G.R. No. 14918 - Government of the Philippine Islands vs. Zamora

Case Summary (G.R. No. 14918)

Origin of the Tax Dispute and the Settlement with Ajinomoto

After being elected Mayor of Cagayan de Oro City in 2013, Moreno designated Banez as OIC City Treasurer. Upon assumption, Banez reviewed records of tax payments of business establishments in the city. On November 27, 2013, the City Treasurer’s Office, through Banez, issued a Notice of Assessment to Ajinomoto demanding payment of an alleged deficiency local business tax amounting to P2,924,428.34 for calendar years 2006 to 2012. The deficiency resulted from the reclassification of monosodium glutamate (MSG) from an essential to a nonessential commodity.

Ajinomoto contested the retroactive application of the reclassification and argued it should not be penalized for the erroneous classification made by the previous administration, and that it had already updated its business tax payments. Ajinomoto filed a Petition for Review before the Regional Trial Court (RTC) of Misamis Oriental, Branch 17, docketed as Civil Case No. 2014-093, impleading Cagayan de Oro City through Mayor Moreno and the Office of the City Treasurer through OIC Banez.

During pre-trial, the RTC referred the case to the Philippine Mediation Center. In court-assisted mediation, Ajinomoto and the City Government, represented by Banez as OIC City Treasurer, signed a Settlement Agreement. Under the settlement, Ajinomoto agreed to dismiss its suit against the city government in exchange for a compromised tax assessment amount of P300,000.00, inclusive of increments such as interest and surcharges, as full settlement of the assessed local business tax for 2006 to 2012. The RTC later approved a Joint Motion to Dismiss in view of the full settlement, through an Order dated August 22, 2014.

The Ombudsman Complaint and Administrative Charges

On March 13, 2015, Guialani filed a Verified Complaint with the Office of the Ombudsman, charging Moreno and Banez with Grave Abuse of Authority, Grave Misconduct, and Violation of R.A. 6713 (the Code of Conduct of Ethical Standards for Public Officials and Employees). Guialani’s theory was that Banez had no authority to enter into any tax compromise with Ajinomoto. Guialani asserted that Banez was only authorized by Moreno to enter into the settlement agreement, and that respondents could not validly execute it without the consent of the Sangguniang Panglungsod (Sanggunian) in the form of an ordinance, as allegedly required by the Local Government Code of 1991 (R.A. 7160). Guialani further alleged that Moreno abused his mayoral authority by inducing Banez and conspiring with him to divert public funds.

Respondents filed counter-affidavits. Banez claimed he found Ajinomoto’s offer favorable after consulting with the city government’s lawyers and asserted that he could not be held administratively liable because the settlement agreement was initiated by the mediator and was duly approved by the court. Moreno averred that he was not aware of the settlement agreement before it was reported to him, and he stated that he was pleased because the city government gained revenue from the assessment and saved money on litigation expenses.

Decision of the Office of the Ombudsman and Subsequent Provisional Relief in the Court of Appeals

In a Decision dated August 14, 2015, the Office of the Ombudsman found Moreno and Banez guilty of Grave Misconduct and imposed the penalty of Dismissal from Service, including accessory penalties such as cancellation of eligibility, forfeiture of retirement benefits, and perpetual disqualification for re-employment in government service. The Ombudsman dismissed the charges of Grave Abuse of Authority and Violation of R.A. 6713. The Ombudsman also provided for conversion of the penalty into a fine if enforcement became impossible due to separation from service, and directed the DILG Secretary to implement the penalty and submit a compliance report.

Respondents filed separate motions for reconsideration with the Ombudsman. While those motions were pending, Moreno and Banez sought TRO and/or writ of preliminary injunction before the Court of Appeals of Cagayan de Oro City through petitions for Certiorari under Rule 65. Moreno’s petition was docketed as CA-G.R. SP No. 07072-MIN, while Banez’s petition was docketed as CA-G.R. SP No. 07073-MIN. The two were consolidated. On November 13, 2015, the Court of Appeals granted a TRO effective for 60 days, enjoining DILG, its officers, and all persons acting under them from enforcing the Ombudsman’s dismissal order.

Afterward, the DILG sought clarification as to who should be recognized as Mayor given the TRO issued after the Ombudsman decision had already been served and implemented. The Court of Appeals issued a clarification resolution on November 18, 2015, stating that there was nothing to elucidate since DILG acknowledged respondents’ authority by virtue of the TRO. Respondents’ application for a writ of preliminary injunction was granted on January 11, 2016. On February 15, 2016, the Ombudsman denied respondents’ motions for reconsideration.

Respondents then filed Petitions for Review under Rule 43 with the Court of Appeals, contesting the Ombudsman’s decision and order. Moreno’s petition was docketed as CA-G.R. SP No. 07520-MIN, and Banez’s petition as CA-G.R. SP No. 07521-MIN. The Court of Appeals ordered consolidation with CA-G.R. SP Nos. 07072-MIN and 07073-MIN.

