Lanao del Norte Electric Cooperative, Inc. vs. Provincial Government of Lanao del Norte

Section 60 of the Electric Power Industry Reform Act of 2001 (R.A. No. 9136) and Executive Order No. 119 do not prohibit local government units from resorting to the administrative remedy of levy on real property to collect delinquent taxes; these provisions only limit voluntary transfers of assets by electric cooperatives, not tax collection by local governments. Furthermore, real property taxes constitute a lien superior to all other liens, including mortgages held by national government agencies.

LANECO is an electric cooperative granted a franchise under R.A. No. 6038 to distribute electricity in Lanao del Norte. It contracted loans from the National Electrification Administration (NEA) secured by real estate mortgages. Upon enactment of R.A. No. 9136, the Power Sector Assets and Liabilities Management (PSALM) assumed LANECO's outstanding loan obligations. Following the enactment of the Local Government Code of 1991, the Provincial Government of Lanao del Norte enacted Provincial Tax Ordinance No. 1, Series of 1993, imposing real property taxes. From 1995 to 2005, LANECO accumulated significant tax liabilities, prompting the Provincial Treasurer to issue demands and threaten levy and auction of LANECO's properties to satisfy the delinquent taxes.

• LANECO was granted a franchise on January 8, 1972 under Republic Act No. 6038 to distribute electricity over several municipalities in Lanao del Norte.
• On December 14, 1995, the National Electrification Administration expanded LANECO's franchise coverage to include additional barangays in the municipality of Balo-i.
• LANECO contracted several loans from NEA from 1972 until 1991, secured by real estate mortgage contracts over its properties, totaling P117,645,358.00.
• Upon enactment of Republic Act No. 9136 (Electric Power Industry Reform Act of 2001), respondent PSALM assumed LANECO's outstanding loan balance of P32,507,813.70 to NEA pursuant to Section 60 thereof.
• On January 7, 1993, the Sangguniang Panlalawigan enacted Provincial Tax Ordinance No. 1, Series of 1993 (Provincial Revenue Code), adopting the provincial revenue code pursuant to the Local Government Code of 1991.
• On January 26, 2006, LANECO received a demand letter from the Provincial Treasurer for payment of P22,841,842.60 representing real property taxes for the period 1995 to 2005 covering several municipalities.
• Additional billings were sent on July 28, 2006 for P8,270,469.04 covering additional municipalities.
• On September 26, 2006, the Provincial Treasurer issued a final demand threatening publication and auction of delinquent properties if payment was not made within fifteen days.
• LANECO alleged it requested copies of the Provincial Revenue Code to determine the correctness of assessments but was refused; the Sangguniang Panlalawigan later certified that its legislative records were destroyed by fire on December 7, 2003.
• On December 8, 2008, LANECO discovered that the Provincial Government had issued a Notice of Delinquency and caused its publication in the December 1, 2008 issue of Gold Star Daily.
• On March 30, 2009, the Provincial Treasurer issued a memorandum directing municipal treasurers to issue warrants of levy on LANECO's properties, and LANECO subsequently received warrants of levy from the municipalities of Tubod and Baroy.

• LANECO does not dispute its liability to pay real property taxes but argues that the Provincial Government cannot resort to administrative action through levy to enforce payment, asserting that Section 60 of R.A. No. 9136 and Executive Order No. 119 prohibit electric cooperatives from disposing, transferring, or conveying assets during the rehabilitation and modernization period, which allegedly extends to prohibition against levy by local government units.
• The Provincial Government should be required to file a collection case under Section 60 of R.A. No. 9136 instead of resorting to administrative levy.
• The levy violates the constitutional rights of national agencies (NEA and PSALM) to enter into contracts, specifically violating the non-impairment clause of the Constitution.
• The Provincial Government gravely abused its discretion by refusing to provide a certified true copy of the Provincial Revenue Code, violating LANECO's right to due process in failing to furnish the law upon which the tax assessment was made.
• Direct resort to the Supreme Court is warranted under Section 78 of R.A. No. 9136 and constitutes the most speedy and adequate remedy available.

• The Provincial Government and its officers denied allegations of grave abuse, stating they merely employed the administrative remedy of levy on real property authorized under Section 256 of the Local Government Code, and that LANECO is not without remedy as it may redeem the properties by paying the taxes due.
• Section 60 of R.A. No. 9136 refers only to financial obligations (debts) of electric cooperatives to NEA and other government agencies, not to unpaid real property taxes owed to local government units.
• NEA, DOE, and COA alleged LANECO is guilty of forum shopping for filing multiple cases before the RTC while the present petition is pending, and failed to exhaust administrative remedies by not filing the correct petition before the Energy Regulatory Commission.
• PSALM agreed that the warrant of levy should be quashed on the ground that the assessment was invalid for lack of written notice of the law and facts, but asserted that the first lien of the National Government prevails over the local government's levy.

• Procedural Issues:
  • Whether LANECO violated the principle of hierarchy of courts by directly filing the petition with the Supreme Court.
  • Whether LANECO is guilty of forum shopping for filing multiple cases involving the same subject matter and parties.
  • Whether LANECO failed to exhaust administrative remedies.
• Substantive Issues:
  • Whether the Provincial Government committed grave abuse of discretion in levying on LANECO's real properties to enforce payment of unpaid real property taxes.
  • Whether the levy violates Section 60 of R.A. No. 9136 and Executive Order No. 119.
  • Whether the levy violates the constitutional prohibition against impairment of contracts.

