G.R. No.

154126 October 11, 2005

Allied Banking Corporation as Trustee for the Trust Fund of

College Assurance Plan Philippines, Inc. (CAP), Petitioner
vs.
The Quezon City Government, the Quezon City Treasurer, the
Quezon City Assessor and the City Mayor of Quezon City,
Respondents.

DECISION

CARPIO MORALES, J.:

From the Resolution1 of April 10, 2002 issued by Branch 225 of the
Regional Trial Court (RTC) of Quezon City dismissing the petition for
prohibition and declaratory relief2 of Allied Banking Corporation
(petitioner), the present appeal by certiorari was lodged.

On December 19, 1995, the Quezon City government enacted City

Ordinance No. 357, Series of 1995 (the ordinance),3 Section 3 of which
reads:

Section 3. The City Assessor shall undertake a general revision of real

property assessments using as basis the newly approved schedule
specified in Sections 1 and 2 hereof. He shall apply the new assessment
level of 15% for residential and 40% for commercial and industrial
classification, respectively as prescribed in Section 8 (a) of the 1993
Quezon City Revenue Code to determine the assessed value of the land.
Provided; however, that parcels of land sold, ceded, transferred and
conveyed for remuneratory consideration after the effectivity of
this revision shall be subject to real estate tax based on the
actual amount reflected in the deed of conveyance or the current
approved zonal valuation of the Bureau of Internal Revenue
prevailing at the time of sale, cession, transfer and conveyance,
whichever is higher, as evidenced by the certificate of payment of
the capital gains tax issued therefor.4 (Emphasis and underscoring
supplied)

On July 1, 1998, petitioner, as trustee for College Assurance Plan of the

Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000
square meter parcel of land located along Aurora Boulevard, Quezon City
in the amount of ₱38,000,000.00.5

Prior to the sale, Natividad et al. had been paying the total amount of
₱85,050.006 as annual real property tax based on the property’s fair
market value of ₱4,500,000.00 and assessed value of ₱1,800,000.00
under Tax Declaration No. D-102-03778.7

After its acquisition of the property, petitioner was, in accordance with

Section 3 of the ordinance, required to pay ₱102,600.00 as quarterly real
estate tax (or ₱410,400.00 annually) under Tax Declaration No. D-102-
03780 which pegged the market value of the property at ₱38,000,000.00
– the consideration appearing in the Deed of Absolute Sale, and its
assessed value at ₱15,200,000.00.8

Petitioner paid the quarterly real estate tax for the property from the 1st
quarter of 1999 up to the 3rd quarter of 2000. Its tax payments for the
2nd, 3rd, and 4th quarter of 1999, and 1st and 2nd quarter of 2000
were, however, made under protest.9

In its written protest10 with the City Treasurer, petitioner assailed Section
3 of the ordinance as null and void, it contending that it is violative of the
equal protection and uniformity of taxation clauses of the Constitution. 11
Petitioner, moreover, contended that the proviso is unjust, excessive,
oppressive, unreasonable, confiscatory and contrary to Section 130 of the
Local Government Code which provides:

section 130. Fundamental Principles. – The following fundamental

principles shall govern the exercise of the taxing and revenue-raising
powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayer’s ability

to pay;

(2) be levied and collected only for public purposes;

(3) not be unjust, excessive, oppressive, or confiscatory;

(4) not be contrary to law, public policy, national economic policy, or in

restraint of trade;

xxx

Petitioner, through its counsel, later sent a March 24, 2000 demand letter
to the Quezon City Treasurer’s Office seeking a refund of the real estate
taxes it erroneously collected from it.12 The letter was referred for
appropriate action13 to the City Assessor who, by letter dated May 7,
2000, denied the demand for refund on the ground that the ordinance is
presumed valid and legal unless otherwise declared by a court of
competent jurisdiction.14

