FIRSTDIVISION

[G.R.No.109791.July14,2003]

PHILIPPINEPORTSAUTHORITY,petitioner,vs.CITYOFILOILO,respondent.
DECISION
AZCUNA,J.:

BeforeusisapetitionforreviewoncertiorariassailingtheDecisionoftheRegionalTrialCourtof
IloiloCity,Branch39,datedFebruary26,1993inCivilCaseNo.18477,acaseforcollectionofasum
ofmoney.Seekingtoraisequestionspurelyoflaw,petitionerPhilippinePortsAuthority(PPA)would
wantustosetasidetherulingorderingittopayrealpropertyandbusinesstaxestorespondentCity
ofIloilo.
Thefactualantecedentsaresummarizedbythetrialcourt:
Thisisanactionfortherecoveryofsumofmoneyfiledby[respondent]CityofIloilo,apubliccorporation
organizedunderthelawsoftheRepublicofthePhilippines,representedbytheHon.RodolfoT.GanzonasCity
Mayor,againstpetitioner,PhilippinePortsAuthority(PPA),agovernmentcorporationcreatedbyP.D.857.
[Respondent]seekstocollectfrom[petitioner]realpropertytaxesaswellasbusinesstaxes,computedfromthe
lastquarterof1984uptofourthquarterof1988.
[Respondent]allegesthat[petitioner]isengagedinthebusinessofarrastreandstevedoringservicesandthe
leasingofrealestateforwhichitshouldbeobligatedtopaybusinesstaxes.Itfurtherallegesthat[petitioner]is
thedeclaredandregisteredownerofawarehousewhichisusedintheoperationofitsbusinessandisalso
therebysubjecttorealpropertytaxes.
ItdemandstheaggregateamountofP510,888.86inrealtyandbusinesstaxesasofDecember1988(real
propertytaxlastquarterof1984to1988businesstax1984to1988)includingitscorrespondinginterestsand
penaltycharges.
OnJuly19,1989,[petitioner]filedamotiontodismissbut[it]wasdeniedbythiscourt.Amotionfor
reconsiderationwasfiled,butthesamewasstilldenied,afterwhich[petitioner]fileditsanswer.
Duringthepretrialconference,thefollowingfactualandlegalissuesweredefinedandclarified.
FactualIssues:
1.Whetherornot[petitioner]isengagedinbusiness
2.Whetherornottheassessmentoftaxby[respondent]isaccurateasof4thquarterof1988fromthe
year 1984 real property tax in the amount of P180,953.93 and business tax in the amount of
P329,934.93asofDecember31,1988.

LegalIssues:

1. Whether or not Philippine Ports Authority is exempt from the payment of real property tax and
businesstax
2.Whetherbyfilingamotiontodismiss,[petitioner]impliedlyadmittedtheallegationsinthecomplaint
3. Whether Philippine Ports Authority is engaged in business. If in the negative, whether or not it is
exemptfrompaymentofbusinesstaxes.

Duringtrial,[respondent]presentedtwowitnesses,namely:Mrs.RizalinaF.TulioandMr.LeoncioMacrangala.
xxxxxxxxx
After[respondent]hadresteditscase,[petitioner]didnotpresentanyevidence.Instead,itscounselaskedthe
courttogivehimtimetofileamemorandum,assaidcounselisconvincedthattheissuesinvolvedinthiscase
arepurelylegalissues.
Hehasnoquarrelasregardsthecomputationoftherealpropertyandbusinesstaxesmadeby[respondent].He
isconvinced,however,thattheissueinthiscaseinvolvesaquestionoflawandthat[petitioner]isnotliableto
payanykindoftaxestotheCityofIloilo.[1]
Thecourtaquorendereditsdecisionholdingpetitionerliableforrealpropertytaxesfromthelast
quarter of 1984 to December 1986, and for business taxes with respect to petitioners lease of real
propertyfromthelastquarterof1984upto1988.It,however,heldthatrespondentmaynotcollect
business taxes on petitioners arrastre and stevedoring services, as these form part of petitioners
governmentalfunctions.Thedispositiveportionofsaiddecisionstates:
WHEREFORE,premisesconsidered,judgmentisherebyrenderedinfavoroftheplaintiffandagainstthe
defendant,orderingthelattertopaytheplaintiff,asfollows:
1.theamountofP98,519.16asrealpropertytax,from[the]lastquarterof1984uptoDecember1986
2.theamountofP3,828.07,asbusinesstax,forleasingofrealestatefrom[the]lastquarterof1984up
to1988.[2]

