THIRD DIVISION

G.R. No. 211356, September 29, 2014

CRISOSTOMO B. AQUINO, Petitioner, v. MUNICIPALITY OF MALAY, AKLAN,

REPRESENTED BY HON. MAYOR JOHN P. YAP, SANGGUNIANG BAYAN OF MALAY,
AKLAN, REPRESENTED BY HON. EZEL FLORES, DANTE PASUGUIRON, ROWEN
AGUIRRE, WILBEC GELITO, JUPITER GALLENERO, OFFICE OF THE MUNICIPAL
ENGINEER, OFFICE OF THE MUNICIPAL TREASURER, BORACAY PNP CHIEF, BORACAY
FOUNDATION, INC., REPRESENTED BY NENETTE GRAF, MUNICIPAL AUXILIARY
POLICE, AND JOHN AND JANE DOES, Respondents.

DECISION

VELASCO JR., J.:

Nature of the Case

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.

1 The Facts PUBLIC CORPORATION_cases for September 19, 2020

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

SECTION 3. – No building or structure of any kind whether temporary or permanent shall

be allowed to be set up, erected or constructed on the beaches around the Island of Boracay
and in its offshore waters. During the conduct of special activities or special events, the
Sangguniang Bayan may, through a Resolution, authorize the Office of the Mayor to issue
Special Permits for construction of temporary structures on the beach for the duration of
the special activity as embodied in the Resolution.

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
2 PUBLIC
Mayor of Malay, Aklan issued the CORPORATION_cases
assailed EO 10, ordering the for September
closure 19, 2020of
and demolition
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.

Ruling of the Court of Appeals

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

3 petition for declaratory relief; PUBLIC CORPORATION_cases for September 19, 2020

a. Whether or not declaratory relief is still available to petitioner;

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;

Whether or not respondent mayor committed grave abuse of discretion when

he issued EO 10;

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.
 The Court’s Ruling

We deny the petition.

Certiorari, not declaratory relief, is the proper remedy

a. Declaratory relief no longer viable

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
4 compliance therewith, and not to settle CORPORATION_cases
PUBLIC issues arising from anfor
alleged breach 19,
September thereof,
2020it
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.

b. Petitioner correctly resorted to certiorari

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:

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.

We are not persuaded.

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,
5 PUBLIC CORPORATION_cases for September 19, 2020
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.

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

6 Before applying this doctrine, it PUBLIC CORPORATION_cases

must first forrespondents
be borne in mind that Septemberin19, 2020
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.

Respondents did not commit grave abuse of discretion

a. The hotel’s classification as a nuisance

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
residents of Malay, Aklan should be afforded.

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.

7 As jurisprudence elucidates, nuisances

PUBLICare of two kinds: nuisance per
CORPORATION_cases se and nuisance per
for September 19, 2020
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 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
8 to order the closure and removal PUBLIC CORPORATION_cases
of illegally for September
constructed establishments for19, 2020to
failing
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:

(vi) Require owners of illegally constructed houses, buildings or other structures to

obtain the necessary permit, subject to such fines and penalties as may be imposed
by law or ordinance, or to make necessary changes in the construction of the same
when said construction violates any law or ordinance, or to order the demolition or
removal of said house, building or structure within the period prescribed by law or
ordinance. (emphasis supplied)
 c.  Requirements for the exercise of the power are present
i.   Illegality of structures

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:

SECTION 9. – Permits and Clearances.

(a) No building or structure shall be allowed to start construction unless a Building

Permit therefore has been duly issued by the Office of the Municipal
Engineer. Once issued, the building owner or any person in charge of the construction
shall display on the lot or on the building undergoing construction a placard
containing the Building Permit Number and the date of its issue. The office of the
Municipal Engineer shall not issue any building permit unless:
1. The proposed construction has been duly issued a Zoning Clearance by
the Office of the Municipal Zoning Officer;
2. The proposed construction has been duly endorsed by the Sangguniang Bayan
through a Letter of Endorsement.

(b) Only buildings/structures which has complied with all the requirements for its
9 construction as verified to byPUBLIC CORPORATION_cases
the Building Inspector and thefor SeptemberBayan
Sangguniang 19, 2020
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

SECTION 10. – Penalties.

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
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
10 demolish any building or structure or cause
PUBLIC the same to be done
CORPORATION_cases without
for first obtaining
September 19, 2020 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.

ii. Observance of procedural due process rights

In the case at bench, the due process requirement is deemed to have been sufficiently
complied with. First, basic is the rule that public officers enjoy the presumption of
regularity in the performance of their duties.22 The burden is on the petitioner herein to
prove that Boracay West Cove was deprived of the opportunity to be heard before EO 10
was issued. Regrettably, copies of the Cease and Desist Order issued by the LGU and of the
assailed EO 10 itself were never attached to the petition before this Court, which
documents could have readily shed light on whether or not petitioner has been accorded
the 10-day grace period provided in Section 10 of the Ordinance. In view of this fact, the
presumption of regularity must be sustained. Second, as quoted by petitioner in his petition
before the CA, the assailed EO 10 states that petitioner received notices from the
municipality government on March 7 and 28, 2011, requiring Boracay West Cove to comply
with the zoning ordinance and yet it failed to do so.23   If such was the case, the grace period
can be deemed observed and the establishment was already ripe for closure and
 demolition by the time EO 10 was issued in June. Third, the observance of the 10-day
allowance for the owner to demolish the hotel was never questioned by petitioner so there
is no need to discuss the same. Verily, the only grounds invoked by petitioner in crying due
process violation are (1) the absence of a court order prior to demolition and (2) the
municipal government’s exercise of jurisdiction over the controversy instead of the DENR.
Therefore, it can no longer be belatedly argued that the 10-day grace period was not
observed because to entertain the same would result in the violation of the respondents’
own due process rights.

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 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

Petitioner next directs our attention to the following FLAgT provision:

VII. The SECOND PARTY may construct permanent and/or temporary improvements or
infrastructure in the FLAgT Area necessary and appropriate for its development for
11 tourism purposes pursuant to the approved
PUBLIC SMP. “Permanentfor
CORPORATION_cases Improvements”
September 19,refer
2020to
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:

SECTION 6. – No building or structure shall be allowed to be constructed on a slope Twenty

Five Percent (25%) or higher unless provided with soil erosion protective structures and
authorized by the Department of Environment and Natural Resources.

x x x x

SECTION 8. – No building or structure shall be allowed to be constructed on a swamp or

other water-clogged areas unless authorized by the Department of Environment and
Natural Resources.

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 argument does not persuade.

 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:

Section 447. Powers, Duties, Functions and Compensation. –

(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:

(i) Provide for the establishment, maintenance, protection, and conservation of

12 communal forests and watersheds,
PUBLICtree CORPORATION_cases
parks, greenbelts, mangroves, and other
for September 19,similar
2020
forest development projects x x x. (emphasis added)

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:
 Section 17. Basic Services and Facilities. –

x x x x

(b) Such basic services and facilities include, but are not limited to, the following:
x x x x

(2) For a Municipality:

x x x x

(ii) Pursuant to national policies and subject to supervision, control and review of the
DENR, implementation of community-based forestry projects which include integrated
social forestry programs and similar projects; management and control of communal
forests with an area not exceeding fifty (50) square kilometers; establishment of tree parks,
greenbelts, and similar forest development projects. (emphasis added)

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
13 PUBLIC
environment and natural resources, CORPORATION_cases
petitioner is skirting thefor September
principal issue,19, 2020is
which
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

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.
14 PUBLIC CORPORATION_cases for September 19, 2020
Below are the facts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of

providing international telecommunications services.[3] As such provider, Capwire has
signed agreements with other local and foreign telecommunications companies covering an
international network of submarine cable systems such as the Asia Pacific Cable Network
System (APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong Kong,
Taiwan, Korea, Japan, Indonesia and the Philippines); the Brunei-Malaysia-Philippines
Cable Network System (BMP-CNS), the Philippines-Italy (SEA-ME-WE-3 CNS), and the Guam
Philippines (GP-CNS) systems.[4] The agreements provide for co-ownership and other rights
among the parties over the network.[5]

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:

System Sound Value

APCN P 203,300,000.00
BMP-CNS P 65,662,000.00
SEA-ME-WE-3 CNS P P 7,540,000.00
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:

ARP Cable System Assessed Value

019-00967 BMP-CNS P 52,529,600.00
15 019-00968 PUBLIC CORPORATION_cases
APCN for September 19, 2020
P 162,640,000.00
019-00969 SEA-ME-WE3-CNS P 6,032,000.00
019-00970 GP-CNS P 1,431,200.00

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]

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]
16 PUBLIC CORPORATION_cases for September 19, 2020
Hence, the instant petition for review of Capwire.

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]

Respondents assessors and treasurers of the Province of Batangas ana Municipality of

Nasugbu, Batangas disagree with Capwire and insist that the case presents questions of fact
such as the extent and portion of the submarine cable system that lies within the
jurisdiction of the said local governments, as well as the nature of the so-called indefeasible
rights as property of Capwire.[28] Such questions are allegedly resolvable only before
administrative agencies like the Local Board of Assessment Appeals. [29]

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]

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
17 legal PUBLIC CORPORATION_cases for Septemberconclusion."19, 2020

In Ramos v. Pepsi-Cola Bottling Co. of the P.I., the Court ruled:

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.

We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

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 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
18 courts may PUBLIC CORPORATION_cases
directly for September 19,resolve.
2020

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.
 Nonetheless, We proceed to decide on whether submarine wires or cables used for
communications may be taxed like other real estate.

We hold in the affirmative.

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 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
19 things classed as real property for purposes
PUBLIC of taxation which on
CORPORATION_cases forgeneral principle
September might
19, 2020
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
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
20 taxation. PUBLIC CORPORATION_cases for September 19, 2020

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;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable or educational purposes;

(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
21 PUBLIC CORPORATION_cases for September 19, 2020
(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.
 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
22 MANAGEMENT (DBM), PETITIONERS, VS. PROVINCIAL
PUBLIC CORPORATION_cases GOVERNMENT
for September OF
19, 2020
PALAWAN,REPRESENTED BY GOVERNOR ABRAHAM KAHLIL B. MITRA, RESPONDENT.

[G.R. No. 185941]

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

The Camago-Malampaya Natural Gas Project

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
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]

The quantity of natural gas contained in the Camago-Malampaya was estimated to be

23 sufficient to justify the pursuitPUBLIC
of gas-to-power projects having
CORPORATION_cases an aggregate
for September 19, power-
2020
generating capacity of approximately 3,000 megawatts operating at baseload for 20 to 25
years.[10]

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]

Administrative Order No. 381

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.
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
[21]
24 province's PUBLIC CORPORATION_cases for September 19,claim. 2020

Civil Case No. 3779

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]

The Interim Agreement

 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
commitments under the Interim Agreement and that it has not received its stipulated share
since it was signed.[30]

The RTC Rulings in Civil Case No. 3779

On December 16, 2005, the RTC decided Civil Case No. 3779 in favor of the Province of
25 Palawan, disposing as follows: PUBLIC CORPORATION_cases for September 19, 2020
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]

Applying the principles of decentralization and devolution of powers to local government

units (LGUs) as recognized in the 1987 Constitution, the RTC explained that the State's
resources must be shared with the LGUs if they were expected to deliver basic services to
their constituents and to discharge their functions as agents of the State in enforcing laws,
preserving the integrity of the national territory and protecting the environment.[33]

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]

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]
26 PUBLIC CORPORATION_cases for September 19, 2020
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:

a. HON. Respondent SECRETARY OF THE DEPARTMENT OF ENERGY RAPHAEL P.M.

LOTILLA

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;
 b. HON. Respondent SECRETARY OF FINANCE MARGARITO TEVEZ-

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;

c. HON. Respondent SECRETARY DEPARTMENT OF BUDGET [sic] ROMULO NERI

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.

d. ALL RESPONDENTS, collectively or individually, effective immediately, CEASE and

DESIST from USING/DISBURSING the 40% share of the LOU-Palawan, for any other
purpose, except in compliance with the decision of this Court dated December 16, 2005,
under pain of CONTEMPT, until the finality of the decision;

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,
27 identified as Special Account 151, and toCORPORATION_cases
PUBLIC "freeze" said account, under pain of CONTEMPT,
for September 19, 2020
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]

G.R. No. 170867

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]

The Provisional Implementation Agreement

On July 25, 2007, the duly authorized representatives of the National Government and the
28 Province of Palawan, with the PUBLIC
conformity of the Representatives
CORPORATION_cases of the Congressional
for September 19, 2020
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]

E.O. No. 683

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 Government Revenues for the period of to June 30, 2010.

