Title
Quezon City Government vs. Manila Seedling Bank Foundation, Inc.
Case
G.R. No. 208788
Decision Date
Jul 23, 2024
Quezon City Government challenged zoning rights of Manila Seedling Bank, court upheld usufructuary rights and invalidated zoning ordinance restricting Foundation's operations.
zoning ordinance
usufructuary rights
denial of business permit

Case Summary (G.R. No. 208788)

Factual Background

The Foundation received usufructuary rights over a seven-hectare portion of National Housing Authority (NHA) land by Proclamation No. 1670 dated September 19, 1977, and thereafter established an Environmental Center operating as a plant nursery and providing related services and leasing portions of the property to commercial tenants. In 2000 the Quezon City Council enacted the Quezon City Zoning Ordinance later amended in 2003, which classified much of the Foundation’s seven-hectare parcel as a Metropolitan Commercial Zone while a 100-square meter parcel was classified as Institutional Zone. Under the ordinance a locational clearance or a certificate of non-conformance was required prior to issuance of a business permit. The City issued a Certificate of Non-Conformance to the Foundation on March 20, 2008 and renewed it annually until December 2011, but denied renewal of the locational clearance on January 5, 2012, resulting in the nonrenewal of the Foundation’s business permit for 2012.

First Case Trial Proceedings and RTC Ruling

After the denial of locational clearance the Foundation filed a petition for prohibition with applications for injunction and a TRO before Branch 96, RTC, Quezon City, docketed SCA No. Q-12-70830. The trial court granted a TRO, then preliminary injunctions, and on June 18, 2013 issued a Decision granting the petition. The RTC declared that the application of the zoning ordinance to the Foundation’s usufructuary property was oppressive and arbitrary, found that the ordinance attempted to reclassify land covered by a national proclamation and therefore acted ultra vires, and issued a writ of prohibition permanently restraining the City from enforcing the ordinance against the subject property and directing issuance of locational clearance and a business permit to the Foundation.

City's Direct Appeal and Jurisdictional Objections

The City brought a direct Rule 45 petition to the Supreme Court challenging the RTC Decision. The City argued that the Foundation had no legal right to injunctive relief because the issuance of locational clearances and business permits are mere privileges, that the petition was moot because permits had been enjoyed until 2011, that the RTC erred in declaring the zoning ordinance unconstitutional, and that the Foundation lacked capacity to sue because its SEC certificate of registration had been revoked in 2002.

Second Case Factual and Procedural History

While the First Case proceeded, the City’s Treasurer notified the Foundation that the subject property had been sold at public auction for alleged real property tax delinquency, and demanded redemption of PHP 40,980,986.24 by July 7, 2012. The City then served a letter stating ownership had vested in the City after failure to redeem, and City agents forcibly took possession and padlocked gates. The Foundation filed a separate petition for prohibition and injunction with damages in Branch 216, RTC, Quezon City (SCA No. Q-12-71638). The RTC initially denied preliminary injunctive relief and later, upon reconsideration and presentation of evidence, ordered dismissal on the ground that the Foundation lacked corporate personality because its SEC registration had been revoked in 2002. The Court of Appeals affirmed the dismissal on June 16, 2016.

Parties’ Principal Contentions

The Foundation contended that it possessed valid usufructuary rights under Proclamation No. 1670, that the Zoning Ordinance’s reclassification and phase-out requirements unduly impaired vested property rights and exceeded the City’s authority, and that the Foundation retained locus standi to challenge the ordinance. The Foundation also maintained that any SEC revocation was not final and that the SEC later set aside the revocation, which should relate back to preserve its corporate personality. The City maintained that the zoning ordinance is a valid exercise of police power, that the Foundation’s petition amounted to an impermissible collateral attack on the ordinance, that the Foundation lacked capacity to sue due to SEC revocation, and that foreclosure and forfeiture pursuant to tax procedures were proper.

