LAW 154 LOCAL GOVERNMENTS Million Pesos for the last 2 consecutive years based on 1991
DIGESTS & REVIEWERS constant prices.
II. NATURE AND STATUS
II. Nature and Status
A. Municipal Corporations, Local Government, Defined
Local Government Interchangeable with Municipal Corporations
∙ municipal corporation :: a body politic and corporate constituted by
the incorporation of the inhabitants for the purpose of local
government thereof; a State agent to assist in the civil government of
the country but chiefly to regulate and administer the local or internal
affairs of the city, town, or district which is incorporated.
∙ Elements:
i. legal corporation or incorporation
ii. corporate name by which the artificial personality is known and in
which all corporate acts are done
iii. inhabitants constituting the population
iv. territory within which local civil government/ corporate functions
are exercised
001. Alvarez vs. Guingona
∙ On April 18, 1993, RA 7720, entitled “An Act Converting the
Municipality of Santiago, Isabela into an Independent Component City to
be known as the City of Santiago” was filed in the HREP with Rep.
Antonio Abaya as the principal author. It was referred to the House
Committee on Local Government and the House Committee on
Apropriations. Subsequently, public hearings were conducted by the
House Committee on Local Committee, which then submitted a favorable
report with amendments. Meanwhile, its counterpart – Senate Bill No.
1243, entitled “An Act Converting the Municipality of Santiago into an
Independent Component City to be Known as the City of Santiago” was
filed in the Senate, with Sen. Vicente Sotto III as the principal sponsor,
just after the first public hearing on HB No. 8817. After public hearings
were conducted by the Senate Committee on Local Government, which
submitted Committee Report No. 378, which recommended that it be
approved without amendment, considering that HB No. 8817 was on all
fours with SB No. 1243.
∙ In 1994, Committee Report No. 378 was passed by the Senate on
Second Reading and was approved on its Third Reading. The HREP
approved the amendments proposed by the Senate, and the enrolled bill
was signed by the Chief Executive and a plebiscite was held on July 13,
1994, wherein a great majority voted in favor of the conversion of
Santiago into a city.
∙ ISSUES ::
1. WON RA 7720 is unconstitutional, considering that it did not
originate exclusively in the HREP as mandated by Sec. 24, Art. VI,
1987 Consti
IOW, WON considering that Senate passed SB No. 1243, its own
version of HB No. 8817, RA No. 7720 can be said to have
originated in the HREP -- YES
∙ The filing of HB No. 8817 was precursive not only of the said Act
in question but also of SB No. 1243. Thus, HB No. 8817, was the
bill that initiated the legislative process that culminated in the
enactment of Republic Act No. 7720. No violation of Section 24,
Article VI, of the 1987 Constitution is perceptible under the
circumstances attending the instant controversy.
∙ The filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, does not contravene the
constitutional requirement that a bill of local application should
originate in the House of Representatives, for as long as the Senate
does not act thereupon until it receives the House bill.
2. WON the Municipality of Santiago has not met the minimum
average annual income required under Sec. 450, LGC to be converted
into a component city.
IOW, WON IRAs are to be included in the computation of the
average annual income of a municipality for purposes of its
conversion into an independent component city – YES
∙ For a municipality to be converted into a component city, it must,
among others, have an average annual income of at least Twenty
Francesse Joy J. Cordon
 A Local Government Unit is a political subdivision of the State
which is constituted by law and possessed of substantial control over
its own affairs. Remaining to be an intra sovereign subdivision of
one sovereign nation, but not intended, however, to be an imperium
in imperio, the local government unit is autonomous in the sense
that it is given more powers, authority, responsibilities and
resources. Power which used to be highly centralized in Manila, is
thereby deconcentrated, enabling especially the peripheral local
government units to develop not only at their own pace and
discretion but also with their own resources and assets.
 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 LGU
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 (1) the
right to create and broaden its own source of revenue; (2) the right
to be allocated a just share in national taxes 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.
∙ The funds generated from local taxes, IRAs and national wealth
utilization proceeds accrue to the general fund of the local
government and are used to finance its operations subject to
specified modes of spending the same as provided for in the Local
Government Code and its implementing rules and regulations.