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
29 Government's territorial jurisdiction
PUBLICover the areas covered byfor
CORPORATION_cases SCSeptember
38 in relation to the
19, 2020
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. 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 Malacañ ang Records Office as the official
repository of all documents related to the Executive's functions.
30 PUBLIC CORPORATION_cases for September 19, 2020
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.

G.R. No. 185941 (Arigo, et al. petition)

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.

Remittances under Service Contract No. 38

As of August 31, 2009, the amounts remitted to the DoE under Service Contract No. 38 are
as follows:

Year Total Collection

2002 646,333,100.11
2003 1,475,334,680.12
2004 1,631,245,574.33
31 PUBLIC CORPORATION_cases for September 19, 2020
2005 2,393,400,010.73
2006 5,369,720,905.73
2007 8,228,450 883.72
2008 25,498 646,553.39
January 1 to August 31, 2009 15,947,078,304.12
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
[75]
Year DoE Share 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
2004 1,631,245,574.33 1,631,245,574.33
2005 2,393 400,010.73 2,393,400,010.73
2006 5,369,720,905.73 5,369,720,905.73
2007 8,228 450,883.72 8,228,450,883.72
2008 15,057,426,163.39 10,441,220,390.00 25,498,646,553.39
 January 1 to August
10,600,881,085.36 5,346,197,218.76 15,947,078,304.12
31, 2009
Total 25,668,420,827.62 35,521,789,184.63 61,190,210,012.25
The Parties' Submissions

Precised, the parties' respective arguments are as follows:

The Republic

1. An LGU's territorial jurisdiction refers only to its land area.[76]

1.1. Since Section 7 of the Local Government Code uses "population" and "land area" as
indicators in the creation and conversion of LGUs, it follows that the territorial jurisdiction
is the land where the people live and excludes seas or marine areas.[77]
1.2. In describing the territorial requirement for a province, Section 461(a)(i) of the Local
Government Code speaks of "a contiguous territory, as certified by the Lands Management
Bureau" while Section 461(b) of the same law provides that "the territory need not be
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
32 PUBLIC CORPORATION_cases for September 19, 2020
province should include the waters around it. Tan applies whether the purpose is the
[82]
creation of a province or the determination of its territorial jurisdiction.
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]
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]
33 4.2.3. The Local Government Code and the
PUBLIC Philippine Fisheries for
CORPORATION_cases Code did not redefine
September and
19, 2020
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. 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]
34 6.1. There is nothing in P.D. No. PUBLIC
1596, orCORPORATION_cases
the charter of Palawan,forAct No. 1396, 19,
September that2020
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 as Palawan's share from the Camago-Malampaya project. Although they
seem to acknowledge Palawan's share in the proceeds of the Camago-Malampaya project,
they cannot contravene the laws that delineate Palawan's territorial jurisdiction.
Furthermore, the President has no authority to expand the territorial jurisdiction of a
province as this can only be done by Congress.[117]
9.2. In issuing A.O. No. 381, President Ramos made no misrepresentation as to give rise to
estoppel. The statements in said A.O. were not calculated to mislead the Province of
35 Palawan; they were not even directed to Palawan. No estoppel
PUBLIC CORPORATION_cases can be invoked
for September if the
19, 2020
complaining party has not been misled to his prejudice. There is no proof that the Province
of Palawan sustained injury as a result of a misrepresentation.[118]
9.3. The doctrine of estoppel should be applied only in extraordinary circumstances and
should not be given effect beyond what is necessary to accomplish justice between the
parties.[119]
9.4. The doctrine of estoppel does not preclude the correction of an erroneous construction
by the officer himself, by his successor in office, or by the court in an appropriate case. An
erroneous construction creates no vested right and cannot be taken as precedent.[120]
9.5. Accordingly, the Province of Palawan cannot rely on the fact that in 1992, they shared
in the proceeds derived from the West Linapacan oil fields located approximately 76 kms
off the western coastline of Palawan.[121]
9.6. The public funds available for various projects in other provinces would be
significantly reduced if Palawan is allowed to receive its claimed 40% share in the Camago-
Malampaya project.[122]
10. Ordinance No. 474, series of 2000, enacted by the Sangguniang Panlalawigan of
Palawan and delineating the territorial jurisdiction of the province to include the Camago-
Malampaya area, is ultra vires.[123]
10.1. Ordinance No. 474 conflicts with the Charter of the Province of Palawan as it
expanded the boundaries of the province and included the area between its constituent
islands. It is also in conflict with the limits of LGUs' rights over marine areas under the
Local Government Code, the Fisheries Code and other pertinent laws.[124]
10.2. An LGU cannot fix its territorial jurisdiction, or limit or expand the same through an
ordinance. Pursuant to Section 10, Article X of the 1987 Constitution and Sections 6 and 10
of the Local Government Code, only Congress can create, divide or merge LGUs and alter
 their boundaries, subject to the plebiscite requirement. An ordinance cannot contravene
the Constitution or any statute.[125]
10.3. As plotted by the National Mapping and Resource Information Authority (NAMRIA),
the territorial boundaries of Palawan under Ordinance No. 474 appear to be inconsistent
with the delineation of the Philippine territory under the Treaty of Paris.[126]
11. Section 3(1) of R.A. No. 7611 or SEP for Palawan Act contains a definition of "Palawan."
The Camago-Malampaya reservoir is undoubtedly within the area described and plotted on
the map. However, R.A. No. 7611 did not redefine Palawan's territory or amend its charter.
[127]

11.1. With the words "(A)s used in this Act," Section 3 of R.A. No. 7611 limited the
application of the definitions therein to said law which was enacted to promote sustainable
development goals for the province through proper conservation, utilization and
development of natural resources.[128]
11.2. Just like Palawan's Charter, Section 3(1) of R.A. No. 7611 limited the territory to the
islands and islets within the area.[129]
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
36 expand the territory of Palawan but toCORPORATION_cases
PUBLIC make the province foran September
agent of the19,National
2020
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 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]
37 16. The PIA and E.O. No. 683 doPUBLIC
not constitute evidence of the for
CORPORATION_cases Republic's admission
September that
19, 2020
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 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
38 Local Government Code, the city PUBLIC
or municipality gets 45% and the
CORPORATION_cases forbarangay gets19,
September 35%, or a
2020
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
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
39 the Philippines. Said provisionPUBLIC
in the CORPORATION_cases
unitary Philippine state only means19,that
for September 2020 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]

The Province of Palawan

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
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
40 of a new province, with income being
PUBLIC the indispensable requirement.
CORPORATION_cases for September It 19,
does not
2020
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 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
41 in Palawan courts. The provincial PUBLICgovernment also enforces
CORPORATION_cases local and19,national
for September 2020
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]

9. Based on the Senate deliberations on the Local Government Code, it is a foregone

conclusion that the Province of Palawan has equitable share in the proceeds of the Camago-
Malampaya project.[175]

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]
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]
42 12.1.3. Pursuant to R.A. No. 7611,PUBLIC
the Palawan Council for Sustainable
CORPORATION_cases Development
for September 19, (PCSD)
2020
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]

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
43 indispensable partners of the National
PUBLICGovernment in the proper
CORPORATION_cases forand efficient exercise
September 19, 2020of
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]
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
44 exercises control and shares in the National
PUBLIC Government's management
CORPORATION_cases responsibility,
for September 19, 2020it 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 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
45 RTC, particularly, the issue of whether theCORPORATION_cases
PUBLIC Province of Palawan isfor
entitled to receive
September 19, 40%
2020of
[212]
the government's share in the proceeds of the Camago-Malampaya project.
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
46 would be benefitted or injured byPUBLIC
the judgment in the suit, or as taxpayers,
CORPORATION_cases as they
for September 19,failed
2020to
[222]
show that the E.O. No. 638 and PIA involved an illegal disbursement of public funds.

Ruling of the Court

LGUs' share in national wealth

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.

Section 7. Local governments shall be 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, including sharing the same with the inhabitants by way
of direct benefits. (Emphasis ours)
 At the center of this controversy is Section 7, an innovation in the 1987 Constitution aimed
at giving fiscal autonomy to local governments. Deliberations of the 1986 Constitutional
Commission reveal the rationale for this provision, thus:
MR. OPLE. x x x

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
47 remember that the Ministry of PUBLICFinance,CORPORATION_cases
together with the National Power Corporation,
for September 19, 2020
refused to implement it. There is a bigger economic 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. NATIVIDAD. No, that is all right with me.

 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

In the hinterland regions of the Philippines, most municipalities receive an annual

income of only about P200,000 so that after paying the salaries of local officials and
employees, nothing is left to fund any local development project. This is a
prescription for a self-perpetuating stagnation and backwardness, and numbing
community frustrations, as well as a chronic disillusionment with the central
government. The thrust towards local autonomy in this entire Article on Local
Governments may suffer the fate of earlier heroic efforts of decentralization which, without
innovative features for local income generation, remained a pious hope and a source of
discontent. To prevent this, this amendment which Commissioner Davide and I jointly
propose will open up a whole new source of local financial self-reliance by
establishing a constitutional principle of local governments, and their populations,
sharing in the proceeds of national wealth in their areas of jurisdiction. The sharing with
the national government can be in the form of shares from revenues, fees and charges
levied on the exploitation or development and utilization of natural resources such as
mines, hydro electric and geothermal facilities, timber, including rattan, fisheries, and
48 processing industries based CORPORATION_cases
PUBLIC on indigenousfor September
raw materials.
19, 2020

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 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
49 owned or controlled corporation engaged
PUBLIC in the utilizationfor
CORPORATION_cases andSeptember
development of the
19, 2020
national wealth based on the following formula whichever will produce a higher share for
the local government unit:

(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

50 Yes, we'd like to announce that PUBLIC

finally, after three years of deliberation
CORPORATION_cases and hundreds
for September 19, 2020of
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
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.

Territorial jurisdiction refers to territorial boundaries as defined in the LGU's

charter

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.

Under the Local Government Code, a "province" is composed of a cluster of municipalities,

or municipalities and component cities.[227] A "municipality," in turn, is described as a group
of barangays,[228] while a "city" is referred to as consisting of more urbanized and developed
barangays.[229]

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
51 not be contiguous if PUBLIC
it comprises two (2) for September
CORPORATION_cases or more 19,islands.
2020

x x x x

Section 442. Requisites for Creation. -

x x x x

(b) The territorial jurisdiction of a newly-created municipality shall be properly

identified by metes and bounds. The requirement on land area shall not apply where the
municipality proposed to be created is composed of one (1) or more islands. The territory
need not be contiguous if it comprises two (2) or more islands.

x x x x

Section 450. Requisites for Creation.

x x x x

(b) The territorial jurisdiction of a newly-created city shall be properly identified by

metes and bounds. The requirement on land area shall not apply where the city proposed
to be created is composed of one (1) or more islands. The territory need not be contiguous
if it comprises two (2) or more islands.

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

Section shall be distributed in the following manner:

(a) Where the natural resources are located in the province:

(1) Province - Twenty percent (20%);

(2) Component City/Municipality - Forty-five percent (45%); and
(3) Barangay - Thirty-five percent (35%)

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:

(1) Population - Seventy percent (70%); and

(2) Land area - Thirty percent (30%)

(b) Where the natural resources are located in a highly urbanized or independent

component city:
52 PUBLIC CORPORATION_cases for September 19, 2020
(1) City - Sixty-five percent (65%); and
(2) Barangay - Thirty-five percent (35%)

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.

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.

53 Section 7. Creation and Conversion. - As aCORPORATION_cases

PUBLIC general rule, the creation of a local government
for September 19, 2020
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)
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

54 assertion of powers. To hold otherwise
PUBLICmay result in condoningfor
CORPORATION_cases acts that are clearly ultra
September 19, 2020
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
constitutes an LGU's territorial jurisdiction may produce absurd consequences. Indeed,
there are natural resources, such as forests and mountains, which can be found within the
LGU's territorial boundaries, but are, strictly speaking, under national jurisdiction,
specifically that of the Department of Environment and Natural Resources. [240] To equate
territorial jurisdiction to areas where the LGU exercises jurisdiction means that these
natural resources will have to be excluded from the sharing scheme although they are
geographically within the LGU's territoriallimits.[241] The consequential incongruity of this
scenario finds no support either in the language or in the context of the equitable sharing
provisions of the 1987 Constitution and the Local Government Code.

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
55 interpretation of "territorial jurisdiction" based on exercise of jurisdiction.
PUBLIC CORPORATION_cases for SeptemberTo sustain
19, 2020the
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
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.

Sections 26 and 27 of the Local Government Code provide:

56 Section 26. Duty of National Government Agencies in the Maintenance
PUBLIC CORPORATION_cases of Ecological
for September 19,Balance.
2020
- It shall be the duty of every national agency or government-owned or controlled
corporation authorizing or involved in the planning and implementation of any project or
program that may cause pollution, climatic change, depletion of non-renewable resources,
loss of crop land, rangeland, or forest cover, and extinction of animal or plant species, to
consult with the local government units, nongovernmental organizations, and other sectors
concerned and explain the goals and objectives of the project or program, its impact upon
the people and the community in terms of environmental or ecological balance, and
the measures that will be undertaken to prevent or minimize the adverse effects thereof.

