AQUINO v.

MALAY

DOCTRINE: As granted under Sec. 444 (b) (3) (vi) of the LGC, the mayor can order the closure and removal of
illegally constructed establishments for failing to secure the necessary permits.

FACTS: Petitioner is the president and chief executive officer of Boracay Island West Cove Management
Philippines, Inc. (Boracay West Cove). In 2010, the company applied for a zoning compliance with the
municipal government of Malay, Aklan. The application sought the issuance of a building permit covering the
construction of a three-storey hotel over a parcel of land measuring 998 sqm. located in Sitio Diniwid,
Barangay Balagab, Boracay Island which is covered by a Forest Land Use Agreement for Tourism Purposes
(FLAgT) issued by the Department of Environment and Natural Resources (DENR) in favor of Boracay West
Cove.

- The Municipal Zoning Administrator denied petitioner’s application on the ground that the proposed
construction site was within the "no build zone" demarcated in Municipal Ordinance 2000-131 (Ordinance),
which provides that “No building or structure of any kind whether temporary or permanent shall be allowed to
be set up, erected or constructed on the beaches around the Island of Boracay and in its offshore waters.”

- The petitioner appealed the denial to the Office of the Mayor but no action was ever taken. Subsequently, in
2011, a Notice of Assessment was sent to petitioner asking for the settlement of Boracay West Cove’s unpaid
taxes and other liabilities. In reply, the petitioner expressed his willingness to settle the obligation but the
municipal treasurer refused to accept the tendered payment. Meanwhile, petitioner continued with the
construction, expansion, and operation of the resort hotel.

- Thereafter, a Cease and Desist Order was issued by the municipal government, enjoining the expansion of
the resort. The Office of the Mayor of Malay, Aklan then, issued the assailed EO 10, ordering the closure and
demolition of Boracay West Cove’s hotel.

- Alleging that the order was issued and executed with grave abuse of discretion, petitioner filed a Petition for
Certiorari with prayer for injunctive relief with the CA. He argued that judicial proceedings should first be
conducted before the respondent mayor could order the demolition of the company’s establishment; that
Boracay West Cove was granted a FLAgT by the DENR, which bestowed the company the right to construct
permanent improvements on the area in question; that since the area is a forestland, it is the DENR—and not
the municipality of Malay, or any other local government unit for that matter—that has primary jurisdiction over
the area.

- The respondents, on the other hand, contended that the FLAgT does not excuse the company from
complying with the Ordinance and Presidential Decree No. 1096 (PD 1096) and that the demolition needed no
court order because the municipal mayor has the express power under the Local Government Code (LGC) to
order the removal of illegally constructed buildings.

CA: Dismissed the petition solely on procedural ground (i.e. special writ of certiorari can only be directed
against a tribunal, board, or officer exercising judicial or quasi-judicial functions and since the issuance of EO
10 was done in the exercise of executive functions, and not of judicial or quasi-judicial functions, certiorari will
not lie. That the proper remedy is one of declaratory relief.

ISSUES:
(1) Whether or not declaratory relief is still available to petitioner.

(2) Whether or not petitioner’s right to due process was violated when the respondent mayor ordered the
closure and demolition of Boracay West Cove’s hotel without first conducting judicial proceedings.

(3) Whether the judicial proceedings should first be conducted before the LGU can order the closure and
demolition of the property in question.

HELD:

(1) NO. An action for declaratory relief presupposes that there has been no actual breach of the instruments
involved or of the rights arising thereunder. In the case at bar, the petition for declaratory relief became
unavailable by EO 10’s enforcement and implementation. The closure and demolition of the hotel rendered
futile any possible guidelines that may be issued by the trial court for carrying outthe directives in the
challenged EO 10. Indubitably, the CA erred when it ruled that declaratory relief is the proper remedy given
such a situation.

- The petitioner correctly resorted to certiorari. For certiorari to prosper, the petitioner must establish the
concurrence of the following requisites, namely:

1. The writ is directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions;

2. Such tribunal, board, or officer has acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and

3. There is no appeal or any plain speedy, and adequate remedy in the ordinary course of law.

In the case at bench, the assailed EO 10 was issued upon the respondent mayor’s finding that Boracay West
Cove’s construction, expansion, and operation of its hotel in Malay, Aklan is illegal. Such a finding of illegality
required the respondent mayor’s exercise of quasi-judicial functions, against which the special writ of certiorari
may lie.

