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THIRD DIVISION
DECISION
Before the Court is a Petition for Review on Certiorari challenging the Decision1 and the
Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 120042 dated August 13, 2013 and
February 3, 2014, respectively. The assailed rulings denied Crisostomo Aquino’s Petition for
Certiorari for not being the proper remedy to question the issuance and implementation of
Executive Order No. 10, Series of 2011 (EO 10), ordering the demolition of his hotel
establishment.
The Facts
Petitioner is the president and chief executive officer of Boracay Island West Cove
Management Philippines, Inc. (Boracay West Cove). On January 7, 2010, the company applied
for a zoning compliance with the municipal government of Malay, Aklan.2 While the company
was already operating a resort in the area, 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, Malay, Aklan, 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.
Through a Decision on Zoning dated January 20, 2010, 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).3 As provided
in the Ordinance:
SECTION 2. – Definition of Terms. As used in this Ordinance, the following words, terms and
phrases shall mean as follows:
x x x x
(b) No Build Zone – the space twenty-five (25) meters from the edge of the mean high water
mark measured inland;
x x x x
PUBLIC CORPORATION_cases for September 19, 2020 2
In due time, petitioner appealed the denial action to the Office of the Mayor on February 1,
2010.
On May 13, 2010, petitioner followed up his appeal through a letter but no action was ever
taken by the respondent mayor. On April 5, 2011, however, a Notice of Assessment was sent
to petitioner asking for the settlement of Boracay West Cove’s unpaid taxes and other
liabilities under pain of a recommendation for closure in view of its continuous commercial
operation since 2009 sans the necessary zoning clearance, building permit, and business and
mayor’s permit. In reply, petitioner expressed willingness to settle the company’s
obligations, but the municipal treasurer refused to accept the tendered payment. Meanwhile,
petitioner continued with the construction, expansion, and operation of the resort hotel.
Subsequently, on March 28, 2011, a Cease and Desist Order was issued by the municipal
government, enjoining the expansion of the resort, and on June 7, 2011, the Office of the
Mayor of Malay, Aklan issued the assailed EO 10, ordering the closure and demolition of
Boracay West Cove’s hotel.
EO 10 was partially implemented on June 10, 2011. Thereafter, two more instances followed
wherein respondents demolished the improvements introduced by Boracay West Cove, the
most recent of which was made in February 2014.
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, and that the Regional Executive Director of DENR-Region 6 had
officially issued an opinion regarding the legal issues involved in the present case; that the
Ordinance admits of exceptions; and lastly, that it is the mayor who should be blamed for not
issuing the necessary clearances in the company’s favor.
In rebuttal, respondents contended that the FLAgT does not excuse the company from
complying with the Ordinance and Presidential Decree No. 1096 (PD 1096), otherwise
known as the National Building Code of the Philippines. Respondents also argued 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.
PUBLIC CORPORATION_cases for September 19, 2020 3
In its assailed Decision dated August 13, 2013, the CA dismissed the petition solely on
procedural ground, i.e., the 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. Instead, the proper remedy for the petitioner, according to
the CA, is to file a petition for declaratory relief with the Regional Trial Court.
Petitioner sought reconsideration but this was denied by the CA on February 3, 2014 through
the challenged Resolution. Hence, the instant petition raising arguments on both procedure
and substance.
The Issues
Stripped to the essentials, the pivotal issues in the extant case are as follows:
The propriety under the premises of the filing of a petition for certiorari instead of a
petition for declaratory relief;
b. Whether or not the CA correctly ruled that the respondent mayor was performing
neither a judicial nor quasi-judicial function when he ordered the closure and
demolition of Boracay West Cove’s hotel;
a. 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;
b. Whether or not the LGU’s refusal to issue petitioner the necessary building permit
and clearances was justified;
c. Whether or not petitioner’s rights under the FLAgT prevail over the municipal
ordinance providing for a no-build zone; and
d. Whether or not the DENR has primary jurisdiction over the controversy, not the LGU.
Resolving first the procedural aspect of the case, We find merit in petitioner’s contention that
the special writ of certiorari , and not declaratory relief, is the proper remedy for assailing
EO 10. As provided under Sec. 1, Rule 63 of the Rules of Court:
SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or
other written instrument, 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. x x x (emphasis added)
An action for declaratory relief presupposes that there has been no actual breach of the
instruments involved or of the rights arising thereunder. Since the purpose of an action for
declaratory relief is to secure an authoritative statement of the rights and obligations of the
parties under a statute, deed, or contract for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it may
be entertained before the breach or violation of the statute, deed or contract to which it
refers. A petition for declaratory relief gives a practical remedy for ending controversies that
have not reached the state where another relief is immediately available; and supplies the
need for a form of action that will set controversies at rest before they lead to a repudiation
of obligations, an invasion of rights, and a commission of wrongs.4cralawlawlibrary
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 out the directives
in the challenged EO 10. Indubitably, the CA erred when it ruled that declaratory relief is the
proper remedy given such a situation.
On the propriety of filing a petition for certiorari , Sec. 1, Rule 65 of the Rules of Court
provides:
Section 1. Petition for certiorari . — When any tribunal, board or officer exercising judicial
or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal,
or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law and justice may require. x x x
For certiorari to prosper, the petitioner must establish the concurrence of the following
requisites, namely:
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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.5
Guilty of reiteration, the CA immediately dismissed the Petition for Certiorari upon
determining that the first element is wanting—that respondent mayor was allegedly not
exercising judicial or quasi-judicial functions when he issued EO 10.
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. The first requirement for certiorari is satisfied if the
officers act judicially in making their decision, whatever may be their public
character.6cralawlawlibrary
It is not essential that the challenged proceedings should be strictly and technically judicial,
in the sense in which that word is used when applied to courts of justice, but it is sufficient if
they are quasi-judicial.7 To contrast, a party is said to be exercising a judicial function where
he has the power to determine what the law is and what legal rights of the parties are, and
then undertakes to determine these questions and adjudicate upon the rights of the parties,
whereas quasi-judicial function is “a term which applies to the actions, discretion, etc., of
public administrative officers or bodies x x x required to investigate facts or ascertain the
existence of facts, hold hearings, and draw conclusions from them as a basis for their official
action and to exercise discretion of a judicial nature.”8cralawlawlibrary
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. Apropos hereto is Our ruling
in City Engineer of Baguio v. Baniqued:
There is no gainsaying that a city mayor is an executive official nor is the matter of issuing
demolition notices or orders not a ministerial one. In determining whether or not a structure
is illegal or it should be demolished, property rights are involved thereby needing notices
and opportunity to be heard as provided for in the constitutionally guaranteed right of due
process. In pursuit of these functions, the city mayor has to exercise quasi-judicial powers.
With the foregoing discussion, the CA erred in ruling that the respondent mayor was merely
exercising his executive functions, for clearly, the first requisite for the special writ has been
satisfied.
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Aside from the first requisite, We likewise hold that the third element, i.e., the unavailability
of a plain, speedy, or adequate remedy, is also present herein. While it may be argued that,
under the LGC, Executive Orders issued by mayors are subject to review by provincial
governors,10 this cannot be considered as an adequate remedy given the exigencies of
petitioner’s predicament.
In a litany of cases, We have held that it is inadequacy, not the mere absence of all other legal
remedies and the danger of failure of justice without the writ, that must usually determine
the propriety of certiorari . A remedy is plain, speedy and adequate if it will promptly relieve
the petitioner from the injurious effects of the judgment, order, or resolution of the lower
court or agency. It is understood, then, that a litigant need not mark time by resorting to the
less speedy remedy of appeal in order to have an order annulled and set aside for being
patently void for failure of the trial court to comply with the Rules of
Court.11cralawlawlibrary
Before applying this doctrine, it must first be borne in mind that respondents in this case
have already taken measures towards implementing EO 10. In fact, substantial segments of
the hotel have already been demolished pursuant to the mayor’s directive. It is then
understandable why petitioner prayed for the issuance of an injunctive writ––a provisional
remedy that would otherwise have been unavailable had he sought a reversal from the office
of the provincial governor of Aklan. Evidently, petitioner correctly saw the urgent need for
judicial intervention via certiorari .
In light of the foregoing, the CA should have proceeded to grab the bull by its horns and
determine the existence of the second element of certiorari ––whether or not there was
grave abuse of discretion on the part of respondents.
Upon Our finding that a petition for certiorari under Rule 65 is the appropriate remedy, We
will proceed to resolve the core issues in view of the urgency of the reliefs prayed for in the
petition.
Article 694 of the Civil Code defines “nuisance” as any act, omission, establishment, business,
condition or property, or anything else that (1) injures or endangers the health or safety of
others; (2) annoys or offends the senses; (3) shocks, defies or disregards decency or
morality; (4) obstructs or interferes with the free passage of any public highway or street, or
any body of water; or (5) hinders or impairs the use of property.12cralawlawlibrary
In establishing a no build zone through local legislation, the LGU effectively made a
determination that constructions therein, without first securing exemptions from the local
council, qualify as nuisances for they pose a threat to public safety. No build zones are
intended for the protection of the public because the stability of the ground’s foundation is
adversely affected by the nearby body of water. The ever present threat of high rising storm
surges also justifies the ban on permanent constructions near the shoreline. Indeed, the
area’s exposure to potential geo-hazards cannot be ignored and ample protection to the
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Challenging the validity of the public respondents’ actuations, petitioner posits that the hotel
cannot summarily be abated because it is not a nuisance per se, given the hundred million
peso-worth of capital infused in the venture. Citing Asilo, Jr. v. People,13 petitioner also argues
that respondents should have first secured a court order before proceeding with the
demolition.
Preliminarily, We agree with petitioner’s posture that the property involved cannot be
classified as a nuisance per se, but not for the reason he so offers. Property valuation, after
all, is not the litmus test for such a determination. More controlling is the property’s nature
and conditions, which should be evaluated to see if it qualifies as a nuisance as defined under
the law.
As jurisprudence elucidates, nuisances are of two kinds: nuisance per se and nuisance per
accidens. The first is recognized as a nuisance under any and all circumstances, because it
constitutes a direct menace to public health or safety, and, for that reason, may be abated
summarily under the undefined law of necessity. The second is that which depends upon
certain conditions and circumstances, and its existence being a question of fact, it cannot be
abated without due hearing thereon in a tribunal authorized to decide whether such a thing
does in law constitute a nuisance.14cralawlawlibrary
In the case at bar, the hotel, in itself, cannot be considered as a nuisance per se since this type
of nuisance is generally defined as an act, occupation, or structure, which is a nuisance at
all times and under any circumstances, regardless of location or surrounding.15 Here, it is
merely the hotel’s particular incident––its location––and not its inherent qualities that
rendered it a nuisance. Otherwise stated, had it not been constructed in the no build zone,
Boracay West Cove could have secured the necessary permits without issue. As such,
petitioner is correct that the hotel is not a nuisance per se, but to Our mind, it is still a
nuisance per accidens.
b. Respondent mayor has the power to order the demolition of illegal constructions
Generally, LGUs have no power to declare a particular thing as a nuisance unless such a thing
is a nuisance per se.16 So it was held in AC Enterprises v. Frabelle Properties Corp.
We agree with petitioner’s contention that, under Section 447(a)(3)(i) of R.A. No. 7160,
otherwise known as the Local Government Code, the Sangguniang Panglungsod is
empowered to enact ordinances declaring, preventing or abating noise and other forms of
nuisance. It bears stressing, however, that the Sangguniang Bayan cannot declare a
particular thing as a nuisance per se and order its condemnation. It does not have the
power to find, as a fact, that a particular thing is a nuisance when such thing is not a
nuisance per se; nor can it authorize the extrajudicial condemnation and destruction
of that as a nuisance which in its nature, situation or use is not such. Those things must
be determined and resolved in the ordinary courts of law. If a thing, be in fact, a nuisance
due to the manner of its operation, that question cannot be determined by a mere resolution
of the Sangguniang Bayan. (emphasis supplied)
Despite the hotel’s classification as a nuisance per accidens, however, We still find in this case
PUBLIC CORPORATION_cases for September 19, 2020 8
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,18 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.19cralawlawlibrary
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.20 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, to wit:
Section 444. The Chief Executive: Powers, Duties, Functions and Compensation. –
x x x x
(b) For efficient, effective and economical governance the purpose of which is the general
welfare of the municipality and its inhabitants pursuant to Section 16 of this Code, the
municipal mayor shall:
x x x x
(3) Initiate and maximize the generation of resources and revenues, and apply the same to
the implementation of development plans, program objectives and priorities as provided for
under Section 18 of this Code, particularly those resources and revenues programmed for
agro-industrial development and country-wide growth and progress, and relative thereto,
shall:
In the case at bar, petitioner admittedly failed to secure the necessary permits, clearances,
and exemptions before the construction, expansion, and operation of Boracay Wet Cove’s
hotel in Malay, Aklan. To recall, petitioner declared that the application for zoning
compliance was still pending with the office of the mayor even though construction and
operation were already ongoing at the same time. As such, it could no longer be denied that
petitioner openly violated Municipal Ordinance 2000-131, which provides:
PUBLIC CORPORATION_cases for September 19, 2020 9
(b) Only buildings/structures which has complied with all the requirements for its
construction as verified to by the Building Inspector and the Sangguniang Bayan shall
be issued a Certificate of Occupancy by the Office of the Municipal Engineer.
(c) No Business or Mayor’s Permit shall be issued to businesses being undertaken on
buildings or structures which were not issued a certificate of Occupancy
beginning January 2001 and thereafter.
x x x x
x x x x
(e) Any building, structure, or contraption erected in any public place within the Municipality
of Malay such as but not limited to streets, thoroughfares, sidewalks, plazas, beaches or in
any other public place are hereby declared as nuisance and illegal structure. Such building
structure or contraption shall be demolished by the owner thereof or any of his
authorized representative within ten (10) days from receipt of the notice to demolish.
Failure or refusal on the part of the owner or any of his authorized representative to
demolish the illegal structure within the period herein above specified shall
automatically authorize the government of the Municipality of Malay to demolish the
same, gather and keep the construction materials of the demolished
structure. (emphasis supplied)
Petitioner cannot justify his position by passing the blame onto the respondent mayor and
the latter’s failure to act on his appeal for this does not, in any way, imply that petitioner can
proceed with his infrastructure projects. On the contrary, this only means that the
decision of the zoning administrator denying the application still stands and that
petitioner acquired no right to construct on the no build zone. The illegality of the
construction cannot be cured by merely tendering payment for the necessary fees and
permits since the LGU’s refusal rests on valid grounds.
Instead of taking the law into his own hands, petitioner could have filed, as an alternative, a
petition for mandamus to compel the respondent mayor to exercise discretion and resolve
the controversy pending before his office. There is indeed an exception to the rule that
matters involving judgment and discretion are beyond the reach of a writ of mandamus, for
PUBLIC CORPORATION_cases for September 19, 2020 10
such writ may be issued to compel action in those matters, when refused. Whether or not the
decision would be for or against petitioner would be for the respondent mayor to decide, for
while mandamus may be invoked to compel the exercise of discretion, it cannot compel such
discretion to be exercised in a particular way.21 What would have been important was for
the respondent mayor to immediately resolve the case for petitioner to be able to go through
the motions that the zoning clearance application process entailed.
Alas, petitioner opted to defy the zoning administrator’s ruling. He consciously chose to
violate not only the Ordinance but also Sec. 301 of PD 1096, laying down the requirement of
building permits, which provides:
Section 301. Building Permits. No person, firm or corporation, including any agency or
instrumentality of the government shall erect, construct, alter, repair, move, convert or
demolish any building or structure or cause the same to be done without first obtaining a
building permit therefor from the Building Official assigned in the place where the subject
building is located or the building work is to be done.
This twin violation of law and ordinance warranted the LGU’s invocation of Sec. 444
(b)(3)(vi) of the LGC, which power is separate and distinct from the power to summarily
abate nuisances per se. 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.
Given the presence of the requirements under Sec. 444 (b)(3)(vi) of the LGC, whether the
building constituted a nuisance per se or a nuisance per accidens becomes immaterial. The
hotel was demolished not exactly because it is a nuisance but because it failed to comply with
PUBLIC CORPORATION_cases for September 19, 2020 11
the legal requirements prior to construction. It just so happened that, in the case at bar, the
hotel’s incident that qualified it as a nuisance per accidens––its being constructed within the
no build zone––further resulted in the non-issuance of the necessary permits and clearances,
which is a ground for demolition under the LGC. Under the premises, a court order that is
required under normal circumstances is hereby dispensed with.
d. The FLAgT cannot prevail over the municipal ordinance and PD 1096
VII. The SECOND PARTY may construct permanent and/or temporary improvements or
infrastructure in the FLAgT Area necessary and appropriate for its development for tourism
purposes pursuant to the approved SMP. “Permanent Improvements” refer to access roads,
and buildings or structures which adhere to the ground in a fixed and permanent manner.
On the other hand, “Temporary Improvements” include those which are detachable from the
foundation or the ground introduced by the SECOND PARTY in the FLAgT Area and which
the SECOND PARTY may remove or dismantle upon expiration or cancellation of this
AGREEMENT x x x.24chanrobleslaw
Taken in conjunction with the exceptions laid down in Sections 6 and 8 of the Ordinance,
petitioner argues that Boracay West Cove is exempted from securing permits from the LGU.
Said exceptions read:
x x x x
According to petitioner, the fact that it was issued a FLAgT constitutes sufficient
authorization from the DENR to proceed with the construction of the three-storey hotel.
The rights granted to petitioner under the FLAgT are not unbridled. Forestlands, although
under the management of the DENR, are not exempt from the territorial application of
municipal laws, for local government units legitimately exercise their powers of government
over their defined territorial jurisdiction.
Furthermore, the conditions set forth in the FLAgT and the limitations circumscribed in the
ordinance are not mutually exclusive and are, in fact, cumulative. As sourced from Sec. 447
(a)(5)(i) of the LGC:
(a) The sangguniang bayan, as the legislative body of the municipality, shall enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
municipality and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the municipality as provided for under Section 22 of this
Code, and shall:
x x x x
(5) Approve ordinances which shall ensure the efficient and effective delivery of the basic
services and facilities as provided for under Section 17 of this Code, and in addition to said
services and facilities, shall:
Thus, aside from complying with the provisions in the FLAgT granted by the DENR, it was
incumbent on petitioner to likewise comply with the no build zone restriction under
Municipal Ordinance 2000-131, which was already in force even before the FLAgT was
entered into. On this point, it is well to stress that Sections 6 and 8 of the Ordinance do not
exempt petitioner from complying with the restrictions since these provisions adverted to
grant exemptions from the ban on constructions on slopes and swamps, not on the no build
zone.
Additionally, the FLAgT does not excuse petitioner from complying with PD 1096. As
correctly pointed out by respondents, the agreement cannot and will not amend or change
the law because a legislative act cannot be altered by mere contractual agreement. Hence,
petitioner has no valid reason for its failure to secure a building permit pursuant to Sec. 301
of the National Building Code.
e. The DENR does not have primary jurisdiction over the controversy
Lastly, in ascribing grave abuse of discretion on the part of the respondent mayor, petitioner
argued that the hotel site is a forestland under the primary jurisdiction of the DENR. As such,
the merits of the case should have been passed upon by the agency and not by the LGU. In
the alternative, petitioner explains that even if jurisdiction over the matter has been
devolved in favor of the LGU, the DENR still has the power of review and supervision over
the former’s rulings. As cited by the petitioner, the LGC reads:
x x x x
(b) Such basic services and facilities include, but are not limited to, the following:
x x x x
(ii) Pursuant to national policies and subject to supervision, control and review of the DENR,
PUBLIC CORPORATION_cases for September 19, 2020 13
Petitioner has made much of the fact that in line with this provision, the DENR Region 6 had
issued an opinion favourable to petitioner.25 To petitioner, the adverted opinion effectively
reversed the findings of the respondent mayor that the structure introduced was illegally
constructed.
We disagree.
In alleging that the case concerns the development and the proper use of the country’s
environment and natural resources, petitioner is skirting the principal issue, which is
Boracay West Cove’s non-compliance with the permit, clearance, and zoning requirements
for building constructions under national and municipal laws. He downplays Boracay West
Cove’s omission in a bid to justify ousting the LGU of jurisdiction over the case and
transferring the same to the DENR. He attempts to blow the issue out of proportion when it
all boils down to whether or not the construction of the three-storey hotel was supported by
the necessary documentary requirements.
Based on law and jurisprudence, the office of the mayor has quasi-judicial powers to order
the closing and demolition of establishments. This power granted by the LGC, as earlier
explained, We believe, is not the same power devolved in favor of the LGU under Sec. 17
(b)(2)(ii), as above-quoted, which is subject to review by the DENR. The fact that the building
to be demolished is located within a forestland under the administration of the DENR is of
no moment, for what is involved herein, strictly speaking, is not an issue on environmental
protection, conservation of natural resources, and the maintenance of ecological balance, but
the legality or illegality of the structure. Rather than treating this as an environmental issue
then, focus should not be diverted from the root cause of this debacle––compliance.
Ultimately, the purported power of review by a regional office of the DENR over respondents’
actions exercised through an instrumentality of an ex-parte opinion, in this case, finds no
sufficient basis. At best, the legal opinion rendered, though perhaps informative, is not
conclusive on the courts and should be taken with a grain of salt.
WHEREFORE, in view of the foregoing, the petition is hereby DENIED for lack of merit. The
Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 120042 dated August
13, 2013 and February 3, 2014, respectively, are hereby AFFIRMED.
SO ORDERED
PUBLIC CORPORATION_cases for September 19, 2020 14
SECOND DIVISION
G.R. No. 180110, May 30, 2016
CAPITOL WIRELESS, INC., PETITIONER, VS. THE PROVINCIAL TREASURER OF BATANGAS,
THE PROVINCIAL ASSESSOR OF BATANGAS, THE MUNICIPAL TREASURER AND ASSESSOR
OF NASUGBU, BATANGAS, RESPONDENTS.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Court of Appeals' Decision[1] dated May 30, 2007 and
Resolution[2] dated October 8, 2007 in CA-G.R. SP No. 82264, which both denied the appeal
of petitioner against the decision of the Regional Trial Court.
Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the
APCN, while the landing stations or terminals and Segment E of APCN located in Nasugbu,
Batangas are allegedly owned by the Philippine Long Distance Telephone Corporation
(PLDT).[6] Moreover, it alleges that the Wet Segment is laid in international, and not
Philippine, waters.[7]
Capwire claims that as co-owner, it does not own any particular physical part of the cable
system but, consistent with its financial contributions, it owns the right to use a certain
capacity of the said system.[8] This property right is allegedly reported in its financial books
as "Indefeasible Rights in Cable Systems."[9]
However, for loan restructuring purposes, Capwire claims that "it was required to register
the value of its right," hence, it engaged an appraiser to "assess the market value of the
international submarine cable system and the cost to Capwire."[10] On May 15, 2000, Capwire
submitted a Sworn Statement of True Value of Real Properties at the Provincial Treasurer's
Office, Batangas City, Batangas Province, for the Wet Segment of the system, stating:
GP-CNS P1,789,000.00
Capwire claims that it also reported that the system "interconnects at the PLDT Landing
Station in Nasugbu, Batangas," which is covered by a transfer certificate of title and tax
declarations in the name of PLDT.[11]
As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued the
following Assessments of Real Property (ARP) against Capwire:
In essence, the Provincial Assessor had determined that the submarine cable systems
described in Capwire's Sworn Statement of True Value of Real Properties are taxable real
property, a determination that was contested by Capwire in an exchange of letters between
the company and the public respondent.[12] The reason cited by Capwire is that the cable
system lies outside of Philippine territory, i.e., on international waters.[13]
On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a Notice of
Auction Sale, respectively, from the respondent Provincial Treasurer of Batangas (Provincial
Treasurer).[14]
On March 10, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of
Warrant of Levy, Notice of Auction Sale and/or Auction Sale with the Regional Trial Court
(RTC) of Batangas City.[15]
Alter the filing of the public respondents' Comment,[16] on May 5, 2003, the RTC issued an
Order dismissing the petition for failure of the petitioner Capwire to follow the requisite of
payment under protest as well as failure to appeal to the Local Board of Assessment Appeals
(LBAA), as provided for in Sections 206 and 226 of Republic Act (R.A.) No. 7160, or the Local
Government Code.[17]
Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the RTC
in an Order[19] dated August 26, 2003. It then filed an appeal to the Court of Appeals. [20]
On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed
by Capwire and affirming the order of the trial court. The dispositive portion of the CA's
decision states:
WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August 26,
2003 of the Regional Trial Court, Branch 11 of Batangas City, are AFFIRMED.
SO ORDERED.[21]
PUBLIC CORPORATION_cases for September 19, 2020 16
The appellate court held that the trial court correctly dismissed Capwire's petition because
of the latter's failure to comply with the requirements set in Sections 226 and 229 of the
Local Government Code, that is, by not availing of remedies before administrative bodies like
the LBAA and the Central Board of Assessment Appeals (CBAA).[22] Although Capwire claims
that it saw no need to undergo administrative proceedings because its petition raises purely
legal questions, the appellate court did not share this view and noted that the case raises
questions of fact, such as the extent to which parts of the submarine cable system lie within
the territorial jurisdiction of the taxing authorities, the public respondents.[23] Further, the
CA noted that Capwire failed to pay the tax assessed against it under protest, another strict
requirement under Section 252 of the Local Government Code. [24]
Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or
payment of the tax under protest, is inapplicable to the case at bar since there is no question
of fact involved, or that the question involved is not the reasonableness of the amount
assessed but, rather, the authority and power of the assessor to impose the tax and of the
treasurer to collect it.[25] It contends that there is only a pure question of law since the issue
is whether its submarine cable system, which it claims lies in international waters, is
taxable.[26] Capwire holds the position that the cable system is not subject to tax. [27]
The Court confronts the following issues: Is the case cognizable by the administrative
agencies and covered by the requirements in Sections 226 and 229 of the Local Government
Code which makes the dismissal of Capwire's petition by the RTC proper? May submarine
communications cables be classified as taxable real property by the local governments?
The petition is denied. No error attended the ruling of the appellate court that the case
involves factual questions that should have been resolved before the appropriate
administrative bodies.
In disputes involving real property taxation, the general rule is to require the taxpayer to
first avail of administrative remedies and pay the tax under protest before allowing any
resort to a judicial action, except when the assessment itself is alleged to be illegal or is made
without legal authority.[30] For example, prior resort to administrative action is required
when among the issues raised is an allegedly erroneous assessment, like when the
reasonableness of the amount is challenged, while direct court action is permitted when only
the legality, power, validity or authority of the assessment itself is in question.[31] Stated
differently, the general rule of a prerequisite recourse to administrative remedies applies
when questions of fact are raised, but the exception of direct court action is allowed when
purely questions of law are involved.[32]
PUBLIC CORPORATION_cases for September 19, 2020 17
This Court has previously and rather succinctly discussed the difference between a question
of fact and a question of law. In Cosmos Bottling Corporation v. Nagrama, Jr.,[33] it held:
The Court has made numerous dichotomies between questions of law and fact. A reading of
these dichotomies shows that labels attached to law and fact are descriptive rather than
definitive. We are not alone in Our difficult task of clearly distinguishing questions of feet
from questions of law. The United States Supreme Court has ruled that: "we [do not| yet
know of any other rule or principle that will unerringly distinguish a tactual finding from a
legal conclusion."
There is a question of law in a given case when the doubt or difference arises as to what the
law is on a certain state of facts; there is a question of fact when the doubt or difference arises
as to the truth or the falsehood of alleged facts.
x x x A question of law exists when the doubt or controversy concerns the correct application
of law or jurisprudence to a certain set of facts; or when the issue docs not call for an
examination of the probative value of the evidence presented, the truth or falsehood of facts
being admitted. In contrast, a question of fact exists when the doubt or difference arises as
to the truth or falsehood of facts or when the query invites calibration of the whole evidence
considering mainly the credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances as well as their relation to each other and to the whole, and the
probability of the situation.
For the sake of brevity, We shall label this the law application and calibration dichotomy.
In contrast, the dynamic legal scholarship in the United States has birthed many
commentaries on the question of law and question of fact dichotomy. As early as 1944, the
law was described as growing downward toward "roots of fact" which grew upward to meet
it. In 1950, the late Professor Louis Jaffe saw fact and law as a spectrum, with one shade
blending imperceptibly into the other. Others have defined questions of law as those that
deal with the general body of legal principles; questions of fact deal with "all other
phenomena x x x." Kenneth Gulp Davis also weighed in and noted that the difference between
fact and law has been characterized as that between "ought" questions and "is" questions. [34]
Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's
case is one replete with questions of fact instead of pure questions of law, which renders its
filing in a judicial forum improper because it is instead cognizable by local administrative
bodies like the Board of Assessment Appeals, which are the proper venues for trying these
factual issues. Verily, what is alleged by Capwire in its petition as "the crux of the
controversy," that is, "whether or not an indefeasible right over a submarine cable system
that lies in international waters can be subject to real property tax in the Philippines," [35] is
not the genuine issue that the case presents - as it is already obvious and fundamental that
real property that lies outside of Philippine territorial jurisdiction cannot be subjected to its
PUBLIC CORPORATION_cases for September 19, 2020 18
domestic and sovereign power of real property taxation - but, rather, such factual issues as
the extent and status of Capwire's ownership of the system, the actual length of the cable/s
that lie in Philippine territory, and the corresponding assessment and taxes due on the same,
because the public respondents imposed and collected the assailed real property tax on the
finding that at least a portion or some portions of the submarine cable system that Capwire
owns or co-owns lies inside Philippine territory. Capwire's disagreement with such findings
of the administrative bodies presents little to no legal question that only the courts may
directly resolve.
Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they
have been already admitted or established, when they have not, since no evidence of such
have yet been presented in the proper agencies and even in the current petition. As such, it
remains unsettled whether Capwire is a mere co-owner, not full owner, of the subject
submarine cable and, if the former, as to what extent; whether all or certain portions of the
cable are indeed submerged in water; and whether the waters wherein the cable/s is/are
laid are entirely outside of Philippine territorial or inland waters, i.e., in international waters.
More simply, Capwire argues based on mere legal conclusions, culminating on its claim of
illegality of respondents' acts, but the conclusions are yet unsupported by facts that should
have been threshed out quasi-judicially before the administrative agencies. It has been held
that "a bare characterization in a petition of unlawfulness, is merely a legal conclusion and a
wish of the pleader, and such a legal conclusion unsubstantiated by facts which could give it
life, has no standing in any court where issues must be presented and determined by facts in
ordinary and concise language."[36] Therefore, Capwire's resort to judicial action, premised
on its legal conclusion that its cables (the equipment being taxed) lie entirely on
international waters, without first administratively substantiating such a factual premise, is
improper and was rightly denied. Its proposition that the cables lie entirely beyond
Philippine territory, and therefore, outside of Philippine sovereignty, is a fact that is not
subject to judicial notice since, on the contrary, and as will be explained later, it is in fact
certain that portions of the cable would definitely lie within Philippine waters. Jurisprudence
on the Local Government Code is clear that facts such as these must be threshed out
administratively, as the courts in these types of cases step in at the first instance only when
pure questions of law are involved.
Submarine or undersea communications cables are akin to electric transmission lines which
this Court has recently declared in Manila Electric Company v. City Assessor and City Treasurer
of Lucena City,[37] as "no longer exempted from real property tax" and may qualify as
"machinery" subject to real property tax under the Local Government Code. To the extent
that the equipment's location is determinable to be within the taxing authority's jurisdiction,
the Court sees no reason to distinguish between submarine cables used for communications
and aerial or underground wires or lines used for electric transmission, so that both pieces
of property do not merit a different treatment in the aspect of real property taxation. Both
electric lines and communications cables, in the strictest sense, are not directly adhered to
the soil but pass through posts, relays or landing stations, but both may be classified under
the term "machinery" as real property under Article 415(5)[38] of the Civil Code for the
PUBLIC CORPORATION_cases for September 19, 2020 19
simple reason that such pieces of equipment serve the owner's business or tend to meet the
needs of his industry or works that are on real estate. Even objects in or on a body of water
may be classified as such, as "waters" is classified as an immovable under Article 415(8)[39] of
the Code. A classic example is a boathouse which, by its nature, is a vessel and, therefore, a
personal property but, if it is tied to the shore and used as a residence, and since it floats on
waters which is immovable, is considered real property.[40] Besides, the Court has already
held that "it is a familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property."[41]
Thus, absent any showing from Capwire of any express grant of an exemption for its lines
and cables from real property taxation, then this interpretation applies and Capwire's
submarine cable may be held subject to real property tax.
Having determined that Capwire is liable, and public respondents have the right to impose a
real property tax on its submarine cable, the issue that is unresolved is how much of such
cable is taxable based on the extent of Capwire's ownership or co-ownership of it and the
length that is laid within respondents' taxing jurisdiction. The matter, however, requires a
factual determination that is best performed by the Local and Central Boards of Assessment
Appeals, a remedy which the petitioner did not avail of.
At any rate, given the importance of the issue, it is proper to lay down the other legal bases
for the local taxing authorities' power to tax portions of the submarine cables of petitioner.
It is not in dispute that the submarine cable system's Landing Station in Nasugbu, Batangas
is owned by PLDT and not by Capwire. Obviously, Capwire is not liable for the real property
tax on this Landing Station. Nonetheless, Capwire admits that it co-owns the submarine cable
system that is subject of the tax assessed and being collected by public respondents. As the
Court takes judicial notice that Nasugbu is a coastal town and the surrounding sea falls
within what the United Nations Convention on the Law of the Sea (UNCLOS) would define as
the country's territorial sea (to the extent of 12 nautical miles outward from the nearest
baseline, under Part II, Sections 1 and 2) over which the country has sovereignty, including
the seabed and subsoil, it follows that indeed a portion of the submarine cable system lies
within Philippine territory and thus falls within the jurisdiction of the said local taxing
authorities.[42] It easily belies Capwire's contention that the cable system is entirely in
international waters. And even if such portion does not lie in the 12-nautical-mile vicinity of
the territorial sea but further inward, in Prof. Magallona v. Hon. Ermita, et al.[43] this Court
held that "whether referred to as Philippine 'internal waters' under Article I of the
Constitution[44] or as 'archipelagic waters' under UNCLOS Part III, Article 49(1, 2, 4), [45] the
Philippines exercises sovereignty over the body of water lying landward of (its) baselines,
including the air space over it and the submarine areas underneath." Further, under Part VI,
Article 79[46] of the UNCLOS, the Philippines clearly has jurisdiction with respect to cables
laid in its territory that are utilized in support of other installations and structures under its
jurisdiction.
And as far as local government units are concerned, the areas described above are to be
considered subsumed under the term "municipal waters" which, under the Local
Government Code, includes "not only streams, lakes, and tidal waters within the
municipality, not being the subject of private ownership and not comprised within the
national parks, public forest, timber lands, forest reserves or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline
PUBLIC CORPORATION_cases for September 19, 2020 20
from points where the boundary lines of the municipality or city touch the sea at low tide
and a third line parallel with the general coastline and fifteen (15) kilometers from
it."[47] Although the term "municipal waters" appears in the Code in the context of the grant
of quarrying and fisheries privileges for a fee by local governments,[48] its inclusion in the
Code's Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real property
taxation.
Thus, the jurisdiction or authority over such part of the subject submarine cable system lying
within Philippine jurisdiction includes the authority to tax the same, for taxation is one of
the three basic and necessary attributes of sovereignty,[49] and such authority has been
delegated by the national legislature to the local governments with respect to real property
taxation.[50]
As earlier stated, a way for Capwire to claim that its cable system is not covered by such
authority is by showing a domestic enactment or even contract, or an international
agreement or treaty exempting the same from real property taxation. It failed to do so,
however, despite the fact that the burden of proving exemption from local taxation is upon
whom the subject real property is declared.[51] Under the Local Government Code, every
person by or for whom real property is declared, who shall claim tax exemption for such
property from real property taxation "shall file with the provincial, city or municipal assessor
within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim."[52] Capwire omitted to do so. And even
under Capwire's legislative franchise, RA 4387, which amended RA 2037, where it may be
derived that there was a grant of real property tax exemption for properties that are part of
its franchise, or directly meet the needs of its business,[53] such had been expressly
withdrawn by the Local Government Code, which took effect on January 1, 1992, Sections
193 and 234 of which provide:[54]
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, nonstock and nonprofit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
x x x x
Section 234. Exemptions from Real Property Tax. - The following arc exempted from payment
of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration of otherwise, to
a taxable person;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and
(c) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations arc hereby
withdrawn upon the effectivity of this Code.[55]
Such express withdrawal had been previously held effective upon exemptions bestowed by
legislative franchises granted prior to the effectivity of the Local Government
Code.[56] Capwire fails to allege or provide any other privilege or exemption that were
granted to it by the legislature after the enactment of the Local Government Code. Therefore,
the presumption stays that it enjoys no such privilege or exemption. Tax exemptions are
strictly construed against the taxpayer because taxes are considered the lifeblood of the
nation.[57]
WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated May 30, 2007
and Resolution dated October 8, 2007 are AFFIRMED.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 22
EN BANC
G.R. No. 170867, December 04, 2018
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY RAPHAEL P.M. LOTILLA, SECRETARY,
DEPARTMENT OF ENERGY (DOE), MARGARITO B. TEVES, SECRETARY, DEPARTMENT OF
FINANCE (DOF), AND ROMULO L. NERI, SECRETARY, DEPARTMENT OF BUDGET AND
MANAGEMENT (DBM), PETITIONERS, VS. PROVINCIAL GOVERNMENT OF
PALAWAN,REPRESENTED BY GOVERNOR ABRAHAM KAHLIL B. MITRA, RESPONDENT.
BISHOP PEDRO DULAY ARIGO, CESAR N. SARINO, DR. JOSE ANTONIO N. SOCRATES, PROF.
H. HARRY L. ROQUE, JR., PETITIONERS, VS. HON. EXECUTIVE SECRETARY EDUARDO R.
ERMITA, HON. ENERGY SECRETARY ANGELO T. REYES, HON. FINANCE SECRETARY
MARGARITO B. TEVES, HON. BUDGET AND MANAGEMENT SECRETARY ROLANDO D.
ANDAYA, JR., HON. PALAWAN GOVERNOR JOEL T. REYES, HON. REPRESENTATIVE
ANTONIO C. ALVAREZ (1ST DISTRICT), HON. REPRESENTATIVE ABRAHAM MITRA
(2ND DISTRICT), RAFAEL E. DEL PILAR, PRESIDENT AND CEO, PNOC EXPLORATION
CORPORATION, RESPONDENTS.
DECISION
TIJAM, J.:
G.R. No. 170867 is a petition for review on certiorari[1] under Rule 45 of the Rules of Court
assailing the Decision[2] dated December 16, 2005 of the Regional Trial Court (RTC) of
Palawan, Branch 95 in Civil Case No. 3779 which declared the Province of Palawan entitled
to forty percent (40%) of the government's earnings derived from the Camago-Malampaya
natural gas project since October 16, 2001. The petition also seeks ad cautelam to nullify the
RTC Amended Order[3] dated January 16, 2006 which directed the "freezing" of said 40%
share under pain of contempt.
G.R. No. 185941 is a petition for review on certiorari[4] under Rule 45 of the Rules of Court
assailing the Resolution[5] dated May 29, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
102247 which dismissed the certiorari petition questioning the constitutionality of
Executive Order (E.O.) No. 683,[6] and the CA Resolution[7] dated December 16, 2008 which
denied the motion for reconsideration.
The Antecedents
On December 11, 1990, the Republic of the Philippines (Republic or National Government),
through the Department of Energy (DoE), entered into Service Contract No. 38 with Shell
Philippines Exploration B.V. and Occidental Philippines, Incorporated (collectively
SPEX/OXY), as Contractor, for the exclusive conduct of petroleum operations in the area
known as "Camago-Malampaya" located offshore northwest of Palawan. Exploration of the
area led to the drilling of the Camago-Malampaya natural gas reservoir about 80 kilometers
from the main island of Palawan and 30 kms from the platform.[8]
The nearest point of the Camago-Malampaya production area is at a distance of 93.264 kms
PUBLIC CORPORATION_cases for September 19, 2020 23
or 50.3585 nautical miles to the Kalayaan Island Group (Kalayaan); 55.476 kms or 29.9546
nm to mainland Palawan (Nacpan Point, south of Patuyo Cove, Municipality of El Nido); and
48.843 kms or 26.9546 nm to the Province of Palawan (northwest of Tapiutan Island,
Municipality of El Nido).[9]
Service Contract No. 38, as clarified by the Memorandum of Clarification between the same
parties dated December 11, 1990, provides for a production sharing scheme whereby the
National Government was entitled to receive an amount equal to sixty percent (60%) of the
net proceeds[11] from the sale of petroleum (including natural gas) produced from petroleum
operations while SPEX/OXY, as service contractor, was entitled to receive an amount equal
to forty percent (40%) of the net proceeds.[12]
The Contractor was subsequently composed of the consortium of SPEX, Shell Philippines
LLC, Chevron Malampaya LLC and Philippine National Oil Company-Exploration Corporation
(PNOC-EC).[13]
On February 17, 1998, President Fidel V. Ramos issued Administrative Order (A.O.) No.
381[14] which, in part, stated that the Province of Palawan was expected to receive about
US$2.1 Billion from the estimated US$8.1 Billion total government share from the Camago-
Malampaya natural gas project for the 20-year contract period.[15]
On June 10, 1998, DoE Secretary Francisco L. Viray wrote Palawan Governor Salvador P.
Socrates, requesting for the deferment of payment of 50% of Palawan's share in the project
for the first seven years of operations, estimated at US$222.89 Million, which it would use to
pay for the National Power Corporation's Take-or-Pay Quantity (TOPQ) obligations under
the latter's Gas Sale and Purchase Agreements with SPEX/OXY.[16]
On October 16, 2001, the Camago-Malampaya natural gas project was inaugurated.[17]
Palawan's Claim
The Provincial Government of Palawan asserted its claim over forty percent (40%) of the
National Government's share in the proceeds of the project. It argued that since the reservoir
is located within its territorial jurisdiction, it is entitled to said share under Section 290[18] of
the Local Government Code. The National Government disputed the claim, arguing that since
the gas fields were approximately 80 k.ms from Palawan's coastline, they are outside the
territorial jurisdiction of the province and is within the national territory of the
Philippines.[19]
Negotiations took place between the National Government and the Provincial Government
of Palawan on the sharing of the proceeds from the project, with the former proposing to
give Palawan 20% of said proceeds after tax. The negotiations, however, were unsuccessful.
PUBLIC CORPORATION_cases for September 19, 2020 24
On March 14, 2003, in a letter to the Secretaries of the Department of Energy (DoE), the
Department of Budget and Management (DBM) and the Department of Finance (DoF),
Palawan Governor Mario Joel T. Reyes (Governor Reyes) reiterated his province's demand
for the release of its 40% share. Attached to said letter was Resolution No. 5340-03[20] of
the Sangguniang Panlalawigan of Palawan calling off further negotiations with the National
Government and authorizing Governor Reyes to engage legal services to prosecute the
province's claim.[21]
On May 7, 2003, the Provincial Government of Palawan filed a petition[22] for declaratory
relief before the RTC of Palawan and Puerto Princesa against DoE Secretary Vicente S. Perez,
Jr., DoF Secretary Jose Isidro N. Camacho and DBM Secretary Emilia T. Boncodin
(Department Secretaries), docketed as Civil Case No. 3779. It sought judicial determination
of its rights under A.O. No. 381 (1998), Republic Act (R.A.) No. 7611[23] or the Strategic
Environmental Plan (SEP) for Palawan Act, Section 290 of R.A. No. 7160[24] or the Local
Government Code of 1991 (Local Government Code), and Provincial Ordinance No.