 For purposes of budget preparation, which budget should reflect
the estimates of the income of the local government unit, among
others, the IRAs and the share in the national wealth utilization
proceeds are considered items of income.
 Income is defined in the Local Government Code to be all
revenues and receipts collected or received forming the gross
accretions of funds of the local government unit.
 The IRAs are items of income because they form part of the gross
accretion of the funds of the local government unit. The IRAs
regularly and automatically accrue to the local treasury without need
of any further action on the part of the local government unit. They
thus constitute income which the local government can invariably
rely upon as the source of much needed funds.
 Section 450 (c) of the Local Government Code provides that "the
average annual income shall include the income accruing to the
general fund, exclusive of special funds, transfers, and non-recurring
income.
 IRAs are a regular, recurring item of income, distinct from special
funds or transfers.
● The IRAs were correctly included in the income of Santiago
Municipality and since the Department of Finance certified that its
average annual income for the last 2 consecutive years based on
1991 constant prices is at least P20,000,000, it has met the
requirement as to financial capacity of a city.
∙ DISMISSED
002. Basco vs. Philippine Amusement & Gaming Corp.
∙ Petitioners filed the instant petition seeking to annul the PAGCO
Charter – PD 1869 – because it is allegedly contrary to morals, public
policy and order and because it constitutes a waiver of the Manila City
government’s right to impose taxes and license fees, because the law has
intruded into the LGU’s right to impose local taxes and license fees, in
contravention of the local autonomy, because it violates the equal
protection clause of the constitution since it legalizes PAGCOR, while
most other forms of gambling are outlawed and because it violates the
Cory government’s avowed trend of banning monopolistic and crony
economy and toward free enterprise and privatization.
Page 1
∙ 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 government’s defense was premised on the success of PAGCOR in
generating revenues to fund infrastructure and socio-economic projects
and the PAGCOR’s creation to centralize all games of chance, expand
and improve the country’s tourist attractions and minimize, if not totally
eradicate, all the evils normally prevalent on the conduct and operation of
gambling clubs and casinos without direct government involvement
∙ ISSUES:
∙ procedural :: WON Petitioners, as taxpayers and practicing lawyers,
have the requisite standing – YES
… transcendental importance
∙ WON PD 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 -- NO
∙ Sec. 13 (2), pD 1869 exempting PAGCOR 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
i. The City of Manila, being a mere Municipal corporation has no
inherent right to impose taxes.
ii. 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, which has the power to "create and
abolish municipal corporations" due to its "general legislative
powers". Congress, therefore, has the power of control over Local
governments.
iii. The City of Manila's power to impose license fees on
gambling, has long been revoked, so only the National
Government has the power to issue "licenses or permits" for the
operation of gambling.
iv. 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.
∙ 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.
∙ 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." 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 animperium 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.
∙ As to the alleged violation of PD 1869 of the equal protection clause,
there is no such violation because classification based on substantial
differences.
∙ The other issues on monopoly and the immorality of gambling are
political issues, while there can be no violations of Secs. 11, 12 & 13
of Art. II, Sec. 13 of Art. XIII and Sec. 2 of Art. XIV of the 1987
Consti because these provisions are not self-executing.
Francesse Joy J. Cordon
∙ Padilla, J., Concurring: The prohibition, control and regulation of
gambling pertain to “state policy,” and therefore constitute political
questions. BUT, I do not subscribe to gambling in whatever form.
B. Nature and Status of Municipal Corporations
i. subordinate branch of the government of the state
ii. exercises delegated branches of government
C. Kinds of Municipal Corporations
Civil Code, Sec. Judicial Persons, State and Political Subdivisions
1. municipal corporation proper :: refers to incorporated cities, towns,
or villages invested with the power of local legislation;
2. quasi-municipal corporation :: quasi-corporation, operates directly
as an agency of the state to help in the administration of public
functions
└ narrow/limited purpose; not possessed of powers/liabilities of
self-governing corporations
└ generally relates to matters of state as distinguished from
municipal concerns
3. Distinguish municipal corporation proper from quasi-municipal
corporation.
