Pascual vs. Secretary of Public Works
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the
public advantage or benefit, derived from such expenditure,
is merely incidental in the promotion of a particular
enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this
action for declaratory relief, with injunction, upon the
ground that RA No. 920, which apropriates funds for public
works particularly for the construction and improvement of
Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached
to the petition, were nothing but projected and planned
subdivision roads, not yet constructed within the Antonio
Subdivision, belonging to private respondent Zulueta,
situated at Pasig, Rizal; and which projected feeder roads do
not connect any government property or any important
premises to the main highway. The respondents' contention
is that there is public purpose because people living in the
subdivision will directly be benefitted from the construction
of the roads, and the government also gains from the
donation of the land supposed to be occupied by the streets,
made by its owner to the government.
ISSUE: Should incidental gains by the public be considered
"public purpose" for the purpose of justifying an expenditure
of the government?
HELD: No. It is a general rule that the legislature is without
power to appropriate public revenue for anything but a public
purpose. It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a
tax, and not the magnitude of the interest to be affected nor
the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by
their promotion. Incidental to the public or to the state,
which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify
their aid by the use public money.
The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of
the advantage of individuals, although each advantage to
individuals might incidentally serve the public.
EN BANC
G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as
Provincial Governor of Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND
COMMUNICATIONS, ET AL., 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 of
the Court of First Instance of Rizal, dismissing the above
entitled case and dissolving the writ of preliminary
injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as
Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that
Republic Act No. 920, entitled "An Act Appropriating
Funds for Public Works", approved on June 20, 1953,
contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00 "for the construction, reconstruction, repair,
extension and improvement" of Pasig feeder road terminals
(Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen.
Capinpin — Gen. Segundo — Gen. Delgado — Gen.
Malvar — Gen. Lim)"; that, at the time of the passage and
approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not
yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal" (according to the tracings
attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the
latter and Highway 54), which projected feeder roads "do
not connect any government property or any important
premises to the main highway"; that the aforementioned
Antonio Subdivision (as well as the lands on which said
feeder roads were to be construed) were private properties of
respondent Jose C. Zulueta, who, at the time of the passage
and approval of said Act, was a member of the Senate of the
Philippines; that on May, 1953, respondent Zulueta,
addressed a letter to the Municipal Council of Pasig, Rizal,
offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the
offer was accepted by the council, subject to the condition
"that the donor would submit a plan of the said roads and
agree to change the names of two of them"; that no deed of
donation in favor of the municipality of Pasig was, however,
executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the
approval of Republic Act. No. 920, and the sum of
P85,000.00 appropriated therein for the construction of the
projected feeder roads in question; that the municipal
council of Pasig endorsed said letter of respondent Zulueta
to the District Engineer of Rizal, who, up to the present
"has not made any endorsement thereon" that inasmuch as
the projected feeder roads in question were private property
at the time of the passage and approval of Republic Act No.
920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal and,
therefore, void ab initio"; that said appropriation of
P85,000.00 was made by Congress because its members
were made to believe that the projected feeder roads in
question were "public roads and not private streets of a
private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the
aforementioned appropriation", respondents Zulueta fide case . . . in which the validity of Republic Act No. 920
executed on December 12, 1953, while he was a member of is necessarily involved" and petitioner "has not shown that
the Senate of the Philippines, an alleged deed of donation — he has a personal and substantial interest" in said Act "and
copy of which is annexed to the petition — of the four (4) that its enforcement has caused or will cause him a direct
parcels of land constituting said projected feeder roads, in injury."
favor of the Government of the Republic of the Philippines;
that said alleged deed of donation was, on the same date, Acting upon said motions to dismiss, the lower court
accepted by the then Executive Secretary; that being subject rendered the aforementioned decision, dated October 29,
to an onerous condition, said donation partook of the nature 1953, holding that, since public interest is involved in this
of a contract; that, such, said donation violated the provision case, the Provincial Governor of Rizal and the provincial