Section 27. Prior Consultations Required. - No project or program shall be implemented by

government authorities unless the consultations mentioned in Sections 2 (c) and 26 hereof
are complied with, and prior approval of the sanggunian concerned is obtained: Provided,
That occupants in areas where such projects are to be implemented shall not be evicted
unless appropriate relocation sites have been provided, m accordance with the provisions
of the Constitution. (Emphasis ours)
It is clear from Sections 26 and 27 that the consideration for the required consultation
and sanggunian approval is the environmental impact of the National Government's project
on the local community. A project, however, may have an ecological impact on a locality
without necessarily being situated therein. Thus, prior consultation made pursuant to the
foregoing provisions does not perforce establish that the national wealth sought to be
utilized is within the territory of the LGU consulted.

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.

Since it refers to a demarcated area, the term "territorial jurisdiction" is evidently

synonymous with the term "territory." In fact, "territorial jurisdiction" is defined as the
limits or territory within which authority may be exercised.[246]

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;
57 and a contiguous territory of atPUBLIC
least fifty (50) square kilometers
CORPORATION_cases as certified
for September by the
19, 2020
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.

(b) The territorial jurisdiction of a newly-created municipality shall be properly

identified by metes and bounds. The requirement on land area shall not apply where the
municipality proposed to be created is composed of one (1) or more islands. The territory
need not be contiguous if it comprises two (2) or more islands.

(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.

Section 450. Requisites for Creation.

(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.

(b) The territorial jurisdiction of a newly-created city shall be properly identified by

metes and bounds. The requirement on land area shall not apply where the city proposed
to be created is composed of one (1) or more islands. The territory need not be
contiguous if it comprises two (2) or more islands.

(c) The average annual income shall include the income accruing to the general fund,
exclusive of specific funds, transfers, and non-recurring income.

Section 461. Requisites for Creation.

(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
58 certified by the National StatisticsPUBLIC
Office: CORPORATION_cases for September 19, 2020
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,
exclusive of special funds, trust funds, transfers and non-recurring income.

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.

The following pronouncement in Tan v. Comelec[249] is particularly instructive:

It is of course claimed by the respondents in their Comment to the exhibits submitted by
59 the petitioners (Exhs. C and D, Rollo,
PUBLICpp. CORPORATION_cases
19 and 91), that the new
forprovince has 19,
September a territory
2020
of 4,019.95 square kilometers, more or less. This assertion is made to negate the proofs
submitted, disclosing that the land area of the new province cannot be more than 3,500
square kilometers because its land area would, at most, be only about 2,856 square
kilometers, taking into account government statistics relative to the total area of the cities
and municipalities constituting Negros del Norte. Respondents insist that when Section
197 of the Local Government Code speaks of the territory of the province to be
created and requires that such territory be at least 3,500 square kilometers, what is
contemplated is not only the land area but also the land and water over which the
said province has jurisdiction and control. It is even the submission of the
respondents that 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
60 the LGU's territory. More importantly,
PUBLICit appears that the framers
CORPORATION_cases ofSeptember
for the Local Government
19, 2020
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.

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
61 SHALL EXTEND TO AT LEAST PUBLIC TWO KILOMETERS FROM THEfor
CORPORATION_cases SHORELINE;
SeptemberPROVIDED,
19, 2020
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 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.

The President. All right. Subject to the three-nautical-mile limit.

Senator Saguisag. Mr. President.

The President. Senator Saguisag is recognized.

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...

62 The President. Inland waters lamang

PUBLIC naman yata ang
CORPORATION_cases pinaguusapang
for September ito.
19, 2020

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?

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?

Senator Pimentel. Yes, Mr. President.

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.
63 PUBLIC CORPORATION_cases for September 19, 2020
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.

To recapitulate, an LGU's territorial jurisdiction refers to its territorial boundaries or to its

territory. The territory of LGUs, in turn, refers to their land area, unless expanded by law to
include the maritime area. Accordingly, only the utilization of natural resources found
within the land area as delimited by law is subject to the LGU's equitable share under
Sections 290 and 291 of the Local Government Code. This conclusion finds support in the
deliberations of the 1986 Constitutional Commission which cited, as examples of national
wealth the 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 Palimpiñ on, 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
PUBLIC
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64 for September 19, 2020
main trail leading 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
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)

Section 43. Situs of Provinces and Major Subdivisions. - The general

 location of the provinces other than such as are contained in the
Department of Mindanao and Sulu, together with the subprovinces,
municipalities, and townshlps respectively contained in them is as
follows:

xxxx

The Province of Palawan consists of the Island of Palawan,

the islands of Dumaran and Balabac, the Calamian Islands, the
Cuyo Islands, the Cagayanes Islands, and all other islands adjacent to
any of them, not included in some other province. It contains the
townships of Cagayancillo, Coron, Cuyo, Puerto Princesa (the capital of
the province), and Taytay.
Act No. 2711[264] Chapter 2 (Political Grand Divisions and Subdivisions)   

Article I

Grand Divisions

Section 37. Grand divisions of (Philippines Islands) Philippines. - The

(Philippine Islands) Philippines compnses the forty-two provinces
named in the next succeeding paragraph hereof, the seven provinces of
the Department of Mindanao and Sulu, and the territory of the City of
Manila.
65 PUBLIC CORPORATION_cases for September 19, 2020
xxxx

The Province of Palawan consists of the Island of Palawan,

the islands of Dumaran and Balabac, the Calamian Islands, the
Cuyo Islands, the Cagayanes Islands, and all other islands adjacent to
any of them, not included in some other province, and comprises the
following municipalities: Agutaya, Bacuit, Cagayancillo, Coron, Cuyo,
Dumaran, Puerto Princesa (the capital of the province), and Taytay.

The province also contains the following municipal districts: Aborlan,

Balabac and Brooke's Point.
As defined in its organic law, the Province of Palawan is comprised merely of islands. The
continental shelf, where the Camago-Malampaya reservoir is located, was clearly not
included in its territory.

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:

KALAYAAN ISLAND GROUP

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)
66 None of the parties assert that the Camago-Malampaya
PUBLIC reservoir
CORPORATION_cases is September
for within the territory
19, 2020of
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.

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]

67 It is true, as the Province of Palawan has pointed

PUBLIC out, that R.A. No.for
CORPORATION_cases 7611 includes 19,
September the coastal
2020
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 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:

68 1. IN THE CASE OF MUNICIPALITIES ANDCORPORATION_cases

PUBLIC COMPONENT CITIES: for
(A) September
THE BARANGAY UNIT
19, 2020
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;

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.

Senator Pimentel. AND EXTRACTED. Yes, Mr. President.

 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.

JUSTICE CARPIO: So, it is not part of any barangay?

DEAN PANGALANGAN: Yes, Your Honor, it is not.[272]

The Province of Palawan's failure to specify the component city or municipality, or the
barangay for that matter, in which the Camago-Malampaya reservoir is situated militates
against its claim that the area forms part of its area or territory.

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
69 PUBLIC CORPORATION_cases
Barangays for September 19, 2020
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,
[274]
Princesa together with the subprovinces, municipalities,
Taytay and townships respectively contained in them
is as follows:

xxxx

The Province of Palawan consists of the Island

of Palawan, the islands of Dumaran and
Balabac, the Calamian Islands, the Cuyo
Islands, the Cagayanes Islands, and all other
islands adjacent to any of them, not included in
some other province. It contains the townships
of Cagayancillo, Coron, Cuyo, Puerto
Princesa (the capital of the province),
and Taytay.
Act No. 2711 Section 37. Grand divisions of (Philippines
Islands) Philippines. - The (Philippine Islands)
Philippines comprises the forty-two provinces
named in the next succeeding paragraph
hereof, the seven provmces of the Department
 of Mindanao and Sulu, and the territory of the
City of Manila.
  
xxxx

The Province of Palawan consists of the Island

of Palawan, the islands of Dumaran and
Balabac, the Calamian Islands, the Cuyo
Islands, the Cagayanes Islands, and all other
islands adjacent to any of them, not included in
some other provmce, and comprises the
following municipalities: Agutaya,
Bacuit, Cagayancillo, Coron, Cuyo, Dumaran,
Puerto Princesa (the capital of the province),
and Taytay.

xxxx
[275]
Roxas R.A. No. 615 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
70 of Roxas. The seat for
PUBLIC CORPORATION_cases of the government
September of the
19, 2020
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 Nido) Islands) Philippines. - x x x x
[276]

Dumaran The Province of Palawan consists of the Island

Aborlan of Palawan, the islands of Dumaran and
Balabac Balabac, the Calamian Islands, the Cuyo
Brooke's Point Islands, the Cagayanes Islands, and all other
islands adjacent to any of them, not included in
some other provmce, and comprises the
following municipalities: Agutaya, Bacuit,
Cagayancillo, Coron, Cuyo, Dumaran, Puerto
Princesa (the capital of the province), and
Taytay.

The province also contains the following

municipal districts: Aborlan, Balabac and
Brooke's Point.
[277]
R.A No. 1111 RA 1111 changed the name of
R.A. No. 3418[278] the Municipality of Dumaran to Araceli.
However, under RA 3418, a distinct and
independent municipality, to be known as
 the Municipality of Dumaran, was
constituted from certain barrios of the
municipalities of Araceli, Roxas and Taytay.
Section 1 of RA 3418 provides "The barrios of
Dumaran, San Juan, Bacao, Calasag and Bohol
in the Municipality of Araceli; the barrios of
Ilian, Capayas, and Leguit in the Municipality
of Roxas; and the barrios of Danleg and
Pangolasian in the Municipality of Taytay, all
in the province of Palawan, are separated from
the said municipalities, and are constituted
into a distinct and independent municipality,
to be known as the Municipality of Dumaran,
with the seat of government at the site of the
barrio of Dumaran."
[279]
Busuanga R.A. No. 560 Section 1. The barrios of Concepcion,
Salvacion, Busuanga, New Busuanga, Buluang,
Quezon, Calawit, and Cheey in the Municipality
of Coron are separated from the said
municipality and constituted into a new and
regular municipality to be known as
the Municipality of Busuanga, with the
present site of the barrio of New Busuanga as
the seat of the government.
[280]
71 R.A No. 5943 PUBLIC CORPORATION_cases
RA 5943 amended Section 1 of RA 560
for September 19,to read
2020
as follows: "The barrios of Sagrada,
Maglalambay, Bogtong, San Isidro, Pallitan, San
Rafael, Concepcion, Salvacion, Busuanga,
Buluang, Quezon, Calawit, and Cheey, in the
Municipality of Coron, Province of Palawan,
are separated from said municipality and
constituted into a new Municipality of
Busuanga with the present site of the barrio
of Salvacion as the seat of the government."
[281]
Quezon R.A. No. 617 Section 1. The barrios of Berong and Alfonso
XII in the Municipality of Aborlan and the
barrios of Iraan, Candawaga and Canipaan m
the Municipality of Brook's Point are
separated from the said municipalities and
constituted into a new and regular
municipality to be known as the Municipality
of Quezon, with the present site of the barrio
of Alfonso XIII as the seat of the government.
[282]
Linapacan R.A. No. 1020 Section 1. The islands of Linapacari,
Cabunlaoan, Niangalao, Decabayotot,
Calibanbangan, Pical, and Barangonan are
hereby separated from the Municipality of
Coron, Province of Palawan. and constituted
into a municipality to be known as
 the Municipality of Linapacan with the seat
of government in the barrio of San Miguel in
the island of Linapacan.
Araceli Act No. 2711 Comprises the original territorial jurisdiction
R.A. No. 1111 of the Municipality of Dumaran under Act No.
R.A. No. 3418 2711, excluding the barrios of Dumaran, San
Juan, Bacao, Calasag and Bohol which were
included in the newly created Municipality of
Dumaran under RA3418.
[283]
Batarasa R.A. No. 3425 Section 1. The barrios of Inogbong, Marangas,
Bonobono, Malihod, Bulalakaw, Tarusan,
Iwahig, Iganigang, Sarong, Akayan, Rio Tuba,
Sumbiling, Sapa, Malitub, Puring, Buliluyan
and Tahod in the Municipality of Brooke's
Point, Province of Palawan, are separated from
said municipality and constituted into a
distinct and independent municipality, to be
known as the Municipality of Batarasa, same
province. The seat of government of the new
municipality shall be in the present site of the
barrio of Marangas.
[284]
Magsaysay R.A. No. 3426 Section 1. The barrios of Los Angeles, Rizal,
Lucbuan, Igabas, Imilod, Balaguen, Danawan,
Cocoro, Patonga, Tagawayan Island, Siparay
72 Island and Canipo infor
PUBLIC CORPORATION_cases theSeptember
Municipality
19,of2020
Cuyo,
Province of Palawan, are separated from said
municipality and constituted into a distinct
and independent municipality, to be known as
the Municipality of Magsaysay. The seat of
government of the new municipality shall be
the present site of the barrio of Danawan.
[285]
San Vicente R.A. No. 5821 Section 1. The barrios of Binga, New Canipo,
Alimanguan and New Agutaya, now in the
Municipality of Taytay and all barrios from
Vicente to Caruray in the Municipality of
Puerto Princesa, Province of Palawan, are
separated from said municipalities, and
constituted into a distinct and independent
municipality, to be known as the Municipality
of San Vicente, same province. The seat of
government of the municipality shall be in the
present site of the barrio of San Vicente.
[286]
Narra R.A. No. 5642 Section 1. The barrios of Malatgao, Tinagong
dagat, Taritien, Antipoloan, Teresa, Panacan,
Narra, Caguisan, Batang-batang, Bato-bato,
Barirao, Malinao, Sandoval, Dumaguefia, El
Vita, Calategas, Arumay.uan, Tacras, Borirao
and that part of barrio Abo-abo now belonging
to the Municipality of Aborlan, Province of
 Palawan, are separated from said municipality
and constituted into a distinct and
independent municipality, to be known as
the Municipality of Narra. The seat of the
new municipality shall be in the present site of
Barrio Narra.
Kalayaan P.D. No. 1596 Section 1. The area within the following
boundaries:

KALAYAAN ISLAND GROUP

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 of
longitude 114° 30' 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
73 intersection with the
PUBLIC CORPORATION_cases parallel of 19,
for September 10°00'
2020N,
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
to 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."
[288]
Marcos (now BP Blg. 386 Section 1. The barangays of Bunog, Iraan,
Riza1)[287] Punta Baja, Capung Ulay, Ramsang, Candawag,
Culasian, Panalingaan, Tahuin, Latud, and
Canipaan are hereby separated from the
Municipality of Quezon, Province of Palawan,
and constituted into a distinct and
independent municipality to be known as the
Municipality of Marcos. The seat of
government of the new municipality will be in
Barangay Punta Baja.

Section 2. The Municipality of Marcos shall

be bounded as follows:

"A parcel of land known as the proposed

 Municipality of Marcos, in the Province of
Palawan, Luzon Island, bounded in the north
along lines 11 and 1 in the Plan by the
municipal boundary of Quezon, on the south
along lines 2 and 3 by Sulu Sea, on the east
along lines 1 and 2 by the municipal boundary
of Brooke's Point, on the west along lines 3 to
11 by the shoreline of the South China Sea.
Beginning at the point marked 1 in the plan at
latitude go 59' 10" T north, longitude 117° 50'
32"; thence S 62-00W 80,750 meters to point
2; thence N 85-00W 5,800 meters to point 3;
thence N 31-29E 20,670.35 meters to point 4;
thence N 46-13E 8,298.46 meters to point 5;
thence N 52-21E 6,137.67 meters to point 6;
thence N 39-14E 9,594.37 meters to point 7;
thence N 37-45E 11,017.16 meters to point 8;
thence N 53-08E 10,364.93 meters to point 9;
thence N 41-12E 14,556.17 meters to point 10;
thence N 76-02E 6,509.60 meters to point 11;
thence S 48-10E 14,442.69 meters to point 12,
containing an area of nine hundred seventy-
seven million, two hundred sixty-one thousand
two hundred square meters (977,261,200
74 PUBLIC CORPORATION_cases
square meters) orforninety-seven
September 19, 2020
thousand
seven hundred twenty-six and twelve
hundredth hectares (97,726.12 hectares)."
[289]
Culion R.A. No. 7193  as Section 1. The Islands of Culion Leper Colony,
amended by R.A. No. Marily, Sand, Tampel, Lamud, Galoc, Lanka,
9032[290] Tambon, Dunaun, Alava, Chindonan and a
small island without a name situated directly
south of Chindonan Island in latitude 11°55'N,
longitude 12°02'E, comprising the national
reservation for lepers in the Province of
Palawan as described under Executive Order
No. 35, Series of 1912, are hereby constituted
into a distinct and independent municipality to
be known as the Municipality of Culion. The
seat of government of the new municipality
shall be in Barangay Balala.

Section 1-A. The barangays of Balala, Baldat,

Binudac, Culango, Galoc, Jardin, Malaking
Patag, Osmeñ a and Tiza Libis, Luac, which
have been existing and functioning as regular
barangays before the creation of the
municipality in 1992 are hereby declared as
legally existent upon the creation of the
Municipality of Culion. These barangays shall
 compnse the Municipality of Culion, subject to
the provisions of the succeeding paragraphs.
The territorial boundaries of these barangays
are specified in Annex "A" of this Act.

Subject to the provisions of Section 10,

Republic Act No. 7160, Burabod and Halsey in
the Municipality of Busuanga, Province of
Palawan, are hereby separated from said
municipality and are transferred as part of the
political jurisdiction of the Municipality of
Culion.

A barangay for the indigenous cultural

communities to be known as Barangay
Carabao is hereby created to be composed of
the following sitios, namely: Bacutao,
Baracuan, Binabaan, Cabungalen, Corong, De
Carabao (Lumber Camp), Igay, Layang-layang,
Marily Pula and Pinanganduyan.

Section 2. The Municipality of Culion shall be

bounded and described as follows:

75 PUBLIC CORPORATION_cases for September

The municipality shall 19,on
be bounded 2020
the
north by the Municipality of Busuanga-Coron
Island with Concepcion and Salvacion in the
Calamian Island Group; on the south by the
Municipality of Bacuit-Taytay and Linapacan
area; on the east by the South China Sea; on
the west by the Cuyo West Pass.

The land contained in all the above named

islands in Section One is shown on C.G. Map
No. 4717 published in Washington D.C.,
September, 1908, and lies within the following
limits, i.e. between the parallels of 11°36'N and
12°03'N, and the meridians  of 119°47'E and
120°15'E.
Sofronio R.A. No. 7679[291] Section 1. Barangays Pulot Center, Pulot Shore
Españ ola (Pulot I), Pulot Interior (Pulot II,) Iraray,
Punang, Labog, Panitian, Isumbo, and Abo-Abo
in the Municipality of Brooke's Point, Province
of Palawan, are hereby separated from the
Municipality and constituted into a distinct
and independent municipality of the province,
to be known as the Municipality of Sofronio
Española. The seat of government of the new
municipality shall be in Barangay Pulot Center.
 Section 2. The boundary of the Municipality
of Sofronio Española is described as follows:

Corne
Latitude Longitude Location
r
on the
8
southern side
1 °53'50.23 118°00'20.28"
of Caramay
"
Bay
       
on the slopes
8
of
2 °59'58.01 117°51'24.42"
Mantalingahan
"
Range
       
on the slopes
9
of
3 °01'01.84 117°54'03.69"
Mantalingahan
"
Range
       
on the slopes
9
of
4 °02'52.18 117°54'29.33"
76 PUBLIC CORPORATION_cases Mantalingahan
for September 19, 2020
"
Range
       
9 on the slopes
5 °04'18.78 117°55'15.71"of Mount
" Corumi
       
9
on the slopes
6 °05'34.18 117°55'18.00"
of Pulot Range
"
       
9
on the slopes
7 °07'49.27 117°56'48.09"
of Pulot Range
"
       
9 on the slopes
8 °09'50.88 117°59'50.82"of Malanut
" Range
       
9 on the slopes
9 °11'26.26 118°03'49.28"of Malanut
" Range
       
 9 on the slopes
10 °11'26.26 118°03'49.28"of Malanut
" Range
       
9 southern side,
11 °08'58.93 118°07'35.58"mouth of Abo-
" Abo River
Line Bearing Distance
     
1-2 N. 55° 23'W 19,886.37 m.
2-3 N. 68° 03'E 5,244.48 m.
3-4 N. 13° 00'E 3,478.91 m.
4-5 N. 28° 02'E 3,013.93 m.
5-6 N. 01° 44'E 2,317.35 m.
6-7 N. 33° 33'E 4.979.17 m.
7-8 N. 71° 16'E 5,892.79 m.
8-9 N. 16° 10'E 4,168.24 m.
9-10 N. 82° 50'E 6,170.26 m.
10-11 S. 56° 50'E 8,261.31 m.
77 SW, formeandering
PUBLIC CORPORATION_cases mainland
September 19, 2020
11-1 coastline.

The new municipality shall include

the islands of Bintaugan, Inamukan, Arrecife,
Bessie, Gardiner, and Tagalinog.
Based on the foregoing territorial descriptions, the municipalities of Palawan do not
include the continental shelf where the Camago-Malampaya reservoir is concededly
located. In fact, with the exception of Kalayaan, which includes the seabed, the subsoil and
the continental margin as part of its demarcated area, the municipalities are either located
within an island or are comprised of islands. That only Kalayaan (under P.D. No. 1596),
among the municipalities of Palawan, had land submerged in water as part of its area or
territory, was 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.
 ATTY. HENRY BENSURTO: x x x x

[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)

ATTY. HENRY BENSURTO: Everything, Your Honor.

JUSTICE DE CASTRO: You find that only in 1596.

ATTY. HENRY BENSURTO: Yes, Your Honor.[292] (Emphasis ours)

The parties, however, agreed that the Camago-Malampaya reservoir lies outside the
geographic coordinates mentioned in P.D. No. 1596 which constituted Kalayaan as a
distinct municipality of Palawan. Atty. Bensurto also confirmed during the oral argument
that "the area of Malampaya is not within the polygon area described under P.D. [No.]
1596."[293] The succeeding exchange between Atty. Bensurto and Associate Justice Teresita
Leonardo De Castro (Justice De Castro) illumines:
JUSTICE DE CASTRO: Now, the question is - if in the other islands even assuming that there
is a continental shelf which extends up to Camago there is now that legal question of
whether that belongs to Palawan, whether Palawan, that is within the area of Palawan even
78 if it is protruding from an island PUBLIC
in Palawan because there is nofor
CORPORATION_cases such law like 19,
September P.D.2020
1596
pertaining to the other islands?

ATTY. HENRY BENSURTO: Yes, Your Honor.

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?

ATTY. HENRY BENSURTO: No, Your Honor.

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?

ATTY. HENRY BENSURTO: Yes, Your Honor.

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.

If through misapprehension of law or a rule an executive or administrative officer

called upon to implement it has erroneously applied or executed it, the error may be
corrected when the true construction is ascertained. If a contemporaneous
construction is found to be erroneous, the same must be declared null and void. Such
principle should be as it is applied in the case at bar.[298] (Emphasis ours)
Section 1, Article X of the 1987 Constitution did not apportion the entire Philippine
territory among the LGUs

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.

79 Section 1, Article X of the 1987 Constitution states:

PUBLIC CORPORATION_cases for September 19, 2020
Section 1. The territorial and political subdivisions of the Republic of the Philippines
are the provinces, cities, municipalities, and barangays. There shall be autonomous
regions in Muslim Mindanao and the Cordilleras as hereinafter provided. (Emphasis ours)
By indicating that the LGUs comprise the territorial subdivisions of the State, the
Constitution did not ipso facto make every portion of the national territory a part of an
LGU's territory.

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 "(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,
80 apportionment of the national territory
PUBLICby the LGUs, based solely
CORPORATION_cases foronSeptember
the general19,
terms
2020 ·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]

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
81 sovereign States or other entities which
PUBLIC are capable of having
CORPORATION_cases forrights and obligations
September 19, 2020
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)
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 ....

ATTY. BAGARES: Yes, Your Honor. That is true, Your Honor.

 ASSOCIATE JUSTIUCE VELASCO: .... that under Article 76, it is the continental shelf of
the coastal state.

ATTY. BAGARES: Yes, Your Honor.

ASSOCIATE JUSTICE VELASCO: And in our case, the Republic of the Philippines, right?

ATTY. BAGARES: Yes, Your Honor.

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
82 International Law, CORPORATION_cases
PUBLIC Your for September 19, Honor.
2020

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
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
83 in which the federal PUBLICgovernment and
CORPORATION_cases various coastal19, 2020
for September 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.
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
84 be an independent nation. ThePUBLIC United CORPORATION_cases
States then took her for
place as respects
September 19, foreign
2020
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, 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.