474[25] (series of 2000). It asked the RTC to declare that the Camago-Malampaya natural gas
reservoir is part of the territorial jurisdiction of the Province of Palawan and that the
Provincial Government of Palawan was entitled to receive 40% of the National Government's
share in the proceeds of the Camago-Malampaya natural gas project.[26]
Commenting on the petition, the Republic maintained that Palawan was not entitled to the
40% share because the Camago-Malampaya reservoir is outside its territorial jurisdiction. It
postulated that Palawan's territorial jurisdiction is limited to its land area and to the
municipal waters within 15 km from its coastline. It denied being estopped by the acts of
government officials who earlier acknowledged Palawan's share in the proceeds of the
project.[27]
On February 9, 2005, DoE Secretary Vincent S. Perez, Jr., DBM Secretary Mario L. Relampagos
and DoF Secretary Juanita D. Amatong, with authority from President Gloria Macapagal-
Arroyo, executed an Interim Agreement[28] with the Province of Palawan, represented by its
Governor Reyes. The agreement provided for the equal sharing between the National
Government and the Province of Palawan of 40% of (a) the funds already remitted to the
National Government under Service Contract No. 38 and (b) the funds to be remitted to the
National Government up the earlier of (i) the effective date of the final and executory
judgment on the petition by a court of competent jurisdiction on Civil Case No. 3779, or (ii)
June 30, 2010. The parties also agreed that the amount of P600 Million, which was previously
released to the Province of Palawan under E.O. Nos. 254 and 254-A, would be deducted from
the initial release of the province's 50% share. Furthermore, the release of funds under the
agreement would be without prejudice to the respective positions of the parties . in any legal
dispute regarding the territorial jurisdiction over the Camago-Malampaya area. Should Civil
Case No. 3779 be decided with finality in favor of either party, the Interim Agreement treated
the share which the prevailing party has received as financial assistance to the other.[29]
The Province of Palawan claims that the National Government failed to fulfill their
PUBLIC CORPORATION_cases for September 19, 2020 25
commitments under the Interim Agreement and that it has not received its stipulated share
since it was signed.[30]
On December 16, 2005, the RTC decided Civil Case No. 3779 in favor of the Province of
Palawan, disposing as follows:
WHEREFORE, premises considered, the Court declares that the province of Palawan is
entitled to the 40% share of the national wealth pursuant to the provisions of Sec. 7, Article
X of the 1987 Constitution and this right is in accord with the provisions of the Enabling Act,
R.A. 7160 (The Local Government Code of 1991), computed based on revenues generated
from the Camago-Malampaya Natural Gas Project since October 16, 2001.
IT IS SO ORDERED.[31]
The RTC held that it was "unthinkable" to limit Palawan's territorial jurisdiction to its
landmass and municipal waters considering that the Local Government Code empowered
them to protect the environment, and R.A. No. 7611 adopted a comprehensive framework
for the sustainable development of Palawan compatible with protecting and enhancing the
natural resources and endangered environment of the province.[32]
The RTC rejected the Department Secretaries' reliance on the cases of Tan v.
COMELEC[34] and Laguna Lake Development Authority v. CA[35] (LLDA) in arguing that
territorial jurisdiction refers only to landmass. The RTC held that the cases were inapplicable
as Tan was an election controversy involving the creation of a new province
while LLDA merely highlighted the primacy of the said agency's Charter over the Local
Government Code. The 1950 case of Municipality of Paoay v. Manaois,[36] where a
municipality was declared as holding only a usufruct, not exclusive. ownership, over the
municipal waters, was also held to be inapplicable since it was rendered before the principle
of local autonomy was instituted in the 1987 Constitution and the Local Government Code.[37]
The RTC further declared that the Regalian Doctrine could not be used by the Department
Secretaries as a shield to defeat the Constitutional provision giving LGUs an equitable share
in the proceeds of the utilization and development of national wealth within their respective
areas. The doctrine, said the RTC, is subject to this Constitutional limitation and the 40% LGU
share set by the Local Government Code.[38]
Finally, the RTC noted that from 1992 to 1998, Palawan received a total of P116,343,197.76
from collections derived from the West Linapacan Oil Fields, and that former President Fidel
V. Ramos issued A.O. No. 381 acknowledging Palawan's claim and share in the proceeds of
the Camago-Malampaya project. The RTC, thus, held that by its previous actions and
issuances, the National Government legally acknowledged Palawan's claim to the proceeds
of the Camago-Malampaya project and it was "too late in the day for [it] to take a 180 degree
turn."[39]
PUBLIC CORPORATION_cases for September 19, 2020 26
On December 29, 2005, the Provincial Government of Palawan filed a motion to require the
Secretaries of the DoE, DoF and DBM to render a full accounting of actual payments made by
SPEX to the Bureau of Treasury from October 1, 2001 to December 2005, and to freeze
and/or place Palawan's 40% share in an escrow account.[40]
On January 4, 2006, the aforesaid Secretaries filed an urgent manifestation asserting that the
motion was premature and should not be heard by the RTC because the Republic still had
fifteen (15) days to appeal.[41]
The Provincial Government of Palawan countered that pending finality of the December 16,
2005 Decision, there was a need to secure its 40% share over which it had a "vested and
inchoate right."[42]
The RTC subsequently issued an Order which was erroneously dated December 16, 2006
and later amended to indicate the date as January 16, 2006.[43] The dispositive portion of the
Amended Order[44] reads:
WHEREFORE, premises considered, the public respondents individually or collectively
DIRECTED within ten (10) days from receipt of this Order pursuant to a "Freeze Order"
hereby granted by this Court:
To render a FULL ACCOUNTING of the total gross collections derived by the National
Government from the development and utilization of Camago-Malampaya national gas
project for the period January 2002 to December 2005, including its conversion to peso
denomination and showing the 40% LGU share and henceforth, submit MONTHLY an
accounting of all succeeding collections until the finality of the decision;
To submit a full report of the actual payments made by Shell Spex from January 2002 to
December 2005 deposited under Special Account 151 of the Bureau of Treasury, Department
of Finance, including the dates when the payments were made, the Official Receipts covering
the same and the present status, particularly the disputed 40% LOU share for Palawan and
to make MONTHLY reports of actual payments received during the pendency of this case;
Effective immediately, NOT TO ISSUE nor CHARGE allotment release orders, disbursements
and cash allocation against the deposit/account Special Fund 151 corresponding to the 40%
LOU share for the period January 2002 to December 2005 pending the finality of the decision
in this case.
e. Furthermore, the HON. Respondent Secretary of Finance Margarito Tevez [sic] and/or his
subordinate officer Hon. Omar T. Cruz Treasurer of the Philippines, to deposit in escrow in
the LAND BANK OF THE PHILIPPINES the fund/deposit to the 40% disputed LOU share,
identified as Special Account 151, and to "freeze" said account, under pain of CONTEMPT,
until finality of the decision or except as directed by this Court pursuant to the Decision dated
December 16, 2005.
IT IS SO ORDERED.[45]
The RTC held that the motion for full accounting and freezing of Palawan's claimed 40%
share was actually part of the petition for review which sought to declare the duties of the
National Government and the rights of the Provincial Government of Palawan, and that a
resolution thereof would guide this Court as to the actual amount due the local government
since it is not a trier of facts.[46] The RTC also noted that the National Government's track
record in complying with the Constitutional provisions on local autonomy was not exactly
immaculate as supposedly evidenced by the case of Gov. Mandanas v. Hon. Romulo[47] where,
after sharing with the Province of Palawan collections from the West Linapacan oil fields
from 1992 to 1998, the National Government "turned its back on its legal commitment to the
former." The trial court stressed that the local government of Palawan was merely
preempting any possible dissipation of funds that would render any judgment favorable to
it an empty victory.[48]
On February 6, 2006, the Department Secretaries filed a motion for reconsideration[49] of the
Amended Order dated January 16, 2006.[50]
On February 16, 2006, the Republic, represented by DoE Secretary Raphael P.M. Lotilla, DoF
Secretary Margarita B. Teves and DBM Secretary Romulo L. Neri, challenged the RTC's
December 16, 2005 Decision before this Court through a petition for review[51] docketed as
G.R. No. 170867. In the same petition, the Republic, in anticipation of the RTC's denial of its
motion for reconsideration, also assailed the January 16, 2006 Amended Order ad cautelam,
ascribing grave abuse of discretion to the RTC for granting affirmative relief in a special civil
action for declaratory relief.[52]
On June 6, 2006, the RTC in its Order[53] lifted its January 16, 2006 Order, holding that:
[A] becoming sense of modesty on the part of this Court, compels it to defer to the Supreme
Court's First Division as the Movants have deviously appealed to the High Court the very
issues raised in the Motion for Reconsideration now pending before this Court.[54]
The dispositive portion of the RTC's June 6, 2006 Order, thus, reads:
WHEREFORE, premises considered, the Amended Order dated January 16, 2006 is hereby
LIFTED and SET ASIDE to await final determination thereof in view of the Petition for Review
on Certiorari filed by Movants in this case directly with the Supreme Court.
IT IS SO ORDERED.[55]
Consequently, the Republic manifested to the Court that its ad cautelam arguments relative
to the Amended Order dated January 16, 2006 need no longer be resolved unless the
Provincial Government of Palawan raised the same in its comment.[56]
PUBLIC CORPORATION_cases for September 19, 2020 28
On July 25, 2007, the duly authorized representatives of the National Government and the
Province of Palawan, with the conformity of the Representatives of the Congressional
Districts of Palawan, agreed on a Provisional Implementation Agreement (PIA) that allowed
50% of the disputed 40% of the Net Government Share in the proceeds of Service Contract
No. 38 to be utilized for the immediate and effective implementation of development projects
for the people of Palawan.[57]
On December 1, 2007, President Gloria Macapagal-Arroyo issued E.O. No. 683 which
authorized the release of funds to the implementing agencies pursuant to the PIA, without
prejudice to any ongoing discussion or the final judicial resolution of Palawan's claim of
territorial jurisdiction over the Camago-Malampaya area. E.O. No. 683 provided:
SECTION 1. Subject to existing laws, and the usual government accounting and auditing rules
and regulations, the Department of Budget and Management (DBM) is hereby authorized to
release funds to the implementing agencies (lA) pursuant to the PIA, upon the endorsement
and submission by the DOE and/or the PNOC Exploration Corporation of the following
documents:
1.1. Directive by the Office of the President or written request of the Province of Palawan,
the Palawan Congressional Districts or the Highly Urbanized City of Puerto Princes[a], for
the funding of designated projects;
1.2. A certification that the designated projects fall under the investment program of the
Province of Palawan, City of Puerto Princesa, and/or the development projects identified in
the development program of the National Government or its agencies; and
1.3. Bureau of Treasury certification on the availability of funds from the 50% of the 40%
share being claimed by the Province of Palawan from the Net Government Share under SC
38;
Provided, that the DBM shall be subject to the actual collections deposited with the National
Treasury, and shall be in accordance with the Annual Fiscal Program of the National
Government.
SECTION 2. The IA to whom the DBM released the funds pursuant to Section 1 hereof shall
be accountable for the implementation of the projects and the expenditures thereon, subject
to applicable laws and existing budgeting, accounting and auditing rules and regulations. For
recording purposes, the DBM may authorize the IAs to open and maintain a special account
for the amounts released pursuant to this Executive Order (EO).
SECTION 3. The National government, with due regard to the pending judicial dispute, shall
allow the Province of Palawan, the Congressional Districts of Palawan and the City of Puerto
Princesa to securitize their respective shares in the 50% of the disputed 40% of the Net
Government Share in the proceeds of SC 38 pursuant to the PIA. For the purpose, the DOE
shall, in consultation with the Department of Finance, be responsible for preparing the Net
PUBLIC CORPORATION_cases for September 19, 2020 29
SECTION 4. The amounts released pursuant to this EO shall be without prejudice to any on-
going discussions or final judicial resolution of the legal dispute regarding the National
Government's territorial jurisdiction over the areas covered by SC 38 in relation to the claim
of the Province of Palawan under Sec. 290 of RA 7160.
CA-G.R. SP No. 102247
On February 7, 2008, a petition for certiorari[58] questioning the constitutionality of E.O. No.
683 was filed before the CA by Bishop Pedro Dulay. Arigo, Cesar N. Sarino, Dr. Jose Antonio
N. Socrates and Prof. H. Harry L. Roque, Jr. (Arigo, et al.), as citizens and taxpayers, against
Executive Secretary Eduardo R. Ermita (Executive Secretary Ermita), DoE Secretary Angelo
T. Reyes (DoE Secretary Reyes), DoF Secretary Margarito B. Teves, DBM Secretary Rolando
D. Andaya, Jr., Palawan Governor Reyes, Representative Antonio C. Alvarez (Alvarez) of the
First District of Palawan, Representative Abraham Mitra (Mitra) and Rafael E. Del Pilar,
President and Chief Executive Officer, PNOC-EC. Docketed as CA-G.R. SP No. 102247, the
petition also asked the CA to: (1) prohibit respondents therein from disbursing funds
allocated under E.O. No. 683; (2) direct the National Government to release the 40%
allocation of the Province of Palawan from the proceeds of the Camago-Malampaya project
pursuant to the sharing formula under the Constitution and the Local Government Code; and
(3) prohibit the parties to the PIA from implementing the same for being violative of the
Constitution and the Local Government Code.[59]
In a Resolution dated March 18, 2008, the CA required Arigo, et al. to submit, within five (5)
days from notice, copies of relevant pleadings and other material documents, namely: (1) the
petition for review on certiorari, docketed as G.R. No. 170867, filed before this Court; (2) the
RTC's Decision in Civil Case No. 3779; (3) the motion for reconsideration of said RTC
Decision; (4) the Service Contract No. 38; and (5) the PIA, as required under Section 1, Rule
65, in relation to Section 3, Rule 46 of the Rules of Court. [60]
Arigo, et al. asked for additional ten (10) days to comply with the Resolution, which the CA
granted. They later submitted the required documents except for the copies of the petition
in G.R. No. 170867 and the PIA. They informed the CA that despite having made a formal
request for said petition, they were unable to secure a copy because they were not parties to
the case. The Third Division's Clerk of Court also informed them that the records of G.R. No.
170867 were unavailable as the case had already been submitted to the ponente for
resolution. Though unable to obtain a copy of the PIA, they submitted a copy of Service
Contract No. 38 which they supposedly secured from "unofficial sources." Considering the
difficulty they allegedly encountered in obtaining the documents, they asked the CA to direct
DoE Secretary Reyes and Executive Secretary Ermita to submit a copy of the petition in G.R.
No. 170867 and Service Contract No. 38, respectively. They also asked the CA to require any
of the respondents officials of the Province of Palawan to submit a copy of the PIA to which
they were supposed to have been signatories.[61]
Ruling of the CA
In the CA's Resolution[62] dated May 29, 2008, Arigo et al.'s petition for certiorari was denied
due course and dismissed. The CA held that the task of submitting relevant documents fell
squarely on Arigo, et al. as petitioners invoking its jurisdiction. It added that Arigo, et al.
PUBLIC CORPORATION_cases for September 19, 2020 30
should have submitted a certification from this Court's Third Division concerning the
unavailability of the records of G.R. No. 170867 and that they could have simply secured a
copy of the PIA from the Malacañang Records Office as the official repository of all documents
related to the Executive's functions.
The CA also held that apart from its procedural defect, the petition was also prematurely
filed considering that it was anchored on the same essential facts and circumstances and
raised the same issues in G.R. No. 170867. The CA likewise noted that the interim
undertaking between the parties to the PIA was contingent on the final adjudication of G.R.
No. 170867. Taking judicial notice of on-going efforts of both legislative and executive
departments to arrive at a common position in redefining the country's baseline in the light
of the United Nations Convention on the Law of the Sea (UNCLOS), the appeals court further
explained that ruling on the case may be tantamount to a collateral adjudication of the
archipelagic baseline which involved a policy issue.[63]
Arigo, et al. asked the CA to reconsider its May 29, 2008 Resolution and later submitted an
original duplicate of the Resolution[64] dated June 23, 2008 of this Court's Third Division
which denied their counsel's request for certified true copies of certain documents since it
was not a counsel for any party.[65]
On December 16, 2008, the CA issued a Resolution[66] denying the motion for
reconsideration.
On February 23, 2009, Arigo, et al. filed a petition for review on certiorari[67] over the CA's
May 29, 2008 and December 16, 2008 Resolutions, arguing that the case was ripe for decision
and that the documents required by the CA were not necessary.[68] They assert anew their
constitutional challenge to E.O. No. 638, claiming that it was in violation of the mandated
equitable sharing of resources between the National Government and LGUs. [69]
Consolidation of Cases
On June 23, 2009, the Court in its Resolution[70] consolidated G.R. No. 185941 with G.R. No.
170867.
Oral Argument
On September 1, 2009[71] and November 24, 2009,[72] the cases were heard on oral argument.
After the parties presented their respective arguments, the Court heard the opinions of Atty.
Henry Bensurto, Jr. (Atty. Bensurto) of the Department of Foreign Affairs and Dean Raul
Pangalangan of the University of the Philippines as amici curiae.
As of August 31, 2009, the amounts remitted to the DoE under Service Contract No. 38 are as
follows:
PUBLIC CORPORATION_cases for September 19, 2020 31
2002 646,333,100.11
2003 1,475,334,680.12
2004 1,631,245,574.33
2005 2,393,400,010.73
2006 5,369,720,905.73
Total 61,190,210,012.25
Based on the aforesaid remittances, the Republic computed the share claimed by the
Province of Palawan (as of August 31, 2009) as follows:[74]
Source of Assistance to the LGUs
Year DoE Share[75] Palawan's 40%
Total Collection
Claim
2002 10,113,578.87 636,219,521.24 646,333,100.11
2003 1,475,334,680.12 1,475,334,680.12
The Republic
contiguous if it comprises two (2) or more islands," indicating that "territory" is limited to
the landmass.[78]
1.3. "Territory" as used in Section 461 of the Local Government Code and "land area" as used
in Section 7 of the same law, must be attested to by the Lands Management Bureau which
has jurisdiction only over land areas.[79]
1.4. In Tan,[80] the Court interpreted "territory" to refer only to the mass of land above sea
water and excludes the waters over which the political unit exercises control.[81] The RTC
erred in holding that Tan is not applicable when it also involved the issue of whether the
province should include the waters around it. Tan applies whether the purpose is the
creation of a province or the determination of its territorial jurisdiction.[82]
2. The area referred to under Section 7, Article X of the 1987 Constitution, which grants LGUs
a share in the proceeds of the utilization and development of national wealth within their
respective areas, refers .to the territorial boundaries of the LGU as defined in its charter and
not to its exercise of jurisdiction.[83]
2.1. As examples of such national wealth, members of the 1986 Constitutional Commission
referred to natural resources found inland or onshore, even when offshore explorations
were being conducted years before the Commission was formed.[84]
2.2. The Local Government Code provides that the territorial jurisdiction of municipalities,
cities and barangays should be identified by metes and bounds, thus confirming that
"territorial jurisdiction" refers to the LOU's territorial boundaries.[85]
3. The Camago-Malampaya reservoir is outside the territorial boundaries of the Province of
Palawan as defined in its Charter. Under said Charter, Palawan's territory is composed only
of islands.[86]
4. On municipal waters:
4.1. As argued in the petition: Assuming an LGU's territory includes the waters around its
land area, the same should refer only to the municipal waters as defined under Section
131(r) of the Local Government Code and Section 4.58[87] of R.A. No. 8550,[88] otherwise
known as the Philippine Fisheries Code of 1998.[89]
4.1.1. In defining "municipal waters," Section 131(r) of the Local Government Code only
includes marine waters within fifteen (15) kms from the coastline. Section 4.58 of R.A. No.
8550 gives a similar definition of "municipal waters."[90]
4.1.2. Under Sections 6 and 7 of R.A. No. 8550, it is the Department of Agriculture, through
the Bureau of Fisheries and Aquatic Resources, that has jurisdiction over Philippine waters
beyond the 15-km limit of municipal waters, with respect to the issuance of license, charging
of fees and access to fishery resources.[91]
4.1.3. Section 16 of R.A. No. 8550 provides that the jurisdiction of a municipal or city
government extends only to the municipal waters, while Section 65 of the same law provides
that the enforcement of laws and the formulation of rules, except in municipal waters, are
vested in the National Government.[92]
4.1.4. Thus, the LGUs' authority may be enforced only within the 15-km limit of the municipal
waters. Beyond it, jurisdiction rests with the National Government through the Philippine
Navy, Philippine Coast Guard, Philippine National Police-Maritime Command, and the
Department of Agriculture in their respective areas of concern.[93]
4.1.5. It was held in Municipality of Paoay[94] that a municipality's right over municipal
waters consists merely of usufruct. Contrary to the RIC's pronouncement, the decision in said
case remains good law since nothing in the 1987 Constitution overthrew the principle that
the State owns all natural resources whether found on land or under the sea.[95]
PUBLIC CORPORATION_cases for September 19, 2020 33
4.1.6. Even assuming that the LGU's territory extends 'to the municipal waters, the Camago-
Malampaya natural gas reservoir is located approximately 80 kms from mainland Palawan,
thus, way beyond the 15-km radius.[96]
4.2. As argued in the Memorandum: Under the Local Government Code, the 15-km municipal
waters and beyond, including the continental margin, do not' form part of the territory of an
LGU.[97]
4.2.1. In Tan, the Court excluded from the territory of the political unit the "waters over
which [it] exercises control" or the municipal waters.[98]
4.2.3. The Local Government Code and the Philippine Fisheries Code did not redefine and
extend the territorial jurisdiction of LGUs to include the 15-km municipal waters. Instead,
they merely granted "extraterritorial" jurisdiction over the municipal waters, which is
limited only to the waters, excluding the seabed, subsoil and continental shelf; to fishery and
aquatic resources, excluding other resources; and to revenue generation and regulation of
said resources.[99]
4.2.4. Other than the 15-km municipal waters, the Local Government Code did not vest
jurisdiction beyond the LGU's territorial boundaries.[100]
5. Under the Archipelagic and Regalian Doctrines enshrined in the 1987 Constitution, the
maritime area between Kalayaan and mainland Palawan belongs to the national territory
and does not pertain to any local government unit.[101]
5.1. The fact that a territorial sea belongs to the internal waters of a coastal State does not
necessarily imply that it belongs to the province or local government closest to it. R.A. No.
3046, entitled An Act to Define the Baselines of the Territorial Sea of the Philippines, as
amended by R.A. No. 5446, which defines the State's "internal waters," does not expressly
state that the internal waters should also belong to the LGU.[102]
5.2. The Archipelagic Doctrine, as enunciated in the UNCLOS and affirmed in Article I of the
1987 Constitution, pertains to the sovereign state and does not place within the territory of
LGUs the waters between and surrounding its islands. Nowhere in international or domestic
law does it state that said doctrine applies in pari materia to LGUs.[103]
5.3. The application of the Archipelagic Doctrine to a political ·subdivision will encroach on
territories that belong to the State. Section 3 of the Water Code provides that "all waters
belong to the State" and Section 5 of the same law specifies that "seawater belongs to the
State." So also, while the definition of Philippine waters under the Philippine Fisheries Code
acknowledges that waters may exist in political subdivisions, nothing therein implies that
such waters form part of the territory of the LGU. Furthermore, said definition treats the
waters connecting the islands as a separate group from the waters existing in the political
subdivisions, implying that waters between islands are not deemed found in LGUs.[104]
5.4. The Regalian Doctrine, as embodied in Section 2, Article XII of the 1987 Constitution, is
all encompassing; thus, it behooves the claimant to present proof of title before his right is
recognized. Without a specific and unmistakable grant by the State, the property remains to
be that of the State and the LGU cannot claim an area to be part of its territorial jurisdiction.
Inclusion of any land or water as part of Palawan's territory must be expressly provided by
law and not merely inferred by vague and ambiguous construction. Statutes in derogation of
authority should be construed in favor of the State and should not be permitted to divest it
of any of its rights or prerogatives unless the legislature expressly intended otherwise.[105]
5.5. In a number of cases involving conflicting claims of the United States Federal
Government and the coastal states over natural wealth found within the latter's adjoining
maritime area, the Supreme Court of the United States of America (U.S.), applying the Federal
Paramountcy Doctrine, consistently ruled on the fundamental right of the national
government over the national wealth in maritime areas, to the exclusion of the coastal state.
PUBLIC CORPORATION_cases for September 19, 2020 34
The reason behind the doctrine equally applies to the conflicting claims between the
Philippine National Government and the Province of Palawan. In fact, there are more reasons
to apply the doctrine in the Philippines since unlike the individual states of the America
which preexisted the U.S., the LGUs are creations and agents of the Philippine National
Government.[106]
6. The inclusion of the Kalayaan Group of Islands (Kalayaan) to the Province of Palawan
under Presidential Decree (P.D.) No. 1596[107] did not ipso facto make the waters between
Kalayaan and the main island of Palawan part of the territorial jurisdiction of Palawan.[108]
6.1. There is nothing in P.D. No. 1596, or the charter of Palawan, Act No. 1396, that states that
the waters around Kalayaan are part of Palawan's territory. P.D. No. 1596 refers to Kalayaan
as a cluster of islands and islets while Act No. 1396 identifies the islands included in the
Province of Palawan. Thus, the areas referred to are limited to the landmass. Since the
Camago-Malampaya reservoir is not an island, it cannot possibly be covered by either
statute. More importantly, the reservoir is outside the geographical lines mentioned in said
laws.[109]
6.2. Absent an express grant by Congress, the Province of Palawan cannot validly claim that
the area between mainland Palawan and Kalayaan are automatically part of its territorial
jurisdiction.[110]
7. Section 1, Article X of the 1987 Constitution provides that the territorial and political
subdivisions of the Republic are the provinces, cities, municipalities and barangays. It,
however, does not require that every portion of the Philippine territory be made part of the
territory of an LOU. It was intended merely to institutionalize the LGUs. And even on the
supposition that the Constitution intended to apportion the Philippine territory to the LGUs,
legislation is still needed to implement said provision. However, no law has been enacted to
divide the Philippine territory, including its continental margin and exclusive . economic
zones, to all LGUs.[111]
8. Palawan's territorial boundaries do not embrace the continental shelf where the Camago-
Malampaya reservoir is located. Contrary to Dean Raul Pangalagan's view, the UNCLOS
cannot be considered to have vested the LGUs with their own continental shelf based on the
doctrine of transformation. The concept of continental shelf under the UNCLOS does not
automatically apply to a province.[112]
8.1. A treaty is an agreement between states and governs the legal relations between nations.
And even if the UNCLOS were to be deemed transformed as part of municipal law after its
ratification by the Batasang Pambansa in 1984 under Resolution No. 121, it did not
automatically amend the Local Government Code and the charters of the LGUs. No such
intent is manifest either in the UNCLOS nor Resolution No. 121. Instead, the UNCLOS, as
transformed into our municipal law, is to be applied verba legis.[113]
8.2. Under the express terms of the UNCLOS, the rights and duties over maritime zones and
the continental shelf pertain to the State, and no provision therein suggests any reference to
an LGU.[114]
8.3. In other sovereign states such as Canada and the U.S., the maritime zones were ruled to
be outside the LGUs' territorial jurisdiction. The Federal Paramountcy Doctrine was upheld
in four leading U.S. cases where the claims of various U.S. coastal states over the marginal
and coastal waters and the continental shelf were rejected.[115]
9. The State is not estopped by the alleged mistakes of its officials or agents.[116]
9.1. On June 10, 1988, the DoE requested the Province of Palawan for a seven-year deferment
of payment to enable the National Government to pay a portion of NPC's TOPQ obligations.
On February 17, 1998, President Ramos issued A.O. No. 381 which projected US$2.1 Billion
PUBLIC CORPORATION_cases for September 19, 2020 35
11.3. The metes and bounds under Section 3(1) of R.A. No. 7611, when plotted on the map,
excluded portions of mainland Palawan and several islands, municipalities or portions
thereof.[130]
11.4. The basis of the description of Palawan is unclear and there is no record that the
alteration in Palawan's boundaries complied with Section 10, Article X of the 1987
Constitution which requires that the alteration be in accordance with the criteria established
in the local government code and approved by a majority of the votes cast in a plebiscite in
the political unit(s) directly affected.[131]
11.5. Based on the Declaration of Policy in R.A. No. 7611, the object of the law is not to expand
the territory of Palawan but to make the province an agent of the National Government in
the protection of the environment. There is nothing in the title of the law or any of its
provisions indicating that there was a legislative intent to expand or alter the boundaries of
the province or to remove certain municipalities from its territory.[132]
11.6. If the description of Palawan under R.A. No. 7611 would be read as a new definition of
its territory, it would be unconstitutional because the title .of the law does not indicate that
boundaries would be expanded, in contravention of the Constitutional requirement that
every bill must embrace only one subject to be expressed in its title.[133]
11.7. Even if the term "territorial jurisdiction" were to be understood as including the grant
of limited extraterritorial jurisdiction, the Camago-Malampaya reservoir remains to be
beyond Palawan's jurisdiction under R.A. No. 7611. The said law did not expand the
province's police or administrative jurisdiction; it did not impose any additional function or
jurisdiction on the Province of Palawan. If anything, the SEP limited the province's
governmental authority since all LGUs in the area must align their projects and budgets with
the SEP. Furthermore, tasked to implement the SEP was not the province but the Palawan
Council for Sustainable Development (PCSD), a national agency created under the law,
composed of both national and local officials. The participation of local officials did not turn
PCSD into an arm of the Province of Palawan; their inclusion is to allow a holistic view of the
environmental issues and opportunities for coordination.[134]
12. A.O. No. 381 was not issued to redefine Palawan's territory; its title precisely states that
it was issued to provide for the fulfillment by the National Power Corporation of its
obligations under the December 30, 1997 Agreement for Sale and Purchase of Natural Gas
with SPEX/OXY and for the compliance of the National Government's performance
undertaking. Palawan was mentioned but not in the context of redefining its territory. Only
a statute can expand the territory or boundaries of an LGU. [135]
13. Sections 465 and 468 of the Local Government Code which respectively authorize the
Provincial Governor to adopt measures to safeguard marine resources of the province and
the Sangguniang Panlalawigan to impose penalties for destructive fishing, did not give the
provinces government authority over marine resources beyond the municipal waters.[136]
14. Palawan's Claim that it exercises jurisdiction over the Camago-Malampaya area is bereft
of credible proof. Absent a law which vests LGUs jurisdiction over areas outside their
territorial boundaries, its acts over the Camago-Malampaya area are ultra vires or at most an
exercise of extraterritorial jurisdiction.[137]
15. The proposition of the amici curiae that the principle of equity justifies granting Palawan
40% of the government's share in the Camago-Malampaya project, may set a dangerous
precedent. Furthermore, the principle of equity cannot be applied when there is a law
applicable to the case. Applicable to the instant case are Section 7, Article X of the 1987
PUBLIC CORPORATION_cases for September 19, 2020 37
Constitution and Section 290 of the Local Government Code based on which the Province of
Palawan is not entitled to share in the proceeds of the Camago-Malampaya project.[138]
15.1. The concerns of the amici curiae appear to rest on the possible damage to the
environment surrounding Palawan. However, this eventuality is covered by the Contractor's
obligations under the Environmental Compliance Certificate (ECC) which required SPEX to
ensure minimal impact on the environment and to provide for an Environmental Guarantee
Fund to cover expenses for environmental monitoring and to compensate for whatever
damage that may be caused by the project.[139]
16. The PIA and E.O. No. 683 do not constitute evidence of the Republic's admission that
Palawan is entitled to the proceeds of the Camago-Malampaya project. In civil cases, an offer
of compromise is not admissible in evidence against the offeror. Furthermore, the whereas
clauses of E.O. No. 683 clearly show that the President issued the E.O. based on a "broad
perspective of the requirements to develop Palawan as a major tourism destination" and
Section 25 of the Local Government Code which authorizes the President, on the LGU's
request, to provide financial assistance to the LGU. The E.O. also expressly states that the
amounts released shall be without prejudice to the final resolution of the legal dispute
between the National Government and the Province of Palmvan regarding the latter's
claimed share under the Service Contract No. 38.[140]
17. The National Government has no intention to deprive the Province of Palawan a share in
the proceeds of the Camago-Malampaya project ifwere so entitled.[141]
18. The RTC committed grave abuse of discretion when it issued Amended Order dated
January 16, 2006 because it granted affirmative relief in a special civil action for declaratory
relief.[142]
18.1. While courts have the inherent power to issue interlocutory orders as may be necessary
to carry its jurisdiction into effect, such authority should be exercised as necessary in light
of the jurisdiction conferred in the main action. In this case, the main action is one for
declaratory relief, which is a preventive and anticipatory remedy designed to declare the
parties' rights or to express the court's opinion on a question of law, without ordering
anything to be done.[143]
19. Arigo, et al. have no legal standing to question E.O. No. 683 either as citizens or as
taxpayers since they have not shown any actual or threatened injury or that the case involves
disbursement of public funds in contravention of law.[144]
20. G.R. No. 185941 is not ripe for judicial adjudication considering that there is still no final
determination as to whether the Province of Palawan is entitled to share in the proceeds of
the Camago-Malampaya project. Also, the interim undertaking of the parties under the PIA
is contingent on the final adjudication of G.R. No. 170867. Furthermore, the validity and
manner by which the funds were realigned under E.O. No. 683 could not be questioned since
they are considered as financial assistance subject to the discretion of the President pursuant
to the authority granted by Section 25(c) of the Local Government Code. [145]
Arigo, et al.
1. Their petition was not prematurely filed. While the interim undertaking between the
National Government and the Province of Palawan under the PIA was contingent on the final
adjudication of G.R. No. 170867, disbursements of public funds would ensue or were already
taking place in violation of the provisions of the Constitution and the Local Government Code
PUBLIC CORPORATION_cases for September 19, 2020 38
on the equitable sharing of national wealth between the National Government and the
LGUs.[146]
2. Neither Governor Reyes nor Representatives Alvarez and Mitra had the authority to sign
the PIA on behalf of the cities, municipalities and barangays of Palawan. In fact, the cities,
municipalities and barangays have a bigger share that the Provincial Government in the
allocation of the revenues from the Camago-Malampaya project. Under Section 292 of the
Local Government Code, the city or municipality gets 45% and the barangay gets 35%, or a
combined share of 80% as against the Province's share of only 20%. Governor Reyes and
Representatives Alvarez and Mitra could not sign the PIA as if they were the sole recipients
of the proceeds of the Camago-Malampaya project.[147]
3. The PIA reduces the share of Palawan's LGUs in two ways: first, by making "net proceeds"
the basis for sharing instead of "gross collection" as provided by Section 290 of the Local
Government Code; and second, by cutting down the LGUs' equitable share in such proceeds
by half, with the Province solely claiming such allocation.[148]
4. The equitable share of LGUs in the utilization and development of national wealth is not
subject to compromise.[149]
5. The PIA requires that any fund allocation is subject to the prior approval of the DoE and/or
the PNOC-EC and to actual collections deposited with the National Treasury, in
contravention of the Local Government Code, which requires that the proceeds of the
utilization of natural resources should be directly released to each LGU without need of
further action, and the Court's ruling in Pimentel, Jr. v. Hon. Aguirre[150] on the automatic·
release of the LGUs' shares in the National Internal Revenue.[151]
6. In providing that only those projects identified by the Office of the President, or the
Province of Palawan, or the Palawan Congressional Districts, or the Highly Urbanized City of
Puerto Princesa, may be funded, the PIA violates the intent of the Local Government Code to
grant autonomy to LGUs.[152]
7. The PIA allows the securitization of the shares of the LGUs and the National Government
in the utilization of the Camago-Malampaya Oil and Gas resources, but the National
Government cannot securitize what it does not own legally and neither can the Province of
Palawan securitize what it does not fully own.[153]
8. E.O. No. 683 is nothing more than a realignment of funds carried out in violation of the
Constitutional provision giving LGUs an equitable share in the proceeds of the utilization of
national wealth, for in usual budgeting procedures of Congress, such share should be
included in the appropriation for "Allocation to LGUs" which is classified as a mandatory
obligation of the National Government and automatically released to the LGUs. [154]
9. E.O. No. 683 is a usurpation of the power of the purse lodged in Congress under Section
29(1) and (3),[155] Article VI of the 1987 Constitution. Since the proceeds from the Camago-
Malampaya project is the production share of the government in a service contract, it cannot
be disbursed without an appropriation law.[156]
10. E.O. No. 683 fails to consider its implications on the country's claim to an Extended
PUBLIC CORPORATION_cases for September 19, 2020 39
Continental Shelf (ECS) under the UNCLOS III regime. The best way to claim an ECS is to
consider the Camago-Malampaya area and the Kalayaan tb be part of Palawan's continental
shelf. One basis for the Philippine claim to Kalayaan is that it constitutes a natural
prolongation of Palawan's land territory.[157]
11. The Republic's invocation of U.S. case law to dispute the LGUs' entitlement under Section
7, Article X of the 1987 Constitution is inappropriate and odd for a unitary state like the
Philippines. Said provision in the unitary Philippine state only means that the entitlement
exists only because of a constitutional grant and not because the LGUs have sovereignty and
jurisdiction in their respective areas distinct from the Republic's.[158]
12. The definition of "municipal waters" under applicable laws is irrelevant. The Camago-
Malampaya reservoir is located in the continental shelf which, under Article 76 of the
UNCLOS, pertains to the seabed and subsoil as the natural prolongation of the landmass.[159]
13. The constitutionality of E.O. No. 683 may be resolved without reference to the conflicting
territorial claims in G.R. No. 170867. In making reference to said case, they merely meant to
provide a historical backdrop to the issuance of E.O. No. 683. It is for this reason that they
attached only a copy of E.O. No. 683 to their petition. [160]
14. R.A. No. 7611 and A.O. No. 381 both recognize that the Camago-Malampaya area falls with
the continental shelf of Palawan. As regards the Republic's contention that R.A. No. 7611 is
illegal for having redrawn the boundaries of the Province of Palawan without a plebiscite,
the same ignores the fact that R.A. No. 7611 only incorporates the continental shelf regime
found in Article II of the 1987 Constitution. A plebiscite was unnecessary because the 1987
Constitution was overwhelmingly ratified.[161]
15. The CA erred in dismissing CA-G.R. SP No. 102247 in deference to executive and
legislative deliberations on the country's baselines as it is in violation of its constitutional
duty to interpret the constitutional provisions defining the national territory. Furthermore,
until revoked or amended, the country's existing law on baselines (R.A. No. 3046 as amended
by R.A. No. 5446) remains good law.[162]
16. The CA erred in dismissing their action for certiorari for failure to submit a copy of the
PIA considering that the terms of E.O. No. 683 embody all the provisions of the assailed PIA.
It was also unnecessary to submit a copy of the petition in G.R. No. 170867 as it was only
tangential to the resolution of the case. Furthermore, the alleged failure to submit said
documents has been mooted by the June 23, 2008 Resolution of the Court's Third Division
indicating that non-parties could not have access to the records of G.R. No. 170867. At any
rate, the records of said case are now a matter of judicial notice to this Court. [163]
1. Section 7 of the Local Government Code, on the creation and conversion of LGUs, does not
expressly provide that an LGU's territorial jurisdiction refers only to its land area.[164]
1.1. Land area is included as one of the requisites for the creation or conversion of an LGU
because evidently, no LGU can be created out of the maritime area alone.[165]
1.2. Another requisite - population - is determined as the total number of inhabitants within
the territorial jurisdiction of the LGU. The law thus aptly uses the phrase "territorial
PUBLIC CORPORATION_cases for September 19, 2020 40
jurisdiction" instead of territory or land area since there are communities that live in coastal
areas or low-water areas that form part of the sea. If a local government's territorial
jurisdiction is limited to its land area, then these communities will not belong to any LGU.[166]
2. Section 461 of the Local Government Code does not define the territorial jurisdiction of a
province. It merely specifies the requisites for the creation of a province. In fact, said
provision shows that territory and population are alternative requirements for the creation
of a new province, with income being the indispensable requirement. It does not necessarily
exclude the maritime area over which a province exercises control and authority, but merely
provides that to detennine whether an area is sufficient to constitute a province, only the
landmass or land territory shall be included.[167]
3. In Tan, which involves the creation of a province under the old Local Government Code,
the Court held that the word "territory" as used in said law "has reference only to the mass
of land area and excludes the waters over which the political unit exercises control." This
ruling affirms that an LGU exercises control over waters, making them part of the political
unit's territorial jurisdiction. Furthermore, Tan only defines the word "territory" as used in
Section 197 of the old Local Government Code. In convoluting the words "territory" and
"territorial jurisdiction," the Republic misapplied the doctrine laid out in Tan.[168]
4. Section 7, Article X of the 1987 Constitution provides that the LGU is "entitled to an
equitable share in the proceeds of the utilization and development of the national wealth
within their respective areas, in the manner provided by law x x x." The provision does not
state "within their respective land areas." The word "area" should accordingly be construed
in its ordinary meaning to mean a distinct part of the surface of something. It, therefore,
encompasses land, maritime area and the space above them.[169]
5. The delineation of the territorial jurisdiction by metes and bounds is required only for
landlocked LGUs.[170]
6. Limiting the LGU's territorial jurisdiction to its land area is inconsistent with the State's
policy of local autonomy as enshrined in Section 25, Article II of the 1987 Constitution and
amplified in Section 2 of the Local Government Code. Extending such jurisdiction to all areas
where the Province of Palawan has control or authority will give it more resources to
discharge its responsibilities, particularly in the enforcement of environmental laws in its
vast marine area.[171]
7. Numerous provisions of the Local Government Code indicate that an LGU's territorial
jurisdiction includes the maritime area. Section 138 speaks of public waters within the
territorial jurisdiction of the province. Section 465(3)(v) authorizes the Provincial Governor
to adopt adequate measures to safeguard and conserve the province's marine resources.
Section 468(1)(vi) empowers the Sangguniang Panlalawigan to protect the environment
and impose appropriate penalties for acts that endanger it, such as dynamite fishing. More
importantly, Section 3, which provides for the operative principles of decentralization and
local autonomy, states that the vesting of duties in the LGU shall be accompanied with
provision for reasonably adequate resources to effectively carry them out. When the same
provision speaks of ecological balance which the LGUs shall manage with the National
Government, it encompasses the maritime area.[172]
7.1. The environmental impact that the Camago-Malampaya project may have on the people
of Palawan requires that the Province of Palawan must equitably share in its proceeds so it
PUBLIC CORPORATION_cases for September 19, 2020 41
can have adequate resources to ensure that the extraction of natural gas will not have a
deleterious effect on its environment.[173]
8. The Provincial Government of Palawan exercises administrative, environmental and
police jurisdiction over public waters within its territorial jurisdiction, including the
Camago-Malampaya reservoir. Local police, under the supervision of local executives,
maintain peace and order over the said area. Crimes committed therein are filed and tried in
Palawan courts. The provincial government also enforces local and national environmental
laws over this area. In fact, SPEX consistently recognized Palawan as the location of the
project, having obtained the necessary endorsement from the Sangguniang Panlalawigan of
Palawan before starting its operations, in accordance with Sections 26 and 27 of the Local
Government Code. Furthermore, the plant, equipment and platform of SPEX, situated
offshore, were declared for tax purposes with the Province of Palawan. [174]
10. Under Section S(a) of the Local Government Code, any question on a particular provision
of law on the power of an LGU shall be liberally construed, and any doubt shall be resolved,
in favor of the LGU.[176]
11. Neither the Local Government Code nor the Philippine Fisheries Code provides that
beyond the land area, the LGU's territorial jurisdiction can extend only up to the 15-km
stretch of municipal waters.[177]
11.1. The definition of "municipal waters" in Section 131(r) of the Local Government Code
shall be used only for purposes of local government taxation inasmuch as it is found under
Title I of Book II on Local Taxation and Fiscal Matters. Section 131(r) also indicates that the
definition applies when the term "municipal waters" is used in Title I which refers to Local
Government Taxation. If anything, the definition bolsters the argument that the LGU's
territorial jurisdiction extends to the maritime area.[178]
11.2. The Philippine Fisheries Code did not limit or define the territorial jurisdiction of an
LGU. The definition of "municipal waters" under both this law and the Local Government
Code was intended merely to qualify the degree of governmental powers to be exercised by
the coastal municipality or city over said waters.[179]
11.3. Palawan is composed of 1,786 islands and islets. Twelve (12) out of its twenty-three
(23) municipalities are island municipalities. Between them are expansive maritime areas
that exceed the 15-km municipal water-limit. It will, thus, be inevitable for the province to
exercise governmental powers over these areas. If Palawan will be authorized to enforce
laws only up to the municipal water-limit, it will be tantamount to a duplication of functions
already being performed by the component municipalities. It will also render the province
inutile in enforcing laws in maritime areas between these municipalities. It was not the
intention of the lawmakers, in enacting the Local Government Code, to create a vacuum in
the enforcement of laws in these areas or to disintegrate LGUs.[180]
12. Laws other than the Local Government Code recognize that the Province of Palawan has
territorial jurisdiction over the maritime area beyond the municipal waters.[181]
12.1. R.A. No. 7611 defines Palawan as comprising islands and islets and the surrounding
sea, which includes the entire coastline up to the open sea.[182]
12.1.1. Based on the coordinates of Palawan provided in Section 3(1) of R.A.· No. 7611, the
Camago-Malampaya reservoir is within the territorial jurisdiction of the province.[183]
PUBLIC CORPORATION_cases for September 19, 2020 42
12.1.2. R.A. No. 7611 did not alter the territorial jurisdiction of Palawan, as provided in
Section 37 of its charter, Act No. 2711. R.A. No. 7611 merely recognized the fact that the
islands comprising Palawan are bounded by waters that form part of its territorial
jurisdiction. Palawan's area as described in said law could be called the province's
"environmental jurisdiction."[184]
12.1.3. Pursuant to R.A. No. 7611, the Palawan Council for Sustainable Development (PCSD)
shall establish a graded system of protection and development control over the whole of
Palawan, including mangroves, coral reefs, seagrass beds and the surrounding sea.[185]
12.1.4. R.A. No. 7611 encompasses the entire ecological system of Palawan, including the
coastal and marine areas which it considers a main component of the Environmentally
Critical Areas Network.[186]
12.1.5. Local government officials of Palawan have representations in PCSD, the agency
tasked to enforce the integrated plan under R.A. No. 7611. Since the enforcement of
environmental laws is a joint obligation of the national and local governments, with local
communities being the real stakeholders, LGUs should benefit from the proceeds of the
natural wealth found in their territorial jurisdictions.[187]
12.1.6. The Republic's attempt to remove the Camago-Malampaya area from the Province of
Palawan is contrary to the declared state policy of adopting an integrated ecological system
for Palawan under R.A. No. 7611.[188]
12.2. A.O. No. 381 explicitly declared that the Camago-Malampaya reservoir is located
offshore northwest of Pal awan and that the Province of Palawan was expected to receive
about US$2.1 Billion from the total govetnment share of US$8.1 Billion out of the proceeds
from the Camago-Malampaya project.[189]
12.3. P.D. No. 1596 declared Kalayaan as a distinct and separate municipality of the Province
of Palawan. In delineating Kalayaan's boundaries, P.D. No. 1596 included the seabed, subsoil,
continental margin and airspace.[190]
12.3.1. P.D. No. 1596 states that the Republic's claim to Kalayaan is foremost based on the
fact that said group of islands is part of the Philippine archipelago's continental margin
which includes the continental shelf. The continental shelf is the submerged natural
prolongation of the land territory and is an integral part of the landmass it is contiguous with.
