ministry of National Resources (nowthe Departmentof Environment and Natural Resources). From the
period July 1, 1980 to December 31,1981, petitioner purchased from several oil companies,refined and manufactured mineral o ils, motor fuels,and diesel fuel oils. The specific taxes passed on to the petitioner
amounted to two million, four hundred ninety-two thousand, six hundred seventy-seven pesos and twenty-two centavos (P2,492,677.22).1âwphi1.nêt
On October 22 1982, pursuant to Republic Act No. 1435,petitioner filed a claim for refund with the Commissioner of Internal Revenue (CIR) for six hundred twenty-three thousand, one hundred sixty-nine pesos
and thirty centavos (P623,169.30), representing the twenty-five (25%) percentof the specific taxes paid. The petitioner presented as evidence the affidavits ofits president, purchasing manager, and two
disinterested representatives of another licensed mining corporation. They averred that for the period July 1980 to December 1981, petitioner used refined and manufactured mineral oils, motor fuels and diesel
fuel oils in their business operation and paid the corresponding specific taxes.
Pending CIR action, on November 16, 1982, the petitioner filed a case for tax refund with the Court ofTax Appeals (CTA). The petitioner soughtjudgment ordering the CIRto pay as refund the amountof
P623,169.30, with a twenty (20%) percent interest per annum, plus the costs of suit.
On August 4, 1994, the CTA rendered its decision, quoted at the outset, granting the petitioner's claim, but only to the extent of sixteen thousand, seven hundred forty-seven pesos and thirty-six centavos
(P16,747.36).
The Court of Appeals affirmed the decision of the CTA. Before us, the petitioner now cites the following alleged errors of the Courtof Appeals:
I. BASING THE REFUNDON THE AMOUNTS DEEMED PAID UNDER SECTIONS 1 AND 2 OF R.A NO. 1435 IS CONTRARY TO THE
SUPREME COURT'S ENBANC DECISION IN INSULAR LUMBER V. COURT OF TAX APPEALS WHICH GRANTEDTHE CLAIM FOR
PARTIAL REFUNDON THE BASIS OF SPECIFIC TAXES ACTUALLY PAID BY THE CLAIMANT WITHOUT QUALIFICATION ORLIMITATION.
II. THE SAID RULING OF THE RESPONDENT COURT IGNORES THE INCREASE INRATES IMPOSED BY SUCCEEDING AMENDATORY
LAWS, UNDERWHICH THE PETITIONER PAID THE SPECIFIC TAXES ON MANUFACTUREDANDDIESEL FUELS.
III. IN MAKING THE RULING, THE RESPONDENT COURT WENTAGAINST THE ESTABLISHED RULES OF CONSTRUCTIONIN THAT IT
LENT ITSELF TO INTERPRETING SECTION5 OF R.A. NO. 1435,WHENTHE CONSTRUCTION OF SAID LAW IS NOT NECESSARY.
IV SECTIONS 1 AND 2 OF R.A. NO. 1435 ARE NOT THE OPERATIVE PROVISIONS TO BE APPLIEDBUT RATHER, SECTIONS 142 AND 145
(WHICH WOULD BECOME SECTIONS 153 AND 156) OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED.
V BASING THE COMPUTATION OF THE PARTIAL TAX REFUND ON SECTIONS 1 AND2 OF R.A. NO. 1435, RATHERTHANON SECTIONS
153 AND 156 OF THE NATIONAL INTERNAL REVENUE CODE,IS UNFAIR, ERRONEOUS, ARBITRARY, INEQUITABLE ANDOPPRESSIVE. 3
There are two clear-cut issues nowraised before the Court:
1) Whether respondent court erred in basing the tax refund under Sections 1 and 2 ofR.A. 1435, instead ofthe increased rates imposed by Sections 142 and 145 (which became Sections 153 and 156) of the
National Internal Revenue Code, as amended.
2) Whether the respondent court erred in relying on the Supreme Court's decision in Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corp. 4 which allegedly runs counter to the Court's decision in
Insular Lumber Co. vs. Court of Tax Appeals. 5
R.A. 1435, "An Act to Provide Means for Increasing the Highway Special Fund," states thatthe specific taxes collected on gasoline and fuel which accrue to th e Fund shall be used for the construction and
maintenance of the highway system. Mining and lumber companies seldom use national hi ghways.Since the gasoline and fuel purchased by mining and lumber companies are used within their own compounds
and roads, and they do notbenefit directly from the Fund the government granted to these companies a 25% partial refund of specific taxes paid on purchases ofmanufactured diesel and fuel oils. This tax relief
was embodied in Section 5 of R.A. No. 1435, which states:
Sec. 5 of R.A. 1435 —The proceeds ofthe additional tax on manufactured oils shall accrue to the road and bridge funds ofthe pol itical subdivision for whose benefit the tax is
collected. Provided, however, That whenever any oils mentioned above are used by miners or forestconcessionaires in their operations, twenty-five per centum of the specific tax
paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in sub-paragraphs one
and two of section one hereof,amending section one hundred forty-two of the Internal Revenue Code: Provided, further, That no new road shall be constructed unless the routes
or location thereofshall have been approved by the Commissioner ofPublic Highways after a determination that such road can be made part of an integral and articulated route in
the Philippine Highway System,as required in section twenty-six ofthe Philippine Highway Actof 1953.

2. In 1977, P.D. 1158 codified all existing laws.Sections 142 and 145 of the Tax Code, as amended by Sections 1 and 2 ofR.A. 1 435 were re-numbered to Sections 153 and 156. 6 Later, these sections were
amended by P.D. No. 1672 and subsequently by E.O. 672 increasing the tax rates for certain oil and fuel products. 7 When the Highway Special Fund was abolished in 1985, the reason for the refund ceased to
exist.
