Quezon City Government vs. Manila Seedling Bank Foundation, Inc.

A local zoning ordinance cannot be enforced to deprive a party of vested usufructuary rights granted by a presidential proclamation, as such an ordinance is ultra vires, an invalid exercise of police power, and violates the non-impairment and due process clauses of the Constitution. Furthermore, a local government unit that has transacted with a corporation and issued permits to it is estopped from later challenging that corporation's legal capacity to sue in a dispute arising from those same transactions.

In 1977, Presidential Proclamation No. 1670 granted the Manila Seedling Bank Foundation, Inc. (Foundation) usufructuary rights over a seven-hectare portion of land in Quezon City owned by the National Housing Authority (NHA). The Foundation operated an environmental center and related businesses on the property. In 2000/2003, Quezon City enacted a Zoning Ordinance classifying the property as a Metropolitan Commercial Zone and establishing a phase-out period for non-conforming uses. The Foundation was issued a Certificate of Non-Conformance and business permits annually until 2011. In 2012, the City denied renewal of the Foundation's locational clearance and business permit for non-conformance. Simultaneously, the City foreclosed on the property for alleged non-payment of real property taxes and eventually seized it. The Foundation filed two separate petitions for prohibition: one challenging the zoning ordinance (First Case) and another challenging the foreclosure and seizure (Second Case).

• Nature of the Right: By virtue of Proclamation No. 1670 (1977), the Manila Seedling Bank Foundation, Inc. (Foundation) was granted usufructuary rights over a seven-hectare portion of land in Quezon City owned by the National Housing Authority (NHA). The Foundation operated an environmental center, plant nursery, and leased portions for garden centers and related businesses.
• The Zoning Ordinance: In 2000/2003, Quezon City enacted Ordinance No. SP-918 (as amended by SP-1369), which classified the subject property as a Metropolitan Commercial Zone. It required non-conforming uses to secure a Certificate of Non-Conformance and program their phase-out within 10 years.
• Permit Denial: The Foundation was annually issued a Certificate of Non-Conformance and business permits from 2008 to 2011. In January 2012, the City Planning and Development Office denied renewal of the Foundation's locational clearance, leading to the denial of its 2012 business permit.
• Foreclosure and Seizure: In July 2012, the City Treasurer issued a Final Notice to Exercise the Right of Redemption, claiming the property was sold at public auction for real property tax delinquency. The City subsequently entered the property, padlocked it, and declared it forfeited in favor of the city government.
• Foundation's Corporate Status: The Foundation's Certificate of Registration was revoked by the Securities and Exchange Commission (SEC) on February 21, 2002, for failure to file financial statements. The SEC later set aside this revocation in October 2015.
• Lower Court Proceedings: The Foundation filed two separate petitions for prohibition. The RTC (Branch 96) granted the first petition, enjoining the enforcement of the zoning ordinance. The RTC (Branch 216) dismissed the second petition based on the Foundation's lack of capacity to sue, a ruling affirmed by the Court of Appeals.

• Lack of Capacity to Sue: The Foundation had no legal capacity to file suit in 2012 because its corporate registration had been revoked by the SEC in 2002, and the three-year liquidation period under the Corporation Code had long expired.
• Validity of the Zoning Ordinance: The ordinance is a valid exercise of police power, presumed constitutional. The Foundation's petition constituted a prohibited collateral attack on its validity. Private rights and contracts must yield to a valid zoning regulation.
• Mootness: The First Case was moot because the zoning ordinance had already been implemented and the Foundation had not been denied permits since 2011.
• Extinguishment of Usufruct: The purposes for the usufruct no longer existed, extinguishing the Foundation's rights.
• Propriety of Foreclosure: The City had the authority to foreclose for tax delinquency.

• Estoppel: The City was estopped from questioning the Foundation's corporate existence after having transacted with it for years, issuing locational clearances and business permits, and collecting fees.
• Vested Rights and Non-Impairment: The Zoning Ordinance was unconstitutional as it impaired the Foundation's vested usufructuary rights granted by Proclamation No. 1670, a national law.
• Invalid Exercise of Police Power: The ordinance was not a reasonable or necessary exercise of police power and was unduly oppressive, as it did not serve public welfare and effectively deprived the Foundation of its property rights without due process.
• Ultra Vires: The local ordinance could not amend or contravene a national law (the Proclamation).
• Illegal Foreclosure: The property, owned by the tax-exempt NHA, could not be sold at public auction for tax delinquency.

• Procedural Capacity: Whether the Quezon City Government is estopped from questioning the Manila Seedling Bank Foundation, Inc.'s legal capacity to sue.
• Validity of Ordinance: Whether the provisions of the Quezon City Zoning Ordinance that reclassify the subject property and impose a phase-out for non-conforming uses are valid and constitutional, given the Foundation's usufructuary rights under Proclamation No. 1670.
• Propriety of Foreclosure: Whether the Quezon City Government can legally foreclose and seize a property owned by the National Housing Authority (a tax-exempt entity) for non-payment of real property taxes by the beneficial user.
• Mootness: Whether the petitions should be dismissed on the ground of mootness.