Oil and gas are found not in the waters off Palawan but in the continental shelf which is
contiguous to and a prolongation of the landmass of Palawan.[191]
13. The Province of Palawan cannot be said to be holding a mere usufruct over the municipal
waters based on the 1950 case of Municipality of Paoay. Said case is not applicable as it was
decided when there was a concentration of powers and resources in the national
government, unlike the decentralized system espoused in the Local Government Code. [192]
14. The federal paramountcy doctrine is a constitutional law doctrine followed in federal
states, particularly in the U.S. and Canada. The application of this doctrine to the Philippine
setting is legally inconceivable because the Philippines has not adopted a federal form of
government. Furthermore, most of the states in the U.S. were previously independent states
who were obliged to surrender their sovereign functions over their maritime area or
marginal belt to the federal government when they joined the federal union. Contrarily, the
Philippines had a unitary system of government until it adopted the ideas of decentralization
and local autonomy as fundamental state principles. Instead of different states surrendering
their imperium and dominium over the maritime area to a federal government, the
Philippine setting works in the opposite as the National Government, which is presumed to
own all resources within the Philippine territory, is mandated to share the proceeds of the
national wealth with the LGUs.[193]
PUBLIC CORPORATION_cases for September 19, 2020 43
15. The Republic is divided into political and territorial subdivisions. Thus, for a territory to
be part of the Republic, it must belong to a political and territorial subdivision. These
subdivisions are the provinces, cities, municipalities and barangays, and they are
indispensable partners of the National Government in the proper and efficient exercise of
governmental powers and functions. The Camago-Malampaya reservoir, which is part of the
Philippines, must necessarily belong to a political and territorial subdivision. That
subdivision is the Province of Palawan which has long been exercising governmental powers
and functions over the area.[194]
15.1. Since the Camago-Malampaya reservoir is nearest to the Province of Palawan than any
other LGU, it is imperative that the province becomes the National Government's co-
protector and co administrator in said maritime area.[195]
15.2. Under Section 25(b) of the Local Government Code, national agencies are to coordinate
with LGUs in planning and implementing national projects, while under Section 3(i) of the
same law, LGUs shall share with the National Government the responsibility of maintaining
ecological balance within their territorial jurisdiction. Thus, governmental powers are not
solely exercised by the National Government but are shared with LGUs. However, they
cannot be effective partners of the National Government without sufficient resources. For
this reason, the 1987 Constitution grants them an equitable share in the proceeds of the
utilization of national wealth.[196]
15.3. Numerous cases of illegal fishing, poaching and illegal entry have been committed
within the waters surrounding Palawan, particularly westward of mainland Palawan and
bound by the South China Sea, along the same area where the Camago-Malampaya project is
located. These cases were prosecuted and tried before the courts of Palawan. In Hon. Roldan,
Jr. v. Judge Arca,[197] an illegal fishing case, the jurisdiction of the Court of First Instance of
Palawan was upheld given that the vessels seized were engaged in prohibited fishing within
the territorial waters of Palawan, in obedience to the rule that the place where a criminal
offense was committed not only determines the venue of the case but is also an essential
element of jurisdiction.[198]
15.4. Sections 26 and 27 of the Local Government Code require mandatory consultation with
the LGUs concerned and the approval of their respective Sanggunian before the National
Government may commence any project that will have an environmental impact. The
National Government and SPEX recognized Palawan's jurisdiction over the Camago-
Malampaya area when it requested the indorsement of the Sangguniang Panlalawigan of
Palawan before commencing the Camago-Malampaya project, and when SPEX obtained an
ECC in compliance with the requirement of PCSD, an agency created by R.A. No. 7611.[199]
15.5. In the implementation of tariff and customs laws, the Province of Palawan is being
referred to by the Bureau of Customs as the place of origin of the barrels of condensate
(crude oil) being exported to Singapore from the Camago-Malampaya area. Export
Declarations for said condensate, as issued by the Department of Trade and Industry, also
showed Palawan as the place of origin.[200]
15.6. In Tano v. Socrates,[201] the Court upheld the ordinances, passed by the Sangguniang
Panlalawigan of Palawan and the Sangguniang Panlungsod of the City of Puerto Princesa,
which banned the transport of live fish to protect their seawater and corals from the effects
of destructive fishing, in recognition of the LGUs' power and duty to protect the right of the
people to a balanced ecology. The destructive way of catching live fish had been conducted
not just within the 15-k.m municipal waters of Palawan but also beyond said waters.[202]
16. Palawan's claim is not inconsistent with, but upholds, the archipelagic and regalian
doctrines enshrined in the 1987 Constitution.[203]
PUBLIC CORPORATION_cases for September 19, 2020 44
16.1. The Province of Palawan agrees that all waters within the Philippine archipelago are
owned by the Republic. The issue in this case, however, is not the ownership of the Camago-
Malampaya reservoir. The Province of Palawan is not claiming dominion over said area. It
merely contends that since the reservoir is located in an area over which it exercises control
and shares in the National Government's management responsibility, it is only just and
equitable that the Province of Palawan should share in the proceeds generated from its
utilization. Furthermore, the law does not require that the LGUs should own the area where
the national wealth is located before they can share in the proceeds of its use and
development; it merely requires that the national wealth be "found within their respective
areas." It is, thus, error for the Republic to assert that the Camago-Malampaya area is not
part of Palawan's territorial jurisdiction because it belongs to the State. Otherwise, no LGU
will share in the proceeds derived from the utilization and development of national wealth
because the State owns it under the regalian doctrine.[204]
17. International law has no application in this case. While the UNCLOS establishes various
maritime regimes of archipelagos like the Philippines, nothing therein purports to govern
internal matters such as the sharing of national wealth between its national government and
political subdivisions.[205]
18. The State has long recognized the fact that the Camago-Malampaya area is part of
Palawan.[206]
18.1. Palawan was allotted P38,110,586.00 as its share in the national wealth based on actual
1992 collections from petroleum operations in the West Linapacan oil fields, situated
offshore, about the same. distance from mainland Palawan as the Camago-Malampaya
reservoir. Furthermore, from 1993 to 1998, DBM consistently released to Palawan its 40%
share from the West Linapacan oil production. Because these are lawful executive acts, the
Republic may not invoke the rule that it cannot be placed in estoppel by the mistakes of its
agents.[207]
18.2. Jurisprudence holds that estoppels against the public, which are little favored, must be
applied with circumspection and only in special cases where the interests of justice clearly
require it. To deprive Palawan of its constitutional right to a just share in the national wealth
will indisputably work injustice to its people and generations to come. As it is, developmental
projects have been adversely stunted as a result of the National Government's withdrawal of
its commitment to give Palawan its 40% share.[208]
18.3. It has been held that the contemporaneous construction of a statute· by the executive
officers of the government is entitled to great respect and unless shown to be clearly
erroneous, should ordinarily control the construction of the statute by the courts.[209]
19. Ordinance No. 474 (series of 2000), which the Sangguniang Panlalawigan of Palawan
enacted to delineate the territorial jurisdiction of the Province of Palawan, including therein
the Camago-Malampaya area, is valid. Laws, including ordinances, enjoy the presumption of
constitutionality. Moreover, there is no flaw in the Ordinance since it does not contravene
Section 10, Article X of the Constitution or Sections 6 and 10 of the Local Government Code.
It is likewise settled that a statute or ordinance cannot be impugned collaterally. [210]
20. Since the RTC has deferred its ruling on the propriety of the Amended Order dated
January 16, 2006 to this Court, the Province of Palawan asks that said Order be sustained
because:
20.1. Under Section 6, Rule 135 of the Rules of Court, when by law jurisdiction is conferred
on a court, all auxiliary writs and processes necessary to carry it into effect may be employed
PUBLIC CORPORATION_cases for September 19, 2020 45
by such court. The Amended Order merely sought to protect the subject of the litigation and
to ensure that the RTC's decision may be carried into effect when it attains finality.[211]
20.2. The Amended Order encompasses issues that were raised and passed upon by the RTC,
particularly, the issue of whether the Province of Palawan is entitled to receive 40% of the
government's share in the proceeds of the Camago-Malampaya project.[212]
20.3. In a catena of decisions, the Court has allowed affirmative and even injunctive reliefs in
cases for declaratory relief.[213]
21. The Provincial Governor's signing of the PIA was valid.[214]
21.1. Under Article 85(b)(1)(vi), Rule XV of the Implementing Rules and Regulations of the
Local Government Code, the Provincial Governor is authorized to represent the province in
all its business transactions and to sign all contracts on its behalf upon the authority of
the Sangguniang Panlalawigan or pursuant to law or ordinance. The Provincial Governor of
Palawan signed the PIA with the authority of the Sangguniang Panlalawigan, representing
all of its component municipalities and its capital city of Puerto Princesa. Palawan's two
congressmen also signed the PIA to warrant that they were the duly elected representatives
of the province and to comply with the requirement under the General Appropriations Act
that implementation of the projects must be in coordination with them.[215]
21.2. The Province of Palawan is the only LGU which has territorial jurisdiction over the
Camago-Malampaya area under R.A. No. 7611.[216]
21.3. It may have been the Provincial Governor that signed the PIA, but the proposed projects
thereunder would be implemented province-wide, to include all component municipalities
and barangays as well as Puerto Princesa. This is more advantageous to the 23 municipalities
of Palawan compared to Arigo, et al.'s stand that "the sharing should be one municipality
(45%) and one barangay (35%) or a total of 80%, with the balance of 20% for the rest of
Palawan's 22 municipalities including Puerto Princesa City."[217]
22. E.O. No. 683, which uses "net proceeds" of Camago-Malampaya project as the basis of
sharing, does not violate Section 290 of the Local Government Code where the share of the
LGU is based on gross collection.[218]
22.1. The allocation of funds under E.O. No. 683 is not, strictly speaking, the sharing of
proceeds of national wealth development under Section 290 of the Local Government Code
considering that Palawan's claimed 40% share is still under litigation.[219]
22.2. In any case, "gross collection" under Section 290 of the Local Government Code cannot
refer to gross proceeds because under Service Contract No. 38 and A.O. No. 381, the
production sharing scheme involves deduction of exploration, development and production
costs from the gross proceeds of the gas sales. Since the net proceeds referred to in E.O. No.
683 is the same amount as the government's gross collection from the Camago-Malampaya
project, the Local Government Code was not violated.[220]
23. The Pimentel ruling cannot be applied to the release of funds under E.O. No. 683. It does
not refer to the LGU's claimed 40% share; it is in the form of financial assistance pursuant to
Section 25(c) of the Local Government Code which authorizes the President to direct the
appropriate national agency to provide financial and other forms of assistance to the LGU.
The funds were appropriated in the General Appropriations Act of 2007 and 2008 for the
DoE and not under the items for allocations from national wealth to LGUs. [221]
24. CA-G.R. SP No. 102247 was correctly dismissed by the CA. Failure to submit essential and
necessary documents is a sufficient ground to dismiss a petition under Rule 46 of the Rules
of Court. Arigo, et al. prematurely filed its petition before the CA as it was anchored on the
same basic issues to be resolved in G.R. No. 170867. Furthermore, Arigo, et al. had no legal
standing either as real parties-in interest, as they failed to establish that they would be
PUBLIC CORPORATION_cases for September 19, 2020 46
benefitted or injured by the judgment in the suit, or as taxpayers, as they failed to show that
the E.O. No. 638 and PIA involved an illegal disbursement of public funds.[222]
Under Section 25, Article II of the 1987 Constitution, "(t)he State shall ensure the autonomy
of local governments." In furtherance of this State policy, the 1987 Constitution conferred on
LGUs the power to create its own sources of revenue and the right to share not only in the
national taxes, but also in the proceeds of the utilization of national wealth in their respective
areas. Thus, Sections 5, 6, and 7 of Article X of the 1987 Constitution provides:
Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy 'taxes, fees, and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.
Section 6. Local government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them.
Just to cite specific examples, in the case of timberland within the area of jurisdiction of the
Province of Quirino or the Province of Aurora, we feel that the local governments ought to
share in whatever revenues are generated from this particular natural resource which is also
considered a national resource in a proportion to be determined by Congress. This may mean
sharing not with the local government but with the local population. The geothermal plant
in the Machan, Makiling-Banahaw area in Laguna, the Tiwi Geothermal Plant in Albay, there
is a sense in which the people in these areas, hosting the physical facility based on the
resources found under the ground in their area which are considered national wealth, should
participate in terms of reasonable rebates on the cost of power that they pay. This is true of
the Maria Cristina area in Central Mindanao, for example. May I point out that in the previous
government, this has always been a very nettlesome subject of the Cabinet debates. Are the
people in the locality, where God chose to locate His bounty, not entitled to some
reasonable modest sharing of this with the national government? Why should the
national government claim all the revenues arising from them? And the usual reply of
the technocrats at that time is that there must be uniform treatment of all citizens regardless
of where God's gifts are located, whether below the ground or above the ground. This, of
course, has led to popular disenchantment. In Albay, for example, the government then
promised a 20-percent rebate in power because of the contributions of the Tiwi Plant to the
Luzon grid. Although this was ordered, I remember that the Ministry of Finance, together
with the National Power Corporation, refused to implement it. There is a bigger economic
PUBLIC CORPORATION_cases for September 19, 2020 47
principle behind this, the principle of equity. If God chose to locate the great rivers and
sources of hydroelectric power in Iligan, in Central Mindanao, for example, or in the
Cordillera, why should the national government impose fuel adjustment taxes in
order to cancel out the comparative advantage given to the people in these localities
through these resources? So, it is in that sense that under Section 8, the local populations,
if not the local governments, should have a share of whatever national proceeds may be
realized from this natural wealth of the nation located within their jurisdictions.
x x x x
MR. NATIVIDAD. The history of local governments shows that the usual weaknesses of local
governments are: 1) fiscal inability to support itself; 2) lack of sufficient authority to carry
out its duties; and 3) lack of authority to appoint key officials.
Under this Article, are these traditional weaknesses of local governments addressed to [sic]?
MR. NOLLEDO. Yes. The first question is on fiscal inability to support itself. It will be noticed
that we widened the taxing powers if local governments. I explained that exhaustively
yesterday unless the Gentleman wants me to explain again.
MR. NOLLEDO. There is a right of retention of local taxes by local governments and according
to the Natividad, Ople, Maambong, de los Reyes amendment, local government units shall
share in the proceeds of the exploitation of the national wealth within the area or
region, etc. x x x
x x x x
MR. OPLE. x x x
But the sharing, Madam President, can also take the form of direct benefits to the population
in terms of price advantages to the people where, say, cheaper electric power is sourced from
PUBLIC CORPORATION_cases for September 19, 2020 48
a local hydroelectric or geothermal facility. For example, in the provinces reached by the
power from the Maria Cristina hydro-electric facility in Mindanao, the direct benefits to the
population cited in this section can take the form of lower prices of electricity. The same
benefit can be extended to the people of Albay, for example, where volcanic steam in Tiwi
provides 55 megawatts of cheap power to the Luzon grid.
The existing policy of slapping uniform fuel adjustment taxes to equalize rates throughout
the country in the name of price standardization will have to yield to a more rational
pricing policy that recognizes the entitlement of local communities to the enjoyment
of their own comparative advantage based on resources that God has given them. And
so, Madam President, I ask that the Committee consider this proposed
amendment.[223] (Emphasis ours)
The Local Government Code gave flesh to Section 7, providing that:
Section 18. Power to Generate and Apply Resources. - Local government units shall have the
power and authority to establish an organization that shall be responsible for the efficient
and effective implementation of their development plans, program objectives and priorities;
to create their own sources of revenues and to levy taxes, fees, and charges which shall
accrue exclusively for their use and disposition and which shall be retained by them; to have
a just share in national taxes which shall be automatically and directly released to them
without need of any further action; to have an equitable share in the proceeds from the
utilization and development of the national wealth and resources within their
respective territorial jurisdictions including sharing the same with the inhabitants by
way of direct benefits; to acquire, develop, lease, encumber, alienate, or otherwise dispose
of real or personal property held by them in their proprietary capacity and to apply their
resources and assets for productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and functions and thereby ensure
their development into self-reliant communities and active participants in the attainment of
national goals.
Section 289. Share in the Proceeds from the Development and. Utilization of the National
Wealth. - Local government units shall have an equitable share in the proceeds derived
from the utilization and development of the national wealth within their respective
areas, including sharing the same with the inhabitants by way of direct benefits.
Section 290. Amount of Share of Local Government Units. - Local government units shall, in
addition to the internal revenue allotment, have a share of forty percent (40%) of the gross
collection derived by the national government from the preceding fiscal year from
mining taxes, royalties, forestry and fishery charges, and such other taxes, fees, or charges,
including related surcharges, interests, or fines, and from its share in any co-production,
joint venture or production sharing agreement in the utilization and development of
the national wealth within their territorial jurisdiction.
Section 291. Share of the Local Governments from any Government Agency or Owned or
Controlled Corporation. - Local government units shall have a share based on the preceding
fiscal year from the proceeds derived by any government agency or government owned
or controlled corporation engaged in the utilization and development of the national
wealth based on the following formula whichever will produce a higher share for the local
government unit:
PUBLIC CORPORATION_cases for September 19, 2020 49
(a) One percent (1%) of the gross sales or receipts of the preceding calendar year; or
(b) Forty percent (40%) of the mining taxes, royalties, forestry and fishery charges and such
other taxes, fees or charges, including related surcharges, interests, or fines the government
agency or government owned or controlled corporation would have paid if it were not
otherwise exempt. (Emphasis ours)
Underlying these and other fiscal prerogatives granted to the LGUs under the Local
Government Code is an enhanced policy of local autonomy that entails not only a sharing of
powers, but also of resources, between the National Government and the LGUs. Thus, during
the Senate deliberations on the proposed local government code, it was emphasized:
Senator Gonzales. The old concept of local autonomy, Mr. President, is, we grant more
powers, more functions, more duties, more prerogatives, more responsibilities to local
government units. But actually that is not autonomy. Because autonomy, without giving
them the resources or the means in order that they can effectively carry out their enlarged
duties and responsibilities, will be a sham autonomy. I understand that the Gentleman's
concept of autonomy is really centered in not merely granting them more powers and more
responsibilities, but also more means; meaning, funding, more powers to raise funds in order
that they can put into effect whatever policies, decisions and programs that the local
government may approve. Is my understanding correct, Mr. President?
Senator Pimentel. The distinguished Gentleman is correct, Mr. President, Book II of the
draft bill under consideration deals with fiscal matters.[224]
This push for both administrative and fiscal autonomy was reaffirmed during the
deliberations of the Bicameral Conference Committee on the proposed Local Government
Code and the eventual signing of the Bicameral Conference Committee Report. On these
occasions, Senator Aquilino Q. Pimentel, Jr., as Committee Chairman for the Senate panel,
declared:
CHAIRMAN PIMENTEL: Mr. Chairman, in response to your opening statement, let me say in
behalf of the Senate panel that we believe the local government code is long overdue. It is
time that we really empower our people in the countryside. And to do this, the local
government code version of the Senate is based upon two premises. No. 1, we have to share
power between the national government and local government. And No. 2, we have to share
resources between the national government and local government. It is the only way by
which we believe countryside development will become a reality in our nation. We can all
speak out and spew rhetoric about countryside development, but unl ss and until local
governments are empowered and given financial wherewithal to transform the countryside
by the delivery of basic services, then we can never attain such a dream of ensuring that we
share the development of this nation to the countryside where most of our people reside. x
x x[225]
x x x x
CHAIRMAN PIMENTEL. x x x
Yes, we'd like to announce that finally, after three years of deliberation and hundreds of
meeting not only by the Technical Committee, but by the Bicameral Conference Committee
itself, we have finally come up with the final version of the Local· Government Code for 1991.
x x x And if there's any one thing that the Local Government Code will do for our country, it
PUBLIC CORPORATION_cases for September 19, 2020 50
is to provide the mechanism for the development of the countryside without additional cost
to the government because here, what we are actually doing is merely to reallocate the funds
of the national government giving a substantial portion of those funds to the Local
Government Units so that they, in turn, can begin the process of development in their own
respective territories.
And to my mind, this would be a signal achievement of the Senate and the House of
Representatives. And that finally, we are placing in the hands of the local government
officials their wherewithals [sic] and the tools necessary for the development of the people
in the countryside and of our Local Government Units in particular.
x x x x[226]
None of the parties in the instant cases dispute the LGU's entitlement to an equitable share
in the proceeds of the utilization and development of national wealth within their respective
areas. The question principally raised here is whether the national wealth, in this case the
Camago-Malampaya reservoir, is within the Province of Palawan's "area" for it to be entitled
to 40% of the government's share under Service Contract No. 38. The issue, therefore, hinges
on what comprises the province's "area" which the Local Government Code has equated as
its "territorial jurisdiction." While the Republic asserts that the term pertains to the LGU's
territorial boundaries, the Province of Palawan construes it as wherever the LGU exercises
jurisdiction.
The Local Government Code does not define the term "territorial jurisdiction." Provisions
therein, however, indicate that territorial jurisdiction refers to the LGU's territorial
boundaries.
In the creation of municipalities, cities and barangays, the Local Government Code uniformly
requires that the territorial jurisdiction of these government units be "properly identified by
metes and bounds," thus:
Section 386. Requisites for Creation. -
x x x x
(b) The territorial jurisdiction of the new barangay shall be properly identified by
metes and bounds or by more or less permanent natural boundaries. The territory need not
be contiguous if it comprises two (2) or more islands.
x x x x
x x x x
PUBLIC CORPORATION_cases for September 19, 2020 51
x x x x
x x x x
x x x x (Emphasis ours)
The intention, therefore, is to consider an LGU's territorial jurisdiction as pertaining to a
physical location or area as identified by its boundaries. This is also clear from other
provisions of the Local Government Code, particularly Sections 292 and 294, on the
allocation of LGUs' shares from the utilization of national wealth, which speak of
the location of the natural resources:
Section 292. Allocation of Shares. - The share in the preceding
Provided, however, That where the natural resources are located in two (2) or more
provinces, or in two (2) or more component cities or municipalities or in two (2) or more
barangays, their respective shares shall be computed on the basis of:
(b) Where the natural resources are located in a highly urbanized or independent
component city:
Provided, however, That where the natural resources are located in such two (2) or more
cities, the allocation of shares shall be based on the formula on population and land area as
specified in paragraph (a) of this Section.
PUBLIC CORPORATION_cases for September 19, 2020 52
Section 294. Development and Livelihood Projects. - The proceeds from the share of local
government units pursuant to this chapter shall be appropriated by their
respective sanggunian to finance local government and livelihood projects: Provided,
however, That at least eighty percent (80%) of the proceeds derived from the development
and utilization of hydrothermal, geothermal, and other sources of energy shall be applied
solely to lower the cost of electricity in the local government unit where such a source of
energy is located. (Emphasis ours)
That "territorial jurisdiction" refers to the LGU's territorial boundaries is a construction
reflective of the discussion of the framers of the 1987 Constitution who referred to the local
government as the "locality" that is "hosting" the national resources and a "place where God
chose to locate His bounty."[230] It is also consistent with the language ultimately used by the
Constitutional Commission when they referred to the national wealth as those found within
(the LGU's) respective areas. By definition, "area" refers to a particular extent of space or
surface or a geographic region.[231]
Such construction is in conformity with the pronouncement in Sen. Alvarez v. Hon. Guingona,
Jr.[232] where the Court, in explaining the need for adequate resources for LGUs to undertake
the responsibilities ensuing from decentralization, made the following disquisition in which
"territorial jurisdiction" was equated with territorial boundaries:
The practical side to development through a decentralized local government system
certainly concerns the matter of financial resources. With its broadened powers and
increased responsibilities, a local government unit must now operate on a much wider scale.
More extensive operations, in turn, entail more expenses. Understandably, the vesting of
duty, responsibility and accountability in every local government unit is accompanied with
a provision for reasonably adequate resources to discharge its powers and effectively carry
out its functions. Availment of such resources is effectuated through the vesting in every local
government unit of (1) the right to create and broaden its own source of revenue; (2) the
right to be allocated a just share in national taxes, such share being in the form of internal
revenue allotments (IRAs); and (3) the right to be given its equitable share in the proceeds
of the utilization and development of the national wealth, if any, within its territorial
boundaries.[233] (Emphasis ours)
An LGU has been defined as a political subdivision of the State which is constituted by law
and possessed of substantial control over its own affairs.[234] LGUs, therefore, are creations
of law. In this regard, Sections 6 and 7 of the Local Government Code provide:
Section 6. Authority to Create Local Government Units. - A local government unit may
be created, divided, merged, abolished, or its boundaries substantially altered either by law
enacted by Congress in the case of a province, city, municipality, or any other political
subdivision, or by ordinance passed by the sangguniang panlalawigan or sangguniang
panlungsod concerned in the case of a barangay located within its territorial jurisdiction,
subject to such limitations and requirements prescribed in this Code.
Section 7. Creation and Conversion. - As a general rule, the creation of a local government
unit or its conversion from one level to another level shall be based on verifiable indicators
of viability and projected capacity to provide services, to wit:
(a) Income. - It must be sufficient, based on acceptable standards, to provide for all essential
government facilities and services and special functions commensurate with the size of its
population, as expected of the local government unit concerned;
PUBLIC CORPORATION_cases for September 19, 2020 53
(b) Population. - It shall be determined as the total number of inhabitants within the
territorial jurisdiction of the local government unit concerned; and
(c) Land Area. - It must be contiguous, unless it comprises two or more islands or is separated
by a local government unit independent of the others; properly identified by metes and
bounds with technical descriptions; and sufficient to provide for such basic services and
facilities to meet the requirements of its populace.
Compliance with the foregoing indicators shall be attested to by the Department of Finance
(DOF), the National Statistics Office (NSO), and the Lands Management Bureau (LMB) of the
Department of Environment and Natural Resources (DENR). (Emphasis ours)
In enacting charters of LGUs, Congress .is called upon to properly identify their territorial
jurisdiction by metes and bounds. Mariano, Jr. v. COMELEC[235] stressed the need to
demarcate the territorial boundaries of LGUs with certitude because they define the limits
of the local governments' territorial jurisdiction. Reiterating this dictum, the Court,
in Municipality of Pateros v. Court of Appeals, et al.,[236] held:
[W]e reiterate what we already said about the importance and sanctity of the territorial
jurisdiction of an LGU:
The importance of drawing with precise strokes the territorial boundaries of a local
unit of government cannot be overemphasized. The boundaries must be clear for they
define the limits of the territorial jurisdiction of a local government unit. It can
legitimately exercise powers of government only within the limits of its territorial
jurisdiction. Beyond these limits, its acts are ultra vires. Needless to state, any
uncertainty in the boundaries of local government units will sow costly conflicts in the
exercise of governmental powers which ultimately will prejudice the people's welfare. This
is the evil sought to be avoided by the Local Government Unit in requiring that the land area
of a local government unit must be spelled out in metes and bounds, with technical
descriptions.[237] (Emphasis ours)
Clearly, therefore, a local government's territorial jurisdiction cannot extend beyond the
boundaries set by its organic law.
Area as delimited by law and not exercise of jurisdiction as basis of the LGU's equitable
share
The Court cannot subscribe to the argument posited by the Province of Palawan that the
national wealth, the proceeds from which the State is mandated to share with the LGUs, shall
be wherever the local government exercises any degree of jurisdiction.
An LGU's territorial jurisdiction is not necessarily co-extensive with its exercise or assertion
of powers. To hold otherwise may result in condoning acts that are clearly ultra vires. It may
lead to, in the words of the Republic, LGUs "rush[ing] to exercise its powers and functions in
areas rich in natural resources (even if outside its boundaries) with the intention of seeking
a share in the proceeds of its exploration"[238] - a situation that "would sow conflict not only
among the local government units and the national government but worse, between and
among local government units."[239]
There is likewise merit in the Republic's assertion that Palawan's interpretation of what
PUBLIC CORPORATION_cases for September 19, 2020 54
The Court finds it appropriate to also cite Section 150 of the Local Government Code which
speaks of the situs of local business taxes under Section 143 of the same law. Section 150
provides:
Section 150. Situs of the Tax. -
x x x x
(b) The following sales allocation shall apply to manufacturers, assemblers, contractors,
producers, and exporters with factories, project offices, plants, and plantations in the pursuit
of their business:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the
city or municipality where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable
by the city or municipality where the factory, project office, plant, or plantation is
located.
(c) In case of a plantation located at a place other than the place where the factory is
located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2)
above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality where the factory is located; and
(2) Forty percent (40%) to the city or municipality where the plantation is located.
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2)
or more factories, project offices, plants, or plantations located in different localities, the
seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2)
above shall be prorated among the localities where the factories, project offices, plants,
and plantations are located in proportion to their respective volumes of
production during the period for which the tax is due.
(e) The foregoing sales allocation shall be applied irrespective of whether or not sales
are made in the locality where the factory, project office, plant, or plantation is
located. (Emphasis ours)
The foregoing provision illustrates the untenability of the Province of Palawan's
interpretation of "territorial jurisdiction" based on exercise of jurisdiction. To sustain the
province's construction would mean that the territorial jurisdiction of the municipality or
city where the factory, plant, project office or plantation is situated, extends to the LGU where
the principal office is located because said municipality or city can exercise the authority to
tax the sale transactions made or recorded in the principal office. This could not have been
the intent of the framers of the Local Government Code.
The Provincial Government of Palawan argues that its territorial jurisdiction extends to the
PUBLIC CORPORATION_cases for September 19, 2020 55
Camago-Malampaya reservoir considering that its local police maintains peace and order in
the area; crimes committed within the waters surrounding the province have been
prosecuted and tried in the courts of Palawan; and the provincial government enforces
environmental laws over the same area.[242] The province also cites Section 468 of the Local
Government Code, which authorizes the Sanggunian Panlalawigan to enact ordinances that
protect the environment, as well as Sections 26 and 27 of the law, which require consultation
with the LGUs concerned and the approval of their respective sanggunian before the
National Government may commence any project that will have an environmental
impact.[243] The province avers that the Contractor, in fact, obtained the necessary
endorsement from the Sangguniang Panlalawigan of Palawan before starting its
operations.[244]
The Court notes, however, that the province's claims of maintaining peace and order in the
Camago-Malampaya area and of enforcing environmental laws therein have not been
substantiated by credible proof. The province likewise failed to adduce evidence of the
crimes supposedly committed in the same area or their prosecution in Palawan's courts.
The province cites illegal fishing, poaching and illegal entry as the cases tried before the
courts of Palawan. As conceded by the parties, however, the subject gas reservoir is situated,
not in the marine waters, but in the continental shelf. The Province of Palawan has not
established that it has, in fact, exercised jurisdiction over this submerged land area.
The LGU's authority to adopt and implement measures to protect the environment does not
determine the extent of its territorial jurisdiction. The deliberations of the Bicameral
Conference Committee on the proposed Local Government Code provides the proper context
for the exercise of such authority:
HON. DE PEDRO. The Senate version does not have any specific provision on this. The
House's reads:
"The delegation to each local government unit of the responsibility in the management and
maintenance of environmental balance within its territorial jurisdiction."
CHAIRMAN PIMENTEL. Well, this is a matter of delegating to the local government units
power to determine environmental concerns, which is good. However, we have some
reservations precisely because environment does not know of territorial boundaries.
That is our reservation there. And we have to speak of the totality of the environment of
the nation rather than the provincial or municipal in that respect. x x x[245] (Emphasis
ours)
Thus, the LGU's statutory obligation to maintain ecological balance is but part of the nation's
collective effort to preserve its environment as a whole. The extent to which local legislation
or enforcement protects the environment will not define the LGU's territory.
the measures that will be undertaken to prevent or minimize the adverse effects thereof.
In fine, an LGU cannot claim territorial jurisdiction over an area simply because its
government has exercised a certain degree of authority over it. Territorial jurisdiction is
defined, not by the local government, but by the law that creates it; it is delimited, not by the
extent of the LGU's exercise of authority, but by physical boundaries as fixed in its charter.
Unless clearly expanded by Congress, the LGU's territorial jurisdiction refers only to
its land area.
Utilization of natural resources found within the land area as delimited by law is
subject to the 40% LGU share.
Under the Local Government Code, particularly the provisions on the creation of
municipalities, cities and provinces, and LGUs in general, territorial jurisdiction is
contextually synonymous with territory and the term "territory" is used to refer to the land
area comprising the LGU, thus:
Section 442. Requisites for Creation. -
(a) A municipality may be created if it has an average annual income, as certified by the
provincial treasurer, of at least Two million five hundred thousand pesos (P2,500,000.00)
for the last two (2) consecutive years based on the 1991 constant prices; a population of at
least twenty five thousand (25,000) inhabitants as certified by the National Statistics Office;
and a contiguous territory of at least fifty (50) square kilometers as certified by the
Lands Management Bureau: Provided, That the creation thereof shall not reduce the land
area, population or income of the original municipality or municipalities at the time of said
creation to less than the minimum requirements prescribed herein.
(c) The average annual income shall include the income accruing to the general fund of the
municipality concerned, exclusive of special funds, transfers and non-recurring income.
(d) Municipalities existing as of the date of the effectivity of this Code shall continue to exist
and operate as such. Existing municipal districts organized pursuant to presidential
issuances or executive orders and which have their respective set of elective municipal
officials holding office at the time of the effectivity of this Code shall henceforth be
considered as regular municipalities.
(a) A municipality or a cluster of barangays may be converted into a component city if it has
an average annual income, as certified by the Department of Finance, of at least Twenty
million (P20,000,000.00) for the last two (2) consecutive years based on 1991 constant
prices, and if it has either of the following requisites:
(i) a contiguous territory of at least one hundred (100) square kilometers, as certified
by the Lands Management Bureau; or
(ii) a population of not less than one hundred fifty thousand (150,000) inhabitants, as
certified by the National Statistics Office:
Provided, That, the creation thereof shall not reduce the land area, population, and income
of the original unit or units at the time of said creation to less than the minimum
requirements prescribed herein.
(c) The average annual income shall include the income accruing to the general fund,
exclusive of specific funds, transfers, and non-recurring income.
(a) A province may be created if it has an average annual income, as certified by the
Department of Finance, of not less than Twenty million pesos (P20,000,000.00) based on
1991 constant prices and either of the following requisites:
(i) a contiguous territory of at least two thousand (2,000) square kilometers, as
certified by the Lands Management Bureau; or
(ii) a population of not less than two hundred fifty thousand (250,000) inhabitants as
certified by the National Statistics Office:
Provided, That, the creation thereof shall not reduce the land area, population, and income
of the original unit or units at the time of said creation to less than the minimum
requirements prescribed herein.
(b) The territory need not be contiguous if it comprise two (2) or more islands or is
separated by a chartered city or cities which do not contribute to the income of the province.
(c) The average annual income shall include the income accruing to the general fund,
PUBLIC CORPORATION_cases for September 19, 2020 58
Section 7. Creation and Conversion. - As a general rule, the creation of a local government
unit or its conversion from one level to another level shall be based on verifiable indicators
of viability and projected capacity to provide services, to wit:
(a) Income. - It must be sufficient, based on acceptable standards, to provide for all essential
government facilities and services and special functions commensurate with the size of its
population, as expected of the local government unit concerned;
(b) Population. - It shall be determined as the total number of inhabitants within the
territorial jurisdiction of the local government unit concerned; and
(c) Land Area. - It must be contiguous, unless it comprises two or more islands or is
separated by a local government unit independent of the others; properly identified by
metes and bounds with technical descriptions; and sufficient to provide for such basic
services and facilities to meet the requirements of its populace.
Compliance with the foregoing indicators shall be attested to by the Department of Finance
(DOF), the National Statistics Office (NSO), and the Lands Management Bureau (LMB) of
the Department of Environment and Natural Resources (DENR). (Emphasis ours)
That the LGUs' respective territories under the Local Government Code pertain to the land
area is clear from the fact that: (a) the law generally requires the territory to be "contiguous";
(b) the minimum area of the contiguous territory is measured in square kilometers; (c) such
minimum area must be certified by the Lands Management Bureau; and (d) the territory
should be identified by metes and bounds, with technical descriptions.
The word "contiguous" signifies two solid masses being in actual contact. Square kilometers
are units typically used to measure large areas of land. The Land Management Bureau, a
government agency that absorbed the functions of the Bureau ofLands, recommends policies
and programs for the efficient and effective administration, management and disposition of
alienable and disposable lands of the public domain and other lands outside the
responsibilities of other government agencies.[247] Finally, "metes and bounds" are the
boundaries or limits of a tract of land especially as described by reference and distances
between points on the land,[248] while "technical descriptions" are used to describe these
boundaries and are commonly found in certificates of land title.
in this regard the marginal sea within the three mile limit should be considered in
determining the extent of the territory of the new province. Such an interpretation is
strained, incorrect, and fallacious.
The last sentence of the first paragraph of Section 197 is most revealing. As so stated therein
the "territory need not be contiguous if it comprises two or more islands." The use of the word
territory in this particular provision of the Local Government Code and in the very last
sentence thereof, clearly reflects that "territory" as therein used, has reference only to
the mass of land area and excludes the waters over which the political unit exercises
control.
Said sentence states that the "territory need not be contiguous." Contiguous means (a) in
physical contact; (b) touching along all or most of one side; (c) near, text, or adjacent.
"Contiguous", when employed as an adjective, as in the above sentence, is only used
when it describes physical contact, or a touching of sides of two solid masses of
matter. The meaning of particular terms in a statute may be ascertained by reference to
words associated with or related to them in the statute. Therefore, in the context of the
sentence above, what need not be "contiguous" is the "territory" the physical mass of
land area. There would arise no need for the legislators to use the word coptiguous if
they had intended that the term "territory" embrace not only land area but also
territorial waters. It can be safely concluded that the word territory in the first
paragraph of Section 197 is meant to be synonymous with "land area" only. The words
and phrases used in a statute should be given the meaning intended by the legislature. The
sense in which the words are used furnished the rule of construction.
The distinction between "territory" and "land area" which respondents make is an
artificial or strained construction of the disputed provision whereby the words of the
statute are arrested from their plain and obvious meaning and made to bear an
entirely different meaning to justify an absurd or unjust result. The plain meaning in
the language in a statute is the safest guide to follow in construing the statute. A
construction based on a forced or artificial meaning of its words and out of harmony
of the statutory scheme is not to be favored.[250] (Emphasis ours and citations omitted)
Though made in reference to the previous Local Government Code or Batas Pambansa Blg.
(BP) 337, the above-cited ruling remains relevant in determining an LGU's territorial
jurisdiction under the 1991 Local Government Code. Section 197 of BP 337[251] cited the
requisites for creating a province, among which was a "territory," with a specified minimum
area, which did not need to be "contiguous" if it comprised two or more islands. Tan,
therefore, is clearly relevant since it explained the significance of the word "contiguous,"
which is similarly used in the Local Government Code, in the determination of the LGU's
territory. More importantly, it appears that the framers of the Local Government Code drew
inspiration from the Tan ruling such that in lieu of the word "territory," they specified that
such requisite in the creation of the LGU shall refer to the land area. Thus, in his book on the
Local Government Code, Senator Pimentel who, in former Chief Justice Reynato S. Puno's
words, "shepherded the Code through the labyrinthine process of lawmaking," wrote:
When a law was passed in the Batasan Pambansa creating the new province of Negros del
Norte, the Supreme Court was asked to rule in Tan v. Commission on Elections, whether or
not the new province complied properly with the "territory" requirement that it must have
no less then [sic] 3,500 square kilometers.
PUBLIC CORPORATION_cases for September 19, 2020 60
The respondents claimed that "the new province has a territory of 4,019.95 square
kilometers" by including in that computation not only the land area, but also the "water over
which said province had jurisdiction and control," and "the marginal sea within the three
mile limit."
The Supreme Court ruled that such an interpretation is strained, incorrect and fallacious.
The Court added that the use of the word "territory" in the Local Government Code clearly
reflected that "territory" as therein used had reference only to the mass of land area and
excluded the waters over which the political unit exercises control.
Inspired by this Supreme Court ruling, the Code now uses the words "land area" in lieu
of "territory" to emphasize that the area required of an LGU does not include the sea
for purposes of compliance with the requirements of the Code for its
creation.[252] (Emphasis ours)
Tan, in fact, establishes that an LGU may have control over the waters but may not
necessarily claim them as part of their territory. This supports the Court's finding that the
exercise of authority does not determine the LGU's territorial jurisdiction.
It is true that under Sections 442 and 450 of the Local Government Code, "(t)he requirement
on land area shall not apply" if the municipality or city proposed to be created is composed
of one or more islands. This does not mean, however, that the territory automatically extends
to the waters surrounding the islands or to the open sea. Nowhere in said provisions is it
even remotely suggested that marine waters, or for that matter the continental shelf, are
consequently to be included as part of the territory. The provisions still speak of "islands" as
constituting the LGU, and under Article 121 of the UNCLOS, an island is defined as "a
naturally formed area of land, surrounded by water, which is above water at high tide." The
inapplicability of the requirement on land area only means that where the proposed
municipality or city is an island, or comprises two or more islands, it need not be identified
by metes and bounds or satisfy the required minimum area. In that case, the island mass
constitutes the area of the municipality or city and its limits are the island's natural
boundaries.
Significantly, during the Senate deliberations on the proposed Local Government Code, then
Senate President Jovito Salonga suggested an amendment that would extend the territorial
jurisdiction of municipalities abutting bodies of water to at least two kms from the shoreline.
The ensuing exchange is worth highlighting:
The President. Here is a proposed amendment: Line 17, to add the following: FOR
MUNICIPALITIES ABUTTING BODIES OF WATER THEIR TERRITORIAL JURISDICTION
SHALL EXTEND TO AT LEAST TWO KILOMETERS FROM THE SHORELINE; PROVIDED, THAT
IN CASE THERE ARE TWO OR MORE MUNICIPALITIES ON EITHER SIDE OF SUCH A BODY
OF WATER MAKING THE TWO-KILOMETER JURISDICTION INADVISABLE THE
JURISDICTION OF THE AFFECTED MUNICIPALITIES SHALL BE DETERMINED BY DRAWING
A LINE AT THE MIDDLE OF SUCH BODY OF WATER. This is only for municipalities abutting
bodies of water.
Senator Pimentel. Mr. President, may we invite the attention of our Colleagues that in Book
IV, page 273, we define what constitutes municipal waters. And, the measurement is not two
kilometers but three nautical miles starting from the sea-line boundary marks at low tide.
Therefore, there may be some complications here. We are not against the amendment per
PUBLIC CORPORATION_cases for September 19, 2020 61
se. What we are trying to make of record is the fact that we have to consider also the
provision of Section 464 which defines "MUNICIPAL WATERS". So, probably, we can increase
the extension of the territorial jurisdiction to three nautical miles instead of two kilometers
as mentioned in this proposed amendment.
In fact, Mr. President, it is also stated at the last sentence of Section 464:
Where two municipalities are so situated on the opposite shores that there is less than six
nautical miles of marine water between them, the third line shall be aligned equally distant
from the opposite shores of the respective municipalities.
So, there is an attempt here to delineate, really, the jurisdiction of the municipalities which
may have a common body of water, let us say, in between them.
The President. So, that is acceptable, provided that it is three nautical miles?
Senator Pimentel. Yes. Probably, Mr. President, what we can do is hold in abeyance this
proposed amendment and take it up when we reach Section 464. I think, it will be more
appropriate in that section, Mr. President.