This Court, in a string of decisions, repeatedly held that the tax refund under R.A. 1435 is computed on the basis of the spe cific tax deemed paid under Sections 1 and 2,and not on the increased rates actually
paid under the 1977 NIRC. Among these cases, are CIRvs. Rio Tuba Nickel Mining Corporation, 8 CIRvs. CA and Atlas Consolidated Mining and Development Corp., 9 en banc's ruling in Davao Gulf Lumber
Corporation vs. CIRand CA, 10 Atlas Consolidated Mining and Development Corp. vs. CIR et. al. 11 and the recently decided consolidated cases of CIRvs. C.A. and CDCP Mining Corporation 12 and Sirawai
Plywood & Lumber Co., Inc. vs. CA and CIR. 13
The fundamental issues raised herein appear to be the very issues settled in the case of Davao Gulf Lumber Corporation vs. CIR and CA. 14 We are guided and constrained by this precedent in nowreaching a
similar resolution of the issues, adverse to herein petitioner.
In Davao Gulf, the Court en banc held:
. . . Since the partial refund authorized under Section 5, R.A. 1435,is in the nature ofa tax exemption, itmust be constru ed strictissimi juris against the grantee. Hence, petitioner's
claim of refund on the basis of the specific taxes it actually paid mustexpressly be granted in a statute stated in a language too clear to be mistaken.
We have carefully scrutinized R.A.1435 and the subsequent pertinentstatutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed
by petitioner. . .. When the lawitself does notexplicitly provide that a refund under R.A 1435 may be based on higher rate s which were non-existent at the time of its enactment,
this Court cannotpresume otherwise.A legislative lacuna cannot be filled by judicial fiat. (citations omitted) 15
In Davao Gulf, the Court also laid to restthe alleged conflict between the Insular Lumber and the Rio Tuba decisions, in this manner:
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products purchased in the year 1963, when the increased rates under the NIRC of 1977 were not
yet in effect. Thus,the issue now before us did not exist at the time, since the applicable rates were still those prescribes under Sections 1 and 2 of R.A.1435.
xxx xxx xxx
Clearly it is impossible for these two decisions to clash with our pronouncements in Rio Tuba and second Atlas case, in which we ruled that the refund granted be computed on the
basis of the amounts deemed paid under Sections 1 and 2 of R.A 1435.In the light, we find no basis for petitioner's invocation ofthe constitutional proscription that"no doctrine or
principle of law laid down by the Court in a decision rendered en banc or in division may be modified or reversed except by the Court sitting en banc."
Finally, petitioner asserts that equity and justice demand that the computation of the tax refunds be based on actual amounts paid under Sections 153 and 156 ofthe NIRC we
disagree. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equit." (citations omitted) 16
The subsequent codification oftax laws under the 1977 NIRC, Sections 153 and 156,mandated the increased rates of specific t axes levied on manufactured oils, other fuels and diesel fuel oils. Although Philex
Mining Corporation paid the taxes on their oil and fuel purchases based on the increased rates, the latter law did not specifically provide for a refund based on the increased rates.Since the grant ofrefund
privileges must be strictly construed against the taxpayer, the basis for the refund remains to be the amounts deemed paid under Sections 1 and 2 ofR.A.1435. 17 Furthermore, the claims for refund which were
not filed with the CIRand those that prescribed must be deemed excluded,for being outside the ambit ofthe legislative enactment.
As to the 20%interest per annum prayed by the petitioner, we reiterate our pronouncement in Rio Tuba,where no interestwas awarded although the claim for refund was granted. As aptly stated by the CTA, viz.:
. . . [T]he rule is that no interest on refund of tax can be awarded unless authorized by lawor the collection of the tax was attended by arbitrariness. An action is notarbitrary when
exercised honestly and upon due consideration where there is room for two opinions,however much it may be believed thatan erroneous conclusion was reached.Arbitrarine ss
presupposes inexcusable or obstinate disregard of legal provisions. None of the exceptions are presentin the case at bar. Re spondent's decision denying petitioner's claim for
refund was based on an honest interpretation of law. We, therefore see no reason why petitioner should be entitled to the paymentof interest.(citations omitted)" 18
WHEREFORE, the instant petition is hereby DENIED, and the assailed decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.1âwphi1. nêt
SO ORDERED.
Bellosillo, Puno and Mendoza, JJ., concur.
Buena, J., took no part.
2. G.R. No. L-25299 July 29, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ITOGON-SUYOC MINES, INC., and THE COURTOF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Oscar S.de Castro for petitioner.
Ramon O. Reynoso, Jr. and Melchor R. Flores for respondents.
FERNANDO, J.:
The question presented for determination in this petition for the review ofa decision of the Court ofTax Appeals, one that is of first impression, would not have arisen had respondent Itogon-Suyoc Mines,
Inc., the taxpayer involved, duly paid in full its liability according to its income tax return for the fiscal year 1960-61.Instead, itdeducted rightaway the amount represented by claim for refund filed eight (8) months
back, for the previous year's income tax, for which it was not liable at all, so it alleged, as it suffered a loss instead, a claim subsequently favorably acted on by petitioner Commissioner ofInternal Revenue but
after the date of such payment ofthe 1960-1961 tax. Accordingly, an interest in the amountof P1,512.83 was charged by petitioner Commissioner of Internal Revenue on the sum withheld on the ground that no
deduction on such refund should be allowed before its approval. When the matter was taken up before the Court ofTax Appeals, the above assessment representing interestwas set aside in the decision of
September 30, 1965. Thatis the decision now an appeal by petitioner Commissioner of Internal Revenue.We sustain the Courto f Tax Appeals.