- The CA fell into a trap when it ruled that a mayor, an officer from the executive department, exercises an
executive function whenever he issues an Executive Order. This is tad too presumptive for it is the nature of
the act to be performed, rather than of the office, board, or body which performs it, that determines whether or
not a particular act is a discharge of judicial or quasi-judicial functions

(2) NO. In the case at bench, the due process requirement is deemed to have been sufficiently complied with.
First, basic is the rule that public officers enjoy the presumption of regularity in the performance of their duties.
Regrettably, copies of the Cease and Desist Order issued by the LGU and of the assailed EO 10 itself were
never attached to the petition before this Court which documents could have readily shed light on whether or
not petitioner has been accorded the 10-day grace period provided in Section 10 of the Ordinance.

- Second, as quoted by petitioner in his petition before the CA, the assailed EO 10 states that petitioner
received notices from the municipality government on March 7 and 28, 2011, requiring Boracay West Cove to
comply with the zoning ordinance and yet it failed to do so.

- Third, the observance of the 10-day allowance for the owner to demolish the hotel was never questioned by
petitioner so there is no need to discuss the same. Therefore, it can no longer be belatedly argued that the 10-
day grace period was not observed because to entertain the same would result in the violation of the
respondents’ own due process rights.

(3) NO. Generally, LGUs have no power to declare a particular thing as a nuisance unless such a thing is a
nuisance per se.

- Despite the hotel’s classification as a nuisance per accidens, however, we still find in this case that the LGU
may nevertheless properly order the hotel’s demolition. This is because, in the exercise of police power and
the general welfare clause, property rights of individuals may be subjected to restraints and burdens in order to
fulfill the objectives of the government. Otherwise stated, the government may enact legislation that may
interfere with personal liberty, property, lawful businesses and occupations to promote the general welfare.

Under the law, insofar as illegal constructions are concerned, the mayor can, after satisfying the requirement of
due notice and hearing, order their closure and demolition.

- One such piece of legislation is the LGC, which authorizes city and municipal governments, acting through
their local chief executives, to issue demolition orders. Under existing laws, the office of the mayor is given
powers not only relative to its function as the executive official of the town; it has also been endowed with
authority to hear issues involving property rights of individuals and to come out with an effective order or
resolution thereon. Pertinent herein is Sec. 444 (b) (3) (vi) of the LGC, which empowered the mayor to order
the closure and removal of illegally constructed establishments for failing to secure the necessary permits.

FERRER v. BAUTISTA

DOCTRINE: LGUs may be considered as having properly exercised their police power only if there is a lawful
subject and a lawful method. Herein, the tax is not a pure exercise of taxing power or merely to raise revenue;
it is levied with a regulatory purpose.

The Sangguniang Panlungsod of Quezon City, like other local legislative bodies, is empowered to enact
ordinances, approve resolutions, and appropriate funds for the general welfare of the city and its inhabitants.

For an ordinance to be valid though, it must not only be within the corporate powers of the LGU to enact and
must be passed according to the procedure prescribed by law, it should also conform to the following
requirements:
(1) not contrary to the Constitution or any statute;
(2) not unfair or oppressive;
(3) not partial or discriminatory;
(4) not prohibit but may regulate trade;
(5) general and consistent with public policy; and
(6) not unreasonable.