The President. But, if it is a question of territorial jurisdiction, may not this be the proper
place for it?
Senator Pimentel. All right, Mr. President, what we can do is, we will accept the proposed
amendment, subject to the observations that we have placed on record.
Senator Saguisag. I just would like to find out, Mr. President, if we are codifying something
that may represent the present state of the law, or are we creating a new concept here? Ang
ibig po bang sabihin nita ay mayroong magmamay-ari ng Pasig River? Kasi, I do not believe
that we have ever talked about Manila owning a river or Manila owning Manila Bay. Is that
what we are introducing here? And what are its implications? Taga-Maynila lamang ba ang
maaaring gumamit niyan at sila lamang ang magpapasiya kung ano ang dapat gawin 0
puwedeng pumasok ang coast guard? What do we intend to achieve by now saying that...
The President. Inland waters lamang naman yata ang pinaguusapang ito.
Senator Saguisag. Opo. Pero, I am not sure whether there is an owner of the Pasig River. I
am not sure. Maybe, there is. Pero, my own recollection is that we have never talked of that
idea before. I do not know what it means. Does it mean now that the municipality owning it
can exclude the rest of the population from using it without going through licensing
processes? Ano po ang gusto nating gawin dito?
Ang alam ko ho riyan, they cannot be owned in the sense that they are really owned by every
Filipino. Iyon lamang po. Kasi, capitals po ang naririto sa page 273, baka bago ito. Pero, ano
po ba and ibig sabihin nito?
PUBLIC CORPORATION_cases for September 19, 2020 62
In my study of property before, hindi ko narinig...So, maybe, we should really reserve this as
suggested by the distinguished Chairman.
The President. All right. Why do we not defer this until we can determine which is the better
place?
The President. All right. So let us defer consideration of this plus the major question that
Senator Saguisag is posing, is this something new that we are laying down?
Senator Pimentel. No. Actually the definition of "municipal waters" came about, really,
because of several complaints that our Committee has received from fisherpeople. They have
complained that the municipality is not able to help them, because the definition of
"municipal waters" has not been clearly spelled out. That is the reason why we attempted to
introduce some definitions of "municipal waters" here, basically, in answer to the demands
of the fisherfolk who believe that their rights are being intruded upon by other people
coming from other places. Probably, the definition of municipal waters will also delineate the
criminal jurisdiction of, let us say, the municipal police in certain acts, like dynamite fishing
in a particular locality. It can help, Mr. President.
The President. Sa palagay ba ninyo, iyong Marikina River that goes through several
municipalities we have the Municipality of Pasig, then the Municipality of Marikina, then the
Municipality of San Mateo, and then the Municipality of Montalban how will that be
apportioned?
Senator Pimentel. If a river passes through several municipalities, the boundary will be an
imaginary line drawn at the middle of this river, basically, Mr. President.
The President. Anyway, we will defer this until we reach Book IV.[253]
Based on the records of the Senate and the Bicameral Conference Committee on Local
Government, however, the Salonga amendment was not considered anew in subsequent
deliberations. Neither did the proposed amendment appear in the text of the Local
Government Code as approved. By Senator Pimentel's account, the Code deferred to the
Court's ruling in Tan which excluded the marginal sea from the LGU's territory. It can, thus,
be concluded that under the Local Government Code, an LGU's territory does not extend to
the municipal waters beyond the LGU's shoreline.
The parties all agree that the Camago-Malampaya reservoir is located in the continental
shelf.[254] If the marginal sea is not included in the LGU's territory, with more reason should
the continental shelf, located miles further, be deemed excluded therefrom.
proceeds from which the LGU may share, the Tiwi Geothermal Plant in Albay, the geothermal
plant in Macban, Makiling-Banahaw area in Laguna, the Maria Cristina area in Central
Mindanao, the great rivers and sources of hydroelectric power in Iligan, in Central Mindanao,
the geothermal resources in the area of Palimpiñon, Municipality of Valencia and
mountainous areas, which are all situated inland.[255] In his 2011 treatise on the Local
Government Code, former Senator Pimentel cited as examples of such national wealth, the
geothermal fields of Tongonan, Leyte and Palinpinon, Negros Oriental which are both found
inland.[256]
Section 6 of the Local Government Code empowers Congress to create, divide, merge and
abolish LGUs, and to substantially alter their boundaries, subject to the plebiscite
requirement under Section 10 of the law which reads:
Section 10. Plebiscite Requirement. - No creation, division, merger, abolition or substantial
alteration of boundaries of local government units shall take effect unless approved by a
majority of the votes cast in a plebiscite called for the purpose in the political unit or units
directly affected. Said plebiscite shall be conducted by the Commission on Elections
(COMELEC) within one hundred twenty (120) days from the date of effectivity of the law or
ordinance effecting such action, unless said law or ordinance fixes another date.
Accordingly, unless Congress, with the approval of the political units directly affected, clearly
extends an LGU's territorial boundaries beyond its land area, to include marine waters, the
seabed and the subsoil, it cannot rightfully share in the proceeds of the utilization of national
wealth found therein.
No law clearly granting the Province of Palawan territorial jurisdiction over the
Camago-Malampaya reservoir
The Republic has enumerated the laws defining the territory of Palawan.[257] The following
table has been culled from said enumeration:
Governing Law Territorial Limits
Act No. 422[258] The Province of Paragua shall consist of all that portion of the Island of
Paragua north of the tenth parallel of north latitude and the
small islands adjacent thereto, including Dumaran, and of
the islands forming the Calamianes Group and the Cuyos group. (Section
2)
Act No. 567[259] The Province of Paragua shall consist of all that portion of the Island of
Paragua north of a line beginning in the middle of the channel at the
mouth of the Ulugan River in the Ulugan Bay, thence following the main
channel of the Ulugan River to the village of Bahile, thence along the main
trail leading from Bahile to the Tapul River, thence following the course
of the Tapul River to its mouth in the Honda Bay; except at the towns of
Bahile and Tapul the west boundary line shall be the arc of a circle with
one mile radius, the center of the circle being the center of the said towns
of Bahile and Tapul. There shall be included in the Province of Paragua
the small islands adjacent thereto, including Dumaran and
the island forming the Calamianes group and the Cuyos group. (Section
1)
Act No. 747[260] The Province of Paragua shall consist of the entire Island of Paragua,
the Islands of Dumaran and Balabac, the Calamianes Islands, the
PUBLIC CORPORATION_cases for September 19, 2020 64
Cuyos Islands, the Cagayanes Islands, and all other islands adjacent
thereto and not included within the limits of any province. (Section 1)
Act No. 1363[261] Upon the recommendation of the Philippine Committee on Geographical
Names the name of the Province and Island of Paragua is hereby changed
to that of Palawan. (Section 1)
Act No. 1396[262] The Province of Palawan shall include the entire Island of Palawan,
the Islands of Dumaran and Balabac, the Calamianes Islands, the
Cuyos Islands, the Cagayanes Islands, and all other islands adjacent to
these islands and not included within the limits of any other province.
(Section 26)
Act No. 2657[263] Article II (Situs and Major Subdivisions of Provinces Other than such as
are Contained in Department of Mindanao and Sulu)
xxxx
Article I
Grand Divisions
xxxx
An island, as herein before-mentioned, is defined under Article 121 of the UNCLOS as "a
naturally formed area of land, surrounded by water, which is above water at high tide."
The continental shelf, on the other hand, is defined in Article 76 of the same Convention as
comprising "the seabed and subsoil of the submarine areas that extend beyond (the coastal
State's) territorial sea throughout the natural prolongation of its land territory to the outer
edge of the continental margin, or to a distance of 200 nm from the baselines from which the
breadth of the territorial sea is measured where the outer edge of the continental margin
does not extend up to that distance." Where the continental shelf of the coastal state extends
beyond 200 nm, Article 76 allows the State to claim an extended continental shelf up to 350
nm from the baselines.[265]
Under Palawan's charter, therefore, the Camago-Malampaya reservoir is not located within
its territorial boundaries.
P.D. No. 1596, which constituted Kalayaan as a separate municipality of the Province of
Palawan, cannot be the basis for holding that the Camago-Malampaya reservoir forms part
of Palawan's territory. Section 1 of P.D. No. 1596 provides:
SECTION 1. The area within the following boundaries:
From a point [on the Philippine Treaty Limits] at latitude 7°40' North and longitude 116°00'
East of Greenwich, thence due West along the parallel of 7°40' N to its intersection with the
meridian of longitude 112°10' E, thence due north along the meridian of 112°10' E to its
intersection with the parallel of 9°00' N, thence northeastward to the inter section of the
parallel of 12°00' N with the meridian oflongitude 114°30' E, thence, due East along the
parallel of 12°00' N to its intersection with the meridian of 118°00' E, thence, due South along
the meridian of longitude 118°00' E to its intersection with the parallel of 10°00' N, thence
Southwestwards to the point of beginning at 7°40' N, latitude and 116°00' E
longitude; including the sea-bed, sub-soil, continental margin and air space shall belong
and be subject to the sovereignty of the Philippines. Such area is hereby constituted as a
distinct and separate municipality of the Province of Palawan and shall be known as
"Kalayaan." (Emphasis ours)
None of the parties assert that the Camago-Malampaya reservoir is within the territory of
Kalayaan as delimited in Section 1 of P.D. No. 1596 or as referred to in R.A. No.
9522,[266] commonly known as the "2009 baselines law." The Province of Palawan, however,
invokes P.D. No. 1596 to argue that similar to Kalayaan, its territory extends to the seabed,
the subsoil and the continental margin. The Court is not persuaded.
The delineation of territory in P.D. No. 1596 refers to Kalayaan alone. The inclusion of the
seabed, subsoil and continental margin in Kalayaan's territory cannot, by simple analogy, be
applied to the Province of Palawan. To hold otherwise is to expand the province's territory,
as presently defined by law, without the requisite legislation and plebiscite.
PUBLIC CORPORATION_cases for September 19, 2020 66
The Court likewise finds no merit in the Province of Palawan's assertion that R.A. No. 7611
establishes that the Camago-Malampaya area is within the territorial jurisdiction of Palawan.
It is true that R.A. No. 7611 contains a definition of "Palawan" that states:
Section 3. Definition of Terms. - As used in this Act, the following terms are defined as
follows:
(1) "Palawan" refers to the Philippine province composed of islands and islets located 7°47'
and 12°'22' north latitude and 117°'00' and 119°'51' east longitude, generally bounded by
the South China Sea to the northwest and by the Sulu Sea to the east.
xxxx
Both the Republic and the Province of Palawan agree that the above geographic coordinates,
when plotted, would show that the Camago-Malampaya reservoir is within the area
described. However, no less than the map[267] submitted by the Province of Palawan showed
that substantial portions of Palawan's territory were excluded from the area so defined.
The Republic cites, without controversion from the province, that portions of mainland
Palawan and several islands, municipalities or portions thereof, namely, the Municipalities
of Balabac, Cagayancillo, Busuanga, Coron, Agutaya, Magsaysay, Cuyo, Araceli, Linapacan and
Dumaran were excluded.[268] Their exclusion constitutes a substantial alteration of
Palawan's territory which, under Section 10 of the Local Government Code, cannot take
effect without the approval of the majority of the votes cast for the purpose in a plebiscite in
the political units directly affected.
There is also no showing that the criteria for the alteration, as established in Sections 7 and
461 of the Local Government Code, had been met. The definition, therefore, does not have
the effect of redefining Palawan's territory. In fact, R.A. No. 7611 was enacted not for such
purpose but to adopt a comprehensive framework for the sustainable development of
Palawan compatible with protecting and enhancing the natural resources and endangered
environment of the province.[269]
The definitions under Section 1 of R.A. No. 7611 are also qualified by the phrase "[A]s used
in this Act." Thus, the definition of "Palawan" should be taken, not as a statement of territorial
limits for purposes of Section 7, Article X of the 1987 Constitution, but in the context of R.A.
No. 7611 which is aimed at environmental monitoring, research and education.[270]
It is true, as the Province of Palawan has pointed out, that R.A. No. 7611 includes the coastal
or marine area as one of the three components of the Environmentally Critical Areas
Network designated in said law, the other two being the terrestrial component and the tribal
ancestral lands. R.A. No. 7611 refers to the coastal or marine area as the whole coastline up
to the open sea, characterized by active fisheries and tourism activities. By all the parties'
accounts, however, the Camago-Malampaya reservoir, is located not in such coastal or
marine area but in the continental shelf. Thus, even on the supposition that R.A. No. 7611
redefined Palawan's territory, it clearly did not include the seabed and subsoil comprising
the continental shelf. In fact, what it expressly declares as composing the Province of
Palawan are the "islands and islets."
It is also clear that R.A. No. 7611 does not vest any additional jurisdiction on the Province of
PUBLIC CORPORATION_cases for September 19, 2020 67
Palawan. The PCSD, formed under said law, is composed of both provincial officials and
representatives from national government agencies. It was also established under the Office
of the President. The tasks outlined by R.A. No. 7611, which largely involve policy
formulation and coordination, are carried out not by the province, but by the council.
Thus, even if the Court were to apply the province's definition of "territorial jurisdiction" as
co-extensive with its exercise of authority, R.A. No. 7611 cannot be considered as conferring
territorial jurisdiction over the Camago-Malampaya reservoir to Palawan since the law did
not grant additional power to the province.
It must be pointed out, too, that the Province of Palawan never alleged in which of its
municipalities or component cities and barangays the Camago-Malampaya reservoir is
located. Under Section 292 of the Local Government Code, the local government's share in
the utilization of national wealth located in a province shall be allocated in the following
ratio:
(1) Province - Twenty percent (20%);
(2) Component City/Municipality - Forty-five percent (45%); and
(3) Barangay - Thirty-five percent (35%)
The allocation of the LGU share to the component city/municipality and the barangay cannot
but indicate that the natural resource is necessarily found . therein. This is only logical since
a province is composed of component cities and municipalities, and municipalities are in
turn composed of barangays. Senate deliberations on the proposed Local Government Code
also reflect that at bottom, the natural resource is located in the municipality or component
city:
Senator Rasul. Mr. President, may I continue. Also on the same page, same section, "Share
of Local Government in the Proceeds From the Exploration", I propose that there should be a
specific sharing in this section, because this section does not speak of the sharing; how much
goes to the barangay, municipality, city, or province?
Senator Pimentel. Yes, in fact, we have Mr. President and I was about to read it into the
record, so that, there will be a new paragraph after the word Resources on page 54, and it
will read as follows:
THE SHARES OF THE LOCAL GOVERNMENT UNITS IN THE PROCEEDS FROM THE
EXPLANATION [sic], DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES
LOCATED WITHIN THEIR TERRITORIAL WRISDICTIONS SHALL BE AS FOLLOWS:
1. IN THE CASE OF MUNICIPALITIES AND COMPONENT CITIES: (A) THE BARANGAY UNIT
WHERE THE NATURAL RESOURCES ARE SITUATED AN EXTRACTED, FORTY PERCENT.
The President. Is there any objection? [Silence] Hearing none, the amendment is approved.
Senator Pimentel. Then "(B)." "THE MUNICIPALITY OR COMPONENT CITY WHERE THE
BARANGAY WITH THE NATURAL RESOURCES ARE SITUATED, THIRTY PERCENT.
The President. Is there any objection? [Silence] Hearing none, the amendment is approved.
Senator Pimentel. Then we have a paragraph 2 on the same aspect of sharing; "IN THE CASE
OF HIGHLY URBANIZED CITIES, THE FOLLOWING RULES SHALL APPLY;
PUBLIC CORPORATION_cases for September 19, 2020 68
A) BARANGAY WHERE THE NATURAL RESOURCES ARE SITUARED AND EXTRACTED, SIXTY
(60%) PERCENT;
B) FOR THE HIGHLY URBANIZED CITY WHERE THE BARANGAY WITH THE NATURAL
RESOURCES ARE LOCATED, FORTY (40%) PERCENT".
So it is a 60:40 sharing.
The President. Before we use the word SITUATED, probably, we should make it uniform -
SITUATED AND EXTRACTED.
The President. Is there any objection? [Silence] Hearing one [sic], the amendment is
approved. Any more?[271] (Emphasis ours.)
During the oral argument, Dean Pangalangan, as amicus curiae, stressed that the Camago-
Malampaya reservoir is. not part of any barangay:
JUSTICE CARPIO: Following your argument counsel Malampaya would form part of one
barangay in Palawan but yet it is outside of the Philippine territorial waters, how do you
reconcile that?
DEAN PANGALANGAN: Oh, no, Your Honor, Malampaya will lie within our continental shelf
and that is in fact the way by which we claim title over a resource lying out there in the seas
on the seabed. It will not be considered in itself a barangay for instance.
The Republic endeavored to enumerate the different LGUs composing the Province of
Palawan and their respective territorial limits under applicable organic laws. [273] The
following matrix has been culled from its enumeration:
Territorial Description/Component
LGU Governing Law
Barangays
Cagayancillo Act No. 2657 Section 43. Situs of Provinces and Major
Coron Subdivisions. - The general location of the
Cuyo provinces other than such as are contained in
Puerto the Department of Mindanao and Sulu, together
Princesa [274] with the subprovinces, municipalities, and
Taytay townships respectively contained in them is as
follows:
xxxx
PUBLIC CORPORATION_cases for September 19, 2020 69
xxxx
xxxx
Roxas R.A. No. 615[275] Section 1. The barrios of Tinitian, Caramay,
Rizal, Del Pilar, Malcampo Tumarbong,
Taradufigan, Ilian, and Capayas in the
municipality of Puerto Princesa, Province of
Palawan, are hereby separated from said
municipality and constituted into a new
municipality to be known as the Municipality
of Roxas. The seat of the government of the
new municipality shall be at the sitio of
Barbacan in the barrio of Del Pilar, Puerto
Princesa.
Agutaya Bacuit Act No. 2711 Section 37. Grand divisions (Philippines
(now El Islands) Philippines. - x x x x
Nido)[276]
on the slopes
8 of
2 117°51'24.42"
°59'58.01" Mantalingahan
Range
on the slopes
9 of
3 117°54'03.69"
°01'01.84" Mantalingahan
Range
on the slopes
9 of
4 117°54'29.33"
°02'52.18" Mantalingahan
Range
on the slopes
9
5 117°55'15.71"of Mount
°04'18.78"
Corumi
9 on the slopes
6 117°55'18.00"
°05'34.18" of Pulot Range
PUBLIC CORPORATION_cases for September 19, 2020 76
9 on the slopes
7 117°56'48.09"
°07'49.27" of Pulot Range
on the slopes
9
8 117°59'50.82"of Malanut
°09'50.88"
Range
on the slopes
9
9 118°03'49.28"of Malanut
°11'26.26"
Range
on the slopes
9
10 118°03'49.28"of Malanut
°11'26.26"
Range
southern side,
9
11 118°07'35.58"mouth of Abo-
°08'58.93"
Abo River
Line Bearing Distance
confirmed by the amicus curiae, Atty. Bensurto, during the oral argument as gleaned from
the following exchange:
JUSTICE DE CASTRO: It is not a question of belonging to Palawan, it is a question of Palawan
having a share because it is within the area of Palawan, that is the question before the Court
now, it is not, the right to govern is not in question, that is not the issue because we are very
clear. The Philippines is not a Federal Government x x x So, we are just defining the area of
the Province of Palawan, if it is not included in the polygon, what about in other islands of
Palawan, is there any continental shelf in the other areas, if there is none here in the
polygon, within the polygon and which will extend up to the Camago-Malampaya, is there
any other continental shelf in the other islands comprising Palawan where there is
such a continental shelf that will extend up to the Camago-Malampaya.
[W]ith all due respect, Your Honor, I do not think Federalism or Unitary is relevant in the
issue of maritime concepts or maritime jurisdiction the end would still be the same, Your
Honor. Thank you.
JUSTICE DE CASTRO: You see that is my point, we are just here trying to analyze domestic
law and if, only P.D. 1596 refers to areas submerged in water, that is (interrupted)
JUSTICE DE CASTRO: So, if there is none and Camago is in the continental shelf
protruding from any other island in Palawan and then we cannot apply 1596?
JUSTICE DE CASTRO: All right, so, there maybe some doubt as to whether or not Palawan
should have a bigger share in that Camago-Malampaya?
JUSTICE DE CASTRO: Okay, that is clear now. Thank you.[294] (Emphasis ours)
Estoppel does not lie against the Republic
Fundamental is the rule that the State cannot be estopped by the omission, mistake or error
of its officials or agents.[295] Thus, neither the DoE's June 10, 1998 letter to the Province of
Palawan nor President Ramos' A.O. No. 381, which acknowledged Palawan's share in the
Camago-Malampaya project, will place the Republic in estoppel as they had been based on a
mistaken assumption of the LGU's entitlement to said allocation.
Erroneous application and enforcement of the law by public officers do not preclude
subsequent corrective application of the statute.[296] As the Court explained in Adasa v.
Abalos:[297]
True indeed is the principle that a contemporaneous interpretation or construction by the
officers charged with the enforcement of the rules and regulations it promulgated is entitled
to great weight by the court in the latter's construction of such rules and regulations. That
does not, however, make such a construction necessarily controlling or binding. For equally
settled is the rule that courts may disregard contemporaneous construction in instances
where the law or rule construed possesses no ambiguity, where the construction is clearly
erroneous, where strong reason to the contrary exists, and where the court has previously
given the statute a different interpretation.
Dean Pangalangan shares the Province of Palawan's claim that based on Section 1, Article X
of the 1987 Constitution, the entire Philippine territory is necessarily divided into political
and territorial subdivisions, such that at any one time, a body of water or a piece of land
should belong to some province or city.[299] The Court finds this position untenable.
The above-quoted section is found under the General Provisions of Article X on Local
Government. Explaining this provision, the eminent author and member of the 1986
Constitutional Commission, Fr. Joaquin G. Bernas, S.J. wrote:
The existence of "provinces" and "municipalities" was already acknowledged in the 1935
Constitution. Section 1, however, when first enacted in 1973, went a step further than mere
acknowledgment of their existence and recognized them, together with cities and barrios, as
PUBLIC CORPORATION_cases for September 19, 2020 79
"(t)he territorial and political subdivisions of the Philippines." Thus, the municipalities,
and barrios (now barangays) have been fixed as the standard territorial and political
subdivisions of the Philippines. To these the 1987 Constitution has added the
"autonomous regions." But the Constitution allows only two regions: one for the Cordilleras
and one for Muslim Mindanao. The creation of other autonomous regions whether by
dividing the Cordilleras or Muslim Mindanao into two or by creating others outside these
two regions, can be accomplished only by constitutional amendment.
x x x x
Neither Section 1, however, nor any part of the Constitution prescribed the actual form and
structure which individual local government units must take. These are left by Sections 3, 18
and 20 to legislation. As constitutional precepts, therefore, they are very general. x x x
x x x x
The designation by the 1973 Constitution of provinces, cities, municipalities and barangays
as the political and territorial subdivisions of the Philippines effected a measure of
institutional instability. To this extent, it was a move in the direction of real local
autonomy. The 1987 Constitution moved farther forward by authorizing the creation of
autonomous regions. These are the passive aspects of local autonomy. The dynamic and
more important aspect of local autonomy must be measured in terms of the scope of the
powers given to the local units.[300] (Emphasis ours)
There is, thus, merit in the Republic's assertion that Section 1, Article X of the 1987
Constitution was intended merely to institutionalize the LGUs.
The Court is further inclined to agree with the Republic's argument that assuming Section 1
of Article X was meant to divide the entire Philippine territory among the LGUs, it cannot be
deemed as self-executing and legislation will still be necessary to implement it. LGUs are
constituted by law and it is through legislation that their respective territorial boundaries
are delineated. Furthermore, in the creation, division, merger and abolition of LGUs and in
the substantial alteration of their boundaries, Section 10 of Article X requires satisfying the
criteria set by the Local Government Code. It further requires the approval by the majority
of the votes cast in a plebiscite in the political units directly affected. Needless to say,
apportionment of the national territory by the LGUs, based solely on the general terms ·of
Section 1 of Article X, may only sow conflict and dissension among these political
subdivisions.
As the Republic asserted, no law has been enacted dividing the Philippine territory, including
its continental margin and exclusive economic zones, among the LGUs.
The UNCLOS did not confer on LGUs their own continental shelf
Dean Pangalangan posited that since the Constitution has incorporated into Philippine law
the concepts of the UNCLOS, including the concept of the continental shelf, Palawan's "area"
could be construed as including its own continental shelf.[301] The Province of Palawan and
Arigo, et al. accordingly assert that Camago-Malampaya reservoir forms part of Palawan's
continental shelf.[302]
PUBLIC CORPORATION_cases for September 19, 2020 80
The Court is unconvinced. The Republic was correct in arguing that the concept of
continental shelf under the UNCLOS does not, by the doctrine of transformation,
automatically apply to the LGUs. We quote with approval its disquisition on this issue:
The Batasang Pambansa ratified the UNCLOS through Resolution No. 121 adopted on
February 27, 1984. Through this process, the UNCLOS attained the force and effect of
municipal law. But even if the UNCLOS were to be considered to have been transformed to
be part of the municipal law, after its ratification by the Batasang Pambansa, the UNCLOS did
not automatically amend the Local Government Code and the charters of the local
government units. No such intent is manifest either in the UNCLOS or in Resolution No. 121.
Instead, the UNCLOS, transformed into our municipal laws, should be applied as it is
worded. Verba legis.
x x x x
It must be stressed that the provisions under the UNCLOS are specific in declaring the rights
and duties of a state, not a local government unit. The UNCLOS confirms the sovereign rights
of the States over the continental shelf and the maritime zones. The UNCLOS did not confer
any rights to the States' local government units. x x x x
At the risk of being repetitive, it is respectfully emphasized that the foregoing indubitably
established that under the express terms of the UNCLOS, the rights and duties over the
maritime zones and continental shelf pertain to the State. No provision was set forth to even
suggest any reference to a local government unit. Simply put, the UNCLOS did not obligate
the States to grant to, much less automatically vest upon, their respective local government
units territorial jurisdiction over the different maritime zones and the continental shelf.
Hence, contrary to the submission of Dean Pangalangan, no such application can be
made.[303]
Atty. Bensurto took a similar stand, declaring during the oral argument that:
ATTY. HENRY BENSURTO: x x x x [T]here was an assertion earlier, Your Honor, that there
was a reference in fact to the continental shelf, that there is an automatic application of the
continental shelf with respect to the municipal territories. I submit, Your Honor that this
should n9t be the case, why? Because the United Nation Convention on the Law of the Sea
which is the conventional law directly applicable in this case is an International Law.
International Law by definition is a body of rules governing relations between
sovereign States or other entities which are capable of having rights and obligations
under International Law. Therefore, it is the State that is the subject oflntemational Law,
the only exception to this is with respect to individuals with respect to the issue of
Humanitarian and Human Rights Law. From there, it flows the principal [sic] therefore that
International Law affects only sovereign States. With respect to the relationship between the
State and its Local Government Units this is reserved to the sovereign right of the sovereign
State. It is a dangerous proposition for us to make that there is an automatic application
because to do that would mean a violation of the sovereign right of a State and the State
always reserves the right to promulgate laws governing its domestic jurisdiction. Therefore,
the United Nations Convention of the Law of the Sea affects only the right of the
Philippines vis a vis another sovereign State. And so, when we talk of the different
maritime jurisdictions enumerated, illustrated and explained under the United Nations
Convention on the Law of the Sea we are actually referring to inter state relations not
intra state relations. x x x[304] (Emphasis ours)
PUBLIC CORPORATION_cases for September 19, 2020 81
In fact, Arigo, et al. acknowledged during the oral argument that the UNCLOS applies to the
coastal state and not to their provinces, and that Palawan, both under constitutional and
international, has no distinct and separate continental shelf, thus:
ASSOCIATE JUSTICE VELASCO: You admit that under UNCLOS it is onlv the coastal states
that are recognized not the provinces of the coastal state.
ATTY. BAGARES: That is true, Your Honor, and we do not dispute that, Your Honor.
ASSOCIATE JUSTICE VELASCO: That's correct. And you cited that in your petition ....
ASSOCIATE JUSTIUCE VELASCO: .... that under Article 76, it is the continental shelf of the
coastal state.
ASSOCIATE JUSTICE VELASCO: And in our case, the Republic of the Philippines, right?
ASSOCIATE JUSTICE VELASCO: Okay. You also made the submission that under Republic Act
7611 and Administrative Order 381, there is a provision there that serves as basis for, what
you call again the continental shelf of Palawan. What provisions in 7611 and AO 381 are
there that serves as basis, for you to say that there is such a continental shelf of Palawan?
ATTY. BAGARES: Your Honor, I apologize that perhaps I've been like Atty. Roque very
academic in the language in which we make our presentations but our position, Your Honor,
exactly just to make·it clear, Your Honor, we're not saying that there's a separate continental
shelf·of the Province of Palawan outside the territorial bounds of the sovereign State of the
Republic of the Philippines. We are only saying, Your Honor, that that continental shelf is
reckoned, Your Honor, from the Province of Palawan. We are not saying, Your Honor, that
there is a distinct and separate continental shelf that Palawan may lay acclaim [sic] to,
under the Constitutional Law and under International Law, Your Honor.
ASSOCIATE JUSTICE VELASCO: Alright. And that is only the continental shelf of the
coastal State, which is the Philippines.
ATTY. BAGARES. Yes, Your Honor. I hope that is clear, Your Honor.[305] (Emphasis ours)
The Federal Paramountcy doctrine as well as the Regalian and Archipelagic doctrines
are inapplicable
Contrary to the Republic's submission, the LGU's share under Section 7, Article X of the 1987
Constitution cannot be denied on the basis of the archipelagic and regalian doctrines.
The archipelagic doctrine is embodied m Article I of the 1987 Constitution which provides:
The national territory comprises the Philippine archipelago, with all the islands and waters
embraced therein, and all other territories over which the Philippines has sovereignty or
jurisdiction, consisting of its terrestrial, fluvial, and aerial domains, including its territorial
PUBLIC CORPORATION_cases for September 19, 2020 82
sea, the seabed, the subsoil, the insular shelves, and other submarine areas. The waters
around, between, and connecting the islands of the archipelago, regardless of their breadth
and dimensions, form part of the internal waters of the Philippines.
The regalian doctrine, in turn, is found in Section 2, Article XII of the 1987 Constitution which
states:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. x x x
It is at once evident that the foregoing doctrines find no application in this case which
involves neither a question of what comprises the Philippine territory or the ownership of
all natural resources found therein.
There is no debate that the natural resources in the Camago-Malampaya reservoir belong to
the State. Palawan's claim is anchored not on ownership of the reservoir but on a revenue-
sharing scheme, under Section 7, Article X of the 1987 Constitution and Section 290 of the
Local Government Code, that allows LGUs to share in the proceeds of the utilization of
national wealth provided they are found within their respective areas. To deny the LGU's
share on the basis of the State's ownership of all natural resources is to render Section 7 of
Article X nugatory for in such case, it will not be possible for any LGU to benefit from the
utilization of national wealth.
Accordingly, the Court cannot subscribe to Atty. Bensurto's opinion[306] that the Province of
Palawan cannot claim the 40% LGU share from the proceeds of the Camago-Malampaya
project because the National Government "remains to have full dominium" (or ownership
rights) over the gas reservoir.
Atty. Bensurto's theory is ostensibly drawn from several U.S. cases, namely U.S. v.
California,[307] U.S. v. Louisiana,[308] U.S. v. Texas[309] and U.S. v. Maine,[310] which the Republic
also cites in applying the federal paramountcy doctrine to the Province of Palawan's claim.
To explain this doctrine, the Republic turns to the case of Native Village of Eyak v. Trawler
Diane Marie, Inc.,[311] where the U.S. Court of Appeals for the Ninth Circuit, in part, stated:
The "federal paramountcy doctrine" is derived, in essence, from four Supreme Court cases in
which the federal government and various coastal states
disputed ownership and control of the territorial sea and the adjacent portions of the OCS.
The first of these cases was United States v. California, 332 U.S. 19, 67 S.Ct. 1658,91 L.Ed.
1889 (1947), in which the United States sued to enjoin the State of California from executing
leases authorizing the taking of petroleum, gas, and other mineral deposits from the Pacific
Ocean. x x x
x x x x
[T]hus, the Court declared, "California is not the owner of the three-mile marginal belt along
its coast." Instead, "the Federal Government rather than the state has paramount rights in
and power over that belt, an incident to which is full dominion over the resources of the soil
under that water area, including oil."
Bolstered by the favorable outcome in California, the United States brought similar actions
to confirm its title to the seabed adjacent to other coastal states. In United States v.
PUBLIC CORPORATION_cases for September 19, 2020 83
Louisiana, 339 U.S. 699, 70 S.Ct. 914, 94 L.Ed. 1216 (1950), the United States brought suit
against the State of Louisiana, which argued that it held title to the seabed under the waters
extending twenty-seven miles into the Gulf of Mexico. x x x
x x x x
The Court found that the only difference between the argument raised by Louisiana and the
one raised by California was that Louisiana's claimed boundary extended twenty-four miles
beyond California's threemile claim. This difference did not weigh in Louisiana's favor,
however:
If the three-mile belt is in the domain of the Nation rather than that of the separate
States, it follows a fortiori that the ocean beyond that limit also is the ocean seaward of
the marginal belt is perhaps even more directly related to the national defense, the conduct
of foreign affairs, and world commerce than is the marginal sea. Certainly it is not less so far
as the issues presented here are concerned, Louisiana's enlargement of her boundary
emphasizes the strength of the claim of the United States to this part of the ocean and the
resources of the soil under that area, including oil.
In the companion case to Louisiana, United States v. Texas, 339 U.S. 707, 70 S.Ct. 918, 94
L.Ed. 1221 (1950), the Supreme Court again reaffirmed its holding in California. The State of
Texas had, by statute, extended its boundary first to a line twenty-four miles beyond the
three mile limit, and thereafter to the outer edge of the continental shelf. Texas raised a
somewhat different argument than had either California or Louisiana, one more analogous
to that asserted by the Villages here. Texas argued that, because it was a separate republic
prior to its entry into the United States, it had both dominium (ownership or proprietary
rights) and imperium (governmental powers of regulation and control) with respect to the
lands, minerals, and other products underlying the marginal sea. Upon entering the Union,
Texas transferred to the federal government its powers of sovereignty-its imperium-over
the marginal sea, but retained its dominium.
The Supreme Court was not persuaded. While the Republic of Texas may have had complete
sovereignty and ownership over the marginal sea and all things of value derived therefrom,
the State of Texas did not. x x x "When Texas came into the Union, she ceased to be an
independent nation. The United States then took her place as respects foreign commerce, the
waging of war, the making of treaties, defense of the shores, and the like." As an incident to
the transfer of that sovereignty, any "claim that Texas may have had to the marginal sea
was relinquished to the United States." The Court recognized that "dominion and
imperium are normally separable and separate"; however, in this instance, "property
interests are so subordinated to the rights of sovereignty as to follow sovereignty." x
x x
x x x x
In the last of the paramountcy cases, United States v. Maine, 420 U.S. 515, 95 S.Ct. 1155, 43
L.Ed.2d 363 (1975), the United States brought an action against the thirteen Atlantic Coastal
States asserting that the federal government was entitled to exercise sovereign rights over
the seabed and subsoil underlying the Atlantic Ocean to the exclusion of the coastal states
for the purpose of exploring the area and exploiting its natural resources. x x x
At the urging of the coastal states, the Supreme Court reexamined the decisions in California,
PUBLIC CORPORATION_cases for September 19, 2020 84
Louisiana, and Texas. To the states' dismay, the Court concluded that these cases remained
grounded on sound constitutional principles. Whatever interest the states may have held in
the sea prior to statehood, the Court held, as a matter of "purely legal principle the
Constitution allotted to the federal government jurisdiction over foreign commerce, foreign
affairs, and national defense and it necessarily follows, as a matter of constitutional law,
that as attributes of these external sovereign powers the federal government has
paramount rights in the marginal sea." x x x. (Emphasis ours and citations omitted)
There are several reasons why the foregoing doctrine cannot be applied to this case. First,
the U.S. does not appear to have an equitable sharing provision similar to Section 7, Article
X of the 1987 Constitution. Second, the Philippines is not composed of states that were
previously independent nations. Third, the resolution of these cases does not necessitate
distinguishing between dominium and imperium since neither determines the LGU's
entitlement to the equitable share under Section 7 of Article X. Fourth, the Court is not called
upon to determine who between the Province of Palawan and the National Government has
the paramount or dominant right to explore or exploit the natural resources in the marginal
sea or beyond. Fifth, adjudication of these cases does not entail upholding the dominion of
the National Government over a political subdivision since ownership of the natural
resources is concededly vested in the State. Sixth, it is settled that dominion over national
wealth belongs to the State under the regalian doctrine. Ownership of the subject reservoir,
therefore, is a nonissue and what simply needs to be determined is whether said resource is
located within the area or territorial jurisdiction of the Province of Palawan.
Atty. Bensurto opined that under the existing law, the Province of Palawan is not entitled to
the statutory 40% LGU share. He posited that it is only on equitable grounds that the
Province of Palawan could participate in the proceeds of the utilization of the Camago-
Malampaya reservoir. He concluded that from the perspective of the principle of equity, it
may be appropriate for the Province of Palawan to be given some share in the operation of
the Camago-Malampaya gas reservoir considering: (a) its proximity to the province which
makes the latter environmentally vulnerable to any major accidents in the gas reservoir; and
(b) the gas pipes that pass through the northern part of the province.[313]
The Court finds the submission untenable. Our courts are basically courts of law, not courts
of equity.[314] Furthermore, for all its conceded merits, equity is available only in the absence
PUBLIC CORPORATION_cases for September 19, 2020 85
of law and not as its replacement.[315] As explained in the old case of Tupas v. Court of
Appeals:[316]
Equity is described as justice outside legality, which simply means that it crumot supplant
although it may, as often happens, supplement the law. We said in an earlier case, and we
repeat it now, that all abstract arguments based only on equity should yield to positive rules,
which pre empt and prevail over such persuasions. Emotional appeals for justice, while they
may wring the heart of the Court, cannot justify disregard of the mandate of the law as long
as it remains in force. The applicable maxim, which goes back to the ancient days of the
Roman jurists - and is now still reverently observed - is "aequetas nunquam contravenit
legis."[317]
In this case, there are applicable laws found in Section 7, Article X of the 1987 Constitution
and in Sections 289 and 290 of the Local Government Code. They limit the LGUs' share to the
utilization of national wealth located within their respective areas or territorial jurisdiction.
As herein before-discussed, however, existing laws do not include the Camago-Malampaya
reservoir within the area or territorial jurisdiction of the Province of Palawan.
The pertinent positive rules being present here, they should preempt and prevail over all
abstract arguments based only on equity.[318]
The supposed presence of gas pipes through the northern part of Palawan cannot justify
granting the province the 40% LGU share because both the Constitution and the Local
Government Code refer to the LGU where the natural resource is situated. The 1986
Constitutional Commission referred to this area as "the locality, where God chose to locate
his bounty," while the Senate deliberations on the proposed Local Government Code cited it
as the area where the natural resource is "extracted." To hold otherwise, on the basis of
equity, will run afoul of the letter and spirit of both constitutional and statutory law. It is
settled that equity cannot supplant, overrule or transgress existing law.
Furthermore, as the Republic noted, any possible environmental damage to the province is
addressed by the contractor's undertakings, under the ECC, to ensure minimal impact on the
environment and to set up an Environmental Guarantee Fund that would cover expenses for
environmental monitoring, as well as a replenishable fund that would compensate for any
damage the project may cause.[319] The ECC, in pertinent part, provides:
This Certificate is being issued subject to the following conditions:
1. This Certificate shall cover the construction of the shallow water platform (SWP) in the
Service Contract 38 (SC38) offshore northwest Palawan, a pipeline from the Malampaya
wells (well drilling site) to the SWP passing the offshore route from Mindoro to a land
terminal at Shell Tabangao's refinery plant in Batangas;
2. The proponent shall consider the offshore route of the pipeline to minimize its
environment socio-economic impacts particularly to the province of Mindoro;
3. Selection of the SWP site and the final offshore pipeline route should avoid
environmentally sensitive areas such as coral reefs, sea grass, mangroves, fisheries, pearl
farms, habitats of endangered wildlife, tourism areas and areas declared as protected by the
national, provincial and local government agencies. It shall also be routed away from
geologically high risk areas;
PUBLIC CORPORATION_cases for September 19, 2020 86
4. Proponent shall use the optimum amount of anti-corrosion anodes necessary in order to
maintain pipeline integrity and minimize impacts on water quality;
5. The design of the pipeline shall conform to the international standards that can handle
extreme conditions. The proponent shall ensure extensive monitoring (internal and external
inspections) to maintain the pipeline integrity;
x x x x
26. The proponent shall set up an Environmental Guarantee Fund (EGF) to cover expenses
for environmental monitoring and the establishment of a readily available and replenishable
fund to compensate for whatever damage may be caused by the project, for the rehabilitation
and/or restoration of affected-areas, the future abandonment/decommissioning of project
facilities and other activities related to the prevention of possible negative impacts.
The amount and mechanics of the EGF shall be determined by the DENR and the proponent
taking into consideration the concerns of the affected areas stakeholders and formalized
through a MOA which shall be submitted within ninety (90) days prior to project
implementation. The absence of the EGF shall cause the cancellation of this Certificate;
x x x x
29. In cases where pipe laying activities will adversely affect existing fishing grounds, the
proponent in coordination with the Bureau of Fisheries and Aquatic Resources (BFAR) shall
identify alternative fishing grounds and negotiate with affected fisherfolks the reasonable
compensation to be paid[.][320]
There is logic in the Republic's contention that the National Government cannot be
compelled to compensate the province for damages it has not yet sustained.
The foregoing considered, the Court finds that the Province of Palawan's remedy is not
judicial adjudication based on equity but legislation that clearly entitles it to share in the
proceeds of the utilization of the Camago-Malampaya reservoir. Mariano instructs that the
territorial boundaries must be clearly defined "with precise strokes." Defining those
boundaries is a legislative, not a judicial function.[321] The Court cannot, on the basis of
equity, engage in judicial legislation and alter the boundaries of the Province of Palawan to
include the continental shelf where the subject natural resource lies. As conceded by Dean
Pangalangan, "territorial jurisdiction is fixed by a law, by a charter and that defines the
territory of Palawan very strictly," and it is "something that can be altered only in accordance
with [the] proper procedure ending with a plebiscite."[322]
It is true that the Local Government Code envisioned a genuine and meaningful autonomy to
enable local government units to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals. [323] This objective,
however, must be enforced within the extent permitted by law. As the Court held in Hon.
Lina, Jr. v. Hon. Paño:[324]
Nothing in the present constitutional provision enhancing local autonomy dictates a
different conclusion.
The basic relationship between the national legislature and the local government
units has not been enfeebled by the new provisions in the Constitution strengthening
PUBLIC CORPORATION_cases for September 19, 2020 87
the policy of local autonomy. Without meaning to detract from that policy, we here confirm
that Congress retains control of the local government units although in significantly reduced
degree now than under our previous Constitutions. The power to create still includes the
power to destroy. The power to grant still includes the power to withhold or recall. True,
there are certain notable innovations in the Constitution, like the direct conferment on the
local government units of the power to tax (citing Art. X, Sec. Constitution), which cannot
now be withdrawn by mere statute. By and large, however, the national legislature is still the
principal of the local government units, which cannot defy its will or modify or violate it.
Ours is still a unitary form of government, not a federal state. Being so, any form of
autonomy granted to local governments will necessarily be limited and confined
within the extent allowed by the central authority. Besides, the principle of local
autonomy under the 1987 Constitution simply means "decentralization." It does not make
local governments sovereign within the state or an "imperium in imperio."[325] (Emphasis
ours)
Constitutional challenge to E.O. No. 683
The challenge to the constitutionality of E.O. No. 683, brought by Arigo, et al., is premised on
the alleged violation of Section 7, Article X of the 1987 Constitution and Sections 289 and
290 of the Local Government Code, which is the basic issue submitted for resolution by the
Republic and the Province of Palawan in G.R. No. 170867. Considering its ruling in G.R. No.
170867, the Court resolves to deny the Arigo petition, without need of passing upon the
procedural issues therein raised. The same ruling also renders it unnecessary to rule upon
the propriety of the Amended Order dated January 16, 2006, which the Republic raised ad
cautelam in G.R. No. 170867.
WHEREFORE, the Petition in G.R. No. 170867 is GRANTED. The Decision dated December
16, 2005 of the Regional Trial Court of the Province of Palawan, Branch 95 in Civil Case No.
3779 is REVERSED and SET ASIDE. The Court declares that under existing law, the Province
of Palawan is not entitled to share in the proceeds of the Camago-Malampaya natural gas
project. The Petition in G.R. No. 185941 is DENIED.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 88
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA
Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand
E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately
600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings")
then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption
from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City.