Justice De Castro's observation during the oral argument is thus apropos:

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 so as distinguished
from a Federal Government where the sovereign authority came from the member State
and granted to the Federal Government, here we have the reverse it is the central
government giving to the local government certain powers and defining the limits of these
85 powers. So, in this case there is no question
PUBLIC about the right to govern,
CORPORATION_cases the local government
for September 19, 2020
have [sic] have only such powers granted to it by the Local Government Code. Now, the
question is whether the Province of Palawan should have a share in the proceeds in
the development of the Camago-Malampaya because it is within its area. So, we are
just defining the area of the Province of Palawan x x x.[312] (Emphasis ours)
LGU's share cannot be granted based on equity

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 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
86 the environment and to set upPUBLIC
an Environmental Guaranteefor
CORPORATION_cases Fund that would
September cover
19, 2020
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;

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.

87 The foregoing considered, the CourtPUBLICfinds that the Province offor

CORPORATION_cases Palawan's
Septemberremedy is not
19, 2020
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
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
88 Province of Palawan is not entitled to share
PUBLIC in the proceeds of
CORPORATION_cases forthe Camago-Malampaya
September 19, 2020
natural gas project. The Petition in G.R. No. 185941 is DENIED.

SO ORDERED.

G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
 COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and
CITY TREASURER OF PARAÑAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañ aque 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
89 No. 061. The OGCC opined that PUBLIC CORPORATION_cases
the Local Government Code forofSeptember 19, 2020
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 Parañ aque 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 Parañ aque 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
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
 #9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañ aque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of
Parañ aque 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 Parañ aque 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
90 PUBLIC CORPORATION_cases for September 19, 2020
Meanwhile, in January 2003, the City of Parañ aque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niñ o, and Tambo, Parañ aque City; in the public
market of Barangay La Huerta; and in the main lobby of the Parañ aque City Hall. The City of
Parañ aque 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 Parañ aque 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 Parañ aque,
City Mayor of Parañ aque, Sangguniang Panglungsod ng Parañ aque, City Treasurer of
Parañ aque, and the City Assessor of Parañ aque ("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 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 Parañ aque, 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,
91 PUBLIC CORPORATION_cases for September 19, 2020
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 Parañ aque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed
by local governments.

First, MIAA is not a government-owned or controlled corporation but

an instrumentality of the National Government and thus exempt from local
 taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not

exempt from real estate tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from

real estate tax. However, MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as

a stock or non-stock corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its
capital stock: x x x. (Emphasis supplied)
92 PUBLIC CORPORATION_cases for September 19, 2020
A government-owned or controlled corporation must be "organized as a stock or non-
stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is
not a stock corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter9 provides:

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
1983 to 1986 to be remitted to the National Treasury as provided for in Section 11
of E. O. No. 903 as amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government contribution to the
capital of the Authority shall be provided in the General Appropriations Act.
 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?
93 PUBLIC CORPORATION_cases for September 19, 2020
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions. MIAA is like any other government instrumentality,
the only difference is that MIAA is vested with corporate powers. Section 2(10) of the
Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(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, 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

Likewise, when the law makes a government instrumentality operationally autonomous,

the instrumentality remains part of the National Government machinery although not
 integrated with the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body"16 will make its operation more
"financially viable."17

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
94 PUBLIC CORPORATION_cases for September 19, 2020
(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
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:

The states have no power by taxation or otherwise, to retard, impede, burden

or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
95 PUBLIC CORPORATION_cases for September 19, 2020
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

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

 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:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(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
96 of the Civil Code, the MIAA Airport LandsCORPORATION_cases
PUBLIC and Buildings are properties of public19,
for September dominion
2020
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.

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.

b. Airport Lands and Buildings are Outside the Commerce of Man

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
97 order to lease it for the PUBLIC CORPORATION_cases
sole benefit for September
of the defendant Hilaria Rojas. In19, 2020 a
leasing
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
Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the
town plazas should ever be kept open to the public and free from encumbrances or
illegal private constructions.24 (Emphasis supplied)
 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 Parañ aque 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
98 PUBLIC CORPORATION_cases for September 19, 2020
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:

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.

c. MIAA is a Mere Trustee of the Republic

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)

99 In MIAA's case, its status as a mere trustee

PUBLIC of the Airport Lands
CORPORATION_cases forand Buildings19,
September is clearer
2020
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

d. Transfer to MIAA was Meant to Implement a Reorganization

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:

SECTION 3. Creation of the Manila International Airport Authority. — x x x x

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 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
100 to be upgraded to meet PUBLIC CORPORATION_cases
the current for and
and future air traffic September 19, 2020of
other demands
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

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree

No. 1772, the President of the Philippines is given continuing authority to
reorganize the National Government, which authority includes the creation of
new entities, agencies and instrumentalities of the Government[.] (Emphasis
supplied)

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.

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.

e. Real Property Owned by the Republic is Not Taxable

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
101 National Government, its agencies and instrumentalities x
PUBLIC CORPORATION_casesx x." for
TheSeptember
real properties owned
19, 2020
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
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

3. Refutation of Arguments of Minority

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:

SEC. 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, non-stock and non-profit hospitals and educational institutions are
hereby withdrawn upon effectivity of this Code. (Emphasis supplied)

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.
102 To repeat, the provisions PUBLIC
lay down CORPORATION_cases for that
the explicit proposition September 19, 2020of
the withdrawal
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:

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)

103 PUBLIC CORPORATION_cases

The minority's theory directly contradicts for September
and completely negates 19, 2020
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

Development Authority,32 Fisheries Development Authority,33 Bases Conversion

34 35
Development Authority,  Philippine Ports Authority,  Cagayan de Oro Port
Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National
Railways.39

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 instrumentalities, with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under Section 133(o) of the Local
 Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and
instrumentalities.

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)
104 PUBLIC CORPORATION_cases for September 19, 2020
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)

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
105 PUBLIC CORPORATION_cases for September 19, 2020
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."
 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
106 government unit or entity, the provisions of the Administrative Code
PUBLIC CORPORATION_cases prevail.
for September 19, 2020

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:

I submit that the definition of "government-owned or controlled corporations"

under the Administrative Code refer to those corporations owned by the
government or its instrumentalities which are created not by legislative enactment,
but formed and organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs without original
charters.

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.
 First, the Administrative Code definition of the phrase "government-owned or controlled
corporation" does not distinguish between one incorporated under the Corporation Code
or under a special charter. Where the law does not distinguish, courts should not
distinguish.

Second, Congress has created through special charters several government-owned

corporations organized as stock corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines. The special charter40 of the Land
Bank of the Philippines provides:

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
107 PUBLIC CORPORATION_cases for September 19, 2020
asset values of the Bank remaining after the transfer of assets and liabilities as
provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special

charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading
Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock
corporation under the Corporation Code. All these government-owned corporations
organized under special charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-owned or controlled
corporations because they are not registered with the Securities and Exchange Commission
would remove them from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters

are those that meet the two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is that the government-
owned or controlled corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:

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)
 The Constitution expressly authorizes the legislature to create "government-owned or
controlled corporations" through special charters only if these entities are required to meet
the twin conditions of common good and economic viability. In other words, Congress has
no power to create government-owned or controlled corporations with special charters
unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for the common good —
meaning for economic development purposes — these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing

governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.

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
108 government functions or public PUBLIC
services.CORPORATION_cases
However, when the legislature creates
for September 19,through
2020
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, 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

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in

his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:

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
109 PUBLIC CORPORATION_cases for September 19, 2020
non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized

essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized
under their special charters as stock corporations, like the Land Bank of the Philippines
and the Development Bank of the Philippines. These are the government-owned or
controlled corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of "government-owned
or controlled corporations" in Section 2(10) of the Administrative Code.

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;
 3. The quarantine office of the Department of Health, to enforce health measures
against the spread of infectious diseases into the country;

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;

6. The Air Traffic Office of the Department of Transportation and Communications,

to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or
take off from, the airport; and

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.
110 PUBLIC CORPORATION_cases for September 19, 2020
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x

(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.

To summarize, MIAA is not a government-owned or controlled corporation under Section

2(13) of the Introductory Provisions of the Administrative Code because it is not organized
as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the Local Government
Code. Such exception applies only if the beneficial use of real property owned by the
Republic is given to a taxable entity.

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:

Art. 420. The following things are property of public dominion:

(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;
111 PUBLIC CORPORATION_cases for September 19, 2020
(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 Parañ aque.
 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 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 Parañ aque. We
declare VOID all the real estate tax assessments, including the final notices of real estate
tax delinquencies, issued by the City of Parañ aque 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.
112 PUBLIC CORPORATION_cases for September 19, 2020
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 193462               February 4, 2014

DENNIS A.B. FUNA, Petitioner,

vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON
AUDIT, Respondents.

DECISION

PEREZ, J.:

This is a petition for mandamus1 to compel:

1.) the Commission on Audit (COA) to audit and examine the funds of the Manila
Economic and Cultural Office (MECO), and

2.) the MECO to submit to such audit and examination.

113 PUBLIC CORPORATION_cases for September 19, 2020
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
 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

The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation

under Batas Pambansa Blg. 68 or the Corporation Code.13 The purposes underlying the
incorporation of MECO, as stated in its articles of incorporation,14 are as follows:
114 PUBLIC CORPORATION_cases for September 19, 2020
1. To establish and develop the commercial and industrial interests of Filipino
nationals here and abroad, and assist on all measures designed to promote and
maintain the trade relations of the country with the citizens of other foreign
countries;

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
 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

Facts Leading to the Mandamus Petition

On 23 August 2010, petitioner sent a letter 18 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 25 August 2010, Assistant Commissioner Naranjo issued a memorandum20 referring the

petitioner’s request to COA Assistant Commissioner Emma M. Espina for "further
disposition." In this memorandum, however, Assistant Commissioner Naranjo revealed that
the MECO was "not among the agencies audited by any of the three Clusters of the
Corporate Government Sector."21

On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its
contents.
115 PUBLIC CORPORATION_cases for September 19, 2020
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
 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

2. The MECO is controlled by the government. It is the President of the Philippines

that actually appoints the directors of the MECO, albeit indirectly, by way of "desire
letters" addressed to the MECO’s board of directors.27 An illustration of this exercise
is the assumption by Mr. Antonio Basilio as chairman of the board of directors of the
MECO in 2001, which was accomplished when former President Gloria Macapagal-
Arroyo, through a memorandum28 dated 20 February 2001, expressed her "desire"
to the board of directors of the MECO for the election of Mr. Basilio as chairman.29

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
116 PUBLIC CORPORATION_cases for September 19, 2020
The Position of the MECO

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:

1. It is not owned or controlled by the government. Contrary to the allegations of the

petitioner, the President of the Philippines does not appoint its board of
 directors.39 The "desire letter" that the President transmits is merely
recommendatory and not binding on the corporation.40 As a corporation organized
under the Corporation Code, matters relating to the election of its directors and
officers, as well as its membership, are governed by the appropriate provisions of
the said code, its articles of incorporation and its by-laws.41 Thus, it is the directors
who elect the corporation’s officers; the members who elect the directors; and the
directors who admit the members by way of a unanimous resolution. All of its
officers, directors, and members are private individuals and are not government
officials.42

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 MECO emphasizes that categorizing it as a GOCC or a government instrumentality can

potentially violate the country’s commitment to the One China policy of the PROC.45 Thus,
the MECO cautions against applying to the present mandamus petition the pronouncement
in the Wood decision regarding the alleged auditability of the AIT in the United States.46

The Position of the COA

The COA, on the other hand, advances that the mandamus petition ought to be dismissed
117 PUBLIC CORPORATION_cases for September 19, 2020
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 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.

We begin with the preliminary issues.

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
118 PUBLIC CORPORATION_cases
that by issuing Office Order No. 2011-698, forits
it had already conceded September 19,over
jurisdiction 2020the
58
accounts of the MECO and so fulfilled the objective of the instant petition.  The COA thus
urges that the instant petition be dismissed for being moot and academic.59

We decline to dismiss the mandamus petition on the ground of mootness.

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.

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

An allegation as serious as a violation of a constitutional or legal duty, coupled with the

pressing public interest in the resolution of all related issues, prompts this Court to pursue
a definitive ruling thereon, if not for the proper guidance of the government or agency
119 PUBLIC
concerned, then for the formulation CORPORATION_cases
of controlling for education
principles for the September of19,
the 2020
bench,
bar and the public in general.  For this purpose, the Court invokes its symbolic function.69
68

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

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

We sustain petitioner’s standing, as a concerned citizen, to file the instant petition.

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:

(1) the cases involve constitutional issues;

(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;
120 PUBLIC CORPORATION_cases for September 19, 2020
(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.

Principle of Hierarchy of Courts

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

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

To the merits of this petition, then.

