FACTS:

The Export Processing Zone Authority (EPZA) was created to operate, administer, and manage the export processing zones.

The decree declared the EPZA non-profit in character and was declared exempt from all taxes, including real property taxes that may be due to the Republic of the Philippines, its provinces, cities, municipalities, and other government agencies and instrumentalities.

In 1995, the PEZA was created by virtue of R.A. 7916 to operate, administer, manage, and develop economic zones in the country. The PEZA was granted the power to register, regulate, and supervise the enterprises located in the economic zones.

In 1995, PEZA assumed and exercised all of the EPZA’s powers, functions, and responsibilities. All of EPZA’s properties, equipment, and assets, among others, were ordered transferred to the PEZA.

The City of Lapu-Lapu, through the Office of the Treasurer, demanded from the PEZA 32,912,350.08 in real property taxes for the period from 1992 to 1998 on the PEZA’s properties located in the Mactan Economic Zone.

The City later reiterated its demand citing Sections 193 and 234 of the Local Government Code of 1991 that withdrew the real property tax exemptions previously granted to or presently enjoyed by all persons. The City pointed out that no provision in the Special Economic Zone Act of 1995 specifically exempted the PEZA from payment of real property taxes. Since no legal provision explicitly exempted the PEZA from payment of real property taxes, the City argued that it can tax the PEZA.

The City made subsequent demands on the PEZA. The City assessed the PEZA 86,843,503.48 as real property taxes for the period from 1992 to 2002.

On September 11, 2002, the PEZA filed a petition for declaratory Relief with the RTC of Pasay City, praying that the trial court declare it exempt from payment of real property taxes. 

In its Comment on the PEZA’s petition for declaratory relief, the Office of the Solicitor General agreed that the PEZA is exempt from payment of real property taxes, citing Sections 24 and 51 of the Special Economic Zone Act of 1995.

The trial court agreed with the Solicitor General. 

The trial court declared it exempt from payment of real property taxes.

The City filed a motion for reconsideration, which the trial court denied.

The City filed an appeal to the CA, which was dismissed. According to the CA, the issues presented by the City are pure questions of law which should have been raised in a petition for review on certiorari directly filed before this court. 

Hence, this petition.

ISSUE:

Whether the RTC Pasay City had jurisdiction to hear, try, and decide the City of Lapu-Lapu’s petition for declaratory relief.

RULING:

The law sought to be judicially interpreted in this case had already been breached. The RTC of Pasay, therefore, had no jurisdiction over the PEZA’s petition for declaratory relief against the City.

Rule 63 of the Rules of Court governs actions for declaratory relief. 

Section 1 of Rule 63 provides:

SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or other written instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation may, before breach or violation, thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties, thereunder.

An action for reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the subject matter of litigation in an action for declaratory relief being incapable of pecuniary estimation. Section 19 of the Judiciary Reorganization Act of 1980 provides:

SEC. 19. Jurisdiction in Civil Cases. – Regional Trial Courts shall exercise exclusive original jurisdiction:

(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]

Consistent with the law, the Rules state that a petition for declaratory relief is filed “in the appropriate Regional Trial Court.”

A special civil action for declaratory relief is filed for a judicial determination of any question of construction or validity arising from, and for a declaration of rights and duties, under any of the following subject matters: a deed, will, contract or other written instrument, statute, executive order or regulation, ordinance, orany other governmental regulation. 

However, a declaratory judgment may issue only if there has been “no breach of the documents in question.” If the contract or statute subject matter of the action has already been breached, the appropriate ordinary civil action must be filed. If adequate relief is available through another form of action or proceeding, the other action must be preferred over an action for declaratory relief.

It is also required that the parties to the action for declaratory relief be those whose rights or interests are affected by the contract or statute in question. “There must be an actual justiciable controversy or the ‘ripening seeds’ of one” between the parties. The issue between the parties “must be ripe for judicial determination.” An action for declaratory relief based on theoretical or hypothetical questions cannot be filed for our courts are not advisory courts.

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the City. The City had already issued demand letters and real property tax assessment against the PEZA, in violation of the PEZA’s alleged tax-exempt status under its charter. The Special Economic Zone Act of 1995, the subject matter of PEZA’s petition for declaratory relief, had already been breached. The trial court, therefore, had no jurisdiction over the petition for declaratory relief, the remedy sought.

Where the law or contract has already been contravened prior to the filing of an action for declaratory relief, the courts can no longer assume jurisdiction over the action. In other words, a court has no more jurisdiction over an action for declaratory relief if its subject has already been infringed or transgressed before the institution of the action.

The trial court should have dismissed the PEZA’s petition for declaratory relief for lack of jurisdiction.