of our fundamental law prohibiting members of Congress fiscal thereof who represents him therein, "have the
from being directly or indirectly financially interested in any requisite personalities" to question the constitutionality of
contract with the Government, and, hence, is the disputed item of Republic Act No. 920; that "the
unconstitutional, as well as null and void ab initio, for the legislature is without power appropriate public revenues for
construction of the projected feeder roads in question with anything but a public purpose", that the instructions and
public funds would greatly enhance or increase the value of improvement of the feeder roads in question, if such roads
the aforementioned subdivision of respondent Zulueta, "aside where private property, would not be a public purpose; that,
from relieving him from the burden of constructing his being subject to the following condition:
subdivision streets or roads at his own expense"; that the
construction of said projected feeder roads was then being The within donation is hereby made upon the condition that
undertaken by the Bureau of Public Highways; and that, the Government of the Republic of the Philippines will use
unless restrained by the court, the respondents would the parcels of land hereby donated for street purposes only
continue to execute, comply with, follow and implement the and for no other purposes whatsoever; it being expressly
aforementioned illegal provision of law, "to the irreparable understood that should the Government of the Republic of
damage, detriment and prejudice not only to the petitioner the Philippines violate the condition hereby imposed upon
but to the Filipino nation." it, the title to the land hereby donated shall, upon such
violation, ipso facto revert to the DONOR, JOSE C.
Petitioner prayed, therefore, that the contested item of ZULUETA. (Emphasis supplied.)
Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be which is onerous, the donation in question is a contract;
"declared unconstitutional and, therefor, illegal"; that a writ that said donation or contract is "absolutely forbidden by the
of injunction be issued enjoining the Secretary of Public Constitution" and consequently "illegal", for Article 1409 of
Works and Communications, the Director of the Bureau of the Civil Code of the Philippines, declares in existence and
Public Works and Highways and Jose C. Zulueta from void from the very beginning contracts "whose cause,
ordering or allowing the continuance of the above-mentioned objector purpose is contrary to law, morals . . . or public
feeder roads project, and from making and securing any new policy"; that the legality of said donation may not be
and further releases on the aforementioned item of Republic contested, however, by petitioner herein, because his
Act No. 920, and the disbursing officers of the Department of "interest are not directly affected" thereby; and that,
Public Works and Highways from making any further accordingly, the appropriation in question "should be
payments out of said funds provided for in Republic Act No. upheld" and the case dismissed.
920; and that pending final hearing on the merits, a writ of
preliminary injunction be issued enjoining the At the outset, it should be noted that we are concerned with
aforementioned parties respondent from making and a decision granting the aforementioned motions to dismiss,
securing any new and further releases on the aforesaid item which as much, are deemed to have admitted hypothetically
of Republic Act No. 920 and from making any further the allegations of fact made in the petition of appellant
payments out of said illegally appropriated funds. herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in
Respondents moved to dismiss the petition upon the ground Pasig, Rizal, and known as the Antonio Subdivision, certain
that petitioner had "no legal capacity to sue", and that the portions of which had been reserved for the projected feeder
petition did "not state a cause of action". In support to this roads aforementioned, which, admittedly, were private
motion, respondent Zulueta alleged that the Provincial Fiscal property of said respondent when Republic Act No. 920,
of Rizal, not its provincial governor, should represent the appropriating P85,000.00 for the "construction,
Province of Rizal, pursuant to section 1683 of the Revised reconstruction, repair, extension and improvement" of said
Administrative Code; that said respondent is " not aware of roads, was passed by Congress, as well as when it was
any law which makes illegal the appropriation of public approved by the President on June 20, 1953. The petition
funds for the improvements of . . . private property"; and further alleges that the construction of said roads, to be
that, the constitutional provision invoked by petitioner is undertaken with the aforementioned appropriation of
inapplicable to the donation in question, the same being a P85,000.00, would have the effect of relieving respondent
pure act of liberality, not a contract. The other respondents, Zulueta of the burden of constructing his subdivision streets
in turn, maintained that petitioner could not assail the or roads at his own expenses, 1and would "greatly enhance
appropriation in question because "there is no actual bona or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a x x x xxx xxx
public purpose."
The test of the constitutionality of a statute requiring the use
Respondents do not deny the accuracy of this conclusion, of public funds is whether the statute is designed to promote
which is self-evident. 2However, respondent Zulueta the public interest, as opposed to the furtherance of the
contended, in his motion to dismiss that: advantage of individuals, although each advantage to
individuals might incidentally serve the public. (81 C.J.S.