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:

1. The government, or any of its subdivisions, agencies and instrumentalities;

2. GOCCs with original charters;

121 PUBLIC CORPORATION_cases for September 19, 2020
3. GOCCs without original charters;

4. Constitutional bodies, commissions and offices that have been granted fiscal
autonomy under the Constitution; and

5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from

or through the government, which are required by law or the granting institution to
submit to the COA for audit as a condition of subsidy or equity.78

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

Complementing the constitutional power of the COA to audit accounts of "non-

governmental entities receiving subsidy or equity xxx from or through the government" is
Section 29(1)80 of the Audit Code, which grants the COA visitorial authority over the
following non-governmental entities:

1. Non-governmental entities "subsidized by the government";

2. Non-governmental entities "required to pay levy or government share";

3. Non-governmental entities that have "received counterpart funds from the

government"; and
 4. Non-governmental entities "partly funded by donations through the government."

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 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

We examine both contentions.

The MECO Is Not a GOCC or

Government Instrumentality

122 PUBLIC CORPORATION_cases for September 19, 2020

We start with the petitioner’s contention.

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

We take exception to petitioner’s characterization of the MECO as a GOCC or government

instrumentality. The MECO is not a GOCC or government instrumentality.

Government instrumentalities are agencies of the national government that, by reason of

some "special function or jurisdiction" they perform or exercise, are allotted "operational
autonomy" and are "not integrated within the department framework."88 Subsumed under
the rubric "government instrumentality" are the following entities:89

1. regulatory agencies,

2. chartered institutions,

3. government corporate entities or government instrumentalities with corporate

powers (GCE/GICP),90 and
 4. GOCCs

The Administrative Code defines a GOCC:91

(13) Government-owned or controlled corporation refers to any agency organized as a

stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through
its instrumentalities either wholly, or, where applicable as in the case of stock corporations,
to the extent of at least fifty-one (51) per cent of its capital stock: x x x.

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

(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized

as a stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government of the Republic of
the Philippines directly or through its instrumentalities either wholly or, where applicable
as in the case of stock corporations, to the extent of at least a majority of its outstanding
capital stock: x x x.

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.
123 PUBLIC CORPORATION_cases for September 19, 2020
Possession of all three attributes is necessary to deem an entity a GOCC.

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 MECO Is Organized as a Non-Stock Corporation

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

1. To establish and develop the commercial and industrial interests of Filipino

nationals here and abroad and assist on all measures designed to promote and
maintain the trade relations of the country with the citizens of other foreign
countries;

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

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.

Verily, the MECO is organized as a non-stock corporation.

The MECO Performs Functions with a Public Aspect.

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
124 government to perform certain "consular and other functions" for
PUBLIC CORPORATION_cases relating to the promotion,
September 19, 2020
99
protection and facilitation of Philippine interests in Taiwan.  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. Formulation and implementation of a program to attract and promote

investments from Taiwan to Philippine industries and businesses, especially
in manufacturing, tourism, construction and other preferred areas of
investments;

2. Promotion of the export of Philippine products and Filipino manpower

services, including Philippine management services, to Taiwan;

3. Negotiation and/or assistance in the negotiation and conclusion of

agreements or other arrangements concerning trade, investment, economic
cooperation, technology transfer, banking and finance, scientific, cultural,
educational and other modes of cooperative endeavors between the
Philippines and Taiwan, on a people-to-people basis, in accordance with
established rules and regulations;
 4. Reporting on, and identification of, employment and business
opportunities in Taiwan for the promotion of Philippine exports, manpower
and management services, and tourism;

5. Dissemination in Taiwan of information on the Philippines, especially in

the fields of trade, tourism, labor, economic cooperation, and cultural,
educational and scientific endeavors;

6. Conduct of periodic assessment of market conditions in Taiwan, including

submission of trade statistics and commercial reports for use of Philippine
industries and businesses; and

7. Facilitation, fostering and cultivation of cultural, sports, social, and

educational exchanges between the peoples of the Philippines and Taiwan.

SECTION 2. In addition to the above-mentioned authority and subject to the conditions

stated in Section 3 hereof, MECO, through its branch offices in Taiwan, is hereby authorized
to perform 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;

2. Issuance, renewal, extension or amendment of passports of Filipino

citizens in accordance with existing regulations, and provision of such other
125 PUBLIC
passport services as may beCORPORATION_cases for September 19, 2020
required under the circumstances;

3. Certification or affirmation of the authenticity of documents submitted for

authentication;

4. Providing translation services;

5. Assistance and protection to Filipino nationals and other legal/juridical

persons working or residing in Taiwan, including making representations to
the extent allowed by local and international law on their behalf before civil
and juridical authorities of Taiwan; and

6. Collection of reasonable fees on the first four (4) functions enumerated

above to defray the cost of its operations.

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 MECO Is Not Owned or Controlled by the Government Organization as a non-stock

corporation and the mere performance of functions with a public aspect, however, are not
 by themselves sufficient to consider the MECO as a GOCC. In order to qualify as a GOCC, a
corporation must also, if not more importantly, be owned by the government.

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
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
126 PUBLIC CORPORATION_cases for September 19, 2020
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:

SECTION II. MEMBERSHIP

Article 2. Members shall be classified as (a) Regular and (b) Honorary.

(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.

(b) Honorary member – A person of distinction in business who as sympathizer of

the objectives of the corporation, is invited by the Board to be an honorary member.

SECTION III. 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 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

SECTION IV. EXECUTIVE COMMITTEE

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.

127 xxxx PUBLIC CORPORATION_cases for September 19, 2020

SECTION VI. OFFICERS: DUTIES, COMPENSATION

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 MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.

 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.

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
128 PUBLIC CORPORATION_cases for September 19, 2020
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.

Certain Accounts of the MECO May

Be Audited By the COA.

We now come to the COA’s contention.

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.

Verification Fees Collected by the MECO

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;
129 PUBLIC CORPORATION_cases for September 19, 2020
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.

Consular Fees Collected by the MECO

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:

1. Issuance of temporary visitors’ visas and transit and crew list visas, and such
other visa services as may be authorized by the DFA;

2. Issuance, renewal, extension or amendment of passports of Filipino citizens in

accordance with existing regulations, and provision of such other passport services
as may be required under the circumstances;

3. Certification or affirmation of the authenticity of documents submitted for

authentication; and

4. Providing translation services.

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.
130 PUBLIC CORPORATION_cases for September 19, 2020
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 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.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila

Economic and Cultural Office is hereby declared a non-governmental entity. However, the
accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former
collects on behalf of the Department of Labor and Employment, and the fees it was
131 PUBLIC CORPORATION_cases for September 19, 2020
authorized to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001, are
subject to the audit jurisdiction of the COA.

No costs.

SO ORDERED.
 G.R. No. 71159. November 15, 1989.

CITY OF MANILA, and EVANGELINE SUVA, Petitioners, v. HON. INTERMEDIATE

APPELLATE COURT, IRENE STO. DOMINGO and for and in behalf of her minor
children, VIVENCIO, JR., IRIS, VERGEL and IMELDA, all surnamed STO.
DOMINGO, Respondents.

The City Legal Officer, for Petitioners.

Jose M. Castillo for Respondents.

SYLLABUS

1. POLITICAL LAW; LAW ON PUBLIC CORPORATIONS; MUNICIPAL CORPORATION; CITY

OF MANILA ENDOWED WITH THE FACULTIES OF A MUNICIPAL CORPORATION. — 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
132 contract and be contracted
PUBLIC with.chanroblesvirtuallawlibrary:red
CORPORATION_cases for September 19, 2020

2. ID.; ID.; ID.; POWERS; GOVERNMENTAL AND MUNICIPAL POWERS; DISTINGUISHED. —

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]).

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]).
 4. ID.; ID.; ID.; PROPRIETARY FUNCTIONS; A MUNICIPAL CORPORATION CAN BE HELD
LIABLE TO THIRD PERSONS EX CONTRACTU . — 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).

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.

6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OBLIGATIONS ARISING FROM CONTRACTS

HAVE THE FORCE OF LAW BETWEEN PARTIES; BREACH OF CONTRACT ENTITLES THE
OTHER PARTY TO DAMAGES. — Furthermore, there is no dispute that the burial lot was
133 leased in favor of the private respondents. Hence, obligations arising
PUBLIC CORPORATION_cases from contracts
for September have
19, 2020
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]).

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.,
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
134 No. 194 of the North Cemetery which
PUBLIClotCORPORATION_cases
was leased by the cityfor
to Irene Sto. Domingo
September for
19, 2020
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
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
135 thereafter, to bury the same in the substitute
PUBLIC lot to be chosen byfor
CORPORATION_cases theSeptember
plaintiffs pursuant
19, 2020to
this decision.chanrobles law library : red

"For want of merit, defendant’s counterclaim is DISMISSED.

"No pronouncement as to costs.

"SO ORDERED." (Rollo, p. 31).

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

"WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby REVERSED

(is hereby modified) and another one is hereby entered: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;

"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.

"SO ORDERED." (Rollo, p. 40)

The petitioners’ motion for reconsideration was likewise denied.

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

THE HONORABLE INTERMEDIATE APPELLATE COURT ERRED IN AWARDING DAMAGES

136 AGAINST THE PETITIONERS HEREIN,
PUBLIC NOTWITHSTANDING
CORPORATION_casesTHEIR GOOD FAITH
for September AND
19, 2020
THEIR LACK OF KNOWLEDGE OR CONSENT TO THE REMOVAL OF THE SKELETAL
REMAINS OF THE LATE VIVENCIO STO. DOMINGO, SR. FROM THE SUBJECT BURIAL LOT.

II

THE HON. INTERMEDIATE APPELLATE COURT ERRED IN HOLDING PETITIONERS HEREIN

RESPONSIBLE FOR THE ALLEGED TORTS OF THEIR SUBORDINATE OFFICIALS AND
EMPLOYEES, INSPITE OF THE PROVISIONS OF SECTION 4 OF THE REPUBLIC ACT NO. 409
(REVISED CHARTER OF MANILA) AND OTHER APPLICABLE JURISPRUDENCE ON THE
SUBJECT EXEMPTING THE PETITIONERS FROM DAMAGES FROM THE MALFEASANCE OR
MISFEASANCE OF THEIR OFFICIALS AND EMPLOYEES, IF THERE BE ANY IN THIS CASE.

(Brief for Petitioners, Rollo, pp. 93-94)

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, 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.

Private respondents’ contention is well-taken.

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
137 other. Governmental powers arePUBLICthose exercised in administering
CORPORATION_cases forthe powers of
September 19,the state
2020
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

The Court further stressed:jgc:chanrobles.com.ph

"Municipal corporations are subject to be sued upon contracts and in tort. . . .

 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 accordingly, to civil actions for damages when the requisite elements of liability
coexist. . . . (Emphasis supplied).

The Court added:jgc:chanrobles.com.ph

". . . 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
138 the cemetery (Ibid., Sec. 319), the opening
PUBLIC of graves, inches, or
CORPORATION_cases fortombs, the exhuming
September 19, 2020of
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 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)

139 As regards the issue of the validity of theCORPORATION_cases

PUBLIC contract of lease of grave lot No. 159,19,
for September Block
2020No.
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.

PREMISES CONSIDERED, the Decision of the Intermediate Appellate Court is hereby

AFFIRMED.

SO ORDERED.
 G.R. No. 71159, November 15, 1989

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIÑA, IAUREANO BANIÑA, JR.,
SOR MARIETA BANIÑA, MONTANO BANIÑA, ORJA BANIÑA, AND LYDIA R.
BANIÑA, respondents.

Mauro C. Cabading, Jr. for petitioner.

Simeon G. Hipol for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary

140 mandatory injunction seeking the PUBLIC CORPORATION_cases
nullification forthe
or modification of September 19,and
proceedings 2020the
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 Baniñ a, 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.

The antecedent facts are as follows:

Petitioner Municipality of San Fernando, La Union is a municipal corporation existing

under and in accordance with the laws of the Republic of the Philippines. Respondent
Honorable Judge Romeo N. Firme is impleaded in his official capacity as the presiding judge
of the Court of First Instance of La Union, Branch IV, Bauang, La Union. While private
respondents Juana Rimando-Baniñ a, Laureano Baniñ a, Jr., Sor Marietta Baniñ a, Montano
Baniñ a, Orja Baniñ a and Lydia R. Baniñ a are heirs of the deceased Laureano Baniñ a Sr. and
plaintiffs in Civil Case No. 107-Bg before the aforesaid court.

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
Baniñ a 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
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;

141 PUBLIC
(2) Order dated July 13, 1976 CORPORATION_cases
admitting the Amended Answerfor September 19, 2020of
of the Municipality
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-Baniñ a, Mrs.
Priscilla B. Surell, Laureano Baniñ a Jr., Sor Marietta Baniñ a, Mrs. Fe B. Soriano,
Montano Baniñ a, Orja Baniñ a and Lydia B. Baniñ a the sums of P1,500.00 as funeral
expenses and P24,744.24 as the lost expected earnings of the late Laureano Baniñ a
Sr., P30,000.00 as moral damages, and P2,500.00 as attorney's fees. Costs against
said defendants.

