ARTURO M. TOLENTINO VS.
THE SECRETARY OF FINANCE that it violates vested rights protected under the Contract Clause are
and THE COMMISSIONER OF INTERNAL REVENUE
1994 Aug 25
G.R. No. 115455
235 SCRA 630
FACTS: The valued-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling
price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the
National Internal Revenue Code.
The Chamber of Real Estate and Builders Association (CREBA)
contends that the imposition of VAT on sales and leases by virtue of
contracts entered into prior to the effectivity of the law would violate
the constitutional provision of “non-impairment of contracts.”
ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it
violates the contract clause under Art. III, sec 10 of the Bill of Rights.
RULING: No. The Supreme Court the contention of CREBA, that the
imposition of the VAT on the sales and leases of real estate by virtue
of contracts entered into prior to the effectivity of the law would
violate the constitutional provision of non-impairment of contracts, is
only slightly less abstract but nonetheless hypothetical. It is enough
to say that the parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential
attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government which
retains adequate authority to secure the peace and good order of
society. In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation save only
where a tax exemption has been granted for a valid consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does
not understand it to make this claim. Rather, its position, as
discussed above, is that the removal of its tax exemption cannot be
made by a general, but only by a specific, law.
Further, the Supreme Court held the validity of Republic Act No.
7716 in its formal and substantive aspects as this has been raised in
the various cases before it. To sum up, the Court holds:
(1) That the procedural requirements of the Constitution have been
complied with by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the
enactment of statutes - beyond those prescribed by the Constitution -
have been observed is precluded by the principle of separation of
powers;
(3) That the law does not abridge freedom of speech, expression or
the press, nor interfere with the free exercise of religion, nor deny to
any of the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record,
claims that the law is regressive, oppressive and confiscatory and
prematurely raised and do not justify the grant of prospective relief by
writ of prohibition.
WHEREFORE, the petitions are DISMISSED.
G.R. No. 191667, April 17, 2013
Land Bank of the Philippines
vs Eduardo M. Cacayuran
Ponente: Perlas-Bernabe
Facts:
This is a petition for Review on Certiorari of the CA affirming the RTC
in declaring the nullity of the loan agreements entered into by Land
Bank and the Municipality of Agoo, La Union.
Agoo SB passed a certain resolution to implement a redevelopment
plan to redevelop the Agoo Public Plaza. To finance the plan, SB
passed a resolution authorizing then Maor Eriguel to obtain a loan
from Land Bank, incidental to it, mortgaged a portion of the plaza as
collateral. It has also authorized the assignment of a portion if the
IRA and monthly income in favor of Land Bank to secure the
payment. 10 Kiosks were made at the plaza, then were rented out.
Later, a commercial center on the Plaza lot was built too, with a loan
from Land Bank, posting the same securities as the first loan.
The commercial loan was opposed by some residents of the
municipality embodied in a manifesto launched through a signature
campaign by the residents and Cacayuran. Invoking his right as
taxpayer, Cacayuran filed a complaint against the officials and Land
bank assailing the validity of the loans on the ground that the Plaza
lot used as collateral is property of public dominion and therefore
beyond the commerce of man.
RTC Ruling: declared the nullity of the subject loans, saying that the
oans were passed in a highly irregular manner, as such, the
Municipality is not bound by the same.
Aggrieved, Land Bank filed notice of appeal.
Ruling of CA: affirmed with modification the RTC's ruling, excluding
the Vice Mayor from any personal liability arising from the subject
loans. Cacayuran has locus standi as resident and taxpayer in the
municipality and the issue involves public interest. The plaza cannot
be a valid collateral to a loans for it is of public dominion.
Land Bank filed this instant petition.
Issues:
(1) whether Cacayuran has locus standi (2) whether the subject
resolutions were validly passed and (3) whether the subject loans are
ultra vires. [The doctrine in the law of corporations that holds that if a
corporation enters into a contract that is beyond the scope of its
corporate powers, the contract is illegal.]
SC Ruling:
(1) Taxpayer is allowed to sue if: (1) public funds derived from
taxation are disbursed by a political subdivision or instrumentality and
in doing so, a law is violated or some irregularity is committed; and
(2) the petitioner is directly affected by the alleged act.
In the case, the proceeds from the Subject Loans had already been
converted into public funds by the Municipality’s receipt thereof.
 Funds coming from private sources become impressed with the
characteristics of public funds when they are under official custody.
