EN BANC

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 Parañaque City under Executive Order No. 903, otherwise known as the Revised
Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was
issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos.
9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within
the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including
the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air
Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall
be disposed of through sale or any other mode unless specifically approved by the President of the
Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061.
The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax
already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as
follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
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 Parañaque, through its City Treasurer, issued notices of levy and warrants of
levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public
auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC
pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax
to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that
MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction,
with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the
City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the
Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the
present petition for review.7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls
of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta;
and in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3
and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the
Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque
City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion
sought to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang
Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque
("respondents") — from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The
Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued
during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently
submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates
MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport
Lands and Buildings are devoted to public use and public service, the ownership of these properties
remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real
estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of
real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the
Local Government Code. Respondents also argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA
cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held
that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real
estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt
from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the
City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the
other issues raised in this petition become moot.

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)

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?

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
 (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)

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 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway does not change the character of
the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public
dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for
public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone
can use the road under the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.
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 order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as
was decided by the supreme court of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they are by their very nature outside of
commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside
the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private parties. While in case of war or during
an emergency, town plazas may be occupied temporarily by private individuals, as was done and
as was tolerated by the 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 Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from
public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands,"27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources,
the President may designate by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-
public uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas
communales, public parks, public quarries, public fishponds, working men's village and other
improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-
three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or
other disposition until again declared alienable under the provisions of this Act or by
proclamation of the President. (Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands
and Buildings are inalienable in their present status as properties of public dominion, they are not subject
to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for
public use, their ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such
public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987,
which states:

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)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance. 28

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 to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a financially
viable operation, will best be achieved by a separate and autonomous body; and

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 National Government, its
agencies and instrumentalities x x x." The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is
not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that
the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does
not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt
from real estate tax. For example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has 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. To repeat, the provisions
lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons.
The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.

The term "All persons" encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status
— whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be
examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on
national government instrumentalities like the MIAA. Local governments are devoid of power to tax the
national government, its agencies and instrumentalities. The taxing powers of local governments do not
extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this
Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
subject to tax by local governments. The minority insists that the juridical persons exempt from local
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall within any
of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government
Code. This theory will result in gross absurdities. It will make the national government, which itself is a
juridical person, subject to tax by local governments since the national government is not included in the
enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind
of local tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will
also be subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine
Rice Research Institute,31 Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development

Authority,34 Philippine Ports Authority,35 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)

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 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 government unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply
only to corporations organized under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why government corporations with
special charters should have a capital stock. Thus, the minority declares:

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 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 government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or commercial activities,
such entities — known as "government-owned or controlled corporations" — must meet the test of
economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
similar government-owned or controlled corporations, which derive their income to meet operating
expenses solely from commercial transactions in competition with the private sector. The intent of the
Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive
on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
 then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and
education, 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 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.

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;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic
and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs
the legal relation and status of government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation.
Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a
taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments.
The only exception is when MIAA leases its real property to a "taxable person" as provided in Section
234(a) of the Local Government Code, in which case the specific real property leased becomes subject to
real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like
private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use,
are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions "ports x x x constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly
exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals
of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands
and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by
the City of Parañaque. We declare VOID all the real estate tax assessments, including the final notices of
real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that the Manila International Airport Authority
has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.
 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.

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:

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 letter18 to the COA requesting for a "copy of the latest financial and
audit report" of the MECO invoking, for that purpose, his "constitutional right to information on matters of
public concern." The petitioner made the request on the belief that the MECO, being under the
"operational supervision" of the Department of Trade and Industry (DTI), is a government owned and
controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA.19
Petitioner’s letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following day.

On 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.

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

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 concerned, then for the formulation of controlling
principles for the education of the bench, bar and the public in general.68 For this purpose, the Court
invokes its symbolic function.69

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;

(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;

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

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.

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 government to
perform certain "consular and other functions" relating to the promotion, protection and facilitation of
Philippine interests in Taiwan.99 The full extent of such authorized functions are presently detailed in
Sections 1 and 2 of EO No. 15, s. 2001:

SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in Section 3
hereof, MECO is hereby authorized to assist in the performance of the following functions:

1. 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 passport services as may be 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 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.

xxxx

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 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;

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.

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 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.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 169752 September 25, 2007

PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS, Petitioners,

vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as Director of the
Commission on Audit), MS. MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their official
capacities as Team Leader and Team Member, respectively, of the audit Team of the Commission
on Audit), Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court,
in relation to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-0211 dated
September 14, 2005 issued by the respondents which constituted the audit team, as well as its
September 23, 2005 Letter2 informing the petitioner that respondents’ audit team shall conduct an audit
survey on the petitioner for a detailed audit of its accounts, operations, and financial transactions. No
temporary restraining order was issued.

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No.
1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was
created, was composed of animal aficionados and animal propagandists. The objects of the petitioner, as
stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or the
protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend
in any way to alleviate the suffering of animals and promote their welfare.3

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in
existence. Act No. 1285 antedated both the Corporation Law and the constitution of the Securities and
Exchange Commission. Important to note is that the nature of the petitioner as a corporate entity is
distinguished from the sociedad anonimas under the Spanish Code of Commerce.

For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection
of animals, the petitioner was initially imbued under its charter with the power to apprehend violators of
animal welfare laws. In addition, the petitioner was to share one-half (1/2) of the fines imposed and
collected through its efforts for violations of the laws related thereto. As originally worded, Sections 4 and
5 of Act No. 1285 provide:

SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of Manila, and not
to exceed two in each of the provinces of the Philippine Islands who shall have all the power and authority
of a police officer to make arrests for violation of the laws enacted for the prevention of cruelty to animals
and the protection of animals, and to serve any process in connection with the execution of such laws;
and in addition thereto, all the police force of the Philippine Islands, wherever organized, shall, as
occasion requires, assist said society, its members or agents, in the enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the efforts of said society, its members or
its agents, for violations of the laws enacted for the prevention of cruelty to animals and for their
protection, shall belong to said society and shall be used to promote its objects.

(emphasis supplied)

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines
collected for violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No.
148,4 which reads, in its entirety, thus:

Be it enacted by the National Assembly of the Philippines:

Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act Numbered
Thirty five hundred and forty-eight, is hereby further amended so as to read as follows:

Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and not to
exceed one in each municipality of the Philippines who shall have the authority to denounce to regular
peace officers any violation of the laws enacted for the prevention of cruelty to animals and the protection
of animals and to cooperate with said peace officers in the prosecution of transgressors of such laws.

Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals and for the
protection of animals, shall accrue to the general fund of the Municipality where the offense was
committed.

Sec. 3. This Act shall take effect upon its approval.

Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated
November 12, 1936, portions of which provide:

Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered One
Hundred Forty Eight was enacted depriving the agents of the Society for the Prevention of Cruelty to
Animals of their power to arrest persons who have violated the laws prohibiting cruelty to animals thereby
correcting a serious defect in one of the laws existing in our statute books.

xxxx

Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes,
which the Government is duty bound to enforce;

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred
upon me by the Constitution, hereby decree, order, and direct the Commissioner of Public Safety, the
Provost Marshal General as head of the Constabulary Division of the Philippine Army, every Mayor of a
chartered city, and every municipal president to detail and organize special members of the police force,
local, national, and the Constabulary to watch, capture, and prosecute offenders against the laws enacted
to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of
the petitioner to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November
18, 20035 addressed to the petitioner. The petitioner demurred on the ground that it was a private entity
not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which specifies the
general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or
uses of funds and property, owned or held in trust by, or pertaining to the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies, commissions and officers that have
been granted fiscal autonomy under the Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations and their subsidiaries; and (d) such 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 such audit as a condition of subsidy or
equity. However, where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general accounts of the Government, and for such
period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.
(Emphasis supplied)

Petitioner explained thus:

a. Although the petitioner was created by special legislation, this necessarily came about because
in January 1905 there was as yet neither a Corporation Law or any other general law under which
it may be organized and incorporated, nor a Securities and Exchange Commission which would
have passed upon its organization and incorporation.

b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the
petitioner of its power to make arrests, and that the petitioner lost its operational funding,
underscore the fact that it exercises no governmental function. In fine, the government itself, by
its overt acts, confirmed petitioner’s status as a private juridical entity.

The COA General Counsel issued a Memorandum6 dated May 6, 2004, asserting that the petitioner was
subject to its audit authority. In a letter dated May 17, 2004,7 respondent COA informed the petitioner of
the result of the evaluation, furnishing it with a copy of said Memorandum dated May 6, 2004 of the
General Counsel.

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19,
2004,8 insisting that it was a private domestic corporation.

Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13,
2004,9 affirmed her earlier opinion that the petitioner was a government entity that was subject to the
audit jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA informed
the petitioner of the result of the re-evaluation, maintaining its position that the petitioner was subject to its
audit jurisdiction, and requested an initial conference with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant
Commissioner Juanito Espino, Corporate Government Sector, that the audit survey was not conducted
due to the refusal of the petitioner because the latter maintained that it was a private corporation.

Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14,
2005 and the COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds:

A.
 RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT PETITIONER
IS SUBJECT TO ITS AUDIT AUTHORITY.

B.

PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR ANY
PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW
AVAILABLE TO IT.10

The essential question before this Court is whether the petitioner qualifies as a government agency that
may be subject to audit by respondent COA.

Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general
law then existing under which it may be organized or incorporated, it exercises no governmental functions
because these have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its charter is it
indicated that it is a public corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of
the Philippines, defined its powers and purposes, and specifically stated that it was "An Act to Create a
Public Corporation" in which, even as amended by Presidential Decree No. 460, the law still adverted to
the Boy Scouts of the Philippines as a "public corporation," all of which are not obtaining in the charter of
the petitioner; third, if it were a government body, there would have been no need for the State to grant it
tax exemptions under Republic Act No. 1178, and the fact that it was so exempted strengthens its
position that it is a private institution; fourth, the employees of the petitioner are registered and covered by
the Social Security System at the latter’s initiative and not through the Government Service Insurance
System, which should have been the case had the employees been considered government
employees; fifth, the petitioner does not receive any form of financial assistance from the government,
since C.A. No. 148, amending Section 5 of Act No. 1285, states that the "full amount of the fines,
collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue
to the general fund of the Municipality where the offense was committed"; sixth, C.A. No. 148 effectively
deprived the petitioner of its powers to make arrests and serve processes as these functions were placed
in the hands of the police force; seventh, no government appointee or representative sits on the board of
trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that
any act or decision of the petitioner is subject to the approval of or control by any government agency,
except to the extent that it is governed by the law on private corporations in general; and finally, ninth, the
Committee on Animal Welfare, under the Animal Welfare Act of 1998, includes members from both the
private and the public sectors.

The respondents contend that since the petitioner is a "body politic" created by virtue of a special
legislation and endowed with a governmental purpose, then, indubitably, the COA may audit the financial
activities of the latter. Respondents in effect divide their contentions into six strains: first, the test to
determine whether an entity is a government corporation lies in the manner of its creation, and, since the
petitioner was created by virtue of a special charter, it is thus a government corporation subject to
respondents’ auditing power; second, the petitioner exercises "sovereign powers," that is, it is tasked to
enforce the laws for the protection and welfare of animals which "ultimately redound to the public good
and welfare," and, therefore, it is deemed to be a government "instrumentality" as defined under the
Administrative Code of 1987, the purpose of which is connected with the administration of government, as
purportedly affirmed by American jurisprudence; third, by virtue of Section 23,11 Title II, Book III of the
same Code, the Office of the President exercises supervision or control over the petitioner; fourth, under
the same Code, the requirement under its special charter for the petitioner to render a report to the Civil
Governor, whose functions have been inherited by the Office of the President, clearly reflects the nature
of the petitioner as a government instrumentality; fifth, despite the passage of the Corporation Code, the
law creating the petitioner had not been abolished, nor had it been re-incorporated under any general
corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the "Animal Welfare Act of
1998," designates the petitioner as a member of its Committee on Animal Welfare which is attached to
the Department of Agriculture.
In view of the phrase "One-half of all the fines imposed and collected through the efforts of said society,"
the Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor General (OSG) and
the parties to comment on: a) petitioner's authority to impose fines and the validity of the provisions of Act
No. 1285 and Commonwealth Act No. 148 considering that there are no standard measures provided for
in the aforecited laws as to the manner of implementation, the specific violations of the law, the person/s
authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987 Constitutions on
whether petitioner continues to exist or should organize as a private corporation under the Corporation
Code, B.P. Blg. 68 as amended.

Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that
since they were being represented by the OSG which filed its Comment, they opted to dispense with the
filing of a separate one and adopt for the purpose that of the OSG.

The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws;
it only enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the
enforcement of animal welfare laws; such privilege, however, was subsequently abolished by C.A. No.
148; that it continues to exist as a private corporation since it was created by the Philippine Commission
before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.

The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to
impose fines for violation of laws12 relating to the prevention of cruelty to animals and the protection of
animals; that even prior to the amendment of Act No. 1285, petitioner was only entitled to share in the
fines imposed; C.A. No. 148 abolished that privilege to share in the fines collected; that petitioner is a
public corporation and has continued to exist since Act No. 1285; petitioner was not repealed by the 1935
and 1987 Constitutions which contain transitory provisions maintaining all laws issued not inconsistent
therewith until amended, modified or repealed.

The petition is impressed with merit.

The arguments of the parties, interlaced as they are, can be disposed of in five points.

First, the Court agrees with the petitioner that the "charter test" cannot be applied.

Essentially, the "charter test" as it stands today provides:

[T]he test to determine whether a corporation is government owned or controlled, or private in nature is
simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the
general corporation law? Those with special charters are government corporations subject to its
provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are
compulsory members of the Government Service Insurance System. xxx (Emphasis supplied)13

The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime
established by the 1935 Constitution, Section 7, Article XIII, which states:

Sec. 7. The National Assembly shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the Government
or any subdivision or instrumentality thereof.14

The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of
Article XII of the present 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.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4
of Article XIV of the 1973 Constitution.

During the formulation of the 1935 Constitution, the Committee on Franchises recommended the
foregoing proscription to prevent the pressure of special interests upon the lawmaking body in the
creation of corporations or in the regulation of the same. To permit the lawmaking body by special law to
provide for the organization, formation, or regulation of private corporations would be in effect to offer to it
the temptation in many cases to favor certain groups, to the prejudice of others or to the prejudice of the
interests of the country.15

And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not
earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act No.
1285, enacted on January 19, 1905. Settled is the rule that laws in general have no retroactive effect,
unless the contrary is provided.16 All statutes are to be construed as having only a prospective operation,
unless the purpose and intention of the legislature to give them a retrospective effect is expressly
declared or is necessarily implied from the language used. In case of doubt, the doubt must be resolved
against the retrospective effect.17

There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the
law itself so expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in
case of laws interpreting others; and (5) in case of laws creating new rights.18 None of the exceptions is
present in the instant case.

The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the
Corporation Law, which had been enacted by virtue of the plenary powers of the Philippine Commission
on March 1, 1906, a little over a year after January 19, 1905, the time the petitioner emerged as a juridical
entity. Even the Corporation Law respects the rights and powers of juridical entities organized
beforehand, viz:

SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of the
Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the passage of
this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall be
entitled at its option either to continue business as such corporation or to reform and organize under and
by virtue of the provisions of this Act, transferring all corporate interests to the new corporation which, if a
stock corporation, is authorized to issue its shares of stock at par to the stockholders or members of the
old corporation according to their interests. (Emphasis supplied).

As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions
maintaining all laws issued not inconsistent therewith until amended, modified or repealed.19

In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has
been created by virtue of a special law does not necessarily qualify it as a public corporation.

What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights,
powers, and duties?

As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902, and,
emphatically, as also stated above, no proscription similar to the charter test can be found therein.
The textual foundation of the charter test, which placed a limitation on the power of the legislature, first
appeared in the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No.
1258, a law antedating the Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty
years. There being neither a general law on the formation and organization of private corporations nor a
restriction on the legislature to create private corporations by direct legislation, the Philippine Commission
at that moment in history was well within its powers in 1905 to constitute the petitioner as a private
juridical entity.1âwphi1

Time and again the Court must caution even the most brilliant scholars of the law and all constitutional
historians on the danger of imposing legal concepts of a later date on facts of an earlier date.20

The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation
and not an agency of the government. This was evident in Executive Order No. 63, issued by then
President of the Philippines Manuel L. Quezon, declaring that the revocation of the powers of the
petitioner to appoint agents with powers of arrest "corrected a serious defect" in one of the laws existing
in the statute books.

As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given
retroactive effect, thereby freeing all doubt as to which class of corporations the petitioner belongs, that is,
it is a quasi-public corporation, a kind of private domestic corporation, which the Court will further
elaborate on under the fourth point.

Second, a reading of petitioner’s charter shows that it is not subject to control or supervision by any
agency of the State, unlike government-owned and -controlled corporations. No government
representative sits on the board of trustees of the petitioner. Like all private corporations, the successors
of its members are determined voluntarily and solely by the petitioner in accordance with its by-laws, and
may exercise those powers generally accorded to private corporations, such as the powers to hold
property, to sue and be sued, to use a common seal, and so forth. It may adopt by-laws for its internal
operations: the petitioner shall be managed or operated by its officers "in accordance with its by-laws in
force." The pertinent provisions of the charter provide:

Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson,
Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa,
Josefina R. de Luzuriaga, and such other persons as may be associated with them in conformity with this
act, and their successors, are hereby constituted and created a body politic and corporate at law, under
the name and style of "The Philippines Society for the Prevention of Cruelty to Animals."

As incorporated by this Act, said society shall have the power to add to its organization such and as many
members as it desires, to provide for and choose such officers as it may deem advisable, and in such
manner as it may wish, and to remove members as it shall provide.

It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations, to
conduct social enterprises for the purpose of obtaining funds, to levy dues upon its members and provide
for their collection to hold real and personal estate such as may be necessary for the accomplishment of
the purposes of the society, and to adopt such by-laws for its government as may not be inconsistent with
law or this charter.

xxxx

Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its by-
laws in force, and this charter.

xxxx
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall have full
power to locate and establish branch offices of the society wherever it may deem advisable in the
Philippine Islands, such branch offices to be under the supervision and control of the principal office.

Third. The employees of the petitioner are registered and covered by the Social Security System at the
latter’s initiative, and not through the Government Service Insurance System, which should be the case if
the employees are considered government employees. This is another indication of petitioner’s nature as
a private entity. Section 1 of Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise
known as the Social Security Act of 1997, defines the employer:

Employer – Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any
trade, business, industry, undertaking or activity of any kind and uses the services of another person who
is under his orders as regards the employment, except the Government and any of its political
subdivisions, branches or instrumentalities, including corporations owned or controlled by the
Government: Provided, That a self-employed person shall be both employee and employer at the same
time. (Emphasis supplied)

Fourth. The respondents contend that the petitioner is a "body politic" because its primary purpose is to
secure the protection and welfare of animals which, in turn, redounds to the public good.

This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest
does not, by that circumstance alone, make the entity a public corporation, inasmuch as a corporation
may be private although its charter contains provisions of a public character, incorporated solely for the
public good. This class of corporations may be considered quasi-public corporations, which are private
corporations that render public service, supply public wants,21 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. Examples of these corporations are utility,22 railroad, warehouse,
telegraph, telephone, water supply corporations and transportation companies.23 It must be stressed that
a quasi-public corporation is a species of private corporations, 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.241âwphi1

Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for
the fact is that almost all corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private corporation; yet, it is created for a public
benefit. Private schools and universities are likewise private corporations; and yet, they are rendering
public service. Private hospitals and wards are charged with heavy social responsibilities. More so with all
common carriers. On the other hand, there may exist a public corporation even if it is endowed with gifts
or donations from private individuals.

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality
of the relation of the corporation to the State. If the corporation is created by the State as the latter’s own
agency or instrumentality to help it in carrying out its governmental functions, then that corporation is
considered public; otherwise, it is private. Applying the above test, provinces, chartered cities,
and barangays can best exemplify public corporations. They are created by the State as its own device
and agency for the accomplishment of parts of its own public works.25

It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to arrest
offenders of animal welfare laws and the power to serve processes in connection therewith.

Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic
reports to the Civil Governor, whose functions have been inherited by the President, the petitioner is,
therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and
powers to the State, the reportorial requirement is applicable to all corporations of whatever nature,
whether they are public, quasi-public, or private corporations—as creatures of the State, there is a
reserved right in the legislature to investigate the activities of a corporation to determine whether it acted
within its powers. In other words, the reportorial requirement is the principal means by which the State
may see to it that its creature acted according to the powers and functions conferred upon it. These
principles were extensively discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential
Commission on Good Government.26 Here, the Court, in holding that the subject corporation could not
invoke the right against self-incrimination whenever the State demanded the production of its corporate
books and papers, extensively discussed the purpose of reportorial requirements, viz:

x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the
public. It received certain special privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the
laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered
a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how
these franchises had been employed, and whether they had been abused, and demand the production of
the corporate books and papers for that purpose. The defense amounts to this, that an officer of the
corporation which is charged with a criminal violation of the statute may plead the criminality of such
corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual
may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not
follow that a corporation vested with special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)27

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation

subject to the jurisdiction of the Securities and Exchange Commission. The respondents
are ENJOINED from investigating, examining and auditing the petitioner's fiscal and financial affairs. SO
ORDERED.

EN BANC

[G.R. NO. 152774 : May 27, 2004]

THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I.

MANDANAS, Petitioner, v. HON. ALBERTO G. ROMULO, Executive Secretary and
Chairman of the Oversight Committee on Devolution; HON. EMILIA BONCODIN,
Secretary, Department of Budget and Management; HON. JOSE D. LINA, JR.,
Secretary, Department of Interior and Local Government, Respondents.

DECISION

CALLEJO, SR., J.:

The Province of Batangas, represented by its Governor, Hermilando I. Mandanas, filed the
present Petition for Certiorari, prohibition and mandamus under Rule 65 of the Rules of
Court, as amended, to declare as unconstitutional and void certain provisos contained in the
General Appropriations Acts (GAA) of 1999, 2000 and 2001, insofar as they uniformly
earmarked for each corresponding year the amount of five billion pesos
(P5,000,000,000.00) of the Internal Revenue Allotment (IRA) for the Local Government
Service Equalization Fund (LGSEF) and imposed conditions for the release thereof.
Named as respondents are Executive Secretary Alberto G. Romulo, in his capacity as
Chairman of the Oversight Committee on Devolution, Secretary Emilia Boncodin of the
Department of Budget and Management (DBM) and Secretary Jose Lina of the Department
of Interior and Local Government (DILG).