A law passed by Congress and approved by the President can pp. 1147; emphasis supplied.)
never be illegal because Congress is the source of all
laws . . . Aside from the fact that movant is not aware of any Needless to say, this Court is fully in accord with the
law which makes illegal the appropriation of public funds for foregoing views which, apart from being patently sound, are
the improvement of what we, in the meantime, may assume a necessary corollary to our democratic system of
as private property . . . (Record on Appeal, p. 33.) government, which, as such, exists primarily for the
promotion of the general welfare. Besides, reflecting as they
The first proposition must be rejected most emphatically, it do, the established jurisprudence in the United States, after
being inconsistent with the nature of the Government whose constitutional system ours has been patterned, said
established under the Constitution of the Republic of the views and jurisprudence are, likewise, part and parcel of our
Philippines and the system of checks and balances own constitutional law.lawphil.net
underlying our political structure. Moreover, it is refuted by
the decisions of this Court invalidating legislative This notwithstanding, the lower court felt constrained to
enactments deemed violative of the Constitution or organic uphold the appropriation in question, upon the ground that
laws. 3 petitioner may not contest the legality of the donation above
referred to because the same does not affect him directly.
As regards the legal feasibility of appropriating public funds This conclusion is, presumably, based upon the following
for a public purpose, the principle according to Ruling Case premises, namely: (1) that, if valid, said donation cured the
Law, is this: constitutional infirmity of the aforementioned
appropriation; (2) that the latter may not be annulled
It is a general rule that the legislature is without power to without a previous declaration of unconstitutionality of the
appropriate public revenue for anything but a public purpose. said donation; and (3) that the rule set forth in Article 1421
. . . It is the essential character of the direct object of the of the Civil Code is absolute, and admits of no exception.
expenditure which must determine its validity as justifying a We do not agree with these premises.
tax, and not the magnitude of the interest to be affected nor
the degree to which the general advantage of the community, The validity of a statute depends upon the powers of
and thus the public welfare, may be ultimately benefited by Congress at the time of its passage or approval, not upon
their promotion. Incidental to the public or to the state, events occurring, or acts performed, subsequently thereto,
which results from the promotion of private interest and the unless the latter consists of an amendment of the organic
prosperity of private enterprises or business, does not justify law, removing, with retrospective operation, the
their aid by the use public money. (25 R.L.C. pp. 398-400; constitutional limitation infringed by said statute. Referring
Emphasis supplied.) to the P85,000.00 appropriation for the projected feeder
roads in question, the legality thereof depended upon
The rule is set forth in Corpus Juris Secundum in the whether said roads were public or private property when the
following language: bill, which, latter on, became Republic Act 920, was passed
by Congress, or, when said bill was approved by the
In accordance with the rule that the taxing power must be President and the disbursement of said sum became
exercised for public purposes only, discussed supra sec. 14, effective, or on June 20, 1953 (see section 13 of said Act).
money raised by taxation can be expended only for public Inasmuch as the land on which the projected feeder roads
purposes and not for the advantage of private individuals. were to be constructed belonged then to respondent Zulueta,
(85 C.J.S. pp. 645-646; emphasis supplied.) the result is that said appropriation sought a private
purpose, and hence, was null and void. 4 The donation to
Explaining the reason underlying said rule, Corpus Juris the Government, over five (5) months after the approval
Secundum states: and effectivity of said Act, made, according to the petition,
for the purpose of giving a "semblance of legality", or
Generally, under the express or implied provisions of the legalizing, the appropriation in question, did not cure its
constitution, public funds may be used only for public aforementioned basic defect. Consequently, a judicial
purpose. The right of the legislature to appropriate funds is nullification of said donation need not precede the
correlative with its right to tax, and, under constitutional declaration of unconstitutionality of said appropriation.
provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the Again, Article 1421 of our Civil Code, like many other
devotion thereof to another purpose, no appropriation of state statutory enactments, is subject to exceptions. For instance,
funds can be made for other than for a public purpose. the creditors of a party to an illegal contract may, under the
conditions set forth in Article 1177 of said Code, exercise the the government thereof, except that the authority of the
rights and actions of the latter, except only those which are Republic of the Philippines over the people of the
inherent in his person, including therefore, his right to the Philippines is more fully direct than that of the states of the
annulment of said contract, even though such creditors are Union, insofar as the simple and unitary type of our
not affected by the same, except indirectly, in the manner national government is not subject to limitations analogous
