C. N. HODGES, PETITIONER AND APPELLEE, VS. THE MUNICIPAL BOARD OF THE CITY OF ILOILO, HON. RODOLFO GANZON, IN HIS CAPACITY AS CITY MAYOR OF THE CITY OF ILOILO; AND THE CITY OF I…

Hodges versus Municipal Board of the City of Iloilo

The Case

This is a petition for declaratory relief brought by C. N. Hodges, a real estate dealer in Iloilo, against the Municipal Board of the City of Iloilo, its City Mayor, and the City itself, to test the validity of a city ordinance imposing a real property sales tax. The case matters because it draws the boundary between a chartered city's delegated power to tax under the Local Autonomy Act and the limits of that power: the Court sustains the tax itself as a valid exercise of corporate power, but strikes down the ordinance's attempt to make payment of the tax a condition for registering the sale with the Register of Deeds, holding that a local board cannot amend the Land Registration Act.

Procedural History

Hodges filed his action for declaratory relief in the Court of First Instance of Iloilo before the ordinance took effect, and later amended his petition to include the City as respondent and to pray for reimbursement of taxes already paid. The respondents justified the ordinance under the city charter and the Local Autonomy Act, and set up the special defense that the petition stated no cause of action for declaratory relief. The trial court ruled for Hodges, annulling the ordinance and ordering the City to reimburse the amounts he had paid. The respondents appealed by writ of error to the Supreme Court, which modified the judgment below.

Facts

On June 7, 1960, invoking the Local Autonomy Act, the municipal board of the City of Iloilo enacted ordinance 31, entitled an ordinance imposing a municipal tax on the sale of real property situated in the City of Iloilo. Section 1 required any person, firm, association or corporation selling real property in the city to pay a real property sales tax of one-half of one percent of the contract price or consideration before the sale could be registered and ownership transferred in the Office of the Register of Deeds. The tax was payable to the city treasurer within five days from the sale, with a surcharge for default, and the ordinance made payment a requirement for registration of the sale, with the tax receipt to form part of the documents presented for registration. A penal sanction was prescribed for infractions, and the ordinance was to take effect on July 1, 1960.

Hodges was engaged in buying and selling real estate in Iloilo and stood to be subjected to the tax. On June 28, 1960, before the ordinance took effect, he filed an action for declaratory relief contending that the ordinance was beyond the corporate powers of the City. After the ordinance became effective, he paid taxes on his sales and amended his petition to include the City and to pray for reimbursement.

The respondents justified the enactment under the city charter and section 2 of the Local Autonomy Act, and contended that the petition stated no cause of action. The trial court agreed with Hodges, annulled the ordinance, and ordered reimbursement. The respondents appealed.

Issues

• Whether or not the trial court acquired jurisdiction over the action despite Hodges's failure to exhaust administrative remedies before the Secretary of Finance.
• Whether or not ordinance 31, series of 1960, imposing a real property sales tax, is ultra vires the corporate powers of the City of Iloilo.
• Whether or not the ordinance may validly require payment of the tax as a condition for the registration of the sale and transfer of ownership in the Office of the Register of Deeds.

Applicable Provisions

Section 2 of the Local Autonomy Act, as quoted in the decision, provides:

A tax ordinance shall go into effect on the fifteenth day after its passage unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said secretary exercises this authority the effectivity of such ordinance shall be suspended.

This provision bears on the first issue, because the Court holds that the Secretary of Finance's suspension authority is limited to taxes that are unjust, excessive, oppressive, or confiscatory, and does not apply to a challenge grounded on lack of corporate power.

Section 50 of the Land Registration Act, Act 496, as amended, provides:

The act of registration shall be the operative act to convey and affect the land, and in all cases under this Act the registration shall be made in the office of the register of deeds for the province or provinces or city where the land lies.

This provision bears on the third issue, because the Court holds that the legislature has fixed the requirements for registration, and a local board may not add to them.

Section 1 of Republic Act 456, as quoted in the decision, provides:

No voluntary document by which real property or an interest therein is sold, transferred, assigned, mortgaged or leased shall be registered in the registry of property, unless the real estate taxes levied and actually due thereon shall have been fully paid.

This provision bears on the third issue, because it shows that the legislature itself has specified the minimum requirements for registration of conveyances of real property.

Ruling

On the first issue, the Court holds that the doctrine of exhaustion of administrative remedies does not apply. The authority of the Secretary of Finance to suspend a tax ordinance is limited to taxes that are unjust, excessive, oppressive, or confiscatory, and Hodges challenged the ordinance on the purely legal ground that it was beyond the City's corporate powers. The Court also notes that the law does not make recourse to the Secretary mandatory, since he may act on his own initiative, and that the rule on exhaustion applies only when there is an express legal provision requiring such administrative step as a condition precedent to taking action in court. The Court adds that failure to exhaust administrative remedies affects the cause of action, not the jurisdiction of the trial court.

On the second issue, the Court holds that the tax is valid. The grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to cover everything excepting those matters mentioned therein, subject only to the limitation that the tax be for public purposes, just and uniform. The tax does not fall under any of the specific exceptions, and since its public purpose, justness and uniformity are not disputed, it must be sustained. The Court applies the maxim that an exception confirms the rule in cases not excepted, and relies on its earlier ruling involving the same parties and a similar ordinance taxing sales of motor vehicles, which held that the prohibition on percentage taxes on sales refers only to municipalities and municipal districts and does not comprehend chartered cities.

On the third issue, the Court holds that the condition requiring payment of the tax before registration is ultra vires. The legislature has specified the minimum requirements for registration of conveyances of real property, and upon satisfaction of those requirements it becomes the legal duty of the registrar to make the registration requested. No entity except the Legislature itself may add to, detract from, or otherwise alter or amend those requirements. To sanction the condition would allow the municipal board to add new requirements for registration and, in effect, to amend or modify the law, a power not vested in it. The Court qualifies its earlier ruling that such a condition was a mere coercive measure, holding that the generality of that rule may not prevail when its application runs counter to a specific legal mandate of a superior authority. Since the infirm portion is severable from the rest of the ordinance, it alone is nullified while the rest is sustained.

Doctrine

The grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is plenary and covers everything excepting the matters specifically mentioned therein, subject only to the limitation that the tax be for public purposes, just and uniform. The prohibition on percentage taxes on sales applies only to municipalities and municipal districts, not to chartered cities.

A local legislative body may resort to all means reasonably necessary and proper to give effect to the powers expressly conferred upon it, provided those means are not contrary to any statutory or other more authoritative provision. It may not, however, add to, detract from, or amend the requirements for registration of conveyances of real property fixed by the Land Registration Act and Republic Act 456, for that power belongs to the Legislature alone.

The doctrine of exhaustion of administrative remedies applies only when there is an express legal provision requiring such administrative step as a condition precedent to taking action in court, and its absence affects the cause of action, not the jurisdiction of the court.

Disposition

The Supreme Court modified the judgment below: ordinance 31, series of 1960, of the City of Iloilo is declared valid as within the corporate powers of the City, except the portion requiring payment of the tax as a condition for the transfer of ownership and registration of the sale in the Office of the Register of Deeds, as to which the judgment annulling it was affirmed.

Remember This

A chartered city may levy a sales tax on real property under the Local Autonomy Act, but it cannot make payment of that tax a condition for registering the sale, because that would amend the Land Registration Act. Examiners use this case to test the limits of local taxing power and the rule that only the Legislature may prescribe the requirements for registration of conveyances.