G.R. No.

154126 October 11, 2005

CARPIO MORALES, J.:

SUMMARY:

The Quezon City government enacted City Ordinance No. 357, Series of 1995, Section 3 of which reads:

Section 3. xxx 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 BIR 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.

Petitioner purchased from Liwanag C. Natividad et al. a 1,000 sq.m parcel of land for ₱38,000,000.00. Prior to the sale, Natividad et al. had
been paying the total amount of ₱85,050.00 as annual real property tax. After its acquisition of the property, petitioner was, in
accordance with the ordinance, required to pay ₱102,600.00 as quarterly real estate tax under TD No. D-102-03780 which pegged the
market value of the property at ₱38,000,000.00 – the consideration in the Deed of Absolute Sale, and its assessed value.

Petitioner assailed Section 3 of the ordinance as null and void, contending that it is violative of the equal protection and uniformity of
taxation clauses of the Constitution. Petitioner, moreover, contended that the proviso is unjust, excessive, oppressive, unreasonable,
confiscatory and contrary to Section 130 of the LGC.

Petitioner sent a demand letter to the Quezon City Treasurer’s Office seeking a refund of the real estate taxes. The City Assessor denied the
demand for refund. Petitioner filed a petition for prohibition and declaratory relief for the declaration of nullity of Section 3 of the ordinance.

Petitioner: contended that the re-assessment under the third sentence of Section 3 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. 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 219 and 220 of the LGC.

Respondent Quezon City Government enacted Ordinance No. SP-1032, S-2001 which repealed the assailed proviso in Section 3 of the 1995
Ordinance. Respondents moved to dismiss the petition, averring that the repealing ordinance had rendered the petition moot and academic.

Petitioner opposed, alleging that 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." TC: granted respondents motion to dismiss.

ISSUE: W/N 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. (NO)

The proviso in question is invalid as it adopts a method of assessment or appraisal of real property contrary to the LGC, its IRR and the Local
Assessment Regulations No. 1-92 issued by the Department of Finance. 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 situated and classified for assessment purposes on
the basis of its actual use.

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. 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. It can 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.

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 assessor 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. There is nothing in the Charter of Quezon City and the Quezon
City Revenue Code of 1993 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," 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. 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 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.
FACTS:

On December 19, 1995, the Quezon City government enacted City Ordinance No. 357, Series of 1995, 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 BIR 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.

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.

Prior to the sale, Natividad et al. had been paying the total amount of ₱85,050.00 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.

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.

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.

In its written protest 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. Petitioner, moreover, contended that the proviso is
unjust, excessive, oppressive, unreasonable, confiscatory and contrary to Section 130 of the LGC 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;

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. The letter was referred for appropriate action 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.

Petitioner 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.

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.

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 219 and 220 of the LGC 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.

Before respondents could file any responsive pleading or on March 6, 2001, respondent Quezon City Government enacted Ordinance
No. SP-1032, S-2001 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 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 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;

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 RA No. 7160, otherwise known as the LGC of 1991 xxx;

WHEREAS, these fundamental principles of taxation find support and affirmation in the following applicable cases decided by the CTA, 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; Eastern Theatrical Co. vs. Alfonso) 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 for failure to file a responsive pleading within the period, as extended. Before
the motion could be heard, however, respondents moved to dismiss the petition, 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."

Respondents: maintained 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. 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.

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.

TC: 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

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."

Its Motion for Reconsideration having been denied, petitioner comes before this Court on appeal by certiorari under Rule 45.

ISSUES:
1. W/N the trial court erred in dismissing the instant case for failure of the petitioner to exhaust administrative remedies. (NO)
2. W/N 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. (NO)

RULING: 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.

RATIO:

ON THE EXHAUSTION OF ADMINISTRATIVE REMEDIES

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.

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.
Since the procedure for obtaining a refund of real property taxes is provided under Sections 252, 226, 229, 230 and 231 of the LGC,
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. As such, the trial court correctly dismissed its action on the ground that it failed to exhaust the administrative remedies stated
above.

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. The Supreme Court is not a trier of facts 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.

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
cannot 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.

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.

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.

ON THE VALIDITY OF THE PROVISO FIXING THE APPRAISED VALUE OF PROPERTY AT THE STATED CONSIDERATION AT WHICH
THE PROPERTY WAS LAST SOLD

The proviso in question is invalid as it adopts a method of assessment or appraisal of real property contrary to the LGC, its Implementing Rules
and Regulations and the Local Assessment Regulations No. 1-92 issued by the Department of Finance.

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 situated and classified for assessment purposes on the basis of its actual use.

"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, 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.

As this Court stressed in Reyes v. Almanzor, 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. In this regard, Local Assessment Regulations No. 1-92
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.

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.

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.

Reproduction cost approach: 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.

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 assessor 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.
Further, it is noted that there is nothing in the Charter of Quezon City and the Quezon City Revenue Code of 1993 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," 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. 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 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 3 years. 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 LGC provides
that the assessment of real property shall not be increased oftener than once every 3 years, 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 LGC, the IRR, 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.

In fine, the 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 LGC, its IRR 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.