Petitioner thereupon filed on August 11, 2000 a petition for prohibition

and declaratory relief before the Quezon City RTC for the declaration of
nullity of Section 3 of the ordinance; the enjoining of respondents –
Quezon City Treasurer, Quezon City Assessor, and City Mayor of Quezon
City – from further implementing the ordinance; for the Quezon City
Treasurer to be ordered to refund the amount of ₱633,150.00
representing the real property tax erroneously collected and paid under
protest; and for respondents to pay attorney’s fees in the amount of
₱1,000,000.00 and costs of the suit. 15

In support of its thesis, petitioner contended that the re-assessment

under the third sentence of Section 3 of the ordinance for purposes of
real estate taxation of a property’s fair market value where it is sold,
ceded, transferred or conveyed for remuneratory consideration is null and
void as it is an invalid classification of real properties which are
transferred, ceded or conveyed and those which are not, the latter
remaining to be valued and assessed in accordance with the general
revisions of assessments of real properties under the first sentence of
Section 3.16

Petitioner additionally contended that the proviso of Section 3 of the

ordinance which allows re-assessment every time the property is
transferred, ceded or conveyed violates Sections 21917 and 22018 of the
Local Government Code which provide that the assessment of real
property shall not be increased oftener than once every three (3) years
except in case of new improvements substantially increasing the value of
said property or of any change in its actual use.19

Before respondents could file any responsive pleading or on March 6,

2001, respondent Quezon City Government enacted Ordinance No. SP-
1032, S-200120 which repealed the assailed proviso in Section 3 of the
1995 Ordinance. The repealing ordinance which took effect upon its
approval on March 28, 2001 reads in part:

"WHEREAS, the implementation of the second (2nd) sentence of Section

3 of the Ordinance creates a situation whereby owners of newly acquired
land for remuneratory consideration beginning January 1, 1996 and
forward will have to pay higher taxes than its adjoining/adjacent lot or
lots in the adjoining blocks, or nearby lots within its immediate vicinity
which have remained undisturbed, not having been sold, ceded,
transferred, and/or conveyed;
WHEREAS, the owners of the newly acquired property are
complaining/protesting the validity/legality of the second (2nd) sentence
of Section 3 of the ordinance for being either arbitrary, unjust, excessive,
oppressive, and/or contrary to law;

WHEREAS, Section 5 Article X of the Philippine Constitution provides that:

‘Each local government unit shall have the power to create its own
sources of revenue and to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees and charges shall
accrue exclusively to the local government’ (Underscoring supplied);

WHEREAS, the guidelines and limitations imposed on the local

government units in the exercise of their taxing powers have been
expressly stipulated by Congress when it enacted Section 130 of Republic
Act No. 7160, otherwise known as the Local Government Code of 1991
xxx;

WHEREAS, these fundamental principles of taxation find support and

affirmation in the following applicable cases decided by the Court of Tax
Appeals (sic), on similar cases which held that:

1. An increase in the valuation of land due to sale and transfer of such

property was arbitrary. Uniformity in taxation means that all kinds of
property of the same class shall be taxed at the same rate. (Churchhill
vs. Concepcion, 34 Phi. 969; Eastern Theatrical Co. vs. Alfonso, 83 Phil.
852) xxx.

2. The law requires the real property shall be assessed at its true and full
value, or cash value, or fair market value. But in determining or fixing
the fair market value of property for tax purposes it is essential that the
rules of uniformity be observed. More important tha[n] the obligation to
seek the fair market value of property is the obligation of the assessor to
see to it that the "rule of taxation shall be uniform," for this a (sic) rule
which is guaranteed by the Constitution. A taxpayer should not be made
to pay more taxes on his property while owners of surrounding
properties, under the same circumstance pay less.

WHEREAS, it is clear from the foregoing premises that the second (2nd)
sentence of the Ordinance, fixing the realty tax based on the actual
amount reflected in the deed of conveyance or the current approved
zonal valuation x x x is violative of, and repugnant to, the uniformity rule
of taxation;

WHEREAS, in view of the above considerations there appear to be merit

and validity to the complaints/protests of tax payers, a re-examination
and repeal of the entire second sentence of Section 3 of the Ordinance is
in order."