FACTS: Respondent Quezon City Council enacted Ordinance No. SP-2095, S-2011, or the Socialized
Housing Tax of Quezon City, Section 3 of which provides for the collection by the City Treasurer of a special
assessment of 0.5% on the assessed value of land in excess of P100,000.00. That, taxpayers dutifully paying
the special assessment tax as imposed by this ordinance shall enjoy a tax credit. The tax credit may be availed
of only after five (5) years of continue[d] payment. Furthermore, only the registered owners may avail of the tax
credit and may not be continued by the subsequent property owners even if they are buyers in good faith, heirs
or possessor of a right in whatever legal capacity over the subject property.
- Ordinance No. SP-2235, S-2013 was enacted in December 2013, the proceeds collected from the garbage
fees on residential properties shall be deposited solely and exclusively in an earmarked special account under
the general fund to be utilized for garbage collections. Section 1 of the ordinance sets forth the following:

SECTION 1. The City Government of Quezon City in conformity with and in relation to Republic Act No. 7160,
otherwise known as the Local Government Code of 1991 HEREBY IMPOSES THE FOLLOWING SCHEDULE
AND MANNER FOR THE ANNUAL COLLECTION OF GARBAGE FEES, AS FOLLOWS:

On all domestic households in Quezon City;

LAND AREA IMPOSABLE FEE
Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units in Quezon City;
FLOOR AREA IMPOSABLE FEE
Less than 40 sq. m. PHP25.00
41 sq. m. – 60 sq. m. PHP50.00
61 sq. m. – 100 sq. m. PHP75.00
101 sq. m. – 150 sq. m. PHP100.00
151 sq. m. – 200 sq. [m.] or more PHP200.00

On high-rise Condominium Units

a) High-rise Condominium – The Homeowners Association of high- rise condominiums shall pay the annual
garbage fee on the total size of the entire condominium and socialized Housing Unit and an additional
garbage fee shall be collected based on area occupied for every unit already sold or being amortized.
b) High-rise apartment units – Owners of high-rise apartment units shall pay the annual garbage fee on the
total lot size of the entire apartment and an additional garbage fee based on the schedule prescribed
herein for every unit occupied.

- Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in Quezon City
and that he paid his realty tax which already included the garbage fee in the sum of Php100.00. Subsequently,
the Court issued a TRO which enjoined the enforcement of Ordinance Nos. SP-2095 and SP-2235 and
required respondents to comment on the petition without necessarily giving due course thereto. Respondents
filed their Comment with urgent motion to dissolve the TRO.

PROCEDURAL ISSUES

- Propriety of a Petition for Certiorari: Respondents are of the view that certiorari is improper since they are
not tribunals, boards or officers exercising judicial or quasi-judicial functions. Petitioner however, counters the
contention such that , the Quezon City Council exercised quasi-judicial function because the ordinances ruled
against the property owners who must pay the SHT and the garbage fee, exacting from them funds for basic
essential public services that they should not be held liable.
 The Court agrees that respondents neither acted in any judicial or quasi-judicial capacity nor arrogated
unto themselves any judicial or quasi-judicial prerogatives. Also, although the instant petition is styled as a
petition for certiorari, it essentially seeks to declare the unconstitutionality and illegality of the questioned
ordinances. It, thus, partakes of the nature of a petition for declaratory relief. Despite these, a petition for
declaratory relief may be treated as one for prohibition or mandamus, over which the Court exercises original
jurisdiction. The Court considers that respondents City Mayor, City Treasurer, and City Assessor are
performing ministerial functions. A ministerial function is one that an officer or tribunal performs in the context
of a given set of facts, in a prescribed manner and without regard for the exercise of his or its own judgment,
upon the propriety or impropriety of the act done. Respondent Mayor, as chief executive of the city
government, exercises such powers and performs such duties and functions as provided for by the LGC and
other laws. Particularly, he has the duty to ensure that all taxes and other revenues of the city are collected,
and that city funds are applied to the payment of expenses and settlement of obligations of the city, in
accordance with law or ordinance

- Locus Standi of Petitioner: Respondents challenge petitioner’s legal standing to file this case on the ground
that, in relation to Section 3 of Ordinance No. SP-2095, petitioner failed to allege his ownership of a property
that has an assessed value of more than Php100,000.00 and, with respect to Ordinance No. SP-2335, by what
standing or personality he filed the case to nullify the same.

The Court agreed that the petitioner is a real party-in-interest to assail the constitutionality and legality
of Ordinance Nos. SP-2095 and SP-2235 because respondents did not dispute that he is a registered co-
owner of a residential property in Quezon City and that he paid property tax which already included the SHT
and the garbage fee.