indicated in said legal provision. to those imposed by the Federal Constitution upon the states
of the Union, and those imposed upon the Federal
Again, it is well-stated that the validity of a statute may be Government in the interest of the Union. For this reason,
contested only by one who will sustain a direct injury in the rule recognizing the right of taxpayers to assail the
consequence of its enforcement. Yet, there are many constitutionality of a legislation appropriating local or state
decisions nullifying, at the instance of taxpayers, laws public funds — which has been upheld by the Federal
providing for the disbursement of public funds, 5upon the Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) —
theory that "the expenditure of public funds by an officer of has greater application in the Philippines than that adopted
the State for the purpose of administering an unconstitutional with respect to acts of Congress of the United States
act constitutes a misapplication of such funds," which may be appropriating federal funds.
enjoined at the request of a taxpayer. 6Although there are
some decisions to the contrary, 7the prevailing view in the Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257),
United States is stated in the American Jurisprudence as involving the expropriation of a land by the Province of
follows: Tayabas, two (2) taxpayers thereof were allowed to
intervene for the purpose of contesting the price being paid
In the determination of the degree of interest essential to give to the owner thereof, as unduly exorbitant. It is true that in
the requisite standing to attack the constitutionality of a Custodio vs. President of the Senate (42 Off. Gaz., 1243), a
statute, the general rule is that not only persons individually taxpayer and employee of the Government was not
affected, but also taxpayers, have sufficient interest in permitted to question the constitutionality of an
preventing the illegal expenditure of moneys raised by appropriation for backpay of members of Congress.
taxation and may therefore question the constitutionality of However, in Rodriguez vs. Treasurer of the Philippines and
statutes requiring expenditure of public moneys. (11 Am. Jur. Barredo vs. Commission on Elections (84 Phil., 368; 45
761; emphasis supplied.) Off. Gaz., 4411), we entertained the action of taxpayers
impugning the validity of certain appropriations of public
However, this view was not favored by the Supreme Court of funds, and invalidated the same. Moreover, the reason that
the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar impelled this Court to take such position in said two (2)
as federal laws are concerned, upon the ground that the cases — the importance of the issues therein raised — is
relationship of a taxpayer of the U.S. to its Federal present in the case at bar. Again, like the petitioners in the
Government is different from that of a taxpayer of a Rodriguez and Barredo cases, petitioner herein is not
municipal corporation to its government. Indeed, under the merely a taxpayer. The Province of Rizal, which he
composite system of government existing in the U.S., the represents officially as its Provincial Governor, is our most
states of the Union are integral part of the Federation from populated political subdivision, 8and, the taxpayers therein
an international viewpoint, but, each state enjoys internally a bear a substantial portion of the burden of taxation, in the
substantial measure of sovereignty, subject to the limitations Philippines.
imposed by the Federal Constitution. In fact, the same was
made by representatives of each state of the Union, not of the Hence, it is our considered opinion that the circumstances
people of the U.S., except insofar as the former represented surrounding this case sufficiently justify petitioners action
the people of the respective States, and the people of each in contesting the appropriation and donation in question;
State has, independently of that of the others, ratified said that this action should not have been dismissed by the lower
Constitution. In other words, the Federal Constitution and court; and that the writ of preliminary injunction should
the Federal statutes have become binding upon the people of have been maintained.
the U.S. in consequence of an act of, and, in this sense,
through the respective states of the Union of which they are Wherefore, the decision appealed from is hereby reversed,
citizens. The peculiar nature of the relation between said and the records are remanded to the lower court for further
people and the Federal Government of the U.S. is reflected in proceedings not inconsistent with this decision, with the
the election of its President, who is chosen directly, not by costs of this instance against respondent Jose C. Zulueta. It
the people of the U.S., but by electors chosen by each State, is so ordered.
in such manner as the legislature thereof may direct (Article
II, section 2, of the Federal Constitution).lawphi1.net Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador,
Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and
The relation between the people of the Philippines and its Dizon, JJ., concur.
taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining
between the people and taxpayers of the U.S. and its Federal
Government. It is closer, from a domestic viewpoint, to that Footnotes
existing between the people and taxpayers of each state and 1 For, pursuant to section 19(h) of the existing rules and regulation
of the Urban Planning Commission, the owner of a subdivision is under
obligation "to improve, repair and maintain all streets, highways and other ways
in his subdivision until their dedication to public use is accepted by the
government."

