PUBLIC CORPORATIONS IN THE PHILIPPINES

1. Art X 1987 Constitution

LOCAL GOVERNMENT

GENERAL PROVISIONS

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.

Section 2. The territorial and political subdivisions shall enjoy local autonomy.

Section 3. The Congress shall enact a local government code which shall provide for a more responsive
and accountable local government structure instituted through a system of decentralization with
effective mechanisms 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 other matters relating to the organization and operation of the local units.

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.

Section 11. The Congress may, by law, create special metropolitan political subdivisions, subject to a
plebiscite as set forth in Section 10 hereof. The component cities and municipalities shall retain their
basic autonomy and shall be entitled to their own local executive and legislative assemblies. The
jurisdiction of the metropolitan authority that will thereby be created shall be limited to basic services
requiring coordination.

Section 13. Local government units may group themselves, consolidate or coordinate their efforts,
services, and resources for purposes commonly beneficial to them in accordance with law.
2. The local government code of 1991

i. Rules of Interpretation

SECTION 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;

(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against
the local government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption,
incentive or relief granted by any local government unit pursuant to the provisions of this Code
shall be construed strictly against the person claiming it.

(c) The general welfare provisions in this Code shall be liberally interpreted to give more power
to local government units in accelerating economic development and upgrading the quality of
life for the people in the community;

(d) Rights and obligations existing on the date of effectivity of this Code and arising out of
contracts or any other source of prestation involving a local government unit shall be governed
by the original terms and conditions of said contracts or the law in force at the time such rights
were vested; and

(e) In the resolution of controversies arising under this Code where no legal provision or
jurisprudence applies, resort may be had to the customs and traditions in the place where the
controversies take place.

3. What is a local government unit?

Sec 15 LGC

Every local government unit created or recognized under this Code is a body politic and
corporate endowed with powers to be exercised by it in conformity with law. As such, it shall
exercise powers as a political subdivision of the national government and as a corporate entity
representing the inhabitants of its territory.
 4. Classes of Corporations
i. Public v. Private

Public - It is one created by the State, either by general or special act for purposes of
administration of local government, or rendering service for the public interest.

Private – Created by private individuals for the purpose of business or vocation

ii. Criteria - It is the relationship of the corporation to the state. If it was created by the
State as its own agency to help it in carrying out its governmental functions, it is public.
Otherwise, it is private.

iii. Relevant entities:

a. Quasi-public corporations:
Private corporations that render public service, supply public wants, or pursue other
eleemosynary objectives. While purposely organized for the gain or benefit of its
members, they are required by law to discharge functions for the public benefit. It
must be stressed that a quasi-public corporation is a specie of private corporation,
but the qualifying factor is the type of service the former renders to the public: if it
performs a public service, then it becomes a quasi-public corporation. (Philippine
Society for the Prevention of Cruelty to Animals v. Commission on Audit, G.R. No.
169752, September 25, 2007)

b. GOCC:
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.
[R.A. 10149, GOCC Governance Act of 2011, Chapter 1, Sec. 3 (o)]

CASES:

Davao Water District v. Civil Service

Are water districts controlled by the Civil Service Law or are they GOCCs?

They are public corporations with their own original charter, this being PD 198

The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. It is
clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the
local executives of the local subdivision units where such districts are located. In contrast, the members of the
Board of Directors or trustees of a private corporation are elected from among the members and stockholders
thereof. It would not be amiss to emphasize at this point that a private corporation is created for the private
purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be
given a free hand to choose those who will compose the governing body of their corporation. But this is not the
case here and this clearly indicates that petitioners are definitely not private corporations.

Feliciano v. COA
Are LWDs created pursuant to PD 198 or BY it?

COA says that PD 198 is optional and is not a command, thereby not a source for LWDs (only LWUA Local Waters
Utilities Associations)

LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only
government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are
government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit
that their existence is constitutionally infirm.

Boy Scouts of the PH v. COA

Is the BSP a GOCC or a Private Corporation

BSP thinks it’s a private corporation because of RA 7278 which lessened government control and gave it a more
private nature

BSP is still a Public Corporation specifically because it was created by a special law (CA 111). The Civil Code (Art. 44)
also contemplates the BSP as a public corporation because it was created by a special law, and its purpose is one
directed to public embitterment

Phil. Society for Prevention of Cruelty to Animals v. COA (TOTALITY TEST)

Is this society a GOCC that is subject to audit by the COA?

No, it’s not. When it was made back in 1905 by Act 1285, there was still no proper corporation law. The society had
the power to arrest violators and charge fines. In 1936, by virtue of CA 198, they lost this power and effectively
became inutile in a government-service sense. The court found that in this situation, the charter test (a test to see if
the corp. was created by its own charter for a public purpose) cannot be used because the society predated the test
and does not fall into the context by which the test was to be used. The government also holds no control over the
employees or the board, as the employees are under the SSS and not the GSIS and the board votes amongst
themselves. The court held that in this case, the society is merely a quasi-public corporation. One which is private,
but partakes in acts that benefit the public.

MIAA v. CA
The mayor of manila threatened to sell the airport lands owned by MIAA in order to pay the real estate tax it did
not pay.

Is the MIAA a GOCC?

No, it is not a GOCC, it is a government instrumentality. While you can tax GOCCs, you can’t tax government
instrumentalities because the government cannot tax itself. While the government did vest MIAA with corporate
powers, it still does not change the fact that it is a government instrumentality and is therefore part of the
government itself. Plus, the lands threated to be sold were actually government owned lands anyway.
Mun. of Jimenez v. Exec. Sec.
In 1949, EO 258 brought into existence the Municipality of Sinacaban. This EO essentially made a municipal
corporation, one which shouldn’t be allowed pursuant to the ruling of Pelaez v. Auditor General in 1965 which held
that Municipalities can only be created through the legislature, and not by the president. The existence was
challenged by the Municipality of Jimenez in 1988, since they did not want to give up governance over certain lands
that were said to be part of Sinacaban according to the EO.