i. voluntary/ involuntary nature of the corporation
ii. existence/ nonexistence of a charter
iii. whether the purpose of the corporation is solely as a
governmental agency or one for self-government
4. Distinguish municipal corporation from public corporation.
∙ municipal corporation :: applies to incorporated villages, towns and
cities; with power of local administration
WHILE
public corporation :: broader term, established for purposes
connected with the administration of civil/ local government
D. Dual Nature
1. Dual nature and functions of municipal corporations Sec. 15, LGC
∙ body politic and corporate endowed with powers to be exercised in
accordance with law
i. public/governmental ::as agent of the State for the government of
the territory and the people within the municipal limits. Exercises a
part of the sovereignty of the state by delegation
ii. private :: like a business corporation, doing functions not strictly
governmental or political; stands for the community in the
administration of local affairs, beyond the sphere of the public
purposes for which its government powers are conferred.
003. Villas vs. City of Manila
∙ In 1734, Don Francisco Carriedo y Perodo bequeathed to the city a fund
for the establishment of waterworks. Such funds was loyally kept and
greatly increased and was enlarged by a special tax upon meat. In 1878,
the works were finally completed and have been since operated by the
city.
∙ ISSUE :: liability of the city of Manila for a debt incurred for coal
supplied for its waterworks system prior to the cession of the Philippine
Islands to the U.S. Manila holds the Carriedo fund, which is liable for
obligations incurred in the administration of the Carriedo waterworks.
The Philippine Supreme Court denied relief to the plaintiffs, holding that
the present municipality is a totally different corporate entity and in no
way liable for the debts of the Spanish municipality.
 Public property of Manila as a municipal corporation cannot be said to
have passed to U.S. upon Spain’s cession of the Philippines to U.S. But,
since the present Manila was reincorporated by the Philippine
Commission with substantially the same municipal powers, area and
inhabitants as the former Manila under Spanish occupation, it is liable for
municipal obligations incurred prior to the cession.
… historical continuity of a municipality embracing the inhabitants of
the territory now occupied by the city of Manila
 Municipal corporations possess dual character. They exercise powers
which are governmental (thus, exercising by delegation a part of state
sovereignty) and powers which are of a private or business character
(thereby standing for the community in the administration of local affairs
Page 2
wholly beyond the sphere of the public purposes for which its
governmental powers are conferred.
Municipal laws regulating private and domestic rights continue in
force until changed by the new ruler. Only laws of a political character
are totally changed. The property rights relinquished by Spain are
limited to those which belong to the public domain. It did not affect
property which belonged to the City of Manila as a municipal
corporation. Absent any express legislative declaration, there is no
reason to suppose that reincorporation intended to permit an escape
from the obligations of the old city.
∙ REVERSED and REMANDED with direction to overrule the respective
demurrers
004. Lidasan vs. Commission on Elections
∙ On June 18, 1966, RA 4790 was enacting separating certain barrios
from their respective municipalities to constitute a distinct and
independent municipality of the same province to be known as the
Municipality of Dianaton, Lanao del Sur, which its seat of government in
Togaig. However, it was later found that some of the barrios lie outside
of Lanao del Sur and were within the municipality of Buldon, Cotabato,
while others were in Parang, Cotabato. COMELEC resolved to follow
RA 4790.
∙ Since the transfer of 12 barrios from Cotabato to Lanao del Sur changed
the boundaries of the 2 provinces, the Office of the President
recommended to COMELEC that the operation of the statute be
suspended until “clarified by correcting legislation”. However, the
COMELEC refused to obey the President’s order, thus, prompting Bara
Lidasan, a resident and taxpayer of the detached portion of Parang,
Cotabato and a qualified voted for the 1967 elections, to file the present
original action for certiorari and prohibition.
∙ ISSUE :: WON Republic Act 4790 is unconstitutional and the
COMELEC resolutions implementing the same for electoral purposes
should be nullified. – YES
∙ defective title :: failure to properly apprise the Legislators of the
content of the bill
∙ more than one subject in the title :: failure
∙ impossibility of segregation of the 9 barrios in the municipalities of
Butig and Balabagan in Lanao del Sur with the mere nullification of
the portion thereof which took away the 12 barrios in the
municipalities of Buldon and Parang BECAUSE they are so mutually
dependent and connected with each other as to constitute conditions,
considerations, inducements or compensations for each other, that the
Legislature intended them as a whole
 Municipal corporations perform twin functions - as a state
instrumentality in carrying out the functions of government AND as an
agency of the community in the administration of local affairs. In their
latter character, they constitute a separate entity acting for their own
purposes and not a subdivision of the State.