Respondent Itogon-Suyoc Mines, Inc.,a mining corporation duly organized and existing in accordance with the laws ofthe Philippines,filed on January 13,1961, its income tax return for the fi scal year
1959-1960. It declared a taxable income ofP114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid o n the same day, the amountof P13,155.20 as the firstinstallment of the income tax
due. On May 17, 1961, petitioner filed an amended income tax return,reporting therein a netloss of P331,707.33. It thus sou ght a refund from the Commissioner ofInternal Revenue, now the petitioner.1äwphï 1.ñët

3. On February 14, 1962,respondent Itogon-Suyoc Mines,Inc. filed its income tax return for the fiscal year 1960-1961,setting forth its income tax liability to the tune ofP97,345.00, but deducting the amount
of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year 1959-1960. 0n December 18, 1962,petitioner Commissioner of Internal Revenue assessed against the respondent the
amount of P1,512.83 as 1% monthly interest on the aforesaid amount ofP13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right to deduct said
amount before the refund or tax creditthereof was approved by petitioner Commissioner of Internal Revenue. 1
Such an assessmentwas contested by respondent before the Court ofTax Appeals. As already noted, it prevailed. The decision of September 30, 1965, nowon appeal,explains why. Thus: "Respondent
assessed against the petitioner the amount ofP1,512.83 as 1% monthly interest on the sum ofP13,155.20 from January 16, 1962 to December 31, 1962 on the ground that pe titioner had no legal right to deduct
the said amount from its income tax liability for the fiscal year 1960-1961 until the refund or tax credit thereof has been approved by respondent. As aforestated,petitioner paid the amountof P13,155.20 as first
installment on its reported income tax liability for the fiscal year 1959-1960.But, itturned outthatinstead of deriving a net gain,itsustained a netloss during the said fiscal year. Accordingly, it filed an amended
income tax return and a claim for the refund ofthe sum ofP13,155.20, which sum it subsequently, deducted from its income ta x liability for the succeeding fiscal year 1960-1961.The overpaymentfor the fiscal
year 1959-1960 and the deduction of the overpaid amount from its 1960-1961 tax liability are notdenied by respondent. In this circumstance, we find it unfair and unjust for the Commissioner to exact an interest
on the said sum of P13,155.20, which, after all, was paid to and received by the governmenteven before the incidence of the tax in question."2
That is the question before us in this petition for review by the Commissioner of Internal Revenue. He argues that the Court ofTax Appeals should not have absolved respondent corporation "from liability to
pay the sum of P1,512.83 as 1% monthly interest for delinquency in the payment ofincome tax for the fiscal year 1960-1961."3 As noted atthe outset, we find such contention far from persuasive.
It could not be error for the Court of Tax Appeals,considering the admitted factof overpayment, entitling respondentto refund,to hold that petitioner should not repose an intereston the aforesaid sum of
P13,155.20 "which after all was paid to and received by the government even before the incidence ofthe tax in question." It would be, according to the Court ofTax Appeals,"unfair and unjust" to do so. We agree
but we go farther. The imposition of such an interestby petitioner is notsupported by law.
The National Internal Revenue Code provides that interestupon the amountdetermined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal
Revenue at the specified. 4 It is made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount,if
not yet refunded, may be deducted from the tax to be paid. 5
There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, itd educted the said amount from the tax that it had to pay. That ithad a right to do
according to the law. It is true a doubt could have arisen due to the fact that as ofthe time such a deduction was made,the Commis sioner ofInternal Revenue had not as yet approved such a refund.It is an
admitted fact though thatrespondentwas clearly entitled to it, and petitioner did notallege otherwise.Nor could he do so. Under all the circumstances disclosed therefore, the ap plicability of the legal provision
allowing such a deduction from the amount of the tax to be paid cannot be disputed.
This conclusion is in accordance with the principle announced in Castro v.Collector of Internal Revenue. 6 While the case is notdirectly in point, it yields an implication thatmakes even more formidable the
case for respondent taxpayer. As there held, the imposition of the monthly interest was considered as not constituting a penalty "but a just compensation to the state for the delay in paying the tax, and for the
concomitant use by the taxpayer offunds thatrightfully should be in the government's hands ...."
What is therefore sought to be avoided is for the taxpayer to make use offunds that should have been paid to the government. Here, in viewof the overpaymentfor the fiscal year 1959-1960, the sum of
P13,155.20 had already formed part of the public funds.It cannot be said, therefore, that respondent taxpayer was guilty of any delay enabling itto utilize a sum of money that should have been in the government
treasury.
How then, as a matter of pure law, even ifwe lay to one side the demands of fairness and justice,which to the Court ofTax Appeals seem to be uppermost,can its decision be overturned? Accordingly, we
find no valid ground for this appeal.
WHEREFORE, the decision ofSeptember 30, 1965 of the Courtof Tax Appeals is affirmed.Without pronouncement as to costs.1äwphï1.ñët
3. G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURTand HO FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale ofhis property which took place on December 5, 1977, and
to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house builtupon it situated at Barrio San Isidro, nowDistrict of Sta. Clara,Pasay City, Metro Manila. The lot,with an area of about328
square meters, is described and covered by Transfer Certificate ofTitle No. 4739 (37795) of the Registry of Deeds ofPasay City.