MIAA then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City
of Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is
broken down as follows:
TAX TAXABLE
TAX DUE PENALTY TOTAL
DECLARATION YEAR
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
PUBLIC CORPORATION_cases for September 19, 2020 89
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay
the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt
from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition
and injunction, with prayer for preliminary injunction or temporary restraining order. The
petition sought to restrain the City of Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond
the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002
MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence,
MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public
market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of
Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily
Inquirer, a newspaper of general circulation in the Philippines. The notices announced the
public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February
2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this
Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary
Restraining Order. The motion sought to restrain respondents — the City of Parañaque, City
Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque,
and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands
and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public
auction the Airport Lands and Buildings. Respondents received the TRO on the same day that
PUBLIC CORPORATION_cases for September 19, 2020 90
the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours
after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the
directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor
General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in
the name of MIAA. However, MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for
the benefit of the general public. Since the Airport Lands and Buildings are devoted to public
use and public service, the ownership of these properties remains with the State. The Airport
Lands and Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under
Section 234 of the Local Government Code because the Airport Lands and Buildings are
owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public
property is that its taxation would not inure to any public advantage, since in such a case the
tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express mention of one person, thing,
or act excludes all others. An international airport is not among the exceptions mentioned in
Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim
that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos8 where we held that the Local Government Code has withdrawn the exemption from
real estate tax granted to international airports. Respondents further argue that since MIAA
has already paid some of the real estate tax assessments, it is now estopped from claiming
that the Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing laws. If so exempt, then the real estate tax
assessments issued by the City of Parañaque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues raised in this petition become moot.
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed
by local governments.
SECTION 10. Capital. — The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00)
Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and
such other properties, movable and immovable[,] which may be contributed by the
National Government or transferred by it from any of its agencies, the valuation of
which shall be determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or transfer after
making due allowances for depreciation and other deductions taking into account the
loans and other liabilities of the Authority at the time of the takeover of the assets and
other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about
seventy percentum (70%) of the unremitted share of the National Government from
PUBLIC CORPORATION_cases for September 19, 2020 92
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation
must have members. Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to the National
Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is
organized to operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within
the National Government?
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. Thus, MIAA exercises the governmental powers of
eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time,
PUBLIC CORPORATION_cases for September 19, 2020 93
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these
powers are not inconsistent with the provisions of this Executive Order."15
Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.
– Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax.
While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether
a person, article or activity is taxable is resolved against taxation. This rule applies with
greater force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
PUBLIC CORPORATION_cases for September 19, 2020 94
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit
of the government itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-
liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a
sound and compelling policy requires such transfer of public funds from one government
pocket to another.
There is also no reason for local governments to tax national government instrumentalities
for rendering essential public services to inhabitants of local governments. The only
exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and
compelling policy considerations. There must be express language in the law empowering
local governments to tax national government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided"
in the Code, local governments cannot tax national government instrumentalities. As this
Court held in Basco v. Philippine Amusements and Gaming Corporation:
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at
least, the instrumentalities of the United States (Johnson v. Maryland, 254 US
51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its
federal responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US
42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. 20
PUBLIC CORPORATION_cases for September 19, 2020 95
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. The Civil Code provides:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. (Emphasis
supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use
or for public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State,"
are owned by the State. The term "ports" includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420
of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public indirectly through the
taxes they pay the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether
it is of public dominion or not. Article 420 of the Civil Code defines property of public
dominion as one "intended for public use." Even if the government collects toll fees, the road
is still "intended for public use" if anyone can use the road under the same terms and
conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles
that can use the road, the speed restrictions and other conditions for the use of the road do
not affect the public character of the road.
PUBLIC CORPORATION_cases for September 19, 2020 96
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The
collection of such fees does not change the character of MIAA as an airport for public use.
Such fees are often termed user's tax. This means taxing those among the public who actually
use a public facility instead of taxing all the public including those who never use the
particular public facility. A user's tax is more equitable — a principle of taxation mandated
in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the
Philippines for both international and domestic air traffic,"22 are properties of public
dominion because they are intended for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of the Philippines.
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties
of public dominion. As properties of public dominion, the Airport Lands and Buildings
are outside the commerce of man. The Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. As early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and
in towns comprises the provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general service supported by said
towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of
Cavite could not in 1907 withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion
of said plaza or public place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a contract over a
thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are outside
of this commerce, as was decided by the supreme court of Spain in its decision of
February 12, 1895, which says: "Communal things that cannot be sold because
they are by their very nature outside of commerce are those for public use, such
as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public
dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and
to be made available to the public in general. They are outside the commerce of
man and cannot be disposed of or even leased by the municipality to private parties.
While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the
PUBLIC CORPORATION_cases for September 19, 2020 97
The Court has also ruled that property of public dominion, being outside the commerce of
man, cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to encumbrances,
foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real
estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the
Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing
general law governing the classification and disposition of lands of the public domain other
than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land of
the public domain as reservations for the use of the Republic of the Philippines or of
any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public
interest requires it, including reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal pastures or lequas communales,
public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation,
entry, sale, lease, or other disposition until again declared alienable under the
provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on execution or foreclosure
sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
PUBLIC CORPORATION_cases for September 19, 2020 98
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.
— (1) The President shall have the power to reserve for settlement or public
use, and for specific public purposes, any of the lands of the public domain, the
use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn
by law or presidential proclamation from public use, they are properties of public dominion,
owned by the Republic and outside the commerce of man.
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like
MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines,
by the President, unless the authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer
because even its executive head cannot sign the deed of conveyance on behalf of the
Republic. Only the President of the Republic can sign such deed of conveyance.28
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
The land where the Airport is presently located as well as the surrounding land
area of approximately six hundred hectares, are hereby transferred, conveyed
and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. The Bureau of Lands and other appropriate government
agencies shall undertake an actual survey of the area transferred within one year
from the promulgation of this Executive Order and the corresponding title to be
issued in the name of the Authority. Any portion thereof shall not be disposed
PUBLIC CORPORATION_cases for September 19, 2020 99
through sale or through any other mode unless specifically approved by the
President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public
airport facilities, runways, lands, buildings and other property, movable or
immovable, belonging to the Airport, and all assets, powers, rights, interests and
privileges belonging to the Bureau of Air Transportation relating to airport works
or air operations, including all equipment which are necessary for the operation of
crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau
of Air Transportation and Transitory Provisions. — The Manila International Airport
including the Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport
Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines
for both international and domestic air traffic, is required to provide standards of
airport accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have
to be upgraded to meet the current and future air traffic and other demands of
aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives
of providing high standards of accommodation and service within the context
of a financially viable operation, will best be achieved by a separate and
autonomous body; and
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to
MIAA was not meant to transfer beneficial ownership of these assets from the Republic to
MIAA. The purpose was merely to reorganize a division in the Bureau of Air
Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the
Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.
PUBLIC CORPORATION_cases for September 19, 2020 100
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be
disposed through sale or through any other mode unless specifically approved by the
President of the Philippines." This only means that the Republic retained the beneficial
ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code,
only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can authorize the sale or disposition of the Airport
Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the
Republic.
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The real properties owned
by the Republic are titled either in the name of the Republic itself or in the name of agencies
or instrumentalities of the National Government. The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of
the national government. Such real properties remain owned by the Republic and continue
to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality
of the national government. This happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption
only if the "beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person." MIAA, as a government instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not
make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities
are not exempt from real estate tax. For example, the land area occupied by hangars that
MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has
PUBLIC CORPORATION_cases for September 19, 2020 101
granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
The minority asserts that the MIAA is not exempt from real estate tax because Section 193
of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether
natural or juridical" upon the effectivity of the Code. Section 193 provides:
The minority states that MIAA is indisputably a juridical person. The minority argues that
since the Local Government Code withdrew the tax exemption of all juridical persons, then
MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To
repeat, the provisions lay down the explicit proposition that the withdrawal of realty
tax exemption applies to all persons. The reference to or the inclusion of GOCCs is
only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized
under our laws, natural and juridical persons. Obviously, MIAA is not a natural
person. Thus, the determinative test is not just whether MIAA is a GOCC, but
whether MIAA is a juridical person at all. (Emphasis and underscoring in the
original)
The minority posits that the "determinative test" whether MIAA is exempt from local
taxation is its status — whether MIAA is a juridical person or not. The minority also insists
that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain
MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise
provided in this Code." Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments from imposing any kind of
tax on national government instrumentalities. Section 133(o) states:
PUBLIC CORPORATION_cases for September 19, 2020 102
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any
kind of tax on national government instrumentalities like the MIAA. Local governments are
devoid of power to tax the national government, its agencies and instrumentalities. The
taxing powers of local governments do not extend to the national government, its agencies
and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving
clause of Section 133. The saving clause refers to Section 234(a) on the exception to the
exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical
persons exempt from local taxation are limited to the three classes of entities specifically
enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be belaboring the obvious why
the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193.
Under this theory, local governments can impose any kind of local tax, and not only real
estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax. Some
of the national government instrumentalities vested by law with juridical personalities are:
Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31 Laguna Lake
The minority's theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish,
courts should not distinguish. Thus, Section 133(o) applies to all national government
PUBLIC CORPORATION_cases for September 19, 2020 103
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise
provided in this Code." This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies
and instrumentalities. Clearly, the rule is local governments have no power to tax the
national government, its agencies and instrumentalities. As an exception to this rule, local
governments may tax the national government, its agencies and instrumentalities only if the
Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a)
of the Code, which makes the national government subject to real estate tax when it gives
the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local
Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax.
The exception to this exemption is when the government gives the beneficial use of the real
property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any
other tax. The justification for the exception to the exemption is that the real property,
although owned by the Republic, is not devoted to public use or public service but devoted
to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following
an accepted rule of construction, in case of conflict the subsequent provisions should
prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the
general exemptions attaching to instrumentalities under Section 133(o) of the Local
Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis
supplied)
PUBLIC CORPORATION_cases for September 19, 2020 104
The minority assumes that there is an irreconcilable conflict between Section 133 on one
hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict,
much less has any one presenteda persuasive argument that there is such a conflict. The
minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious
error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193 states
"[u]nless otherwise provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that limit the exercise of the
taxing power in Section 193. When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power and the
withholding of power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local
Government Units." Section 133 limits the grant to local governments of the power to tax,
and not merely the exercise of a delegated power to tax. Section 133 states that the taxing
powers of local governments "shall not extend to the levy" of any kind of tax on the national
government, its agencies and instrumentalities. There is no clearer limitation on the taxing
power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local
governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the
taxing power of local governments in Section 193 prevails over the limitations on such taxing
power in Section 133, then local governments can impose any kind of tax on the national
government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to
the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This
exception — which is an exception to the exemption of the Republic from real estate tax
imposed by local governments — refers to Section 234(a) of the Code. The exception to the
exemption in Section 234(a) subjects real property owned by the Republic, whether titled in
the name of the national government, its agencies or instrumentalities, to real estate tax if
the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
"government-owned or controlled corporation" is not controlling. The minority points out
that Section 2 of the Introductory Provisions of the Administrative Code admits that its
definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context
as a whole, or a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
PUBLIC CORPORATION_cases for September 19, 2020 105
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the
Administrative Code. However, this does not automatically mean that the definition in the
Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular statute
shall require a different meaning," the definition in Section 2 of the Administrative Code shall
apply. Thus, unless there is specific language in the Local Government Code defining the
phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the
phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code. Indeed, there is none. The Local Government Code is silent on the
definition of the phrase "government-owned or controlled corporation." The Administrative
Code, however, expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative Code definition of the
phrase "government-owned or controlled corporation" applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a
unified document the major structural, functional and procedural principles and rules of
governance." Thus, the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities.
Unless a statute expressly provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation"
should apply only to corporations organized under the Corporation Code, the general
incorporation law, and not to corporations created by special charters. The minority sees no
reason why government corporations with special charters should have a capital stock. Thus,
the minority declares:
xxxx
It might as well be worth pointing out that there is no point in requiring a capital
structure for GOCCs whose full ownership is limited by its charter to the State or
Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution
and existing legislations. It will also result in gross absurdities.
PUBLIC CORPORATION_cases for September 19, 2020 106
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value
of ten pesos each, which shall be fully subscribed by the Government, and one
hundred and twenty million preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of Sections seventy-seven and
eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall
be Five Billion Pesos to be divided into Fifty Million common shares with par value of
P100 per share. These shares are available for subscription by the National
Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five
Hundred Million which shall be deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)
PUBLIC CORPORATION_cases for September 19, 2020 107
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or
public functions. Congress has plenary authority to create government instrumentalities
vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through
special charters corporations that perform economic or commercial activities, such entities
— known as "government-owned or controlled corporations" — must meet the test of
economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their
income to meet operating expenses solely from commercial transactions in competition with
the private sector. The intent of the Constitution is to prevent the creation of government-
owned or controlled corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past.
If a government corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always invoked is the
common good. That is the reason why this year, out of a budget of P115 billion for the
entire government, about P28 billion of this will go into equity infusions to support a
few government financial institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services like health and education,
PUBLIC CORPORATION_cases for September 19, 2020 108
to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they
become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST,"
together with the common good.45
The second sentence was added by the 1986 Constitutional Commission. The
significant addition, however, is the phrase "in the interest of the common good and
subject to the test of economic viability." The addition includes the ideas that they
must show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more
than financial viability but also includes capability to make profit and generate
benefits not quantifiable in financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.
The MIAA need not meet the test of economic viability because the legislature did not create
MIAA to compete in the market place. MIAA does not compete in the market place because
there is no competing international airport operated by the private sector. MIAA performs
an essential public service as the primary domestic and international airport of the
Philippines. The operation of an international airport requires the presence of personnel
from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure
of passengers, screening out those without visas or travel documents, or those with
hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
PUBLIC CORPORATION_cases for September 19, 2020 109
4. The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to prevent the
entry of terrorists and the escape of criminals, as well as to secure the airport
premises from terrorist attack or seizure;
7. The MIAA, to provide the proper premises — such as runway and buildings — for
the government personnel, passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government functions essential to the operation
of an international airport.
MIAA performs an essential public service that every modern State must provide its citizens.
MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes
on passengers and airlines. The terminal fees that MIAA charges every passenger are
regulatory or administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
(10) Instrumentality refers to any agency of the National Government, not integrated
within the department framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure,
MIAA remains a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code. More importantly, as long as MIAA renders essential
public services, it need not comply with the test of economic viability. Thus, MIAA is outside
the scope of the phrase "government-owned or controlled corporations" under Section 16,
Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-
owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The
1987 Constitution prescribes explicit conditions for the creation of "government-owned or
controlled corporations." The Administrative Code defines what constitutes a "government-
owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is
grave error.
PUBLIC CORPORATION_cases for September 19, 2020 110
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and
thus are properties of public dominion. Properties of public dominion are owned by the State
or the Republic. Article 420 of the Civil Code provides:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. (Emphasis
supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended for
public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices within
the entire government machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person because it
is not subject to "[t]axes, fees or charges of any kind" by local governments. The only
exception is when MIAA leases its real property to a "taxable person" as provided in Section
234(a) of the Local Government Code, in which case the specific real property leased
becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted
to public use, are properties of public dominion and thus owned by the State or the Republic
PUBLIC CORPORATION_cases for September 19, 2020 111
of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State,"
which includes public airports and seaports, as properties of public dominion and owned by
the Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax
under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled
that properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court
of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878.
We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila International
Airport Authority has leased to private parties. We also declare VOID the assailed auction
sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.
No costs.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 112
EN BANC
DECISION
PEREZ, J.:
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila
Economic and Cultural Office (MECO), and
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China with two (2) governments
in a stalemate espousing competing assertions of sovereignty.3 On one hand is the
communist People’s Republic of China (PROC) which controls the mainland territories, and
on the other hand is the nationalist Republic of China (ROC) which controls the island of
Taiwan. For a better part of the past century, both the PROC and ROC adhered to a policy of
"One China" i.e., the view that there is only one legitimate government in China, but differed
in their respective interpretation as to which that government is.4
With the existence of two governments having conflicting claims of sovereignty over one
country, came the question as to which of the two is deserving of recognition as that
country’s legitimate government. Even after its relocation to Taiwan, the ROC used to enjoy
diplomatic recognition from a majority of the world’s states, partly due to being a founding
member of the United Nations (UN).5 The number of states partial to the PROC’s version of
the One China policy, however, gradually increased in the 1960s and 70s, most notably after
the UN General Assembly adopted the monumental Resolution 2758 in 1971.6 Since then,
almost all of the states that had erstwhile recognized the ROC as the legitimate government
of China, terminated their official relations with the said government, in favor of establishing
diplomatic relations with the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations with the government in
Taiwan on 9 June 1975, when the country and the PROC expressed mutual recognition thru
PUBLIC CORPORATION_cases for September 19, 2020 113
the Joint Communiqué of the Government of the Republic of the Philippines and the
Government of the People’s Republic of China (Joint Communiqué).8
Under the Joint Communiqué, the Philippines categorically stated its adherence to the One
China policy of the PROC. The pertinent portion of the Joint Communiqué reads:9
The Philippine Government recognizes the Government of the People’s Republic of China as
the sole legal government of China, fully understands and respects the position of the
Chinese Government that there is but one China and that Taiwan is an integral part of
Chinese territory, and decides to remove all its official representations from Taiwan within
one month from the date of signature of this communiqué. (Emphasis supplied)
The Philippines’ commitment to the One China policy of the PROC, however, did not preclude
the country from keeping unofficial relations with Taiwan on a "people-to-people"
basis.10 Maintaining ties with Taiwan that is permissible by the terms of the Joint
Communiqué, however, necessarily required the Philippines, and Taiwan, to course any such
relations thru offices outside of the official or governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines
maintained an unofficial relationship facilitated by the offices of the Taipei Economic and
Cultural Office, for the former, and the MECO, for the latter.11
2. To receive and accept grants and subsidies that are reasonably necessary in
carrying out the corporate purposes provided they are not subject to conditions
defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title real and personal properties
as may be necessary for the use and need of the corporation, and to dispose of the
same in like manner when they are no longer needed or useful; and
4. To do and perform any and all acts which are deemed reasonably necessary to carry
out the purposes. (Emphasis supplied)
From the moment it was incorporated, the MECO became the corporate entity "entrusted"
by the Philippine government with the responsibility of fostering "friendly" and "unofficial"
relations with the people of Taiwan, particularly in the areas of trade, economic cooperation,
investment, cultural, scientific and educational exchanges.15 To enable it to carry out such
responsibility, the MECO was "authorized" by the government to perform certain "consular
and other functions" that relates to the promotion, protection and facilitation of Philippine
interests in Taiwan.16
PUBLIC CORPORATION_cases for September 19, 2020 114
At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers
(OFWs) in Taiwan; promotes the Philippines as a tourist and investment destination for the
Taiwanese; and facilitates the travel of Filipinos and Taiwanese from Taiwan to the
Philippines, and vice versa.17
On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the latest
financial and audit report" of the MECO invoking, for that purpose, his "constitutional right
to information on matters of public concern." The petitioner made the request on the belief
that the MECO, being under the "operational supervision" of the Department of Trade and
Industry (DTI), is a government owned and controlled corporation (GOCC) and thus subject
to the audit jurisdiction of the COA.19
Petitioner’s letter was received by COA Assistant Commissioner Jaime P. Naranjo, the
following day.
On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its
contents.
Mandamus Petition
Taking the 25 August 2010 memorandum as an admission that the COA had never audited
and examined the accounts of the MECO, the petitioner filed the instant petition for
mandamus on 8 September 2010. Petitioner filed the suit in his capacities as "taxpayer,
concerned citizen, a member of the Philippine Bar and law book author."22 He impleaded
both the COA and the MECO.
Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its
duty under Section 2(1), Article IX-D of the Constitution to audit the accounts of an otherwise
bona fide GOCC or government instrumentality. It is the adamant claim of the petitioner that
the MECO is a GOCC without an original charter or, at least, a government instrumentality,
the funds of which partake the nature of public funds.23
According to petitioner, the MECO possesses all the essential characteristics of a GOCC and
an instrumentality under the Executive Order No. (EO) 292, s. 1987 or the Administrative
Code: it is a non-stock corporation vested with governmental functions relating to public
needs; it is controlled by the government thru a board of directors appointed by the
President of the Philippines; and while not integrated within the executive departmental
framework, it is nonetheless under the operational and policy supervision of the DTI.24 As
petitioner substantiates:
1. The MECO is vested with government functions. It performs functions that are
equivalent to those of an embassy or a consulate of the Philippine government. 25 A
PUBLIC CORPORATION_cases for September 19, 2020 115
reading of the authorized functions of the MECO as found in EO No. 15, s. 2001, reveals
that they are substantially the same functions performed by the Department of
Foreign Affairs (DFA), through its diplomatic and consular missions, per the
Administrative Code.26
3. The MECO is under the operational and policy supervision of the DTI. The MECO
was placed under the operational supervision of the DTI by EO No. 328, s. of 2004,
and again under the policy supervision of the same department by EO No. 426, s.
2005.30
To further bolster his position that the accounts of the MECO ought to be audited by the COA,
the petitioner calls attention to the practice, allegedly prevailing in the United States of
America, wherein the American Institute in Taiwan (AIT)—the counterpart entity of the
MECO in the United States—is supposedly audited by that country’s Comptroller
General.31 Petitioner claims that this practice had been confirmed in a decision of the United
States Court of Appeals for the District of Columbia Circuit, in the case of Wood, Jr., ex rel.
United States of America v. The American Institute in Taiwan, et al.32
The MECO prays for the dismissal of the mandamus petition on procedural and substantial
grounds.
On procedure, the MECO argues that the mandamus petition was prematurely filed.33
The MECO posits that a cause of action for mandamus to compel the performance of a
ministerial duty required by law only ripens once there has been a refusal by the tribunal,
board or officer concerned to perform such a duty.34 The MECO claims that there was, in this
case, no such refusal either on its part or on the COA’s because the petitioner never made
any demand for it to submit to an audit by the COA or for the COA to perform such an audit,
prior to filing the instant mandamus petition.35 The MECO further points out that the only
"demand" that the petitioner made was his request to the COA for a copy of the MECO’s latest
financial and audit report— which request was not even finally disposed of by the time the
instant petition was filed.36
On the petition’s merits, the MECO denies the petitioner’s claim that it is a GOCC or a
government instrumentality.37 While performing public functions, the MECO maintains that
it is not owned or controlled by the government, and its funds are private funds.38 The MECO
explains:
2. The government merely has policy supervision over it. Policy supervision is a lesser
form of supervision wherein the government’s oversight is limited only to ensuring
that the corporation’s activities are in tune with the country’s commitments under
the One China policy of the PROC.43 The day-to-day operations of the corporation,
however, remain to be controlled by its duly elected board of directors.44
The COA, on the other hand, advances that the mandamus petition ought to be dismissed on
procedural grounds and on the ground of mootness.
The COA argues that the mandamus petition suffers from the following procedural defects:
1. The petitioner lacks locus standi to bring the suit. The COA claims that the
petitioner has not shown, at least in a concrete manner, that he had been aggrieved
or prejudiced by its failure to audit the accounts of the MECO.47
2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA
faults the filing of the instant mandamus petition directly with this Court, when such
petition could have very well been presented, at the first instance, before the Court of
Appeals or any Regional Trial Court.48 The COA claims that the petitioner was not able
to provide compelling reasons to justify a direct resort to the Supreme Court.49
At any rate, the COA argues that the instant petition already became moot when COA
Chairperson Maria Gracia M. Pulido-Tan (Pulido-Tan) issued Office Order No. 2011-69850 on
6 October 2011.51 The COA notes that under Office Order No. 2011-698, Chairperson Pulido-
Tan already directed a team of auditors to proceed to Taiwan, specifically for the purpose of
auditing the accounts of, among other government agencies based therein, the MECO.52
In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA
clarifies that it does not consider the former as a GOCC or a government instrumentality. On
the contrary, the COA maintains that the MECO is a non-governmental entity.53
The COA argues that, despite being a non-governmental entity, the MECO may still be audited
with respect to the "verification fees" for overseas employment documents that it collects
from Taiwanese employers on behalf of the DOLE.54 The COA claims that, under Joint Circular
PUBLIC CORPORATION_cases for September 19, 2020 117
No. 3-99,55 the MECO is mandated to remit to the Department of Labor and Employment
(DOLE) a portion of such "verification fees."56 The COA, therefore, classifies the MECO as a
non-governmental entity "required to pay xxx government share" subject to a partial audit
of its accounts under Section 26 of the Presidential Decree No. 1445 or the State Audit Code
of the Philippines (Audit Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non-governmental entity.
However, under existing laws, the accounts of the MECO pertaining to the "verification fees"
it collects on behalf of the DOLE as well as the fees it was authorized to collect under Section
2(6) of EO No. 15, s. 2001, are subject to the audit jurisdiction of the COA. Such fees pertain
to the government and should be audited by the COA.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the instant mandamus petition,
occasioned by the COA’s issuance of Office Order No. 2011-698. The COA claims that by
issuing Office Order No. 2011-698, it had already conceded its jurisdiction over the accounts
of the MECO and so fulfilled the objective of the instant petition. 58 The COA thus urges that
the instant petition be dismissed for being moot and academic.59
A case is deemed moot and academic when, by reason of the occurrence of a supervening
event, it ceases to present any justiciable controversy.60 Since they lack an actual controversy
otherwise cognizable by courts, moot cases are, as a rule, dismissible.61
The rule that requires dismissal of moot cases, however, is not absolute. It is subject to
exceptions. In David v. Macapagal-Arroyo,62 this Court comprehensively captured these
exceptions scattered throughout our jurisprudence:
The "moot and academic" principle is not a magical formula that can automatically dissuade
the courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first,
there is a grave violation of the Constitution;63 second, the exceptional character of the
situation and the paramount public interest is involved;64 third, when constitutional issue
raised requires formulation of controlling principles to guide the bench, the bar, and the
public;65 and fourth, the case is capable of repetition yet evading review.66
In this case, We find that the issuance by the COA of Office Order No. 2011-698 indeed
qualifies as a supervening event that effectively renders moot and academic the main prayer
of the instant mandamus petition. A writ of mandamus to compel the COA to audit the
accounts of the MECO would certainly be a mere superfluity, when the former had already
obliged itself to do the same.
PUBLIC CORPORATION_cases for September 19, 2020 118
Be that as it may, this Court refrains from dismissing outright the petition. We believe that
the mandamus petition was able to craft substantial issues presupposing the commission of
a grave violation of the Constitution and involving paramount public interest, which need to
be resolved nonetheless:
First. The petition makes a serious allegation that the COA had been remiss in its
constitutional or legal duty to audit and examine the accounts of an otherwise auditable
entity in the MECO.
Second. There is paramount public interest in the resolution of the issue concerning the
failure of the COA to audit the accounts of the MECO. The propriety or impropriety of such a
refusal is determinative of whether the COA was able to faithfully fulfill its constitutional role
as the guardian of the public treasury, in which any citizen has an interest.
Third. There is also paramount public interest in the resolution of the issue regarding the
legal status of the MECO; a novelty insofar as our jurisprudence is concerned. We find that
the status of the MECO—whether it may be considered as a government agency or not—has
a direct bearing on the country’s commitment to the One China policy of the PROC.67
If the foregoing reasons are not enough to convince, We still add another:
Assuming that the allegations of neglect on the part of the COA were true, Office Order No.
2011-698 does not offer the strongest certainty that they would not be replicated in the
future. In the first place, Office Order No. 2011-698 did not state any legal justification as to
why, after decades of not auditing the accounts of the MECO, the COA suddenly decided to
do so. Neither does it state any determination regarding the true status of the MECO. The
justifications provided by the COA, in fact, only appears in the memorandum70 it submitted
to this Court for purposes of this case.
Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely
dependent upon the judgment of the incumbent chairperson of the COA; susceptible of being
undone, with or without reason, by her or even her successor. Hence, the case now before
this Court is dangerously capable of being repeated yet evading review.
Verily, this Court should not dismiss the mandamus petition on the ground of mootness.
Standing of Petitioner
The second preliminary issue is concerned with the standing of the petitioner to file the
instant mandamus petition. The COA claims that petitioner has none, for the latter was not
able to concretely establish that he had been aggrieved or prejudiced by its failure to audit
the accounts of the MECO.71
PUBLIC CORPORATION_cases for September 19, 2020 119
Related to the issue of lack of standing is the MECO’s contention that petitioner has no cause
of action to file the instant mandamus petition. The MECO faults petitioner for not making
any demand for it to submit to an audit by the COA or for the COA to perform such an audit,
prior to filing the instant petition.72
The rules regarding legal standing in bringing public suits, or locus standi, are already well-
defined in our case law. Again, We cite David, which summarizes jurisprudence on this
point:73
By way of summary, the following rules may be culled from the cases decided by this
Court.1a\^/phi1 Taxpayers, voters, concerned citizens, and legislators may be accorded
standing to sue, provided that the following requirements are met:
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that
the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
We rule that the instant petition raises issues of transcendental importance, involved as they
are with the performance of a constitutional duty, allegedly neglected, by the COA. Hence,
We hold that the petitioner, as a concerned citizen, has the requisite legal standing to file the
instant mandamus petition.
To be sure, petitioner does not need to make any prior demand on the MECO or the COA in
order to maintain the instant petition. The duty of the COA sought to be compelled by
mandamus, emanates from the Constitution and law, which explicitly require, or "demand,"
that it perform the said duty. To the mind of this Court, petitioner already established his
cause of action against the COA when he alleged that the COA had neglected its duty in
violation of the Constitution and the law.
The last preliminary issue is concerned with the petition’s non-observance of the principle
of hierarchy of courts. The COA assails the filing of the instant mandamus petition directly
with this Court, when such petition could have very well been presented, at the first instance,
before the Court of Appeals or any Regional Trial Court.74 The COA claims that the petitioner
was not able to provide compelling reasons to justify a direct resort to the Supreme Court.75
PUBLIC CORPORATION_cases for September 19, 2020 120
In view of the transcendental importance of the issues raised in the mandamus petition, as
earlier mentioned, this Court waives this last procedural issue in favor of a resolution on the
merits.76
II
The single most crucial question asked by this case is whether the COA is, under prevailing
law, mandated to audit the accounts of the MECO. Conversely, are the accounts of the MECO
subject to the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction
of the COA.
Under Section 2(1) of Article IX-D of the Constitution,77 the COA was vested with the "power,
authority and duty" to "examine, audit and settle" the "accounts" of the following entities:
4. Constitutional bodies, commissions and offices that have been granted fiscal
autonomy under the Constitution; and
The term "accounts" mentioned in the subject constitutional provision pertains to the
"revenue," "receipts," "expenditures" and "uses of funds and property" of the foregoing
entities.79
Section 29(1) of the Audit Code, however, limits the audit of the foregoing non-governmental
entities only to "funds xxx coming from or through the government."81 This section of the
PUBLIC CORPORATION_cases for September 19, 2020 121
Audit Code is, in turn, substantially reproduced in Section 14(1), Book V of the
Administrative Code.82
In addition to the foregoing, the Administrative Code also empowers the COA to examine and
audit "the books, records and accounts" of public utilities "in connection with the fixing of
rates of every nature, or in relation to the proceedings of the proper regulatory agencies, for
purposes of determining franchise tax."83
Both petitioner and the COA claim that the accounts of the MECO are within the audit
jurisdiction of the COA, but vary on the extent of the audit and on what type of auditable
entity the MECO is. The petitioner posits that all accounts of the MECO are auditable as the
latter is a bona fide GOCC or government instrumentality.84 On the other hand, the COA
argues that only the accounts of the MECO that pertain to the "verification fees" it collects on
behalf of the DOLE are auditable because the former is merely a non-governmental entity
"required to pay xxx government share" per the Audit Code.85
Petitioner claims that the accounts of the MECO ought to be audited by the COA because the
former is a GOCC or government instrumentality. Petitioner points out that the MECO is a
non-stock corporation "vested with governmental functions relating to public needs"; it is
"controlled by the government thru a board of directors appointed by the President of the
Philippines"; and it operates "outside of the departmental framework," subject only to the
"operational and policy supervision of the DTI."86 The MECO thus possesses, petitioner
argues, the essential characteristics of a bona fide GOCC and government instrumentality.87
1. regulatory agencies,
2. chartered institutions,
4. GOCCs
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the
GOCC Governance Act of 2011, to wit:92
GOCCs, therefore, are "stock or non-stock" corporations "vested with functions relating to
public needs" that are "owned by the Government directly or through its
instrumentalities."93 By definition, three attributes thus make an entity a GOCC: first, its
organization as stock or non-stock corporation;94 second, the public character of its function;
and third, government ownership over the same.
In this case, there is not much dispute that the MECO possesses the first and second
attributes. It is the third attribute, which the MECO lacks.
The organization of the MECO as a non-stock corporation cannot at all be denied. Records
disclose that the MECO was incorporated as a non-stock corporation under the Corporation
Code on 16 December 1977.95 The incorporators of the MECO were Simeon R. Roxas,
Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B. Ledesma, who also served as
the corporation’s original members and directors.96
The purposes for which the MECO was organized also establishes its non-profit character, to
wit:97
2. To receive and accept grants and subsidies that are reasonably necessary in
carrying out the corporate purposes provided they are not subject to conditions
defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title real and personal properties
as may be necessary for the use and need of the corporation, and in like manner when
they are
PUBLIC CORPORATION_cases for September 19, 2020 123
4. To do and perform any and all acts which are deemed reasonably necessary to carry
out the purposes. (Emphasis supplied)
The purposes for which the MECO was organized are somewhat analogous to those of a
trade, business or industry chamber,98 but only on a much larger scale i.e., instead of
furthering the interests of a particular line of business or industry within a local sphere, the
MECO seeks to promote the general interests of the Filipino people in a foreign land.
Finally, it is not disputed that none of the income derived by the MECO is distributable as
dividends to any of its members, directors or officers.
The public character of the functions vested in the MECO cannot be doubted either. Indeed,
to a certain degree, the functions of the MECO can even be said to partake of the nature of
governmental functions. As earlier intimated, it is the MECO that, on behalf of the people of
the Philippines, currently facilitates unofficial relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was "authorized" by the Philippine
government to perform certain "consular and other functions" relating to the promotion,
protection and facilitation of Philippine interests in Taiwan.99 The full extent of such
authorized functions are presently detailed in Sections 1 and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in
Section 3 hereof, MECO is hereby authorized to assist in the performance of the following
functions:
1. Issuance of temporary visitors’ visas and transit and crew list visas, and such
other visa services as may be authorized by the Department of Foreign Affairs;
A perusal of the above functions of the MECO reveals its uncanny similarity to some of the
functions typically performed by the DFA itself, through the latter’s diplomatic and consular
missions.100 The functions of the MECO, in other words, are of the kind that would otherwise
be performed by the Philippines’ own diplomatic and consular organs, if not only for the
government’s acquiescence that they instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a public aspect.
The government owns a stock or non-stock corporation if it has controlling interest in the
corporation. In a stock corporation, the controlling interest of the government is assured by
PUBLIC CORPORATION_cases for September 19, 2020 125
its ownership of at least fifty-one percent (51%) of the corporate capital stock.101 In a non-
stock corporation, like the MECO, jurisprudence teaches that the controlling interest of the
government is affirmed when "at least majority of the members are government officials
holding such membership by appointment or designation"102 or there is otherwise
"substantial participation of the government in the selection" of the corporation’s governing
board.103
In this case, the petitioner argues that the government has controlling interest in the MECO
because it is the President of the Philippines that indirectly appoints the directors of the
corporation.104 The petitioner claims that the President appoints directors of the MECO thru
"desire letters" addressed to the corporation’s board.105 As evidence, the petitioner cites the
assumption of one Mr. Antonio Basilio as chairman of the board of directors of the MECO in
2001, which was allegedly accomplished when former President Macapagal-Arroyo, through
a memorandum dated 20 February 2001, expressed her "desire" to the board of directors of
the MECO for the election of Mr. Basilio as chairman.106
The MECO, however, counters that the "desire letters" that the President transmits are
merely recommendatory and not binding on it.107 The MECO maintains that, as a corporation
organized under the Corporation Code, matters relating to the election of its directors and
officers, as well as its membership, are ultimately governed by the appropriate provisions of
the said code, its articles of incorporation and its by-laws.108
As between the contrasting arguments, We find the contention of the MECO to be the one
more consistent with the law.
The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was
correct in postulating that, as a corporation organized under the Corporation Code, it is
governed by the appropriate provisions of the said code, its articles of incorporation and its
by-laws. In this case, it is the by-laws109 of the MECO that stipulates that its directors are
elected by its members; its officers are elected by its directors; and its members, other than
the original incorporators, are admitted by way of a unanimous board resolution, to wit:
(a) Regular members – shall consist of the original incorporators and such other
members who, upon application for membership, are unanimously admitted by the
Board of Directors.
Article 3. At the first meeting of the regular members, they shall organize and constitute
themselves as a Board composed of five (5) members, including its Chairman, each of whom
as to serve until such time as his own successor shall have been elected by the regular
members in an election called for the purpose. The number of members of the Board shall
be increased to seven (7) when circumstances so warrant and by means of a majority vote
PUBLIC CORPORATION_cases for September 19, 2020 126
of the Board members and appropriate application to and approval by the Securities and
Exchange Commission. Unless otherwise provided herein or by law, a majority vote of all
Board members present shall be necessary to carry out all Board resolutions.
During the same meeting, the Board shall also elect its own officers, including the designation
of the principal officer who shall be the Chairman. In line with this, the Chairman shall also
carry the title Chief Executive Officer. The officer who shall head the branch or office for the
agency that may be established abroad shall have the title of Director and Resident
Representative. He will also be the Vice-Chairman. All other members of the Board shall have
the title of Director.
xxxx
Article 5. There shall be established an Executive Committee composed of at least three (3)
members of the Board. The members of the Executive Committee shall be elected by the
members of the Board among themselves.
xxxx
Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-
Chairman, Chief Finance Officer, and a Secretary. Except for the Secretary, who is appointed
by the Chairman of the Board, other officers and employees of the corporation shall be
appointed by the Board.
The Deputy Representative and other officials and employees of a branch office or agency
abroad are appointed solely by the Vice Chairman and Resident Representative concerned.
All such appointments however are subject to ratification by the Board.
It is significant to note that none of the original incorporators of the MECO were shown to be
government officials at the time of the corporation’s organization. Indeed, none of the
members, officers or board of directors of the MECO, from its incorporation up to the present
day, were established as government appointees or public officers designated by reason of
their office. There is, in fact, no law or executive order that authorizes such an appointment
or designation. Hence, from a strictly legal perspective, it appears that the presidential
"desire letters" pointed out by petitioner—if such letters even exist outside of the case of Mr.
Basilio—are, no matter how strong its persuasive effect may be, merely recommendatory.
The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from
any other class of government instrumentality. The other government instrumentalities i.e.,
the regulatory agencies, chartered institutions and GCE/GICP are all, by explicit or implicit
definition, creatures of the law.110 The MECO cannot be any other instrumentality because it
was, as mentioned earlier, merely incorporated under the Corporation Code.
PUBLIC CORPORATION_cases for September 19, 2020 127
Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is
operating under the policy supervision of the DTI is no longer a relevant issue to be reckoned
with for purposes of this case.
For whatever it is worth, however, and without justifying anything, it is easy enough for this
Court to understand the rationale, or necessity even, of the executive branch placing the
MECO under the policy supervision of one of its agencies.
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO
was not intended to operate as any other ordinary corporation. And it is not. Despite its
private origins, and perhaps deliberately so, the MECO was "entrusted"111 by the
government with the "delicate and precarious"112 responsibility of pursuing
"unofficial"113 relations with the people of a foreign land whose government the Philippines
is bound not to recognize. The intricacy involved in such undertaking is the possibility that,
at any given time in fulfilling the purposes for which it was incorporated, the MECO may find
itself engaged in dealings or activities that can directly contradict the Philippines’
commitment to the One China policy of the PROC. Such a scenario can only truly be avoided
if the executive department exercises some form of oversight, no matter how limited, over
the operations of this otherwise private entity.
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other
private corporations. From its over-reaching corporate objectives, its special duty and
authority to exercise certain consular functions, up to the oversight by the executive
department over its operations—all the while maintaining its legal status as a non-
governmental entity—the MECO is, for all intents and purposes, sui generis.
The COA argues that, despite being a non-governmental entity, the MECO may still be audited
with respect to the "verification fees" for overseas employment documents that the latter
collects from Taiwanese employers on behalf of the DOLE.114 The COA claims that, under
Joint Circular No. 3-99, the MECO is mandated to remit to the national government a portion
of such "verification fees."115 The COA, therefore, classifies the MECO as a non-governmental
entity "required to pay xxx government share" per the Audit Code.116
We agree that the accounts of the MECO pertaining to its collection of "verification fees" is
subject to the audit jurisdiction of the COA. However, We digress from the view that such
accounts are the only ones that ought to be audited by the COA. Upon careful evaluation of
the information made available by the records vis-à-vis the spirit and the letter of the laws
and executive issuances applicable, We find that the accounts of the MECO pertaining to the
fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are likewise subject
to the audit jurisdiction of the COA.
In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share
in the "verification fees" for overseas employment documents it collects on behalf of the
DOLE.
The "verification fees" mentioned here refers to the "service fee for the verification of
overseas employment contracts, recruitment agreement or special powers of attorney" that
the DOLE was authorized to collect under Section 7 of EO No. 1022, 118 which was issued by
President Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by
the DOLE from the foreign employers of OFWs and are intended to be used for "the
promotion of overseas employment and for welfare services to Filipino workers within the
area of jurisdiction of [concerned] foreign missions under the administration of the
[DOLE]."119
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management,
the Department of Finance and the COA in an effort to implement Section 7 of Executive
Order No. 1022.120 Thus, under Joint Circular 3-99, the following officials have been tasked
to be the "Verification Fee Collecting Officer" on behalf of the DOLE:121
1. The labor attaché or duly authorized overseas labor officer at a given foreign post,
as duly designated by the DOLE Secretary;
2. In foreign posts where there is no labor attaché or duly authorized overseas labor
officer, the finance officer or collecting officer of the DFA duly deputized by the DOLE
Secretary as approved by the DFA Secretary;
3. In the absence of such finance officer or collecting officer, the alternate duly
designated by the head of the foreign post.
Since the Philippines does not maintain an official post in Taiwan, however, the DOLE
entered into a "series" of Memorandum of Agreements with the MECO, which made the latter
the former’s collecting agent with respect to the "verification fees" that may be due from
Taiwanese employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement
between DOLE and the MECO, the "verification fees" to be collected by the latter are to be
allocated as follows: (a) US$ 10 to be retained by the MECO as administrative fee, (b) US $10
to be remitted to the DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO
and DOLE.123
Evidently, the entire "verification fees" being collected by the MECO are receivables of the
DOLE.124 Such receipts pertain to the DOLE by virtue of Section 7 of EO No. 1022.
Aside from the DOLE "verification fees," however, the MECO also collects "consular fees," or
fees it collects from the exercise of its delegated consular functions.
The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said section
authorizes the MECO to collect "reasonable fees" for its performance of the following
consular functions:
PUBLIC CORPORATION_cases for September 19, 2020 129
1. Issuance of temporary visitors’ visas and transit and crew list visas, and such other
visa services as may be authorized by the DFA;
Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no
consular office for the collection of the "consular fees." Thus, the authority for the MECO to
collect the "reasonable fees," vested unto it by the executive order.
The "consular fees," although held and expended by the MECO by virtue of EO No. 15, s. 2001,
are, without question, derived from the exercise by the MECO of consular functions—
functions it performs by and only through special authority from the government. There was
never any doubt that the visas, passports and other documents that the MECO issues
pursuant to its authorized functions still emanate from the Philippine government itself.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out
under EO No. 15, s. 2001. They must be reasonable as the authorization requires. It is the
government that has ultimate control over the disposition of the "consular fees," which
control the government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001
that such funds may be kept by the MECO "to defray the cost of its operations."
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be
Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of
non-governmental entities "required to pay xxx or have government share" but only with
respect to "funds xxx coming from or through the government." This provision of law
perfectly fits the MECO:
First. The MECO receives the "verification fees" by reason of being the collection agent of the
DOLE—a government agency. Out of its collections, the MECO is required, by agreement, to
remit a portion thereof to the DOLE. Hence, the MECO is accountable to the government for
its collections of such "verification fees" and, for that purpose, may be audited by the COA.