- Litis Pendentia: Respondents claim that in a case entitled Alliance of Quezon City Homeowners, Inc., et al.,
v. Hon. Herbert Bautista, there is substantial identity of parties between the two cases because petitioner
herein and plaintiffs in the civil case filed their respective cases as taxpayers of Quezon City. For petitioner, the
contention is untenable since he is not a party in Alliance and does not even have the remotest identity or
association with the plaintiffs in said civil case.

The requisites in order that an action may be dismissed on the ground of litis pendentia are: (a) the
identity of parties, or at least such as representing the same interest in both actions; (b) the identity of rights
asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two cases
such that judgment in one, regardless of which party is successful, would amount to res judicata in the other.
There is substantial identity of the parties when there is a community of interest between a party in the first
case and a party in the second case albeit the latter was not impleaded in the first case. In this case, it is
notable that respondents failed to attach any pleading connected with the alleged civil case pending before the
Quezon City trial court. Granting that there is substantial identity of parties between said case and this petition,
dismissal on the ground of litis pendentia still cannot be had in view of the absence of the second and third
requisites.

- Exhaustion of Administrative Remedies: A municipal tax ordinance empowers a local government unit to
impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and
support the myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this
reason that protests over tax ordinances are required to be done within certain time frames. As underscored by
Hagonoy Market Vendor Asso. v. Mnu. Of Hagonoy, [T]he timeframe fixed by law for parties to avail of their
legal remedies before competent courts is not a “mere technicality” that can be easily brushed aside.

SUBSTANTIVE ISSUES

Petitioner: The imposition of the SHT and the garbage fee cannot be justified by the Quezon City Government
as an exercise of its power to create sources of income. Moreover, the constitutional provision is not a carte
blanche for the LGU to tax everything under its territorial and political jurisdiction as the provision itself admits
of guidelines and limitations.

Respondents: Relied on the presumption in favor of the constitutionality of Ordinance Nos. SP-2095 and SP-
2235.

Socialized Housing Tax: Respondents emphasize that the SHT is pursuant to the social justice principle
found in Sections 1 and 2, Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A. No. 7279,
or the “Urban Development and Housing Act of 1992 (UDHA). There is no way that the ordinance could violate
the equal protection clause because real property owners and informal settlers do not belong to the same
class. Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is consistent with the
UDHA.

On the contrary, petitioner claims that the collection of the SHT is tantamount to a penalty imposed on real
property owners due to the failure of respondent Quezon City Mayor and Council to perform their duty to
secure and protect real property owners from informal settlers, thereby burdening them with the expenses to
provide funds for housing. For petitioner, the SHT cannot be viewed as a “charity” from real property owners
since it is forced, not voluntary. Petitioner further contends that respondents’ characterization of the SHT as
“nothing more than an advance payment on the real property tax” has no statutory basis.

Garbage Fee: Respondents claim that Ordinance No. S-2235, which is an exercise of police power, collects
on the average from every household a garbage fee in the meager amount of thirty-three (33) centavos per
day compared with the sum of P1,659.83 that the Quezon City Government annually spends for every
household for garbage collection and waste management. In addition, there is no double taxation because the
ordinance involves a fee. Even assuming that the garbage fee is a tax, the same cannot be a direct duplicate
tax as it is imposed on a different subject matter and is of a different kind or character.

Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise of police power. It is
discriminatory as it collects garbage fee only from domestic households and not from restaurants, food courts,
fast food chains, and other commercial dining places that spew garbage much more than residential property
owners. He further avers that the garbage fee was collected even if the required publication of its approval had
not yet elapsed. He notes that on January 7, 2014, he paid his realty tax which already included the garbage
fee.

ISSUES:

(1) Whether the Socialized Housing Tax is valid.

(2) Whether the ordinance on Garbage Fee violates the rule on double taxation.

HELD:
Overview: Respondents correctly argued that an ordinance, as in every law, is presumed valid. An ordinance
carries with it the presumption of validity.

For an ordinance to be valid though, it must not only be within the corporate powers of the LGU to enact and
must be passed according to the procedure prescribed by law, it should also conform to the following
requirements:
(1) not contrary to the Constitution or any statute;
(2) not unfair or oppressive;
(3) not partial or discriminatory;
(4) not prohibit but may regulate trade;
(5) general and consistent with public policy; and
(6) not unreasonable.