2 Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County

vs. Allred. 68 S.W 2d 164; State ex rel. Thomson vs. Giessel, 53-N.W. 2d. 726,
Attorney General vs. City of Eau Claire, 37 Wis. 400; State ex rel. Smith vs.
Annuity Pension Board, 241 Wis. 625, 6 N.W. 2d. 676; State vs. Smith, 293
N.W. 161; State vs. Dammann 280 N.W. 698; Sjostrum vs. State Highway
Commission 228 P. 2d. 238; Hutton vs. Webb, 126 N.C. 897, 36 S.E. 341;
Michigan Sugar Co. vs. Auditor General, 124 Mich. 674, 83 N.W. 625; Oxnard
Beet Sugar Co. vs. State, 105 N.W. 716.

3 Casanovas vs. Hord. 8 Phil., McGirr vs. Hamilton, 30 Phil., 563;

Compania General de Tabacos vs. Board of Public Utility, 34 Phil., 136;
Central Capiz vs. Ramirez, 40 Phil., 883; Concepcion vs. Paredes, 42 Phil.,
599; U.S. vs. Ang Tang Ho, 43 Phil., 6; McDaniel vs. Apacible, 44 Phil., 248;
People vs. Pomar, 46 Phil., 440; Agcaoili vs. Suguitan, 48 Phil., 676;
Government of P.I. vs. Springer, 50 Phil., 259; Manila Electric Co. vs. Pasay
Transp. Co., 57 Phil., 600; People vs. Linsangan, 62 Phil., 464; People and
Hongkong & Shanghai Banking Corp. vs. Jose O. Vera, 65 Phil., 56; People vs.
Carlos, 78 Phil., 535; 44 Off. Gaz. 428; In re Cunanan, 94 Phil., 534; 50 Off.
Gaz., 1602; City of Baguio vs. Nawasa, 106 Phil., 144; City of Cebu vs.
Nawasa, 107 Phil., 1112; Rutter vs. Esteban, 93 Phil., 68; Off. Gaz., [5]1807.

4 In the language of the Supreme Court of Nebraska, "An

unconstitutional statute is a legal still birth, which neither moves, nor breathes,
nor holds out any sign of life. It is a form without one vital spark. It is wholly
dead from the time of conception, and, no right, either legal or equitable, arises
from such inanimate thing." (Oxnard Beet Sugar Co. vs. State, 102 N.W. 80.).

5 See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A.
312,36 P. 424; Crawford vs. Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs.
American Hawaiian Engineering and Constr. Co., 16 Haw. 80; Castle vs.
Capena, 5 Haw. 27; Littler vs. Jayne, 124 Ill. 123, 16 N.E. 374; Burke vs.
Snively, 208 I11. 328, 70 N.E. 372; Ellingham vs. Dye, 178 Ind. 336, 99 N.E.
1; Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac.
3; State ex rel. Taylor vs. Pennover, 26 Or. 205, 37 Pac. 906; Carman vs.
Woodruf, 10 Or. 123; MacKinley vs. Watson, 145 Pac. 266; Sears vs. James, 47
Or. 50, 82 Pac. 14; Mott vs. Pennsylvania R. Co., 30 Pa. 9, 72 Am. Dec. 664;
Bradly vs. Power County, 37 Am. Dec. 563; Frost vs. Thomas, 26 Colo. 227,
77 Am. St. Rep. 259, 56 Pac. 899; Martin vs. Ingham, 38 Kan. 641, 17 Pac.
162; Martin vs. Lacy, 39 Kan. 703, 18 Pac. 951; Smith vs. Maguerich, 44 Ga.
163; Giddings vs. Blacker, 93 Mich. 1, 16 L.R.A. 402, 52 N.W. 944; Rippe vs. EN BANC
Becker, 56 Minn. 100, 57 N.W. 331; Auditor vs. Treasurer, 4 S.C. 311;
McCullough vs. Brown, 31 S.C. 220, 19 S.E. 458; State ex rel. Lamb vs.
Cummingham, 83 Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs. Frear, 138 G.R. No. L-23771 August 4, 1988
Wis. 173, 119 N.W. 894.
THE COMMISSIONER OF INTERNAL REVENUE,
6 Rubs vs. Thompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 Ill. 147,
30N. E. 2d. 908; Fergus vs. Russel, 270 Ill. 304, 110 N.E. 130; Burke vs. petitioner,
Snively, 208 Ill. 328; Jones vs. Connell, 266 Ill. 443, 107 N.E. 731; Dudick vs. vs.
Baumann, 349 [PEPSI] Ill. 46, 181 N.E. 690. LINGAYEN GULF ELECTRIC POWER CO., INC. and
7 Thompson vs. Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs.
THE COURT OF TAX APPEALS, respondents.
Komfort, 212 N.Y. 520, 106 N.E. 675; Hutchison vs. Skinmer, 21 Misc. 729,
49N. Y. Supp. 360; Long vs. Johnson, 70 Misc. 308; 127 N.Y. Supp. 756; Angel Sanchez for Lingayen Electric Power Co., Inc.
Whiteback vs. Hooker, 73 Misc. 573, 133 N.Y. Supp. 534; State ex rel.
Cranmer vs. Thorson, 9 S.D. 149, 68 N.W. 202; Davenport vs. Elrod, 20 S.D.
567, 107 N.W. 833; Indiana Jones vs. Reed, 3 Wash. 57, 27 Pac. 1067;
Birmingham vs. Cheetham, 19 Wash. 657, 54 Pac. 37; Tacoma vs. Bridges, 25 SARMIENTO, J.:
Wash. 221, 65 Pac. 186; Hilger vs. State, 63 Wash. 457, 116 Pac. 19.
This is an appeal from the decision * of the Court of Tax
8 It has 1,463,530 inhabitants.
Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard
upon agreement of the parties, absolving the respondent
taxpayer from liability for the deficiency percentage,
franchise, and fixed taxes and surcharge assessed against it
in the sums of P19,293.41 and P3,616.86 for the years 1946
to 1954 and 1959 to 1961, respectively.