… Several factors, such as population, territory and income, come to
the fore in the consideration of whether a group of barrios is capable
of maintaining itself as an independent municipality.
… The Legislature could not have intended for the Municipality of
Dianaton to function with only 9 barrios.
+ WON the petitioner is a real party in interest – YES
∙ Every citizen, taxpayer and voter of a community affected by
legislation creating a town is entitled to ascertain that the law so
created is not dismembering his place of residence "in accordance with
the Constitution."
∙ Fernando, J., Dissenting:
∙ The title of RA 4790 sufficiently embodies its object, because the law
does deal with only one subject matter – the creation of the
municipality of Dianaton in Lanao del Sur.
005. Republic of the Philippines vs. City of Davao
∙ On August 11, 2000, the City of Davao filed an application with the
Environmental Management Bureau for a Certificate of Non-Coverage
for its proposed project, the Davao City Artica Sports Dome. But the
same was denied, on the ground that the location of the proposed project
was within an environmentally critical area, thus, the City of Davao must
Francesse Joy J. Cordon
undergo the environmental impact assessment (EIA) process to secure
aan Environment Compliance Certificate (ECC), before it can proceed
with the construction of the project.
∙ Believing that it was entitled to a CNC, the City of Davao filed a
petition for mandamus and injunction with RTC, Davao, which granted
the writ of mandamus and injunction in its favor and ordered DENR to
issue a CNC in its favor on the ground that LGUs are not bound to
comply with the EIS law. The DENR’s MR having been denied, it then
filed this petition for review on certiorari, and despite the Davao City’s
new administration expressing its agreement with the DENR that it does
need to secure an ECC first, the Court resolves to adjudicate upon the
issue for the guidance of the implementers of the EIS law and for the
information of the bench and bar.
 An LGU, as a body politic and corporate endowed with powers to be
exercised by it in conformity with law, performs dual functions,
governmental and proprietary. Governmental functions are those that
concern the health, safety and the advancement of the public good or
welfare as affecting the public generally. Proprietary functions are those
that seek to obtain special corporate benefits or earn pecuniary profit and
intended for private advantage and benefit. When exercising
governmental powers and performing governmental duties, an LGU is an
agency of the national government. When engaged in corporate activities,
it acts as an agent of the community in the administration of local affairs.
 Presupposing an ECC is necessary, an LGU, like the Davao City,
cannot claim exemption from the coverage of PD 1586, for the are within
the scope of the EIS system.
HOWEVER, since the Artica Sports Dome does not have a significant
negative impact because it is not an environmentally critical project
nor located in an environmentally critical area, it does not need an
ECC and is thus outside the EIS scope.
∙ DENIED
2. Purposes
i. agency/instrument of State in carrying on government functions,
which the State cannot conveniently exercise
ii. agency of the inhabitants in regulating municipal franchises and
public utilities promotion, management, of local affairs,
maintenance of water system, ferries, wharves, etc.
