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As I See It

The real truth to the Seedling Bank row

/ 11:28 PM September 04, 2012

The mouthpiece of the Quezon City government was not being totally truthful when he wrote that letter to the editor (Inquirer, 8/28/12) claiming that the Supreme Court had upheld City Hall’s forcible takeover, martial law style, of the 7-hectare property on Quezon Avenue over which the Manila Seedling Bank Foundation (MSBF) has usufructuary rights. The mouthpiece is trying to confuse the issues by saying the high court has upheld the decision of the lower courts.

The decision was twofold: that the Local Government Code has repealed the tax-exempt status of the MSBF over the property, and that City Hall’s takeover of the property is illegal as it did not follow the due process mandated by law. In other words, while the MSBF is no longer tax-exempt, City Hall had no right to sell the property at a public auction and no right to forcibly take over it.


The MSBF was granted tax-exempt status by Presidential Decree 1197, issued on Sept. 7, 1977, by then President Ferdinand Marcos. The pertinent provision said: “Any provision of law to the contrary notwithstanding, the Manila Seedling Bank Foundation Inc. shall be exempt from all forms of taxation whatever and from duties and all other imposts on any equipment, articles or goods that it may import or may have imported from abroad from the date of the issuance of Presidential Decree 1153, which may be reasonably necessary for use or as part of its operations.”

On the other hand, the Local Government Code of 1991 (Republic Act 7160) withdrew tax-exemption privileges: “Section 193. Withdrawal of tax exemption privileges.—Unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, nonstock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.”

It is clear that the MSBF was tax-exempt from Sept. 7, 1977, until the effectivity of the Local Government Code in 1992. City Hall, however, sought to collect from the MSBF unpaid real estate taxes from 1978 until the present, and which amounted to P59,365,189.34 including interests and penalties.

Foul, said the regional trial court. “Aside from the fact that defendants (the Quezon City government) sought to collect taxes accruing during the period when Plaintiff (the MSBF) was operating as a tax-free entity, there was no prior notice of assessment. What was served upon it was a Statement of Delinquency.”

The importance of the notice of assessment was elucidated by the Supreme Court in a previous case: “An assessment contains not only a computation of tax liabilities, but also a demand for payment within the prescribed period. It also signals the time when the penalties and interests begin to accrue against the taxpayers. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.”

In the MSBF case, “no prior notice of assessment was served,” the court said, and therefore “there is no basis to collect any tax liability, no obligation arose on the part of the Plaintiff to pay the amount of real property taxes sought to be collected. Consequently, Plaintiff never became delinquent in the payment of said taxes to defendants Quezon City, and the latter never acquired any right to sell the subject properties in a public auction.”

The court declared the MSBF tax-exempt from “Sept. 7, 1977, up to the effectivity of the Local Government Code on Jan. 1, 1992. The auction sale conducted on the subject property on Dec. 16, 2005, and the certificate of sale issued as a result thereof are hereby declared null and void. Defendants are likewise enjoined from causing the registration of the said certificate of sale.”

The court, however, said that the City Treasurer can proceed to collect tax liabilities after 1992 when the Local Government Code took effect, “provided that such liabilities are not yet barred by the prescription periods for assessment and collection.”

Regarding the prescription period, the court said that if the taxes became due in 1978, then “the period to collect has prescribed pursuant to Section 270 of the Local Government Code because defendants did not effect any collection, if indeed warranted, within the five-year period from the time it became due.”


That is the decision of the regional trial court that the Supreme Court has upheld. The city government can try to collect from the MSBF real estate taxes only from 1992 but not before that when the MSBF was tax-exempt. Moreover, the sale of the property at public auction has been nullified. Therefore, the MSBF has the right to occupy the property by virtue of its usufructuary rights, and City Hall should withdraw its storm troopers from it.

One more thing: Under Article 597 of the Civil Code, even when there is a change of ownership (but of which there is none yet) the usufruct is not extinguished. The usufruct, which has a limit of 50 years, continues. As usufructuary, the MSBF is not liable for the payment of real estate taxes. Furthermore, it should still have the right to and control of the property. Therefore, the gardeners doing business there should pay rent to the MSBF, and not to City Hall which forced the tenants to pay the rent to it.

I hope that explains everything.

Finally, a question to officials of City Hall: Have you declared martial law in Quezon City? If not, why are you using martial law tactics? (To be continued)

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TAGS: forcible takeover, manila seedling bank foundation, neal h. cruz, notice of assessment, quezon city government, tax-exempt status
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