Background

On December 7, 1998, then President Joseph Ejercito Estrada issued Executive Order (E.O.)
No. 48 entitled ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND
EQUALIZATION. The program was established to facilitate the process of enhancing the
capacities of local government units (LGUs) in the discharge of the functions and services
devolved to them by the National Government Agencies concerned pursuant to the Local
Government Code.1 The Oversight Committee (referred to as the Devolution Committee in
E.O. No. 48) constituted under Section 533(b) of Republic Act No. 7160 (The Local
Government Code of 1991) has been tasked to formulate and issue the appropriate rules
and regulations necessary for its effective implementation.2 Further, to address the funding
shortfalls of functions and services devolved to the LGUs and other funding requirements of
the program, the Devolution Adjustment and Equalization Fund was created. 3 For 1998, the
DBM was directed to set aside an amount to be determined by the Oversight Committee
based on the devolution status appraisal surveys undertaken by the DILG. 4 The initial fund
was to be sourced from the available savings of the national government for CY 1998. 5 For
1999 and the succeeding years, the corresponding amount required to sustain the program
was to be incorporated in the annual GAA.6 The Oversight Committee has been authorized
to issue the implementing rules and regulations governing the equitable allocation and
distribution of said fund to the LGUs.7 ςrνll

The LGSEF in the GAA of 1999

In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was renamed
as the LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said
appropriations law, the amount of P96,780,000,000 was allotted as the share of the LGUs in
the internal revenue taxes. Item No. 1, Special Provisions, Title XXXVI A. Internal Revenue
Allotment of Rep. Act No. 8745 contained the following
proviso:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

... PROVIDED, That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be
earmarked for the Local Government Service Equalization Fund for the funding requirements
of projects and activities arising from the full and efficient implementation of devolved
functions and services of local government units pursuant to R.A. No. 7160, otherwise
known as the Local Government Code of 1991: PROVIDED, FURTHER, That such amount
shall be released to the local government units subject to the implementing rules and
regulations, including such mechanisms and guidelines for the equitable allocations and
distribution of said fund among local government units subject to the guidelines that may be
prescribed by the Oversight Committee on Devolution as constituted pursuant to Book IV,
Title III, Section 533(b) of R.A. No. 7160.The Internal Revenue Allotment shall be released
directly by the Department of Budget and Management to the Local Government Units
concerned.

On July 28, 1999, the Oversight Committee (with then Executive Secretary Ronaldo B.
Zamora as Chairman) passed Resolution Nos. OCD-99-003, OCD-99-005 and OCD-99-006
entitled as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
OCD-99-005

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5 BILLION CY 1999 LOCAL
GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) AND REQUESTING HIS EXCELLENCY
PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE SAID ALLOCATION SCHEME.

OCD-99-006

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0 BILLION OF THE 1999
LOCAL GOVERNMENT SERVICE EQUALIZATION FUND AND ITS CONCOMITANT GENERAL
FRAMEWORK, IMPLEMENTING GUIDELINES AND MECHANICS FOR ITS IMPLEMENTATION
AND RELEASE, AS PROMULGATED BY THE OVERSIGHT COMMITTEE ON DEVOLUTION.

OCD-99-003

RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO

APPROVE THE REQUEST OF THE OVERSIGHT COMMITTEE ON DEVOLUTION TO SET ASIDE
TWENTY PERCENT (20%) OF THE LOCAL GOVERNMENT SERVICE EQUALIZATION FUND
(LGSEF) FOR LOCAL AFFIRMATIVE ACTION PROJECTS AND OTHER PRIORITY INITIATIVES
FOR LGUs INSTITUTIONAL AND CAPABILITY BUILDING IN ACCORDANCE WITH THE
IMPLEMENTING GUIDELINES AND MECHANICS AS PROMULGATED BY THE COMMITTEE.

These OCD resolutions were approved by then President Estrada on October 6, 1999.

Under the allocation scheme adopted pursuant to Resolution No. OCD-99-005, the five
billion pesos LGSEF was to be allocated as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

1.The PhP4 Billion of the LGSEF shall be allocated in accordance with the allocation scheme
and implementing guidelines and mechanics promulgated and adopted by the OCD. To
wit:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

a.The first PhP2 Billion of the LGSEF shall be allocated in accordance with the codal formula
sharing scheme as prescribed under the 1991 Local Government
Code;chanroblesvirtuallawlibrary

b.The second PhP2 Billion of the LGSEF shall be allocated in accordance with a modified
1992 cost of devolution fund (CODEF) sharing scheme, as recommended by the respective
leagues of provinces, cities and municipalities to the OCD. The modified CODEF sharing
formula is as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Province:40%

Cities:20%

Municipalities:40%

This is applied to the P2 Billion after the approved amounts granted to individual provinces,
cities and municipalities as assistance to cover decrease in 1999 IRA share due to reduction
in land area have been taken out.
2.The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative
action projects and other priority initiatives submitted by LGUs to the Oversight Committee
on Devolution for approval in accordance with its prescribed guidelines as promulgated and
adopted by the OCD.

In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos or
20% of the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This
remaining amount was intended to respond to the urgent need for additional funds
assistance, otherwise not available within the parameters of other existing fund sources. For
LGUs to be eligible for funding under the one-billion-peso portion of the LGSEF, the OCD
promulgated the following:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

III.CRITERIA FOR ELIGIBILITY:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

1.LGUs (province, city, municipality, or barangay), individually or by group or multi-LGUs or

leagues of LGUs, especially those belonging to the 5 th and 6th class, may access the fund to
support any projects or activities that satisfy any of the aforecited purposes. A barangay
may also access this fund directly or through their respective municipality or city.

2.The proposed project/activity should be need-based, a local priority, with high

development impact and are congruent with the socio-cultural, economic and development
agenda of the Estrada Administration, such as food security, poverty alleviation,
electrification, and peace and order, among others.

3.Eligible for funding under this fund are projects arising from, but not limited to, the
following areas of concern:

a.delivery of local health and sanitation services, hospital services and other tertiary
services;

b.delivery of social welfare services;

c.provision of socio-cultural services and facilities for youth and community development;

d.provision of agricultural and on-site related research;

e.improvement of community-based forestry projects and other local projects on

environment and natural resources protection and conservation;

f.improvement of tourism facilities and promotion of tourism;

g.peace and order and public safety;

h.construction, repair and maintenance of public works and infrastructure, including public
buildings and facilities for public use, especially those destroyed or damaged by man-made
or natural calamities and disaster as well as facilities for water supply, flood control and
river dikes;

i.provision of local electrification facilities;

j.livelihood and food production services, facilities and equipment;

k.other projects that may be authorized by the OCD consistent with the aforementioned
objectives and guidelines;chanroblesvirtuallawlibrary

4.Except on extremely meritorious cases, as may be determined by the Oversight

Committee on Devolution, this portion of the LGSEF shall not be used in expenditures for
personal costs or benefits under existing laws applicable to governments. Generally, this
fund shall cover the following objects of expenditures for programs, projects and activities
arising from the implementation of devolved and regular functions and services:

a.acquisition/procurement of supplies and materials critical to the full and effective

implementation of devolved programs, projects and activities;

b.repair and/or improvement of facilities;

c.repair and/or upgrading of equipment;

d.acquisition of basic equipment;

e.construction of additional or new facilities;

f.counterpart contribution to joint arrangements or collective projects among groups of

municipalities, cities and/or provinces related to devolution and delivery of basic services.

5.To be eligible for funding, an LGU or group of LGU shall submit to the Oversight
Committee on Devolution through the Department of Interior and Local Governments,
within the prescribed schedule and timeframe, a Letter Request for Funding Support from
the Affirmative Action Program under the LGSEF, duly signed by the concerned LGU(s) and
endorsed by cooperators and/or beneficiaries, as well as the duly signed Resolution of
Endorsement by the respective Sanggunian(s) of the LGUs concerned. The LGU-proponent
shall also be required to submit the Project Request (PR), using OCD Project Request Form
No. 99-02, that details the following:

(a) general description or brief of the project;

(b) objectives and justifications for undertaking the project, which should highlight the
benefits to the locality and the expected impact to the local program/project arising from
the full and efficient implementation of social services and facilities, at the local levels;

(c) target outputs or key result areas;

(d) schedule of activities and details of requirements;

(e) total cost requirement of the project;

(f) proponents counterpart funding share, if any, and identified source(s) of counterpart
funds for the full implementation of the project;

(g) requested amount of project cost to be covered by the LGSEF.

Further, under the guidelines formulated by the Oversight Committee as contained in
Attachment - Resolution No. OCD-99-003, the LGUs were required to identify the projects
eligible for funding under the one-billion-peso portion of the LGSEF and submit the project
proposals thereof and other documentary requirements to the DILG for appraisal. The
project proposals that passed the DILGs appraisal would then be submitted to the Oversight
Committee for review, evaluation and approval. Upon its approval, the Oversight Committee
would then serve notice to the DBM for the preparation of the Special Allotment Release
Order (SARO) and Notice of Cash Allocation (NCA) to effect the release of funds to the said
LGUs.

The LGSEF in the GAA of 2000

Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount
of P111,778,000,000 was allotted as the share of the LGUs in the internal revenue taxes. As
in the GAA of 1999, the GAA of 2000 contained a proviso earmarking five billion pesos of
the IRA for the LGSEF. This proviso, found in Item No. 1, Special Provisions, Title XXXVII A.
Internal Revenue Allotment, was similarly worded as that contained in the GAA of 1999.

The Oversight Committee, in its Resolution No. OCD-2000-023 dated June 22, 2000,
adopted the following allocation scheme governing the five billion pesos LGSEF for
2000:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

1.The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the four
levels of LGUs, i.e., provinces, cities, municipalities, and barangays, using the following
percentage-sharing formula agreed upon and jointly endorsed by the various Leagues of
LGUs:

For Provinces26% or P 910,000,000

For Cities23% or 805,000,000

For Municipalities35% or 1,225,000,000

For Barangays16% or 560,000,000

Provided that the respective Leagues representing the provinces, cities, municipalities and
barangays shall draw up and adopt the horizontal distribution/sharing schemes among the
member LGUs whereby the Leagues concerned may opt to adopt direct financial assistance
or project-based arrangement, such that the LGSEF allocation for individual LGU shall be
released directly to the LGU concerned;

Provided further that the individual LGSEF shares to LGUs are used in accordance with the
general purposes and guidelines promulgated by the OCD for the implementation of the
LGSEF at the local levels pursuant to Res. No. OCD-99-006 dated October 7, 1999 and
pursuant to the Leagues guidelines and mechanism as approved by the OCD;

Provided further that each of the Leagues shall submit to the OCD for its approval their
respective allocation scheme, the list of LGUs with the corresponding LGSEF shares and the
corresponding project categories if project-based;
Provided further that upon approval by the OCD, the lists of LGUs shall be endorsed to the
DBM as the basis for the preparation of the corresponding NCAs, SAROs, and related
budget/release documents.

2.The remaining P1,500,000,000 of the CY 2000 LGSEF shall be earmarked to support the
following initiatives and local affirmative action projects, to be endorsed to and approved by
the Oversight Committee on Devolution in accordance with the OCD agreements, guidelines,
procedures and documentary requirements:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

On July 5, 2000, then President Estrada issued a Memorandum authorizing then Executive
Secretary Zamora and the DBM to implement and release the 2.5 billion pesos LGSEF for
2000 in accordance with Resolution No. OCD-2000-023.

Thereafter, the Oversight Committee, now under the administration of President Gloria
Macapagal-Arroyo, promulgated Resolution No. OCD-2001-29 entitled ADOPTING
RESOLUTION NO. OCD-2000-023 IN THE ALLOCATION, IMPLEMENTATION AND RELEASE OF
THE REMAINING P2.5 BILLION LGSEF FOR CY 2000. Under this resolution, the amount of
one billion pesos of the LGSEF was to be released in accordance with paragraph 1 of
Resolution No. OCD-2000-23, to complete the 3.5 billion pesos allocated to the LGUs, while
the amount of 1.5 billion pesos was allocated for the LAAP. However, out of the latter
amount, P400,000,000 was to be allocated and released as follows: P50,000,000 as
financial assistance to the LAAPs of LGUs; P275,360,227 as financial assistance to cover the
decrease in the IRA of LGUs concerned due to reduction in land area; and P74,639,773 for
the LGSEF Capability-Building Fund.

The LGSEF in the GAA of 2001

In view of the failure of Congress to enact the general appropriations law for 2001, the GAA
of 2000 was deemed re-enacted, together with the IRA of the LGUs therein and the proviso
earmarking five billion pesos thereof for the LGSEF.

On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001

allocating the five billion pesos LGSEF for 2001 as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Modified Codal FormulaP 3.000 billion

Priority Projects 1.900 billion

Capability Building Fund .100 billion

P 5.000 billion

RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be allocated
according to the modified codal formula shall be released to the four levels of LGUs, i.e.,
provinces, cities, municipalities and barangays, as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

LGUs PercentageAmount

Provinces25P 0.750 billion

Cities25 0.750
Municipalities35 1.050

Barangays15 0.450

100P 3.000 billion

RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed
according to the following criteria:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

1.0For projects of the 4th, 5th and 6th class LGUs; or

2.0Projects in consonance with the Presidents State of the Nation Address (SONA) /summit
commitments.

RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall
be distributed in accordance with the recommendation of the Leagues of Provinces, Cities,
Municipalities and Barangays, and approved by the OCD.

Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the individual
members of the Oversight Committee seeking the reconsideration of Resolution No. OCD-
2002-001.He also wrote to Pres. Macapagal-Arroyo urging her to disapprove said resolution
as it violates the Constitution and the Local Government Code of 1991.

On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No. OCD-2002-001.

The Petitioners Case

The petitioner now comes to this Court assailing as unconstitutional and void the provisos in
the GAAs of 1999, 2000 and 2001, relating to the LGSEF. Similarly assailed are the
Oversight Committees Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-
2000-023, OCD-2001-029 and OCD-2002-001 issued pursuant thereto. The petitioner
submits that the assailed provisos in the GAAs and the OCD resolutions, insofar as they
earmarked the amount of five billion pesos of the IRA of the LGUs for 1999, 2000 and 2001
for the LGSEF and imposed conditions for the release thereof, violate the Constitution and
the Local Government Code of 1991.

Section 6, Article X of the Constitution is invoked as it mandates that the just share of the
LGUs shall be automatically released to them. Sections 18 and 286 of the Local Government
Code of 1991, which enjoin that the just share of the LGUs shall be automatically and
directly released to them without need of further action are, likewise, cited.

The petitioner posits that to subject the distribution and release of the five-billion-peso
portion of the IRA, classified as the LGSEF, to compliance by the LGUs with the
implementing rules and regulations, including the mechanisms and guidelines prescribed by
the Oversight Committee, contravenes the explicit directive of the Constitution that the
LGUs share in the national taxes shall be automatically released to them. The petitioner
maintains that the use of the word shall must be given a compulsory meaning.

To further buttress this argument, the petitioner contends that to vest the Oversight
Committee with the authority to determine the distribution and release of the LGSEF, which
is a part of the IRA of the LGUs, is an anathema to the principle of local autonomy as
embodied in the Constitution and the Local Government Code of 1991.The petitioner cites
as an example the experience in 2001 when the release of the LGSEF was long delayed
because the Oversight Committee was not able to convene that year and no guidelines were
issued therefor. Further, the possible disapproval by the Oversight Committee of the project
proposals of the LGUs would result in the diminution of the latters share in the IRA.

Another infringement alleged to be occasioned by the assailed OCD resolutions is the

improper amendment to Section 285 of the Local Government Code of 1991 on the
percentage sharing of the IRA among the LGUs. Said provision allocates the IRA as follows:
Provinces 23%; Cities 23%; Municipalities 34%; and Barangays 20%. 8 This formula has
been improperly amended or modified, with respect to the five-billion-peso portion of the
IRA allotted for the LGSEF, by the assailed OCD resolutions as they invariably provided for a
different sharing scheme.

The modifications allegedly constitute an illegal amendment by the executive branch of a

substantive law. Moreover, the petitioner mentions that in the Letter dated December 5,
2001 of respondent Executive Secretary Romulo addressed to respondent Secretary
Boncodin, the former endorsed to the latter the release of funds to certain LGUs from the
LGSEF in accordance with the handwritten instructions of President Arroyo.Thus, the LGUs
are at a loss as to how a portion of the LGSEF is actually allocated. Further, there are still
portions of the LGSEF that, to date, have not been received by the petitioner; hence,
resulting in damage and injury to the petitioner.

The petitioner prays that the Court declare as unconstitutional and void the assailed
provisos relating to the LGSEF in the GAAs of 1999, 2000 and 2001 and the assailed OCD
resolutions (Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023,
OCD-2001-029 and OCD-2002-001) issued by the Oversight Committee pursuant thereto.
The petitioner, likewise, prays that the Court direct the respondents to rectify the unlawful
and illegal distribution and releases of the LGSEF for the aforementioned years and release
the same in accordance with the sharing formula under Section 285 of the Local
Government Code of 1991. Finally, the petitioner urges the Court to declare that the entire
IRA should be released automatically without further action by the LGUs as required by the
Constitution and the Local Government Code of 1991.

The Respondents Arguments

The respondents, through the Office of the Solicitor General, urge the Court to dismiss the
petition on procedural and substantive grounds. On the latter, the respondents contend that
the assailed provisos in the GAAs of 1999, 2000 and 2001 and the assailed resolutions
issued by the Oversight Committee are not constitutionally infirm. The respondents advance
the view that Section 6, Article X of the Constitution does not specify that the just share of
the LGUs shall be determined solely by the Local Government Code of 1991. Moreover, the
phrase as determined by law in the same constitutional provision means that there exists no
limitation on the power of Congress to determine what is the just share of the LGUs in the
national taxes. In other words, Congress is the arbiter of what should be the just share of
the LGUs in the national taxes.

The respondents further theorize that Section 285 of the Local Government Code of 1991,
which provides for the percentage sharing of the IRA among the LGUs, was not intended to
be a fixed determination of their just share in the national taxes. Congress may enact other
laws, including appropriations laws such as the GAAs of 1999, 2000 and 2001, providing for
a different sharing formula. Section 285 of the Local Government Code of 1991 was merely
intended to be the default share of the LGUs to do away with the need to determine
annually by law their just share. However, the LGUs have no vested right in a permanent or
fixed percentage as Congress may increase or decrease the just share of the LGUs in
accordance with what it believes is appropriate for their operation. There is nothing in the
Constitution which prohibits Congress from making such determination through the
appropriations laws. If the provisions of a particular statute, the GAA in this case, are within
the constitutional power of the legislature to enact, they should be sustained whether the
courts agree or not in the wisdom of their enactment.

On procedural grounds, the respondents urge the Court to dismiss the petition outright as
the same is defective.The petition allegedly raises factual issues which should be properly
threshed out in the lower courts, not this Court, not being a trier of facts. Specifically, the
petitioners allegation that there are portions of the LGSEF that it has not, to date, received,
thereby causing it (the petitioner) injury and damage, is subject to proof and must be
substantiated in the proper venue, i.e., the lower courts.

Further, according to the respondents, the petition has already been rendered moot and
academic as it no longer presents a justiciable controversy. The IRAs for the years 1999,
2000 and 2001, have already been released and the government is now operating under the
2003 budget. In support of this, the respondents submitted certifications issued by officers
of the DBM attesting to the release of the allocation or shares of the petitioner in the LGSEF
for 1999, 2000 and 2001. There is, therefore, nothing more to prohibit.

Finally, the petitioner allegedly has no legal standing to bring the suit because it has not
suffered any injury.In fact, the petitioners just share has even increased. Pursuant to
Section 285 of the Local Government Code of 1991, the share of the provinces is 23%. OCD
Nos. 99-005, 99-006 and 99-003 gave the provinces 40% of P2 billion of the LGSEF.OCD
Nos. 2000-023 and 2001-029 apportioned 26% of P3.5 billion to the provinces. On the
other hand, OCD No. 2001-001 allocated 25% of P3 billion to the provinces. Thus, the
petitioner has not suffered any injury in the implementation of the assailed provisos in the
GAAs of 1999, 2000 and 2001 and the OCD resolutions.

The Ruling of the Court

Procedural Issues

Before resolving the petition on its merits, the Court shall first rule on the following
procedural issues raised by the respondents: (1) whether the petitioner has legal standing
or locus standi to file the present suit; (2) whether the petition involves factual questions
that are properly cognizable by the lower courts; and (3) whether the issue had been
rendered moot and academic.

The petitioner has locus standi

to maintain the present suit

The gist of the question of standing is whether a party has alleged such a personal stake in
the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of difficult
constitutional questions.9 Accordingly, it has been held that the interest of a party assailing
the constitutionality of a statute must be direct and personal. Such party must be able to
show, not only that the law or any government act is invalid, but also that he has sustained
or is in imminent danger of sustaining some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the
statute or act complained of.10 ςrνll

The Court holds that the petitioner possesses the requisite standing to maintain the present
suit. The petitioner, a local government unit, seeks relief in order to protect or vindicate an
interest of its own, and of the other LGUs. This interest pertains to the LGUs share in the
national taxes or the IRA. The petitioners constitutional claim is, in substance, that the
assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions contravene
Section 6, Article X of the Constitution, mandating the automatic release to the LGUs of
their share in the national taxes. Further, the injury that the petitioner claims to suffer is
the diminution of its share in the IRA, as provided under Section 285 of the Local
Government Code of 1991, occasioned by the implementation of the assailed measures.
These allegations are sufficient to grant the petitioner standing to question the validity of
the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions as the
petitioner clearly has a plain, direct and adequate interest in the manner and distribution of
the IRA among the LGUs.

The petition involves a significant

legal issue

The crux of the instant controversy is whether the assailed provisos contained in the GAAs
of 1999, 2000 and 2001, and the OCD resolutions infringe the Constitution and the Local
Government Code of 1991. This is undoubtedly a legal question. On the other hand, the
following facts are not disputed:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

1.The earmarking of five billion pesos of the IRA for the LGSEF in the assailed provisos in
the GAAs of 1999, 2000 and re-enacted budget for 2001;chanroblesvirtuallawlibrary

2.The promulgation of the assailed OCD resolutions providing for the allocation schemes
covering the said five billion pesos and the implementing rules and regulations therefor;
andcralawlibrary

3.The release of the LGSEF to the LGUs only upon their compliance with the implementing
rules and regulations, including the guidelines and mechanisms, prescribed by the Oversight
Committee.

Considering that these facts, which are necessary to resolve the legal question now before
this Court, are no longer in issue, the same need not be determined by a trial court. 11 In
any case, the rule on hierarchy of courts will not prevent this Court from assuming
jurisdiction over the petition. The said rule may be relaxed when the redress desired cannot
be obtained in the appropriate courts or where exceptional and compelling circumstances
justify availment of a remedy within and calling for the exercise of this Courts primary
jurisdiction.12 ςrνll

The crucial legal issue submitted for resolution of this Court entails the proper legal
interpretation of constitutional and statutory provisions. Moreover, the transcendental
importance of the case, as it necessarily involves the application of the constitutional
principle on local autonomy, cannot be gainsaid. The nature of the present controversy,
therefore, warrants the relaxation by this Court of procedural rules in order to resolve the
case forthwith.

The substantive issue needs to be resolved

notwithstanding the supervening events

Granting arguendo that, as contended by the respondents, the resolution of the case had
already been overtaken by supervening events as the IRA, including the LGSEF, for 1999,
2000 and 2001, had already been released and the government is now operating under a
new appropriations law, still, there is compelling reason for this Court to resolve the
substantive issue raised by the instant petition. Supervening events, whether intended or
accidental, cannot prevent the Court from rendering a decision if there is a grave violation
of the Constitution.13 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 public.14 ςrνll

Another reason justifying the resolution by this Court of the substantive issue now before it
is the rule that courts will decide a question otherwise moot and academic if it is capable of
repetition, yet evading review.15 For the GAAs in the coming years may contain provisos
similar to those now being sought to be invalidated, and yet, the question may not be
decided before another GAA is enacted. It, thus, behooves this Court to make a categorical
ruling on the substantive issue now.

Substantive Issue

As earlier intimated, the resolution of the substantive legal issue in this case calls for the
application of a most important constitutional policy and principle, that of local
autonomy.16 In Article II of the Constitution, the State has expressly adopted as a policy
that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Section 25. The State shall ensure the autonomy of local governments.