On October 15, 1977, a 125 square meter portion ofFrancia's property was expropriated by the Republic ofthe Philippines for the sum of P4,116.00 representing the estimated amountequivalent to the assessed
value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,his property was sold at public auction by the City Treasurer ofPasay City pursuant to Section 73 of
Presidential Decree No.464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing ofLRC Case No.1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation ofTCT No.4739 (37795) and
the issuance in his name of a newcertificate of title.Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December
11, 1978. The auction sale and the final bill of sale were both annotated atthe back of TCT No. 4739 (37795) by the Register ofDeeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion ofwhich reads:
WHEREFORE, in viewof the foregoing,judgment is hereby rendered dismissing the amended complaintand ordering:

4. (a) The Register ofDeeds of Pasay City to issue a newTransfer Certificate ofTitle in favor of the defendantHo Fernandez o ver the parcel of land
including the improvements thereon,subjectto whatever encumbrances appearing atthe back of TCT No. 4739 (37795) and ordering the same
TCT No. 4739 (37795) cancelled.
(b) The plaintiffto pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors oflaw:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY
WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR INNOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIEDTHAT AN
AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ONDECEMBER 5,1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTEDA SERIOUS ERRORAND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAIDBY
RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUDANDA DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF
LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp.10,17, 20-21,Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations thathis property was sold at public auction without notice to him and thatthe price paid for the property was
shockingly inadequate, amounting to fraud and deprivation without due process oflaw.
A careful reviewof the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate
against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the govern mentowed him P4,116.00 when a portion of his land was expropriated on October
15, 1977. Hence, his tax obligation had been set-offby operation oflaw as ofOctober 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons,who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code).The
circumstances of the case do notsatisfy the requirements provided by Article 1279,to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting oftaxes againstthe claims thatthe taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes him an amountequal to or greater than the tax being collected. The collection of a tax cannotawait the results of a lawsuitagainst the government.
In the case of Republic v. Mambulao Lumber Co.(4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-offor compensation.We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes ofset-off, which are construed uniformly, in the light of public
policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper
subject ofrecoupmentsince they do not arise out of the contractor transaction sued on. ...(80 C.J.S., 7374). "The general rule based on grounds of public policy is well-settled
that no set-off admissible againstdemands for taxes levied for general or local governmental purposes. The reason on which the general rule is based,is that taxes are notin the
nature of contracts between the party and party but grow out of duty to,and are the positive acts of the government to the making and enforcing of which,the personal consentof
individual taxpayers is notrequired...."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v.Gonda (18 SCRA 331) where we stated that: "...internal revenue taxes can not be the subject ofcompensation: Reason:governmentan d taxpayer are not
mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgmentas is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreo ver, the amountof P4,116.00
paid by the national government for the 125 square meter portion ofhis lot was deposited with the Phi lippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit
dated September 28, 1977 was received by the petitioner on September 30, 1977.The petitioner admitted in his testimony that he knew aboutthe P4,116.00 deposited with the bank but he did not withdrawit.It
would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting t he sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice ofthe auction sale without readi ng it.
Petitioner contends that "the auction sale in question was made withoutcomplying with the mandatory provisions of the statute governing tax sale.No evidence,oral or otherwise,was presented thatthe
procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative ofthis issue, the burden of proof therefore rests upon him to show that
plaintiff was duly and properly notified ....(Petition for Review, Rollo p.18;emphasis supplied)

5. We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale,has the burden of proof to show th at there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the
burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale.(Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insu lar Government,
19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with,the pet itioner can not,however, deny thathe did receive the notice for the auction sale. The
records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified ofthe auction sale. Surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit"I-A") thereof. He claimed further thathe was not present on December 5, 1977 the
date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice,the validity of the auction sale can notbe
assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold atpublic auction to
the highestbidder on December 5, 1977 pursuant to Sec.74 of PD 464. Will you tell the Court whether you received the original of this letter?
A. I just signed it because I was notable to read the same. It was just sent by mail carrier.
Q. So you admit that you received the original ofExhibit I and you signed upon receiptthereof butyou did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received thatoriginal where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale.It was negligence on his part when he ignored such notice.By his very own admission that he received the notice, his nowcoming to court assailing the
validity of the auction sale loses its force.
Petitioner's third assignmentof grave error likewise lacks merit. As a general rule,gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567;Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili,91 Phil. 917 Unrep.).See also Barrozo Vda. de Gordon v.Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when
the law gives the owner the right to redeem as when a sale is made atpublic auction, upon the theory that the lesser the price, the easier itis for the owner to effectredemption." In Velasquez v.Coronel (5 SCRA
985), this Court held:
... [R]espondent treasurer now claims thatthe prices for which the lands were sold are unconscionable considering the wide d ivergence between their assessed values and the
amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground o finadequacy of price, or
when such inadequacy shocks one's conscience as to justify the courts to interfere, such does notfollow when the law gives to the owner the right to redeem, as when a sale is
made at public auction,upon the theory that the lesser the price the easier it is for the owner to effect the redemption.An d so itwas aptly said: "When there is the right to redeem,
inadequacy ofprice should notbe material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have
suffered by reason of the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton et.ux. v. De Long, etal. (188 Wash.162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection oftaxes in this manner would be greatly embarrassed, if notrendered altogether
impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to
the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, itwould be useless to offer the property. Indeed,itis notorious thatthe prices
habitually paid by purchasers at tax sales are grossly outof proportion to the value ofthe land. (Rothchild Bros.v. Rollinger, 32 Wash.307, 73 P. 367,369).