Second. Like the "verification fees," the "consular fees" are also received by the MECO
through the government, having been derived from the exercise of consular functions
entrusted to the MECO by the government. Hence, the MECO remains accountable to the
government for its collections of "consular fees" and, for that purpose, may be audited by the
COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the
MECO and Section 2(6) of EO No. 15, s. 2001, vis-à-vis, respectively, the "verification fees"
and the "consular fees," grant and at the same time limit the authority of the MECO to collect
PUBLIC CORPORATION_cases for September 19, 2020 130
such fees. That grant and limit require the audit by the COA of the collections thereby
generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity
especially entrusted by the government with the facilitation of unofficial relations with the
people in Taiwan without jeopardizing the country’s faithful commitment to the One China
policy of the PROC. However, despite its non-governmental character, the MECO handles
government funds in the form of the "verification fees" it collects on behalf of the DOLE and
the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001. Hence, under existing
laws, the accounts of the MECO pertaining to its collection of such "verification fees" and
"consular fees" should be audited by the COA.
No costs.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 131
SYLLABUS
3. ID.; ID.; ID.; ID.; THE PROPERTIES OF A MUNICIPAL CORPORATION MAY EITHER BE FOR
PUBLIC USE OR PATRIMONIAL. — In connection with the powers of a municipal corporation,
it may acquire property in its public or governmental capacity, and private or proprietary
capacity. The New Civil Code divides such properties into property for public use and
patrimonial properties (Article 423), and further enumerates the properties for public use
as provincial roads, city streets, municipal streets, the squares, fountains, public waters,
promenades, and public works for public service paid for by said provisions, cities or
municipalities, all other property is patrimonial without prejudice to the provisions of
special laws (Article 424; Province of Zamboanga del Norte v. City of Zamboanga, Et Al., 22
SCRA 1334 [1968]).
Cajuigan, Et Al., 21 Phil. 184 (1912) or ex delicto (Mendoza v. de Leon, 33 Phil. 508 (1916).
5. ID.; ID.; ID.; ID.; ID.; NORTH CEMETERY, A PATRIMONIAL PROPERTY OF THE CITY OF
MANILA; UNDER THE ADMINISTRATION OF THE HEALTH OFFICER. — In the absence of a
special law, the North Cemetery is a patrimonial property of the City of Manila which was
created by resolution of the Municipal Board of August 27, 1903 and January 7, 1904
(Petition, Rollo pp. 20-21 Compilation of the Ordinances of the City of Manila). The
administration and government of the cemetery are under the City Health Officer (Ibid., Sec.
3189), the order and police of the cemetery (Ibid., Sec. 319), the opening of graves, inches,
or tombs, the exhuming of remains, and the purification of the same (Ibid., Sec. 327) are
under the charge and responsibility of the superintendent of the cemetery. The City of Manila
furthermore prescribes the procedure and guidelines for the use and dispositions of burial
lots and plots within the North Cemetery through Administrative Order No. 5, s. 1975 (Rollo,
p. 44). With the acts of dominion, there is, therefore no doubt that the North Cemetery is
within the class of property which the City of Manila owns in its proprietary or private
character.
7. ID.; DAMAGES; RESPONDENT SUPERIOR; CITY OF MANILA IS LIABLE FOR THE TORTIOUS
ACT OF ITS AGENTS; DURATION OF LEASE NOT AFFECTED BY ADMINISTRATIVE ORDER
ISSUED SUBSEQUENT TO THE EXECUTION OF THE CONTRACT. — Under the doctrine of
respondeat superior, (Torio v. Fontanilla, supra), petitioner City of Manila is liable for the
tortious act committed by its agents who failed to verify and check the duration of the
contract of lease. The contention of the petitioner-city that the lease is covered by
Administrative Order No. 5, series of 1975 dated March 6, 1975 of the City of Manila for five
(5) years only beginning from June 6, 1971 is not meritorious for the said administrative
order covers new leases. When subject lot was certified on January 25, 1978 as ready for
exhumation, the lease contract for fifty (50) years was still in full force and effect.
DECISION
PARAS, J.:
This is a petition for review on certiorari seeking to reverse and set aside: (a) the Decision of
the Intermediate Appellate Court now Court of Appeals 1 promulgated on May 31, 1984 in
AC-G.R. CV No. 00613-R entitled Irene Sto. Domingo Et. Al. v. City Court of Manila Et. Al.,
PUBLIC CORPORATION_cases for September 19, 2020 133
modifying the decision of the then Court of First Instance of Manila, Branch VIII 2 in Civil
Case No. 121921 ordering the defendants (herein petitioners) to give plaintiffs (herein
private respondents) the right to use a burial lot in the North Cemetery corresponding to the
unexpired term of the fully paid lease sued upon, to search the remains of the late Vivencio
Sto. Domingo, Sr. and to bury the same in a substitute lot to be chosen by the plaintiffs; and
(b) the Resolution of the Court of Appeals dated May 28, 1985 denying petitioner’s motion
for reconsideration.chanrobles.com:cralaw:red
As found by the Court of Appeals and the trial court, the undisputed facts of the case are as
follows:jgc:chanrobles.com.ph
"Brought on February 22, 1979 by the widow and children of the late Vivencio Sto. Domingo,
Sr. was this action for damages against the City of Manila; Evangeline Suva of the City Health
Office; Sergio Mallari, officer-in-charge of the North Cemetery; and Joseph Hebmuth, the
latter’s predecessor as officer-in-charge of the said burial grounds owned and operated by
the City Government of Manila.
"Vivencio Sto. Domingo, Sr. deceased husband of plaintiff Irene Sto. Domingo and father of
the litigating minors, died on June 4, 1971 and buried on June 6, 1971 in Lot No. 159, Block
No. 194 of the North Cemetery which lot was leased by the city to Irene Sto. Domingo for the
period from June 6, 1971 to June 6, 2021 per Official Receipt No. 61307 dated June 6, 1971
(see Exh. A) with an expiry date of June 6, 2021 (see Exh. A-1). Full payment of the rental
therefor of P50.00 is evidenced by the said receipt which appears to be regular on its face.
Apart from the aforementioned receipt, no other document was executed to embody such
lease over the burial lot in question. In fact, the burial record for Block No. 194 of Manila
North Cemetery (see Exh. 2) in which subject Lot No. 159 is situated does not reflect the term
of duration of the lease thereover in favor of the Sto. Domingos.
"Believing in good faith that, in accordance with Administrative Order No. 5, Series of 1975,
dated March 6, 1975, of the City Mayor of Manila (See Exh. 1) prescribing uniform procedure
and guidelines in the processing of documents pertaining to and for the use and disposition
of burial lots and plots within the North Cemetery, etc., subject Lot No. 159 of Block 194 in
which the mortal remains of the late Vivencio Sto. Domingo were laid to rest, was leased to
the bereaved family for five (5) years only, subject lot was certified on January 25, 1978 as
ready for exhumation.
"On the basis of such certification, the authorities of the North Cemetery then headed by
defendant Joseph Helmuth authorized the exhumation and removal from subject burial lot
the remains of the late Vivencio Sto. Domingo, Sr., placed the bones and skull in a bag or sack
and kept the same in the depository or bodega of the cemetery. Subsequently, the same lot
in question was rented out to another lessee so that when the plaintiffs herein went to said
lot on All Souls Day in their shock, consternation and dismay, that the resting place of their
dear departed did not anymore bear the stone marker which they lovingly placed on the
tomb. Indignant and disgusted over such a sorrowful finding, Irene Sto. Domingo lost no time
in inquiring from the officer-in-charge of the North Cemetery, defendant Sergio Mallari, and
was told that the remains of her late husband had been taken from the burial lot in question
which was given to another lessee.
"Irene Sto. Domingo was also informed that she can look for the bones of her deceased
PUBLIC CORPORATION_cases for September 19, 2020 134
husband in the warehouse of the cemetery where the exhumed remains from the different
burial lots of the North Cemetery are being kept until they are retrieved by interested parties.
But to the bereaved widow, what she was advised to do was simply unacceptable. According
to her, it was just impossible to locate the remains of her late husband in a depository
containing thousands upon thousands of sacks of human bones. She did not want to run the
risk of claiming for the wrong set of bones. She was even offered another lot but was never
appeased. She was too aggrieved that she came to court for relief even before she could
formally present her claims and demands to the city government and to the other defendants
named in the present complaint." (Decision, Court of Appeals, pp. 2-3; Rollo, pp. 34-55)
The trial court, on August 4, 1981, rendered its Decision, the dispositive portion of which
states:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered, ordering the defendants to give plaintiffs the
right to make use of another single lot within the North Cemetery for a period of forty-three
(43) years four (4) months and eleven (11) days, corresponding to the unexpired term of the
fully paid lease sued upon; and to search without let up and with the use of all means
humanly possible, for the remains of the late Vivencio Sto. Domingo, Sr. and thereafter, to
bury the same in the substitute lot to be chosen by the plaintiffs pursuant to this
decision.chanrobles law library : red
The decision was appealed to the Court of Appeals which on May 31, 1984 rendered a
decision (Rollo, pp. 33-40) modifying the decision appealed from, the dispositive portion of
which reads:jgc:chanrobles.com.ph
"1. Requiring in full force the defendants to look in earnest for the bones and skull of the late
Vivencio Sto. Domingo, Sr., and to bury the same in the substitute lot adjudged in favor of
plaintiffs hereunder;
"2. Ordering defendants to pay plaintiffs-appellants jointly and severally P10,000.00 for
breach of contract;
"3. Ordering defendants to pay plaintiffs-appellants, jointly and severally, P20,000.00 for
moral damages;
"4. Ordering defendants to pay plaintiffs-appellants jointly and severally, P20,000.00 for
exemplary damages;
"5. Ordering defendants to pay plaintiffs-appellants, jointly and severally, P10,000.00 as and
for attorney’s fees;
PUBLIC CORPORATION_cases for September 19, 2020 135
"6. Ordering defendants, to pay plaintiffs-appellants, jointly and severally, on the foregoing
amounts legal rate of interest computed from filing hereof until fully paid; and
"7. Ordering defendants, to pay plaintiffs-appellants, jointly and severally, the cost of suit.
Hence, this instant petition (Rollo, pp. 7-27) filed on July 27, 1985.
The grounds relied upon for this petition are as follows:chanrob1es virtual 1aw library
II
In the resolution dated November 13, 1985 (Rollo, p. 84), the petition was given due course.
The pivotal issue of this case is whether or not the operations and functions of a public
cemetery are a governmental, or a corporate or proprietary function of the City of Manila.
The resolution of this issue is essential to the determination of the liability for damages of
the petitioner city.chanrobles.com:cralaw:red
Petitioners alleged in their petition that the North Cemetery is exclusively devoted for public
use or purpose as stated in Sec. 316 of the Compilation of the Ordinances of the City of Manila.
They conclude that since the City is a political subdivision in the performance of its
governmental function, it is immune from tort liability which may be caused by its public
officers and subordinate employees. Further Section 4, Article I of the Revised Charter of
Manila exempts the city from liability for damages or injuries to persons or property arising
from the failure of the Mayor, the Municipal Board, or any other city officer, to enforce the
provision of its charter or any other laws, or ordinance, or from negligence of said Mayor,
PUBLIC CORPORATION_cases for September 19, 2020 136
Municipal Board or any other officers while enforcing or attempting to enforce said
provisions. They allege that the Revised Charter of Manila being a special law cannot be
defeated by the Human Relations provisions of the Civil Code being a general law.
Private respondents on the other hand maintain that the City of Manila entered into a
contract of lease which involve the exercise of proprietary functions with private respondent
Irene Sto. Domingo. The city and its officers therefore can be sued for any violation of the
contract of lease.
Under Philippine laws, the City of Manila is a political body corporate and as such endowed
with the faculties of municipal corporations to be exercised by and through its city
government in conformity with law, and in its proper corporate name. It may sue and be
sued, and contract and be contracted with. Its powers are twofold in character-public,
governmental or political on the one hand, and corporate, private and proprietary on the
other. Governmental powers are those exercised in administering the powers of the state
and promoting the public welfare and they include the legislative, judicial, public and
political. Municipal powers on the one hand are exercised for the special benefit and
advantage of the community and include those which are ministerial, private and corporate.
In McQuillin on Municipal Corporation, the rule is stated thus: "A municipal corporation
proper has . . . a public character as regards the state at large insofar as it is its agent in
government, and private (so called) insofar as it is to promote local necessities and
conveniences for its own community (Torio v. Fontanilla, 85 SCRA 599 [1978]). In
connection with the powers of a municipal corporation, it may acquire property in its public
or governmental capacity, and private or proprietary capacity. The New Civil Code divides
such properties into property for public use and patrimonial properties (Article 423), and
further enumerates the properties for public use as provincial roads, city streets, municipal
streets, the squares, fountains, public waters, promenades, and public works for public
service paid for by said provisions, cities or municipalities, all other property is patrimonial
without prejudice to the provisions of special laws (Article 424; Province of Zamboanga del
Norte v. City of Zamboanga, Et Al., 22 SCRA 1334 [1968]).
Thus in Torio v. Fontanilla, supra, the Court declared that with respect to proprietary
functions the settled rule is that a municipal corporation can be held liable to third persons
ex contractu (Municipality of Moncada v. Cajuigan, Et Al., 21 Phil. 184 (1912) or ex delicto
(Mendoza v. de Leon, 33 Phil. 508 (1916).chanrobles.com.ph : virtual law library
x x x
"The rule of law is a general one, that the superior or employer must answer civilly for the
negligence or want of skill of its agent or servant in the course or line of his employment, by
which another, who is free from contributory fault, is injured. Municipal corporations under
the conditions herein stated, fall within the operation of this rule of law, and are liable
PUBLIC CORPORATION_cases for September 19, 2020 137
accordingly, to civil actions for damages when the requisite elements of liability coexist. . . .
(Emphasis supplied).
". . . while the following are corporate or proprietary in character, viz: municipal waterworks,
slaughter houses, markets, stables, bathing establishments, wharves, ferries and fisheries.
Maintenance of parks, golf courses, cemeteries and airports among others, are also
recognized as municipal or city activities of a proprietary character." (Dept. of Treasury v.
City of Evansvulle, Sup. Ct. of Indiana, 60 N.E. 2nd 952, 954 cited in Torio v. Fontanilla, supra)
(Emphasis supplied)
Under the foregoing considerations and in the absence of a special law, the North Cemetery
is a patrimonial property of the City of Manila which was created by resolution of the
Municipal Board of August 27, 1903 and January 7, 1904 (Petition, Rollo pp. 20-21
Compilation of the Ordinances of the City of Manila). The administration and government of
the cemetery are under the City Health Officer (Ibid., Sec. 3189), the order and police of the
cemetery (Ibid., Sec. 319), the opening of graves, inches, or tombs, the exhuming of remains,
and the purification of the same (Ibid., Sec. 327) are under the charge and responsibility of
the superintendent of the cemetery. The City of Manila furthermore prescribes the
procedure and guidelines for the use and dispositions of burial lots and plots within the
North Cemetery through Administrative Order No. 5, s. 1975 (Rollo, p. 44). With the acts of
dominion, there is, therefore no doubt that the North Cemetery is within the class of property
which the City of Manila owns in its proprietary or private character. Furthermore, there is
no dispute that the burial lot was leased in favor of the private respondents. Hence,
obligations arising from contracts have the force of law between the contracting parties.
Thus a lease contract executed by the lessor and lessee remains as the law between them.
(Henson v. Intermediate Appellate Court, 148 SCRA 11 [1987]). Therefore, a breach of
contractual provision entitles the other party to damages even if no penalty for such breach
is prescribed in the contract. (Boysaw v. Interphil Promotions, Inc., 148 SCRA 635
[1987]).chanrobles virtual lawlibrary
Noteworthy are the findings of the Court of Appeals as to the harrowing experience of private
respondents and their wounded feelings upon discovery that the remains of their loved one
were exhumed without their knowledge and consent, as said Court
declared:jgc:chanrobles.com.ph
"It has been fully established that the appellants, in spite or perhaps because, of their lowly
station in life have found great consolation in their bereavement from the loss of their family
head, by visiting his grave on special or even ordinary occasions, but particularly on All
Saints Day, in keeping with the deep, beautiful and Catholic Filipino tradition of revering the
memory of their dead. It would have been but fair and equitable that they were notified of
the intention of the city government to transfer the skeletal remains of the late Vivencio Sto.
Domingo to give them an opportunity to demand the faithful fulfillment of their contract, or
at least to prepare and make provisions for said transfer in order that they would not lose
track of the remains of their beloved dead, as what has actually happened on this case. We
understand fully what the family of the deceased must have felt when on All Saints Day of
1978, they found a new marker on the grave they were to visit, only to be told to locate their
beloved dead among thousands of skeletal remains which to them was desecration and an
PUBLIC CORPORATION_cases for September 19, 2020 138
impossible task. Even the lower court recognized this when it stated in its decision
thus:chanrob1es virtual 1aw library
‘All things considered, even as the Court commiserates with plaintiffs for the unfortunate
happening complained of and untimely desecration of the resting place and remains of their
deceased dearly beloved, it finds the reliefs prayed for by them lacking in legal and factual
basis. Under the aforementioned facts and circumstances, the most that plaintiffs can ask for
is the replacement of subject lot with another lot of equal size and similar location in the
North Cemetery which substitute lot plaintiffs can make use of without paying any rental to
the city government for a period of forty-three (43) years, four (4) months and eleven (11)
days corresponding to the unexpired portion of the term of the lease sued upon as of January
25, 1978 when the remains of the late Vivencio Sto. Domingo, Sr. were prematurely removed
from the disputed lot; and to require the defendants to look in earnest for the bones and skull
of the late Vivencio Sto. Domingo Sr. and to bury the same in the substitute lot adjudged in
favor of plaintiffs hereunder.’" (Decision, Intermediate Appellate Court, p. 7, Rollo, p. 39)
As regards the issue of the validity of the contract of lease of grave lot No. 159, Block No. 195
of the North Cemetery for 50 years beginning from June 6, 1971 to June 6, 2021 as clearly
stated in the receipt duly signed by the deputy treasurer of the City of Manila and sealed by
the city government, there is nothing in the record that justifies the reversal of the conclusion
of both the trial court and the Intermediate Appellate Court to the effect that the receipt is in
itself a contract of lease. (Decision, Intermediate Appellate Court, p. 3, Rollo, pp. 5-
6).chanrobles.com.ph : virtual law library
Under the doctrine of respondeat superior, (Torio v. Fontanilla, supra), petitioner City of
Manila is liable for the tortious act committed by its agents who failed to verify and check the
duration of the contract of lease. The contention of the petitioner-city that the lease is
covered by Administrative Order No. 5, series of 1975 dated March 6, 1975 of the City of
Manila for five (5) years only beginning from June 6, 1971 is not meritorious for the said
administrative order covers new leases. When subject lot was certified on January 25, 1978
as ready for exhumation, the lease contract for fifty (50) years was still in full force and effect.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 139
MEDIALDEA, J.:
This is a petition for certiorari with prayer for the issuance of a writ of preliminary
mandatory injunction seeking the nullification or modification of the proceedings and the
orders issued by the respondent Judge Romeo N. Firme, in his capacity as the presiding judge
of the Court of First Instance of La Union, Second Judicial District, Branch IV, Bauang, La
Union in Civil Case No. 107-BG, entitled "Juana Rimando Baniña, et al. vs. Macario Nieveras,
et al." dated November 4, 1975; July 13, 1976; August 23,1976; February 23, 1977; March
16, 1977; July 26, 1979; September 7, 1979; November 7, 1979 and December 3, 1979 and
the decision dated October 10, 1979 ordering defendants Municipality of San Fernando, La
Union and Alfredo Bislig to pay, jointly and severally, the plaintiffs for funeral expenses,
actual damages consisting of the loss of earning capacity of the deceased, attorney's fees and
costs of suit and dismissing the complaint against the Estate of Macario Nieveras and
Bernardo Balagot.
At about 7 o'clock in the morning of December 16, 1965, a collision occurred involving a
passenger jeepney driven by Bernardo Balagot and owned by the Estate of Macario Nieveras,
a gravel and sand truck driven by Jose Manandeg and owned by Tanquilino Velasquez and a
dump truck of the Municipality of San Fernando, La Union and driven by Alfredo Bislig. Due
to the impact, several passengers of the jeepney including Laureano Baniña Sr. died as a
result of the injuries they sustained and four (4) others suffered varying degrees of physical
injuries.
On December 11, 1966, the private respondents instituted a compliant for damages against
the Estate of Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the
passenger jeepney, which was docketed Civil Case No. 2183 in the Court of First Instance of
PUBLIC CORPORATION_cases for September 19, 2020 140
La Union, Branch I, San Fernando, La Union. However, the aforesaid defendants filed a Third
Party Complaint against the petitioner and the driver of a dump truck of petitioner.
Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent
judge and was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order
dated May 7, 1975, the private respondents amended the complaint wherein the petitioner
and its regular employee, Alfredo Bislig were impleaded for the first time as defendants.
Petitioner filed its answer and raised affirmative defenses such as lack of cause of action,
non-suability of the State, prescription of cause of action and the negligence of the owner and
driver of the passenger jeepney as the proximate cause of the collision.
In the course of the proceedings, the respondent judge issued the following questioned
orders, to wit:
(1) Order dated November 4, 1975 dismissing the cross-claim against Bernardo
Balagot;
(2) Order dated July 13, 1976 admitting the Amended Answer of the Municipality of
San Fernando, La Union and Bislig and setting the hearing on the affirmative defenses
only with respect to the supposed lack of jurisdiction;
(3) Order dated August 23, 1976 deferring there resolution of the grounds for the
Motion to Dismiss until the trial;
(4) Order dated February 23, 1977 denying the motion for reconsideration of the
order of July 13, 1976 filed by the Municipality and Bislig for having been filed out of
time;
(5) Order dated March 16, 1977 reiterating the denial of the motion for
reconsideration of the order of July 13, 1976;
(6) Order dated July 26, 1979 declaring the case deemed submitted for decision it
appearing that parties have not yet submitted their respective memoranda despite
the court's direction; and
(7) Order dated September 7, 1979 denying the petitioner's motion for
reconsideration and/or order to recall prosecution witnesses for cross examination.
On October 10, 1979 the trial court rendered a decision, the dispositive portion is hereunder
quoted as follows:
IN VIEW OF ALL OF (sic) THE FOREGOING, judgment is hereby rendered for the
plaintiffs, and defendants Municipality of San Fernando, La Union and Alfredo Bislig
are ordered to pay jointly and severally, plaintiffs Juana Rimando-Baniña, Mrs.
Priscilla B. Surell, Laureano Baniña Jr., Sor Marietta Baniña, Mrs. Fe B. Soriano,
Montano Baniña, Orja Baniña and Lydia B. Baniña the sums of P1,500.00 as funeral
expenses and P24,744.24 as the lost expected earnings of the late Laureano Baniña
Sr., P30,000.00 as moral damages, and P2,500.00 as attorney's fees. Costs against said
defendants.
PUBLIC CORPORATION_cases for September 19, 2020 141
Petitioner filed a motion for reconsideration and for a new trial without prejudice to another
motion which was then pending. However, respondent judge issued another order dated
November 7, 1979 denying the motion for reconsideration of the order of September 7, 1979
for having been filed out of time.
Finally, the respondent judge issued an order dated December 3, 1979 providing that if
defendants municipality and Bislig further wish to pursue the matter disposed of in the order
of July 26, 1979, such should be elevated to a higher court in accordance with the Rules of
Court. Hence, this petition.
Petitioner maintains that the respondent judge committed grave abuse of discretion
amounting to excess of jurisdiction in issuing the aforesaid orders and in rendering a
decision. Furthermore, petitioner asserts that while appeal of the decision maybe available,
the same is not the speedy and adequate remedy in the ordinary course of law.
On the other hand, private respondents controvert the position of the petitioner and allege
that the petition is devoid of merit, utterly lacking the good faith which is indispensable in a
petition for certiorari and prohibition. (Rollo, p. 42.) In addition, the private respondents
stress that petitioner has not considered that every court, including respondent court, has
the inherent power to amend and control its process and orders so as to make them
conformable to law and justice. (Rollo, p. 43.)
The controversy boils down to the main issue of whether or not the respondent court
committed grave abuse of discretion when it deferred and failed to resolve the defense of
non-suability of the State amounting to lack of jurisdiction in a motion to dismiss.
In the case at bar, the respondent judge deferred the resolution of the defense of non-
suability of the State amounting to lack of jurisdiction until trial. However, said respondent
judge failed to resolve such defense, proceeded with the trial and thereafter rendered a
decision against the municipality and its driver.
The respondent judge did not commit grave abuse of discretion when in the exercise of its
judgment it arbitrarily failed to resolve the vital issue of non-suability of the State in the guise
of the municipality. However, said judge acted in excess of his jurisdiction when in his
decision dated October 10, 1979 he held the municipality liable for the quasi-delict
committed by its regular employee.
The doctrine of non-suability of the State is expressly provided for in Article XVI, Section 3
of the Constitution, to wit: "the State may not be sued without its consent."
Stated in simple parlance, the general rule is that the State may not be sued except when it
gives consent to be sued. Consent takes the form of express or implied consent.
Express consent may be embodied in a general law or a special law. The standing consent of
the State to be sued in case of money claims involving liability arising from contracts is found
PUBLIC CORPORATION_cases for September 19, 2020 142
in Act No. 3083. A special law may be passed to enable a person to sue the government for
an alleged quasi-delict, as in Merritt v. Government of the Philippine Islands (34 Phil 311).
(see United States of America v. Guinto, G.R. No. 76607, February 26, 1990, 182 SCRA 644,
654.)
Consent is implied when the government enters into business contracts, thereby descending
to the level of the other contracting party, and also when the State files a complaint, thus
opening itself to a counterclaim. (Ibid)
Municipal corporations, for example, like provinces and cities, are agencies of the State when
they are engaged in governmental functions and therefore should enjoy the sovereign
immunity from suit. Nevertheless, they are subject to suit even in the performance of such
functions because their charter provided that they can sue and be sued. (Cruz, Philippine
Political Law, 1987 Edition, p. 39)
A distinction should first be made between suability and liability. "Suability depends on the
consent of the state to be sued, liability on the applicable law and the established facts. The
circumstance that a state is suable does not necessarily mean that it is liable; on the other
hand, it can never be held liable if it does not first consent to be sued. Liability is not conceded
by the mere fact that the state has allowed itself to be sued. When the state does waive its
sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the
defendant is liable." (United States of America vs. Guinto, supra, p. 659-660)
Anent the issue of whether or not the municipality is liable for the torts committed by its
employee, the test of liability of the municipality depends on whether or not the driver,
acting in behalf of the municipality, is performing governmental or proprietary functions. As
emphasized in the case of Torio vs. Fontanilla (G. R. No. L-29993, October 23, 1978. 85 SCRA
599, 606), the distinction of powers becomes important for purposes of determining the
liability of the municipality for the acts of its agents which result in an injury to third persons.
Another statement of the test is given in City of Kokomo vs. Loy, decided by the Supreme
Court of Indiana in 1916, thus:
Municipal corporations exist in a dual capacity, and their functions are twofold. In one
they exercise the right springing from sovereignty, and while in the performance of
the duties pertaining thereto, their acts are political and governmental. Their officers
and agents in such capacity, though elected or appointed by them, are nevertheless
public functionaries performing a public service, and as such they are officers, agents,
and servants of the state. In the other capacity the municipalities exercise a private,
proprietary or corporate right, arising from their existence as legal persons and not
as public agencies. Their officers and agents in the performance of such functions act
in behalf of the municipalities in their corporate or individual capacity, and not for
the state or sovereign power." (112 N.E., 994-995) (Ibid, pp. 605-606.)
It has already been remarked that municipal corporations are suable because their charters
grant them the competence to sue and be sued. Nevertheless, they are generally not liable
for torts committed by them in the discharge of governmental functions and can be held
answerable only if it can be shown that they were acting in a proprietary capacity. In
permitting such entities to be sued, the State merely gives the claimant the right to show that
the defendant was not acting in its governmental capacity when the injury was committed
PUBLIC CORPORATION_cases for September 19, 2020 143
or that the case comes under the exceptions recognized by law. Failing this, the claimant
cannot recover. (Cruz, supra, p. 44.)
In the case at bar, the driver of the dump truck of the municipality insists that "he was on his
way to the Naguilian river to get a load of sand and gravel for the repair of San Fernando's
municipal streets." (Rollo, p. 29.)
In the absence of any evidence to the contrary, the regularity of the performance of official
duty is presumed pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court. Hence,
We rule that the driver of the dump truck was performing duties or tasks pertaining to his
office.
We already stressed in the case of Palafox, et. al. vs. Province of Ilocos Norte, the District
Engineer, and the Provincial Treasurer (102 Phil 1186) that "the construction or
maintenance of roads in which the truck and the driver worked at the time of the accident
are admittedly governmental activities."
All premises considered, the Court is convinced that the respondent judge's dereliction in
failing to resolve the issue of non-suability did not amount to grave abuse of discretion. But
said judge exceeded his jurisdiction when it ruled on the issue of liability.
ACCORDINGLY, the petition is GRANTED and the decision of the respondent court is hereby
modified, absolving the petitioner municipality of any liability in favor of private
respondents.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 144
DECISION
QUISUMBING, J.:
For our resolution is a petition for review on certiorari seeking the reversal of the decision 1
dated February 10, 1997 of the Regional Trial Court of San Pedro, Laguna, Branch 93,
enjoining petitioners from implementing or enforcing Kapasiyahan Bilang 508, Taon 1995,
of the Sangguniang Panlalawigan of Laguna and its subsequent Order 2 dated April 21, 1997
denying petitioners’ motion for reconsideration.chanrob1es virtua1 1aw 1ibrary
On December 29, 1995, respondent Tony Calvento was appointed agent by the Philippine
Charity Sweepstakes Office (PCSO) to install Terminal OM 20 for the operation of lotto. He
asked Mayor Calixto Cataquiz, Mayor of San Pedro, Laguna, for a mayor’s permit to open the
lotto outlet. This was denied by Mayor Cataquiz in a letter dated February 19, 1996. The
ground for said denial was an ordinance passed by the Sangguniang Panlalawigan of Laguna
entitled Kapasiyahan Blg. 508, T. 1995 which was issued on September 18, 1995. The
ordinance reads:chanrob1es virtual 1aw library
KUNG KAYA’T DAHIL DITO, at sa mungkahi nina Kgg. Kgd. Juan M. Unico at Kgg. Kgd. Gat-Ala
A. Alatiit, pinangalawahan ni Kgg. Kgd. Meliton C. Larano at buong pagkakaisang
sinangayunan ng lahat ng dumalo sa pulong;
IPINASIYA, na tutulan gaya ng dito ay mahigpit na TINUTUTULAN ang ano mang uri ng sugal
dito sa lalawigan ng Laguna lalo’t higit ang Lotto;
As a result of this resolution of denial, respondent Calvento filed a complaint for declaratory
relief with prayer for preliminary injunction and temporary restraining order. In the said
complaint, respondent Calvento asked the Regional Trial Court of San Pedro Laguna, Branch
93, for the following reliefs: (1) a preliminary injunction or temporary restraining order,
PUBLIC CORPORATION_cases for September 19, 2020 145
ordering the defendants to refrain from implementing or enforcing Kapasiyahan Blg. 508, T.
1995; (2) an order requiring Hon. Municipal Mayor Calixto R Cataquiz to issue a business
permit for the operation of a lotto outlet; and (3) an order annulling or declaring as invalid
Kapasiyahan Blg. 508, T. 1995.
On February 10, 1997, the respondent judge, Francisco Dizon Paño, promulgated his
decision enjoining the petitioners from implementing or enforcing resolution or
Kapasiyahan Blg. 508, T. 1995. The dispositive portion of said decision reads:chanrob1es
virtua1 1aw 1ibrary
WHEREFORE, premises considered, Defendants, their agents and representatives are hereby
enjoined from implementing or enforcing resolution or kapasiyahan blg. 508, T. 1995 of the
Sangguniang Panlalawigan ng Laguna prohibiting the operation of the lotto in the province
of Laguna.
SO ORDERED. 4
Petitioners filed a motion for reconsideration which was subsequently denied in an Order
dated April 21, 1997, which reads:chanrob1es virtual 1aw library
Acting on the Motion for Reconsideration filed by defendants Jose D. Lina, Jr. and the
Sangguniang Panlalawigan of Laguna, thru counsel, with the opposition filed by plaintiff’s
counsel and the comment thereto filed by counsel for the defendants which were duly noted,
the Court hereby denies the motion for lack of merit.
SO ORDERED. 5
On May 23, 1997, petitioners filed this petition alleging that the following errors were
committed by the respondent trial court:chanrob1es virtual 1aw library
II
Petitioners contend that the assailed resolution is a valid policy declaration of the Provincial
Government of Laguna of its vehement objection to the operation of lotto and all forms of
gambling. It is likewise a valid exercise of the provincial government’s police power under
PUBLIC CORPORATION_cases for September 19, 2020 146
the General Welfare Clause of Republic Act 7160, otherwise known as the Local Government
Code of 1991. 6 They also maintain that respondent’s lotto operation is illegal because no
prior consultations and approval by the local government were sought before it was
implemented contrary to the express provisions of Sections 2 (c) and 27 of R.A. 7160.
7cralaw : red
For his part, respondent Calvento argues that the questioned resolution is, in effect, a
curtailment of the power of the state since in this case the national legislature itself had
already declared lotto as legal and permitted its operations around the country. 8 As for the
allegation that no prior consultations and approval were sought from the sangguniang
panlalawigan of Laguna, respondent Calvento contends this is not mandatory since such a
requirement is merely stated as a declaration of policy and not a self-executing provision of
the Local Government Code of 1991. 9 He also states that his operation of the lotto system is
legal because of the authority given to him by the PCSO, which in turn had been granted a
franchise to operate the lotto by Congress. 10
The Office of the Solicitor General (OSG), for the State, contends that the Provincial
Government of Laguna has no power to prohibit a form of gambling which has been
authorized by the national government. 11 He argues that this is based on the principle that
ordinances should not contravene statutes as municipal governments are merely agents of
the national government. The local councils exercise only delegated legislative powers which
have been conferred on them by Congress. This being the case, these councils, as delegates,
cannot be superior to the principal or exercise powers higher than those of the latter. The
OSG also adds that the question of whether gambling should be permitted is for Congress to
determine, taking into account national and local interests. Since Congress has allowed the
PCSO to operate lotteries which PCSO seeks to conduct in Laguna, pursuant to its legislative
grant of authority, the province’s Sangguniang Panlalawigan cannot nullify the exercise of
said authority by preventing something already allowed by Congress.
The issues to be resolved now are the following: (1) whether Kapasiyahan Blg. 508, T. 1995
of the Sangguniang Panlalawigan of Laguna and the denial of a mayor’s permit based thereon
are valid; and (2) whether prior consultations and approval by the concerned Sanggunian
are needed before a lotto system can be operated in a given local government unit.
The entire controversy stemmed from the refusal of Mayor Cataquiz to issue a mayor’s
permit for the operation of a lotto outlet in favor of private Respondent. According to the
mayor, he based his decision on an existing ordinance prohibiting the operation of lotto in
the province of Laguna. The ordinance, however, merely states the "objection" of the council
to the said game. It is but a mere policy statement on the part of the local council, which is
not self-executing. Nor could it serve as a valid ground to prohibit the operation of the lotto
system in the province of Laguna. Even petitioners admit as much when they stated in their
petition that:chanrob1es virtua1 1aw 1ibrary
5.7. The terms of the Resolution and the validity thereof are express and clear. The
Resolution is a policy declaration of the Provincial Government of Laguna of its vehement
opposition and/or objection to the operation of and/or all forms of gambling including the
Lotto operation in the Province of Laguna. 12
As a policy statement expressing the local government’s objection to the lotto, such
PUBLIC CORPORATION_cases for September 19, 2020 147
resolution is valid. This is part of the local government’s autonomy to air its views which may
be contrary to that of the national government’s. However, this freedom to exercise contrary
views does not mean that local governments may actually enact ordinances that go against
laws duly enacted by Congress. Given this premise, the assailed resolution in this case could
not and should not be interpreted as a measure or ordinance prohibiting the operation of
lotto.
The game of lotto is a game of chance duly authorized by the national government through
an Act of Congress. Republic Act 1169, as amended by Batas Pambansa Blg. 42, is the law
which grants a franchise to the PCSO and allows it to operate the lotteries. The pertinent
provision reads:chanrob1es virtual 1aw library
A. To hold and conduct charity sweepstakes races, lotteries, and other similar activities, in
such frequency and manner, as shall be determined, and subject to such rules and regulations
as shall be promulgated by the Board of Directors.
This statute remains valid today. While lotto is clearly a game of chance, the national
government deems it wise and proper to permit it. Hence, the Sangguniang Panlalawigan of
Laguna, a local government unit, cannot issue a resolution or an ordinance that would seek
to prohibit permits. Stated otherwise, what the national legislature expressly allows by law,
such as lotto, a provincial board may not disallow by ordinance or resolution.
In our system of government, the power of local government units to legislate and enact
ordinances and resolutions is merely a delegated power coming from Congress. As held in
Tatel v. Virac, 13 ordinances should not contravene an existing statute enacted by Congress.
The reasons for this is obvious, as elucidated in Magtajas v. Pryce Properties Corp.
14chanrob1es virtua1 1aw 1ibrary
Municipal governments are only agents of the national government. Local councils exercise
only delegated legislative powers conferred upon them by Congress as the national
lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the
acts of Congress, from which they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights wholly from
the legislature. It breathes into them the breath of life, without which they cannot exist. As it
creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a single act, and if we can
suppose it capable of so great a folly and so great a wrong, sweep from existence all of the
municipal corporations in the state, and the corporation could not prevent it. We know of no
limitation on the right so far as the corporation themselves are concerned. They are, so to
PUBLIC CORPORATION_cases for September 19, 2020 148
phrase it, the mere tenants at will of the legislature (citing Clinton v. Ceder Rapids, etc.
Railroad Co., 24 Iowa 455).
The basic relationship between the national legislature and the local government units has
not been enfeebled by the new provisions in the Constitution strengthening the policy of
local autonomy. Without meaning to detract from that policy, we here confirm that Congress
retains control of the local government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still includes the power to
destroy. The power to grant still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct conferment on the local
government units of the power to tax (citing Art. X, Sec. 5, Constitution), which cannot now
be withdrawn by mere statute. By and large, however, the national legislature is still the
principal of the local government units, which cannot defy its will or modify or violate it. 15
Ours is still a unitary form of government, not a federal state. Being so, any form of autonomy
granted to local governments will necessarily be limited and confined within the extent
allowed by the central authority. Besides, the principle of local autonomy under the 1987
Constitution simply means "decentralization." It does not make local governments sovereign
within the state or an "imperium in imperio." 16chanrob1es virtua1 1aw 1ibrary
To conclude our resolution of the first issue, respondent mayor of San Pedro, cannot avail of
Kapasiyahan Bilang 508, Taon 1995, of the Provincial Board of Laguna as justification to
prohibit lotto in his municipality. For said resolution is nothing but an expression of the local
legislative unit concerned. The Board’s enactment, like spring water, could not rise above its
source of power, the national legislature.
As for the second issue, we hold that petitioners erred in declaring that Sections 2 (c) and 27
of Republic Act 7160, otherwise known as the Local Government Code of 1991, apply
mandatorily in the setting up of lotto outlets around the country. These provisions
state:chanrob1es virtual 1aw library
(c) It is likewise the policy of the State to require all national agencies and offices to conduct
periodic consultations with appropriate local government units, non-governmental and
people’s organizations, and other concerned sectors of the community before any project or
program is implemented in their respective jurisdictions.
From a careful reading of said provisions, we find that these apply only to national programs
PUBLIC CORPORATION_cases for September 19, 2020 149
Section 27 of the Code should be read in conjunction with Section 26 thereof. 17 Section 26
reads:chanrob1es virtual 1aw library
Thus, the projects and programs mentioned in Section 27 should be interpreted to mean
projects and programs whose effects are among those enumerated in Section 26 and 27, to
wit, those that: (1) may cause pollution; (2) may bring about climatic change; (3) may cause
the depletion of non-renewable resources; (4) may result in loss of crop land, range-land, or
forest cover; (5) may eradicate certain animal or plant species from the face of the planet;
and (6) other projects or programs that may call for the eviction of a particular group of
people residing in the locality where these will be implemented. Obviously, none of these
effects will be produced by the introduction of lotto in the province of Laguna.
In sum, we find no reversible error in the RTC decision enjoining Mayor Cataquiz from
enforcing or implementing the Kapasiyahan Blg. 508, T. 1995, of the Sangguniang
Panlalawigan of Laguna. That resolution expresses merely a policy statement of the Laguna
provincial board. It possesses no binding legal force nor requires any act of implementation.
It provides no sufficient legal basis for respondent mayor’s refusal to issue the permit sought
by private respondent in connection with a legitimate business activity authorized by a law
passed by Congress.
WHEREFORE, the petition is DENIED for lack of merit. The Order of the Regional Trial Court
of San Pedro, Laguna enjoining the petitioners from implementing or enforcing Resolution
or Kapasiyahan Blg. 508, T. 1995, of the Provincial Board of Laguna is hereby AFFIRMED. No
costs.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 150
CRUZ, J.:
There was instant opposition when PAGCOR announced the opening of a casino in Cagayan
de Oro City. Civic organizations angrily denounced the project. The religious elements
echoed the objection and so did the women's groups and the youth. Demonstrations were
led by the mayor and the city legislators. The media trumpeted the protest, describing the
casino as an affront to the welfare of the city.
The trouble arose when in 1992, flush with its tremendous success in several cities, PAGCOR
decided to expand its operations to Cagayan de Oro City. To this end, it leased a portion of a
building belonging to Pryce Properties Corporation, Inc., one of the herein private
respondents, renovated and equipped the same, and prepared to inaugurate its casino there
during the Christmas season.
The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and hostile.
On December 7, 1992, it enacted Ordinance No. 3353 reading as follows:
Sec. 1. — That pursuant to the policy of the city banning the operation of casino
within its territorial jurisdiction, no business permit shall be issued to any
person, partnership or corporation for the operation of casino within the city
limits.
Sec. 4. — This Ordinance shall take effect ten (10) days from publication
thereof.
Nor was this all. On January 4, 1993, it adopted a sterner Ordinance No. 3375-93 reading as
follows:
WHEREAS, on October 14, 1992, the City Council passed another Resolution
No. 2673, reiterating its policy against the establishment of CASINO;
WHEREAS, under Art. 3, section 458, No. (4), sub paragraph VI of the Local
Government Code of 1991 (Rep. Act 7160) and under Art. 99, No. (4),
Paragraph VI of the implementing rules of the Local Government Code, the City
Council as the Legislative Body shall enact measure to suppress any activity
inimical to public morals and general welfare of the people and/or regulate or
prohibit such activity pertaining to amusement or entertainment in order to
protect social and moral welfare of the community;
NOW THEREFORE,
b) Imprisonment of not less than six (6) months nor more than one (1) year or
a fine in the amount of P5,000.00 or both at the discretion of the court against
the manager, supervisor, and/or any person responsible in the establishment,
conduct and maintenance of gambling CASINO.
Sec. 3. — This Ordinance shall take effect ten (10) days after its publication in
a local newspaper of general circulation.
Pryce assailed the ordinances before the Court of Appeals, where it was joined by PAGCOR
as intervenor and supplemental petitioner. Their challenge succeeded. On March 31, 1993,
the Court of Appeals declared the ordinances invalid and issued the writ prayed for to
prohibit their enforcement. 1 Reconsideration of this decision was denied on July 13, 1993. 2
Cagayan de Oro City and its mayor are now before us in this petition for review under Rule
45 of the Rules of Court. 3 They aver that the respondent Court of Appeals erred in holding
that:
2. The phrase "gambling and other prohibited games of chance" found in Sec.
458, par. (a), sub-par. (1) — (v) of R.A. 7160 could only mean "illegal
gambling."
3. The questioned Ordinances in effect annul P.D. 1869 and are therefore
invalid on that point.
5. The questioned Ordinances are not reasonable, not consonant with the
general powers and purposes of the instrumentality concerned and
inconsistent with the laws or policy of the State.
6. It had no option but to follow the ruling in the case of Basco, et al. v.
PAGCOR, G.R. No. 91649, May 14, 1991, 197 SCRA 53 in disposing of the issues
presented in this present case.
PUBLIC CORPORATION_cases for September 19, 2020 153
PAGCOR is a corporation created directly by P.D. 1869 to help centralize and regulate all
games of chance, including casinos on land and sea within the territorial jurisdiction of the
Philippines. In Basco v. Philippine Amusements and Gaming Corporation, 4 this Court
sustained the constitutionality of the decree and even cited the benefits of the entity to the
national economy as the third highest revenue-earner in the government, next only to the
BIR and the Bureau of Customs.