An entire article (Article X) of the Constitution has been devoted to guaranteeing and
promoting the autonomy of LGUs. Section 2 thereof reiterates the State policy in this
wise:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

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

Consistent with the principle of local autonomy, the Constitution confines the Presidents
power over the LGUs to one of general supervision.17 This provision has been interpreted to
exclude the power of control. The distinction between the two powers was enunciated
in Drilon v. Lim:18 ςrνll

An officer in control lays down the rules in the doing of an act. If they are not followed, he
may, in his discretion, order the act undone or re-done by his subordinate or he may even
decide to do it himself. Supervision does not cover such authority. The supervisor or
superintendent merely sees to it that the rules are followed, but he himself does not lay
down such rules, nor does he have the discretion to modify or replace them. If the rules are
not observed, he may order the work done or re-done but only to conform to the prescribed
rules. He may not prescribe his own manner for doing the act. He has no judgment on this
matter except to see to it that the rules are followed.19 ςrνll

The Local Government Code of 199120 was enacted to flesh out the mandate of the
Constitution.21 The State policy on local autonomy is amplified in Section 2
thereof:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Sec. 2. Declaration of Policy. (a) It is hereby declared the policy of the State that the
territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them more effective partners in the attainment of national goals. Toward this end, the
State shall provide for a more responsive and accountable local government structure
instituted through a system of decentralization whereby local government units shall be
given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the National Government to the local government units.

Guided by these precepts, the Court shall now determine whether the assailed provisos in
the GAAs of 1999, 2000 and 2001, earmarking for each corresponding year the amount of
five billion pesos of the IRA for the LGSEF and the OCD resolutions promulgated pursuant
thereto, transgress the Constitution and the Local Government Code of 1991.

The assailed provisos in the GAAs of 1999, 2000

and 2001 and the OCD resolutions violate the

constitutional precept on local autonomy

Section 6, Article X of the Constitution reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Sec. 6. Local government units shall have a just share, as determined by law, in the
national taxes which shall be automatically released to them.

When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall
have a just share in the national taxes; (2) the just share shall be determined by law; and
(3) the just share shall be automatically released to the LGUs.

The Local Government Code of 1991, among its salient provisions, underscores the
automatic release of the LGUs just share in this wise:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Sec. 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 revenue 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 further action;chanroblesvirtuallawlibrary

...
Sec. 286. Automatic Release of Shares. (a) The share of each local government unit shall be
released, without need of any further action, directly to the provincial, city, municipal or
barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the
end of each quarter, and which shall not be subject to any lien or holdback that may be
imposed by the national government for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government
units under existing laws.

Websters Third New International Dictionary defines automatic as involuntary either wholly
or to a major extent so that any activity of the will is largely negligible; of a reflex nature;
without volition; mechanical; like or suggestive of an automaton. Further, the word
automatically is defined as in an automatic manner: without thought or conscious intention.
Being automatic, thus, connotes something mechanical, spontaneous and perfunctory. As
such, the LGUs are not required to perform any act to receive the just share accruing to
them from the national coffers. As emphasized by the Local Government Code of 1991, the
just share of the LGUs shall be released to them without need of further action.Construing
Section 286 of the LGC, we held in Pimentel, Jr. v.
Aguirre ,22 viz:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the National internal revenue. This is
mandated by no less than the Constitution. The Local Government Code specifies further
that the release shall be made directly to the LGU concerned within five (5) days after every
quarter of the year and shall not be subject to any lien or holdback that may be imposed by
the national government for whatever purpose. As a rule, the term SHALL is a word of
command that must be given a compulsory meaning. The provision is,
therefore, IMPERATIVE.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10

percent of the LGUs IRA pending the assessment and evaluation by the Development
Budget Coordinating Committee of the emerging fiscal situation in the country. Such
withholding clearly contravenes the Constitution and the law. Although temporary, it is
equivalent to a holdback, which means something held back or withheld, often temporarily.
Hence, the temporary nature of the retention by the national government does not matter.
Any retention is prohibited.

In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of

national crisis, Section 4 thereof has no color of validity at all. The latter provision
effectively encroaches on the fiscal autonomy of local governments. Concededly, the
President was well-intentioned in issuing his Order to withhold the LGUs IRA, but the rule of
law requires that even the best intentions must be carried out within the parameters of the
Constitution and the law. Verily, laudable purposes must be carried out by legal
methods.23 ςrνll

The just share of the LGUs is incorporated as the IRA in the appropriations law or GAA
enacted by Congress annually. Under the assailed provisos in the GAAs of 1999, 2000 and
2001, a portion of the IRA in the amount of five billion pesos was earmarked for the LGSEF,
and these provisos imposed the condition that such amount shall be released to the local
government units subject to the implementing rules and regulations, including such
mechanisms and guidelines for the equitable allocations and distribution of said fund among
local government units subject to the guidelines that may be prescribed by the Oversight
Committee on Devolution. Pursuant thereto, the Oversight Committee, through the assailed
OCD resolutions, apportioned the five billion pesos LGSEF such
that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

For 1999

P2 billion - allocated according to Sec. 285 LGC

P2 billion - Modified Sharing Formula (Provinces 40%;chanroblesvirtuallawlibrary

Cities 20%; Municipalities 40%)

P1 billion projects (LAAP) approved by OCD.24 ςrνll

For 2000

P3.5 billion Modified Sharing Formula (Provinces 26%;chanroblesvirtuallawlibrary

Cities 23%; Municipalities 35%; Barangays 16%);

P1.5 billion projects (LAAP) approved by the OCD.25 ςrνll

For 2001

P3 billion Modified Sharing Formula (Provinces 25%;chanroblesvirtuallawlibrary

Cities 25%; Municipalities 35%; Barangays 15%)

P1.9 billion priority projects

P100 million capability building fund.26 ςrνll

Significantly, the LGSEF could not be released to the LGUs without the Oversight
Committees prior approval.Further, with respect to the portion of the LGSEF allocated for
various projects of the LGUs (P1 billion for 1999; P1.5 billion for 2000 and P2 billion for
2001), the Oversight Committee, through the assailed OCD resolutions, laid down guidelines
and mechanisms that the LGUs had to comply with before they could avail of funds from
this portion of the LGSEF. The guidelines required (a) the LGUs to identify the projects
eligible for funding based on the criteria laid down by the Oversight Committee; (b) the
LGUs to submit their project proposals to the DILG for appraisal; (c) the project proposals
that passed the appraisal of the DILG to be submitted to the Oversight Committee for
review, evaluation and approval. It was only upon approval thereof that the Oversight
Committee would direct the DBM to release the funds for the projects.

To the Courts mind, the entire process involving the distribution and release of the LGSEF is
constitutionally impermissible. The LGSEF is part of the IRA or just share of the LGUs in the
national taxes. To subject its distribution and release to the vagaries of the implementing
rules and regulations, including the guidelines and mechanisms unilaterally prescribed by
the Oversight Committee from time to time, as sanctioned by the assailed provisos in the
GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not automatic, a
flagrant violation of the constitutional and statutory mandate that the just share of the LGUs
shall be automatically released to them. The LGUs are, thus, placed at the mercy of the
Oversight Committee.

Where the law, the Constitution in this case, is clear and unambiguous, it must be taken to
mean exactly what it says, and courts have no choice but to see to it that the mandate is
obeyed.27 Moreover, as correctly posited by the petitioner, the use of the word shall
connotes a mandatory order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion.28 ςrνll

Indeed, the Oversight Committee exercising discretion, even control, over the distribution
and release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the
principle of local autonomy as embodied in the Constitution. Moreover, it finds no statutory
basis at all as the Oversight Committee was created merely to formulate the rules and
regulations for the efficient and effective implementation of the Local Government Code of
1991 to ensure compliance with the principles of local autonomy as defined under the
Constitution.29 In fact, its creation was placed under the title of Transitory Provisions,
signifying its ad hoc character. According to Senator Aquilino Q. Pimentel, the principal
author and sponsor of the bill that eventually became Rep. Act No. 7160, the Committees
work was supposed to be done a year from the approval of the Code, or on October 10,
1992.30 The Oversight Committees authority is undoubtedly limited to the implementation of
the Local Government Code of 1991, not to supplant or subvert the same. Neither can it
exercise control over the IRA, or even a portion thereof, of the LGUs.

That the automatic release of the IRA was precisely intended to guarantee and promote
local autonomy can be gleaned from the discussion below between Messrs. Jose N. Nolledo
and Regalado M. Maambong, then members of the 1986 Constitutional Commission, to
wit:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

MR. MAAMBONG. Unfortunately, under Section 198 of the Local Government Code, the
existence of subprovinces is still acknowledged by the law, but the statement of the
Gentleman on this point will have to be taken up probably by the Committee on Legislation.
A second point, Mr. Presiding Officer, is that under Article 2, Section 10 of the 1973
Constitution, we have a provision which states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The State shall guarantee and promote the autonomy of local government units, especially
the barrio, to insure their fullest development as self-reliant communities.

This provision no longer appears in the present configuration; does this mean that the
concept of giving local autonomy to local governments is no longer adopted as far as this
Article is concerned?chanroblesvirtualawlibrary

MR. NOLLEDO. No. In the report of the Committee on Preamble, National Territory, and
Declaration of Principles, that concept is included and widened upon the initiative of
Commissioner Bennagen.

MR. MAAMBONG. Thank you for that.

With regard to Section 6, sources of revenue, the creation of sources as provided by

previous law was subject to limitations as may be provided by law, but now, we are using
the term subject to such guidelines as may be fixed by law. In Section 7, mention is made
about the unique, distinct and exclusive charges and contributions, and in Section 8, we talk
about exclusivity of local taxes and the share in the national wealth. Incidentally, I was one
of the authors of this provision, and I am very thankful. Does this indicate local autonomy,
or was the wording of the law changed to give more autonomy to the local government
units?31 ςrνll

MR. NOLLEDO. Yes. In effect, those words indicate also decentralization because local
political units can collect taxes, fees and charges subject merely to guidelines, as
recommended by the league of governors and city mayors, with whom I had a dialogue for
almost two hours. They told me that limitations may be questionable in the sense that
Congress may limit and in effect deny the right later on.

MR. MAAMBONG. Also, this provision on automatic release of national tax share points to
more local autonomy. Is this the intention?chanroblesvirtualawlibrary

MR. NOLLEDO. Yes, the Commissioner is perfectly right.32 ςrνll

The concept of local autonomy was explained in Ganzon v. Court of Appeals33 in this
wise:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

As the Constitution itself declares, local autonomy means a more responsive and
accountable local government structure instituted through a system of decentralization. The
Constitution, as we observed, does nothing more than to break up the monopoly of the
national government over the affairs of local governments and as put by political adherents,
to liberate the local governments from the imperialism of Manila. Autonomy, however, is not
meant to end the relation of partnership and interdependence between the central
administration and local government units, or otherwise, to usher in a regime of
federalism.The Charter has not taken such a radical step. Local governments, under the
Constitution, are subject to regulation, however limited, and for no other purpose than
precisely, albeit paradoxically, to enhance self-government.

As we observed in one case, decentralization means devolution of national administration

but not power to the local levels. Thus:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Now, autonomy is either decentralization of administration or decentralization of power.

There is decentralization of administration when the central government delegates
administrative powers to political subdivisions in order to broaden the base of government
power and in the process to make local governments more responsive and accountable and
ensure their fullest development as self-reliant communities and make them more effective
partners in the pursuit of national development and social progress. At the same time, it
relieves the central government of the burden of managing local affairs and enables it to
concentrate on national concerns. The President exercises general supervision over them,
but only to ensure that local affairs are administered according to law. He has no control
over their acts in the sense that he can substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political power in the
[sic] favor of local governments [sic] units declared to be autonomous. In that case, the
autonomous government is free to chart its own destiny and shape its future with minimum
intervention from central authorities. According to a constitutional author, decentralization
of power amounts to self-immolation, since in that event, the autonomous government
becomes accountable not to the central authorities but to its constituency. 34 ςrνll
Local autonomy includes both administrative and fiscal autonomy. The fairly recent case
of Pimentel v. Aguirre35 is particularly instructive. The Court declared therein that local fiscal
autonomy includes the power of the LGUs to, inter alia, allocate their resources in
accordance with their own priorities:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Under existing law, local government units, in addition to having administrative autonomy in
the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that
local governments have the power to create their own sources of revenue in addition to
their equitable share in the national taxes released by the national government, as well as
the power to allocate their resources in accordance with their own priorities. It extends to
the preparation of their budgets, and local officials in turn have to work within the
constraints thereof.They are not formulated at the national level and imposed on local
governments, whether they are relevant to local needs and resources or not. .. 36 ςrνll

Further, a basic feature of local fiscal autonomy is the constitutionally

mandated automatic release of the shares of LGUs in the national internal revenue.37 ςrνll

Following this ratiocination, the Court in Pimentel struck down as unconstitutional Section 4
of Administrative Order (A.O.) No. 372 which ordered the withholding, effective January 1,
1998, of ten percent of the LGUs IRA pending the assessment and evaluation by the
Development Budget Coordinating Committee of the emerging fiscal situation.

In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD
resolutions constitute a withholding of a portion of the IRA. They put on hold the distribution
and release of the five billion pesos LGSEF and subject the same to the implementing rules
and regulations, including the guidelines and mechanisms prescribed by the Oversight
Committee from time to time. Like Section 4 of A.O. 372, the assailed provisos in the GAAs
of 1999, 2000 and 2001 and the OCD resolutions effectively encroach on the fiscal
autonomy enjoyed by the LGUs and must be struck down. They cannot, therefore, be
upheld.

The assailed provisos in the GAAs of 1999, 2000

and 2001 and the OCD resolutions cannot amend

Section 285 of the Local Government Code of 1991

Section 28438 of the Local Government Code provides that, beginning the third year of its
effectivity, the LGUs share in the national internal revenue taxes shall be 40%. This
percentage is fixed and may not be reduced except in the event the national government
incurs an unmanageable public sector deficit" and only upon compliance with stringent
requirements set forth in the same section:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Sec. 284....

Provided, That in the event that the national government incurs an unmanageable public
sector deficit, the President of the Philippines is hereby authorized, upon recommendation of
Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget
and Management, and subject to consultation with the presiding officers of both Houses of
Congress and the presidents of the liga, to make the necessary adjustments in the internal
revenue allotment of local government units but in no case shall the allotment be less than
thirty percent (30%) of the collection of the national internal revenue taxes of the third
fiscal year preceding the current fiscal year; Provided, further That in the first year of the
effectivity of this Code, the local government units shall, in addition to the thirty percent
(30%) internal revenue allotment which shall include the cost of devolved functions for
essential public services, be entitled to receive the amount equivalent to the cost of
devolved personnel services.

Thus, from the above provision, the only possible exception to the mandatory automatic
release of the LGUs IRA is if the national internal revenue collections for the current fiscal
year is less than 40 percent of the collections of the preceding third fiscal year, in which
case what should be automatically released shall be a proportionate amount of the
collections for the current fiscal year. The adjustment may even be made on a quarterly
basis depending on the actual collections of national internal revenue taxes for the quarter
of the current fiscal year. In the instant case, however, there is no allegation that the
national internal revenue tax collections for the fiscal years 1999, 2000 and 2001 have
fallen compared to the preceding three fiscal years.

Section 285 then specifies how the IRA shall be allocated among the
LGUs:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Sec. 285. Allocation to Local Government Units. The share of local government units in the
internal revenue allotment shall be allocated in the following
manner:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

(a) Provinces Twenty-three (23%)

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

(c) Municipalities Thirty-four (34%); andcralawlibrary

(d) Barangays Twenty percent (20%).

However, this percentage sharing is not followed with respect to the five billion pesos LGSEF
as the assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999,
2000 and 2001, provided for a different sharing scheme. For example, for 1999, P2 billion of
the LGSEF was allocated as follows: Provinces 40%; Cities 20%; Municipalities 40%.39 For
2000, P3.5 billion of the LGSEF was allocated in this manner: Provinces 26%; Cities 23%;
Municipalities 35%; Barangays 26%.40 For 2001, P3 billion of the LGSEF was allocated,
thus: Provinces 25%; Cities 25%; Municipalities 35%; Barangays 15%. 41 ςrνll

The respondents argue that this modification is allowed since the Constitution does not
specify that the just share of the LGUs shall only be determined by the Local Government
Code of 1991.That it is within the power of Congress to enact other laws, including the
GAAs, to increase or decrease the just share of the LGUs. This contention is untenable. The
Local Government Code of 1991 is a substantive law. And while it is conceded that Congress
may amend any of the provisions therein, it may not do so through appropriations laws or
GAAs. Any amendment to the Local Government Code of 1991 should be done in a separate
law, not in the appropriations law, because Congress cannot include in a general
appropriation bill matters that should be more properly enacted in a separate
legislation.42 ςrνll
A general appropriations bill is a special type of legislation, whose content is limited to
specified sums of money dedicated to a specific purpose or a separate fiscal unit. 43 Any
provision therein which is intended to amend another law is considered an inappropriate
provision. The category of inappropriate provisions includes unconstitutional provisions and
provisions which are intended to amend other laws, because clearly these kinds of laws
have no place in an appropriations bill.44 ςrνll

Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein,
which are fixed in the Local Government Code of 1991, are matters of general and
substantive law.To permit Congress to undertake these amendments through the GAAs, as
the respondents contend, would be to give Congress the unbridled authority to unduly
infringe the fiscal autonomy of the LGUs, and thus put the same in jeopardy every year.
This, the Court cannot sanction.

It is relevant to point out at this juncture that, unlike those of 1999, 2000 and 2001, the
GAAs of 2002 and 2003 do not contain provisos similar to the herein assailed provisos. In
other words, the GAAs of 2002 and 2003 have not earmarked any amount of the IRA for the
LGSEF. Congress had perhaps seen fit to discontinue the practice as it recognizes its
infirmity. Nonetheless, as earlier mentioned, this Court has deemed it necessary to make a
definitive ruling on the matter in order to prevent its recurrence in future appropriations
laws and that the principles enunciated herein would serve to guide the bench, bar and
public.

Conclusion

In closing, it is well to note that the principle of local autonomy, while concededly
expounded in greater detail in the present Constitution, dates back to the turn of the
century when President William McKinley, in his Instructions to the Second Philippine
Commission dated April 7, 1900, ordered the new Government to devote their attention in
the first instance to the establishment of municipal governments in which the natives of the
Islands, both in the cities and in the rural communities, shall be afforded the opportunity to
manage their own affairs to the fullest extent of which they are capable, and subject to the
least degree of supervision and control in which a careful study of their capacities and
observation of the workings of native control show to be consistent with the maintenance of
law, order and loyalty.45 While the 1935 Constitution had no specific article on local
autonomy, nonetheless, it limited the executive power over local governments to general
supervision. .. as may be provided by law.46 Subsequently, the 1973 Constitution explicitly
stated that [t]he State shall guarantee and promote the autonomy of local government
units, especially the barangay to ensure their fullest development as self-reliant
communities.47 An entire article on Local Government was incorporated therein. The present
Constitution, as earlier opined, has broadened the principle of local autonomy. The 14
sections in Article X thereof markedly increased the powers of the local governments in
order to accomplish the goal of a more meaningful local autonomy.

Indeed, the value of local governments as institutions of democracy is measured by the

degree of autonomy that they enjoy.48 As eloquently put by M. De Tocqueville, a
distinguished French political writer, [l]ocal assemblies of citizens constitute the strength of
free nations. Township meetings are to liberty what primary schools are to science; they
bring it within the peoples reach; they teach men how to use and enjoy it. A nation may
establish a system of free governments but without the spirit of municipal institutions, it
cannot have the spirit of liberty.49 ςrνll
Our national officials should not only comply with the constitutional provisions on local
autonomy but should also appreciate the spirit and liberty upon which these provisions are
based.50 ςrνll

WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations
Acts of 1999, 2000 and 2001, and the assailed OCD Resolutions, are declared
UNCONSTITUTIONAL.

SO ORDERED.
 EN BANC

[G.R. NO. 138810 : September 29, 2004]

BATANGAS CATV, INC., Petitioner, v. THE COURT OF APPEALS, THE BATANGAS CITY
SANGGUNIANG PANLUNGSOD and BATANGAS CITY MAYOR, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

In the late 1940s, John Walson, an appliance dealer in Pennsylvania, suffered a decline in
the sale of television (tv) sets because of poor reception of signals in his community.
Troubled, he built an antenna on top of a nearby mountain. Using coaxial cable lines, he
distributed the tv signals from the antenna to the homes of his customers. Walson's
innovative idea improved his sales and at the same time gave birth to a new
telecommunication system - - the Community Antenna Television (CATV) or Cable
Television.1

This technological breakthrough found its way in our shores and, like in its country of origin,
it spawned legal controversies, especially in the field of regulation. The case at bar is just
another occasion to clarify a shady area. Here, we are tasked to resolve the inquiry - - may
a local government unit (LGU) regulate the subscriber rates charged by CATV operators
within its territorial jurisdiction?chanroblesvirtualawlibrary

This is a Petition for Review on Certiorari filed by Batangas CATV, Inc. (petitioner herein)
against the Sangguniang Panlungsod and the Mayor of Batangas City (respondents herein)
assailing the Court of Appeals (1) Decision2 dated February 12, 1999
and (2) Resolution3 dated May 26, 1999, in CA-G.R. CV No. 52361.4 The Appellate Court
reversed and set aside the Judgment 5 dated October 29, 1995 of the Regional Trial Court
(RTC), Branch 7, Batangas City in Civil Case No. 4254,6 holding that neither of the
respondents has the power to fix the subscriber rates of CATV operators, such being outside
the scope of the LGU's power.

The antecedent facts are as follows:

On July 28, 1986, respondent Sangguniang Panlungsod enacted Resolution No.

2107 granting petitioner a permit to construct, install, and operate a CATV system in
Batangas City. Section 8 of the Resolution provides that petitioner is authorized to charge
its subscribers the maximum rates specified therein, "provided, however, that any increase
of rates shall be subject to the approval of the Sangguniang Panlungsod."8

Sometime in November 1993, petitioner increased its subscriber rates from P88.00
to P180.00 per month. As a result, respondent Mayor wrote petitioner a letter9 threatening
to cancel its permit unless it secures the approval of respondent Sangguniang Panlungsod,
pursuant to Resolution No. 210.

Petitioner then filed with the RTC, Branch 7, Batangas City, a petition for injunction
docketed as Civil Case No. 4254. It alleged that respondent Sangguniang Panlungsod has no
authority to regulate the subscriber rates charged by CATV operators because under
Executive Order No. 205, the National Telecommunications Commission (NTC) has the sole
authority to regulate the CATV operation in the Philippines.

On October 29, 1995, the trial court decided in favor of petitioner, thus:

"WHEREFORE, as prayed for, the defendants, their representatives, agents, deputies or

other persons acting on their behalf or under their instructions, are hereby enjoined from
canceling plaintiff's permit to operate a Cable Antenna Television (CATV) system
in the City of Batangas or its environs or in any manner, from interfering with the
authority and power of the National Telecommunications Commission to grant
franchises to operate CATV systems to qualified applicants, and the right of
plaintiff in fixing its service rates which needs no prior approval of
the Sangguniang Panlungsod of Batangas City.

The counterclaim of the plaintiff is hereby dismissed. No pronouncement as to costs.

IT IS SO ORDERED."10

The trial court held that the enactment of Resolution No. 210 by respondent violates the
State's deregulation policy as set forth by then NTC Commissioner Jose Luis A. Alcuaz in his
Memorandum dated August 25, 1989. Also, it pointed out that the sole agency of the
government which can regulate CATV operation is the NTC, and that the LGUs cannot
exercise regulatory power over it without appropriate legislation.

Unsatisfied, respondents elevated the case to the Court of Appeals, docketed as CA-G.R. CV
No. 52361.