In this case now before us, we can aptly use the language of McGuire,et al. v. Bean, et al.(267 P. 555):
Like most cases of this character there is here a certain element ofhardship from which we would be glad to relieve, but do so would unsettle long-established rules and lead to
uncertainty and difficulty in the collection of taxes which are the life blood of the state.We are convinced thatthe presen t rules are just, and that they bring hardship only to those
who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely becau se ofthe widening of Buendia Avenue in Pasay City, which necessitated the expropriation
of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lotappears quite exaggerated.Atany rate,the foregoing reasons which answer
the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong consideration s ofsubstantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963
up to the date of the auction sale.He claims to have pocketed the notice ofsale without reading it which, if true, is still an act of inexplicable negligence.He did not withdraw from the expropriation payment
deposited with the Philippine National Bank an amount sufficientto pay for the back taxes. The petitioner did notpay attention to another notice sentby the City Treasurer on November 3, 1978,during the period
of redemption, regarding his tax delinquency. There is furthermore no showing ofbad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in hi s
attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.

6. 4. G.R. No. L-18994 June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE,as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge ofthe Court of First Instance ofLeyte,Ron.Lorenzo C. Garlitos,presiding, seeking to annul certain orde rs of the courtand for an order in this
Court directing the respondent court below to execute the judgment in favor of the Governmentagainst the estate ofWalter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C.Moscoso, G.R.No. L-14674, January 30, 1960, this Courtdeclared as final and executory the order for the paymentby the estate of the estate and
inheritance taxes, charges and penalties, amounting to P40,058.55,issued by the Court of First Instance ofLeyte in,special proceedings No.14 entitled "In the matter of the Intestate Estate of the Late Walter
Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961,to the courtbelow for the execution of the judgment. The petition was, however, denied by the
court which held that the execution is notjustifiable as the Government is indebted to the estate under administration in th e amount ofP262,200. The orders of the court below dated August20,1960 and
September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy ofthe contract between Mrs. Simeona K.Price,Administratrix of the estate ofher late husb and Walter Scott Price and Director Zoilo Castrillo of the Bureau of
Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive Secretary De Leon dated December 14,1956, the note
of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August2, 1958,directing the latter to pay to Mrs.Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No.
2700 appropriating the sum ofP262.200.00 for the paymentto the Leyte Cadastral Survey, Inc.,represented by the administratrix Simeona K. Price, as directed in the above note of the President.
Considering these facts,the Court orders thatthe payment ofinheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in
accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R.No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K.
Price, in this estate, the balance to be paid by the Government to her without further delay. (Order ofAugust 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector ofInternal Revenue be deferred until the Government shall have
paid its accounts to the administratrix herein amounting to P262,200.00. Itmay not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors
before it can insist in the promptpayment ofthe latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present
state does not accrue any interest. (Order ofSeptember 28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of the Governmentagainst the estate must be denied for lack of merit. The ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimantto present a claim before the probate court so that said court ma y order the administrator to pay the
amount thereof. To such effectis the decision of this Court in Aldamiz vs.Judge of the Court ofFirstInstance of Mindoro,G.R. No.L-2360, Dec.29,1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules ofCourt for the payment ofdebts and expenses of administration.The proper procedure is for the court to order the sale of
personal estate or the sale or mortgage of real property ofthe deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the
Philippines, according to Rule 89, section 3,and Rule 90, section 2.And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7,should be complied
with.1äwphï 1.ñët
Execution may issue only where the devisees,legatees or heirs have entered into possession oftheir respective portions in the estate prior to settlement and payment ofthe debts and expenses
of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose,after
hearing, settle the amount oftheir several liabilities,and order how much and in what manner each person shall contribute, and may issue execution if circumstances require" (Rule 89, section 6;
see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a decea sed person,the properties belonging to the estate are under the jurisdiction of the court and
such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency ofthe proceedings all the estate is in custodia legis and the proper procedure is notto
allow the sheriff, in case ofthe court judgment,to seize the properties but to ask the courtfor an order to require the administrator to pay the amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction ofthe estate had found that the claim of the estate againstthe Government has been recognized and an
amount of P262,200 has already been appropriated for the purpose by a corresponding law(Rep. Act No.2700). Under the above circumstances, both the claim ofthe Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensa tion,therefore, takes place by operation oflaw, in accordance with the provisions of
Articles 1279 and 1290 ofthe Civil Code, and both debts are extinguished to the concurrentamount,thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear rightto execute the judgmentfor taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the
proper remedy for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.
Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon,Regala and Makalintal, JJ.,concur.
Bengzon, C.J., took no part.
5. G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE MARKETADMINISTRATOR; and THE MUNICIPALBOARD OF MANILA,
petitioners,
vs.