The respondent taxpayer, Lingayen Gulf Electric Power

Co., Inc., operates an electric power plant serving the
adjoining municipalities of Lingayen and Binmaley, both in
the province of Pangasinan, pursuant to the municipal
franchise granted it by their respective municipal councils,
under Resolution Nos. 14 and 25 of June 29 and July 2,
1946, respectively. Section 10 of these franchises provide
that:
...The said grantee in consideration of the franchise hereby
granted, shall pay quarterly into the Provincial Treasury of
Pangasinan, one per centum of the gross earnings obtained
thru this privilege during the first twenty years and two per
centum during the remaining fifteen years of the life of said
franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the private respondent.
On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against and demanded from the private
respondent the total amount of P19,293.41 representing
deficiency franchise taxes and surcharges for the years 1946
to 1954 applying the franchise tax rate of 5% on gross
receipts from March 1, 1948 to December 31, 1954 as
prescribed in Section 259 of the National Internal Revenue
Code, instead of the lower rates as provided in the municipal
franchises. On September 29, 1956, the private respondent
requested for a reinvestigation of the case on the ground that
instead of incurring a deficiency liability, it made an
overpayment of the franchise tax. On April 30, 1957, the BIR
through its regional director, denied the private respondent's
request for reinvestigation and reiterated the demand for
payment of the same. In its letters dated July 2, and August
9, 1958 to the petitioner Commissioner, the private
respondent protested the said assessment and requested for a
conference with a view to settling the liability amicably. In
his letters dated July 25 and August 28, 1958, the
Commissioner denied the request of the private respondent.
Thus, the appeal to the respondent Court of Tax Appeals on
September 19, 1958, docketed as C.T.A. Case No. 581.
In a letter dated August 21, 1962, the Commissioner
demanded from the private respondent the payment of
P3,616.86 representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again applying the
franchise tax rate of 5% on gross receipts as prescribed in
Section 259 of the National Internal Revenue Code. In a
letter dated October 5, 1962, the private respondent protested
the assessment and requested reconsideration thereof The
same was denied on November 9, 1962. Thus, the appeal to
the respondent Court of Appeals on November 29, 1962,
docketed as C.T.A. No. 1302.
Pending the hearing of the said cases, Republic Act (R.A.)
No. 3843 was passed on June 22, 1 963, granting to the
private respondent a legislative franchise for the operation of
the electric light, heat, and power system in the same
municipalities of Pangasinan. Section 4 thereof provides
that:
In consideration of the franchise and rights hereby granted,
the grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the
public under this franchise, a tax equal to two per centum of
the gross receipts from electric current sold or supplied
under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description levied,
established, or collected by any authority whatsoever,
municipal, provincial or national, now or in the future, on
its poles, wires, insulator ... and on its franchise, rights,
privileges, receipts, revenues and profits, from which taxes
and/or licenses, the grantee is hereby expressly exempted
and effective further upon the date the original franchise
was granted, no other tax and/or licenses other than the
franchise tax of two per centum on the gross receipts as
provided for in the original franchise shall be collected, any
provision of law to the contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the
provisions of R.A. No. 3843 should apply and accordingly
dismissed the claim of the Commissioner of Internal
Revenue. The said ruling is now the subject of the petition
at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in
Section 259 of the National Internal Revenue Code assessed
against the private respondent on its gross receipts realized
before the effectivity of R.A- No. 3843 is collectible.
2. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and
equality of taxation" clause of the Constitution.
3. If the abovementioned Section 4 of R.A. No. 3843
is valid, whether or not it could be given retroactive effect
so as to render uncollectible the taxes in question which
were assessed before its enactment.
4. Whether or not the respondent taxpayer is liable
for the fixed and deficiency percentage taxes in the amount