Cagayan de Oro City, like other local political subdivisions, is empowered to enact ordinances
for the purposes indicated in the Local Government Code. It is expressly vested with the
police power under what is known as the General Welfare Clause now embodied in Section
16 as follows:
Sec. 16. — General Welfare. — Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as
powers necessary, appropriate, or incidental for its efficient and effective
governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government
units shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve
public morals, enhance economic prosperity and social justice, promote full
employment among their residents, maintain peace and order, and preserve
the comfort and convenience of their inhabitants.
(1) Approve ordinances and pass resolutions necessary for an efficient and
effective city government, and in this connection, shall:
This section also authorizes the local government units to regulate properties and
businesses within their territorial limits in the interest of the general welfare. 5
The petitioners argue that by virtue of these provisions, the Sangguniang Panlungsod may
prohibit the operation of casinos because they involve games of chance, which are
detrimental to the people. Gambling is not allowed by general law and even by the
Constitution itself. The legislative power conferred upon local government units may be
exercised over all kinds of gambling and not only over "illegal gambling" as the respondents
erroneously argue. Even if the operation of casinos may have been permitted under P.D.
1869, the government of Cagayan de Oro City has the authority to prohibit them within its
territory pursuant to the authority entrusted to it by the Local Government Code.
It is submitted that this interpretation is consonant with the policy of local autonomy as
mandated in Article II, Section 25, and Article X of the Constitution, as well as various other
provisions therein seeking to strengthen the character of the nation. In giving the local
government units the power to prevent or suppress gambling and other social problems, the
Local Government Code has recognized the competence of such communities to determine
and adopt the measures best expected to promote the general welfare of their inhabitants in
line with the policies of the State.
The petitioners also stress that when the Code expressly authorized the local government
units to prevent and suppress gambling and other prohibited games of chance, like craps,
baccarat, blackjack and roulette, it meant all forms of gambling without distinction. Ubi lex
non distinguit, nec nos distinguere debemos. 6 Otherwise, it would have expressly excluded
from the scope of their power casinos and other forms of gambling authorized by special law,
as it could have easily done. The fact that it did not do so simply means that the local
government units are permitted to prohibit all kinds of gambling within their territories,
including the operation of casinos.
The adoption of the Local Government Code, it is pointed out, had the effect of modifying the
charter of the PAGCOR. The Code is not only a later enactment than P.D. 1869 and so is
deemed to prevail in case of inconsistencies between them. More than this, the powers of the
PAGCOR under the decree are expressly discontinued by the Code insofar as they do not
conform to its philosophy and provisions, pursuant to Par. (f) of its repealing clause reading
as follows:
(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.
It is also maintained that assuming there is doubt regarding the effect of the Local
Government Code on P.D. 1869, the doubt must be resolved in favor of the petitioners, in
accordance with the direction in the Code calling for its liberal interpretation in favor of the
local government units. Section 5 of the Code specifically provides:
PUBLIC CORPORATION_cases for September 19, 2020 155
(c) The general welfare provisions in this Code shall be liberally interpreted to
give more powers to local government units in accelerating economic
development and upgrading the quality of life for the people in the community;
. . . (Emphasis supplied.)
Finally, the petitioners also attack gambling as intrinsically harmful and cite various
provisions of the Constitution and several decisions of this Court expressive of the general
and official disapprobation of the vice. They invoke the State policies on the family and the
proper upbringing of the youth and, as might be expected, call attention to the old case of U.S.
v. Salaveria,7 which sustained a municipal ordinance prohibiting the playing of panguingue.
The petitioners decry the immorality of gambling. They also impugn the wisdom of P.D. 1869
(which they describe as "a martial law instrument") in creating PAGCOR and authorizing it
to operate casinos "on land and sea within the territorial jurisdiction of the Philippines."
The morality of gambling is not a justiciable issue. Gambling is not illegal per se. While it is
generally considered inimical to the interests of the people, there is nothing in the
Constitution categorically proscribing or penalizing gambling or, for that matter, even
mentioning it at all. It is left to Congress to deal with the activity as it sees fit. In the exercise
of its own discretion, the legislature may prohibit gambling altogether or allow it without
limitation or it may prohibit some forms of gambling and allow others for whatever reasons
it may consider sufficient. Thus, it has prohibited jueteng and monte but permits lotteries,
cockfighting and horse-racing. I
n making such choices, Congress has consulted its own wisdom, which this Court has no
authority to review, much less reverse. Well has it been said that courts do not sit to resolve
the merits of conflicting theories. 8 That is the prerogative of the political departments. It is
settled that questions regarding the wisdom, morality, or practicibility of statutes are not
addressed to the judiciary but may be resolved only by the legislative and executive
departments, to which the function belongs in our scheme of government. That function is
exclusive. Whichever way these branches decide, they are answerable only to their own
conscience and the constituents who will ultimately judge their acts, and not to the courts of
justice.
The only question we can and shall resolve in this petition is the validity of Ordinance No.
3355 and Ordinance No. 3375-93 as enacted by the Sangguniang Panlungsod of Cagayan de
Oro City. And we shall do so only by the criteria laid down by law and not by our own
convictions on the propriety of gambling.
PUBLIC CORPORATION_cases for September 19, 2020 156
The tests of a valid ordinance are well established. A long line of decisions 9 has held that to
be valid, an ordinance must conform to the following substantive requirements:
We begin by observing that under Sec. 458 of the Local Government Code, local government
units are authorized to prevent or suppress, among others, "gambling and other prohibited
games of chance." Obviously, this provision excludes games of chance which are not
prohibited but are in fact permitted by law. The petitioners are less than accurate in claiming
that the Code could have excluded such games of chance but did not. In fact it does. The
language of the section is clear and unmistakable. Under the rule of noscitur a sociis, a word
or phrase should be interpreted in relation to, or given the same meaning of, words with
which it is associated. Accordingly, we conclude that since the word "gambling" is associated
with "and other prohibited games of chance," the word should be read as referring to only
illegal gambling which, like the other prohibited games of chance, must be prevented or
suppressed.
We could stop here as this interpretation should settle the problem quite conclusively. But
we will not. The vigorous efforts of the petitioners on behalf of the inhabitants of Cagayan de
Oro City, and the earnestness of their advocacy, deserve more than short shrift from this
Court.
The apparent flaw in the ordinances in question is that they contravene P.D. 1869 and the
public policy embodied therein insofar as they prevent PAGCOR from exercising the power
conferred on it to operate a casino in Cagayan de Oro City. The petitioners have an ingenious
answer to this misgiving. They deny that it is the ordinances that have changed P.D. 1869 for
an ordinance admittedly cannot prevail against a statute. Their theory is that the change has
been made by the Local Government Code itself, which was also enacted by the national
lawmaking authority. In their view, the decree has been, not really repealed by the Code, but
merely "modified pro tanto" in the sense that PAGCOR cannot now operate a casino over the
objection of the local government unit concerned. This modification of P.D. 1869 by the Local
Government Code is permissible because one law can change or repeal another law.
It seems to us that the petitioners are playing with words. While insisting that the decree has
only been "modified pro tanto," they are actually arguing that it is already dead, repealed and
useless for all intents and purposes because the Code has shorn PAGCOR of all power to
centralize and regulate casinos. Strictly speaking, its operations may now be not only
prohibited by the local government unit; in fact, the prohibition is not only discretionary
but mandated by Section 458 of the Code if the word "shall" as used therein is to be given its
accepted meaning. Local government units have now no choice but to prevent and suppress
PUBLIC CORPORATION_cases for September 19, 2020 157
gambling, which in the petitioners' view includes both legal and illegal gambling. Under this
construction, PAGCOR will have no more games of chance to regulate or centralize as they
must all be prohibited by the local government units pursuant to the mandatory duty
imposed upon them by the Code. In this situation, PAGCOR cannot continue to exist except
only as a toothless tiger or a white elephant and will no longer be able to exercise its powers
as a prime source of government revenue through the operation of casinos.
It is noteworthy that the petitioners have cited only Par. (f) of the repealing clause,
conveniently discarding the rest of the provision which painstakingly mentions the specific
laws or the parts thereof which are repealed (or modified) by the Code. Significantly, P.D.
1869 is not one of them. A reading of the entire repealing clause, which is reproduced below,
will disclose the omission:
Sec. 534. Repealing Clause. — (a) Batas Pambansa Blg. 337, otherwise known
as the "Local Government Code," Executive Order No. 112 (1987), and
Executive Order No. 319 (1988) are hereby repealed.
(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders,
instructions, memoranda and issuances related to or concerning the barangay
are hereby repealed.
(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding
hospital fund; Section 3, a (3) and b (2) of Republic Act. No. 5447 regarding the
Special Education Fund; Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as
amended; Presidential Decree No. 436 as amended by Presidential Decree No.
558; and Presidential Decree Nos. 381, 436, 464, 477, 526, 632, 752, and 1136
are hereby repealed and rendered of no force and effect.
(e) The following provisions are hereby repealed or amended insofar as they
are inconsistent with the provisions of this Code: Sections 2, 16, and 29 of
Presidential Decree No. 704; Sections 12 of Presidential Decree No. 87, as
amended; Sections 52, 53, 66, 67, 68, 69, 70, 71, 72, 73, and 74 of Presidential
Decree No. 463, as amended; and Section 16 of Presidential Decree No. 972, as
amended, and
(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which
are inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.
Furthermore, it is a familiar rule that implied repeals are not lightly presumed in the absence
of a clear and unmistakable showing of such intention. In Lichauco & Co. v. Apostol, 10 this
Court explained:
The cases relating to the subject of repeal by implication all proceed on the
assumption that if the act of later date clearly reveals an intention on the part
PUBLIC CORPORATION_cases for September 19, 2020 158
of the lawmaking power to abrogate the prior law, this intention must be given
effect; but there must always be a sufficient revelation of this intention, and it
has become an unbending rule of statutory construction that the intention to
repeal a former law will not be imputed to the Legislature when it appears that
the two statutes, or provisions, with reference to which the question arises
bear to each other the relation of general to special.
There is no sufficient indication of an implied repeal of P.D. 1869. On the contrary, as the
private respondent points out, PAGCOR is mentioned as the source of funding in two later
enactments of Congress, to wit, R.A. 7309, creating a Board of Claims under the Department
of Justice for the benefit of victims of unjust punishment or detention or of violent crimes,
and R.A. 7648, providing for measures for the solution of the power crisis. PAGCOR revenues
are tapped by these two statutes. This would show that the PAGCOR charter has not been
repealed by the Local Government Code but has in fact been improved as it were to make the
entity more responsive to the fiscal problems of the government.
It is a canon of legal hermeneutics that instead of pitting one statute against another in an
inevitably destructive confrontation, courts must exert every effort to reconcile them,
remembering that both laws deserve a becoming respect as the handiwork of a coordinate
branch of the government. On the assumption of a conflict between P.D. 1869 and the Code,
the proper action is not to uphold one and annul the other but to give effect to both by
harmonizing them if possible. This is possible in the case before us. The proper resolution of
the problem at hand is to hold that under the Local Government Code, local government units
may (and indeed must) prevent and suppress all kinds of gambling within their territories
except only those allowed by statutes like P.D. 1869. The exception reserved in such laws
must be read into the Code, to make both the Code and such laws equally effective and
mutually complementary.
This approach would also affirm that there are indeed two kinds of gambling, to wit, the
illegal and those authorized by law. Legalized gambling is not a modern concept; it is
probably as old as illegal gambling, if not indeed more so. The petitioners' suggestion that
the Code authorizes them to prohibit all kinds of gambling would erase the distinction
between these two forms of gambling without a clear indication that this is the will of the
legislature. Plausibly, following this theory, the City of Manila could, by mere ordinance,
prohibit the Philippine Charity Sweepstakes Office from conducting a lottery as authorized
by R.A. 1169 and B.P. 42 or stop the races at the San Lazaro Hippodrome as authorized by
R.A. 309 and R.A. 983.
In light of all the above considerations, we see no way of arriving at the conclusion urged on
us by the petitioners that the ordinances in question are valid. On the contrary, we find that
the ordinances violate P.D. 1869, which has the character and force of a statute, as well as
the public policy expressed in the decree allowing the playing of certain games of chance
despite the prohibition of gambling in general.
The rationale of the requirement that the ordinances should not contravene a statute is
obvious. Municipal governments are only agents of the national government. Local councils
exercise only delegated legislative powers conferred on them by Congress as the national
lawmaking body. The delegate cannot be superior to the principal or exercise powers higher
than those of the latter. It is a heresy to suggest that the local government units can undo the
PUBLIC CORPORATION_cases for September 19, 2020 159
acts of Congress, from which they have derived their power in the first place, and negate by
mere ordinance the mandate of the statute.
Municipal corporations owe their origin to, and derive their powers and rights
wholly from the legislature. It breathes into them the breath of life, without
which they cannot exist. As it creates, so it may destroy. As it may destroy, it
may abridge and control. Unless there is some constitutional limitation on the
right, the legislature might, by a single act, and if we can suppose it capable of
so great a folly and so great a wrong, sweep from existence all of the municipal
corporations in the State, and the corporation could not prevent it. We know
of no limitation on the right so far as to the corporation themselves are
concerned. They are, so to phrase it, the mere tenants at will of the
legislature. 11
This basic relationship between the national legislature and the local government units has
not been enfeebled by the new provisions in the Constitution strengthening the policy of
local autonomy. Without meaning to detract from that policy, we here confirm that Congress
retains control of the local government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still includes the power to
destroy. The power to grant still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct conferment on the local
government units of the power to tax, 12 which cannot now be withdrawn by mere statute.
By and large, however, the national legislature is still the principal of the local government
units, which cannot defy its will or modify or violate it.
The Court understands and admires the concern of the petitioners for the welfare of their
constituents and their apprehensions that the welfare of Cagayan de Oro City will be
endangered by the opening of the casino. We share the view that "the hope of large or easy
gain, obtained without special effort, turns the head of the workman" 13 and that "habitual
gambling is a cause of laziness and ruin." 14 In People v. Gorostiza, 15 we declared: "The social
scourge of gambling must be stamped out. The laws against gambling must be enforced to
the limit." George Washington called gambling "the child of avarice, the brother of iniquity
and the father of mischief." Nevertheless, we must recognize the power of the legislature to
decide, in its own wisdom, to legalize certain forms of gambling, as was done in P.D. 1869
and impliedly affirmed in the Local Government Code. That decision can be revoked by this
Court only if it contravenes the Constitution as the touchstone of all official acts. We do not
find such contravention here.
We hold that the power of PAGCOR to centralize and regulate all games of chance, including
casinos on land and sea within the territorial jurisdiction of the Philippines, remains
unimpaired. P.D. 1869 has not been modified by the Local Government Code, which
empowers the local government units to prevent or suppress only those forms of gambling
prohibited by law.
Casino gambling is authorized by P.D. 1869. This decree has the status of a statute that cannot
be amended or nullified by a mere ordinance. Hence, it was not competent for the
Sangguniang Panlungsod of Cagayan de Oro City to enact Ordinance No. 3353 prohibiting the
use of buildings for the operation of a casino and Ordinance No. 3375-93 prohibiting the
PUBLIC CORPORATION_cases for September 19, 2020 160
operation of casinos. For all their praiseworthy motives, these ordinances are contrary to
P.D. 1869 and the public policy announced therein and are therefore ultra vires and void.
WHEREFORE, the petition is DENIED and the challenged decision of the respondent Court of
Appeals is AFFIRMED, with costs against the petitioners. It is so ordered.
PUBLIC CORPORATION_cases for September 19, 2020 161
PARAS, J.:
A TV ad proudly announces:
But the petitioners think otherwise, that is why, they filed the instant petition seeking to
annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter — PD 1869,
because it is allegedly contrary to morals, public policy and order, and because —
B. For the same reason stated in the immediately preceding paragraph, the law has
intruded into the local government's right to impose local taxes and license fees. This,
in contravention of the constitutionally enshrined principle of local autonomy;
C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR
— conducted gambling, while most other forms of gambling are outlawed, together
with prostitution, drug trafficking and other vices;
D. It violates the avowed trend of the Cory government away from monopolistic and
crony economy, and toward free enterprise and privatization. (p. 2, Amended
Petition; p. 7, Rollo)
In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the
declared national policy of the "new restored democracy" and the people's will as expressed
in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is
contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article
XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo).
The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner
Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can
question and seek the annulment of PD 1869 on the alleged grounds mentioned above.
PUBLIC CORPORATION_cases for September 19, 2020 162
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of
P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated
January 1, 1977 "to establish, operate and maintain gambling casinos on land or water within
the territorial jurisdiction of the Philippines." Its operation was originally conducted in the
well known floating casino "Philippine Tourist." The operation was considered a success for
it proved to be a potential source of revenue to fund infrastructure and socio-economic
projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the
Government to regulate and centralize all games of chance authorized by existing franchise
or permitted by law, under the following declared policy —
(a) To centralize and integrate the right and authority to operate and conduct games
of chance into one corporate entity to be controlled, administered and supervised by
the Government.
(b) To establish and operate clubs and casinos, for amusement and recreation,
including sports gaming pools, (basketball, football, lotteries, etc.) and such other
forms of amusement and recreation including games of chance, which may be allowed
by law within the territorial jurisdiction of the Philippines and which will: (1)
generate sources of additional revenue to fund infrastructure and socio-civic projects,
such as flood control programs, beautification, sewerage and sewage projects,
Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other
essential public services; (2) create recreation and integrated facilities which will
expand and improve the country's existing tourist attractions; and (3) minimize, if
not totally eradicate, all the evils, malpractices and corruptions that are normally
prevalent on the conduct and operation of gambling clubs and casinos without direct
government involvement. (Section 1, P.D. 1869)
To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines.
Under its Charter's repealing clause, all laws, decrees, executive orders, rules and
regulations, inconsistent therewith, are accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government revenue, next to the
Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43
Billion, and directly remitted to the National Government a total of P2.5 Billion in form of
franchise tax, government's income share, the President's Social Fund and Host Cities' share.
In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in
cooperation with various governmental agencies, and other private associations and
organizations. In its 3 1/2 years of operation under the present administration, PAGCOR
remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was
employing 4,494 employees in its nine (9) casinos nationwide, directly supporting the
livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same
is "null and void" for being "contrary to morals, public policy and public order," monopolistic
PUBLIC CORPORATION_cases for September 19, 2020 163
and tends toward "crony economy", and is violative of the equal protection clause and local
autonomy as well as for running counter to the state policies enunciated in Sections 11
(Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section
1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987
Constitution.
This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most
deliberate consideration by the Court, involving as it does the exercise of what has been
described as "the highest and most delicate function which belongs to the judicial
department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA
323).
As We enter upon the task of passing on the validity of an act of a co-equal and coordinate
branch of the government We need not be reminded of the time-honored principle, deeply
ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption
must be indulged in favor of its constitutionality. This is not to say that We approach Our
task with diffidence or timidity. Where it is clear that the legislature or the executive for that
matter, has over-stepped the limits of its authority under the constitution, We should not
hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano
v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice
Zaldivar underscored the —
Of course, there is first, the procedural issue. The respondents are questioning the legal
personality of petitioners to file the instant petition.
Considering however the importance to the public of the case at bar, and in keeping with the
Court's duty, under the 1987 Constitution, to determine whether or not the other branches
of government have kept themselves within the limits of the Constitution and the laws and
that they have not abused the discretion given to them, the Court has brushed aside
technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
PUBLIC CORPORATION_cases for September 19, 2020 164
With particular regard to the requirement of proper party as applied in the cases
before us, We hold that the same is satisfied by the petitioners and intervenors
because each of them has sustained or is in danger of sustaining an immediate injury
as a result of the acts or measures complained of. And even if, strictly speaking they
are not covered by the definition, it is still within the wide discretion of the Court to
waive the requirement and so remove the impediment to its addressing and resolving
the serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed
to question the constitutionality of several executive orders issued by President
Quirino although they were involving only an indirect and general interest shared in
common with the public. The Court dismissed the objection that they were not proper
parties and ruled that "the transcendental importance to the public of these cases
demands that they be settled promptly and definitely, brushing aside, if we must
technicalities of procedure." We have since then applied the exception in many other
cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian
Reform, 175 SCRA 343).
Having disposed of the procedural issue, We will now discuss the substantive issues raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition
of gambling does not mean that the Government cannot regulate it in the exercise of its police
power.
The concept of police power is well-established in this jurisdiction. It has been defined as the
"state authority to enact legislation that may interfere with personal liberty or property in
order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it
consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the
common good. It is not capable of an exact definition but has been, purposely, veiled in
general terms to underscore its all-comprehensive embrace. (Philippine Association of
Service Exporters, Inc. v. Drilon, 163 SCRA 386).
Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient and flexible response to
conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra)
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to
the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of
statehood and sovereignty. It is a fundamental attribute of government that has enabled it to
perform the most vital functions of governance. Marshall, to whom the expression has been
credited, refers to it succinctly as the plenary power of the state "to govern its citizens".
(Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power
co-extensive with self-protection and is most aptly termed the "law of overwhelming
necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential,
insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic
force that enables the state to meet the agencies of the winds of change.
P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize
thru an appropriate institution all games of chance authorized by existing franchise or
permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating
and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial
not just to the Government but to society in general. It is a reliable source of much needed
revenue for the cash strapped Government. It provided funds for social impact projects and
subjected gambling to "close scrutiny, regulation, supervision and control of the
Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct
intervention of the Government, the evil practices and corruptions that go with gambling will
be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the
enactment of PD 1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to
impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the
principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which
exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income
or otherwise, as well as fees, charges or levies of whatever nature, whether National or
Local."
(2) Income and other taxes. — a) Franchise Holder: No tax of any kind or form, income
or otherwise as well as fees, charges or levies of whatever nature, whether National
or Local, shall be assessed and collected under this franchise from the Corporation;
nor shall any form or tax or charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%) percent of the gross revenues or
earnings derived by the Corporation from its operations under this franchise. Such
tax shall be due and payable quarterly to the National Government and shall be in lieu
of all kinds of taxes, levies, fees or assessments of any kind, nature or description,
levied, established or collected by any municipal, provincial or national government
authority (Section 13 [2]).
Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose
taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v.
Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an
intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio,
12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is
superior having been passed upon by the state itself which has the "inherent power to tax"
(Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed
that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No.
7909, January 18, 1957) which has the power to "create and abolish municipal corporations"
due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v.
Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments
(Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila
the power to tax certain matters, it can also provide for exemptions or even take back the
power.
PUBLIC CORPORATION_cases for September 19, 2020 166
(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As
early as 1975, the power of local governments to regulate gambling thru the grant of
"franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively
on the National Government, thus:
Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse
and dog race tracks, jai-alai and other forms of gambling shall be issued by the
national government upon proper application and verification of the qualification of
the applicant . . .
Therefore, only the National Government has the power to issue "licenses or permits" for the
operation of gambling. Necessarily, the power to demand or collect license fees which is a
consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.
(d) Local governments have no power to tax instrumentalities of the National Government.
PAGCOR is a government owned or controlled corporation with an original charter, PD 1869.
All of its shares of stocks are owned by the National Government. In addition to its corporate
powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus:
Sec. 9. Regulatory Power. — The Corporation shall maintain a Registry of the affiliated
entities, and shall exercise all the powers, authority and the responsibilities vested in
the Securities and Exchange Commission over such affiliating entities mentioned
under the preceding section, including, but not limited to amendments of Articles of
Incorporation and By-Laws, changes in corporate term, structure, capitalization and
other matters concerning the operation of the affiliated entities, the provisions of the
Corporation Code of the Philippines to the contrary notwithstanding, except only with
respect to original incorporation.
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected
to control by a mere Local government.
This doctrine emanates from the "supremacy" of the National Government over local
governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
PUBLIC CORPORATION_cases for September 19, 2020 167
Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it.
(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated
by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local
Autonomy) provides:
Sec. 5. Each local government unit shall have the power to create its own source of
revenue and to levy taxes, fees, and other charges subject to such guidelines and
limitation as the congress may provide, consistent with the basic policy on local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
government. (emphasis supplied)
The power of local government to "impose taxes and fees" is always subject to "limitations"
which Congress may provide by law. Since PD 1869 remains an "operative" law until
"amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause"
remains as an exception to the exercise of the power of local governments to impose taxes
and fees. It cannot therefore be violative but rather is consistent with the principle of local
autonomy.
Besides, the principle of local autonomy under the 1987 Constitution simply means
"decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited
in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374).
It does not make local governments sovereign within the state or an "imperium in imperio."
As to what state powers should be "decentralized" and what may be delegated to local
government units remains a matter of policy, which concerns wisdom. It is therefore a
political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board,
162 SCRA 539).
PUBLIC CORPORATION_cases for September 19, 2020 168
What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is
a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to
local governments.
As gambling is usually an offense against the State, legislative grant or express charter
power is generally necessary to empower the local corporation to deal with the subject.
. . . In the absence of express grant of power to enact, ordinance provisions on this
subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App.
107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal.
99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p.
548, emphasis supplied)
Petitioners next contend that P.D. 1869 violates the equal protection clause of the
Constitution, because "it legalized PAGCOR — conducted gambling, while most gambling are
outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores
the well-accepted meaning of the clause "equal protection of the laws." The clause does not
preclude classification of individuals who may be accorded different treatment under the
law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101
Phil. 1155). A law does not have to operate in equal force on all persons or things to be
conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572,
December 21, 1989).
The "equal protection clause" does not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847).
The Constitution does not require situations which are different in fact or opinion to be
treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal
protection is not clearly explained in the petition. The mere fact that some gambling activities
like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes,
lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions,
while others are prohibited, does not render the applicable laws, P.D. 1869 for one,
unconstitutional.
If the law presumably hits the evil where it is most felt, it is not to be overthrown
because there are other instances to which it might have been applied. (Gomez v.
Palomar, 25 SCRA 827)
The equal protection clause of the 14th Amendment does not mean that all
occupations called by the same name must be treated the same way; the state may do
what it can to prevent which is deemed as evil and stop short of those cases in which
harm to the few concerned is not less than the harm to the public that would insure if
the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249
US 2651).
Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory
Government away from monopolies and crony economy and toward free enterprise and
privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If,
PUBLIC CORPORATION_cases for September 19, 2020 169
indeed, PD 1869 runs counter to the government's policies then it is for the Executive
Department to recommend to Congress its repeal or amendment.
The judiciary does not settle policy issues. The Court can only declare what the law is
and not what the law should be.1âwphi1 Under our system of government, policy
issues are within the domain of the political branches of government and of the
people themselves as the repository of all state power. (Valmonte v. Belmonte, Jr., 170
SCRA 256).
Sec. 19. The State shall regulate or prohibit monopolies when public interest so
requires. No combinations in restraint of trade or unfair competition shall be allowed.
(Art. XII, National Economy and Patrimony)
It should be noted that, as the provision is worded, monopolies are not necessarily
prohibited by the Constitution. The state must still decide whether public interest demands
that monopolies be regulated or prohibited. Again, this is a matter of policy for the
Legislature to decide.
Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47
Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec,
179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear
and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In
other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v.
Comelec, supra) Those who petition this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis for such a declaration. Otherwise, their
petition must fail. Based on the grounds raised by petitioners to challenge the
constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the
presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D.
1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free
enterprise, privatization as well as the state principles on social justice, role of youth and
educational values" being raised, is up for Congress to determine.
As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board,
162 SCRA 521 —
PUBLIC CORPORATION_cases for September 19, 2020 170
Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any
case, in its favor the presumption of validity and constitutionality which petitioners
Valmonte and the KMU have not overturned. Petitioners have not undertaken to
identify the provisions in the Constitution which they claim to have been violated by
that statute. This Court, however, is not compelled to speculate and to imagine how
the assailed legislation may possibly offend some provision of the Constitution. The
Court notes, further, in this respect that petitioners have in the main put in question
the wisdom, justice and expediency of the establishment of the OPSF, issues which
are not properly addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed rather to the political
departments of government: the President and the Congress.
Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so
when the gambling resorted to is excessive. This excessiveness necessarily depends not only
on the financial resources of the gambler and his family but also on his mental, social, and
spiritual outlook on life. However, the mere fact that some persons may have lost their
material fortunes, mental control, physical health, or even their lives does not necessarily
mean that the same are directly attributable to gambling. Gambling may have been the
antecedent, but certainly not necessarily the cause. For the same consequences could have
been preceded by an overdose of food, drink, exercise, work, and even sex.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 171
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the
Decision of the Court of Appeals dated November 28, 2002 1 and Resolution dated April 8,
2003. 2
On March 26, 1996, the Sangguniang Panlalawigan of Tarlac passed Resolution No. 068-96,
which authorized and approved the conversion of Urquico Memorial Athletic Field into a
Government Center, as well as the segregation and donation of portions of said land to
different government agencies for the purpose of constructing or relocating their office
buildings. After receiving two letters of invitation regarding the project, the Government
Service Insurance System (GSIS) decided to put up an office at the site. 3
Thus, Tarlac Governor Margarita Cojuangco issued a Notice of Construction on December 13,
1996, for the building of the GSIS office on the designated lot. 4
The Province of Tarlac and the GSIS then executed a Memorandum of Agreement (MOA) on
December 13, 1997, whereby the Province of Tarlac donated the said lot to the GSIS subject
to the conditions stipulated therein. On the same date, the Province executed a Deed of
Donation over the subject lot in favor of the GSIS, which was duly accepted by the latter. As
stipulated in the MOA, the GSIS donated P2,000,000.00 to the Province of Tarlac as financial
assistance. 5
On September 17, 1997, the City of Tarlac issued a building permit to the GSIS for the
construction of its office. The Sangguniang Panlalawigan then passed Resolution No. 013-97,
which reiterated the authority granted to Gov. Cojuangco by Resolution No. 068-96. 6
Subsequently, Gov. Jose Yap was elected as the new chief executive of Tarlac, and he officially
entered upon his duties on July 1, 1998. He wrote a letter to the GSIS, inviting the latter to
reevaluate their respective positions with respect to the MOA of December 13, 1997.
Evidently, Gov. Yap was of the opinion that the provisions of the Deed of Donation were
unfair to the Province. Later, the Provincial Administrator wrote the GSIS, demanding the
payment of P33,590,000.00 representing the balance of the value of the lot donated, which
the GSIS refused to pay. 7
On March 11, 1999, the Province of Tarlac then filed a Complaint against the GSIS for
declaration of nullity of donation and memorandum of agreement, recovery of possession
and enforcement of Article 449 in relation to Articles 450 and 451 of the Civil Code, and
PUBLIC CORPORATION_cases for September 19, 2020 172
damages, before the Regional Trial Court of Tarlac City, Branch 63. 8 During the pre-trial, the
parties agreed to submit the case for decision on the basis of the pleadings and annexes
submitted by the parties, since only legal issues were involved.
On August 25, 1999, the trial court rendered its decision in favor of the validity of the
donation to the GSIS and dismissed the complaint for declaration of nullity of donation and
memorandum of agreement, recovery of possession and enforcement of Article 449 in
relation to Articles 450 and 451 of the Civil Code, and damages filed by the Province of Tarlac.
Respondent Province of Tarlac appealed to the Court of Appeals, 9 which rendered a decision
on November 28, 2002, the dispositive portion of which states:chanrob1es virtual 1aw
library
WHEREFORE, the assailed decision is hereby REVERSED and SET ASIDE. The deed of
donation and Memorandum of Agreement both dated April 30, 1997 between the parties is
hereby declared NULL and VOID. Petitioner is ORDERED to reimburse respondent all the
necessary and useful expenses respondent incurred on the property.
SO ORDERED. 10
Petitioner GSIS filed the instant petition raising a sole assignment of error:cralawlibrary :
red
WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF DONATION
AND MEMORANDUM OF AGREEMENT ARE NULL AND VOID. 11
In deciding the instant case, the Court of Appeals relied on Section 381 of Republic Act No.
7160, better known as the Local Government Code of 1991, which provides:chanrob1es
virtual 1aw library
SECTION 381. Transfer Without Cost. — Property which has become unserviceable or is no
longer needed may be transferred without cost to another office, agency, subdivision or
instrumentality of the national government or another local government unit at an appraised
valuation determined by the local committee on awards. Such transfer shall be subject to the
approval of the sanggunian concerned making the transfer and by the head of the office,
agency, subdivision, instrumentality or local government unit receiving the property.
In effect, the appellate court ruled that the donation of the subject property by the Province
of Tarlac to the GSIS was void, because it was executed without first securing an appraised
valuation of the property from the local committee on awards. 12
On the other hand, petitioner insists that the donation is perfectly valid, stating that there is
nothing in the Local Government Code which expressly states that the lack of an appraised
valuation renders the subject transfer void. Further, it contends that at best, an appraised
valuation is merely a formal and procedural requisite, the lack of which cannot overturn
substantive and vested rights. 13
Considering that the assailed donation is clearly onerous, the rules on contracts will apply.
14 Pertinently, the Civil Code expressly defines the different kinds of void and inexistent
PUBLIC CORPORATION_cases for September 19, 2020 173
ART. 1409. The following contracts are inexistent and void from the beginning:chanrob1es
virtual 1aw library
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
(3) Those whose cause or object did not exist at the time of the transaction;
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived.
The freedom of contract is both a constitutional and statutory right and to uphold this right,
courts should move with all the necessary caution and prudence in holding contracts void.
15 Furthermore, a duly executed contract carries with it the presumption of validity. 16 In
the assailed decision, the Court of Appeals simply ruled that the absence of a prior appraised
valuation by the local committee on awards rendered the donation null and void. This, to our
mind, did not sufficiently overcome the presumption of validity of the contract, considering
that there is no express provision in the law which requires that the said valuation is a
condition sine qua non for the validity of a donation.
There being a perfected contract, the Province of Tarlac, through Gov. Yap, cannot revoke or
renounce the same without the consent of the other party. From the moment of perfection,
the parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with good
faith, usage, and law. 17 The contract has the force of law between the parties and they are
expected to abide in good faith by their respective contractual commitments. Just as nobody
can be forced to enter into a contract, in the same manner, once a contract is entered into, no
party can renounce it unilaterally or without the consent of the other. It is a general principle
of law that no one may be permitted to change his mind or disavow and go back upon his
PUBLIC CORPORATION_cases for September 19, 2020 174
own acts, or to proceed contrary thereto, to the prejudice of the other party. 18
WHEREFORE, in view of the foregoing, the petition is GRANTED. The Decision of the Court
of Appeals dated November 28, 2002 and its Resolution dated April 8, 2003 are REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Tarlac City, Branch 63, dated
August 25, 1999 is REINSTATED. No costs.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 175
DECISION
Before the Court is the petition for review on certiorari filed by Ramon M. Atienza, in his
capacity as Vice-Governor of the Province of Occidental Mindoro, seeking to reverse and set
aside the Decision1 dated November 28, 2003 of the Court of Appeals in CA-G.R. SP No.
72069. The assailed decision dismissed the petition for prohibition under Rule 65 of the
Rules of Court filed by petitioner Atienza which had sought to enjoin the implementation of
the Memoranda dated June 25, 2002 and July 1, 2002 issued by Jose T. Villarosa, Governor of
the same province.
Petitioner Atienza and respondent Villarosa were the Vice-Governor and Governor,
respectively, of the Province of Occidental Mindoro. On June 26, 2002, the petitioner Vice-
Governor received the Memorandum dated June 25, 2002 issued by the respondent
Governor concerning the "AUTHORITY TO SIGN PURCHASE ORDERS OF SUPPLIES,
MATERIALS, EQUIPMENT[S], INCLUDING FUEL, REPAIRS AND MAINTENANCE OF
THE SANGGUNIANG PANLALAWIGAN." The said memorandum reads:
For proper coordination and to ensure efficient and effective local government
administration particularly on matters pertaining to supply and property
management, effective immediately, all Purchase Orders issued in connection with
the procurement of supplies, materials and equipment[s] including fuel, repairs and
maintenance needed in the transaction of public business or in the pursuit of any
undertaking, project or activity of the Sangguniang Panlalawigan, this province, shall
be approved by the undersigned in his capacity as the local chief executive of the
province.
The provision of DILG Opinion No. 148-1993 which states that the authority to sign
Purchase Orders of supplies, materials and equipment[s] of the Sanggunian belongs
to the local chief executive, serves as basis of this memorandum.
In reply to the above memorandum, the petitioner Vice-Governor wrote the respondent
Governor stating that:
We are of the opinion that … purchase orders for supplies, materials and equipment
are included under those as authorized for signature by the Vice-chief executive of
the Sanggunian on the basis of the DILG Opinion No. 96-1995 as affirmed by the COA
PUBLIC CORPORATION_cases for September 19, 2020 176
Opinions on June 28, April 11 and February 9, 1994 and coursing it to the Governor
for his approval is no longer necessary, the fact that [Secs.] 466 and 468, RA 7160
already provides for the separation of powers between the executive and legislative.
Such authority even include everything necessary for the legislative research
program of the Sanggunian.3
Unimpressed, the respondent Governor issued the Memorandum dated July 1, 2002 relating
to the "TERMINATION OF CONTRACT OF SERVICES OF CASUAL/JOB ORDER EMPLOYEES
AND REAPPOINTMENT OF THE RESPECTIVE RECOMMENDEES." The said memorandum
reads:
For faithful and appropriate enforcement and execution of laws and issuances and to
promote efficiency in the government service, effective immediately, all existing
contract of employment – casual/job order basis and reappointment of the
recommendees – entered into by Vice-Governor Ramon M. Atienza are hereby
terminated for being unauthorized.
Aside from being signed by the unauthorized signatory, the following facts regarding
the appointments were considered:
2. The appointment of an X-ray Technician detailed at the Provincial Health Office and
some clerks detailed at various offices in the province were not proper to be assigned
by the Vice-Governor;
3. The appointment of 30 messengers, utility workers and drivers ran counter to COA
Opinion as cited in the letter of the undersigned dated 28 June 2002, addressed to the
Vice-Governor.
The Vice-Governor and all the Sanggunian Members are hereby directed to submit
immediately the names of their recommendees to the undersigned for immediate
approval of their respective appointments.
On July 3, 2002, the respondent Governor issued another Memorandum regarding the
"ENFORCIBILITY (sic) OF PREVIOUS MEMORANDA ISSUED ON JUNE 20, 26 AND JULY 1,
2002." It provides that:
Please be properly advised that the Memoranda dated June 20, 26 and July 1, 2002
issued by the undersigned regarding the issuance of permit to travel and authority to
sign Purchase Orders of supplies, materials, equipment, including fuel, repairs and
PUBLIC CORPORATION_cases for September 19, 2020 177
Likewise for strict compliance is the Memorandum dated July 1, 2002 with reference
to the Cancellation of the Appointment of Casual/Job Order Employees of the
Sangguniang Panlalawigan Members/Office of the Vice-Governor previously signed by
Vice-Governor Ramon M. Atienza.
In his Letter dated July 9, 2002, the petitioner Vice-Governor invoked the principle of
separation of powers as applied to the local government units, i.e., the respondent, as the
Governor, the head of the executive branch, and the petitioner, as the Vice-Governor, the
head of the legislative branch, which is the Sangguniang Panlalawigan. The petitioner Vice-
Governor reiterated his request for the respondent to make a "deeper study" on the matter
before implementing his memoranda. The request, however, went unheeded as the
respondent Governor insisted on obliging the department heads of the provincial
government to comply with the memoranda.
The petitioner Vice-Governor thus filed with the Court of Appeals the petition for prohibition
assailing as having been issued with grave abuse of discretion the respondent Governor's
Memoranda dated June 25, 2002 and July 1, 2002. The petitioner Vice-Governor claimed that
these memoranda excluded him from the use and enjoyment of his office in violation of the
pertinent provisions of Republic Act No. 7160, or the Local Government Code of 1991, and
its implementing rules and regulations. It was prayed that the respondent Governor be
enjoined from implementing the assailed memoranda.
The appellate court, in its Decision dated November 28, 2003, dismissed the petition for
prohibition. Citing Section 3446 of Rep. Act No. 7160, the CA upheld the authority of the
respondent Governor to issue the Memorandum dated June 25, 2002 as it recognized his
authority to approve the purchase orders. The said provision provides in part that "approval
of the disbursement voucher by the local chief executive himself shall be required whenever
local funds are disbursed."
The CA explained that Section 466(a)(1)7 of the same Code, relied upon by the petitioner
Vice-Governor, speaks of the authority of the Vice-Governor to sign "all warrants drawn on
the public treasury for all expenditures appropriated for the operation of the sangguniang
panlalawigan." In declaring this provision inapplicable, the CA reasoned that the approval of
purchase orders is different from the power of the Vice-Governor to sign warrants drawn
against the public treasury.
Anent the Memorandum dated July 1, 2002, the CA ruled that the issue on whether it could
be enjoined had already been rendered moot and academic. The CA pointed out that the
subject of the said memorandum could no longer be enjoined or restrained as the
termination of the employees had already been effected. It opined that where the act sought
to be enjoined in the prohibition proceedings had already been performed and there is
nothing more to restrain, the case is already moot and academic.
The petitioner Vice-Governor now seeks recourse to this Court alleging that the appellate
court committed reversible error in ruling that it is the Governor, and not the Vice-Governor,
who has the authority to sign purchase orders of supplies, materials, equipment, including
fuel, repairs and maintenance of the Sangguniang Panlalawigan. The petitioner Vice-
Governor, likewise, takes exception to the holding of the CA that the issue relating to the July
1, 2002 Memorandum had been rendered moot and academic. He points out that the
appointment of casual/job order employees is exercised by the appointing authority every
six months in the case of casual employees and per job order as to job order employees. Thus,
while the July 1, 2002 Memorandum had already been implemented, what is being sought to
be enjoined is the respondent Governor's continued usurpation of the petitioner Vice-
Governor's authority to appoint the employees of the Sangguniang Panlalawigan under the
pertinent provisions of Rep. Act No. 7160.
For his part, the respondent Governor maintains that his Memoranda dated June 25, 2002
and July 1, 2002 are valid. He asserts that the approval of purchase orders is different from
the power of the Vice-Governor to sign warrants drawn against the provincial treasury under
Section 466(a)(1) of Rep. Act No. 7160. Rather, he insists on the application of the last clause
in Section 344 which states that the approval of the disbursement by the local chief executive
is required whenever local funds are disbursed.
The respondent Governor likewise defends the validity of the Memorandum dated July 1,
2002 stating that it was issued upon finding that the petitioner Vice-Governor appointed,
among others, 28 clerks on top of the existing permanent employees resulting in an excessive
and bloated bureaucracy. He concedes the appointing power of the Vice-Governor but
submits that this is limited to the employees of the Sangguniang Panlalawigan and that he is
not authorized to appoint officials and employees of the Office of the Vice-Governor.
As correctly presented by the appellate court, the issues for resolution in this case are:
A. Who between the petitioner and the respondent is authorized to approve purchase
orders issued in connection with the procurement of supplies, materials, equipment,
including fuel, repairs and maintenance of the Sangguniang Panlalawigan?
B. Does respondent Villarosa, as local chief executive, have the authority to terminate
or cancel the appointments of casual/job order employees of the Sangguniang
Panlalawigan Members and the Office of the Vice-Governor?9
Before resolving the foregoing issues, it is noted that petitioner Atienza and respondent
Villarosa had ceased to be the Vice-Governor and Governor, respectively, of the Province of
Occidental Mindoro effective June 30, 2004 when the newly-elected officials of the province
took their oaths of offices. The petitioner Vice-Governor did not run for re-election during
the May 2004 elections while the respondent Governor did not succeed in his re-election bid.
The expiration of their terms of offices has effectively rendered the case moot. However, even
PUBLIC CORPORATION_cases for September 19, 2020 179
in cases where supervening events had made the cases moot, the Court did not hesitate to
resolve the legal or constitutional issues raised to formulate controlling principles to guide
the bench, bar and the public.10 In this case, there is compelling reason for the Court to
resolve the issues presented in order to clarify the scope of the respective powers of the
Governor and Vice-Governor under the pertinent provisions of the Local Government Code
of 1991.
To resolve the substantive issues presented in the instant case, it is well to recall that Rep.
Act No. 7160 was enacted to give flesh to the constitutional mandate to "provide for a more
responsive and accountable local government structure instituted through a system of
decentralization with effective mechanism of recall, initiative and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all matters relating to the organization and
operation of the local units."11
In this connection, the provisions of Rep. Act No. 7160 are anchored on principles that give
effect to decentralization. Among these principles are: [t]here shall be an effective allocation
among the different local government units of their respective powers, functions,
responsibilities, and resources; [t]here shall be established in every local government unit
an accountable, efficient, and dynamic organizational structure and operating mechanism
that will meet the priority needs and service requirements of its communities; [p]rovinces
with respect to component cities and municipalities, and cities and municipalities with
respect to component barangays, shall ensure that the acts of their component units are
within the scope of their prescribed powers and functions; and [e]ffective mechanisms for
ensuring the accountability of local government units to their respective constituents shall
be strengthened in order to upgrade continually the quality of local leadership.12
With these guideposts, the Court shall now address the issue on who between the Governor
and Vice-Governor is authorized to approve purchase orders issued in connection with the
procurement of supplies, materials, equipment, including fuel, repairs and maintenance of
the Sangguniang Panlalawigan.