HON. PEDRO A. RAMIREZ, inhis capacity as Presiding Judge of the Court of First Instance of Manila, Branch XXX and the FEDERATION OF MANILA MARKETVENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

7. MARTIN, J.:
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 ofManila, 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 de mands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522,"AN ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS ANDPRESCRIBING FEES FORTHE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF ANDFOR OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing,approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation ofManila Market Vendors, Inc.commenced Civil Case 96787 before the Court of First Instance ofManila presided over by respondentJudge,seeking the
declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of the City ofManila 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) ofthe Anti -Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate
Presidential Decree No.7 ofSeptember 30, 1972 prescribing the collection offees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance ofa writ ofpreliminary injunction, respondent Judge issued an order on March 11, 1975,denying the plea for failure of the respondentFederation 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 itpublished in the same manner after approval, although it was posted in the legislative hall and in all city pu blic markets and city public libraries. There being no
compliance with the mandatory requirementof 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 post-publication is required by the Local Tax Code; and (b) private respondent failed to exhaustall administrative remedies
before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners broughtthe matter to Us through the presentpetition for reviewon certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparentconflict 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 ofgeneral 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 barrio ordinances 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 provi ncial,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 ofManila 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 place s 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 thatthe Revised Charter of the City of Manila is a special act since itrelates only to the City of Manila, whereas the Local Tax Code is a general law because itapplies universally to all local
governments. Blackstone defines general law as a universal rule affecting the entire community and special lawas one relating to particular persons or things of a class. 1 And the rule commonly said is thata
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 lawof the land,the other as the lawof a particular case. 2 However, the rule readily yields to a situation where the special statute refers to a subjectin 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 ofthe 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 dominantforce 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 lawcontaining 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 t he 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 pro visions of a prior lawby which the newwill of the legislating power may be
thwarted and overthrown. Such a result would render legislation a useless and Idle ceremony, and subjectthe lawto 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 ofManila denied liability on the basis of the City Charter (R.A.409) exempting the Ci ty 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 ofany other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liab le 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 control ling. Itis true that,insofar as its territorial
application is concerned,the Revised City Charter is a special lawand the subj ect 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 particular prescription 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 ofa 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,itmust be read into the charter notwithstanding any particular charter provision. 8 A subsequentgeneral lawsimilarly applicable to all cities prevails over any conflicting charter
provision, for the reason thata charter must not be inconsistentwith the general laws and public policy of the state. 9 A chartered city is notan independentsovereignty. 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 mustyield. When a city adopts a charter, it in effect adopts as part ofits charter general lawof such character. 10
2. The principle of exhaustion ofadministrative remedies is strongly asserted by petitioners as having been violated by private respondentin 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 ofany tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance ofa 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 competentcourt within thirty (30) days. But, the petiti on belowplainly shows that the
controversy between the parties is deeply rooted in a pure question of law:whether it is the Revis ed Charter ofthe City ofManila or the Local Tax Code thatshould govern the publication ofthe tax ordinance. In

8. other words, the dispute is sharply focused on the applicability ofthe Revised City Charter or the Local Tax Code on the poi nt at issue, and not on the legality ofthe 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 m ay cause greatand irreparable damage. 12
3. It is maintained by private respondent that the subjectordinance is not a "tax ordinance," because the imposition of rentals,permit fees, tolls and other fees is not strictly a taxi ng power buta revenue-raising
function, so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its own marks offallacy. Precisely, the raising of revenues is the principal objectof taxation. Under
Section 5, Article XI of the New Constitution, "Each local government unitshall 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 whatthe Local Tax Code points to in particular: "Local governments may collectfees 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 lice nse, or permitthe use of,lease, sell or otherwise dispose ofstands, stalls or marketing
privileges. 15
It is a feeble attempt to argue thatthe ordinance violates Presidential Decree No.7, dated September 30, 1972,insofar as i taffects livestock and animal products, because the said decree prescribes the
collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of
Agriculture and Natural Resources." 16 Clearly, 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 ofthe Market Committee in the enactment ofOrdinance No.7522 supposedly in accordance with Republic Act No. 6039, an amendm ent to the City Charter ofManila, providing that "the
market committee shall formulate, recommend and adopt, subjectto the ratification of the municipal board,and approval ofthe mayor, policies and rules or regulation repealing or maneding existing provisions of
the market code" does notinfectthe ordinance with any germ ofinvalidity. 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 ini tiative and the Market Committee cannotdemur. Atmost,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 ofthe necessary data,studies and the collection of consensus for
the proposal of ordinances regarding city markets. Much less could it be said that Republic Act6039 intended to delegate to the Market Committee the adoption of regulatory mea sures for the operation and
administration of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails thatthe 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 butfor the purpose ofraising revenues for the city. That is the objectitserves. The entrusting of the collection of the fees does not destroy
the public purpose of the ordinance. So long as the purpose is public, itdoes not matter whether the agency through which th e 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 notdependent on the nature or character of the person or corpora tion whose intermediate agency is to be used in applying it. The people may be taxed for
a public purpose, although itbe 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 CorruptPractices Actbecause the increased rates of market stall fees as levied by the ordinance will necessarily inure to
the unwarranted benefit and advantage ofthe 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 ofthe court below is hereby reversed and set aside. Ordinance No. 7522 of the City of Manila, date d June 15, 1975,is hereby held to have been validly enacted. No.costs.
SO ORDERED.
6. G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as ProvincialGovernor of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ETAL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G.Bautista and Solicitor A. A.Torres for appellee.
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision ofthe Court of First Instance ofRizal, dismissing the above entitled case and dissolving the writ o fpreliminary 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 ActNo. 920,entitled "A n 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 yetconstructed, .. . within the Antonio Subdivision . . .situated at . .. Pasig, Rizal" (according to the tracings
attached to the petition as Annexes A and B,near ShawBoulevard, not far away from the intersection between the latter and Highway 54 ), which projected feeder roads "do notconnect any governmentproperty
or any important premises to the main highway"; thatthe aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private propert ies ofrespondent Jose C.