- LGUs are able to legislate only by virtue of a valid delegation of legislative power from the national legislature;
they are mere agents vested with what is called the power of subordinate legislation. Specifically, with regard
to the power of taxation, it is indubitably the most effective instrument to raise needed revenues in financing
and supporting myriad activities of the LGUs for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of the people.

- Indeed, LGUs have no inherent power to tax except to the extent that such power might be delegated to them
either by the basic law or by the statute. Subject to the provisions of the LGC and consistent with the basic
policy of local autonomy, every LGU is now empowered and authorized to create its own sources of revenue
and to levy taxes, fees, and charges which shall accrue exclusively to the local government unit as well as to
apply its resources and assets for productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and functions.

(1) YES. The SHT charged by the Quezon City Government is a tax which is within its power to impose. Aside
from the specific authority vested by Section 43 of the UDHA, cities are allowed to exercise such other powers
and discharge such other functions and responsibilities as are necessary, appropriate, or incidental to efficient
and effective provision of the basic services and facilities which include, among others, programs and projects
for low-cost housing and other mass dwellings. The levy is primarily in the exercise of the police power for the
general welfare of the entire city. The collections made accrue to its socialized housing programs and projects.

- To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance, and
to free it from the imputation of constitutional infirmity, not only must it appear that the interests of the public
generally, as distinguished from those of a particular class, require an interference with private rights, but the
means adopted must be reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals.

- An ordinance based on reasonable classification does not violate the constitutional guaranty of the equal
protection of the law. The requirements for a valid and reasonable classification are: (1) it must rest on
substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to existing
conditions only; and (4) it must apply equally to all members of the same class.

- The disparities between a real property owner and an informal settler as two distinct classes are too obvious
and need not be discussed at length. The differentiation conforms to the practical dictates of justice and equity
and is not discriminatory within the meaning of the Constitution.

- The ordinance is also not oppressive since the tax rate being imposed is consistent with the UDHA (Urban
Development and Housing Act of 1992). While the law authorizes LGUs to collect SHT on properties with an
assessed value of more than P50,000.00, the questioned ordinance only covers properties with an assessed
value exceeding P100,000.00. As well, the ordinance provides for a tax credit equivalent to the total amount of
the special assessment paid by the property owner beginning in the sixth (6th) year of the effectivity of the
ordinance.

(2) NO. While there was no violation of double taxation but there was a violation of the rule on equity.
Ordinances regulating waste removal, generally carry a strong presumption of validity. For the purpose of
garbage collection, there is, in fact, no substantial distinction between an occupant of a lot, on one hand, and
an occupant of a unit in a condominium, socialized housing project or apartment, on the other hand. Most
likely, garbage output produced by these types of occupants is uniform and does not vary to a large degree;
thus, a similar schedule of fee is both just and equitable. The rates being charged by the ordinance are unjust
and inequitable: a resident of a 200 sq. m. unit in a condominium or socialized housing project has to pay twice
the amount than a resident of a lot similar in size; unlike unit occupants, all occupants of a lot with an area of
200 sq. m. and less have to pay a fixed rate of Php100.00; and the same amount of garbage fee is imposed
regardless of whether the resident is from a condominium or from a socialized housing project.

Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose of “promoting
shared responsibility with the residents to attack their common mindless attitude in over-consuming the present
resources and in generating waste.”

There is no violation of double taxation: the garbage fees are not taxes
In Progressive Development Corporation v. Quezon City, the Court declared that:
"if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax;
but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the
imposition a tax."

Petitioner Ferrer: that the imposition of garbage fee is tantamount to double taxation because garbage
collection is a basic and essential public service that should be paid out from property tax, business tax,
transfer tax, amusement tax, community tax certificate, other taxes, and the IRA of the Quezon City
Government. All these are valid taxes. The garbage fees are license fees

- In order to constitute double taxation in the objectionable or prohibited sense the same property must be
taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-
matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction
or taxing district, during the same taxing period, and they must be the same kind or character of tax.