of P3,025.96 for the period from January 1, 1946 to
February 29, 1948, the period before the approval of its
municipal franchises.
The first issue raised by the petitioner before us is whether
or not the five percent (5%) franchise tax prescribed in
Section 259 of the National Internal Revenue Code
(Commonwealth Act No. 466 as amended by R.A. No. 39)
assessed against the private respondent on its gross receipts
realized before the effectivity of R.A- No. 3843 is
collectible. It is the contention of the petitioner
Commissioner of Internal Revenue that the private
respondent should have been held liable for the 5%
franchise tax on gross receipts prescribed in Section 259 of
the Tax Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of gross earnings
for the first twenty years and 2% for the remaining fifteen
years of the life of the franchises) because Section 259 of
the Tax Code, as amended by RA No. 39 of October 1,
1946, applied to existing and future franchises. The
franchises of the private respondent were already in existence respondent's power plant and others circumscribed within
at the time of the adoption of the said amendment, since the this class. R.A-No. 3843 merely transferred the petitioner's
franchises were accepted on March 1, 1948 after approval by power plant from that class provided for in Act No. 667, as
the President of the Philippines on February 24, 1948. The amended, to which it belonged until the approval of R.A-
private respondent's original franchises did not contain the No. 3843, and placed it within the class falling under Act
proviso that the tax provided therein "shall be in lieu of all No. 3636, as amended. Thus, it only effected the transfer of
taxes;" moreover, the franchises contained a reservation a taxable property from one class to another.
clause that they shag be subject to amendment, alteration, or
repeal, but even in the absence of such cause, the power of We do not have the authority to inquire into the wisdom of
the Legislature to alter, amend, or repeal any franchise is such act. Furthermore, the 5% franchise tax rate provided
always deemed reserved. The franchise of the private in Section 259 of the Tax Code was never intended to have
respondent have been modified or amended by Section 259 of a universal application. 4 We note that the said Section 259
the Tax Code, the petitioner submits. of the Tax Code expressly allows the payment of taxes at
rates lower than 5% when the charter granting the franchise
We find no merit in petitioner's contention. R.A. No. 3843 of a grantee, like the one granted to the private respondent
granted the private respondent a legislative franchise in June, under Section 4 of R.A. No. 3843, precludes the imposition
1963, amending, altering, or even repealing the original of a higher tax. R.A. No. 3843 did not only fix and specify a
municipal franchises, and providing that the private franchise tax of 2% on its gross receipts, but made it "in
respondent should pay only a 2% franchise tax on its gross lieu of any and all taxes, all laws to the contrary
receipts, "in lieu of any and all taxes and/or licenses of any notwithstanding," thus, leaving no room for doubt
kind, nature or description levied, established, or collected by regarding the legislative intent. "Charters or special laws
any authority whatsoever, municipal, provincial, or national, granted and enacted by the Legislature are in the nature of
now or in the future ... and effective further upon the date the private contracts. They do not constitute a part of the
original franchise was granted, no other tax and/or licenses machinery of the general government. They are usually
other than the franchise tax of two per centum on the gross adopted after careful consideration of the private rights in
receipts ... shall be collected, any provision of law to the relation with resultant benefits to the State ... in passing a
contrary notwithstanding." Thus, by virtue of R.A- No. 3843, special charter the attention of the Legislature is directed to
the private respondent was liable to pay only the 2% the facts and circumstances which the act or charter is
franchise tax, effective from the date the original municipal intended to meet. The Legislature consider (sic) and make
franchise was granted. (sic) provision for all the circumstances of a particular
case." 5 In view of the foregoing, we find no reason to
On the question as to whether or not Section 4 of R.A. No. disturb the respondent court's ruling upholding the
3843 is unconstitutional for being violative of the constitutionality of the law in question.