On February 12, 1999, the Appellate Court reversed and set aside the trial court's Decision,
ratiocinating as follows:

"Although the Certificate of Authority to operate a Cable Antenna Television

(CATV) System is granted by the National Telecommunications Commission
pursuant to Executive Order No. 205, this does not preclude the Sangguniang
Panlungsod from regulating the operation of the CATV in their locality under the
powers vested upon it by Batas Pambansa Bilang 337, otherwise known as the
Local Government Code of 1983. Section 177 (now Section 457 paragraph 3 (ii) of
Republic Act 7160) provides:

'Section 177. Powers and Duties - The Sangguniang Panlungsod shall:

a) Enact such ordinances as may be necessary to carry into effect and discharge the
responsibilities conferred upon it by law, and such as shall be necessary and proper to
provide for health and safety, comfort and convenience, maintain peace and order, improve
the morals, and promote the prosperity and general welfare of the community and the
inhabitants thereof, and the protection of property therein;

xxx

d) Regulate, fix the license fee for, and tax any business or profession being carried on and
exercised within the territorial jurisdiction of the city, except travel agencies, tourist guides,
tourist transports, hotels, resorts, de luxe restaurants, and tourist inns of international
standards which shall remain under the licensing and regulatory power of the Ministry of
Tourism which shall exercise such authority without infringement on the taxing and
regulatory powers of the city government;'

Under cover of the General Welfare Clause as provided in this section, Local Government
Units can perform just about any power that will benefit their constituencies. Thus, local
government units can exercise powers that are: (1) expressly granted; (2) necessarily
implied from the power that is expressly granted; (3) necessary, appropriate or incidental
for its efficient and effective governance; and (4) essential to the promotion of the general
welfare of their inhabitants. (Pimentel, The Local Government Code of 1991, p. 46)

Verily, the regulation of businesses in the locality is expressly provided in the

Local Government Code. The fixing of service rates is lawful under the General
Welfare Clause.

Resolution No. 210 granting appellee a permit to construct, install and operate a community
antenna television (CATV) system in Batangas City as quoted earlier in this decision,
authorized the grantee to impose charges which cannot be increased except upon approval
of the Sangguniang Bayan. It further provided that in case of violation by the grantee of the
terms and conditions/requirements specifically provided therein, the City shall have the
right to withdraw the franchise.

Appellee increased the service rates from EIGHTY EIGHT PESOS (P88.00) to ONE HUNDRED
EIGHTY PESOS (P180.00) (Records, p. 25) without the approval of appellant. Such act
breached Resolution No. 210 which gives appellant the right to withdraw the
permit granted to appellee."11

Petitioner filed a motion for reconsideration but was denied.12

Hence, the instant Petition for Review on Certiorari anchored on the following assignments
of error:

"I

THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE

CLAUSE of the LOCAL GOVERNMENT CODE AUTHORIZES RESPONDENT
SANGGUNIANG PANLUNGSOD TO EXERCISE THE REGULATORY FUNCTION SOLELY
LODGED WITH THE NATIONAL TELECOMMUNICATIONS COMMISSION UNDER
EXECUTIVE ORDER NO. 205, INCLUDING THE AUTHORITY TO FIX AND/OR
APPROVE THE SERVICE RATES OF CATV OPERATORS; AND

II

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION APPEALED FROM

AND DISMISSING PETITIONER'S COMPLAINT."13

Petitioner contends that while Republic Act No. 7160, the Local Government Code of 1991,
extends to the LGUs the general power to perform any act that will benefit their
constituents, nonetheless, it does not authorize them to regulate the CATV operation.
Pursuant to E.O. No. 205, only the NTC has the authority to regulate the CATV operation,
including the fixing of subscriber rates.
Respondents counter that the Appellate Court did not commit any reversible error in
rendering the assailed Decision. First, Resolution No. 210 was enacted pursuant to Section
177(c) and (d) of Batas Pambansa Bilang 337, the Local Government Code of 1983, which
authorizes LGUs to regulate businesses. The term "businesses" necessarily includes the
CATV industry. And second, Resolution No. 210 is in the nature of a contract between
petitioner and respondents, it being a grant to the former of a franchise to operate a CATV
system. To hold that E.O. No. 205 amended its terms would violate the constitutional
prohibition against impairment of contracts.14

The petition is impressed with merit.

Earlier, we posed the question - - may a local government unit (LGU) regulate the
subscriber rates charged by CATV operators within its territorial jurisdiction? A review of
pertinent laws and jurisprudence yields a negative answer.

President Ferdinand E. Marcos was the first one to place the CATV industry under the
regulatory power of the national government.15 On June 11, 1978, he issued Presidential
Decree (P.D.) No. 151216 establishing a monopoly of the industry by granting Sining
Makulay, Inc., an exclusive franchise to operate CATV system in any place within the
Philippines. Accordingly, it terminated all franchises, permits or certificates for the operation
of CATV system previously granted by local governments or by any instrumentality or
agency of the national government.17 Likewise, it prescribed the subscriber rates to be
charged by Sining Makulay, Inc. to its customers.18

On July 21, 1979, President Marcos issued Letter of Instruction (LOI) No. 894 vesting upon
the Chairman of the Board of Communications direct supervision over the operations of
Sining Makulay, Inc. Three days after, he issued E.O. No. 546 19 integrating the Board of
Communications20 and the Telecommunications Control Bureau 21 to form a single entity to
be known as the "National Telecommunications Commission." Two of its assigned functions
are:

"a. Issue Certificate of Public Convenience for the operation of communications utilities and
services, radio communications systems, wire or wireless telephone or telegraph systems,
radio and television broadcasting system and other similar public utilities;

b. Establish, prescribe and regulate areas of operation of particular operators of public

service communications; and determine and prescribe charges or rates pertinent to the
operation of such public utility facilities and services except in cases where charges or rates
are established by international bodies or associations of which the Philippines is a
participating member or by bodies recognized by the Philippine Government as the proper
arbiter of such charges or rates;"

Although Sining Makulay Inc.'s exclusive franchise had a life term of 25 years, it was cut
short by the advent of the 1986 Revolution. Upon President Corazon C. Aquino's assumption
of power, she issued E.O. No. 20522 opening the CATV industry to all citizens of the
Philippines. It mandated the NTC to grant Certificates of Authority to CATV
operators and to issue the necessary implementing rules and regulations.

On September 9, 1997, President Fidel V. Ramos issued E.O. No. 43623 prescribing policy
guidelines to govern CATV operation in the Philippines. Cast in more definitive terms, it
restated the NTC's regulatory powers over CATV operations, thus:
"SECTION 2. The regulation and supervision of the cable television industry in the
Philippines shall remain vested solely with the National Telecommunications
Commission (NTC).

SECTION 3. Only persons, associations, partnerships, corporations or cooperatives,

granted a Provisional Authority or Certificate of Authority by the Commission may install,
operate and maintain a cable television system or render cable television service within a
service area."

Clearly, it has been more than two decades now since our national government, through the
NTC, assumed regulatory power over the CATV industry. Changes in the political arena did
not alter the trend. Instead, subsequent presidential issuances further reinforced the NTC's
power. Significantly, President Marcos and President Aquino, in the exercise of their
legislative power, issued P.D. No. 1512, E.O. No. 546 and E.O. No. 205. Hence, they have
the force and effect of statutes or laws passed by Congress.24 That the regulatory power
stays with the NTC is also clear from President Ramos' E.O. No. 436 mandating that the
regulation and supervision of the CATV industry shall remain vested "solely" in the NTC.
Black's Law Dictionary defines "sole" as "without another or others."25 The logical
conclusion, therefore, is that in light of the above laws and E.O. No. 436, the NTC
exercises regulatory power over CATV operators to the exclusion of other bodies.

But, lest we be misunderstood, nothing herein should be interpreted as to strip LGUs of

their general power to prescribe regulations under the general welfare clause of the Local
Government Code. It must be emphasized that when E.O. No. 436 decrees that the
"regulatory power" shall be vested "solely" in the NTC, it pertains to the "regulatory power"
over those matters which are peculiarly within the NTC's competence, such as, the: (1)
determination of rates, (2) issuance of "certificates of authority, (3) establishment of areas
of operation, (4) examination and assessment of the legal, technical and financial
qualifications of applicant operators, (5) granting of permits for the use of frequencies, (6)
regulation of ownership and operation, (7) adjudication of issues arising from its functions,
and (8) other similar matters.26 Within these areas, the NTC reigns supreme as it possesses
the exclusive power to regulate - - a power comprising varied acts, such as "to fix,
establish, or control; to adjust by rule, method or established mode; to direct by rule or
restriction; or to subject to governing principles or laws."27

Coincidentally, respondents justify their exercise of regulatory power over petitioner's CATV
operation under the general welfare clause of the Local Government Code of 1983. The
Court of Appeals sustained their stance.

There is no dispute that respondent Sangguniang Panlungsod, like other local legislative
bodies, has been empowered to enact ordinances and approve resolutions under the general
welfare clause of B.P. Blg. 337, the Local Government Code of 1983. That it continues to
posses such power is clear under the new law, R.A. No. 7160 (the Local Government Code
of 1991). Section 16 thereof provides:

"SECTION 16. General Welfare. - Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among others, 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 same Code specifically mandates:

"SECTION 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, x x x:"

The general welfare clause is the delegation in statutory form of the police power
of the State to LGUs.28 Through this, LGUs may prescribe regulations to protect the lives,
health, and property of their constituents and maintain peace and order within their
respective territorial jurisdictions. Accordingly, we have upheld enactments providing, for
instance, the regulation of gambling,29 the occupation of rig drivers,30 the installation and
operation of pinball machines,31 the maintenance and operation of cockpits,32 the
exhumation and transfer of corpses from public burial grounds, 33 and the operation of
hotels, motels, and lodging houses34 as valid exercises by local legislatures of the police
power under the general welfare clause.

Like any other enterprise, CATV operation maybe regulated by LGUs under the general
welfare clause. This is primarily because the CATV system commits the indiscretion of
crossing public properties. (It uses public properties in order to reach subscribers.) The
physical realities of constructing CATV system - the use of public streets, rights of ways, the
founding of structures, and the parceling of large regions - allow an LGU a certain degree of
regulation over CATV operators.35 This is the same regulation that it exercises over all
private enterprises within its territory.

But, while we recognize the LGUs' power under the general welfare clause, we cannot
sustain Resolution No. 210. We are convinced that respondents strayed from the well
recognized limits of its power. The flaws in Resolution No. 210 are: (1) it violates the
mandate of existing laws and (2) it violates the State's deregulation policy over the CATV
industry.

I.

Resolution No. 210 is an enactment of an LGU acting only as agent of the national
legislature. Necessarily, its act must reflect and conform to the will of its principal. To test
its validity, we must apply the particular requisites of a valid ordinance as laid down by the
accepted principles governing municipal corporations.36

Speaking for the Court in the leading case of United States v. Abendan, 37 Justice Moreland
said: "An ordinance enacted by virtue of the general welfare clause is valid, unless it
contravenes the fundamental law of the Philippine Islands, or an Act of the Philippine
Legislature, or unless it is against public policy, or is unreasonable, oppressive, partial,
discriminating, or in derogation of common right." In De la Cruz v. Paraz,38 we laid the
general rule "that ordinances passed by virtue of the implied power found in the general
welfare clause must be reasonable, consonant with the general powers and purposes of the
corporation, and not inconsistent with the laws or policy of the State."
The apparent defect in Resolution No. 210 is that it contravenes E.O. No. 205 and E.O. No.
436 insofar as it permits respondent Sangguniang Panlungsod to usurp a power exclusively
vested in the NTC, i.e., the power to fix the subscriber rates charged by CATV operators. As
earlier discussed, the fixing of subscriber rates is definitely one of the matters within the
NTC's exclusive domain.

In this regard, it is appropriate to stress that where the state legislature has made provision
for the regulation of conduct, it has manifested its intention that the subject matter shall be
fully covered by the statute, and that a municipality, under its general powers, cannot
regulate the same conduct.39 In Keller v. State,40 it was held that: "Where there is no
express power in the charter of a municipality authorizing it to adopt ordinances regulating
certain matters which are specifically covered by a general statute, a municipal ordinance,
insofar as it attempts to regulate the subject which is completely covered by a general
statute of the legislature, may be rendered invalid. x x x Where the subject is of statewide
concern, and the legislature has appropriated the field and declared the rule, its declaration
is binding throughout the State." A reason advanced for this view is that such ordinances
are in excess of the powers granted to the municipal corporation.41

Since E.O. No. 205, a general law, mandates that the regulation of CATV operations shall be
exercised by the NTC, an LGU cannot enact an ordinance or approve a resolution in violation
of the said law.

It is a fundamental principle that municipal ordinances are inferior in status and subordinate
to the laws of the state. An ordinance in conflict with a state law of general character and
statewide application is universally held to be invalid.42 The principle is frequently expressed
in the declaration that municipal authorities, under a general grant of power, cannot adopt
ordinances which infringe the spirit of a state law or repugnant to the general policy of the
state.43 In every power to pass ordinances given to a municipality, there is an implied
restriction that the ordinances shall be consistent with the general law. 44 In the language of
Justice Isagani Cruz (ret.), this Court, in Magtajas v. Pryce Properties Corp., Inc.,45 ruled
that:

"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 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.'

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, 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."

Respondents have an ingenious retort against the above disquisition. Their theory is that
the regulatory power of the LGUs is granted by R.A. No. 7160 (the Local Government Code
of 1991), a handiwork of the national lawmaking authority. They contend that R.A. No. 7160
repealed E.O. No. 205 (issued by President Aquino). Respondents' argument espouses a bad
precedent. To say that LGUs exercise the same regulatory power over matters which are
peculiarly within the NTC's competence is to promote a scenario of LGUs and the NTC locked
in constant clash over the appropriate regulatory measure on the same subject
matter. LGUs must recognize that technical matters concerning CATV operation are
within the exclusive regulatory power of the NTC.

At any rate, we find no basis to conclude that R.A. No. 7160 repealed E.O. No. 205, either
expressly or impliedly. It is noteworthy that R.A. No. 7160 repealing clause, which
painstakingly mentions the specific laws or the parts thereof which are repealed, does not
include E.O. No. 205, thus:

"SECTION 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; Section 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."
Neither is there an indication that E.O. No. 205 was impliedly repealed by R.A. No. 7160. It
is a settled rule that implied repeals are not lightly presumed in the absence of a clear and
unmistakable showing of such intentions. In Mecano v. Commission on Audit, 46 we ruled:

"Repeal by implication proceeds on the premise that where a statute of later date clearly
reveals an intention on the part of the legislature to abrogate a prior act on the subject, that
intention must be given effect. Hence, before there can be a repeal, there must be a clear
showing on the part of the lawmaker that the intent in enacting the new law was to
abrogate the old one. The intention to repeal must be clear and manifest; otherwise, at
least, as a general rule, the later act is to be construed as a continuation of, and not a
substitute for, the first act and will continue so far as the two acts are the same from the
time of the first enactment."

As previously stated, E.O. No. 436 (issued by President Ramos) vests upon the NTC the
power to regulate the CATV operation in this country. So also Memorandum Circular No. 8-
9-95, the Implementing Rules and Regulations of R.A. No. 7925 (the "Public
Telecommunications Policy Act of the Philippines"). This shows that the NTC's regulatory
power over CATV operation is continuously recognized.

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 coordinate
branches of the government.47 On the assumption of a conflict between E.O. No. 205 and
R.A. No. 7160, the proper action is not to uphold one and annul the other but to give effect
to both by harmonizing them if possible. This recourse finds application here. Thus, we hold
that the NTC, under E.O. No. 205, has exclusive jurisdiction over matters affecting CATV
operation, including specifically the fixing of subscriber rates, but nothing herein precludes
LGUs from exercising its general power, under R.A. No. 7160, to prescribe regulations to
promote the health, morals, peace, education, good order or safety and general welfare of
their constituents. In effect, both laws become equally effective and mutually
complementary.

The grant of regulatory power to the NTC is easily understandable. CATV system is not a
mere local concern. The complexities that characterize this new technology demand that it
be regulated by a specialized agency. This is particularly true in the area of rate-fixing. Rate
fixing involves a series of technical operations.48 Consequently, on the hands of the
regulatory body lies the ample discretion in the choice of such rational processes as might
be appropriate to the solution of its highly complicated and technical problems. Considering
that the CATV industry is so technical a field, we believe that the NTC, a specialized agency,
is in a better position than the LGU, to regulate it. Notably, in United States v.
Southwestern Cable Co.,49 the US Supreme Court affirmed the Federal Communications
Commission's (FCC's) jurisdiction over CATV operation. The Court held that the FCC's
authority over cable systems assures the preservation of the local broadcast service and an
equitable distribution of broadcast services among the various regions of the country.

II.

Resolution No. 210 violated the State's deregulation policy.

Deregulation is the reduction of government regulation of business to permit freer markets

and competition.50 Oftentimes, the State, through its regulatory agencies, carries out a
policy of deregulation to attain certain objectives or to address certain problems. In the field
of telecommunications, it is recognized that many areas in the Philippines are still
"unserved" or "underserved." Thus, to encourage private sectors to venture in this field and
be partners of the government in stimulating the growth and development of
telecommunications, the State promoted the policy of deregulation.

In the United States, the country where CATV originated, the Congress observed, when it
adopted the Telecommunications Act of 1996, that there was a need to provide a pro-
competitive, deregulatory national policy framework designed to accelerate rapidly private
sector deployment of advanced telecommunications and information technologies and
services to all Americans by opening all telecommunications markets to competition. The
FCC has adopted regulations to implement the requirements of the 1996 Act and the intent
of the Congress.

Our country follows the same policy. The fifth Whereas Clause of E.O. No. 436 states:

"WHEREAS, professionalism and self-regulation among existing operators, through a

nationally recognized cable television operator's association, have enhanced the growth of
the cable television industry and must therefore be maintained along with minimal
reasonable government regulations;"

This policy reaffirms the NTC's mandate set forth in the Memorandum dated August 25,
1989 of Commissioner Jose Luis A. Alcuaz, to wit:

"In line with the purpose and objective of MC 4-08-88, Cable Television System or
Community Antenna Television (CATV) is made part of the broadcast media to promote the
orderly growth of the Cable Television Industry it being in its developing stage. Being part of
the Broadcast Media, the service rates of CATV are likewise considered deregulated in
accordance with MC 06-2-81 dated 25 February 1981, the implementing guidelines for the
authorization and operation of Radio and Television Broadcasting stations/systems.

Further, the Commission will issue Provisional Authority to existing CATV operators to
authorize their operations for a period of ninety (90) days until such time that the
Commission can issue the regular Certificate of Authority."

When the State declared a policy of deregulation, the LGUs are bound to follow. To rule
otherwise is to render the State's policy ineffective. Being mere creatures of the State, LGUs
cannot defeat national policies through enactments of contrary measures. Verily, in the case
at bar, petitioner may increase its subscriber rates without respondents' approval.

At this juncture, it bears emphasizing that municipal corporations are bodies politic and
corporate, created not only as local units of local self-government, but as governmental
agencies of the state.51 The legislature, by establishing a municipal corporation, does not
divest the State of any of its sovereignty; absolve itself from its right and duty to administer
the public affairs of the entire state; or divest itself of any power over the inhabitants of the
district which it possesses before the charter was granted.52

Respondents likewise argue that E.O. No. 205 violates the constitutional prohibition against
impairment of contracts, Resolution No. 210 of Batangas City Sangguniang
Panlungsod being a grant of franchise to petitioner.

We are not convinced.

There is no law specifically authorizing the LGUs to grant franchises to operate CATV
system. Whatever authority the LGUs had before, the same had been withdrawn when
President Marcos issued P.D. No. 1512 "terminating all franchises, permits or certificates for
the operation of CATV system previously granted by local governments." Today, pursuant to
Section 3 of E.O. No. 436, "only persons, associations, partnerships, corporations or
cooperatives granted a Provisional Authority or Certificate of Authority by the NTC may
install, operate and maintain a cable television system or render cable television service
within a service area." It is clear that in the absence of constitutional or legislative
authorization, municipalities have no power to grant franchises.53 Consequently, the
protection of the constitutional provision as to impairment of the obligation of a contract
does not extend to privileges, franchises and grants given by a municipality in excess of its
powers, or ultra vires.54

One last word. The devolution of powers to the LGUs, pursuant to the Constitutional
mandate of ensuring their autonomy, has bred jurisdictional tension between said LGUs and
the State. LGUs must be reminded that they merely form part of the whole. Thus, when the
Drafters of the 1987 Constitution enunciated the policy of ensuring the autonomy of local
governments,55 it was never their intention to create an imperium in imperio and install an
intra-sovereign political subdivision independent of a single sovereign state.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals
dated February 12, 1999 as well as its Resolution dated May 26, 1999 in CA-G.R. CV No.
52461, are hereby REVERSED. The RTC Decision in Civil Case No. 4254 is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.
 EN BANC

G.R. No. 118127 April 12, 2005

CITY OF MANILA, HON. ALFREDO S. LIM as the Mayor of the City of Manila, HON. JOSELITO L.
ATIENZA, in his capacity as Vice-Mayor of the City of Manila and Presiding Officer of the City
Council of Manila, HON. ERNESTO A. NIEVA, HON. GONZALO P. GONZALES, HON. AVELINO S.
CAILIAN, HON. ROBERTO C. OCAMPO, HON. ALBERTO DOMINGO, HON. HONORIO U. LOPEZ,
HON. FRANCISCO G. VARONA, JR., HON. ROMUALDO S. MARANAN, HON. NESTOR C. PONCE,
JR., HON. HUMBERTO B. BASCO, HON. FLAVIANO F. CONCEPCION, JR., HON. ROMEO G.
RIVERA, HON. MANUEL M. ZARCAL, HON. PEDRO S. DE JESUS, HON. BERNARDITO C. ANG,
HON. MANUEL L. QUIN, HON. JHOSEP Y. LOPEZ, HON. CHIKA G. GO, HON. VICTORIANO A.
MELENDEZ, HON. ERNESTO V.P. MACEDA, JR., HON. ROLANDO P. NIETO, HON. DANILO V.
ROLEDA, HON. GERINO A. TOLENTINO, JR., HON. MA. PAZ E. HERRERA, HON. JOEY D. HIZON,
HON. FELIXBERTO D. ESPIRITU, HON. KARLO Q. BUTIONG, HON. ROGELIO P. DELA PAZ, HON.
BERNARDO D. RAGAZA, HON. MA. CORAZON R. CABALLES, HON. CASIMIRO C. SISON, HON.
BIENVINIDO M. ABANTE, JR., HON. MA. LOURDES M. ISIP, HON. ALEXANDER S. RICAFORT,
HON. ERNESTO F. RIVERA, HON. LEONARDO L. ANGAT, and HON. JOCELYN B. DAWIS, in their
capacity as councilors of the City of Manila, Petitioner,
vs.
HON. PERFECTO A.S. LAGUIO, JR., as Presiding Judge, RTC, Manila and MALATE TOURIST
DEVELOPMENT CORPORATION, Respondents.

DECISION

TINGA, J.:

I know only that what is moral is what you feel good after and what is immoral is what you feel
bad after.

Ernest Hermingway
Death in the Afternoon, Ch. 1

It is a moral and political axiom that any dishonorable act, if performed by oneself, is less immoral
than if performed by someone else, who would be well-intentioned in his dishonesty.

J. Christopher Gerald
Bonaparte in Egypt, Ch. I

The Court's commitment to the protection of morals is secondary to its fealty to the fundamental law of the
land. It is foremost a guardian of the Constitution but not the conscience of individuals. And if it need be,
the Court will not hesitate to "make the hammer fall, and heavily" in the words of Justice Laurel, and
uphold the constitutional guarantees when faced with laws that, though not lacking in zeal to promote
morality, nevertheless fail to pass the test of constitutionality.