The Complaint is dismissed as to defendants Estate of Macario Nieveras and

Bernardo Balagot.

SO ORDERED. (Rollo, p. 30)

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
142 PUBLIC
amounting to excess of jurisdiction CORPORATION_cases
in issuing for September
the aforesaid orders 19, 2020 a
and in rendering
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 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
143 circumstance that a state is suablePUBLIC CORPORATION_cases
does not foritSeptember
necessarily mean that is liable; on19,
the2020
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 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
144 PUBLIC CORPORATION_cases for September 19, 2020
are admittedly governmental activities."

After a careful examination of existing laws and jurisprudence, We arrive at the

conclusion that the municipality cannot be held liable for the torts committed by its regular
employee, who was then engaged in the discharge of governmental functions. Hence, the
death of the passenger –– tragic and deplorable though it may be –– imposed on the
municipality no duty to pay monetary compensation.

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.
 G.R. No. 129093. August 30, 2001.

HON. JOSE D. LINA, JR., SANGGUNIANG PANLALAWIGAN OF LAGUNA, and HON.

CALIXTO CATAQUIZ, Petitioners, v. HON. FRANCISCO DIZON PAÑO and TONY
CALVENTO, Respondents.

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,
145 of the Sangguniang Panlalawigan of Laguna
PUBLIC and its subsequentforOrder
CORPORATION_cases 2 dated19,
September April
202021,
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

ISANG KAPASIYAHAN TINUTUTULAN ANG MGA "ILLEGAL GAMBLING" LALO NA ANG

LOTTO SA LALAWIGAN NG LAGUNA

SAPAGKA’T, ang sugal dito sa lalawigan ng Laguna ay talamak na;

SAPAGKA’T, ang sugal ay nagdudulot ng masasamang impluwensiya lalo’t higit sa mga

kabataan;

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;
 IPINASIYA PA RIN na hilingin tulad ng dito ay hinihiling sa Panlalawigang pinuno ng
Philippine National Police (PNP) Col. [illegible] na mahigpit na pag-ibayuhin ang pagsugpo
sa lahat ng uri ng illegal na sugal sa buong lalawigan ng Laguna lalo na ang "Jueteng." 3

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, 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 Pañ o, 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.

146 SO PUBLIC ORDERED.

CORPORATION_cases for September 19, 2020 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

THE TRIAL COURT ERRED IN ENJOINING THE PETITIONERS FROM IMPLEMENTING

KAPASIYAHAN BLG. 508, T. 1995 OF THE SANGGUNIANG PANLALAWIGAN OF LAGUNA
PROHIBITING THE OPERATION OF THE LOTTO IN THE PROVINCE OF LAGUNA.

II
 THE TRIAL COURT FAILED TO APPRECIATE THE ARGUMENT POSITED BY THE
PETITIONERS THAT BEFORE ANY GOVERNMENT PROJECT OR PROGRAM MAY BE
IMPLEMENTED BY THE NATIONAL AGENCIES OR OFFICES, PRIOR CONSULTATION AND
APPROVAL BY THE LOCAL GOVERNMENT UNITS CONCERNED AND OTHER CONCERNED
SECTORS IS REQUIRED.

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 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
147 PUBLIC CORPORATION_cases for September 19, 2020
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
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

SECTION 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity

148 Sweepstakes Office, hereinafter PUBLIC
designated the Office, shall be for
CORPORATION_cases theSeptember
principal government
19, 2020
agency for raising and providing for funds for health programs, medical assistance and
services and charities of national character, and as such shall have the general powers
conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine, as
amended, and shall have the authority: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 phrase it, the mere tenants at will of the legislature (citing Clinton v. Ceder Rapids, etc.
Railroad Co., 24 Iowa 455).

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 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
149 local government units of the power to tax
PUBLIC (citing Art. X, Sec. 5, Constitution),
CORPORATION_cases for September which cannot
19, 2020
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

SECTION 2. Declaration of Policy. — . . .

(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.

SECTION 27. Prior Consultations Required. — No project or program shall be implemented

by government authorities unless the consultations mentioned in Section 2 (c) and 26
hereof are complied with, and prior approval of the sanggunian concerned is obtained;
Provided, that occupants in areas where such projects are to be implemented shall not be
evicted unless, appropriate relocation sites have been provided, in accordance with the
provisions of the Constitution.

From a careful reading of said provisions, we find that these apply only to national
programs and/or projects which are to be implemented in a particular local community.
Lotto is neither a program nor a project of the national government, but of a charitable
institution, the PCSO. Though sanctioned by the national government, it is far fetched to say
that lotto falls within the contemplation of Sections 2 (c) and 27 of the Local Government
Code.

Section 27 of the Code should be read in conjunction with Section 26 thereof. 17 Section 26
reads:chanrob1es virtual 1aw library

SECTION 26. Duty of National Government Agencies in the Maintenance of Ecological

Balance. It shall be the duty of every national agency or government-owned or controlled
corporation authorizing or involved in the planning and implementation of any project or
150 program that may cause pollution, climatic
PUBLIC change, depletion of for
CORPORATION_cases non-renewable resources,
September 19, 2020
loss of crop land, range-land, or forest cover, and extinction of animal or plant species, to
consult with the local government units, nongovernmental organizations, and other sectors
concerned and explain the goals and objectives of the project or program, its impact upon
the people and the community in terms of environmental or ecological balance, and the
measures that will be undertaken to prevent or minimize the adverse effects
thereof.chanrob1es virtua1 1aw 1ibrary

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.

Moreover, the argument regarding lack of consultation raised by petitioners is clearly an

afterthought on their part. There is no indication in the letter of Mayor Cataquiz that this
was one of the reasons for his refusal to issue a permit. That refusal was predicated solely
but erroneously on the provisions of Kapasiyahan Blg. 508, Taon 1995, of the Sangguniang
Panlalawigan 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.

G.R. No. 111097 July 20, 1994

MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners,

vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, respondents.

Aquilino G. Pimentel, Jr. and Associates for petitioners.

R.R. Torralba & Associates for private respondent.

151 PUBLIC CORPORATION_cases for September 19, 2020

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:

ORDINANCE NO. 3353

AN ORDINANCE PROHIBITING THE ISSUANCE OF BUSINESS PERMIT AND

CANCELLING EXISTING BUSINESS PERMIT TO ANY ESTABLISHMENT FOR
THE USING AND ALLOWING TO BE USED ITS PREMISES OR PORTION
THEREOF FOR THE OPERATION OF CASINO.
 BE IT ORDAINED by the Sangguniang Panlungsod of the City of Cagayan de
Oro, in session assembled that:

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. 2. — That it shall be a violation of existing business permit by any

persons, partnership or corporation to use its business establishment or
portion thereof, or allow the use thereof by others for casino operation and
other gambling activities.

Sec. 3. — PENALTIES. — Any violation of such existing business permit as

defined in the preceding section shall suffer the following penalties, to wit:

a) Suspension of the business permit for sixty

(60) days for the first offense and a fine of
P1,000.00/day

b) Suspension of the business permit for Six (6)

months for the second offense, and a fine of
P3,000.00/day

c) Permanent revocation of the business permit

152 PUBLIC CORPORATION_cases for September
and imprisonment of One (1) year, for19,
the2020
third
and subsequent offenses.

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:

ORDINANCE NO. 3375-93

AN ORDINANCE PROHIBITING THE OPERATION OF CASINO AND

PROVIDING PENALTY FOR VIOLATION THEREFOR.

WHEREAS, the City Council established a policy as early as 1990 against

CASINO under its Resolution No. 2295;

WHEREAS, on October 14, 1992, the City Council passed another Resolution
No. 2673, reiterating its policy against the establishment of CASINO;

WHEREAS, subsequently, thereafter, it likewise passed Ordinance No. 3353,

prohibiting the issuance of Business Permit and to cancel existing Business
Permit to any establishment for the using and allowing to be used its
premises or portion thereof for the operation 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,

BE IT ORDAINED by the City Council in session duly assembled that:

Sec. 1. — The operation of gambling CASINO in the City of Cagayan de Oro is

hereby prohibited.

Sec. 2. — Any violation of this Ordinance shall be subject to the following

penalties:

a) Administrative fine of P5,000.00 shall be imposed against the proprietor,

partnership or corporation undertaking the operation, conduct, maintenance
of gambling CASINO in the City and closure thereof;

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
153 PUBLIC
establishment, conduct andCORPORATION_cases forCASINO.
maintenance of gambling September 19, 2020

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:

1. Under existing laws, the Sangguniang Panlungsod of the City of Cagayan de

Oro does not have the power and authority to prohibit the establishment and
operation of a PAGCOR gambling casino within the City's territorial limits.

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.
 4. The questioned Ordinances are discriminatory to casino and partial to
cockfighting 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.

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
154 powers necessary,PUBLIC CORPORATION_cases
appropriate, or incidental for for
its September 19,effective
efficient and 2020
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.

In addition, Section 458 of the said Code specifically declares that:

Sec. 458. — Powers, Duties, Functions and Compensation. — (a) The

Sangguniang Panlungsod, as the legislative body of the city, shall enact
ordinances, approve resolutions and appropriate funds for the general
welfare of the city and its inhabitants pursuant to Section 16 of this Code and
in the proper exercise of the corporate powers of the city as provided for
under Section 22 of this Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient and
effective city government, and in this connection, shall:

x x x           x x x          x x x
 (v) Enact ordinances intended to prevent,
suppress and impose appropriate penalties for
habitual drunkenness in public places, vagrancy,
mendicancy, prostitution, establishment and
maintenance of houses of ill
repute, gambling and other prohibited games of
chance, fraudulent devices and ways to obtain
money or property, drug addiction, maintenance
of drug dens, drug pushing, juvenile delinquency,
the printing, distribution or exhibition of
obscene or pornographic materials or
publications, and such other activities inimical to
the welfare and morals of the inhabitants of the
city;

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
155 under P.D. 1869, the governmentPUBLIC
of Cagayan de Oro City has the for
CORPORATION_cases authority to prohibit
September them
19, 2020
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:

Sec. 5. Rules of Interpretation. — In the interpretation of the provisions of

this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be liberally

interpreted in its favor, and in case of doubt, any question thereon shall be
resolved in favor of devolution of powers and of the lower local government
unit. Any fair and reasonable doubt as to the existence of the power shall be
interpreted in favor of the local government unit concerned;

xxx xxx xxx

(c) The general welfare provisions in this Code shall be liberally interpreted to

156 give more powersPUBLIC CORPORATION_cases
to local government units in for accelerating
September 19, 2020
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."

This is the opportune time to stress an important point.

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.

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:

1) It must not contravene the constitution or any statute.

2) It must not be unfair or oppressive.

3) It must not be partial or discriminatory.

4) It must not prohibit but may regulate trade.

157 PUBLIC CORPORATION_cases for September 19, 2020
5) It must be general and consistent with public policy.

6) It must not be unreasonable.

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 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.

158 It is noteworthy that the petitioners

PUBLIChave cited only Par. (f)for
CORPORATION_cases ofSeptember
the repealing clause,
19, 2020
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.

(d) Presidential Decree No. 1594 is hereby repealed insofar as it governs

locally-funded projects.
 (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
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.
159 PUBLIC CORPORATION_cases for September 19, 2020
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 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
160 PUBLIC CORPORATION_cases for September 19, 2020
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 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.

161 PUBLIC CORPORATION_cases for September 19, 2020

 G.R. No. 91649             May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND

LORENZO SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

162 PUBLIC CORPORATION_cases for September 19, 2020
Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR — responding through responsible gaming."

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 —

A. It constitutes a waiver of a right prejudicial to a third person with a right

recognized by law. It waived the Manila City government's right to impose taxes and
license fees, which is recognized by law;

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.

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
163 PUBLIC CORPORATION_cases for September 19, 2020
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 —

Sec. 1. Declaration of Policy. — It is hereby declared to be the policy of the State to

centralize and integrate all games of chance not heretofore authorized by existing
franchises or permitted by law in order to attain the following objectives:

(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 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
164 PUBLIC CORPORATION_cases for September 19, 2020
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 —

. . . thoroughly established principle which must be followed in all cases where

questions of constitutionality as obtain in the instant cases are involved. All
presumptions are indulged in favor of constitutionality; one who attacks a statute
alleging unconstitutionality must prove its invalidity beyond a reasonable doubt;
 that a law may work hardship does not render it unconstitutional; that if any
reasonable basis may be conceived which supports the statute, it will be upheld and
the challenger must negate all possible basis; that the courts are not concerned with
the wisdom, justice, policy or expediency of a statute and that a liberal
interpretation of the constitution in favor of the constitutionality of legislation
should be adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739
[1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of
Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540)

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)

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
165 PUBLIC CORPORATION_cases for September 19, 2020
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.