Petitioner subsequently moved to declare respondents in default 21 for

failure to file a responsive pleading within the period, as extended. Before
the motion could be heard,22 however, respondents moved to dismiss the
petition,23 averring that the passage of the repealing ordinance had
rendered the petition moot and academic.

Petitioner opposed the motion, it alleging that while its action for the
declaration of nullity of the proviso was rendered moot and academic by
its repeal, its claim for refund and attorney’s fees had not been mooted,
and the trial court still had to determine if Section 3 of the ordinance "is
null and void ab initio and perforce, may not be enforced during the
intervening period from the time of its enactment until the time of its
repeal."24

Respondents maintained, however, that the assailed proviso remained in

full force and effect until the date of its repeal, based on the rule that a
statute is construed prospectively unless the legislative intent was to give
it retrospective application.25 And they called attention to the provision in
Section 2 of the repealing ordinance that "[it] shall take effect upon its
approval," hence, clearly showing that the local legislative body was to
grant it prospective application.26

As to the claim for refund, respondents averred that it was premature for
the trial court to take cognizance thereof as petitioner had an
administrative remedy.27

By Resolution of April 10, 2002, the trial court granted respondents’

motion to dismiss in this wise:

There is no need for this Court to resolve whether the subject Ordinance
is null and void as the same was already declared to be violative of, and
repugnant to the "uniformity rule" on taxation by the Quezon City Council
itself thru its pronouncements in Quezon City Ordinance No. 1032, Series
of 2001. x x x

xxx

As to petitioner’s claim for refund, since an administrative remedy is

available for refund of taxes illegally and erroneously collected and
petitioner has not yet availed of it, the Court shall not take cognizance of
this issue considering the rule on "Exhaustion of Administrative
Remedy."28 (Underscoring supplied)
Its Motion for Reconsideration29 having been denied,30 petitioner comes
before this Court on appeal by certiorari under Rule 45 on the following
issues:

Whether or not the trial court erred in dismissing the instant case for
failure of the petitioner to exhaust administrative remedies.

Whether or not Section 3, Quezon City Ordinance No. 357, Series of

1995, which was abrogated for being UNCONSTITUTIONAL can be the
basis of collecting real estate taxes prior to its repeal. 31

Although as a rule, administrative remedies must first be exhausted

before resort to judicial action can prosper, there is a well-settled
exception in cases where the controversy does not involve questions of
fact but only of law.32

Nevertheless, while cases raising purely legal questions are excepted

from the rule requiring exhaustion of administrative remedies before a
party may resort to the courts, petitioner, in the case at bar, does not
raise just pure questions of law. Its cause of action requires the
determination of the amount of real property tax paid under protest
and the amount of attorney’s fees. These issues are essentially
questions of fact which preclude this Court from reviewing the same. 33

Since the procedure for obtaining a refund of real property taxes is

provided under Sections 252,34 226,35 229,36 23037 and 23138 of the Local
Government Code, petitioner’s action for prohibition in the RTC was
premature as it had a plain, speedy and adequate remedy of appeal in
the ordinary course of law.39 As such, the trial court correctly dismissed
its action on the ground that it failed to exhaust the administrative
remedies stated above.40

Raising questions of fact is moreover inappropriate in an appeal by

certiorari under Rule 45 of the Rules of Court where only questions of law
may be reviewed.41 It is axiomatic that the Supreme Court is not a trier
of facts42 and the factual findings of the court a quo are conclusive upon
it, except: (1) where the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) where the inference made is
manifestly mistaken; (3) where there is grave abuse of discretion; and
(4) where the judgment is based on a misapprehension of facts, and the
findings of fact of the trial court are premised on the absence of evidence
and are contradicted by evidence on record.43
From a considered scrutiny of the records of the case, this Court finds
that petitioner has shown no cause for this Court to apply any of the
foregoing exceptions.

