Title
Philippine Heart Center vs. Local Government of Quezon City
Case
G.R. No. 225409
Decision Date
Mar 11, 2020
PHC, a government instrumentality and charitable institution, was exempt from real property taxes; Quezon City's tax assessments, levy, and auction of its properties were declared void by the Supreme Court.
real property taxes
exemption
lease

Case Summary (G.R. No. 225409)

Factual Background

The PHILIPPINE HEART CENTER was created by Presidential Decree 673 in 1975 as a specialty hospital mandated to provide cardiovascular care, research, training, and related public-health services. PD 673 vested the PHC with corporate powers, authorized property acquisition and disposition, and granted a ten-year exemption from payment of government-imposed taxes, charges and fees; Letter of Instruction 1455 extended that tax exemption in 1985. The PHC owned eleven land and building parcels in Quezon City. In 2004 the Quezon City Government issued final Notices of Delinquency totaling Php 36,530,545.00 for unpaid real property taxes. The PHC negotiated Memoranda of Agreement with Quezon City to settle liabilities by providing free medical services, but implementation was suspended after an August 22, 2006 OGCC memorandum citing Manila International Airport Authority v. Court of Appeals (MIAA). Despite this, Quezon City maintained that major portions of PHC properties were leased to private parties, issued a Warrant of Levy on June 13, 2011, and sold the properties at public auction to the City as sole bidder on July 7, 2011.

Proceedings in the Court of Appeals

The PHC filed a petition for certiorari before the Court of Appeals challenging respondents’ assessment, levy and sale as gravely abusive and void. Respondents moved to dismiss for failure to exhaust administrative remedies, defective verification and certification against forum shopping, and failure to comply with the deposit requirement of Section 267 of RA 7160. By Decision dated September 25, 2012, the Court of Appeals initially dismissed the petition for non-exhaustion under Section 252 of RA 7160. The Court of Appeals later reinstated the petition by Resolution dated March 18, 2013 on the ground that remedies under Section 252 were no longer plain, speedy, and adequate due to the auction sale. The Court of Appeals also accepted that Section 267’s deposit requirement did not apply where the plaintiff is the government or its agency. Nevertheless, by Decision dated March 15, 2016 the Court of Appeals dismissed the petition anew, holding that certiorari was the wrong remedy because the acts of assessment, levy and sale were not judicial or quasi-judicial in nature; the Court of Appeals thus declined to reach the merits. A motion for reconsideration was denied on June 23, 2016.

The PHC’s Contentions to the Supreme Court

The PHILIPPINE HEART CENTER maintained that certiorari was the proper remedy to challenge the authority of Quezon City to assess it and to nullify the levy and sale, relying on MIAA and Mactan-Cebu International Airport Authority v. City of Lapu-Lapu (MCIAA). The PHC insisted it enjoyed exemption from local real property taxes under PD 673, LOI 1455, Article III, Section 28(3) of the 1987 Constitution, and Section 234(b) of RA 7160, and alternatively as a national government instrumentality vested with corporate powers. The PHC asked the Court to reverse the Court of Appeals’ dismissal and declare the assessments, levy, and sale void.

Respondents’ Contentions

Respondents argued first that the PHC failed to comply with verification and certification against forum shopping because the petition was signed by an individual allegedly lacking board authorization. Second, respondents asserted non-exhaustion of administrative remedies and reliance on local ordinances providing for protests before the City Treasurer and administrative appeal to the Board of Tax Appeals. Third, respondents contended that the PHC failed to prove entitlement to exemption under Section 206 of RA 7160, and alleged that the PHC had granted beneficial use of its properties to private commercial lessees such as Globe Telecom, Jollibee, Course Development, Inc., and Proheart Food Corp., removing the exemption for those portions.

Issues Presented

The Court identified three principal issues: whether the petition complied with the rules on verification and the certification against forum shopping; whether certiorari was the proper remedy to challenge respondents’ assessment, levy, and sale; and whether the PHC is exempt from real property taxes on the eleven Quezon City properties.

Court’s Ruling on Verification and Certification

The Court held that the PHC substantially complied with Rule 7, Sections 4 and 5 of the Rules of Court. The Court recited precedents that permit some corporate officers to sign verifications and certifications absent explicit board resolutions so long as the signatory is in position to verify the pleadings’ truth. Applying that standard, the Court found that Dr. Gerardo S. Manzo, as Officer-in-Charge Executive Director by DOH Order No. 2016-2359-A dated August 5, 2016, could verify the petition. The Court therefore exercised liberal application of the rules to prevent dismissal on mere formality.

Court’s Ruling on the Proper Remedy

The Court concluded that certiorari under Rule 65 was a proper remedy. It emphasized Article VIII, Section 1 of the 1987 Constitution empowering the judiciary to remedy grave abuse of discretion amounting to lack or excess of jurisdiction. The Court explained that certiorari and prohibition may correct grave abuse by any branch or instrumentality of government, not solely acts undertaken in judicial or quasi-judicial capacity. Because the PHC pleaded grave abuse in the assessment, levy and sale, certiorari could issue to nullify those acts if the allegations were meritorious.

Court’s Ruling on PHC’s Status as Government Instrumentality with Corporate Powers

The Court determined that the PHILIPPINE HEART CENTER is a government instrumentality vested with corporate powers. It applied the definition of a government instrumentality vested with corporate powers as an entity performing governmental functions, enjoying operational autonomy, and endowed with some corporate powers. The Court relied on PD 673 (Sections 4 and 5) which sets PHC’s public-health purposes and vests it with the powers of a juridical person, and on the jurisprudential and legislative framework recognizing such entities (notably MIAA, EO 596, and RA 10149) to place the PHC in the category of government instrumentalities endowed with corporate powers. The Court held that PHC’s corporate powers do not divest it of its character as a government instrumentality.

Court’s Ruling on Tax Exemption, Beneficial Use, Levy and Sale

The Court held that PHC’s properties are properties of public dominion devoted to public use and service and are therefore exempt from real property tax under Section 234(a) of RA 7160 and Article 420 of the Civil Code, subject to the exception when the beneficial use has been granted to a taxable person. The Court reviewed prior decisions such as MIAA, Lung Center of the Philippines v. Quezon City, Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila, PFDA v. Central Board of Assessment Appeals, and MWSS v. Local Government of Quezon, which sustain exemption for government instrumentalities but deny exemption for portions actually leased to private lessees. The Court f

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