The Parties’ Positions Before the Court of Appeals

Respondents argued that the settlement agreement was a product of a purely executive function: the assessment and adjustment of local taxes. Guialani countered that the settlement agreement was a compromise, which is a type of contract requiring prior authorization from the Sanggunian. The dispute ultimately focused on whether the compromise reducing Ajinomoto’s deficiency taxes from P2,924,428.34 to P300,000.00 required Sanggunian approval.

In its October 13, 2016 decision, the Court of Appeals reversed and set aside the Ombudsman’s dismissal ruling and dismissed the administrative charges for lack of merit. It reasoned that no prior Sanggunian approval was required because the settlement agreement was treated as a continuation of the local treasurer’s tax-related functions. The Court of Appeals relied on provisions of the Local Government Code enumerating the local treasurer’s powers to assess, collect, and adjust taxes, and it cited Quisumbing v. Garcia for the distinction that contracts under Section 22(c) of the Local Government Code involve obligations binding the local government unit, for which prior authorization is required. The appellate court held that the settlement agreement did not create new obligations for the city government, hence no prior authorization under Section 22 was required.

Guialani and the Ombudsman moved for reconsideration, but their motion was denied on February 9, 2017.

Supreme Court Issues Framed as One Core Question

The Supreme Court treated the case as centering on one primordial question: whether Moreno and Banez were guilty of grave misconduct, grave abuse of authority, and violation of R.A. 6713 for entering into a settlement agreement reducing Ajinomoto’s local tax deficiency without prior authority from the Sanggunian of Cagayan de Oro City.

The Supreme Court’s Ruling on the Need for Sanggunian Authorization

The Supreme Court partially granted the petitions. It held that the settlement agreement reducing Ajinomoto’s deficiency tax from P2,924,428.34 to P300,000.00 must be authorized by the Sanggunian.

The Court began by defining the nature of a tax settlement or compromise. A tax compromise is an agreement whereby the taxpayer offers to pay something less and the government accepts it as full settlement. Because it effectively waives part of revenues belonging to government, it must be executed in accordance with law. It then cited key Local Government Code provisions: Section 132 (Local Taxing Authority), which states that the power to impose a tax, fee, or charge or generate revenue is exercised by the Sanggunian through an ordinance; and Section 192 (Authority to Grant Tax Exemption Privileges), which allows local governments to grant tax exemptions, incentives, or reliefs through ordinances duly approved. The Court stressed that the power to tax and to grant tax reliefs is fundamentally legislative and belongs to the Sanggunian via ordinance.

Applying these principles, the Court characterized the settlement agreement as a tax relief because it substantially decreased Ajinomoto’s tax deficiency. Therefore, the agreement could not be left to the discretion of the city mayor or city treasurer. It also reasoned that without ordinance authority, respondents had no legal basis to settle the deficiency by reducing the amount due. It further rejected the Court of Appeals’ conclusion that the settlement agreement did not require Sanggunian approval.

The Supreme Court’s Treatment of the Local Treasurer’s Powers and Ajinomoto’s Protest

The Supreme Court also rejected the appellate court’s reliance on the local treasurer’s power to assess, decide protests, and cancel assessments under Sections 183 and 195 of the Local Government Code. It noted that Banez failed to act on the protest within the sixty (60)-day period under Section 195, which triggered Ajinomoto’s appeal to the RTC. The Court held that by failing to decide the protest within the statutory period, Banez could not claim any residual power to adjust the deficiency tax arbitrarily or whimsically without legal justification.

It likewise addressed an analogy to California Manufacturing Co., Inc. v. The City of Las Pinas, where the Court approved a compromise only because the compromise had been validly executed with a required city resolution authorizing the city mayor and/or city treasurer to accept the settlement.

Further, the Court held that the settlement agreement was a contract within the meaning of Section 22(c) of the Local Government Code. Section 22(c) prohibits the local chief exe

Case Syllabus (G.R. No. 14918)

Parties and Procedural Posture

Petitioner William Guialani filed consolidated petitions challenging the Court of Appeals (CA) rulings in proceedings involving administrative dismissal ordered by the Office of the Ombudsman.
The consolidated matters included (1) Petitions for Review on Rule 45 filed by Guialani and the Office of the Ombudsman assailing the CA’s reversal of the Ombudsman’s dismissal order, and (2) a Rule 65 Petition for Certiorari and Prohibition filed by Guialani assailing CA resolutions granting a temporary restraining order and writ of preliminary injunction.
In G.R. Nos. 227527-28, Guialani sought review of the CA decision reversing the Ombudsman’s finding of administrative liability against respondents.
In G.R. Nos. 231065-68, the Office of the Ombudsman likewise sought review of the CA decision absolving the respondents.
In G.R. Nos. 221253-54, Guialani challenged CA resolutions that enjoined the Department of the Interior and Local Government (DILG) from enforcing the Ombudsman’s dismissal decision.
The CA reversed and set aside the Ombudsman’s August 14, 2015 decision and February 15, 2016 order, then denied reconsideration by resolution dated February 9, 2017.
The Supreme Court partially granted the Rule 45 petitions and dismissed the Rule 65 petition as moot and academic.

