G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.

FACTS

Petitioner Abra Valley College, an educational institution, sought to annul the seizure and auction sale of its school lot and building in Bangued, Abra, for non-payment of real estate taxes amounting to P5,140.31. The municipal and provincial treasurers enforced the tax delinquency, leading to a public auction where the late Municipal Mayor Paterno Millare was the highest bidder. The college filed a complaint, arguing the property was exempt from taxation as it was used exclusively for educational purposes, a constitutional exemption under the 1935 Constitution. The parties entered into a stipulation of facts confirming the college’s ownership, the tax delinquency, and the auction sale.
The trial court ruled against the college, upholding the validity of the tax sale and ordering payment of back taxes. It found the property was not used exclusively for educational purposes, but this finding was based on the residential use of the building’s second floor by the school director. On appeal, a new factual matter emerged: the first floor of the main building was leased to a private marketing corporation for commercial purposes.

ISSUE

Whether the school building and lot are exempt from real property tax under the constitutional provision requiring “exclusive use for educational purposes.”

RULING

The Supreme Court affirmed the trial court’s decision but modified the disposition. The legal logic centers on the interpretation of “exclusively used for educational purposes” under Article VI, Section 22(3) of the 1935 Constitution. The exemption extends not only to property directly used for instruction but also to facilities incidental to and reasonably necessary for the educational purpose, such as residential quarters for school personnel. However, the lease of a portion of the property for commercial use to a private corporation negates the requirement of exclusive educational use. Such commercial use is neither incidental nor complementary to education.
Although the commercial lease was not raised in the trial court, the Supreme Court exercised its prerogative to consider this pivotal factual matter in the interest of substantial justice to arrive at a just decision. Since only a portion (the first floor) was used for commerce, it would be unfair to deny the entire exemption. Consequently, the property is not wholly tax-exempt. The Court upheld the liability for taxes but ruled that only the portion used for commercial purposes should be taxed. Thus, the decision was modified, ordering the return of one-half of the assessed tax to the college, corresponding to the portion used exclusively for education.