The pivotal issue in this Petition1 under Rule 45 (then Rule 42) of the Revised Rules on Civil Procedure
seeking the reversal of the Decision2 in Civil Case No. 93-66511 of the Regional Trial Court (RTC) of
Manila, Branch 18 (lower court),3 is the validity of Ordinance No. 7783 (the Ordinance) of the City of
Manila.4

The antecedents are as follows:

Private respondent Malate Tourist Development Corporation (MTDC) is a corporation engaged in the
business of operating hotels, motels, hostels and lodging houses.5 It built and opened Victoria Court in
Malate which was licensed as a motel although duly accredited with the Department of Tourism as a
hotel.6 On 28 June 1993, MTDC filed a Petition for Declaratory Relief with Prayer for a Writ of Preliminary
Injunction and/or Temporary Restraining Order7 (RTC Petition) with the lower court impleading as
defendants, herein petitioners City of Manila, Hon. Alfredo S. Lim (Lim), Hon. Joselito L. Atienza, and the
members of the City Council of Manila (City Council). MTDC prayed that the Ordinance, insofar as it
includes motels and inns as among its prohibited establishments, be declared invalid and
unconstitutional.8

Enacted by the City Council9 on 9 March 1993 and approved by petitioner City Mayor on 30 March 1993,
the said Ordinance is entitled–

AN ORDINANCE PROHIBITING THE ESTABLISHMENT OR OPERATION OF BUSINESSES

PROVIDING CERTAIN FORMS OF AMUSEMENT, ENTERTAINMENT, SERVICES AND
FACILITIES IN THE ERMITA-MALATE AREA, PRESCRIBING PENALTIES FOR VIOLATION
THEREOF, AND FOR OTHER PURPOSES.10

The Ordinance is reproduced in full, hereunder:

SECTION 1. Any provision of existing laws and ordinances to the contrary notwithstanding, no
person, partnership, corporation or entity shall, in the Ermita-Malate area bounded by
Teodoro M. Kalaw Sr. Street in the North, Taft Avenue in the East, Vito Cruz Street in the South
and Roxas Boulevard in the West, pursuant to P.D. 499 be allowed or authorized to contract
and engage in, any business providing certain forms of amusement, entertainment,
services and facilities where women are used as tools in entertainment and which tend to
disturb the community, annoy the inhabitants, and adversely affect the social and moral
welfare of the community, such as but not limited to:

1. Sauna Parlors

2. Massage Parlors

3. Karaoke Bars

4. Beerhouses

5. Night Clubs

6. Day Clubs

7. Super Clubs

8. Discotheques

9. Cabarets

10. Dance Halls

11. Motels

12. Inns
SEC. 2 The City Mayor, the City Treasurer or any person acting in behalf of the said
officials are prohibited from issuing permits, temporary or otherwise, or from granting
licenses and accepting payments for the operation of business enumerated in the
preceding section.

SEC. 3. Owners and/or operator of establishments engaged in, or devoted to, the businesses
enumerated in Section 1 hereof are hereby given three (3) months from the date of approval
of this ordinance within which to wind up business operations or to transfer to any place
outside of the Ermita-Malate area or convert said businesses to other kinds of business
allowable within the area, such as but not limited to:

1. Curio or antique shop

2. Souvenir Shops

3. Handicrafts display centers

4. Art galleries

5. Records and music shops

6. Restaurants

7. Coffee shops

8. Flower shops

9. Music lounge and sing-along restaurants, with well-defined activities for wholesome
family entertainment that cater to both local and foreign clientele.

10. Theaters engaged in the exhibition, not only of motion pictures but also of cultural
shows, stage and theatrical plays, art exhibitions, concerts and the like.

11. Businesses allowable within the law and medium intensity districts as provided for in
the zoning ordinances for Metropolitan Manila, except new warehouse or open-storage
depot, dock or yard, motor repair shop, gasoline service station, light industry with any
machinery, or funeral establishments.

SEC. 4. Any person violating any provisions of this ordinance, shall upon conviction, be
punished by imprisonment of one (1) year or fine of FIVE THOUSAND (P5,000.00) PESOS,
or both, at the discretion of the Court, PROVIDED, that in case of juridical person, the President,
the General Manager, or person-in-charge of operation shall be liable thereof; PROVIDED
FURTHER, that in case of subsequent violation and conviction, the premises of the erring
establishment shall be closed and padlocked permanently.

SEC. 5. This ordinance shall take effect upon approval.

Enacted by the City Council of Manila at its regular session today, March 9, 1993.

Approved by His Honor, the Mayor on March 30, 1993. (Emphasis supplied)
In the RTC Petition, MTDC argued that the Ordinance erroneously and improperly included in its
enumeration of prohibited establishments, motels and inns such as MTDC's Victoria Court considering
that these were not establishments for "amusement" or "entertainment" and they were not "services or
facilities for entertainment," nor did they use women as "tools for entertainment," and neither did they
"disturb the community," "annoy the inhabitants" or "adversely affect the social and moral welfare of the
community."11

MTDC further advanced that the Ordinance was invalid and unconstitutional for the following reasons: (1)
The City Council has no power to prohibit the operation of motels as Section 458 (a) 4 (iv)12 of the Local
Government Code of 1991 (the Code) grants to the City Council only the power to regulate the
establishment, operation and maintenance of hotels, motels, inns, pension houses, lodging houses and
other similar establishments; (2) The Ordinance is void as it is violative of Presidential Decree (P.D.) No.
49913 which specifically declared portions of the Ermita-Malate area as a commercial zone with certain
restrictions; (3) The Ordinance does not constitute a proper exercise of police power as the compulsory
closure of the motel business has no reasonable relation to the legitimate municipal interests sought to be
protected; (4) The Ordinance constitutes an ex post facto law by punishing the operation of Victoria Court
which was a legitimate business prior to its enactment; (5) The Ordinance violates MTDC's constitutional
rights in that: (a) it is confiscatory and constitutes an invasion of plaintiff's property rights; (b) the City
Council has no power to find as a fact that a particular thing is a nuisance per se nor does it have the
power to extrajudicially destroy it; and (6) The Ordinance constitutes a denial of equal protection under
the law as no reasonable basis exists for prohibiting the operation of motels and inns, but not pension
houses, hotels, lodging houses or other similar establishments, and for prohibiting said business in the
Ermita-Malate area but not outside of this area.14

In their Answer15 dated 23 July 1993, petitioners City of Manila and Lim maintained that the City Council
had the power to "prohibit certain forms of entertainment in order to protect the social and moral welfare
of the community" as provided for in Section 458 (a) 4 (vii) of the Local Government
Code,16 which reads, thus:

Section 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:

....

(4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

....

(vii) Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places for
entertainment or amusement; regulate such other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the
inhabitants, or require the suspension or suppression of the same; or, prohibit certain
forms of amusement or entertainment in order to protect the social and moral welfare of
the community.

Citing Kwong Sing v. City of Manila,17 petitioners insisted that the power of regulation spoken of in the
above-quoted provision included the power to control, to govern and to restrain places of exhibition and
amusement.18
Petitioners likewise asserted that the Ordinance was enacted by the City Council of Manila to protect the
social and moral welfare of the community in conjunction with its police power as found in Article III,
Section 18(kk) of Republic Act No. 409,19 otherwise known as the Revised Charter of the City of Manila
(Revised Charter of Manila)20 which reads, thus:

ARTICLE III

THE MUNICIPAL BOARD

. . .

Section 18. Legislative powers. – The Municipal Board shall have the following legislative powers:

. . .

(kk) To enact all ordinances it may deem necessary and proper for the sanitation and safety, the
furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort,
convenience, and general welfare of the city and its inhabitants, and such others as may be
necessary to carry into effect and discharge the powers and duties conferred by this chapter; and
to fix penalties for the violation of ordinances which shall not exceed two hundred pesos fine or
six months' imprisonment, or both such fine and imprisonment, for a single offense.

Further, the petitioners noted, the Ordinance had the presumption of validity; hence, private respondent
had the burden to prove its illegality or unconstitutionality.21

Petitioners also maintained that there was no inconsistency between P.D. 499 and the Ordinance as the
latter simply disauthorized certain forms of businesses and allowed the Ermita-Malate area to remain a
commercial zone.22 The Ordinance, the petitioners likewise claimed, cannot be assailed as ex post
facto as it was prospective in operation.23 The Ordinance also did not infringe the equal protection clause
and cannot be denounced as class legislation as there existed substantial and real differences between
the Ermita-Malate area and other places in the City of Manila.24

On 28 June 1993, respondent Judge Perfecto A.S. Laguio, Jr. (Judge Laguio) issued an ex-parte
temporary restraining order against the enforcement of the Ordinance.25 And on 16 July 1993, again in an
intrepid gesture, he granted the writ of preliminary injunction prayed for by MTDC.26

After trial, on 25 November 1994, Judge Laguio rendered the assailed Decision, enjoining the petitioners
from implementing the Ordinance. The dispositive portion of said Decision reads:27

WHEREFORE, judgment is hereby rendered declaring Ordinance No. 778[3], Series of 1993, of
the City of Manila null and void, and making permanent the writ of preliminary injunction that had
been issued by this Court against the defendant. No costs.

SO ORDERED.28

Petitioners filed with the lower court a Notice of Appeal29 on 12 December 1994, manifesting that they are
elevating the case to this Court under then Rule 42 on pure questions of law.30

On 11 January 1995, petitioners filed the present Petition, alleging that the following errors were
committed by the lower court in its ruling: (1) It erred in concluding that the subject ordinance is ultra vires,
or otherwise, unfair, unreasonable and oppressive exercise of police power; (2) It erred in holding that the
questioned Ordinance contravenes P.D. 49931 which allows operators of all kinds of commercial
establishments, except those specified therein; and (3) It erred in declaring the Ordinance void and
unconstitutional.32

In the Petition and in its Memorandum,33 petitioners in essence repeat the assertions they made before
the lower court. They contend that the assailed Ordinance was enacted in the exercise of the inherent
and plenary power of the State and the general welfare clause exercised by local government units
provided for in Art. 3, Sec. 18 (kk) of the Revised Charter of Manila and conjunctively, Section 458 (a) 4
(vii) of the Code.34 They allege that the Ordinance is a valid exercise of police power; it does not
contravene P.D. 499; and that it enjoys the presumption of validity.35

In its Memorandum36 dated 27 May 1996, private respondent maintains that the Ordinance is ultra
vires and that it is void for being repugnant to the general law. It reiterates that the
questioned Ordinance is not a valid exercise of police power; that it is violative of due process,
confiscatory and amounts to an arbitrary interference with its lawful business; that it is violative of the
equal protection clause; and that it confers on petitioner City Mayor or any officer unregulated discretion
in the execution of the Ordinance absent rules to guide and control his actions.

This is an opportune time to express the Court's deep sentiment and tenderness for the Ermita-Malate
area being its home for several decades. A long-time resident, the Court witnessed the area's many turn
of events. It relished its glory days and endured its days of infamy. Much as the Court harks back to the
resplendent era of the Old Manila and yearns to restore its lost grandeur, it believes that the Ordinance is
not the fitting means to that end. The Court is of the opinion, and so holds, that the lower court did not err
in declaring the Ordinance, as it did, ultra vires and therefore null and void.

The Ordinance is so replete with constitutional infirmities that almost every sentence thereof violates a
constitutional provision. The prohibitions and sanctions therein transgress the cardinal rights of persons
enshrined by the Constitution. The Court is called upon to shelter these rights from attempts at rendering
them worthless.

The tests of a valid ordinance are well established. A long line of decisions has held that for an ordinance
to be valid, it must not only be within the corporate powers of the local government unit to enact and must
be passed according to the procedure prescribed by law, it must also conform to the following
substantive requirements: (1) must not contravene the Constitution or any statute; (2) must not be unfair
or oppressive; (3) must not be partial or discriminatory; (4) must not prohibit but may regulate trade; (5)
must be general and consistent with public policy; and (6) must not be unreasonable.37

Anent the first criterion, ordinances shall only be valid when they are not contrary to the Constitution and
to the laws.38 The Ordinance must satisfy two requirements: it must pass muster under the test of
constitutionality and the test of consistency with the prevailing laws. That ordinances should be
constitutional uphold the principle of the supremacy of the Constitution. The requirement that the
enactment must not violate existing law gives stress to the precept that local government units are able to
legislate only by virtue of their derivative legislative power, a delegation of legislative power from the
national legislature. The delegate cannot be superior to the principal or exercise powers higher than
those of the latter.39

This 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. The national
legislature is still the principal of the local government units, which cannot defy its will or modify or violate
it.40

The Ordinance was passed by the City Council in the exercise of its police power, an enactment of the
City Council acting as agent of Congress. Local government units, as agencies of the State, are endowed
with police power in order to effectively accomplish and carry out the declared objects of their
creation.41 This delegated police power is found in Section 16 of the Code, known as the general welfare
clause, viz:

SECTION 16. General Welfare.⎯Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are essential
to the promotion of the general welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other things, the preservation and enrichment
of culture, promote health and safety, enhance the right of the people to a balanced ecology,
encourage and support the development of appropriate and self-reliant scientific and
technological capabilities, improve public morals, enhance economic prosperity and social justice,
promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.

Local government units exercise police power through their respective legislative bodies; in this case,
the sangguniang panlungsod or the city council. The Code empowers the legislative bodies to "enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
province/city/municipality and its inhabitants pursuant to Section 16 of the Code and in the proper
exercise of the corporate powers of the province/city/ municipality provided under the Code.42 The inquiry
in this Petition is concerned with the validity of the exercise of such delegated power.

The Ordinance contravenes

the Constitution

The police power of the City Council, however broad and far-reaching, is subordinate to the constitutional
limitations thereon; and is subject to the limitation that its exercise must be reasonable and for the public
good.43 In the case at bar, the enactment of the Ordinance was an invalid exercise of delegated power as
it is unconstitutional and repugnant to general laws.

The relevant constitutional provisions are the following:

SEC. 5. The maintenance of peace and order, the protection of life, liberty, and property, and the
promotion of the general welfare are essential for the enjoyment by all the people of the blessings
of democracy.44

SEC. 14. The State recognizes the role of women in nation-building, and shall ensure the
fundamental equality before the law of women and men.45

SEC. 1. No person shall be deprived of life, liberty or property without due process of law, nor
shall any person be denied the equal protection of laws.46

Sec. 9. Private property shall not be taken for public use without just compensation.47

A. The Ordinance infringes

the Due Process Clause

The constitutional safeguard of due process is embodied in the fiat "(N)o person shall be deprived of life,
liberty or property without due process of law. . . ."48

There is no controlling and precise definition of due process. It furnishes though a standard to which
governmental action should conform in order that deprivation of life, liberty or property, in each
appropriate case, be valid. This standard is aptly described as a responsiveness to the supremacy of
reason, obedience to the dictates of justice,49 and as such it is a limitation upon the exercise of the police
power.50

The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and
property of individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and distributive justice; to protect
property from confiscation by legislative enactments, from seizure, forfeiture, and destruction without a
trial and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law.51

The guaranty serves as a protection against arbitrary regulation, and private corporations and
partnerships are "persons" within the scope of the guaranty insofar as their property is concerned.52

This clause has been interpreted as imposing two separate limits on government, usually called
"procedural due process" and "substantive due process."

Procedural due process, as the phrase implies, refers to the procedures that the government must follow
before it deprives a person of life, liberty, or property. Classic procedural due process issues are
concerned with what kind of notice and what form of hearing the government must provide when it takes
a particular action.53

Substantive due process, as that phrase connotes, asks whether the government has an adequate
reason for taking away a person's life, liberty, or property. In other words, substantive due process looks
to whether there is a sufficient justification for the government's action.54 Case law in the United States
(U.S.) tells us that whether there is such a justification depends very much on the level of scrutiny
used.55 For example, if a law is in an area where only rational basis review is applied, substantive due
process is met so long as the law is rationally related to a legitimate government purpose. But if it is an
area where strict scrutiny is used, such as for protecting fundamental rights, then the government will
meet substantive due process only if it can prove that the law is necessary to achieve a compelling
government purpose.56

The police power granted to local government units must always be exercised with utmost observance of
the rights of the people to due process and equal protection of the law. Such power cannot be exercised
whimsically, arbitrarily or despotically57 as its exercise is subject to a qualification, limitation or restriction
demanded by the respect and regard due to the prescription of the fundamental law, particularly those
forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to
the extent that may fairly be required by the legitimate demands of public interest or public welfare. 58 Due
process requires the intrinsic validity of the law in interfering with the rights of the person to his life, liberty
and property.59

Requisites for the valid exercise

of Police Power are not met

To successfully invoke the exercise of police power as the rationale for the enactment of
the Ordinance, and to free it from the imputation of constitutional infirmity, not only must it appear that the
interests of the public generally, as distinguished from those of a particular class, require an interference
with private rights, but the means adopted must be reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals.60 It must be evident that no other alternative for the
accomplishment of the purpose less intrusive of private rights can work. A reasonable relation must exist
between the purposes of the police measure and the means employed for its accomplishment, for even
under the guise of protecting the public interest, personal rights and those pertaining to private property
will not be permitted to be arbitrarily invaded.61
Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary
intrusion into private rights62 ⎯a violation of the due process clause.

The Ordinance was enacted to address and arrest the social ills purportedly spawned by the
establishments in the Ermita-Malate area which are allegedly operated under the deceptive veneer of
legitimate, licensed and tax-paying nightclubs, bars, karaoke bars, girlie houses, cocktail lounges, hotels
and motels. Petitioners insist that even the Court in the case of Ermita-Malate Hotel and Motel Operators
Association, Inc. v. City Mayor of Manila63 had already taken judicial notice of the "alarming increase in
the rate of prostitution, adultery and fornication in Manila traceable in great part to existence of motels,
which provide a necessary atmosphere for clandestine entry, presence and exit and thus become the
ideal haven for prostitutes and thrill-seekers."64

The object of the Ordinance was, accordingly, the promotion and protection of the social and moral
values of the community. Granting for the sake of argument that the objectives of the Ordinance are
within the scope of the City Council's police powers, the means employed for the accomplishment thereof
were unreasonable and unduly oppressive.

It is undoubtedly one of the fundamental duties of the City of Manila to make all reasonable regulations
looking to the promotion of the moral and social values of the community. However, the worthy aim of
fostering public morals and the eradication of the community's social ills can be achieved through means
less restrictive of private rights; it can be attained by reasonable restrictions rather than by an absolute
prohibition. The closing down and transfer of businesses or their conversion into businesses "allowed"
under the Ordinance have no reasonable relation to the accomplishment of its purposes. Otherwise
stated, the prohibition of the enumerated establishments will not per se protect and promote the social
and moral welfare of the community; it will not in itself eradicate the alluded social ills of prostitution,
adultery, fornication nor will it arrest the spread of sexual disease in Manila.

Conceding for the nonce that the Ermita-Malate area teems with houses of ill-repute and establishments
of the like which the City Council may lawfully prohibit,65 it is baseless and insupportable to bring within
that classification sauna parlors, massage parlors, karaoke bars, night clubs, day clubs, super clubs,
discotheques, cabarets, dance halls, motels and inns. This is not warranted under the accepted
definitions of these terms. The enumerated establishments are lawful pursuits which are not per
se offensive to the moral welfare of the community.

That these are used as arenas to consummate illicit sexual affairs and as venues to further the illegal
prostitution is of no moment. We lay stress on the acrid truth that sexual immorality, being a human frailty,
may take place in the most innocent of places that it may even take place in the substitute establishments
enumerated under Section 3 of the Ordinance. If the flawed logic of the Ordinance were to be followed, in
the remote instance that an immoral sexual act transpires in a church cloister or a court chamber, we
would behold the spectacle of the City of Manila ordering the closure of the church or court
concerned. Every house, building, park, curb, street or even vehicles for that matter will not be exempt
from the prohibition. Simply because there are no "pure" places where there are impure men. Indeed,
even the Scripture and the Tradition of Christians churches continually recall the presence
and universality of sin in man's history.66

The problem, it needs to be pointed out, is not the establishment, which by its nature cannot be said to be
injurious to the health or comfort of the community and which in itself is amoral, but the deplorable human
activity that may occur within its premises. While a motel may be used as a venue for immoral sexual
activity, it cannot for that reason alone be punished. It cannot be classified as a house of ill-repute or as a
nuisance per se on a mere likelihood or a naked assumption. If that were so and if that were allowed,
then the Ermita-Malate area would not only be purged of its supposed social ills, it would be extinguished
of its soul as well as every human activity, reprehensible or not, in its every nook and cranny would be
laid bare to the estimation of the authorities.
The Ordinance seeks to legislate morality but fails to address the core issues of morality. Try as
the Ordinance may to shape morality, it should not foster the illusion that it can make a moral man out of
it because immorality is not a thing, a building or establishment; it is in the hearts of men. The City
Council instead should regulate human conduct that occurs inside the establishments, but not to the
detriment of liberty and privacy which are covenants, premiums and blessings of democracy.

While petitioners' earnestness at curbing clearly objectionable social ills is commendable, they unwittingly
punish even the proprietors and operators of "wholesome," "innocent" establishments. In the instant case,
there is a clear invasion of personal or property rights, personal in the case of those individuals desirous
of owning, operating and patronizing those motels and property in terms of the investments made and the
salaries to be paid to those therein employed. If the City of Manila so desires to put an end to prostitution,
fornication and other social ills, it can instead impose reasonable regulations such as daily inspections of
the establishments for any violation of the conditions of their licenses or permits; it may exercise its
authority to suspend or revoke their licenses for these violations;67 and it may even impose increased
license fees. In other words, there are other means to reasonably accomplish the desired end.

Means employed are

constitutionally infirm

The Ordinance disallows the operation of sauna parlors, massage parlors, karaoke bars, beerhouses,
night clubs, day clubs, super clubs, discotheques, cabarets, dance halls, motels and inns in the Ermita-
Malate area. In Section 3 thereof, owners and/or operators of the enumerated establishments are given
three (3) months from the date of approval of the Ordinance within which "to wind up business operations
or to transfer to any place outside the Ermita-Malate area or convert said businesses to other kinds of
business allowable within the area." Further, it states in Section 4 that in cases of subsequent violations
of the provisions of the Ordinance, the "premises of the erring establishment shall be closed and
padlocked permanently."

It is readily apparent that the means employed by the Ordinance for the achievement of its purposes, the
governmental interference itself, infringes on the constitutional guarantees of a person's fundamental right
to liberty and property.

Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include "the right to exist and
the right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere freedom
from physical restraint of the person of the citizen, but is deemed to embrace the right of man to enjoy the
facilities with which he has been endowed by his Creator, subject only to such restraint as are necessary
for the common welfare."68 In accordance with this case, the rights of the citizen to be free to use his
faculties in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; and
to pursue any avocation are all deemed embraced in the concept of liberty.69

The U.S. Supreme Court in the case of Roth v. Board of Regents,70 sought to clarify the meaning of
"liberty." It said:

While the Court has not attempted to define with exactness the liberty. . . guaranteed [by the Fifth
and Fourteenth Amendments], the term denotes not merely freedom from bodily restraint but also
the right of the individual to contract, to engage in any of the common occupations of life, to
acquire useful knowledge, to marry, establish a home and bring up children, to worship God
according to the dictates of his own conscience, and generally to enjoy those privileges long
recognized…as essential to the orderly pursuit of happiness by free men. In a Constitution for a
free people, there can be no doubt that the meaning of "liberty" must be broad indeed.