Petitionernowseeksareviewofthecase,contendingthatthecourtaquodecidedaquestionof
substancewhichhasnotbeendecidedbyusinthat:
(i) It decreed a property of public dominion (port facility) as subject to realty taxes just because the
mentioned property is being administered by what it perceived to be a taxable government
corporation.And,
(ii)ItdeclaredthatpetitionerPPAissubjecttobusinesstaxesforleasingtoprivatepersonsorentities
realestatewithoutconsideringthatpetitionerPPAisnotengagedinbusiness.[3]

InitsComment,respondentinadditionraisestheissueofwhetherornotpetitionermaychange
itstheoryonappeal.Itpointsoutthatpetitionerneverraisedtheissuethatthesubjectpropertyisof
publicdominionduringthetrialnordiditmentionitinthememorandumitfiledwiththelowercourt.It
furthercontendsthatsuchchangeoftheorypatentlycontradictspetitionersadmissioninitspleadings
andisdisallowedunderapplicablejurisprudence.[4]
Therecordsshowthatthetheoryofpetitionerbeforethetrialcourtwasdifferentfromthatofthe
presentpetition.Infact,evenwhileatthetrialcourtstage,petitionerwasnotconsistentinitstheory.[5]
Initiallyinitspleadingstherein,itarguedthatasagovernmentownedcorporation,itisexemptfrom
paying real property taxes by virtue of its specific exemption in its charter,[6] Section 40 of the Real
Property Tax Code and Executive Order No. 93. Subsequently, in the memorandum it filed with the
trial court, it omitted its earlier argument and changed its theory by alleging that it is a government
instrumentality, which, according to applicable jurisprudence, may not be taxed by the local
government.Afterobtaininganadversedecisionfromthetrialcourt,itadoptsyetanotherstanceon
appealbeforeus,contestingthetaxabilityofitswarehouse.Itarguedforthefirsttimethatsinceports