Petitioner has not put squarely in issue the constitutionality of the proviso
in Section 3 of the ordinance. It merely alleges that the said proviso can
not be the basis for collecting real estate taxes at any given time, the
Sangguniang Panlungsod of Quezon City not having intended to impose
such taxes in the first place. As such the repealing ordinance should be
given retroactive effect.

As a rule, the courts will not resolve the constitutionality of a law, if the
controversy can be settled on other grounds.44

Where questions of constitutional significance are raised, the Court can

exercise its power of judicial review only if the following requisites are
complied: First, there must be before the Court an actual case calling for
the exercise of judicial review. Second, the question before the Court
must be ripe for adjudication. Third, the person challenging the validity of
the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity, and
lastly, the issue of constitutionality must be the very lis mota of the
case.45

Considering that there are factual issues still waiting to be threshed out
at the level of the administrative agency, there is no actual case calling
for the exercise of judicial review. In addition, the requisite that the
constitutionality of the assailed proviso in question be the very lis mota of
the case is absent. Thus, this Court refrains from passing on the
constitutionality of the proviso in Section 3 of the 1995 Ordinance.

The factual issues which petitioner interjected in its petition aside, the
only crucial legal query in this case is the validity of the proviso fixing the
appraised value of property at the stated consideration at which the
property was last sold.

This Court holds that the proviso in question is invalid as it adopts a

method of assessment or appraisal of real property contrary to the Local
Government Code, its Implementing Rules and Regulations and the Local
Assessment Regulations No. 1-9246 issued by the Department of
Finance.47

Under these immediately stated authorities, real properties shall be

appraised at the current and fair market value prevailing in the locality
where the property is situated48 and classified for assessment purposes
on the basis of its actual use.49
"Fair market value" is the price at which a property may be sold by a
seller who is not compelled to sell and bought by a buyer who is not
compelled to buy,50 taking into consideration all uses to which the
property is adapted and might in reason be applied. The criterion
established by the statute contemplates a hypothetical sale. Hence, the
buyers need not be actual and existing purchasers.51

As this Court stressed in Reyes v. Almanzor,52 assessors, in fixing the

value of real property, have to consider all the circumstances and
elements of value, and must exercise prudent discretion in reaching
conclusions.53 In this regard, Local Assessment Regulations No. 1-92 54
establishes the guidelines to assist assessors in classifying, appraising
and assessing real property.

Local Assessment Regulations No. 1-92 suggests three approaches in

estimating the fair market value, namely: (1) the sales analysis or
market data approach; (2) the income capitalization approach; and (3)
the replacement or reproduction cost approach.55

Under the sales analysis approach, the price paid in actual market
transactions is considered by taking into account valid sales data
accumulated from among the various sources stated in Sections 202,
203, 208, 209, 210, 211 and 213 of the Code. 56

In the income capitalization approach, the value of an income-producing

property is no more than the return derived from it. An analysis of the
income produced is necessary in order to estimate the sum which might
be invested in the purchase of the property.

The reproduction cost approach, on the other hand, is a factual approach

used exclusively in appraising man-made improvements such as buildings
and other structures, based on such data as materials and labor costs to
reproduce a new replica of the improvement.

The assessor uses any or all of these approaches in analyzing the data
gathered to arrive at the estimated fair market value to be included in
the ordinance containing the schedule of fair market values.

Given these different approaches to guide the assessor, it can readily be

seen that the Code did not intend to have a rigid rule for the valuation of
property, which is affected by a multitude of circumstances which no rule
could foresee or provide for. Thus, what a thing has cost is no singular
and infallible criterion of its market value.57

Accordingly, this Court holds that the proviso directing that the real
property tax be based on the actual amount reflected in the deed of
conveyance or the prevailing BIR zonal value is invalid not only because
it mandates an exclusive rule in determining the fair market value but
more so because it departs from the established procedures stated in the
Local Assessment Regulations No. 1-92 and unduly interferes with the
duties statutorily placed upon the local assessor58 by completely
dispensing with his analysis and discretion which the Code and the
regulations require to be exercised. An ordinance that contravenes any
statute is ultra vires and void.59

Further, it is noted that there is nothing in the Charter of Quezon City 60

and the Quezon City Revenue Code of 199361 that authorize public
respondents to appraise property at the consideration stated in the deed
of conveyance.