• Procedural:
  • The petition violates the principle of hierarchy of courts. Direct resort to the Supreme Court to issue extraordinary writs is not permitted absent special and important reasons clearly set out in the petition. LANECO's justifications—that Section 78 of R.A. No. 9136 vests the Supreme Court with exclusive authority to restrain implementation of the law, and that direct resort is the most speedy and adequate remedy—are unpersuasive. The case does not involve questions on the implementation of R.A. No. 9136, and LANECO's prior filing of cases before the RTC demonstrates awareness that the RTC could settle questions regarding local government taxation rights.
  • LANECO is guilty of forum shopping. There is identity of parties, subject matter, and reliefs prayed for between the present petition and Special Civil Case No. 015-07-2009 filed before the RTC. Both cases question the propriety of real property tax assessment and seek to enjoin collection and levy. The deliberate filing of multiple cases before different fora to secure a favorable outcome constitutes willful and deliberate forum shopping warranting dismissal with prejudice.
• Substantive:
  • The Provincial Government did not commit grave abuse of discretion. Section 60 of R.A. No. 9136 and Executive Order No. 119 do not prohibit local government units from resorting to the administrative remedy of levy on real property. These provisions merely limit voluntary transfer and disposition of assets by electric cooperatives themselves, not tax collection by local government units. The statutory language is clear and unambiguous; to read a prohibition on tax levy would be interpreting the law beyond its actual provisions.
  • The levy does not violate the constitutional prohibition on impairment of contract. The constitutional prohibition does not prohibit every change in existing laws; the impairment must be substantial and affect a change in the rights of the parties with reference to each other, not with respect to non-parties. The mortgages held by NEA/PSALM cannot defeat the right of the Provincial Government to make properties answerable for delinquent taxes.
  • Under Section 257 of the Local Government Code, basic real property tax constitutes a lien on the property subject to tax, superior to all liens, charges, or encumbrances in favor of any person, irrespective of the owner or possessor thereof. The local government tax lien is superior to the mortgage lien of NEA/PSALM.

• Hierarchy of Courts — While the Supreme Court, Court of Appeals, and Regional Trial Courts have concurrent jurisdiction to issue extraordinary writs, direct resort to the Supreme Court is prohibited absent special and important reasons to prevent inordinate demands upon the Court's time and attention and to prevent overcrowding of the docket.
• Forum Shopping — The act of a litigant who repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and essential facts, to increase chances of obtaining a favorable decision. Elements include identity of parties, rights asserted and reliefs prayed for, such that any judgment rendered amounts to res judicata in the other action.
• Non-Impairment Clause — The constitutional prohibition against impairment of the obligation of contracts does not prohibit every change in existing laws; to fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial, affecting the rights of the parties with reference to each other and not with respect to non-parties.
• Superior Lien of Local Taxes — Under Section 257 of the Local Government Code, the basic real property tax and any other tax levied constitutes a lien on the property subject to tax, superior to all liens, charges, or encumbrances in favor of any person, enforceable by administrative or judicial action.

• "Even in the absence of such provision, the petition is also dismissible because it simply ignored the doctrine of hierarchy of courts."
• "Forum shopping is the act of a litigant who repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues..."
• "To constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties."
• "The basic real property tax and any other tax levied under this Title constitutes a lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by administrative or judicial action..."

• Belmonte v. Office of the Deputy Ombudsman for the Military and other Law Enforcement Offices, Office of the Ombudsman — Cited for the rationale behind the doctrine of hierarchy of courts.
• Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local Government, and the Secretary, Department of Finance — Cited regarding the application of the non-impairment clause to government contracts.
• Clemons v. Noting — Cited for the definition of substantial impairment of contract.
• Camp John Hay Development Corporation v. Central Board of Assessment Appeals — Cited for the rule that if a statute is clear, plain and free from ambiguity, it must be given its literal meaning.
• Grace Park International Corporation v. Eastwest Banking Corporation — Cited for the definition of forum shopping.
• Asia United Bank v. Goodland Company, Inc. — Cited for the types of forum shopping (litis pendentia, res judicata, splitting causes of action).
• Heirs of Marcelo Sotto v. Palicte — Cited for the consequences of willful and deliberate forum shopping (dismissal with prejudice).
• Rayos v. City of Manila — Cited for the principle of hierarchy of courts.

• Section 60, Republic Act No. 9136 (Electric Power Industry Reform Act of 2001) — Provides for the assumption by PSALM of outstanding financial obligations of electric cooperatives to NEA and prohibition on transfer of ownership or control of assets within five years from condonation of debt.
• Executive Order No. 119, Series of 2002 — Provides the restructuring program for electric cooperatives, including the assumption and payment by PSALM of rural electrification loans.
• Section 256, Republic Act No. 7160 (Local Government Code of 1991) — Provides remedies for collection of real property tax by administrative action through levy or by judicial action.
• Section 257, Republic Act No. 7160 (Local Government Code of 1991) — Provides that basic real property tax constitutes a lien on the property superior to all other liens, charges, or encumbrances.
• Section 232 and 233, Republic Act No. 7160 — Provide the power of local government units to levy real property tax and the rates thereof.
• Section 78, Republic Act No. 9136 — Provides that the implementation of EPIRA shall not be restrained or enjoined except by an order issued by the Supreme Court.