Does Sinacaban exist?

It does. The court called it a de facto Municipal Corporation at the time, which was eventually acknowledged by
both the people (when nobody questioned its existence and it became an accepted part of the area) and the
government (LGC 1991 says that all existing municipalities will continue to exist as regular municipalities; and in
the Constitution when it considered it part of the legislative district)

5. Local Government Unit

i. Definition - Every local government unit created or recognized under this Code is a body
politic and corporate endowed with powers to be exercised by it in conformity with law.
As such, it shall exercise powers as a political subdivision of the national government
and as a corporate entity representing the inhabitants of its territory. (Sec 15 LGC)
ii. Elements
iii. Political & Corporate Nature of LGUs
a. Political & Governmental – Government powers exercised in administering public
welfare.
b. Private or Proprietary – For the advantage of a specific community

CASES:

Municipality of La Union v. Judge Firme

A dump truck hired by the Mun. of La Union hit a privately owned passenger jeepney, and the owner sued for the
Mun. for damages. The judge ruled in favor of the private individuals. The Mun. argued that it shouldn’t be liable
because of state immunity.

Is the Municipality immune?

Only to liability. The court differentiated being suable and liable. State immunity is twofold; immunity from suit and
immunity from liability. In this case, the municipal corporation is not immune from suit because it expressly allows
itself to be sued by virtue of its charter. To be held liable however, the municipality must have been shown to have
not been acting a government function. This is because a municipal corporation’s existence is also twofold. It is
both Political and Governmental, and while it is indeed part of the government, it may lower itself down to that of
an individual when it enters into contracts. Liability will only attach if the municipality lowered itself to that of an
individual, while performing a function that is not governmental. In this case the dump truck was actually on its
way to repair municipal streets and was therefore performing a governmental action.
City of Manila v. IAC
A family who’s head recently died entered into a contract of lease with one North Cemetery, managed by the City
of Manila. They leased it for 50 years, however 2 years into the duration, the mayor certified certain lots in the
cemetery as leased only for 5 years and was ready for exhumation. The bones were taken out, and the family found
that someone else ended up leasing the spot they were supposed to be leasing. They sued and obtained a favorable
response from the court to which the City of Manila argued that they were not liable for tort damages committed
by their subordinates.

Is the city liable?

Yes. In this case, the court ruled that the immunity from tort liability does not apply in situations where the
municipal corporation is acting in a proprietary character. The city of manila entered into a contract of lease with
the family, one which they ended up breaching, and are therefore liable, according to Torio v. Fontanillia. The court
also added that maintenance of cemeteries are proprietary acts of the municipal corporation and expose them to
suit and liability when things go wrong in their performance.

PRINCIPLES OF LOCAL AUTONOMY

1. Local Autonomy
a. Decentralization/Devolution – is the process by which local government units are given
more powers, authority, responsibilities, and resources by the national government.
(Devolution of national administration but not power of national government to local
levels)
b. Decentralization of Administration v. Decentralization of Powers
i. Dec. of Admin – when the central government delegated admin powers to
political subdivisions in order to broaden the base of government. It relieves
central government of the burden of managing local affairs in order to
concentrate on national concerns
ii. Dec. of Powers – Local governments are free to chart their own destiny with
minimum intervention from central authorities.
c. Administrative vs Fiscal Autonomy
i. Administrative – Autonomy is the result of decentralization of administration
wherein powers are given to LGUs so that they may act with a certain level of
freedom in going about their local concerns
ii. Fiscal – allows LGUs to create their own income sources on top of their share of
national taxes received. This extends to how the LGUs prepare their budgets as
well, all relying under the wisdom of the local governments not extending to the
national government
CASES:

Limbona v. Mangelin
Petitioner was a member of the Sanguniang Pampook in the Regional Autonomout Government in R12, then he
was elected as speaker of the regional legislative assembly. He was then invited to attend a meeting headed by the
Chairman of the Committee on Muslim Affairs. He informed the legislative assembly that their regular meetings will
not be happening on that day as he was headed to the meeting, however the assembly still held the meeting, and
then proceeded to vote him off as speaker. Thereafter he went to court praying for his reinstatement as speaker
and his being voted off as null and void.

Does the court have jurisdiction to contemplate on his plight due to their autonomy simply one of administration?
Or is their autonomy one of power?

The court held that it is simply one of autonomy of administration and the courts have the power to contemplate
petitioner’s removal. This is because according to PD 1618, the law that created the autonomous region, the
president retains general supervision over the region. The intent of this was inferred to mean that the autonomous
region was only allowed to have a certain level of autonomy and was not entirely allowed to shape its own destiny.

Hon. Jose D. Lina Sr. v. Hon Pano

Tony Calvento was to install a lotto terminal in Laguna, however was refused a business permit by the mayor
grounded on Kapasiyahan Blg. 508, declaring gambling (including lotto) to be illegal in Laguna. However Calvento
asserts that this law is void because the national government already declared lotto as a legal form of gambling

Can an LGU properly not allow what has been allowed by the national government.

No, the court explained that, because the LGU derives its power from the national government, it cannot be
superior to it. The spring cannot rise higher than its source. Anent to this, the court also declared that a
consultation between the LGU and the national government is required when enacting a national program does
not apply in this case because; 1. The lotto is not a program of the national government but a charitable institution,
and 2. Because programs requiring consultation are exclusive to certain programs enlisted specifically in Sec. 27 of
the 1991 LGC