3. General Powers and Attributes
i. sangguniang panlalawigan’s or sangguniang panlungsod’s power
to create a barangay within the territorial jurisdiction of a
ii. government center, where offices, agencies or branches of the
National Government, LGUs, or GOCCs may, as far as practicable,
be located
iii. in consultation with Philippine Historical Commission,
sangguniang panlalawigan’s power to change the name of the ff.:
-component cities and municipalities, upon the recommendation
of the sanggunian concerned
-provincial roads, avenues, boulevards, thoroughfares and tertiary
schools
-public vocational or technical schools and other post-secondary
and tertiary schools
-provincial hospitals, health centers and other health facilities
-any other public place or building owned by the provincial
government
* analogous power by sanggunians of highly urbanized citizes and
of component cities whose charters prohibit their voters from
voting for provincial elective officials as independent component
cities WRT city barangays; city roads, avenues, boulevards,
thoroughfares and bridges; public elementary, secondary and
vocational or technical schools, community colleges and non-
chartered colleges; city hospitals, health centers and other health
facilities; and any other public place or building owned by the city
government
* analogous power by sanggunians of component cities and
municipalities WRT city and municipal barangays; city,
municipal and barangay roads, avenues, boulevards,
thoroughfares and bridges; city and municipal public elementary,
Page 3
 secondary and vocational or technical schools, post-secondary and assistance agencies without necessity of securing clearance or approval
other tertiary schools; city and municipal hospitals, health centers therefor from any department, agency or office of the National
and other health facilities; and any other public place or building Government or from any higher LGU
owned by the city government PROV. approved by the national agency concerned
* BUT note that a change of name of a public school is only PROV. that when such national agency fails to act on the request for
possible upon the recommendation of the local school board; of approval within 30d fr receipt, deemed approved
public schools, health centers and other health facilities upon the & that local chief executive upon signing such grant agreement or
recommendation f the local health board; of any LGU upon deed of donation, report the nature, amount and terms of such
ratification in a plebiscite conducted for the purpose; and of name, assistance to both Houses of Congress & President
upon notification of the Office of the President, representative of ∙ corporate existence of a new LGU commences upon the election nd
the legislative district concerned and the Bureau of Posts qualification of its chief executive and a majority of the members of its
iv. powers of a political subdivision of the National Government and sanggunian, unless some other time is fixed therefor
as a corporate entity representing the inhabitants of its territory ∙ functions and responsibilities of national agencies and offices
v. powers expressly granted, those necessarily implied therefrom and devolved to them
powers necessary, appropriate or incidental for its efficient and + those necessary, appropriate or incidental to efficient and effective
effective governance and those which are essential to the promotion of provision of the basic services and facilities
the general welfare ∙ liability for death or injury to persons or damage to property
└ preservation and enrichment of culture; promotion of health and
safety; enhancement of the people to a balanced ecology;
encouragement and support to the development of appropriate and
self-reliant scientific and technological capabilities; improvement of
public morals; enhancement of economic prosperity and social
justice; promotion of full employment among their residents;
maintenance of peace and order; and preservation of the comfort and
convenience of their inhabitants
vi. power to generate and apply resources
+ power and authority to establish an org. that shall be responsible
for the efficient and effective implementation of their development
plans, program objectives and priorities
+ power to levy taxes, fees and charges which shall accrue
exclusively for their use and disposition and which shall be retained
by them
+ just share in national taxes, which shall be automatically and
directly released to them
+ equitable share in the proceeds from the utilization and
development of the national wealth and resources within their
respective territorial jurisdictions
+ acquire, develop, lease, encumber, alienate or otherwise dispose of
RP/PP held by them in their proprietary capacity and to apply their
resources and assets for productive, development or welfare
purposes
vii. expropriation upon payment of just compensation (deposit of at
least 15% of FMV of the property based on the current tax declaration
of the property to be expropriated + amount determined by the proper
court, based on FMV @ taking
viii. power to reclassify lands through a sanggunian-passed ordinance
after conducting public hearings for the purpose
ix. power to permanently or temporarily close or open any local road,
alley, park or square falling within its jurisdiction through an ordinance
PROV. approved by at least 2/3 of all the members of the
sanggunian and substitution for the public facility subject
PROV. no freedom park shall be closed permanently with provision
for its transfer or relocation to a new site
 close – actual emergency or fiesta celebrations, public rallies,
agricultural or industrial fairs or undertaking of public works and
highways, telecommunications and waterworks projects… shopping
malls, Sunday, flea markets or other public place
x. corporate powers:
└ to have continuous succession in its corporate name
└ to sue and be sued
└ to have and use a corporate seal
└ to acquire and convey RP/PP
└ to enter into contracts upon prior authorization by the sanggunian
└ to exercise such other powers as are granted to corps., ST limits
└ corporate seal
└ full autonomy in the exercise of their proprietary functions and in
the mgt of their economic enterprises ST limits
xi. authority to negotiated and secure financial grants or donations in
kind, in support of basic services or facilities, from local and foreign

Francesse Joy J. Cordon Page 4