In another case, it also confirmed that liberty protected by the due process clause includes personal
decisions relating to marriage, procreation, contraception, family relationships, child rearing, and
education. In explaining the respect the Constitution demands for the autonomy of the person in making
these choices, the U.S. Supreme Court explained:

These matters, involving the most intimate and personal choices a person may make in a lifetime,
choices central to personal dignity and autonomy, are central to the liberty protected by the
Fourteenth Amendment. At the heart of liberty is the right to define one's own concept of
existence, of meaning, of universe, and of the mystery of human life. Beliefs about these matters
could not define the attributes of personhood where they formed under compulsion of the State.71

Persons desirous to own, operate and patronize the enumerated establishments under Section 1 of
the Ordinance may seek autonomy for these purposes.

Motel patrons who are single and unmarried may invoke this right to autonomy to consummate their
bonds in intimate sexual conduct within the motel's premises⎯be it stressed that their consensual sexual
behavior does not contravene any fundamental state policy as contained in the Constitution.72 Adults
have a right to choose to forge such relationships with others in the confines of their own private lives and
still retain their dignity as free persons. The liberty protected by the Constitution allows persons the right
to make this choice.73 Their right to liberty under the due process clause gives them the full right to
engage in their conduct without intervention of the government, as long as they do not run afoul of the
law. Liberty should be the rule and restraint the exception.

Liberty in the constitutional sense not only means freedom from unlawful government restraint; it must
include privacy as well, if it is to be a repository of freedom. The right to be let alone is the beginning of all
freedom⎯it is the most comprehensive of rights and the right most valued by civilized men.74

The concept of liberty compels respect for the individual whose claim to privacy and interference
demands respect. As the case of Morfe v. Mutuc,75 borrowing the words of Laski, so very aptly stated:

Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation,
are indefeasible; indeed, they are so fundamental that they are the basis on which his civic
obligations are built. He cannot abandon the consequences of his isolation, which are, broadly
speaking, that his experience is private, and the will built out of that experience personal to
himself. If he surrenders his will to others, he surrenders himself. If his will is set by the will of
others, he ceases to be a master of himself. I cannot believe that a man no longer a master of
himself is in any real sense free.

Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of which should
be justified by a compelling state interest. Morfe accorded recognition to the right to privacy independently
of its identification with liberty; in itself it is fully deserving of constitutional protection. Governmental
powers should stop short of certain intrusions into the personal life of the citizen. 76

There is a great temptation to have an extended discussion on these civil liberties but the Court chooses
to exercise restraint and restrict itself to the issues presented when it should. The previous
pronouncements of the Court are not to be interpreted as a license for adults to engage in criminal
conduct. The reprehensibility of such conduct is not diminished. The Court only reaffirms and guarantees
their right to make this choice. Should they be prosecuted for their illegal conduct, they should suffer the
consequences of the choice they have made. That, ultimately, is their choice.

Modality employed is
unlawful taking

In addition, the Ordinance is unreasonable and oppressive as it substantially divests the respondent of
the beneficial use of its property.77 The Ordinance in Section 1 thereof forbids the running of the
enumerated businesses in the Ermita-Malate area and in Section 3 instructs its owners/operators to wind
up business operations or to transfer outside the area or convert said businesses into allowed
businesses. An ordinance which permanently restricts the use of property that it can not be used for any
reasonable purpose goes beyond regulation and must be recognized as a taking of the property without
just compensation.78 It is intrusive and violative of the private property rights of individuals.

The Constitution expressly provides in Article III, Section 9, that "private property shall not be taken for
public use without just compensation." The provision is the most important protection of property rights in
the Constitution. This is a restriction on the general power of the government to take property. The
constitutional provision is about ensuring that the government does not confiscate the property of some to
give it to others. In part too, it is about loss spreading. If the government takes away a person's property
to benefit society, then society should pay. The principal purpose of the guarantee is "to bar the
Government from forcing some people alone to bear public burdens which, in all fairness and justice,
should be borne by the public as a whole.79

There are two different types of taking that can be identified. A "possessory" taking occurs when the
government confiscates or physically occupies property. A "regulatory" taking occurs when the
government's regulation leaves no reasonable economically viable use of the property.80

In the landmark case of Pennsylvania Coal v. Mahon,81 it was held that a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to
support the act. While property may be regulated to a certain extent, if regulation goes too far it will be
recognized as a taking.82

No formula or rule can be devised to answer the questions of what is too far and when regulation
becomes a taking. In Mahon, Justice Holmes recognized that it was "a question of degree and therefore
cannot be disposed of by general propositions." On many other occasions as well, the U.S. Supreme
Court has said that the issue of when regulation constitutes a taking is a matter of considering the facts in
each case. The Court asks whether justice and fairness require that the economic loss caused by public
action must be compensated by the government and thus borne by the public as a whole, or whether the
loss should remain concentrated on those few persons subject to the public action.83

What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it
leaves no reasonable economically viable use of property in a manner that interferes with reasonable
expectations for use.84 A regulation that permanently denies all economically beneficial or productive use
of land is, from the owner's point of view, equivalent to a "taking" unless principles of nuisance or property
law that existed when the owner acquired the land make the use prohibitable.85 When the owner of real
property has been called upon to sacrifice all economically beneficial uses in the name of the common
good, that is, to leave his property economically idle, he has suffered a taking.86

A regulation which denies all economically beneficial or productive use of land will require compensation
under the takings clause. Where a regulation places limitations on land that fall short of eliminating all
economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors
including the regulation's economic effect on the landowner, the extent to which the regulation interferes
with reasonable investment-backed expectations and the character of government action. These inquiries
are informed by the purpose of the takings clause which is to prevent the government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a
whole.87

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the
effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct investment-
backed expectations of the owner.88
The Ordinance gives the owners and operators of the "prohibited" establishments three (3) months from
its approval within which to "wind up business operations or to transfer to any place outside of the Ermita-
Malate area or convert said businesses to other kinds of business allowable within the area." The
directive to "wind up business operations" amounts to a closure of the establishment, a permanent
deprivation of property, and is practically confiscatory. Unless the owner converts his establishment to
accommodate an "allowed" business, the structure which housed the previous business will be left empty
and gathering dust. Suppose he transfers it to another area, he will likewise leave the entire
establishment idle. Consideration must be given to the substantial amount of money invested to build the
edifices which the owner reasonably expects to be returned within a period of time. It is apparent that
the Ordinance leaves no reasonable economically viable use of property in a manner that interferes with
reasonable expectations for use.

The second and third options⎯ to transfer to any place outside of the Ermita-Malate area or to convert
into allowed businesses⎯are confiscatory as well. The penalty of permanent closure in cases of
subsequent violations found in Section 4 of the Ordinance is also equivalent to a "taking" of private
property.

The second option instructs the owners to abandon their property and build another one outside the
Ermita-Malate area. In every sense, it qualifies as a taking without just compensation with an additional
burden imposed on the owner to build another establishment solely from his coffers. The proffered
solution does not put an end to the "problem," it merely relocates it. Not only is this impractical, it is
unreasonable, onerous and oppressive. The conversion into allowed enterprises is just as ridiculous. How
may the respondent convert a motel into a restaurant or a coffee shop, art gallery or music lounge without
essentially destroying its property? This is a taking of private property without due process of law, nay,
even without compensation.

The penalty of closure likewise constitutes unlawful taking that should be compensated by the
government. The burden on the owner to convert or transfer his business, otherwise it will be closed
permanently after a subsequent violation should be borne by the public as this end benefits them as a
whole.

Petitioners cannot take refuge in classifying the measure as a zoning ordinance. A zoning ordinance,
although a valid exercise of police power, which limits a "wholesome" property to a use which can not
reasonably be made of it constitutes the taking of such property without just compensation. Private
property which is not noxious nor intended for noxious purposes may not, by zoning, be destroyed without
compensation. Such principle finds no support in the principles of justice as we know them. The police
powers of local government units which have always received broad and liberal interpretation cannot be
stretched to cover this particular taking.

Distinction should be made between destruction from necessity and eminent domain. It needs restating
that the property taken in the exercise of police power is destroyed because it is noxious or intended for a
noxious purpose while the property taken under the power of eminent domain is intended for a public use
or purpose and is therefore "wholesome."89 If it be of public benefit that a "wholesome" property remain
unused or relegated to a particular purpose, then certainly the public should bear the cost of reasonable
compensation for the condemnation of private property for public use.90

Further, the Ordinance fails to set up any standard to guide or limit the petitioners' actions. It in no way
controls or guides the discretion vested in them. It provides no definition of the establishments covered by
it and it fails to set forth the conditions when the establishments come within its ambit of prohibition.
The Ordinance confers upon the mayor arbitrary and unrestricted power to close down establishments.
Ordinances such as this, which make possible abuses in its execution, depending upon no conditions or
qualifications whatsoever other than the unregulated arbitrary will of the city authorities as the touchstone
by which its validity is to be tested, are unreasonable and invalid. The Ordinance should have established
a rule by which its impartial enforcement could be secured.91
Ordinances placing restrictions upon the lawful use of property must, in order to be valid and
constitutional, specify the rules and conditions to be observed and conduct to avoid; and must not admit
of the exercise, or of an opportunity for the exercise, of unbridled discretion by the law enforcers in
carrying out its provisions.92

Thus, in Coates v. City of Cincinnati,93 as cited in People v. Nazario,94 the U.S. Supreme Court struck
down an ordinance that had made it illegal for "three or more persons to assemble on any sidewalk and
there conduct themselves in a manner annoying to persons passing by." The ordinance was nullified as it
imposed no standard at all "because one may never know in advance what 'annoys some people but
does not annoy others.' "

Similarly, the Ordinance does not specify the standards to ascertain which establishments "tend to disturb
the community," "annoy the inhabitants," and "adversely affect the social and moral welfare of the
community." The cited case supports the nullification of the Ordinance for lack of comprehensible
standards to guide the law enforcers in carrying out its provisions.

Petitioners cannot therefore order the closure of the enumerated establishments without infringing the
due process clause. These lawful establishments may be regulated, but not prevented from carrying on
their business. This is a sweeping exercise of police power that is a result of a lack of imagination on the
part of the City Council and which amounts to an interference into personal and private rights which the
Court will not countenance. In this regard, we take a resolute stand to uphold the constitutional guarantee
of the right to liberty and property.

Worthy of note is an example derived from the U.S. of a reasonable regulation which is a far cry from the
ill-considered Ordinance enacted by the City Council.

In FW/PBS, INC. v. Dallas,95 the city of Dallas adopted a comprehensive ordinance regulating "sexually
oriented businesses," which are defined to include adult arcades, bookstores, video stores, cabarets,
motels, and theaters as well as escort agencies, nude model studio and sexual encounter centers.
Among other things, the ordinance required that such businesses be licensed. A group of motel owners
were among the three groups of businesses that filed separate suits challenging the ordinance. The motel
owners asserted that the city violated the due process clause by failing to produce adequate support for
its supposition that renting room for fewer than ten (10) hours resulted in increased crime and other
secondary effects. They likewise argued than the ten (10)-hour limitation on the rental of motel rooms
placed an unconstitutional burden on the right to freedom of association. Anent the first contention, the
U.S. Supreme Court held that the reasonableness of the legislative judgment combined with a study
which the city considered, was adequate to support the city's determination that motels permitting room
rentals for fewer than ten (10 ) hours should be included within the licensing scheme. As regards the
second point, the Court held that limiting motel room rentals to ten (10) hours will have no discernible
effect on personal bonds as those bonds that are formed from the use of a motel room for fewer than ten
(10) hours are not those that have played a critical role in the culture and traditions of the nation by
cultivating and transmitting shared ideals and beliefs.

The ordinance challenged in the above-cited case merely regulated the targeted businesses. It imposed
reasonable restrictions; hence, its validity was upheld.

The case of Ermita Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila,96 it needs
pointing out, is also different from this case in that what was involved therein was a measure which
regulated the mode in which motels may conduct business in order to put an end to practices which could
encourage vice and immorality. Necessarily, there was no valid objection on due process or equal
protection grounds as the ordinance did not prohibit motels. The Ordinance in this case however is not a
regulatory measure but is an exercise of an assumed power to prohibit.97
The foregoing premises show that the Ordinance is an unwarranted and unlawful curtailment of property
and personal rights of citizens. For being unreasonable and an undue restraint of trade, it cannot, even
under the guise of exercising police power, be upheld as valid.

B. The Ordinance violates Equal

Protection Clause

Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate against others.98 The guarantee
means that no person or class of persons shall be denied the same protection of laws which is enjoyed by
other persons or other classes in like circumstances.99 The "equal protection of the laws is a pledge of the
protection of equal laws."100 It limits governmental discrimination. The equal protection clause extends to
artificial persons but only insofar as their property is concerned.101

The Court has explained the scope of the equal protection clause in this wise:

… What does it signify? To quote from J.M. Tuason & Co. v. Land Tenure Administration: "The
ideal situation is for the law's benefits to be available to all, that none be placed outside the
sphere of its coverage. Only thus could chance and favor be excluded and the affairs of men
governed by that serene and impartial uniformity, which is of the very essence of the idea of law."
There is recognition, however, in the opinion that what in fact exists "cannot approximate the
ideal. Nor is the law susceptible to the reproach that it does not take into account the realities of
the situation. The constitutional guarantee then is not to be given a meaning that disregards what
is, what does in fact exist. To assure that the general welfare be promoted, which is the end of
law, a regulatory measure may cut into the rights to liberty and property. Those adversely
affected may under such circumstances invoke the equal protection clause only if they can show
that the governmental act assailed, far from being inspired by the attainment of the common weal
was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason." Classification is thus not ruled out, it being sufficient to quote from the Tuason decision
anew "that the laws operate equally and uniformly on all persons under similar circumstances or
that all persons must be treated in the same manner, the conditions not being different, both in
the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be given to every person
under circumstances which, if not identical, are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.102

Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the
law may operate only on some and not all of the people without violating the equal protection
clause.103 The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must
conform to the following requirements:

1) It must be based on substantial distinctions.

2) It must be germane to the purposes of the law.

3) It must not be limited to existing conditions only.

4) It must apply equally to all members of the class.104

In the Court's view, there are no substantial distinctions between motels, inns, pension houses, hotels,
lodging houses or other similar establishments. By definition, all are commercial establishments providing
lodging and usually meals and other services for the public. No reason exists for prohibiting motels and
inns but not pension houses, hotels, lodging houses or other similar establishments. The classification in
the instant case is invalid as similar subjects are not similarly treated, both as to rights conferred and
obligations imposed. It is arbitrary as it does not rest on substantial distinctions bearing a just and fair
relation to the purpose of the Ordinance.

The Court likewise cannot see the logic for prohibiting the business and operation of motels in the Ermita-
Malate area but not outside of this area. A noxious establishment does not become any less noxious if
located outside the area.

The standard "where women are used as tools for entertainment" is also discriminatory as
prostitution⎯one of the hinted ills the Ordinance aims to banish⎯is not a profession exclusive to women.
Both men and women have an equal propensity to engage in prostitution. It is not any less grave a sin
when men engage in it. And why would the assumption that there is an ongoing immoral activity apply
only when women are employed and be inapposite when men are in harness? This discrimination based
on gender violates equal protection as it is not substantially related to important government
objectives.105 Thus, the discrimination is invalid.

Failing the test of constitutionality, the Ordinance likewise failed to pass the test of consistency with
prevailing laws.

C. The Ordinance is repugnant

to general laws; it is ultra vires

The Ordinance is in contravention of the Code as the latter merely empowers local government units to
regulate, and not prohibit, the establishments enumerated in Section 1 thereof.

The power of the City Council to regulate by ordinances the establishment, operation, and maintenance
of motels, hotels and other similar establishments is found in Section 458 (a) 4 (iv), which provides that:

Section 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:

. . .

(4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

. . .

(iv) Regulate the establishment, operation and maintenance of cafes, restaurants, beerhouses,
hotels, motels, inns, pension houses, lodging houses, and other similar establishments, including
tourist guides and transports . . . .

While its power to regulate the establishment, operation and maintenance of any entertainment or
amusement facilities, and to prohibit certain forms of amusement or entertainment is provided under
Section 458 (a) 4 (vii) of the Code, which reads as follows:

Section 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:

. . .

(4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

. . .

(vii) Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places for
entertainment or amusement; regulate such other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the
inhabitants, or require the suspension or suppression of the same; or, prohibit certain
forms of amusement or entertainment in order to protect the social and moral welfare of
the community.

Clearly, with respect to cafes, restaurants, beerhouses, hotels, motels, inns, pension houses, lodging
houses, and other similar establishments, the only power of the City Council to legislate relative thereto is
to regulate them to promote the general welfare. The Code still withholds from cities the power to
suppress and prohibit altogether the establishment, operation and maintenance of such establishments. It
is well to recall the rulings of the Court in Kwong Sing v. City of Manila106 that:

The word "regulate," as used in subsection (l), section 2444 of the Administrative Code, means
and includes the power to control, to govern, and to restrain; but "regulate" should not be
construed as synonymous with "suppress" or "prohibit." Consequently, under the power to
regulate laundries, the municipal authorities could make proper police regulations as to the mode
in which the employment or business shall be exercised.107

And in People v. Esguerra,108 wherein the Court nullified an ordinance of the Municipality of Tacloban
which prohibited the selling, giving and dispensing of liquor ratiocinating that the municipality is
empowered only to regulate the same and not prohibit. The Court therein declared that:

(A)s a general rule when a municipal corporation is specifically given authority or power to
regulate or to license and regulate the liquor traffic, power to prohibit is impliedly withheld.109

These doctrines still hold contrary to petitioners' assertion110 that they were modified by the Code vesting
upon City Councils prohibitory powers.

Similarly, the City Council exercises regulatory powers over public dancing schools, public dance halls,
sauna baths, massage parlors, and other places for entertainment or amusement as found in the first
clause of Section 458 (a) 4 (vii). Its powers to regulate, suppress and suspend "such other events or
activities for amusement or entertainment, particularly those which tend to disturb the community or
annoy the inhabitants" and to "prohibit certain forms of amusement or entertainment in order to protect
the social and moral welfare of the community" are stated in the second and third clauses, respectively of
the same Section. The several powers of the City Council as provided in Section 458 (a) 4 (vii) of the
Code, it is pertinent to emphasize, are separated by semi-colons (;), the use of which indicates that the
clauses in which these powers are set forth are independent of each other albeit closely related to justify
being put together in a single enumeration or paragraph.111 These powers, therefore, should not be
confused, commingled or consolidated as to create a conglomerated and unified power of regulation,
suppression and prohibition.112
The Congress unequivocably specified the establishments and forms of amusement or entertainment
subject to regulation among which are beerhouses, hotels, motels, inns, pension houses, lodging houses,
and other similar establishments (Section 458 (a) 4 (iv)), public dancing schools, public dance halls,
sauna baths, massage parlors, and other places for entertainment or amusement (Section 458 (a) 4 (vii)).
This enumeration therefore cannot be included as among "other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the inhabitants" or "certain
forms of amusement or entertainment" which the City Council may suspend, suppress or prohibit.

The rule is that the City Council has only such powers as are expressly granted to it and those which are
necessarily implied or incidental to the exercise thereof. By reason of its limited powers and the nature
thereof, said powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the
terms used in granting said powers must be construed against the City Council.113 Moreover, it is a
general rule in statutory construction that the express mention of one person, thing, or consequence is
tantamount to an express exclusion of all others. Expressio unius est exclusio alterium. This maxim is
based upon the rules of logic and the natural workings of human mind. It is particularly applicable in the
construction of such statutes as create new rights or remedies, impose penalties or punishments, or
otherwise come under the rule of strict construction.114

The argument that the City Council is empowered to enact the Ordinance by virtue of the general welfare
clause of the Code and of Art. 3, Sec. 18 (kk) of the Revised Charter of Manila is likewise without merit.
On the first point, the ruling of the Court in People v. Esguerra,115 is instructive. It held that:

The powers conferred upon a municipal council in the general welfare clause, or section 2238 of
the Revised Administrative Code, refers to matters not covered by the other provisions of the
same Code, and therefore it can not be applied to intoxicating liquors, for the power to regulate
the selling, giving away and dispensing thereof is granted specifically by section 2242 (g) to
municipal councils. To hold that, under the general power granted by section 2238, a municipal
council may enact the ordinance in question, notwithstanding the provision of section 2242 (g),
would be to make the latter superfluous and nugatory, because the power to prohibit, includes the
power to regulate, the selling, giving away and dispensing of intoxicating liquors.

On the second point, it suffices to say that the Code being a later expression of the legislative will must
necessarily prevail and override the earlier law, the Revised Charter of Manila. Legis posteriores priores
contrarias abrogant, or later statute repeals prior ones which are repugnant thereto. As between two laws
on the same subject matter, which are irreconcilably inconsistent, that which is passed later prevails,
since it is the latest expression of legislative will.116 If there is an inconsistency or repugnance between
two statutes, both relating to the same subject matter, which cannot be removed by any fair and
reasonable method of interpretation, it is the latest expression of the legislative will which must prevail
and override the earlier.117

Implied repeals are those which take place when a subsequently enacted law contains provisions
contrary to those of an existing law but no provisions expressly repealing them. Such repeals have been
divided into two general classes: those which occur where an act is so inconsistent or irreconcilable with
an existing prior act that only one of the two can remain in force and those which occur when an act
covers the whole subject of an earlier act and is intended to be a substitute therefor. The validity of such a
repeal is sustained on the ground that the latest expression of the legislative will should prevail. 118

In addition, Section 534(f) of the Code states that "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."
Thus, submitting to petitioners' interpretation that the Revised Charter of Manila empowers the City
Council to prohibit motels, that portion of the Charter stating such must be considered repealed by the
Code as it is at variance with the latter's provisions granting the City Council mere regulatory powers.
It is well to point out that petitioners also cannot seek cover under the general welfare clause authorizing
the abatement of nuisances without judicial proceedings. That tenet applies to a nuisance per se, or one
which affects the immediate safety of persons and property and may be summarily abated under the
undefined law of necessity. It can not be said that motels are injurious to the rights of property, health or
comfort of the community. It is a legitimate business. If it be a nuisance per accidens it may be so proven
in a hearing conducted for that purpose. A motel is not per se a nuisance warranting its summary
abatement without judicial intervention.119

Notably, the City Council was conferred powers to prevent and prohibit certain activities and
establishments in another section of the Code which is reproduced as follows:

Section 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:

. . .

(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;

. . .

If it were the intention of Congress to confer upon the City Council the power to prohibit the
establishments enumerated in Section 1 of the Ordinance, it would have so declared in uncertain terms
by adding them to the list of the matters it may prohibit under the above-quoted Section.
The Ordinance now vainly attempts to lump these establishments with houses of ill-repute and expand
the City Council's powers in the second and third clauses of Section 458 (a) 4 (vii) of the Code in an effort
to overreach its prohibitory powers. It is evident that these establishments may only be regulated in their
establishment, operation and maintenance.