Key Factual Allegations

Respondent Oscar S. Moreno served as Mayor of Cagayan de Oro City elected in 2013 and designated respondent Dr. Glenn Banez as Officer-in-Charge (OIC) of the City Treasurer’s Office.
After assuming office, Banez reviewed city records of business tax payments and issued a Notice of Assessment to Ajinomoto Philippines Corporation (Ajinomoto) for deficiency local business tax totaling P2,924,428.34 for calendar years 2006-2012.
The deficiency tax arose from the reclassification of monosodium glutamate (MSG) from essential to nonessential commodity.
Ajinomoto assailed the deficiency tax assessment and filed a Petition for Review before the Regional Trial Court (RTC) of Misamis Oriental, Branch 17, docketed as Civil Case No. 2014-093.
During pre-trial, the RTC referred the case to court-assisted mediation, and Ajinomoto and the city government, represented by Banez as OIC City Treasurer, executed a Settlement Agreement.
Under the Settlement Agreement, Ajinomoto agreed to dismiss its suit in exchange for a compromised tax assessment amount of P300,000.00 inclusive of increments as full settlement of local business tax for 2006-2012.
The RTC approved the Joint Motion to Dismiss after the parties’ settlement.
Guialani, a former Punong Barangay, filed a verified complaint before the Office of the Ombudsman charging respondents Moreno and Banez with Grave Abuse of Authority, Grave Misconduct, and violation of Republic Act No. 6713.
Guialani alleged that Banez lacked authority to enter a tax compromise and that the settlement required prior consent of the Sangguniang Panglungsod (Sanggunian) through an ordinance under R.A. 7160.
Guialani further alleged that Moreno abused authority by inducing Banez to settle without the Sanggunian’s approval to divert public funds.
For their defenses, Banez claimed the settlement was accepted only after consultation with city lawyers and asserted court approval of the mediation settlement; Moreno denied participation and stated he learned of the settlement after Banez reported its outcome.
The Ombudsman found respondents guilty of Grave Misconduct and dismissed them from service, while dismissing charges of Grave Abuse of Authority and R.A. 6713 violation.

Ombudsman’s Ruling

The Office of the Ombudsman held Oscar S. Moreno and Dr. Glenn Banez guilty of Grave Misconduct.
The Ombudsman imposed the penalty of dismissal from service, including accessory penalties such as cancellation of eligibility, forfeiture of retirement benefits, and perpetual disqualification for re-employment.
The Ombudsman dismissed the separate charges of Grave Abuse of Authority and violation of R.A. 6713.
The Ombudsman directed that if enforcement of dismissal became impossible due to separation from service, the penalty would be converted into a fine equivalent to one year’s salary.
The Ombudsman required DILG to implement the penalty and submit a compliance report.

Court of Appeals’ Disposition

While their motions for reconsideration were pending before the Ombudsman, Moreno and Banez filed Rule 65 petitions before the CA seeking TRO and/or writ of preliminary injunction to enjoin the DILG from enforcing their dismissal.
The CA issued a TRO effective for 60 days via a resolution dated November 13, 2015.
The CA later stated in a resolution dated November 18, 2015 that there was nothing further to clarify after DILG acknowledged the CA’s recognition of respondents’ power and authority under the TRO.
The CA later granted an application for a writ of preliminary injunction on January 11, 2016.
After Moreno and Banez filed petitions for review under Rule 43 before the CA assailing the Ombudsman’s decision and order, the CA consolidated the proceedings.
In its October 13, 2016 decision, the CA granted the Rule 43 petitions, reversed the Ombudsman’s dismissal decision, and dismissed the administrative charges for lack of merit.
The CA dismissed the Rule 65 petitions on the ground of mootness.
In its February 9, 2017 resolution denying reconsideration, the CA held that no prior Sanggunian approval was required for the settlement agreement because it was a continuation of the treasurer’s tax assessment functions.

Issues Framed

The consolidated petitions turned on a single primordial question: whether respondents were administratively liable for grave misconduct, grave abuse of authority, and R.A. 6713 violation in entering a tax settlement that reduced Ajinomoto’s deficiency local tax from P2,924,428.00 to P300,000.00 without prior Sanggunian authorization.
Guialani argued that the settlement agreement was a contract requiring prior Sanggunian approval under Section 22(c) of R.A. 7160.
The Office of the Ombudsman argued that although the Local Go