• Procedural Capacity: The City is estopped from questioning the Foundation's capacity to sue. Although the Foundation lacked capacity when it filed its petitions in 2012 due to its revoked SEC registration, the City had dealt with the Foundation as a corporation for years, issuing permits and collecting fees. Applying the doctrine of corporation by estoppel, the City cannot now deny the Foundation's legal existence to avoid liability arising from those same transactions.
• Validity of Ordinance: The challenged provisions of the Zoning Ordinance are null and void. The ordinance is ultra vires because it contravenes Proclamation No. 1670, a national law, by effectively depriving the Foundation of its vested usufructuary rights. It is also an invalid exercise of police power, as the City failed to prove the regulation was necessary for public welfare or that the Foundation's operations were harmful. Furthermore, it violates the non-impairment clause and due process by destroying vested rights without sufficient justification.
• Propriety of Foreclosure: The foreclosure and seizure were illegal. While the Foundation, as a beneficial user, is liable for real property taxes, the property itself is owned by the NHA, which is exempt from such taxes. A local government cannot foreclose and sell at public auction the property of a tax-exempt government entity like the NHA to satisfy a tax delinquency of the beneficial user.
• Mootness: The Second Case (G.R. No. 228284) is dismissed on the ground of mootness. The acts sought to be enjoined—the foreclosure and seizure—had already been consummated (fait accompli), leaving nothing for the court to restrain. The First Case (G.R. No. 208788) is not moot, as the challenge to the ordinance's validity presents a live controversy.

• Corporation by Estoppel (Sec. 21, Corporation Code) — A party that contracts with or deals with an entity as if it were a corporation is estopped from later denying that entity's corporate existence in any action arising from that contract or dealing. The doctrine is founded on equity to prevent injustice and unfairness. Here, the City was estopped from challenging the Foundation's capacity to sue after having issued it permits and transacted with it for years.
• Ultra Vires Ordinance — A local ordinance is ultra vires and void if it contravenes the Constitution or a national statute. Local government units derive their power from the national legislature and cannot regulate activities already allowed or protected by a national law. The zoning ordinance was void because it conflicted with the usufructuary rights granted by a presidential proclamation.
• Vested Rights and the Non-Impairment Clause — A vested right is a fixed, established interest in property that cannot be impaired by subsequent legislation, including local ordinances, without due process. The zoning ordinance's own repealing clause protected rights vested before its effectivity. The Foundation's usufructuary rights, enjoyed since 1977, constituted such a vested right.
• Police Power Test — For an exercise of police power to be valid, it must (1) have a lawful subject (public interest generally requires it), and (2) employ lawful means (the method must be reasonably necessary and not unduly oppressive). The City failed to meet this test, as it did not show the Foundation's use was harmful or that the ordinance's means were necessary and not oppressive.
• Tax-Exempt Property Cannot Be Foreclosed — While the beneficial user of tax-exempt government property may be liable for real property taxes, the tax-exempt property itself cannot be sold at public auction to satisfy that liability. The local government must pursue other means of collection against the beneficial user.

• "The City should be held in estoppel in the interest of justice. To rule otherwise would set a dangerous example to other local government units (LGUs) dealing with corporations within their respective territorial jurisdictions. It is thus apt to remind the LGUs to act with due diligence and fairness in their dealings and transactions with businesses establishments within their districts."
• "The Zoning Ordinance, by reclassifying the usufruct area into a use that is different from what was originally intended, and ultimately depriving the Foundation of its usufructuary rights, is considered ultra vires as it is beyond the competence of the local legislative body to amend a national law, i.e., Proclamation No. 1670."
• "Given these pronouncements, since NHA is exempt from the payment of real property taxes, it cannot be assessed such and thus, cannot be considered delinquent by the City. Nonetheless, the exemption of NHA from the payment of real property taxes does not extend to the beneficial users of its properties, such as the Foundation in this case... the City does not have any authority to sell through public auction or foreclose any of NHA's properties, including the subject property."

• National Housing Authority v. Court of Appeals, 495 Phil. 693 (2005) — Confirmed the validity of the Foundation's usufructuary rights under Proclamation No. 1670 and calculated its remaining term.
• City of Manila v. Laguio, Jr., 495 Phil. 289 (2005) — Established the substantive requirements for a valid ordinance, including that it must not contravene the Constitution or any statute and must not be unfair or oppressive.
• Magna Ready Mix Concrete Corp. v. Andersen Bjornstad Kane Jacobs, Inc., 894 Phil. 286 (2021) — Applied the doctrine of corporation by estoppel, holding a party estopped from challenging a corporation's personality after having transacted with it.
• Light Rail Transit Authority v. Quezon City, 864 Phil. 963 (2019) — Held that while a tax exemption does not extend to beneficial users, the local government may not foreclose the tax-exempt property itself for non-payment of taxes by the user.
• Buklod Nang Magbubukid sa Lupaing Ramos, Inc. v. E. M. Ramos and Sons, Inc., 661 Phil. 34 (2011) — Upheld vested rights recognized by a zoning ordinance's own repealing clause, protecting them from impairment.

• Proclamation No. 1670 (1977) — Granted the Manila Seedling Bank Foundation, Inc. usufructuary rights over a seven-hectare portion of the National Government Center in Quezon City.
• Section 21, Corporation Code of the Philippines (B.P. Blg. 68) — Provides for the doctrine of corporation by estoppel, preventing a party from denying the corporate existence of an entity it has dealt with as a corporation.
• Section 16, Republic Act No. 7160 (Local Government Code of 1991) — The general welfare clause, delegating police power to local government units.
• Section 19, Republic Act No. 7279 (Urban Development and Housing Act of 1992) — Confirms the National Housing Authority's exemption from all fees and charges, including real estate taxes.
• Article VI, Section 1, 1987 Constitution (Non-Impairment Clause) — Prohibits the passage of laws impairing the obligation of contracts.

Gesmundo, C.J., Lazaro-Javier, Inting, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, J.J., concur. Leonen, SAJ., see concurring opinion. Caguioa, J., on official leave but left his vote (see concurring and dissenting opinion).

N/A (The provided text does not detail the substance of the concurring and dissenting opinion of J. Caguioa or the concurring opinion of SAJ. Leonen).