It is important to distinguish the punishable activities from the establishments themselves. That these
establishments are recognized legitimate enterprises can be gleaned from another Section of the Code.
Section 131 under the Title on Local Government Taxation expressly mentioned proprietors or operators
of massage clinics, sauna, Turkish and Swedish baths, hotels, motels and lodging houses as among the
"contractors" defined in paragraph (h) thereof. The same Section also defined "amusement" as a
"pleasurable diversion and entertainment," "synonymous to relaxation, avocation, pastime or fun;" and
"amusement places" to include "theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or
performances." Thus, it can be inferred that the Code considers these establishments as legitimate
enterprises and activities. It is well to recall the maxim reddendo singula singulis which means that words
in different parts of a statute must be referred to their appropriate connection, giving to each in its place,
its proper force and effect, and, if possible, rendering none of them useless or superfluous, even if strict
grammatical construction demands otherwise. Likewise, where words under consideration appear in
different sections or are widely dispersed throughout an act the same principle applies.120
Not only does the Ordinance contravene the Code, it likewise runs counter to the provisions of P.D. 499.
As correctly argued by MTDC, the statute had already converted the residential Ermita-Malate area into a
commercial area. The decree allowed the establishment and operation of all kinds of commercial
establishments except warehouse or open storage depot, dump or yard, motor repair shop, gasoline
service station, light industry with any machinery or funeral establishment. The rule is that for an
ordinance to be valid and to have force and effect, it must not only be within the powers of the council to
enact but the same must not be in conflict with or repugnant to the general law.121 As succinctly illustrated
in Solicitor General v. Metropolitan Manila Authority:122

The requirement that the enactment must not violate existing law explains itself. Local political
subdivisions are able to legislate only by virtue of a valid delegation of legislative power from the
national legislature (except only that the power to create their own sources of revenue and to levy
taxes is conferred by the Constitution itself). They are mere agents vested with what is called the
power of subordinate legislation. As delegates of the Congress, the local government units
cannot contravene but must obey at all times the will of their principal. In the case before us, the
enactment in question, which are merely local in origin cannot prevail against the decree, which
has the force and effect of a statute.123

Petitioners contend that the Ordinance enjoys the presumption of validity. While this may be the rule, it
has already been held that although the presumption is always in favor of the validity or reasonableness
of the ordinance, such presumption must nevertheless be set aside when the invalidity or
unreasonableness appears on the face of the ordinance itself or is established by proper evidence. The
exercise of police power by the local government is valid unless it contravenes the fundamental law of the
land, or an act of the legislature, or unless it is against public policy or is unreasonable, oppressive,
partial, discriminating or in derogation of a common right.124

Conclusion

All considered, the Ordinance invades fundamental personal and property rights and impairs personal
privileges. It is constitutionally infirm. The Ordinance contravenes statutes; it is discriminatory and
unreasonable in its operation; it is not sufficiently detailed and explicit that abuses may attend the
enforcement of its sanctions. And not to be forgotten, the City Council under the Code had no power to
enact the Ordinance and is therefore ultra vires, null and void.

Concededly, the challenged Ordinance was enacted with the best of motives and shares the concern of
the public for the cleansing of the Ermita-Malate area of its social sins. Police power legislation of such
character deserves the full endorsement of the judiciary ⎯we reiterate our support for it. But inspite of its
virtuous aims, the enactment of the Ordinance has no statutory or constitutional authority to stand on.
Local legislative bodies, in this case, the City Council, cannot prohibit the operation of the enumerated
establishments under Section 1 thereof or order their transfer or conversion without infringing the
constitutional guarantees of due process and equal protection of laws ⎯not even under the guise of
police power.

WHEREFORE, the Petition is hereby DENIED and the decision of the Regional Trial Court declaring
the Ordinance void is AFFIRMED. Costs against petitioners.

SO ORDERED.
 SECOND DIVISION

G.R. No. 129093 August 30, 2001

HON. JOSE D. LINA, JR., SANGGUNIANG PANLALAWIGAN OF LAGUNA, and HON. CALIXTO
CATAQUIZ, petitioners,
vs.
HON. FRANCISCO DIZON PAÑO and TONY CALVENTO, respondents.

QUISUMBING, J.:

For our resolution is a petition for review on certiorari seeking the reversal of the decision 1 dated
February 10, 1997 of the Regional Trial Court of San Pedro, Laguna, Branch 93, enjoining petitioners
from implementing or enforcing Kapasiyahan Bilang 508, Taon 1995, of the Sangguniang Panlalawigan of
Laguna and its subsequent Order 2 dated April 21, 1997 denying petitioners' motion for reconsideration.

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:

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 Paño, promulgated his decision enjoining
the petitioners from implementing or enforcing resolution or Kapasiyahan Blg. 508, T. 1995. The
dispositive portion of said decision reads:
 WHEREFORE, premises considered, defendants, their agents and representatives are hereby
enjoined from implementing or enforcing resolution or kapasiyahan blg. 508, T. 1995 of the
Sangguniang Panlalawigan ng Laguna prohibiting the operation of the lotto in the province of
Laguna.

SO ORDERED.4

Petitioners filed a motion for reconsideration which was subsequently denied in an Order dated April 21,
1997, which reads:

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:

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. 7160.7

For his part, respondent Calvento argues that the questioned resolution is, in effect, a curtailment of the
power of the state since in this case the national legislature itself had already declared lotto as legal and
permitted its operations around the country.8 As for the allegation that no prior consultations and approval
were sought from the sangguniang panlalawigan of Laguna, respondent Calvento contends this is not
mandatory since such a requirement is merely stated as a declaration of policy and not a self-executing
provision of the Local Government Code of 1991.9 He also states that his operation of the lotto system is
legal because of the authority given to him by the PCSO, which in turn had been granted a franchise to
operate the lotto by Congress.10

The Office of the Solicitor General (OSG), for the State, contends that the Provincial Government of
Laguna has no power to prohibit a form of gambling which has been authorized by the national
government.11 He argues that this is based on the principle that ordinances should not contravene
statutes as municipal governments are merely agents of the national government. The local councils
exercise only delegated legislative powers which have been conferred on them by Congress. This being
the case, these councils, as delegates, cannot be superior to the principal or exercise powers higher than
those of the latter. The OSG also adds that the question of whether gambling should be permitted is for
Congress to determine, taking into account national and local interests. Since Congress has allowed the
PCSO to operate lotteries which PCSO seeks to conduct in Laguna, pursuant to its legislative grant of
authority, the province's Sangguniang Panlalawigan cannot nullify the exercise of said authority by
preventing something already allowed by Congress.

The issues to be resolved now are the following: (1) whether Kapasiyahan Blg. 508, T. 1995 of the
Sangguniang Panlalawigan of Laguna and the denial of a mayor's permit based thereon are valid; and (2)
whether prior consultations and approval by the concerned Sanggunian are needed before a lotto system
can be operated in a given local government unit.

The entire controversy stemmed from the refusal of Mayor Cataquiz to issue a mayor's permit for the
operation of a lotto outlet in favor of private respondent. According to the mayor, he based his decision on
an existing ordinance prohibiting the operation of lotto in the province of Laguna. The ordinance,
however, merely states the "objection" of the council to the said game. It is but a mere policy statement
on the part of the local council, which is not self-executing. Nor could it serve as a valid ground to prohibit
the operation of the lotto system in the province of Laguna. Even petitioners admit as much when they
stated in their petition that:

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:

SECTION 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity Sweepstakes
Office, hereinafter designated the Office, shall be the principal government 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:

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 vs. 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.14

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 vs. 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 local government units of the power to tax
(citing Art. X, Sec. 5, Constitution), which cannot now be withdrawn by mere statute. By and
large, however, the national legislature is still the principal of the local government units, which
cannot defy its will or modify or violate it.15

Ours is still a unitary form of government, not a federal state. Being so, any form of autonomy granted to
local governments will necessarily be limited and confined within the extent allowed by the central
authority. Besides, the principle of local autonomy under the 1987 Constitution simply means
"decentralization". It does not make local governments sovereign within the state or an "imperium in
imperio".16

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:

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:

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 program that may
cause pollution, climatic change, depletion of non-renewable resources, 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.

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.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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.

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 and

imprisonment of One (1) year, for the 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 establishment, conduct and
maintenance of gambling CASINO.

Sec. 3. — This Ordinance shall take effect ten (10) days after its publication in a local
newspaper of general circulation.

Pryce assailed the ordinances before the Court of Appeals, where it was joined by PAGCOR as
intervenor and supplemental petitioner. Their challenge succeeded. On March 31, 1993, the Court of
Appeals declared the ordinances invalid and issued the writ prayed for to prohibit their
enforcement. 1 Reconsideration of this decision was denied on July 13, 1993. 2

Cagayan de Oro City and its mayor are now before us in this petition for review under Rule 45 of the
Rules of Court. 3 They aver that the respondent Court of Appeals erred in holding that:

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 powers necessary,
 appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right of
the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment among
their residents, maintain peace and order, and preserve the comfort and convenience of
their inhabitants.

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:

xxx xxx xxx

(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 under P.D. 1869, the government of Cagayan de Oro City has the authority to prohibit them
within its territory pursuant to the authority entrusted to it by the Local Government Code.

It is submitted that this interpretation is consonant with the policy of local autonomy as mandated in
Article II, Section 25, and Article X of the Constitution, as well as various other provisions therein seeking
to strengthen the character of the nation. In giving the local government units the power to prevent or
suppress gambling and other social problems, the Local Government Code has recognized the
competence of such communities to determine and adopt the measures best expected to promote the
general welfare of their inhabitants in line with the policies of the State.
The petitioners also stress that when the Code expressly authorized the local government units to prevent
and suppress gambling and other prohibited games of chance, like craps, baccarat, blackjack and
roulette, it meant all forms of gambling without distinction. Ubi lex non distinguit, nec nos distinguere
debemos. 6 Otherwise, it would have expressly excluded from the scope of their power casinos and other
forms of gambling authorized by special law, as it could have easily done. The fact that it did not do so
simply means that the local government units are permitted to prohibit all kinds of gambling within their
territories, including the operation of casinos.

The adoption of the Local Government Code, it is pointed out, had the effect of modifying the charter of
the PAGCOR. The Code is not only a later enactment than P.D. 1869 and so is deemed to prevail in case
of inconsistencies between them. More than this, the powers of the PAGCOR under the decree are
expressly discontinued by the Code insofar as they do not conform to its philosophy and provisions,
pursuant to Par. (f) of its repealing clause reading as follows:

(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.

It is also maintained that assuming there is doubt regarding the effect of the Local Government Code on
P.D. 1869, the doubt must be resolved in favor of the petitioners, in accordance with the direction in the
Code calling for its liberal interpretation in favor of the local government units. Section 5 of the Code
specifically provides:

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 give more
powers to local government units in accelerating economic development and upgrading
the quality of life for the people in the community; . . . (Emphasis supplied.)

Finally, the petitioners also attack gambling as intrinsically harmful and cite various provisions of the
Constitution and several decisions of this Court expressive of the general and official disapprobation of
the vice. They invoke the State policies on the family and the proper upbringing of the youth and, as might
be expected, call attention to the old case of U.S. v. Salaveria,7 which sustained a municipal ordinance
prohibiting the playing of panguingue. The petitioners decry the immorality of gambling. They also impugn
the wisdom of P.D. 1869 (which they describe as "a martial law instrument") in creating PAGCOR and
authorizing it to operate casinos "on land and sea within the territorial jurisdiction of the Philippines."

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. In 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.

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.

It is noteworthy that the petitioners have cited only Par. (f) of the repealing clause, conveniently
discarding the rest of the provision which painstakingly mentions the specific laws or the parts thereof
which are repealed (or modified) by the Code. Significantly, P.D. 1869 is not one of them. A reading of the
entire repealing clause, which is reproduced below, will disclose the omission:

Sec. 534. Repealing Clause. — (a) Batas Pambansa Blg. 337, otherwise known as the
"Local Government Code," Executive Order No. 112 (1987), and Executive Order No.
319 (1988) are hereby repealed.

(b) Presidential Decree Nos. 684, 1191, 1508 and such other decrees, orders,
instructions, memoranda and issuances related to or concerning the barangay are hereby
repealed.

(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding hospital
fund; Section 3, a (3) and b (2) of Republic Act. No. 5447 regarding the Special
Education Fund; Presidential Decree No. 144 as amended by Presidential Decree Nos.
559 and 1741; Presidential Decree No. 231 as amended; Presidential Decree No. 436 as
amended by Presidential Decree No. 558; and Presidential Decree Nos. 381, 436, 464,
477, 526, 632, 752, and 1136 are hereby repealed and rendered of no force and effect.

(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.

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 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.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo, Melo, Quiason, Puno, Vitug,
Kapunan and Mendoza, JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur with the majority holding that the city ordinances in question cannot modify much less repeal
PAGCOR's general authority to establish and maintain gambling casinos anywhere in the Philippines
under Presidential Decree No. 1869.

In Basco v. Philippine Amusement and Gaming Corporation (PAGCOR), 197 SCRA 52, I stated in a
separate opinion that:

. . . I agree with the decision insofar as it holds that the prohibition, control, and regulation
of the entire activity known as gambling properly pertain to "state policy". It is, therefore,
the political departments of government, namely, the legislative and the executive that
should decide on what government should do in the entire area of gambling, and
assume full responsibility to the people for such policy." (Emphasis supplied)

However, despite the legality of the opening and operation of a casino in Cagayan de Oro City by
respondent PAGCOR, I wish to reiterate my view that gambling in any form runs counter to the
government's own efforts to re-establish and resurrect the Filipino moral character which is generally
perceived to be in a state of continuing erosion.

It is in the light of this alarming perspective that I call upon government to carefully weigh the advantages
and disadvantages of setting up more gambling facilities in the country.

That the PAGCOR contributes greatly to the coffers of the government is not enough reason for setting
up more gambling casinos because, undoubtedly, this will not help improve, but will cause a further
deterioration in the Filipino moral character.

It is worth remembering in this regard that, 1) what is legal is not always moral and 2) the ends do not
always justify the means.

As in Basco, I can easily visualize prostitution at par with gambling. And yet, legalization of the former will
not render it any less reprehensible even if substantial revenue for the government can be realized from
it. The same is true of gambling.

In the present case, it is my considered view that the national government (through PAGCOR) should re-
examine and re-evaluate its decision of imposing the gambling casino on the residents of Cagayan de
Oro City; for it is abundantly clear that public opinion in the city is very much against it, and again the
question must be seriously deliberated: will the prospects of revenue to be realized from the casino
outweigh the further destruction of the Filipino sense of values?

DAVIDE, JR., J., concurring:

While I concur in part with the majority, I wish, however, to express my views on certain aspects of this
case.

I.

It must at once be noted that private respondent Pryce Properties Corporation (PRYCE) directly filed with
the Court of Appeals its so-called petition for prohibition, thereby invoking the said court's original
jurisdiction to issue writs of prohibition under Section 9(1) of B.P. Blg. 129. As I see it, however, the
principal cause of action therein is one for declaratory relief: to declare null and unconstitutional —
for, inter alia, having been enacted without or in excess of jurisdiction, for impairing the obligation of
contracts, and for being inconsistent with public policy — the challenged ordinances enacted by
the Sangguniang Panglungsod of the City of Cagayan de Oro. The intervention therein of public
respondent Philippine Amusement and Gaming Corporation (PAGCOR) further underscores the
"declaratory relief" nature of the action. PAGCOR assails the ordinances for being contrary to the non-
impairment and equal protection clauses of the Constitution, violative of the Local Government Code, and
against the State's national policy declared in P.D. No. 1869. Accordingly, the Court of Appeals does not
have jurisdiction over the nature of the action. Even assuming arguendo that the case is one
for prohibition, then, under this Court's established policy relative to the hierarchy of courts, the petition
should have been filed with the Regional Trial Court of Cagayan de Oro City. I find no special or
compelling reason why it was not filed with the said court. I do not wish to entertain the thought that
PRYCE doubted a favorable verdict therefrom, in which case the filing of the petition with the Court of
Appeals may have been impelled by tactical considerations. A dismissal of the petition by the Court of
Appeals would have been in order pursuant to our decisions in People vs. Cuaresma (172 SCRA 415,
[1989]) and Defensor-Santiago vs. Vasquez (217 SCRA 633 [1993]). In Cuaresma, this Court stated:

A last word. This court's original jurisdiction to issue writs of certiorari (as well as
prohibition, mandamus, quo warranto, habeas corpus and injunction) is not exclusive. It is
shared by this Court with Regional Trial Courts (formerly Courts of First Instance), which
may issue the writ, enforceable in any part of their respective regions. It is also shared by
this court, and by the Regional Trial Court, with the Court of Appeals (formerly,
Intermediate Appellate Court), although prior to the effectivity of Batas Pambansa Bilang
129 on August 14, 1981, the latter's competence to issue the extraordinary writs was
restricted by those "in aid of its appellate jurisdiction." This concurrence of jurisdiction is
not, however, to be taken as according to parties seeking any of the writs an absolute,
unrestrained freedom of choice of the court to which application therefor will be directed.
There is after all a hierarchy of courts. That hierarchy is determinative of the revenue of
appeals, and should also serve as a general determinant of the appropriate forum for
petitions for the extraordinary writs. A becoming regard for that judicial hierarchy most
certainly indicates that petitions for the issuance of extraordinary writs against first level
("inferior") courts should be filed with the Regional Trial Court, and those against the
latter, with the Court of Appeals. A direct invocation of the Supreme Court's original
jurisdiction to issue these writs should be allowed only when there are special and
important reasons therefor, clearly and specifically set out in the petition. This is
established policy. It is a policy that is necessary to prevent inordinate demands upon the
Court's time and attention which are better devoted to those matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Court's docket. Indeed, the
removal of the restriction of the jurisdiction of the Court of Appeals in this
regard, supra — resulting from the deletion of the qualifying phrase, "in aid of its
appellate jurisdiction" — was evidently intended precisely to relieve this Court pro tanto of
the burden of dealing with applications for extraordinary writs which, but for the
expansion of the Appellate Court's corresponding jurisdiction, would have had to be filed
with it. (citations omitted)

And in Vasquez, this Court said:

One final observation. We discern in the proceedings in this case a propensity on the part
of petitioner, and, for that matter, the same may be said of a number of litigants who
initiate recourses before us, to disregard the hierarchy of courts in our judicial system by
seeking relief directly from this Court despite the fact that the same is available in the
lower courts in the exercise of their original or concurrent jurisdiction, or is even
mandated by law to be sought therein. This practice must be stopped, not only because
of the imposition upon the previous time of this Court but also because of the inevitable
and resultant delay, intended or otherwise, in the adjudication of the case which often has
to be remanded or referred to the lower court as the proper forum under the rules of
procedure, or as better equipped to resolve the issues since this Court is not a trier of
facts. We, therefore, reiterate the judicial policy that this Court will not entertain direct
 resort to it unless the redress desired cannot be obtained in the appropriate courts or
where exceptional and compelling circumstances justify availment of a remedy within and
calling for the exercise of our primary jurisdiction.

II.

The challenged ordinances are (a) Ordinance No. 3353 entitled, "An Ordinance Prohibiting the Issuance
of Business Permit and Canceling Existing Business Permit To Any Establishment for the Using and
Allowing to be Used Its Premises or Portion Thereof for the Operation of Casino," and (b) Ordinance No.
3375-93 entitled, "An Ordinance Prohibiting the Operation of Casino and Providing Penalty for Violation
Therefor." They were enacted to implement Resolution No. 2295 entitled, "Resolution Declaring As a
Matter of Policy to Prohibit and/or Not to Allow the Establishment of the Gambling Casino in the City of
Cagayan de Oro," which was promulgated on 19 November 1990 — nearly two years before PRYCE and
PAGCOR entered into a contract of lease under which the latter leased a portion of the former's Pryce
Plaza Hotel for the operation of a gambling casino — which resolution was vigorously reiterated in
Resolution No. 2673 of 19 October 1992.

The challenged ordinances were enacted pursuant to the Sangguniang Panglungsod's express powers
conferred by Section 458, paragraph (a), subparagraphs (1)-(v), (3)-(ii), and (4)-(i), (iv), and (vii), Local
Government Code, and pursuant to its implied power under Section 16 thereof (the general welfare
clause) which reads:

Sec. 16. General Welfare. — Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are
essential to the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety, enhance the right of
the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment among
their residents, maintain peace and order, and preserve the comfort and convenience of
their inhabitants.

The issue that necessarily arises is whether in granting local governments (such as the City of Cagayan
de Oro) the above powers and functions, the Local Government Code has, pro tanto, repealed P.D. No.
1869 insofar as PAGCOR's general authority to establish and maintain gambling casinos anywhere in the
Philippines is concerned.

I join the majority in holding that the ordinances cannot repeal P.D. No. 1869.

III.

The nullification by the Court of Appeals of the challenged ordinances as unconstitutional primarily
because it is in contravention to P.D. No. 1869 is unwarranted. A contravention of a law is not necessarily
a contravention of the constitution. In any case, the ordinances can still stand even if they be conceded
as offending P.D. No. 1869. They can be reconciled, which is not impossible to do. So reconciled, the
ordinances should be construed as not applying to PAGCOR.

IV.

From the pleadings, it is obvious that the government and the people of Cagayan de Oro City are, for
obvious reasons, strongly against the opening of the gambling casino in their city. Gambling, even if
legalized, would be inimical to the general welfare of the inhabitants of the City, or of any place for that
matter. The PAGCOR, as a government-owned corporation, must consider the valid concerns of the
people of the City of Cagayan de Oro and should not impose its will upon them in an arbitrary, if not
despotic, manner.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 93252 August 5, 1991

RODOLFO T. GANZON, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, respondents.

G.R. No. 93746 August 5,1991

MARY ANN RIVERA ARTIEDA, petitioner,

vs.
HON. LUIS SANTOS, in his capacity as Secretary of the Department of Local Government,
NICANOR M. PATRICIO, in his capacity as Chief, Legal Service of the Department of Local
Government and SALVADOR CABALUNA JR., respondents.

G.R. No. 95245 August 5,1991

RODOLFO T. GANZON, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, in his capacity as the Secretary of
the Department of Local Government, respondents.

Nicolas P. Sonalan for petitioner in 93252.

Romeo A. Gerochi for petitioner in 93746.
Eugenio Original for petitioner in 95245.

SARMIENTO, J.:

The petitioners take common issue on the power of the President (acting through the Secretary of Local
Government), to suspend and/or remove local officials.

The petitioners are the Mayor of Iloilo City (G.R. Nos. 93252 and 95245) and a member of the
Sangguniang Panglunsod thereof (G.R. No. 93746), respectively.

The petitions of Mayor Ganzon originated from a series of administrative complaints, ten in number, filed
against him by various city officials sometime in 1988, on various charges, among them, abuse of
authority, oppression, grave misconduct, disgraceful and immoral conduct, intimidation, culpable violation
of the Constitution, and arbitrary detention.1 The personalities involved are Joceleehn Cabaluna, a clerk
at the city health office; Salvador Cabaluna, her husband; Dr. Felicidad Ortigoza, Assistant City Health
Officer; Mansueto Malabor, Vice-Mayor; Rolando Dabao, Dan Dalido, German Gonzales, Larry Ong, and
Eduardo Pefia Redondo members of the Sangguniang Panglunsod; and Pancho Erbite, a barangay
tanod. The complaints against the Mayor are set forth in the opinion of the respondent Court of
Appeals.2 We quote:

xxx xxx xxx

 In her verified complaint (Annex A), Mrs. Cabaluna, a clerk assigned to the City Health, Office of
Iloilo City charged that due to political reasons, having supported the rival candidate, Mrs. Rosa
0. Caram, the petitioner City Mayor, using as an excuse the exigency of the service and the
interest of the public, pulled her out from rightful office where her qualifications are best suited
and assigned her to a work that should be the function of a non-career service employee. To
make matters worse, a utility worker in the office of the Public Services, whose duties are alien to
the complainant's duties and functions, has been detailed to take her place. The petitioner's act
are pure harassments aimed at luring her away from her permanent position or force her to
resign.

In the case of Dra. Felicidad Ortigoza, she claims that the petitioner handpicked her to perform
task not befitting her position as Assistant City Health Officer of Iloilo City; that her office was
padlocked without any explanation or justification; that her salary was withheld without cause
since April 1, 1988; that when she filed her vacation leave, she was given the run-around
treatment in the approval of her leave in connivance with Dr. Rodolfo Villegas and that she was
the object of a well-engineered trumped-up charge in an administrative complaint filed by Dr.
Rodolfo Villegas (Annex B).