PHILHEALTH CARE PROVIDERS INC. v. CIR

DOCTRINE:

FACTS: Petitioner is a domestic corporation whose primary purpose is [t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to take care
of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal,
and financial responsibilities of the organization. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its
duly licensed physicians, specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it.

- On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997. Petitioner protested the assessment and as
respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT and DST assessments.

- CTA rendered a decision partially granting the petition for review filed by the petitioner. Respondent, on the
other hand, appealed to the CTA insofar as it cancelled the DST assessment. He claimed that petitioners
health care agreement was a contract of insurance subject to DST.

- CA held that the health care agreement was in the nature of a non-life insurance contract subject to DST.

- In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision. We held that
petitioners health care agreement during the pertinent period was in the nature of non-life insurance which is a
contract of indemnity. It was also ruled that petitioners contention that it is a health maintenance organization
(HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and
the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the
business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the
transaction of the business.

ISSUES:

(1) Whether or not Philippine Health Care Providers, Inc. engaged in insurance business.

(2) Whether or not petitioner is subject to DST.

HELD:

(1) NO. Health Maintenance Organizations are not engaged in the insurance business. One test that they have
applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are merely incidental to its
business. It is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from
the fact that it is not supervised by the Insurance Commission but by the Department of Health. In fact, in a
letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the
insurance business. This determination of the commissioner must be accorded great weight.

- The SC said in June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer
because its agreements are treated as insurance contracts and the DST is not a tax on the business but an
excise on the privilege, opportunity or facility used in the transaction of the business. An insurance contract
exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk and

5. In consideration of the insurers promise, the insured pays a premium.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a
contract of insurance. Second. Not all the necessary elements of a contract of insurance are present in
petitioners agreements. To begin with, there is no loss, damage or liability on the part of the member that
should be indemnified by petitioner as an HMO. Third. According to the agreement, a member can take
advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual physical
examination and consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a
non-participating physician or hospital. Fifth. Although risk is a primary element of an insurance contract, it is
not necessarily true that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual
obligation always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid
service contracts (like those of petitioner) from the usual insurance contracts.

- Indeed, petitioner is admittedly an HMO. undertakes a business risk when it offers to provide health services:
the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar
only to insurance companies..

(2) NO. As to whether the business is covered by the DST, we can see that while the contract did contains all
the elements of an insurance contract, as stated in Sec 2., Par 1 of the Insurance Code, the primary purpose of
the company is to render service. The primary purpose of the parties in making the contract may negate the
existence of an insurance contract. Taking into account that health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.

- Also, there is no loss, damage or liability on the part of the member that should be indemnified by petitioner
as an HMO. Under the agreement, the member pays petitioner a predetermined consideration in exchange for
the hospital, medical and professional services rendered by the petitioner’s physician or affiliated physician to
him.
In other words, there is nothing in petitioner's agreements that give rise to a monetary liability on the part of the
member to any third party-provider of medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presumes that a liability or claim has already been incurred.
There is no indemnity precisely because the member merely avails of medical services to be paid or already
paid in advance at a pre-agreed price under the agreements.

- Also, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray,
routine annual physical examination and consultations, vaccine administration as well as family planning
counseling, even in the absence of any peril, loss or damage on his or her part. Petitioner is obliged to
reimburse the member who receives care from a non-participating physician or hospital. However, this is only a
very minor part of the list of services available. The assumption of the expense by petitioner is not confined to
the happening of a contingency but includes incidents even in the absence of illness or injury.

- Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual
insurance contracts. However, assuming that petitioner’s commitment to provide medical services to its
members can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still
will not qualify as an insurance contract because petitioner’s objective is to provide medical services at
reduced cost, not to distribute risk like an insurer.
- If it had been the intent of the legislature to impose DST on health care agreements, it could have done so in
clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained
no specific provision on the DST liability of health care agreements of HMOs at a time they were already
known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed
its DST liability only on January 27, 2000, after more than a decade in the business as an HMO.

- In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as
discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner.
21 Our Insurance Code was based on California and New York laws. When a statute has been adopted from
some other state or country and said statute has previously been construed by the courts of such state or
country, the statute is deemed to have been adopted with the construction given.