Under Rep. Act No. 7160, local legislative power for the province is exercised by
the Sangguniang Panlalawigan13 and the Vice-Governor is its presiding officer.14 Being
vested with legislative powers, the Sangguniang Panlalawigan enacts ordinances,
resolutions and appropriates funds for the general welfare of the province in accordance
with the provisions of Rep. Act No. 7160.15 The same statute vests upon the Vice-Governor
the power to:
(1) Be the presiding officer of the sangguniang panlalawigan and sign all warrants
drawn on the provincial treasury for all expenditures appropriated for the operation
of the sangguniang panlalawigan. 16
Sec. 344. Certification on, and Approval of, Vouchers. – No money shall be disbursed
unless the local budget officer certifies to the existence of appropriation that has been
PUBLIC CORPORATION_cases for September 19, 2020 180
legally made for the purpose, the local accountant has obligated said appropriation,
and the local treasurer certifies to the availability of funds for the purpose. Vouchers
and payrolls shall be certified to and approved by the head of the department or office
who has administrative control of the fund concerned, as to validity, propriety and
legality of the claim involved. Except in cases of disbursements involving regularly
recurring administrative expenses such as payrolls for regular or permanent
employees, expenses for light, water, telephone and telegraph services, remittances
to government creditor agencies such as the GSIS, SSS, LBP, DBP, National Printing
Office, Procurement Service of the DBM and others, approval of the disbursement
voucher by the local chief executive himself shall be required whenever local funds
are disbursed.
Reliance by the CA on the clause "approval of the disbursement voucher by the local chief
executive himself shall be required whenever local funds are disbursed" of the above section
(Section 344) to rule that it is the Governor who has the authority to approve purchase
orders for the supplies, materials or equipment for the operation of the Sangguniang
Panlalawigan is misplaced. This clause cannot prevail over the more specific clause of the
same provision which provides that "vouchers and payrolls shall be certified to and
approved by the head of the department or office who has administrative control of the fund
concerned." The Vice-Governor, as the presiding officer of the Sangguniang Panlalawigan,
has administrative control of the funds of the said body. Accordingly, it is the Vice-Governor
who has the authority to approve disbursement vouchers for expenditures appropriated for
the operation of the Sangguniang Panlalawigan.
On this point, Section 39 of the Manual on the New Government Accounting System for Local
Government Units, prepared by the Commission on Audit (COA), is instructive:
While Rep. Act No. 7160 is silent as to the matter, the authority granted to the Vice-Governor
to sign all warrants drawn on the provincial treasury for all expenditures appropriated for
the operation of the Sangguniang Panlalawigan as well as to approve disbursement
vouchers relating thereto necessarily includes the authority to approve purchase orders
PUBLIC CORPORATION_cases for September 19, 2020 181
covering the same applying the doctrine of necessary implication. This doctrine is explained,
thus:
No statute can be enacted that can provide all the details involved in its application.
There is always an omission that may not meet a particular situation. What is thought,
at the time of enactment, to be an all-embracing legislation may be inadequate to
provide for the unfolding of events of the future. So-called gaps in the law develop as
the law is enforced. One of the rules of statutory construction used to fill in the gap is
the doctrine of necessary implication. The doctrine states that what is implied in a
statute is as much a part thereof as that which is expressed. Every statute is
understood, by implication, to contain all such provisions as may be necessary to
effectuate its object and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and subsidiary consequences
as may be fairly and logically inferred from its terms. Ex necessitate legis. And every
statutory grant of power, right or privilege is deemed to include all incidental power,
right or privilege. This is so because the greater includes the lesser, expressed in the
maxim, in eo plus sit, simper inest et minus.18
Warrants are "order[s] directing the treasurer of the municipality to pay money out of funds
in city treasury which are or may become available for purpose specified to designated
person[s]."19 Warrants of a municipal corporation are generally orders payable when funds
are found. They are issued for the payment of general municipal debts and expenses subject
to the rule that they shall be paid in the order of presentation.20
The ordinary meaning of "voucher" is a document which shows that services have been
performed or expenses incurred. It covers any acquittance or receipt discharging the person
or evidencing payment by him. When used in connection with disbursement of money, it
implies some instrument that shows on what account or by what authority a particular
payment has been made, or that services have been performed which entitle the party to
whom it is issued to payment.21
Purchase order, on the other hand, is "an authorization by the issuing party for the recipient
to provide materials or services for which issuing party agrees to pay; it is an offer to buy
which becomes binding when those things ordered have been provided."22
Since it is the Vice-Governor who approves disbursement vouchers and approves the
payment for the procurement of the supplies, materials and equipment needed for the
PUBLIC CORPORATION_cases for September 19, 2020 182
operation of the Sangguniang Panlalawigan, then he also has the authority to approve the
purchase orders to cause the delivery of the said supplies, materials or equipment.
Indeed, the authority granted to the Vice-Governor to sign all warrants drawn on the
provincial treasury for all expenditures appropriated for the operation of the Sangguniang
Panlalawigan as well as to approve disbursement vouchers relating thereto is greater and
includes the authority to approve purchase orders for the procurement of the supplies,
materials and equipment necessary for the operation of the Sangguniang Panlalawigan.
Anent the second issue, the appellate court likewise committed reversible error in holding
that the implementation of the Memorandum dated July 1, 2002 had rendered the petition
moot and academic. It is recognized that courts will decide a question otherwise moot and
academic if it is "capable of repetition yet evading review."25 Even if the employees whose
contractual or job order employment had been terminated by the implementation of the July
1, 2002 Memorandum may no longer be reinstated, still, similar memoranda may be issued
by other local chief executives. Hence, it behooves the Court to resolve whether the Governor
has the authority to terminate or cancel the appointments of casual/job order employees of
the Sangguniang Panlalawigan and the Office of the Vice-Governor.
We hold that the Governor, with respect to the appointment of the officials and employees
of the Sangguniang Panlalawigan, has no such authority.
Among the powers granted to the Governor under Section 465 of Rep. Act No. 7160 are:
Sec. 465. The Chief Executive: Powers, Duties, Functions and Compensation.– (a) The
provincial governor, as the chief executive of the provincial government, shall
exercise such powers and perform such duties and functions as provided by this Code
and other laws.
(b) For efficient, effective and economical governance the purpose of which is the
general welfare of the province and its inhabitants pursuant to Section 16 of this Code,
the provincial governor shall:
(v) Appoint all officials and employees whose salaries and wages are wholly
or mainly paid out of provincial funds and whose appointments are not
otherwise provided for in this Code, as well as those he may be authorized by
law to appoint.
On the other hand, Section 466 vests on the Vice-Governor the power to, among others:
(2) Subject to civil service law, rules and regulations, appoint all officials and
employees of the sangguniang panlalawigan, except those whose manner of
appointment is specifically provided in this Code.
Thus, while the Governor has the authority to appoint officials and employees whose salaries
are paid out of the provincial funds, this does not extend to the officials and employees of
the Sangguniang Panlalawigan because such authority is lodged with the Vice-Governor. In
PUBLIC CORPORATION_cases for September 19, 2020 183
the same manner, the authority to appoint casual and job order employees of
the Sangguniang Panlalawigan belongs to the Vice-Governor.
However, in this case, it does not appear whether the contractual/job order employees,
whose appointments were terminated or cancelled by the Memorandum dated July 1, 2002
issued by the respondent Governor, were paid out of the provincial funds or the funds of
the Sangguniang Panlalawigan. Nonetheless, the validity of the said memorandum cannot be
upheld because it absolutely prohibited the respondent Vice-Governor from exercising his
authority to appoint the employees, whether regular or contractual/job order, of
the Sangguniang Panlalawigan and restricted such authority to one of recommendatory
nature only.26 This clearly constituted an encroachment on the appointment power of the
respondent Vice- Governor under Section 466(a)(2) of Rep. Act No. 7160.
At this juncture, it is well to note that under Batas Pambansa Blg. 337, the Local Government
Code prior to Rep. Act No. 7160, the Governor was the presiding officer of the Sangguniang
Panlalawigan:
Sec. 205. Composition. (1) Each provincial government shall have a provincial
legislature hereinafter known as the sangguniang panlalawigan, upon which shall be
vested the provincial legislative power.
(3) The governor, who shall be the presiding officer of the sangguniang panlalawigan,
shall not be entitled to vote except in case of a tie.
With Rep. Act No. 7160, the union of legislative and executive powers in the office of the local
chief executive under the BP Blg. 337 has been disbanded, so that either department now
comprises different and non-intermingling official personalities with the end in view of
PUBLIC CORPORATION_cases for September 19, 2020 184
ensuring a better delivery of public service and provide a system of check and balance
between the two.27
Senator Aquilino Pimentel, the principal author of Rep. Act No. 7160, explained that "the
Vice-Governor is now the presiding officer of the Sangguniang Panlalawigan. The City Vice-
Mayor presides at meetings of the Sangguniang Panlungsod and the Municipal Vice-Mayor at
the sessions of the Sangguniang Bayan. The idea is to distribute powers among elective local
officials so that the legislative, which is the Sanggunian, can properly check the executive, which
is the Governor or the Mayor and vice versa and exercise their functions without any undue
interference from one by the other."28
The avowed intent of Rep. Act. No. 7160, therefore, is to vest on the Sangguniang
Panlalawigan independence in the exercise of its legislative functions vis-a-vis the discharge
by the Governor of the executive functions. The Memoranda dated June 25, 2002 and July 1,
2002 of the respondent Governor, which effectively excluded the petitioner Vice-Governor,
the presiding officer of the Sangguniang Panlalawigan, from signing the purchase orders for
the procurement of supplies, materials or equipment needed for the operation of
the Sangguniang Panlalawigan as well as from appointing its casual and job order
employees, constituted undue interference with the latter's functions. The assailed
memoranda are clearly not in keeping with the intent of Rep. Act No. 7160 and their
implementation should thus be permanently enjoined.
WHEREFORE, the petition is GRANTED. The Memoranda dated June 25, 2002 and July 1,
2002 issued by respondent Governor Jose T. Villarosa are NULL AND VOID.
SO ORDERED.
PUBLIC CORPORATION_cases for September 19, 2020 185
x-----------------------x
DECISION
Before the Court is the consolidated case for Petition for Certiorari and Prohibition with
prayer for injunctive relief, docket as G.R. No. 203974, assailing Minute Resolution No. 12-
07971 and Minute Resolution No. 12-09252 dated September 11, 2012 and October 16, 2012,
respectively, both promulgated by public respondent Commission on Elections (COMELEC),
and Petition for Mandamus, docketed G.R. No. 204371, seeking to compel public respondent
to implement the same.
The Facts
On July 11, 2011, the Sangguniang Panglungsod of Cabanatuan City passed Resolution No.
183-2011, requesting the President to declare the conversion of Cabanatuan City from a
component city of the province of Nueva Ecija into a highly urbanized city (HUC). Acceding
to the request, the President issued Presidential Proclamation No. 418, Series of 2012,
proclaiming the City of Cabanatuan as an HUC subject to "ratification in a plebiscite by the
qualified voters therein, as provided for in Section 453 of the Local Government Code of
1991."
Respondent COMELEC, acting on the proclamation, issued the assailed Minute Resolution
No. 12-0797 which reads:
WHEREFORE, the Commission RESOLVED, as it hereby RESOLVES, that for purposes of the
plebiscite for the conversion of Cabanatuan City from component city to highly-urbanized
city, only those registered residents of Cabanatuan City should participate in the said
plebiscite.
The COMELEC based this resolution on Sec. 453 of the Local Government Code of 1991 (LGC),
citing conversion cases involving Puerto Princesa City in Palawan, Tacloban City in Southern
Leyte, and Lapu-Lapu City in Cebu, where only the residents of the city proposed to be
converted were allowed to vote in the corresponding plebiscite.
PUBLIC CORPORATION_cases for September 19, 2020 186
In due time, petitioner Aurelio M. Umali, Governor of Nueva Ecija, filed a Verified Motion for
Reconsideration, maintaining that the proposed conversion in question will necessarily and
directly affect the mother province of Nueva Ecija. His main argument is that Section 453 of
the LGC should be interpreted in conjunction with Sec. 10, Art. X of the Constitution. He
argues that while the conversion in question does not involve the creation of a new or the
dissolution of an existing city, the spirit of the Constitutional provision calls for the people of
the local government unit (LGU) directly affected to vote in a plebiscite whenever there is a
material change in their rights and responsibilities. The phrase "qualified voters therein"
used in Sec. 453 of the LGC should then be interpreted to refer to the qualified voters of the
units directly affected by the conversion and not just those in the component city proposed
to be upgraded. Petitioner Umali justified his position by enumerating the various adverse
effects of the Cabanatuan City’s conversion and how it will cause material change not only in
the political and economic rights of the city and its residents but also of the province as a
whole.
To the Verified Motion for Reconsideration, private respondent Julius Cesar Vergara, city
mayor of Cabanatuan, interposed an opposition on the ground that Sec. 10, Art. X does not
apply to conversions, which is the meat of the matter. He likewise argues that a specific
provision of the LGC, Sec. 453, as couched, allows only the qualified voters of Cabanatuan
City to vote in the plebiscite. Lastly, private respondent pointed out that when Santiago City
was converted in 1994 from a municipality to an independent component city pursuant to
Republic Act No. (RA) 7720, the plebiscite held was limited to the registered voters of the
then municipality of Santiago.
Following a hearing conducted on October 4, 2012,3 the COMELEC En Banc on October 16,
2012, in E.M No. 12-045 (PLEB), by a vote of 5-24 ruled in favor of respondent Vergara
through the assailed Minute Resolution 12-0925. The dispositive portion reads:
The Commission, taking into consideration the arguments of counsels including the Reply-
memorandum of Oppositor, after due deliberation, RESOLVED, as it hereby RESOLVES, as
follows:
2) To SCHEDULE the conduct of Plebiscite for the conversion of Cabanatuan City from
component city into highly-urbanized city with registered residents only of
Cabanatuan City to participate in said plebiscite.
Let the Deputy Executive Director for Operations implement this resolution.
SO ORDERED.
Hence, the Petition for Certiorari with prayer for injunctive relief, docketed as G.R. No.
203974, on substantially the same arguments earlier taken by petitioner Umali before the
poll body. On the other hand, public respondent COMELEC, through the Office of the Solicitor
General, maintained in its Comment that Cabanatuan City is merely being converted from a
component city into an HUC and that the political unit directly affected by the conversion
will only be the city itself. It argues that in this instance, no political unit will be created,
merged with another, or will be removed from another LGU, and that no boundaries will be
PUBLIC CORPORATION_cases for September 19, 2020 187
altered. The conversion would merely reinforce the powers and prerogatives already being
exercised by the city, with the political unit’s probable elevation to that of an HUC as
demanded by its compliance with the criteria established under the LGC. Thus, the
participation of the voters of the entire province in the plebiscite will not be necessary.
Private respondent will later manifest that it is adopting the Comment of the COMELEC.
Meanwhile, on October 25, 2012, respondent COMELEC promulgated Resolution No. 9543,
which adopted a calendar of activities and periods of prohibited acts in connection with the
conversion of Cabanatuan City into an HUC. The Resolution set the conduct of the plebiscite
on December 1, 2012. Thereafter, a certain Dr. Rodolfo B. Punzalan filed a Petition for
Declaratory Relief which was raffled to the Regional Trial Court (RTC), Branch 40 in Palayan
City. In the said case, Punzalan prayed that Minute Resolution No. 12-0797 be declared
unconstitutional, that the trial court decree that all qualified voters of the province of Nueva
Ecija be included in the plebiscite, and that a Temporary Restraining Order (TRO) be issued
enjoining public respondent from implementing the questioned resolution. On October 19,
2012, the RTC granted the prayer for a TRO.
On November 6, 2012, public respondent through Minute Resolution No. 12-0989 suspended
the preparations for the event in view of the TRO issued by the RTC. On November 27, 2012,
the plebiscite was once again rescheduled to give way to the May 13, 2013 national, local and
ARMM regional elections as per Resolution No. 9563.
After this development, petitioner J.V. Bautista, on December 3, 2012, filed a case before this
Court for Mandamus, docketed as G.R. No. 204371, praying that public respondent be
ordered to schedule the plebiscite either on December 15 or 22, 2012. Petitioner Bautista
argued that since the TRO issued by the RTC has already expired, the duty of the public
respondent to hold the plebiscite has become mandatory and ministerial. Petitioner Bautista
also alleged that the delay in holding the plebiscite is inexcusable given the requirement that
it should be held within a period of 120 days form the date of the President’s declaration.
In its Comment to the Bautista petition, public respondent justified its position by arguing
that mandamus will not issue to enforce a right which is in substantial dispute. With all the
legal conflicts surrounding the case, it cannot be said that there is a clear showing of
petitioner Bautista’s entitlement to the relief sought. Respondent COMELEC likewise relied
on Sec. 5 of the Omnibus Election Code to justify the postponements, citing incidents of
violence that ensued in the locality during the plebiscite period.
After the conclusion of the 2013 elections, public respondent issued Resolution No. 1353
scheduling the plebiscite to January 25, 2014. However, a TRO was issued by this Court on
January 15, 2014 in G.R. No. 203974 to suspend the conduct of the plebiscite for Cabanatuan
City’s conversion. Given the intertwining factual milieu of the two petitions before the Court,
both cases were consolidated on March 18, 2014.
The Issue
The bone of contention in the present controversy boils down to whether the qualified
registered voters of the entire province of Nueva Ecija or only those in Cabanatuan City can
participate in the plebiscite called for the conversion of Cabanatuan City from a component
city into an HUC.
PUBLIC CORPORATION_cases for September 19, 2020 188
Resolving the Petition for Certiorari either way will necessarily render the Petition for
Mandamus moot and academic for ultimately, the public respondent will be ordered to hold
the plebiscite. The only variation will be as regards its participants.
Sec. 453 of the LGC should be interpreted in accordance with Sec. 10, Art. X of the
Constitution
Petitioner Umali asseverates that Sec. 10, Art. X of the Constitution should be the basis for
determining the qualified voters who will participate in the plebiscite to resolve the issue.
Sec. 10, Art. X reads:
Section 10, Article X. – No province, city, municipality, or barangay may be created, divided,
merged, abolished, or its boundary substantially altered, except in accordance with the
criteria established in the local government code and subject to approval by a majority of the
votes cast in a plebiscite in the political units directly affected. (emphasis supplied)
Petitioner Umali elucidates that the phrase "political units directly affected" necessarily
encompasses not only Cabanatuan City but the entire province of Nueva Ecija. Hence, all the
registered voters in the province are qualified to cast their votes in resolving the proposed
conversion of Cabanatuan City.
On the other hand, respondents invoke Sec. 453 of the LGC to support their claim that only
the City of Cabanatuan should be allowed to take part in the voting. Sec. 453 states:
Section 453. Duty to Declare Highly Urbanized Status. – It shall be the duty of the President
to declare a city as highly urbanized within thirty (30) days after it shall have met the
minimum requirements prescribed in the immediately preceding Section, upon proper
application therefor and ratification in a plebiscite by the qualified voters therein. (emphasis
supplied)
Respondents take the phrase "registered voters therein" in Sec. 453 as referring only to the
registered voters in the city being converted, excluding in the process the voters in the
remaining towns and cities of Nueva Ecija.
Before proceeding to unravel the seeming conflict between the two provisions, it is but
proper that we ascertain first the relationship between Sec. 10, Art. X of the Constitution and
Sec. 453 of the LGC.
First of all, we have to restate the general principle that legislative power cannot be
delegated. Nonetheless, the general rule barring delegation is subject to certain exceptions
allowed in the Constitution, namely:
(1) Delegation by Congress to the President of the power to fix "tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government" under
Section 28(2) of Article VI of the Constitution; and
PUBLIC CORPORATION_cases for September 19, 2020 189
(2) Delegation of emergency powers by Congress to the President "to exercise powers
necessary and proper to carry out a declared national policy" in times of war and
other national emergency under Section 23(2) of Article VI of the Constitution.
The power to create, divide, merge, abolish or substantially alter boundaries of provinces,
cities, municipalities or barangays, which is pertinent in the case at bar, is essentially
legislative in nature.5 The framers of the Constitution have, however, allowed for the
delegation of such power in Sec. 10, Art. X of the Constitution as long as (1) the criteria
prescribed in the LGC is met and (2) the creation, division, merger, abolition or the
substantial alteration of the boundaries is subject to the approval by a majority vote in a
plebiscite.
Section 6. Authority to Create Local Government Units. - A local government unit may be
created, divided, merged, abolished, or its boundaries substantially altered either by law
enacted by Congress in the case of a province, city, municipality, or any other political
subdivision, or by ordinance passed by the sangguniang panlalawigan or sangguniang
panlungsod concerned in the case of a barangay located within its territorial jurisdiction,
subject to such limitations and requirements prescribed in this Code." (emphasis supplied)
The guidelines for the exercise of this authority have sufficiently been outlined by the various
LGC provisions detailing the requirements for the creation of barangays6, municipalities7,
cities8, and provinces9. Moreover, compliance with the plebiscite requirement under the
Constitution has also been directed by the LGC under its Sec. 10, which reads:
With the twin criteria of standard and plebiscite satisfied, the delegation to LGUs of the
power to create, divide, merge, abolish or substantially alter boundaries has become a
recognized exception to the doctrine of non-delegation of legislative powers.
Likewise, legislative power was delegated to the President under Sec. 453 of the LGC quoted
earlier, which states:
Section 453. Duty to Declare Highly Urbanized Status. – It shall be the duty of the President
to declare a city as highly urbanized within thirty (30) days after it shall have met the
minimum requirements prescribed in the immediately preceding Section, upon proper
application therefor and ratification in a plebiscite by the qualified voters therein.
In this case, the provision merely authorized the President to make a determination on
whether or not the requirements under Sec. 45210 of the LGC are complied with. The
provision makes it ministerial for the President, upon proper application, to declare a
component city as highly urbanized once the minimum requirements, which are based on
certifiable and measurable indices under Sec. 452, are satisfied. The mandatory language
"shall" used in the provision leaves the President with no room for discretion.
PUBLIC CORPORATION_cases for September 19, 2020 190
In so doing, Sec. 453, in effect, automatically calls for the conduct of a plebiscite for purposes
of conversions once the requirements are met. No further legislation is necessary before the
city proposed to be converted becomes eligible to become an HUC through ratification, as
the basis for the delegation of the legislative authority is the very LGC.
In view of the foregoing considerations, the Court concludes that the source of the delegation
of power to the LGUs under Sec. 6 of the LGC and to the President under Sec. 453 of the same
code is none other than Sec. 10, Art. X of the Constitution.
Respondents, however, posit that Sec. 453 of the LGC is actually outside the ambit of Sec. 10,
Art. X of the Constitution, considering that the conversion of a component city to an HUC is
not "creation, division, merge, abolition or substantial alternation of boundaries"
encompassed by the said constitutional provision.
First, the Court’s pronouncement in Miranda vs. Aguirre11 is apropos and may be applied by
analogy. While Miranda involves the downgrading, instead of upgrading, as here, of an
independent component city into a component city, its application to the case at bar is
nonetheless material in ascertaining the proper treatment of conversions. In that seminal
case, the Court held that the downgrading of an independent component city into a
component city comes within the purview of Sec. 10, Art. X of the Constitution.
In Miranda, the rationale behind the afore-quoted constitutional provision and its
application to cases of conversion were discussed thusly:
A close analysis of the said constitutional provision will reveal that the creation, division,
merger, abolition or substantial alteration of boundaries of local government units involve a
common denominator - - - material change in the political and economic rights of the local
government units directly affected as well as the people therein. It is precisely for this reason
that the Constitution requires the approval of the people "in the political units directly
affected." It is not difficult to appreciate the rationale of this constitutional requirement. The
1987 Constitution, more than any of our previous Constitutions, gave more reality to the
sovereignty of our people for it was borne out of the people power in the 1986 EDSA
revolution. Its Section 10, Article X addressed the undesirable practice in the past whereby
local government units were created, abolished, merged or divided on the basis of the
vagaries of politics and not of the welfare of the people. Thus, the consent of the people of
the local government unit directly affected was required to serve as a checking mechanism
to any exercise of legislative power creating, dividing, abolishing, merging or altering the
boundaries of local government units. It is one instance where the people in their sovereign
capacity decide on a matter that affects them - - - direct democracy of the people as opposed
to democracy thru people’s representatives. This plebiscite requirement is also in accord
with the philosophy of the Constitution granting more autonomy to local government units.12
It was determined in the case that the changes that will result from the conversion are too
substantial that there is a necessity for the plurality of those that will be affected to approve
it. Similar to the enumerated acts in the constitutional provision, conversions were found to
result in material changes in the economic and political rights of the people and LGUs
affected. Given the far-reaching ramifications of converting the status of a city, we held that
the plebiscite requirement under the constitutional provision should equally apply to
PUBLIC CORPORATION_cases for September 19, 2020 191
Second, while conversion to an HUC is not explicitly provided in Sec. 10, Art. X of the
Constitution we nevertheless observe that the conversion of a component city into an HUC
is substantial alteration of boundaries.
As the phrase implies, "substantial alteration of boundaries" involves and necessarily entails
a change in the geographical configuration of a local government unit or units. However, the
phrase "boundaries" should not be limited to the mere physical one, referring to the metes
and bounds of the LGU, but also to its political boundaries. It also connotes a modification of
the demarcation lines between political subdivisions, where the LGU’s exercise of corporate
power ends and that of the other begins. And as a qualifier, the alteration must be
"substantial" for it to be within the ambit of the constitutional provision.
Pertinent is Art. 12(c) of the LGC’s Implementing Rules and Regulations, which reads:
xxxx
(c) Effect of Conversion – The conversion of a component city into a highly-urbanized city
shall make it independent of the province where it is geographically located. (emphasis
added)
Verily, the upward conversion of a component city, in this case Cabanatuan City, into an HUC
will come at a steep price. It can be gleaned from the above-cited rule that the province will
inevitably suffer a corresponding decrease in territory brought about by Cabanatuan City’s
gain of independence. With the city’s newfound autonomy, it will be free from the oversight
powers of the province, which, in effect, reduces the territorial jurisdiction of the latter. What
once formed part of Nueva Ecija will no longer be subject to supervision by the province. In
more concrete terms, Nueva Ecija stands to lose 282.75 sq. km. of its territorial jurisdiction
with Cabanatuan City’s severance from its mother province. This is equivalent to carving out
almost 5% of Nueva Ecija’s 5,751.3 sq. km. area. This sufficiently satisfies the requirement
that the alteration be "substantial."
Needless to stress, the alteration of boundaries would necessarily follow Cabanatuan City’s
conversion in the same way that creations, divisions, mergers, and abolitions generally
cannot take place without entailing the alteration. The enumerated acts, after all, are not
mutually exclusive, and more often than not, a combination of these acts attends the
reconfiguration of LGUs.
In light of the foregoing disquisitions, the Court rules that conversion to an HUC is substantial
alternation of boundaries governed by Sec. 10, Art. X and resultantly, said provision applies,
governs and prevails over Sec. 453 of the LGC.
Moreover, the rules of statutory construction dictate that a particular provision should be
interpreted with the other relevant provisions in the law The Court finds that it is actually
Sec. 10 of the LGC which is undeniably the applicable provision on the conduct of plebiscites.
PUBLIC CORPORATION_cases for September 19, 2020 192
The title of the provision itself, "Plebiscite Requirement", makes this obvious. It requires a
majority of the votes cast in a plebiscite called for the purpose in the political unit or units
directly affected. On the other hand, Sec. 453 of the LGC, entitled "Duty to Declare Highly
Urbanized Status", is only on the duty to declare a city as highly urbanized. It mandates the
Office of the President to make the declaration after the city has met the requirements under
Sec. 452, and upon proper application and ratification in a plebiscite. The conduct of a
plebiscite is then a requirement before a declaration can be made. Thus, the Court finds that
Sec. 10 of the LGC prevails over Sec. 453 of the LGC on the plebiscite requirement.
We now take the bull by the horns and resolve the issue whether Sec. 453 of the LGC trenches
on Sec. 10, Art. X of the Constitution.
Hornbook doctrine is that neither the legislative, the executive, nor the judiciary has the
power to act beyond the Constitution’s mandate. The Constitution is supreme; any exercise
of power beyond what is circumscribed by the Constitution is ultra vires and a nullity. As
elucidated by former Chief Justice Enrique Fernando in Fernandez v. Cuerva:14
Where the assailed legislative or executive act is found by the judiciary to be contrary to the
Constitution, it is null and void. As the new Civil Code puts it: "When the courts declare a law
to be inconsistent with the Constitution, the former shall be void and the latter shall govern."
Administrative or executive acts, orders and regulations shall be valid only when they are
not contrary to the laws or the Constitution. The above provision of the civil Code reflects
the orthodox view that an unconstitutional act, whether legislative or executive, is not a law,
confers no rights, imposes no duties, and affords no protection. x x x
Applying this orthodox view, a law should be construed in harmony with and not in violation
of the Constitution.15 In a long line of cases, the cardinal principle of construction established
is that a statute should be interpreted to assure its being in consonance with, rather than
repugnant to, any constitutional command or prescription.16 If there is doubt or uncertainty
as to the meaning of the legislative, if the words or provisions are obscure or if the enactment
is fairly susceptible of two or more constitution, that interpretation which will avoid the
effect of unconstitutionality will be adopted, even though it may be necessary, for this
purpose, to disregard the more usual or apparent import of the language used.17
Pursuant to established jurisprudence, the phrase "by the qualified voters therein" in Sec.
453 should be construed in a manner that will avoid conflict with the Constitution. If one
takes the plain meaning of the phrase in relation to the declaration by the President that a
city is an HUC, then, Sec. 453 of the LGC will clash with the explicit provision under Sec. 10,
Art. X that the voters in the "political units directly affected" shall participate in the plebiscite.
Such construction should be avoided in view of the supremacy of the Constitution. Thus, the
Court treats the phrase "by the qualified voters therein" in Sec. 453 to mean the qualified
voters not only in the city proposed to be converted to an HUC but also the voters of the
political units directly affected by such conversion in order to harmonize Sec. 453 with Sec.
10, Art. X of the Constitution.
The Court finds that respondents are mistaken in construing Sec. 453 in a vacuum. Their
interpretation of Sec. 453 of the LGC runs afoul of Sec. 10, Art. X of the Constitution which
explicitly requires that all residents in the "political units directly affected" should be made
to vote.
PUBLIC CORPORATION_cases for September 19, 2020 193
Respondents make much of the plebiscites conducted in connection with the conversion of
Puerto Princesa City, Tacloban City and Lapu-Lapu City where the ratification was made by
the registered voters in said cities alone. It is clear, however, that the issue of who are entitled
to vote in said plebiscites was not properly raised or brought up in an actual controversy.
The issue on who will vote in a plebiscite involving a conversion into an HUC is a novel issue,
and this is the first time that the Court is asked to resolve the question. As such, the past
plebiscites in the aforementioned cities have no materiality or relevance to the instant
petition. Suffice it to say that conversion of said cities prior to this judicial declaration will
not be affected or prejudiced in any manner following the operative fact doctrine―that “the
actual existence of a statute prior to such a determination is an operative fact and may have
consequences which cannot always be erased by a new judicial declaration.”18
After the Court has resolved the seeming irreconcilability of Sec. 10, Art. X of the Constitution
and Sec. 453 of the LGC, it is now time to elucidate the meaning of the phrase "political units
directly affected" under Sec. 10, Art. X.
In identifying the LGU or LGUs that should be allowed to take part in the plebiscite, what
should primarily be determined is whether or not the unit or units that desire to participate
will be "directly affected" by the change. To interpret the phrase, Tan v. COMELEC19 and
Padilla v. COMELEC20 are worth revisiting.
We have ruled in Tan, involving the division of Negros Occidental for the creation of the new
province of Negros del Norte, that the LGUs whose boundaries are to be altered and whose
economy would be affected are entitled to participate in the plebiscite. As held:
It can be plainly seen that the aforecited constitutional provision makes it imperative that
there be first obtained "the approval of a majority of votes in the plebiscite in the unit or
units affected" whenever a province is created, divided or merged and there is substantial
alteration of the boundaries. It is thus inescapable to conclude that the boundaries of the
existing province of Negros Occidental would necessarily be substantially altered by the
division of its existing boundaries in order that there can be created the proposed new
province of Negros del Norte. Plain and simple logic will demonstrate than that two political
units would be affected.
The first would be the parent province of Negros Occidental because its boundaries would
be substantially altered. The other affected entity would be composed of those in the area
subtracted from the mother province to constitute the proposed province of Negros del
Norte.21
xxxx
To form the new province of Negros del Norte no less than three cities and eight
municipalities will be subtracted from the parent province of Negros Occidental. This will
result in the removal of approximately 2,768.4 square kilometers from the land area of an
existing province whose boundaries will be consequently substantially altered. It becomes
PUBLIC CORPORATION_cases for September 19, 2020 194
easy to realize that the consequent effects of the division of the parent province necessarily
will affect all the people living in the separate areas of Negros Occidental and the proposed
province of Negros del Norte. The economy of the parent province as well as that of the new
province will be inevitably affected, either for the better or for the worse. Whatever be the
case, either or both of these political groups will be affected and they are, therefore, the unit
or units referred to in Section 3 of Article XI of the Constitution which must be included in
the plebiscite contemplated therein.22 (emphasis added)
SEC. 3. No province, city, municipality or barrio may be created, divided, merged abolished,
or its boundary substantially altered, except in accordance with the criteria established in
the local government code, and subject to the approval by a majority of the votes in a
plebiscite in the unit or units affected. (emphasis added)
Despite the change in phraseology compared to what is now Sec. 10, Art. X, we affirmed our
ruling in Tan in the latter case of Padilla. As held, the removal of the phrase "unit or" only
served to sustain the earlier finding that what is contemplated by the phase "political units
directly affected" is the plurality of political units which would participate in the plebiscite.
As reflected in the journal of the Constitutional Commission:23
Mr. Maambong: While we have already approved the deletion of "unit or," I would like to
inform the Committee that under the formulation in the present Local Government Code, the
words used are actually "political unit or units." However, I do not know the implication of
the use of these words. Maybe there will be no substantial difference, but I just want to
inform the Committee about this.
Mr. Nolledo: Can we not adhere to the original "unit or units"? Will there be no objection on
the part of the two Gentlemen from the floor?
Mr. Davide: I would object. I precisely asked for the deletion of the words "unit or" because
in the plebiscite to be conducted, it must involve all the units affected. If it is the creation of
a barangay plebiscite because it is affected. It would mean a loss of a territory. (emphasis
added)
The same sentiment was shared by the Senate during its deliberations on Senate Bill No.
155––the predecessor of the LGC––thus:
Senator Guingona. Can we make that clearer by example? Let us assume that a province has
municipalities and there is a merger of two municipalities. Would this therefore mean that
the plebiscite will be conducted within the two merged municipalities and not in the eight
other municipalities?
Senator Pimentel. The whole province, Mr. President, will be affected, and that is the reason
we probably have to involve the entire province.
Senator Guingona. So the plebiscite will not be held only in the two municipalities which are
being merged, but the entire province will now have to undergo.
Senator Pimentel. I suppose that was the ruling in the Negros del Norte case.
PUBLIC CORPORATION_cases for September 19, 2020 195
Senator Guingona. Supposing it refers to barangays, will the entire municipality have to vote?
There are two barangays being merged, say, out of 100 barangays. Would the entire
municipality have to participate in the plebiscite?
Senator Pimentel. Yes, Mr. President, because the municipality is affected directly by the
merger of two of its barangay.
Senator Guingona. And, if, out of 100 barangay, 51 are being merged, abolished, whatever,
would the rest of the municipality not participate in the plebiscite?
Senator Pimentel. Do all the 51 barangay that the Gentleman mentioned, Mr. President,
belong to one municipality?
Senator Pimentel. Then it will only involve the municipality where the 51 barangays belong.
Senator Guingona. Yes. So, the entire municipality will now have to undergo a plebiscite.
Senator Guingona. In the earlier example, if it is only a merger of two municipalities, let us
say, in a province with 10 municipalities – the entire province – will the other municipalities
although not affected also have to participate in the plebiscite?
Senator Pimentel. Yes. The reason is that the municipalities are within the territorial
boundaries of the province itself, it will have to be altered as a result of the two municipalities
that the Gentleman mentioned.24
In the more recent case of Miranda, the interpretation in Tan and Padilla was modified to
include not only changes in economic but also political rights in the criteria for determining
whether or not an LGU shall be considered "directly affected." Nevertheless, the requirement
that the plebiscite be participated in by the plurality of political units directly affected
remained.
To recall, it was held in Miranda that the changes that will result in the downgrading of an
LGU from an independent component city to a component city cannot be categorized as
insubstantial, thereby necessitating the conduct of a plebiscite for its ratification. In a similar
fashion, herein petitioner Umali itemized the adverse effects of Cabanatuan City’s conversion
to the province of Nueva Ecija to justify the province’s participation in the plebiscite to be
conducted.
Often raised is that Cabanatuan City’s conversion into an HUC and its severance from Nueva
Ecija will result in the reduction of the Internal Revenue Allotment (IRA) to the province
based on Sec. 285 of the LGC. The law states:
Section 285. Allocation to Local Government Units. - The share of local government units in
the internal revenue allotment shall be collected in the following manner:
PUBLIC CORPORATION_cases for September 19, 2020 196
Provided, however, That the share of each province, city, and municipality shall be
determined on the basis of the following formula:
In our earlier disquisitions, we have explained that the conversion into an HUC carries the
accessory of substantial alteration of boundaries and that the province of Nueva Ecija will,
without a doubt, suffer a reduction in territory because of the severance of Cabanatuan City.
The residents of the city will cease to be political constituencies of the province, effectively
reducing the latter’s population. Taking this decrease in territory and population in
connection with the above formula, it is conceded that Nueva Ecija will indeed suffer a
reduction in IRA given the decrease of its multipliers’ values. As assessed by the Regional
Director of the Department of Budget and Management (DBM) for Region III:25
Clear as crystal is that the province of Nueva Ecija will suffer a substantial reduction of its
share in IRA once Cabanatuan City attains autonomy. In view of the economic impact of
PUBLIC CORPORATION_cases for September 19, 2020 197
Cabanatuan City’s conversion, petitioner Umali’s contention, that its effect on the province is
not only direct but also adverse, deserves merit.
Moreover, his claim that the province will lose shares in provincial taxes imposed in
Cabanatuan City is well-founded. This is based on Sec. 151 of the LGC, which states:
SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or municipality may impose:
Provided, however, That the taxes, fees and charges levied and collected by highly urbanized
and independent component cities shall accrue to them and distributed in accordance with
the provisions of this Code. (emphasis added)
Once converted, the taxes imposed by the HUC will accrue to itself. Prior to this, the province
enjoys the prerogative to impose and collect taxes such as those on sand, gravel and other
quarry resources,26 professional taxes,27 and amusement taxes28 over the component city.
While, it may be argued that this is not a derogation of the province’s taxing power because
it is in no way deprived of its right to collect the mentioned taxes from the rest of its territory,
the conversion will still reduce the province’s taxing jurisdiction, and corollary to this, it will
experience a corresponding decrease in shares in local tax collections. This reduction in both
taxing jurisdiction and shares poses a material and substantial change to the province’s
economic rights, warranting its participation in the plebiscite.
To further exemplify the impact of these changes, a perusal of Secs. 452(a) and 461(a) of the
LGC is in order, viz:
(a) Cities with a minimum population of two hundred thousand (200,000) inhabitants
as certified by the National Statistics Office, and within the latest annual income of at
least Fifty Million Pesos (₱50,000,000.00) based on 1991 constant prices, as certified
by the city treasurer, shall be classified as highly urbanized cities.
(a) A province may be created if it has an average annual income, as certified by the
Department of Finance, of not less than Twenty million pesos (₱20,000,000.00) based on
1991 constant prices and either of the following requisites:
(ii) a population of not less than two hundred fifty thousand (250,000) inhabitants as
certified by the National Statistics Office:
Provided, That, the creation thereof shall not reduce the land area, population, and income
of the original unit or units at the time of said creation to less than the minimum
requirements prescribed herein.
A component city’s conversion into an HUC and its resultant autonomy from the province is
a threat to the latter’s economic viability. Noteworthy is that the income criterion for a
PUBLIC CORPORATION_cases for September 19, 2020 198
component city to be converted into an HUC is higher than the income requirement for the
creation of a province. The ensuing reduction in income upon separation would clearly leave
a crippling effect on the province’s operations as there would be less funding to finance
infrastructure projects and to defray overhead costs. Moreover, the quality of services being
offered by the province may suffer because of looming austerity measures. These are but a
few of the social costs of the decline in the province’s economic performance, which Nueva
Ecija is bound to experience once its most progressive city of Cabanatuan attains
independence.
Aside from the alteration of economic rights, the political rights of Nueva Ecija and those of
its residents will also be affected by Cabanatuan’s conversion into an HUC. Notably, the
administrative supervision of the province over the city will effectively be revoked upon
conversion. Secs. 4 and 12, Art. X of the Constitution read:
Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays shall ensure that the acts of their
component units are within the scope of their prescribed powers and functions.
Sec 12. Cities that are highly urbanized, as determined by law, and component cities whose
charters prohibit their voters from voting for provincial elective officials, shall be
independent of the province. The voters of component cities within a province, whose
charters contain no such prohibition, shall not be deprived of their right to vote for elective
provincial officials.
Duties, privileges and obligations appertaining to HUCs will attach to Cabanatuan City if it is
converted into an HUC. This includes the right to be outside the general supervision of the
province and be under the direct supervision of the President. An HUC is not subject to
provincial oversight because the complex and varied problems in an HUC due to a bigger
population and greater economic activity require greater autonomy.29 The provincial
government stands to lose the power to ensure that the local government officials of
Cabanatuan City act within the scope of its prescribed powers and functions, 30 to review
executive orders issued by the city mayor, and to approve resolutions and ordinances
enacted by the city council.31 The province will also be divested of jurisdiction over
disciplinary cases concerning the elected city officials of the new HUC, and the appeal process
for administrative case decisions against barangay officials of the city will also be modified
accordingly.32 Likewise, the registered voters of the city will no longer be entitled to vote for
and be voted upon as provincial officials.33
In cutting the umbilical cord between Cabanatuan City and the province of Nueva Ecija, the
city will be separated from the territorial jurisdiction of the province, as earlier explained.
The provincial government will no longer be responsible for delivering basic services for the
city residents’ benefit. Ordinances and resolutions passed by the provincial council will no
longer cover the city. Projects queued by the provincial government to be executed in the
city will also be suspended if not scrapped to prevent the LGU from performing functions
outside the bounds of its territorial jurisdiction, and from expending its limited resources for
ventures that do not cater to its constituents.1âwphi1
PUBLIC CORPORATION_cases for September 19, 2020 199
In view of these changes in the economic and political rights of the province of Nueva Ecija
and its residents, the entire province certainly stands to be directly affected by the
conversion of Cabanatuan City into an HUC. Following the doctrines in Tan and Padilla, all
the qualified registered voters of Nueva Ecija should then be allowed to participate in the
plebiscite called for that purpose.
Respondents’ apprehension that requiring the entire province to participate in the plebiscite
will set a dangerous precedent leading to the failure of cities to convert is unfounded. Their
fear that provinces will always be expected to oppose the conversion in order to retain the
city’s dependence is speculative at best. In any event, any vote of disapproval cast by those
directly affected by the conversion is a valid exercise of their right to suffrage, and our
democratic processes are designed to uphold the decision of the majority, regardless of the
motive behind the vote. It is unfathomable how the province can be deprived of the
opportunity to exercise the right of suffrage in a matter that is potentially deleterious to its
economic viability and could diminish the rights of its constituents. To limit the plebiscite to
only the voters of the areas to be partitioned and seceded from the province is as absurd and
illogical as allowing only the secessionists to vote for the secession that they demanded
against the wishes of the majority and to nullify the basic principle of majority rule.34
WHEREFORE, premises considered, the Petition for Certiorari, docketed as G.R. No. 203974,
is hereby GRANTED. COMELEC Minute Resolution No. 12-0797 dated September 11, 2012
and Minute Resolution No. 12-0925 dated October 16, 2012 are hereby declared NULL and
VOID. Public respondent COMELEC is hereby enjoined from implementing the said
Resolutions. Additionally, COMELEC is hereby ordered to conduct a plebiscite for the
purpose of converting Cabanatuan City into a Highly Urbanized City to be participated in by
the qualified registered voters of Nueva Ecij a within 120 days from the finality of this
Decision. The Petition for Mandamus, docketed as G.R. No. 204371, is hereby DISMISSED.
SO ORDERED.