What was the reason behind the enactment of P.D. 1869?

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
166 PUBLIC CORPORATION_cases for September 19, 2020
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.

(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
167 PUBLIC CORPORATION_cases for September 19, 2020
on the National Government, thus:

Sec. 1. Any provision of law to the contrary notwithstanding, the authority of

chartered cities and other local governments to issue license, permit or other form
of franchise to operate, maintain and establish horse and dog race tracks, jai-alai
and other forms of gambling is hereby revoked.

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.

The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government. (MC Culloch v.
Marland, 4 Wheat 316, 4 L Ed. 579)

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
168 PUBLIC CORPORATION_cases for September 19, 2020
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.

(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."

Local Government has been described as a political subdivision of a nation or state

which is constituted by law and has substantial control of local affairs. In a unitary
system of government, such as the government under the Philippine Constitution,
local governments can only be an intra sovereign subdivision of one sovereign nation,
it cannot be an imperium in imperio. Local government in such a system can only
mean a measure of decentralization of the function of government. (emphasis
supplied)

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).

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.
169 PUBLIC CORPORATION_cases for September 19, 2020
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, 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
170 PUBLIC CORPORATION_cases for September 19, 2020
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).

On the issue of "monopoly," however, the Constitution provides that:

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.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also
that these are merely statements of principles and, policies. As such, they are basically not
self-executing, meaning a law should be passed by Congress to clearly define and effectuate
such principles.

In general, therefore, the 1935 provisions were not intended to be self-executing

principles ready for enforcement through the courts. They were rather directives
 addressed to the executive and the legislature. If the executive and the legislature
failed to heed the directives of the articles the available remedy was not judicial or
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2)

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 —

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
171 PUBLIC CORPORATION_cases for September 19, 2020
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.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.
 G.R. No. 157860. December 1, 2003.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, v. THE PROVINCE OF

172 TARLAC, Respondent. PUBLIC CORPORATION_cases for September 19, 2020

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

The facts are undisputed.cralaw : red

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
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.
173 PUBLIC CORPORATION_cases for September 19, 2020
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
contracts, to wit:chanrob1es virtual 1aw library
174 PUBLIC CORPORATION_cases for September 19, 2020
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;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived.

A transfer of real property by a local government unit to an instrumentality of government

without first securing an appraised valuation from the local committee on awards does not
 appear to be one of the void contracts enumerated in the afore-quoted Article 1409 of the
Civil Code. Neither does Section 381 of the Local Government Code expressly prohibit or
declare void such transfers if an appraised valuation from the local committee on awards is
not first obtained.

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 own acts, or to proceed contrary thereto, to the
175 prejudice of the CORPORATION_cases
PUBLIC other party.
for September 19, 202018

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.
 G.R. No. 161081             May 10, 2005
176 PUBLIC CORPORATION_cases for September 19, 2020
RAMON M. ATIENZA, in his capacity as Vice-Governor of the Province of Occidental
Mindoro, petitioner,
vs.
JOSE T. VILLAROSA, in his capacity as Governor of the Province of Occidental
Mindoro, respondent.

DECISION

CALLEJO, SR., J.:

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.

The present case arose from the following undisputed facts:

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.

For strict compliance.2

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
Opinions on June 28, April 11 and February 9, 1994 and coursing it to the Governor
177 PUBLIC
for his approval is no longer CORPORATION_cases
necessary, for September
the fact that [Secs.] 19,
466 and 468, RA2020
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:

1. The appointment of 28 clerks – on top of existing permanent employees – is a

clear manifestation of an excessive and bloated bureaucracy;

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.

However, in order to accommodate the Vice-Governor and the members of the

Sangguniang Panlalawigan, the undersigned, in his capacity as the local chief
executive of the province, will allow four (4) casual/job order employees to be
assigned to the Vice-Governor and one (1) casual/job order employee to be assigned
to each member of the Sangguniang Panlalawigan.

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.

Please be guided accordingly.4

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 maintenance of the Sangguniang Panlalawigan, is to be strictly adhered to for
compliance.
178 PUBLIC CORPORATION_cases for September 19, 2020
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.

Please be guided accordingly.5

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.

Section 3618 was, likewise, held to be inapplicable ratiocinating, thus:

[R]equisitioning, which is provided under Section 361 of RA 7160, is the act of

requiring that something be furnished. In the procurement function, it is the
submission of written requests for supplies and materials and the like. It could be
inferred that, in the scheme of things, approval of purchase requests is different
from approval of purchase orders. Thus, the inapplicability of Section 361.

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
179 PUBLIC CORPORATION_cases for September 19, 2020
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.
180 PUBLIC CORPORATION_cases for September 19, 2020
However, even 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.

We hold that it is the Vice-Governor who has such authority.

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

Further, Section 344 provides:

Sec. 344. Certification on, and Approval of, Vouchers. – No money shall be disbursed
181 PUBLIC
unless the local budget officer CORPORATION_cases
certifies to the existence for September 19,that
of appropriation 2020has
been 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.

In cases of special or trust funds, disbursements shall be approved by the

administrator of the fund.

In case of temporary absence or incapacity of the department head or chief of office,

the officer next-in-rank shall automatically perform his function and he shall be fully
responsible therefor.

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:

Sec. 39. Approval of Disbursements. – Approval of disbursements by the Local Chief

Executive (LCE) himself shall be required whenever local funds are disbursed,
except for 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 GSIS, BIR,
PHILHEALTH, LBP, DBP, NPO, PS of the DBM and others, where the authority to
approve may be delegated. Disbursement vouchers for expenditures appropriated
for the operation of the Sanggunian shall be approved by the provincial Vice
Governor, the city Vice-Mayor or the municipal Vice-Mayor, as the case may be.17

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
182 PUBLIC CORPORATION_cases for September 19, 2020
purchase orders 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

When an authorized person approves a disbursement voucher, he certifies to the

correctness of the entries therein, among others: that the expenses incurred were
necessary and lawful, the supporting documents are complete and the availability of cash
therefor. Further, the person who performed the services or delivered the supplies,
materials or equipment is entitled to payment.23 On the other hand, the terms and
conditions for the procurement of supplies, materials or equipment, in particular, are
contained in a purchase order. The tenor of a purchase order basically directs the supplier
to deliver the articles enumerated and subject to the terms and conditions specified
therein.24 Hence, the express authority to approve disbursement vouchers and, in effect,
authorize the payment of money claims for supplies, materials or equipment, necessarily
includes the authority to approve purchase orders to cause the delivery of the said
supplies, materials or equipment.

Since it is the Vice-Governor who approves disbursement vouchers and approves the
183 PUBLIC CORPORATION_cases for September 19, 2020
payment for the procurement of the supplies, materials and equipment needed for the
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
184 PUBLICthe
Vice-Governor. In the same manner, CORPORATION_cases for September
authority to appoint casual and 19,
job2020
order
employees of the Sangguniang Panlalawigan belongs to the Vice-Governor.

The authority of the Vice-Governor to appoint the officials and employees of

the Sangguniang Panlalawigan is anchored on the fact that the salaries of these employees
are derived from the appropriation specifically for the said local legislative body. Indeed,
the budget source of their salaries is what sets the employees and officials of
the Sangguniang Panlalawigan apart from the other employees and officials of the
province. Accordingly, the appointing power of the Vice-Governor is limited to those
employees of the Sangguniang Panlalawigan, as well as those of the Office of the Vice-
Governor, whose salaries are paid out of the funds appropriated for the Sangguniang
Panlalawigan. As a corollary, if the salary of an employee or official is charged against the
provincial funds, even if this employee reports to the Vice-Governor or is assigned to his
office, the Governor retains the authority to appoint the said employee pursuant to Section
465(b)(v) of Rep. Act No. 7160.

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.

(2) The sangguniang panlalawigan shall be composed of the governor, vice-

governor, elective members of the said sanggunian, and the presidents of
the katipunang panlalawigan and the kabataang barangay provincial federation
who shall be appointed by the President of the Philippines.

Sec. 206. Sessions. –

(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
185 of ensuring a better delivery of public
PUBLIC service and provide a system
CORPORATION_cases of check and
for September 19,balance
2020
27
between the two.

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.

186 PUBLIC CORPORATION_cases for September 19, 2020

G.R. No. 203974               April 22, 2014

AURELIO M. UMALI, Petitioner,
vs.
COMMISSION ON ELECTIONS, JULIUS CESAR V. VERGARA, and THE CITY
GOVERNMENT OF CABANATUAN, Respondents.

x-----------------------x

G.R. No. 204371

J.V. BAUTISTA, Petitioner,
vs.
COMMISSION ON ELECTIONS, Respondent.

DECISION

VELASCO, JR., J.:

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.

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
187 PUBLICof
and directly affect the mother province CORPORATION_cases
Nueva Ecija. His mainfor September
argument 19, Section
is that 2020
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 5-2 4 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:

1) To DENY the Motion for Reconsideration of oppositor Governor Aurelio M. Umali;

and

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 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
188 PUBLIC
LGC. Thus, the participation of the voters CORPORATION_cases
of the entire province inforthe
September
plebiscite 19,
will2020
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.

189 PUBLIC
Resolving the Petition for Certiorari CORPORATION_cases
either way will necessarily forrender
September 19, 2020
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.

The Court’s Ruling

The Petition for Certiorari is meritorious.

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
190 PUBLIC CORPORATION_cases for September 19, 2020
(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.

True enough, Congress delegated such power to the Sangguniang Panlalawigan or

Sangguniang Panlungsod to create barangays pursuant to Sec. 6 of the LGC, which provides:

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:

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." (emphasis supplied)

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
191 provision makes it ministerial forPUBLIC CORPORATION_cases
the President, upon properfor September
application, to19, 2020 a
declare
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.

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.

This proposition is bereft of merit.

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
192 PUBLIC CORPORATION_cases for September 19, 2020
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 conversions as well. Thus, RA 852813 was declared unconstitutional in Miranda on
the ground that the law downgraded Santiago City in Isabela without submitting it for
ratification in a plebiscite, in contravention of Sec. 10, Art. X of the Constitution.

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:

Art. 12. Conversion of a Component City into a Highly Urbanized City. –

 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
193 PUBLIC CORPORATION_cases for September 19, 2020
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. 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
194 also the voters of the political PUBLIC
units directly affected by such
CORPORATION_cases forconversion
Septemberin19,
order
2020to
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.

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

The entire province of Nueva Ecija will be directly

affected by Cabanatuan City’s conversion
 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.

a. "Political units directly affected" defined

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
195 PUBLIC
be substantially altered. The other CORPORATION_cases
affected for September
entity would be composed 19,the
of those in 2020
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
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, Art. XI of the 1973 Constitution, as invoked in Tan, states:

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
196 PUBLICthe
the plebiscite will be conducted within CORPORATION_cases for September
two merged municipalities and not in19,
the2020
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.

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 Guingona. Yes.

 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 Pimentel. That is correct, Mr. President.

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.

b. Impact on Economic Rights

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
197 insubstantial, thereby necessitating
PUBLICthe CORPORATION_cases
conduct of a plebisciteforfor its ratification.
September In a
19, 2020
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:

(a) Provinces - Twenty-three percent (23%);

(b) Cities - Twenty-three percent (23%);

(c) Municipalities - Thirty-four percent (34%); and

(d) Barangays - Twenty percent (20%)

Provided, however, That the share of each province, city, and municipality shall be
determined on the basis of the following formula:

(a) Population - Fifty percent (50%);

(b) Land Area - Twenty-five percent (25%); and

 (c) Equal sharing - Twenty-five percent (25%)

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

Basis for IRA Province of Cabanatuan Province of

Computation Nueva Ecija City Nueva Ecija Net
of Cabanatuan
City
No. of Population 1,843,853 259,267 259,267
CY 2007 Census
Land Area 5,751.33 282.75 5,468.58
(sq. km.)

IRA Share of Actual IRA Estimated IRA Reduction

Nueva Ecija Share share excluding
Cabanatuan
198 City
PUBLIC CORPORATION_cases for September 19, 2020
Based on ₱800,772,618.45 ₱688,174,751.66 ₱112,597,866.79
Population
Based on Land ₱263,470,472.62 ₱250,517,594.56 P 12,952,878.06
Area
Total ₱125,550,744.85

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
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:

Section 452. Highly Urbanized Cities.

(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.

Section 461. Requisites for Creation.

(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:

(i) a contiguous territory of at least two thousand (2,000) square kilometers, as

199 PUBLIC CORPORATION_cases
certified by the Lands Management Bureau; or for September 19, 2020

(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
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.

c. Impact on Political Rights

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
200 PUBLIC CORPORATION_cases for September 19, 2020
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

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.

201 PUBLIC CORPORATION_cases for September 19, 2020