constructed by the State are considered under the Civil Code as properties of public dominion, its
warehouse,whichitinsiststobepartofitsport,shouldbetreatedlikewise.Tosupportthis,itinvokes
Article420oftheCivilCode,whichprovides:
Art.420.Thefollowingthingsarepropertyofpublicdominion:
Thoseintendedforpublicuse,suchasroads,canals,rivers,torrents,portsandbridgesconstructedbytheState,
banks,shores,roadsteads,andothersofsimilarcharacter
xxxxxxxxx
[Emphasissupplied]
Insisting that the subject warehouse is considered as part of its port, it points to Section 3 (e) of its
charterquotedhereunder:
e)portmeansaplacewhereshipsmayanchorortieupforthepurposeofshelter,repair,loadingordischargeof
cargo,orforothersuchactivitiesconnectedwithwaterbornecommerce,andincludingallthelandandwater
areasandthestructures,equipmentandfacilitiesrelatedtothesefunctions.[Emphasissupplied]
Aperusaloftherecordsshowsthatthisthesiswasneverpresentednordiscussedatthetrialstage.
As a rule, a party who deliberately adopts a certain theory upon which the case is tried and
decidedbythelowercourtwillnotbepermittedtochangetheoryonappeal.[7]Pointsoflaw,theories,
issuesandargumentsnotbroughttotheattentionofthelowercourtneednotbe,andordinarilywill
notbe,consideredbyareviewingcourt,asthesecannotberaisedforthefirsttimeatsuchlatestage.
Basicconsiderationsofdueprocessunderliethisrule.[8]Itwouldbeunfairtotheadversepartywho
wouldhavenoopportunitytopresentfurtherevidencematerialtothenewtheory,whichitcouldhave
donehaditbeenawareofitatthetimeofthehearingbeforethetrialcourt.[9]Topermitpetitionerin
this case to change its theory on appeal would thus be unfair to respondent, and offend the basic
rulesoffairplay,justiceanddueprocess.[10]
Petitionerhowevercitesanexceptiontotherule,asenunciatedinLiangaLumberCo.v.Lianga
TimberCo.,Inc.,[11]whereinwesaid:
[I]ntheinterestofjusticeandwithinthesounddiscretionoftheappellatecourt,apartymaychangehistheory
onappealonlywhenthefactualbasesthereofwouldnotrequirepresentationofanyfurtherevidencebythe
adversepartyinordertoenableittoproperlymeettheissueraisedinthenewtheory.
Petitioner contends that its new theory falls under the aforecited exception, as the issue does not
involveanydisputedevidentiarymatter.
Contrary to petitioners claim, we find that the new issue raised is not a purely legal question. It
must be emphasized that the enumeration of properties of public dominion under Article 420 of the
CivilCodespecificallystatesportsconstructedbytheState.Thus,inordertoconsidertheportinthe
caseatbarasfallingunderthesaidclassification,thefactthattheportwasconstructedbytheState
mustfirstbeestablishedbysufficientevidence.ThisfactprovedcrucialinSantosv.Moreno,[12]where
the issue raised was whether the canals constructed by private persons were of public or private
ownership.Weruledthatthecanalswereprivatelyowned,thus:
UnderArt.420,canalsconstructedbytheStateanddevotedanddevotedtopublicuseareofpublicownership.
Conversely,canalsconstructedbyprivatepersonswithinprivatelandsanddevotedexclusivelyforprivateuse
mustbeofprivateownership.
In the case at bar, no proof was adduced to establish that the port was constructed by the State.
Petitionercannothaveusautomaticallyconcludethatitsportqualifiedaspropertyofpublicdominion.

It would be unfair to respondent, which would be deprived of its opportunity to present evidence to
disprovethefactualbasisofthenewtheory.ItisthusclearthattheLiangaexceptioncannotapplyin
thecaseatbar.
Moreover,ascorrectlypointedoutbyrespondent,wecannotignorethefactthatpetitionersnew
positionrunscontrarytoitsownadmissioninthepleadingsfiledinthetrialcourt.Underparagraph3
of respondents complaint quoted hereunder, the fact of petitioners ownership of the property was
specificallyallegedasfollows:
III