Issues Presented to the Supreme Court

The Supreme Court distilled the principal issues as: (1) whether the City’s direct Rule 45 petition could be entertained despite mixed questions of fact and law; (2) whether the Foundation had legal capacity to sue in 2012 given the SEC revocation and whether the City was estopped from raising lack of capacity; (3) whether the Foundation could assail the validity and constitutionality of the Zoning Ordinance via a petition for prohibition (treated as certiorari and prohibition); (4) whether the City could assess and foreclose on the NHA-owned subject property for alleged realty tax delinquencies of the Foundation; and (5) whether the Zoning Ordinance provisions that change the nature or use of the subject property were ultra vires.

Supreme Court on Procedural Thresholds and Estoppel

The Court acknowledged the general rule that Rule 45 review to the Supreme Court addresses questions of law only and ordinarily precludes review of mixed questions of fact and law, but recognized exceptions for constitutional or other transcendent issues. The Court held that, although the Foundation lacked corporate capacity at the time of filing the 2012 petitions because the SEC had revoked its registration in 2002, the City was estopped from asserting that defense. The Court applied Section 21 of the Corporation Code (corporation by estoppel) and equitable principles, noting that the City had treated the Foundation as a corporation for years, had issued locational clearances and business permits and collected fees through 2011, and therefore could not be permitted to repudiate that recognition to avoid the consequences of its prior dealings.

Supreme Court on Capacity after SEC Action

The Court found that the SEC subsequently set aside the revocation by order dated October 14, 2015, and that, under SEC practice and authority cited in the record, reinstatement of registration relates back insofar as it continues the corporate existence rather than creating a new entity. Nevertheless, the Court’s ruling on capacity emphasized that the City’s prior conduct in transacting with the Foundation justified estoppel and that the Foundation’s actions would be treated as properly brought.

Supreme Court on Tax Foreclosure and Possibility of Forfeiture

Addressing the Second Case, the Court reiterated that the seven-hectare parcel is NHA property and that NHA is tax-exempt by statute and jurisprudence. The Court explained that while the beneficial user (the Foundation) may be liable for real property taxes, the City may not foreclose or sell NHA property to satisfy the beneficial user’s tax delinquency. The Court cited doctrine holding that, where government-owned property is involved, remedies must be directed against the taxable beneficial user and that public auction sale and subsequent forfeiture of an NHA-owned parcel are not permitted; thus the City’s foreclosure and seizure were illegal in principle. Nevertheless, because the City had already taken possession and the events had become fait accompli, injunctive relief would be futile and the Foundation’s petition in the Second Case was dismissed as moot, while preserving the Foundation’s right to pursue appropriate actions to annul the foreclosure, recover possession, and seek damages.

Supreme Court on Validity of the Zoning Ordinance and Ultra Vires Application

On the substantive constitutional challenge, the Court treated the Foundation’s petition as one for certiorari and prohibition within the expanded scope of judicial review and found that the Foundation presented an actual controversy and locus standi by virtue of its usufructuary rights recognized in prior authority, including the Court’s decision in National Housing Authority v. Court of Appeals. The Court held that the provisions of the Quezon City Zoning Ordinance that attempted to reclassify the Foundation’s usufruct area and to impose phase-out, relocation, and nonconformance conditions were ultra vires insofar as they contravened Proclamation No. 1670 and unduly impaired vested usufructuary rights. The Court found the City had not demonstrated that the reclassification and the means employed were reasonably necessary to protect public welfare or that they were not unduly oppressive. The Court therefore declared null and void only those provisions of the zoning ordinances that directly affected the Foundation’s usufructuary rights, while leaving the remainder of the ordinance in force.

Remedies, Mootness, and Relief Ordered

The Supreme Court affirmed the RTC’s determination that the Zoning Ordinance provisions affecting the Foundation were unconstitutional and ultra vires and therefore declared those provisions null and void. The Court, however, modified relief by dissolving the RTC’s injunction ordering the City to issue locational clearance and business permit on grounds of mootness because the Foundation had already been dispossessed and had relocated its operations and because the area had been developed after the City’s actions. In the Second Case the Court held the petition was properly dismissed as moot while noting that the Foundation was not precluded from instituting appropriate actions to annul the foreclosure, seek recovery of possession, or claim damages.

Legal Basis and Doctrinal Reasoning

The Court’s reasoning rested on a synthesis of doctrines and authorities appear

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