Using the consideration appearing in the deed of conveyance to assess or

appraise real properties is not only illegal since "the appraisal,
assessment, levy and collection of real property tax shall not be let to
any private person,"62 but it will completely destroy the fundamental
principle in real property taxation – that real property shall be classified,
valued and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it.63 Necessarily, allowing the
parties to a private sale to dictate the fair market value of the property
will dispense with the distinctions of actual use stated in the Code and in
the regulations.

The invalidity of the assessment or appraisal system adopted by the

proviso is not cured even if the proviso mandates the comparison of the
stated consideration as against the prevailing BIR zonal value, whichever
is higher, because an integral part of that system still permits valuing
real property in disregard of its "actual use."

In the same vein, there is also nothing in the Code or the regulations
showing the congressional intent to require an immediate adjustment of
taxes on the basis of the latest market developments as, in fact, real
property assessments may be revised and/or increased only once every
three (3) years.64 Consequently, the real property tax burden should not
be interpreted to include those beyond what the Code or the regulations
expressly and clearly state.

Still another consequence of the proviso is to provide a chilling effect on

real property owners or administrators to enter freely into contracts
reflecting the increasing value of real properties in accordance with
prevailing market conditions. While the Local Government Code provides
that the assessment of real property shall not be increased oftener than
once every three (3) years,65 the questioned part of the proviso subjects
the real property to a tax based on the actual amount appearing on the
deed of conveyance or the current approved zonal valuation of the
Bureau of Internal Revenue prevailing at the time of sale, cession,
transfer and conveyance, whichever is higher. As such, any subsequent
sale during the three-year period will result in a real property tax higher
than the tax assessed at the last prior conveyance within the same
period. To save on taxes, real property owners or administrators are
forced to hold on to the property until after the said three-year period
has lapsed. Should they nonetheless decide to sell within the said three-
year period, they are compelled to dispose the property at a price not
exceeding that obtained from the last prior conveyance in order to avoid
a higher tax assessment. In these two scenarios, real property owners
are effectively prevented from obtaining the best price possible for their
properties and unduly hampers the equitable distribution of wealth.

While the state may legitimately decide to structure its tax system to
discourage rapid turnover in ownership of real properties, such state
interest must be expressly stated in the executing statute or it can at
least be gleaned from its provisions.

In the case at bar, there is nothing in the Local Government Code, the
implementing rules and regulations, the local assessment regulations, the
Quezon City Charter, the Quezon City Revenue Code of 1993 and the
"Whereas" clauses of the 1995 Ordinance from which this Court can
draw, at the very least, an intimation of this state interest. As such, the
proviso must be stricken down for being contrary to public policy and for
restraining trade.66

In fine, public respondent Quezon City Government exceeded its

statutory authority when it enacted the proviso in question. The provision
is thus null and void ab initio for being ultra vires and for contravening
the provisions of the Local Government Code, its implementing
regulations and the Local Assessment Regulations No. 1-92. As such, it
acquired no legal effect and conferred no rights from its inception.

A word on the applicability of the doctrine in this decision. It applies only

in the determination of real estate tax payable by owners or
administrators of real property.

In light of the foregoing disquisitions, addressing the issue of retroactivity

of the repealing ordinance is rendered unnecessary.

WHEREFORE, the petition is hereby GRANTED. The assailed portion of

the provisions of Section 3 of Quezon City Ordinance No. 357, Series of
1995 is hereby declared invalid.
Petitioner’s claim for refund, however, must be lodged with the Local
Board of Assessment Appeals, if it is not barred by the statute of
limitations.

SO ORDERED.