Public plaza belongs to public dominion, Cacayuran need not to be a
privy to the loans, as long as taxes are involved, people have a right
to question the contracts entered into by the government.
(2) While ordinances are laws and possess a general and permanent
character, resolutions are merely declarations of the sentiment or
opinion of a law making body on a specific matter and are temporary
in nature. As opposed to ordinances, "no rights can be conferred by
and be inferred from a resolution." In this accord, it cannot be denied
that the SB violated Section 444(b)(1)(vi) of the LGC altogether.
Noticeably, the passage of the Subject Resolutions was also tainted
with other irregularities, such as (1) the SB’s failure to submit the
Subject Resolutions to the Sangguniang Panlalawigan of La Union
for its review contrary to Section 56 of the LGC; and (2) the lack of
publication and posting in contravention of Section 59 of the LGC.
(3) Generally, an ultra vires act is one committed outside the object
for which a corporation is created as defined by the law of its
organization and therefore beyond the powers conferred upon it by
law.43 There are two (2) types of ultra vires acts. There is a
distinction between an act utterly beyond the jurisdiction of a
municipal corporation and the irregular exercise of a basic power
under the legislative grant in matters not in themselves jurisdictional.
The former are ultra vires in the primary sense and void; the latter,
ultra vires only in a secondary sense which does not preclude
ratification or the application of the doctrine of estoppel in the interest
of equity and essential justice.
Applying these principles to the case at bar, it is clear that the
Subject Loans belong to the first class of ultra vires acts deemed as
void. Records disclose that the said loans were executed by the
Municipality for the purpose of funding the conversion of the Agoo
Plaza into a commercial center pursuant to the Redevelopment Plan.
However, the conversion of the said plaza is beyond the
Municipality’s jurisdiction considering the property’s nature as one for
public use and thereby, forming part of the public dominion.
Accordingly, it cannot be the object of appropriation either by the
State or by private persons. Nor can it be the subject of lease or any
other contractual undertaking.
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
· Algue Inc. is a domestic corp engaged in engineering, construction
and other allied activities
· On Jan. 14, 1965, the corp received a letter from the CIR regarding
its delinquency income taxes from 1958-1959, amtg to P83,183.85
· A letter of protest or reconsideration was filed by Algue Inc on Jan
18
· On March 12, a warrant of distraint and levy was presented to
Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it
on the ground of the pending protest
· Since the protest was not found on the records, a file copy from the
corp was produced and given to BIR Agent Reyes, who deferred
service of the warrant
· On April 7, Atty. Guevara was informed that the BIR was not taking
any action on the protest and it was only then that he accepted the
warrant of distraint and levy earlier sought to be served
· On April 23, Algue filed a petition for review of the decision of the
CIR with the Court of Tax Appeals
· CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business
expense
- payments are fictitious because most of the payees are members
of the same family in control of Algue and that there is not enough
substantiation of such payments
· CTA: 75K had been legitimately paid by Algue Inc. for actual
services rendered in the form of promotional fees. These were
collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by Algue as legitimate business
expenses in its income tax returns
Ruling:
· Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance, made in accordance with
law.
· RA 1125: the appeal may be made within thirty days after receipt of
the decision or ruling challenged
· During the intervening period, the warrant was premature and could
therefore not be served.
· Originally, CIR claimed that the 75K promotional fees to be
personal holding company income, but later on conformed to the
decision of CTA
· There is no dispute that the payees duly reported their respective
shares of the fees in their income tax returns and paid the
corresponding taxes thereon. CTA also found, after examining the
evidence, that no distribution of dividends was involved
· CIR suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction
· Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was
not required. at the end of the year, when the books were to be
closed, each payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. This arrangement
was understandable in view of the close relationship among the
persons in the family corporation
· The amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to
Algue Inc. was P125K. After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar
Estate properties.
· Sec. 30 of the Tax Code: allowed deductions in the net income –
Expenses - All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation
for personal services actually rendered xxx
· the burden is on the taxpayer to prove the validity of the claimed
deduction
· In this case, Algue Inc. has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the
 payees in inducing investors and prominent businessmen to venture
in an experimental enterprise and involve themselves in a new
business requiring millions of pesos.
· Taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities,
every person who is able to must contribute his share in the running
of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material
values
· Taxation must be exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time
with the CTA in accordance with Rep. Act No. 1125. And we also find
that the claimed deduction by Algue Inc. was permitted under the
Internal Revenue Code and should therefore not have been
disallowed by the CIR