"uniformity and equality of taxation" clause of the
Constitution, and, if adjudged valid, whether or not it should Given its validity, should the said law be applied
be given retroactive effect, the petitioner submits that the retroactively so as to render uncollectible the taxes in
said law is unconstitutional insofar as it provides for the question which were assessed before its enactment? The
payment by the private respondent of a franchise tax of 2% question of whether a statute operates retrospectively or
of its gross receipts, while other taxpayers similarly situated only prospectively depends on the legislative intent. In the
were subject to the 5% franchise tax imposed in Section 259 instant case, Act No. 3843 provides that "effective ... upon
of the Tax Code, thereby discriminatory and violative of the the date the original franchise was granted, no other tax
rule on uniformity and equality of taxation. and/or licenses other than the franchise tax of two per
centum on the gross receipts ... shall be collected, any
A tax is uniform when it operates with the same force and provision to the contrary notwithstanding." Republic Act
effect in every place where the subject of it is found. No. 3843 therefore specifically provided for the retroactive
Uniformity means that all property belonging to the same effect of the law.
class shall be taxed alike The Legislature has the inherent
power not only to select the subjects of taxation but to grant The last issue to be resolved is whether or not the private
exemptions. Tax exemptions have never been deemed respondent is liable for the fixed and deficiency percentage
violative of the equal protection clause. 1 It is true that the taxes in the amount of P3,025.96 (i.e. for the period from
private respondents municipal franchises were obtained January 1, 1946 to February 29, 1948) before the approval
under Act No. 667 2 of the Philippine Commission, but these of its municipal franchises. As aforestated, the franchises
original franchises have been replaced by a new legislative were approved by the President only on February 24, 1948.
franchise, i.e. R.A. No. 3843. As correctly held by the Therefore, before the said date, the private respondent was
respondent court, the latter was granted subject to the terms liable for the payment of percentage and fixed taxes as
and conditions established in Act No. 3636, 3 as amended by seller of light, heat, and power — which as the petitioner
C.A. No. 132. These conditions Identify the private claims, amounted to P3,025.96. The legislative franchise
respondent's power plant as falling within that class of power (R.A. No. 3843) exempted the grantee from all kinds of
plants created by Act No. 3636, as amended. The benefits of taxes other than the 2% tax from the date the original
the tax reduction provided by law (Act No. 3636 as amended franchise was granted. The exemption, therefore, did not
by C.A. No. 132 and R.A. No. 3843) apply to the cover the period before the franchise was granted, i.e.
before February 24, 1948. However, as pointed out by the
respondent court in its findings, during the period covered by
the instant case, that is from January 1, 1946 to December
31, 1961, the private respondent paid the amount of
P34,184.36, which was very much more than the amount
rightfully due from it. Hence, the private respondent should
no longer be made to pay for the deficiency tax in the amount
of P3,025.98 for the period from January 1, 1946 to February
29, 1948.

WHEREFORE, the appealed decision of the respondent

Court of Tax Appeals is hereby AFFIRMED. No
pronouncement as to costs. SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano,
Gancayco, Padilla, Bidin, Cortes, Griño-Aquino and Medialdea, JJ., concur.

Footnotes

* Penned by Hon. Mariano Nable, Presiding Judge, Hon. Roman M.

Umali, Associate Judge, concurring.

1 Gomez v. Palomar, 25 SCRA 827.

2 An Act prescribing the method of applying to governments of

municipalities... and of provinces for franchises to construct and operate street
railway, electric light and power and telephone lines... (The model franchise for
municipal franchises or the basic authority for granting municipal franchises.)

3 An Act prescribing the form for bills for the granting of electric light
and power franchises, and for other purposes; Section 1 0 thereof provides for
the payment of a franchise tax of 2% of the gross earnings ... in lieu of any and
all taxes x x x (Model Franchise for legislative franchises).

4 See Phil. Railway Co. v. Collector of Internal Revenue, 91 Phil. 35;

Visayan Electric Co. v. David 92 Phil. 969.

5 Manila Railroad Co. v. David, 40 Phil. 224.