DefendantislikewisethedeclaredandregisteredownerofawarehousestandingonLotNo.1065situatedat
Bgy.Concepcion,CityProper,declaredunderTaxDeclarationNo.56325.XeroxcopyofthesaidTax
DeclarationisheretoattachedasannexDandform[s]anintegralpartofhereincomplaint[13]
In its Answer, referring to the abovecited complaint, petitioner stated, Paragraph 3 is admitted.[14]
Notably,thisadmissionwasneverquestionednorputatissueduringthetrial.
Nowbeforeus,petitionercontradictsitsearlieradmissionbyclaimingthatthesubjectwarehouse
isapropertyofpublicdominion.Thisinconsistencyismademoreapparentbylookingcloselyatwhat
publicdominionmeans.Tolentinoexplainsthisinthiswise:
PrivateownershipisdefinedelsewhereintheCodebutthemeaningofpublicdominionisnowheredefined.
Fromthecontextofvariousprovisions,itisclearthatpublicdominiondoesnotcarrytheideaofownership
propertyofpublicdominionisnotownedbytheState,butpertainstotheState,whichasterritorialsovereign
exercisescertainjudicialprerogativesoversuchproperty.Theownershipofsuchproperty,whichhasthespecial
characteristicsofacollectiveownershipforthegeneraluseandenjoyment,byvirtueoftheirapplicationtothe
satisfactionofcollectiveneeds,isinthesocialgroup,whethernational,provincial,ormunicipal.Theirpurpose
isnottoservetheStateasajuridicalperson,butthecitizenstheyareintendedforthecommonandpublic
welfare,andsotheycannotbetheobjectofappropriation,eitherbytheStateorbyprivatepersons.[15]
[Emphasissupplied]
Followingtheabove,propertiesofpublicdominionareownedbythegeneralpublicandcannotbe
declaredtobeownedbyapubliccorporation,suchaspetitioner.
Astheobjectofthepleadingsistodrawthelinesofbattle,sotospeak,betweenthelitigantsand
toindicatefairlythenatureoftheclaimsordefensesofbothparties,apartycannotsubsequentlytake
apositioncontraryto,orinconsistent,withhispleadings.[16]Unlessapartyallegespalpablemistake
ordeniessuchadmission,judicialadmissionscannotbecontroverted.[17]Petitioneristhusboundby
itsadmissionofownershipofthesubjectpropertyandisbarredfromclaimingotherwise.
We also note that petitioner failed to raise the issue of ownership during the pretrial. In its
petition,itinsiststhattodetermineliabilityforrealpropertytax,theownershipofthepropertymustfirst
beascertained.[18]Inthepretrialorder,however,towhichpetitionerdidnotobject,nowherewasthe
issueofownershipincludedinthestipulatedfactualorlegalissues.[19]
Wehaveruledthatapretrialisprimarilyintendedtomakecertainthatallissuesnecessarytothe
dispositionofacaseareproperlyraised.Thustoobviatetheelementofsurprise,partiesareexpected
todiscloseatthepretrialconferenceallissuesoflawandfactwhichtheyintendtoraiseatthetrial.
Consequently, the determination of issues at a pretrial conference bars the consideration of other
questionsonappeal.[20] Hence, in the case at bar, the fact that the issue of ownership is outside of
whathasbeendelimitedduringthepretrialfurtherjustifiesthedisallowanceofpetitionersnewtheory.
Therefore,onthebasisoftheforegoingconsiderationsandintheabsenceofcompellingreasons
toruleotherwise,weholdthatpetitionermaynotbepermittedtochangeitstheoryatthisstage.Well
settledistherulethatquestionsthatwerenotraisedinthelowercourtcannotberaisedforthefirst
timeonappeal.[21]

Inanycase,grantingthatpetitionerspresenttheoryisallowedatthisstage,weneverthelessfind
it untenable. Concededly, ports constructed by the State are properties of the public dominion, as
Article 420 of the Civil Code enumerates these as properties intended for public use. It must be
stressed however that what is being taxed in the present case is petitioners warehouse, which,
althoughlocatedwithintheport,isdistinctfromtheportitself.InLightRailTransitAuthorityv.Central
Board of Assessment Appeals et al.,[22] petitioner therein similarly sought an exemption from real
estate taxes on its passenger terminals, arguing that said properties are considered as part of the
publicroads,whichareclassifiedaspropertyofpublicdominionintheCivilCode.[23]Weruledtherein
that:
[T]hepropertiesofpetitionerarenotexclusivelyconsideredaspublicroadsbeingimprovementsplacedupon
thepublicroad,andthis[separable]natureofthestructureinitselfphysicallydistinguishesitfromapublic
road.Consideringfurtherthatcarriagewaysorpassengerterminalsareelevatedstructureswhicharenotfreely
accessibletothepublic,visvisroadswhicharepublicimprovementsopenlyutilizedbythepublic,theformer
areentirelydifferentfromthelatter.
Using the same reasoning, the warehouse in the case at bar may not be held as part of the port,
consideringitsseparablenatureasanimprovementupontheport,andthefactthatitisnotopenfor
usebyeveryoneandfreelyaccessibletothepublic.Inthesamewaythatweruledinonecasethat
the exemption of public property from taxation does not extend to improvements made thereon by
homesteaders or occupants at their own expense,[24] we likewise uphold the taxability of the
warehouse in the instant case, it being a mere improvement built on an alleged property of public
dominion,assumingpetitionersporttobeso.Moreover,petitionermaynotinvokethedefinitionofport
in its charter to expand the meaning of ports constructed by the State in the Civil Code to include
improvements built thereon. It must be noted that the charter itself limited the use of said definition
onlyfortheinterpretationofPresidentialDecree(P.D.)No.857,itsbylaws,regulationsandrules,[25]
andnotofotherstatutessuchastheCivilCode.Giventheseparameters,therefore,petitionersmove
topresentitsnewtheory,evenifallowed,wouldnonethelessprovetobefutile.
Thetrialcourtcorrectlyruledthatfortheassessedperiodof1984to1988,petitionersexemption
fromrealpropertytaxeswaswithdrawnbyP.D.No.1931,atleastfortheperiodof1984to1986.
Originally,petitionerwasexemptfromrealpropertytaxesonthebasisoftheRealPropertyTax
Code[26]thengoverning,whichprovided:
SECTION40.ExemptionsfromRealPropertyTax.Theexemptionshallbeasfollows:
(a)RealpropertyownedbytheRepublicofthePhilippinesoranyofitspoliticalsubdivisionsandany
governmentownedcorporationsoexemptbyitscharter:Providedhowever,Thatthisexemptionshallnotapply
torealpropertyoftheabovenamedentitiesthebeneficialuseofwhichhasbeengranted,forconsiderationor
otherwise,toataxableperson.
Petitionerscharter,P.D.857,[27]furtherspecificallyexempteditfromrealpropertytaxes:
SECTION25.ExemptionfromRealtyTaxesTheAuthorityshallbeexemptfromthepaymentofrealproperty
taxesimposedbytheRepublicofthePhilippines,itsagencies,instrumentalitiesorpoliticalsubdivisions
Provided,ThatnotaxexemptionsshallbeextendedtoanysubsidiariesoftheAuthoritythatmaybeorganized
Provided,finally,Thatinvestmentsinfixedassetsshallbedeductibleforincometaxpurposes.
It can thus be seen from the foregoing that petitioner, as a governmentowned or controlled
corporation,enjoyedanexemptionfromrealpropertytaxes.
OnJune11,1984,however,P.D.1931effectivelywithdrewalltaxexemptionprivilegesgrantedto
governmentownedorcontrolledcorporationsasstatedinSection1thereof,whichreads:

Sec.1.Theprovisionsofspecialorgenerallawtothecontrarynotwithstanding,allexemptionsfromthe
paymentofduties,taxes,fees,impostsandotherchargesheretoforegrantedinfavorofgovernmentownedor
controlledcorporationsincludingtheirsubsidiaries,areherebywithdrawn.
Under the same law, the exemption can be restored in special cases through an application for
restorationwiththeSecretaryofFinance,[28]which,notably,petitionerdidnotavail.
Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17, 1986 restoring tax
exemptionsprovidedundercertainlaws,oneofwhichistheRealPropertyTaxCode.Thepertinent
portionofsaidlawprovides:
SECTION1.Theprovisionsofanygeneralorspeciallawtothecontrarynotwithstanding,alltaxandduty
incentivesgrantedtogovernmentandprivateentitiesareherebywithdrawn,except:
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e)thoseconferredunderfourbasiccodesnamely:
(i)theTariffandCustomsCode,asamended
(ii)theNationalInternalRevenueCode,asamended
(iii)theLocalTaxCode,asamended
(iv)theRealPropertyTaxCode,asamended
[Emphasissupplied]
The abovecited laws, therefore, indicate that petitioners tax exemption from real property taxes
waswithdrawnbyP.D.1931effectiveJune11,1984,butwassubsequentlyrestoredbyvirtueofE.O.
93,startingDecember17,1986.[29]Hence,petitionerisliableforrealpropertytaxesonitswarehouse,
computedfromthelastquarterof1984uptoDecember1986.
Petitioner,however,seekstobeexcusedfromliabilityfortaxesbyinvokingthepronouncementin
Bascov.PAGCOR[30](Basco)quotedhereunder:
PAGCORhasadualrole,tooperateandtoregulategamblingcasinos.Thelatterroleisgovernmental,which
placesitinthecategoryofanagencyorinstrumentalityoftheGovernment.Beinganinstrumentalityofthe
Government,PAGCORshouldbeandactuallyisexemptfromlocaltaxes.Otherwise,itsoperationmightbe
burdened,impededorsubjecttocontrolbyamereLocalgovernment.[Emphasissupplied]
Petitionerpointsoutthatitsexerciseofregulatoryfunctionsasdecreedbyitscharter[31]placesitwithinthe
categoryofanagencyorinstrumentalityofthegovernment,which,accordingtoBasco,isbeyondthereachof
localtaxation.
RelianceintheabovecitedcaseisunavailingconsideringthatP.D.1931wasneverraisedtherein,andgiventhat
theissueinsaidcasefocusedontheconstitutionalityofP.D.1869,thecharterofPAGCOR.Thesaiddecision
didnotabsolutelyprohibitlocalgovernmentsfromtaxinggovernmentinstrumentalities.Infactwestated
therein:
ThepoweroflocalgovernmenttoimposetaxesandfeesisalwayssubjecttolimitationswhichCongressmay
providebylaw.SinceP.D.1869remainsanoperativelawuntilamended,repealedorrevokeditsexemption
clauseremainsanexemptiontotheexerciseofthepoweroflocalgovernmentstoimposetaxesandfees.[32]
Furthermore,inthemorerecentcaseofMactanCebuInternationalAirportAuthorityv.Marcos,[33]
where the Basco case was similarly invoked for tax exemption, we stated: [N]othing can prevent