Zulueta, who, at the time ofthe passage and approval ofsaid Act, was a member of the Senate ofthe Phil ippines;thaton 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 submita plan of
the said roads and agree to change the names oftwo 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 f or the construction ofthe projected feeder roads in question; that the municipal council of
Pasig endorsed said letter ofrespondent Zulueta to the DistrictEngineer ofRizal, who, up to the present "has not made any endorsement thereo n" 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 ofP85,000.00 therein made, for the construction,reconstruction, repair, extension and improvement of said
projected feeder roads, was illegal and, therefore,void ab initio"; thatsaid 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 ofthe Philippines, an alleged deed ofdonation —copy of which is annexed to the petition —ofthe four (4) parcels of land
constituting said projected feeder roads, in favor ofthe Government ofthe Republic of the Philippines; that said alleged deed ofdonation was,on the same date, accepted by the then Executive Secretary; that
being subject to an onerous condition,said donation partook ofthe 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 contractwith the Government, and, hence,is unconstituti onal, as well as null and void ab initio,for the construction ofthe 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 athis own
expense"; that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; an d that, unless restrained by the court, the respondents would continue to execute,
comply with, followand implement the aforementioned illegal provision oflaw, "to the irreparable damage,detriment and prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item ofRepublic Act No. 920 be declared null and void; that the alleged deed ofdonation 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 ofsaid funds provided for in Republic Act No. 9 20; 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 newand further releases on the aforesaid item of Republic ActNo. 920 and from making any further payments out ofsaid
illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground thatpetitioner had "no legal capacity to sue", and that the petition did "not state a cause ofaction". In support to this motion,respondentZulueta
alleged that the Provincial Fiscal of Rizal,not its provincial governor, should represent the Province of Rizal, pursuantto section 1683 of the Revised Administrative Code;thatsaid 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 ques tion, the
same being a pure act ofliberality, not a contract. The other respondents,in turn, maintained that petitioner could no tassail the appropriation in question because "there is no actual bona fide case .. . in which

9. the validity of Republic Act No.920 is necessarily involved" and petitioner "has notshown thathe has a personal and substa ntial interest" in said Act "and that its enforcementhas 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 th at,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 ActNo. 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 thatthe 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; itbeing expressly understood that should the Government ofthe 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 Arti cle 1409 ofthe Civil Code ofthe Philippines,
declares in existence and void from the very beginning contracts "whose cause, objec tor purpose is contrary to law, morals . .. or public policy"; that the legality ofsaid donation may notbe 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 thatthe construction of
said roads, to be undertaken with the aforementioned appropriation of P85,000.00,would have the effectof relieving respondent Zulueta ofthe burden ofconstructing his subdivision streets or roads at his own
expenses, 1and would "greatly enhance or increase the value of the subdivision" ofsaid 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, respondentZulueta 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 ofall laws . . .Aside from the fact that movantis not aware of any law which makes
illegal the appropriation ofpublic funds for the improvement ofwhatwe,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 ofthe Philippines and the system of checks and
balances underlying our political structure.Moreover, itis refuted by the decisions of this Court invalidating legislative enactments deemed violative ofthe 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. .. . Itis the essential character ofthe direct objectof 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 ofthe 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 ofprivate 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,discussed supra 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 thereofto another purpose, no
appropriation of state funds can be made for other than for a public purpose.
The test ofthe constitutionality ofa 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 ofgovern ment,which, as such, exists primarily for
the promotion of the general welfare.Besides, reflecting as they do,the established j urisprudence 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) thatthe
latter may not be annulled without a previous declaration of unconstitutionality ofthe said donation; and (3) that the rule set forth in Article 1421 ofthe Civil Code is absolute,and admits ofno exception. We do not
agree with these premises.
The validity of a statute depends upon the powers ofCongress atthe time ofits passage or approval, not upon events occurri ng,or acts performed,subsequently thereto, unless the latter consists ofan
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 Act920,was passed by Congress, or, when said bill was approved by the
President and the disbursement ofsaid sum became effective, or on June 20, 1953 (see section 13 of said Act).Inasmuch as the land on which the projected feeder ro ads were to be constructed belonged then to
respondent Zulueta, the resultis 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 ofgiving a "semblance of legality", or legalizing,the appropriation i n 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 subjectto 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, exceptonly 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 thatthe 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 disbursementof 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 requestof 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:

10. In the determination ofthe degree ofinterest essential to give the requisite standing to attack the constitutionality of a statute,the general rule is thatnotonly persons individually affected, but also
taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore ques tion the constitutionality ofstatutes requiring expenditure of public
moneys. (11 Am.Jur. 761; emphasis supplied.)
However, this viewwas notfavored by the Supreme Courtof 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 differentfrom that of a taxpayer ofa municipal corporation to its government. Indeed, under the composite system of government existing in the U.S.,the states ofthe Union are
integral part of the Federation from an international viewpoint, but, each state enjoys internally a substantial measure ofsovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same
was made by representatives of each state of the Union,notof the people ofthe U.S., except insofar as the former represented the people ofthe 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 sta tutes have become binding upon the people ofthe U.S.in consequence of an actof,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 th e Federal Government of the U.S.is reflected in the election of its
President, who is chosen directly, not by the people ofthe U.S., butby 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 ofthe Philippines,on the other, is notidentical to that obtaining between the people and taxpayers ofthe
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 ofthe Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitary type of our national government is notsubjectto 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 ofthe 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 respectto acts ofCongress of the United States appropriating federal funds.
Indeed, in the Province ofTayabas 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 ofcontesting 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 notpermitted 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 ofpublic 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 notmerely 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 oftaxation,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 nothave 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. Itis so ordered.
7. G.R. No. 99886 March31, 1993
JOHN H. OSMEÑA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy
Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.
NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules of Court, 2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account ofthe Ministry of Energy (now, the Office of Energy Affairs ), created pursuantto § 8, paragraph 1, of P.D. No. 1956, as amended, "said creation
of a trust fund being contrary to Section 29 (3), Article VI ofthe . . Constitution; 4
2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, for "being an undue and invalid delegation oflegislative power .. to the Energy Regulatory Board;"5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, 6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the pump prices and petroleum products to the levels prevail ing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D.1956 creating a S pecial Account in the General Fund,designated as the Oil Price Stabilization Fund (OPSF). The OPSF was
designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices ofcrude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue ofE.O. 1024,7 and ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investmentof the fund in government securities, with the earnings from such placements accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the g rounds for reimbursement to oil companies for possible cost underrecovery
incurred as a result of the reduction of domestic prices ofpetroleum products,the amountof the underrecovery being leftfo r determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit,"the Energy Regulatory Board . .
issued an Order on December 10,1990, approving the increase in pump prices of petroleum products," and atthe rate ofrecoupment,the OPSF deficit should have been fully covered in a spa n of six (6) months,
but this notwithstanding,the respondents — Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance;Wenceslao de la Paz, in his capacity as Head of the
Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board —"are poised to accept,process and pay claims not authorized under P.D. 1956."9
The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution,reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. Ifthe purpose for which a special fund was
created has been fulfilled or abandoned, the balance, ifany, shall be transferred to the general funds of the Government.

11. The petitioner argues that "the monies collected pursuant to . . P.D.1956, as amended,must be treated as a 'SPECIAL FUND,' not as a 'trustaccount' or a 'trustfund,' and that"if a special tax is collected for a
specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated,and not channeled to another government objective." 10 Petitioner further points out
that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which itwas
created." 11
He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose, tariffrates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national developmentprogram ofthe Government;
and, inasmuch as the delegation relates to the exercise ofthe power of taxation, "the limits,limitations and restrictions mustbe quantitative,thatis, the law mustnotonly specify how to tax, who
(shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." 12
The petitioner does not suggestthata "trust account" is illegal per se,but maintains that the monies collected,which form part ofthe OPSF,should be maintained in a special account ofthe general fund for the
reason that the Constitution so provides,and because they are, supposedly, taxes levied for a special purpose.He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from
collections of ad valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the viewthatthe powers granted to the ERB under P.D.1956, as amended, partake of the nature of the taxation power of the
State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose." 13 The petitioner's
perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position ofthe petitioner on these issues, the Court recalls its holding in Valmonte v. Energy Regulatory Board, et al. 14 —
The foregoing arguments suggest the presence ofmisconceptions about the nature and functions of the OPSF. The OPSF is a "Trust Account" which was established "for the
purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum
products." 15 Under P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February
1987, this Trust Account may be funded from any of the following sources:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising
from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a resultof the lifting of tax exemptions of government corporations,as may be determined by the Minister
of Finance in consultation with the Board ofEnergy:
c) Any additional amountto be imposed on petroleum products to augmentthe resources of the Fund through an appropriate Order that may be
issued by the Board ofEnergy requiring paymentof persons or companies engaged in the business of importing, manufacturing and/ or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation ofcrude oil and petroleum products
is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board ofEnergy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary from day to day is of judicial notice. Freightrates for hauling crude oil and petroleum
products from sources ofsupply to the Philippines may also vary from time to time.The exchange rate ofthe peso vis-a-vis the U.S. dollar and other convertible foreign currencies
also changes from day to day. These fluctuations in world market prices and in tanker rates and foreign exchange rates would in a completely free market translate into
corresponding adjustments in domestic prices of oil and petroleum products with sympathetic frequency. But domestic prices which vary from day to day or even only from week to
week would result in a chaotic market with unpredictable effects upon the country's economy in general. The OPSF was established precisely to protectlocal consumers from the
adverse consequences thatsuch frequent oil price adjustments may have upon the economy . Thus,the OPSF serves as a pocket, as it were, into which a portion of the purchase
price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of,costs ofcrude importation. The OPSF is thus a buffer mechanism through which the domestic
consumer prices of oil and petroleum products are stabilized, instead offluctuating every so often,and oil companies are al lowed to recover those portions of their costs which
they would not otherwise recover given the level ofdomestic prices existing atany given time. To the extent that some tax revenues are also put into it,the OPSF is in effecta
device through which the domestic prices ofpetroleum products are subsidized in part. It appears to the Court thatthe establishment and maintenance of the OPSF is well within
that pervasive and non-waivable power and responsibility ofthe government to secure the physical and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State. The stabilization,and subsidy ofdomestic prices of petroleum products and fuel oil —clearly critical in
importance considering, among other things, the continuing high level ofdependence ofthe country on imported crude oil — are appropriately regarded as public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is notfar different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Courtupheld the legality ofthe
sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta,98 Phil. 148). .. .
The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is
primarily in the exercise ofthe police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose —thatof "financing the growth and development of the
sugar industry and all its components, stabilization of the domestic market including the foreign market." The fact that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249 ALR 535,cited i n 42 Am Jur Sec.
2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust" for the
purpose intended.Once the purpose has been fulfilled or abandoned, the balance ifany, is to be transferred to the general f unds of the Government. Thatis the essence ofthe
trust intended (SEE 1987 Constitution,Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI,Sec. 23(1). 17
The character ofthe Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 2 9 (3), lifted from the 1935 Constitution,
Article VI,Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes,they are exacted in the exercise of the pol ice power of the State. Moreover, that the OPSF is a special fund is plain from the
special treatment given it by E.O. 137. It is segregated from the general fund; and while itis placed in what the lawrefers to as a "trustliability account," the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied thatthese measures comply with the cons titutional description of a "special fund." Indeed,the practice is not without precedent.