Congress from decreeing that even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom. The fact that tax exemptions of
governmentowned or controlled corporations have been expressly withdrawn by the present Local
Government Code[34] clearly attests against petitioners claim of absolute exemption of government
instrumentalitiesfromlocaltaxation.
Petitioner also contends that the term governmentowned or controlled corporations referred in
P.D. 1931 covers only those not performing governmental functions. This argument is without legal
basisforitreadsintothelawadistinctionthatisnotthere.Itrunscontrarytotheclearintentofthelaw
towithdrawfromallunitsofthegovernment,includinggovernmentownedorcontrolledcorporations,
theirexemptionsfromtaxes.Haditbeenotherwise,thelawwouldhavesaidso.[35]
Moreover, the trial court correctly pointed out that if indeed petitioner were not subject to local
taxation,petitionerscharterwouldnothavespecificallyprovidedforitsexemptionfromthepaymentof
realpropertytax.Itsexemptionthereinthereforeprovesthatitwasonlyanexceptiontothegeneral
ruleoftaxabilityofpetitioner.Giventhatsaidprivilegewaswithdrawnbysubsequentlaw,petitioners
claimforexemptionfromrealpropertytaxesfortheentireassessedperiodfails.
Weaffirmthefindingofthelowercourtonpetitionersliabilityforbusinesstaxesfortheleaseofits
building to private corporations. During the trial, petitioner did not present any evidence to refute
respondentsproofofpetitionersincomefromtheleaseofitsproperty.Neitherdiditpresentanyproof
ofexemptionfrombusinesstaxes.Instead,itemphasizeditscharterprovisionsdefiningitsfunctions
asgovernmentalinnature.Itaverredthatitallowedportuserstooccupycertainpremiseswithinthe
port area only to ensure order and convenience in discharging its governmental functions. It hence
claimedthatitisnotengagedinbusiness,astheactofleasingoutitspropertywasnotmotivatedby
profit,butbyitsdutytomanageandcontrolportoperations.
The argument is unconvincing. As admitted by petitioner, it leases out its premises to private
personsforconvenienceandnotnecessarilyaspartofitsgovernmentalfunctionofadministeringport
operations. In fact, its charter classifies such act of leasing out port facilities as one of petitioners
corporate powers.[36] Any income or profit generated by an entity, even of a corporation organized
withoutanyintentionofrealizingprofitintheconductofitsactivities,issubjecttotax.[37]Whatmatters
istheestablishedfactthatitleasedoutitsbuildingtotenprivateentitiesfromwhichitregularlyearned
substantialincome.Thus,intheabsenceofanyproofofexemptiontherefrom,petitionerisliablefor
theassessedbusinesstaxes.
In closing, we reiterate that in taxing governmentowned or controlled corporations, the State
ultimatelysuffersnoloss.InNationalPowerCorp.v.PresidingJudge,RTC,Br.XXV,