On the other hand, Mansuelo Malabor is the duly elected Vice-Mayor of Iloilo City and
complainants Rolando Dabao, Dan Dalido, German Gonzales, Larry Ong and Eduardo Pefia
Pedondo are members of the Sangguniang Panglunsod of the City of Iloilo. Their complaint arose
out from the case where Councilor Larry Ong, whose key to his office was unceremoniously and
without previous notice, taken by petitioner. Without an office, Councilor Ong had to hold office at
Plaza Libertad, The Vice-Mayor and the other complainants sympathized with him and decided to
do the same. However, the petitioner, together with its fully-armed security men, forcefully drove
them away from Plaza Libertad. Councilor Ong denounced the petitioner's actuations the
following day in the radio station and decided to hold office at the Freedom Grandstand at Iloilo
City and there were so many people who gathered to witness the incident. However, before the
group could reach the area, the petitioner, together with his security men, led the firemen using a
firetruck in dozing water to the people and the bystanders.

Another administrative case was filed by Pancho Erbite, a barangay tanod, appointed by former
mayor Rosa O. Caram. On March 13, 1988, without the benefit of charges filed against him and
no warrant of arrest was issued, Erbite was arrested and detained at the City Jail of Iloilo City
upon orders of petitioner. In jail, he was allegedly mauled by other detainees thereby causing
injuries He was released only the following day.3

The Mayor thereafter answered4 and the cases were shortly set for hearing. The opinion of the Court of
Appeals also set forth the succeeding events:

xxx xxx xxx

The initial hearing in the Cabaluna and Ortigoza cases were set for hearing on June 20-21, 1988
at the Regional Office of the Department of Local Government in Iloilo City. Notices, through
telegrams, were sent to the parties (Annex L) and the parties received them, including the
petitioner. The petitioner asked for a postponement before the scheduled date of hearing and was
represented by counsel, Atty. Samuel Castro. The hearing officers, Atty. Salvador Quebral and
Atty. Marino Bermudez had to come all the way from Manila for the two-day hearings but was
actually held only on June 20,1988 in view of the inability and unpreparedness of petitioner's
counsel.

The next hearings were re-set to July 25, 26, 27,1988 in the same venue-Iloilo City. Again, the
petitioner attempted to delay the proceedings and moved for a postponement under the excuse
that he had just hired his counsel. Nonetheless, the hearing officers denied the motion to
 postpone, in view of the fact that the parties were notified by telegrams of the scheduled hearings
(Annex M).

In the said hearings, petitioner's counsel cross-examined the complainants and their witnesses.

Finding probable grounds and reasons, the respondent issued a preventive suspension order on
August 11, 1988 to last until October 11,1988 for a period of sixty (60) days.

Then the next investigation was set on September 21, 1988 and the petitioner again asked for a
postponement to September 26,1988. On September 26, 1988, the complainants and petitioner
were present, together with their respective counsel. The petitioner sought for a postponement
which was denied. In these hearings which were held in Mala the petitioner testified in Adm. Case
No. C-10298 and 10299.

The investigation was continued regarding the Malabor case and the complainants testified
including their witnesses.

On October 10, 1988, petitioner's counsel, Atty. Original moved for a postponement of the
October 24, 1988 hearing to November 7 to 11, 1988 which was granted. However, the motion for
change of venue as denied due to lack of funds. At the hearing on November 7, 1988, the parties
and counsel were present. Petitioner reiterated his motion to change venue and moved for
postponement anew. The counsel discussed a proposal to take the deposition of witnesses in
Iloilo City so the hearing was indefinitely postponed. However, the parties failed to come to terms
and after the parties were notified of the hearing, the investigation was set to December 13 to 15,
1988.

The petitioner sought for another postponement on the ground that his witnesses were sick or
cannot attend the investigation due to lack of transportation. The motion was denied and the
petitioner was given up to December 14, 1988 to present his evidence.

On December 14,1988, petitioner's counsel insisted on his motion for postponement and the
hearing officers gave petitioner up to December 15, 1988 to present his evidence. On December
15, 1988, the petitioner failed to present evidence and the cases were considered submitted for
resolution.

In the meantime, a prima facie evidence was found to exist in the arbitrary detention case filed by
Pancho Erbite so the respondent ordered the petitioner's second preventive suspension dated
October 11, 1988 for another sixty (60) days. The petitioner was able to obtain a restraining order
and a writ of preliminary injunction in the Regional Trial Court, Branch 33 of Iloilo City. The
second preventive suspension was not enforced.5

Amidst the two successive suspensions, Mayor Ganzon instituted an action for prohibition against the
respondent Secretary of Local Government (now, Interior) in the Regional Trial Court, Iloilo City, where he
succeeded in obtaining a writ of preliminary injunction. Presently, he instituted CA-G.R. SP No. 16417, an
action for prohibition, in the respondent Court of Appeals.

Meanwhile, on May 3, 1990, the respondent Secretary issued another order, preventively suspending
Mayor Ganzon for another sixty days, the third time in twenty months, and designating meantime Vice-
Mayor Mansueto Malabor as acting mayor. Undaunted, Mayor Ganzon commenced CA-G.R. SP No.
20736 of the Court of Appeals, a petition for prohibition,6 (Malabor it is to be noted, is one of the
complainants, and hence, he is interested in seeing Mayor Ganzon ousted.)
On September 7, 1989, the Court of Appeals rendered judgment, dismissing CA-G.R. SP No. 16417. On
July 5, 1990, it likewise promulgated a decision, dismissing CA-G.R. SP No. 20736. In a Resolution dated
January 24, 1990, it issued a Resolution certifying the petition of Mary Ann Artieda, who had been
similary charged by the respondent Secretary, to this Court.

On June 26,1990, we issued a Temporary Restraining Order, barring the respondent Secretary from
implementing the suspension orders, and restraining the enforcement of the Court of Appeals' two
decisions.

In our Resolution of November 29, 1990, we consolidated all three cases. In our Resolutions of January
15, 1991, we gave due course thereto.

Mayor Ganzon claims as a preliminary (GR No. 93252), that the Department of Local Government in
hearing the ten cases against him, had denied him due process of law and that the respondent Secretary
had been "biased, prejudicial and hostile" towards him7 arising from his (Mayor Ganzon's) alleged refusal
to join the Laban ng Demokratikong Pilipino party8 and the running political rivalry they maintained in the
last congressional and local elections;9 and his alleged refusal to operate a lottery in Iloilo City.10 He also
alleges that he requested the Secretary to lift his suspension since it had come ninety days prior to an
election (the barangay elections of November 14, 1988),11 notwithstanding which, the latter proceeded
with the hearing and meted out two more suspension orders of the aforementioned cases.12 He likewise
contends that he sought to bring the cases to Iloilo City (they were held in Manila) in order to reduce the
costs of proceeding, but the Secretary rejected his request.13 He states that he asked for postponement
on "valid and justifiable"14 grounds, among them, that he was suffering from a heart ailment which
required confinement; that his "vital"15 witness was also hospitalized16 but that the latter unduly denied his
request.17

Mayor Ganzon's primary argument (G.R. Nos. 93252 and 95245) is that the Secretary of Local
Government is devoid, in any event, of any authority to suspend and remove local officials, an argument
reiterated by the petitioner Mary Ann Rivera Artieda (G.R. No. 93746).

As to Mayor Ganzon's charges of denial of due process, the records do not show very clearly in what
manner the Mayor might have been deprived of his rights by the respondent Secretary. His claims that he
and Secretary Luis-Santos were (are) political rivals and that his "persecution" was politically motivated
are pure speculation and although the latter does not appear to have denied these contentions (as he,
Mayor Ganzon, claims), we can not take his word for it the way we would have under less political
circumstances, considering furthermore that "political feud" has often been a good excuse in contesting
complaints.

The Mayor has failed furthermore to substantiate his say-so's that Secretary Santos had attempted to
seduce him to join the administration party and to operate a lottery in Iloilo City. Again, although the
Secretary failed to rebut his allegations, we can not accept them, at face value, much more, as judicial
admissions as he would have us accept them18 for the same reasons above-stated and furthermore,
because his say so's were never corroborated by independent testimonies. As a responsible public
official, Secretary Santos, in pursuing an official function, is presumed to be performing his duties
regularly and in the absence of contrary evidence, no ill motive can be ascribed to him.

As to Mayor Ganzon's contention that he had requested the respondent Secretary to defer the hearing on
account of the ninety-day ban prescribed by Section 62 of Batas Blg. 337, the Court finds the question to
be moot and academic since we have in fact restrained the Secretary from further hearing the complaints
against the petitioners.19

As to his request, finally, for postponements, the Court is afraid that he has not given any compelling
reason why we should overturn the Court of Appeals, which found no convincing reason to overrule
Secretary Santos in denying his requests. Besides, postponements are a matter of discretion on the part
of the hearing officer, and based on Mayor Ganzon's above story, we are not convinced that the
Secretary has been guilty of a grave abuse of discretion.

The Court can not say, under these circumstances, that Secretary Santos' actuations deprived Mayor
Ganzon of due process of law.

We come to the core question: Whether or not the Secretary of Local Government, as the President's
alter ego, can suspend and/or remove local officials.

It is the petitioners' argument that the 1987 Constitution20 no longer allows the President, as the 1935 and
1973 Constitutions did, to exercise the power of suspension and/or removal over local officials. According
to both petitioners, the Constitution is meant, first, to strengthen self-rule by local government units and
second, by deleting the phrase21 as may be provided by law to strip the President of the power of control
over local governments. It is a view, so they contend, that finds support in the debates of the
Constitutional Commission. The provision in question reads as follows:

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.22

It modifies a counterpart provision appearing in the 1935 Constitution, which we quote:

Sec. 10. The President shall have control of all the executive departments, bureaus, or offices,
exercise general supervision over all Local governments as may be provided by law, and take
care that the laws be faithfully executed.23

The petitioners submit that the deletion (of "as may be provided by law") is significant, as their argument
goes, since: (1) the power of the President is "provided by law" and (2) hence, no law may provide for it
any longer.

It is to be noted that in meting out the suspensions under question, the Secretary of Local Government
acted in consonance with the specific legal provisions of Batas Blg. 337, the Local Government Code, we
quote:

Sec. 62. Notice of Hearing. — Within seven days after the complaint is filed, the Minister of local
Government, or the sanggunian concerned, as the case may be, shall require the respondent to
submit his verified answer within seven days from receipt of said complaint, and commence the
hearing and investigation of the case within ten days after receipt of such answer of the
respondent. No investigation shall be held within ninety days immediately prior to an election, and
no preventive suspension shall be imposed with the said period. If preventive suspension has
been imposed prior to the aforesaid period, the preventive suspension shall be lifted.24

Sec. 63. Preventive Suspension. — (1) Preventive suspension may be imposed by the Minister of
Local Government if the respondent is a provincial or city official, by the provincial governor if the
respondent is an elective municipal official, or by the city or municipal mayor if the respondent is
an elective barangay official.

(2) Preventive suspension may be imposed at any time after the issues are joined, when there is
reasonable ground to believe that the respondent has committed the act or acts complained of,
when the evidence of culpability is strong, when the gravity of the offense so warrants, or when
the continuance in office of the respondent could influence the witnesses or pose a threat to the
 safety and integrity of the records and other evidence. In all cases, preventive suspension shall
not extend beyond sixty days after the start of said suspension.

(3) At the expiration of sixty days, the suspended official shall be deemed reinstated in office
without prejudice to the continuation of the proceedings against him until its termination. However
' if the delay in the proceedings of the case is due to his fault, neglect or request, the time of the
delay shall not be counted in computing the time of suspension.25

The issue, as the Court understands it, consists of three questions: (1) Did the 1987 Constitution, in
deleting the phrase "as may be provided by law" intend to divest the President of the power to investigate,
suspend, discipline, and/or remove local officials? (2) Has the Constitution repealed Sections 62 and 63
of the Local Government Code? (3) What is the significance of the change in the constitutional language?

It is the considered opinion of the Court that notwithstanding the change in the constitutional language,
the charter did not intend to divest the legislature of its right or the President of her prerogative as
conferred by existing legislation to provide administrative sanctions against local officials. It is our opinion
that the omission (of "as may be provided by law") signifies nothing more than to underscore local
governments' autonomy from congress and to break Congress' "control" over local government affairs.
The Constitution did not, however, intend, for the sake of local autonomy, to deprive the legislature of all
authority over municipal corporations, in particular, concerning discipline.

Autonomy does not, after all, contemplate making mini-states out of local government units, as in the
federal governments of the United States of America (or Brazil or Germany), although Jefferson is said to
have compared municipal corporations euphemistically to "small republics."26 Autonomy, in the
constitutional sense, is subject to the guiding star, though not control, of the legislature, albeit the
legislative responsibility under the Constitution and as the "supervision clause" itself suggest-is to wean
local government units from over-dependence on the central government.

It is noteworthy that under the Charter, "local autonomy" is not instantly self-executing, but subject to,
among other things, the passage of a local government code,27 a local tax law,28 income distribution
legislation,29 and a national representation law,30 and measures31 designed to realize autonomy at the
local level. It is also noteworthy that in spite of autonomy, the Constitution places the local government
under the general supervision of the Executive. It is noteworthy finally, that the Charter allows Congress
to include in the local government code provisions for removal of local officials, which suggest that
Congress may exercise removal powers, and as the existing Local Government Code has done, delegate
its exercise to the President. Thus:

Sec. 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.32

As hereinabove indicated, the deletion of "as may be provided by law" was meant to stress, sub silencio,
the objective of the framers to strengthen local autonomy by severing congressional control of its affairs,
as observed by the Court of Appeals, like the power of local legislation.33 The Constitution did nothing
more, however, and insofar as existing legislation authorizes the President (through the Secretary of
Local Government) to proceed against local officials administratively, the Constitution contains no
prohibition.

The petitioners are under the impression that the Constitution has left the President mere supervisory
powers, which supposedly excludes the power of investigation, and denied her control, which allegedly
embraces disciplinary authority. It is a mistaken impression because legally, "supervision" is not
incompatible with disciplinary authority as this Court has held,34 thus:

xxx xxx xxx

It is true that in the case of Mondano vs. Silvosa, 51 Off. Gaz., No. 6 p. 2884, this Court had
occasion to discuss the scope and extent of the power of supervision by the President over local
government officials in contrast to the power of control given to him over executive officials of our
government wherein it was emphasized that the two terms, control and supervision, are two
different things which differ one from the other in meaning and extent. Thus in that case the Court
has made the following digression: "In administration law supervision means overseeing or the
power or authority of an officer to see that subordinate officers perform their duties. If the latter fail
or neglect to fulfill them the former may take such action or step as prescribed by law to make
them perform their duties. Control, on the other hand, means the power of an officer to alter or
modify or nullify of set aside what a subordinate officer had done in the performance of his duties
and to substitute the judgment of the former for that of the latter." But from this pronouncement it
cannot be reasonably inferred that the power of supervision of the President over local
government officials does not include the power of investigation when in his opinion the good of
the public service so requires, as postulated in Section 64(c) of the Revised Administrative
Code. ...35

xxx xxx xxx

"Control" has been defined as "the power of an officer to alter or modify or nullify or set aside what a
subordinate officer had done in the performance of his duties and to substitute the judgment of the former
for test of the latter."36 "Supervision" on the other hand means "overseeing or the power or authority of an
officer to see that subordinate officers perform their duties.37 As we held,38 however, "investigating" is not
inconsistent with "overseeing", although it is a lesser power than "altering". The impression is apparently
exacerbated by the Court's pronouncements in at least three cases, Lacson v. Roque,39 Hebron v.
Reyes,40 and Mondano v. Silvosa,41 and possibly, a fourth one, Pelaez v. Auditor General.42 In Lacson,
this Court said that the President enjoyed no control powers but only supervision "as may be provided by
law,"43 a rule we reiterated in Hebron, and Mondano. In Pelaez, we stated that the President "may not . . .
suspend an elective official of a regular municipality or take any disciplinary action against him, except on
appeal from a decision of the corresponding provincial board."44 However,
neither Lacson nor Hebron nor Mondano categorically banned the Chief Executive from exercising acts of
disciplinary authority because she did not exercise control powers, but because no law allowed her to
exercise disciplinary authority. Thus, according to Lacson:

The contention that the President has inherent power to remove or suspend municipal officers is
without doubt not well taken. Removal and suspension of public officers are always controlled by
the particular law applicable and its proper construction subject to constitutional limitations.45

In Hebron we stated:

Accordingly, when the procedure for the suspension of an officer is specified by law, the same
must be deemed mandatory and adhered to strictly, in the absence of express or clear provision
to the contrary-which does not et with respect to municipal officers ...46

In Mondano, the Court held:

... The Congress has expressly and specifically lodged the provincial supervision over municipal
officials in the provincial governor who is authorized to "receive and investigate complaints made
under oath against municipal officers for neglect of duty, oppression, corruption or other form of
maladministration of office, and conviction by final judgment of any crime involving moral
 turpitude." And if the charges are serious, "he shall submit written charges touching the matter to
the provincial board, furnishing a copy of such charges to the accused either personally or by
registered mail, and he may in such case suspend the officer (not being the municipal treasurer)
pending action by the board, if in his opinion the charge by one affecting the official integrity of the
officer in question." Section 86 of the Revised Administration Code adds nothing to the power of
supervision to be exercised by the Department Head over the administration of ...
municipalities ... . If it be construed that it does and such additional power is the same authority
as that vested in the Department Head by section 79(c) of the Revised Administrative Code, then
such additional power must be deemed to have been abrogated by Section 110(l), Article VII of
the Constitution.47

xxx xxx xxx

In Pelaez, we stated that the President can not impose disciplinary measures on local officials except on
appeal from the provincial board pursuant to the Administrative Code.48

Thus, in those case that this Court denied the President the power (to suspend/remove) it was not
because we did not think that the President can not exercise it on account of his limited power, but
because the law lodged the power elsewhere. But in those cases ii which the law gave him the power, the
Court, as in Ganzon v. Kayanan, found little difficulty in sustaining him.49

The Court does not believe that the petitioners can rightfully point to the debates of the Constitutional
Commission to defeat the President's powers. The Court believes that the deliberations are by
themselves inconclusive, because although Commissioner Jose Nolledo would exclude the power of
removal from the President,50 Commissioner Blas Ople would not.51

The Court is consequently reluctant to say that the new Constitution has repealed the Local Government
Code, Batas Blg. 37. As we said, "supervision" and "removal" are not incompatible terms and one may
stand with the other notwithstanding the stronger expression of local autonomy under the new Charter.
We have indeed held that in spite of the approval of the Charter, Batas Blg. 337 is still in force and
effect.52

As the Constitution itself declares, local autonomy means "a more responsive and accountable local
government structure instituted through a system of decentralization."53 The Constitution as we observed,
does nothing more than to break up the monopoly of the national government over the affairs of local
governments and as put by political adherents, to "liberate the local governments from the imperialism of
Manila." Autonomy, however, is not meant to end the relation of partnership and inter-dependence
between the central administration and local government units, or otherwise, to user in a regime of
federalism. The Charter has not taken such a radical step. Local governments, under the Constitution, are
subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to
enhance self- government.

As we observed in one case,54 decentralization means devolution of national administration but not power
to the local levels. Thus:

Now, autonomy is either decentralization of administration or decentralization of power. There is

decentralization of administration when the central government delegates administrative powers
to political subdivisions in order to broaden the base of government power and in the process to
make local governments "more responsive and accountable," and "ensure their fullest
development as self-reliant communities and make them more effective partners in the pursuit of
national development and social progress." At the same time, it relieves the central government
of the burden of managing local affairs and enables it to concentrate on national concerns. The
President exercises "general supervision" over them, but only to "ensure that local affairs are
 administered according to law." He has no control over their acts in the sense that he can
substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political power in the favor
of local governments units declared to be autonomous, In that case, the autonomous government
is free to chart its own destiny and shape its future with minimum intervention from central
authorities. According to a constitutional author, decentralization of power amounts to "self-
immolation," since in that event, the autonomous government becomes accountable not to the
central authorities but to its constituency.55

The successive sixty-day suspensions imposed on Mayor Rodolfo Ganzon is albeit another matter. What
bothers the Court, and what indeed looms very large, is the fact that since the Mayor is facing ten
administrative charges, the Mayor is in fact facing the possibility of 600 days of suspension, in the event
that all ten cases yield prima facie findings. The Court is not of course tolerating misfeasance in public
office (assuming that Mayor Ganzon is guilty of misfeasance) but it is certainly another question to make
him serve 600 days of suspension, which is effectively, to suspend him out of office. As we held: 56

2. Petitioner is a duly elected municipal mayor of Lianga, Surigao del Sur. His term of office does
not expire until 1986. Were it not for this information and the suspension decreed by the
Sandiganbayan according to the Anti-Graft and Corrupt Practices Act, he would have been all this
while in the full discharge of his functions as such municipal mayor. He was elected precisely to
do so. As of October 26, 1983, he has been unable to. it is a basic assumption of the electoral
process implicit in the right of suffrage that the people are entitled to the services of elective
officials of their choice. For misfeasance or malfeasance, any of them could, of course, be
proceeded against administratively or, as in this instance, criminally. In either case, Ms culpability
must be established. Moreover, if there be a criminal action, he is entitled to the constitutional
presumption of innocence. A preventive suspension may be justified. Its continuance, however,
for an unreasonable length of time raises a due process question. For even if thereafter he were
acquitted, in the meanwhile his right to hold office had been nullified. Clearly, there would be in
such a case an injustice suffered by him. Nor is he the only victim. There is injustice inflicted
likewise on the people of Lianga They were deprived of the services of the man they had elected
to serve as mayor. In that sense, to paraphrase Justice Cardozo, the protracted continuance of
this preventive suspension had outrun the bounds of reason and resulted in sheer oppression. A
denial of due process is thus quite manifest. It is to avoid such an unconstitutional application that
the order of suspension should be lifted.57

The plain truth is that this Court has been ill at ease with suspensions, for the above reasons,58 and so
also, because it is out of the ordinary to have a vacancy in local government. The sole objective of a
suspension, as we have held,59 is simply "to prevent the accused from hampering the normal cause of the
investigation with his influence and authority over possible witnesses"60 or to keep him off "the records
and other evidence.61

It is a means, and no more, to assist prosecutors in firming up a case, if any, against an erring local
official. Under the Local Government Code, it can not exceed sixty days,62 which is to say that it need not
be exactly sixty days long if a shorter period is otherwise sufficient, and which is also to say that it ought
to be lifted if prosecutors have achieved their purpose in a shorter span.

Suspension is not a penalty and is not unlike preventive imprisonment in which the accused is held to
insure his presence at the trial. In both cases, the accused (the respondent) enjoys a presumption of
innocence unless and until found guilty.

Suspension finally is temporary and as the Local Government Code provides, it may be imposed for no
more than sixty days. As we held,63 a longer suspension is unjust and unreasonable, and we might add,
nothing less than tyranny.
As we observed earlier, imposing 600 days of suspension which is not a remote possibility Mayor Ganzon
is to all intents and purposes, to make him spend the rest of his term in inactivity. It is also to make, to all
intents and purposes, his suspension permanent.

It is also, in fact, to mete out punishment in spite of the fact that the Mayor's guilt has not been proven.
Worse, any absolution will be for naught because needless to say, the length of his suspension would
have, by the time he is reinstated, wiped out his tenure considerably.

The Court is not to be mistaken for obstructing the efforts of the respondent Secretary to see that justice
is done in Iloilo City, yet it is hardly any argument to inflict on Mayor Ganzon successive suspensions
when apparently, the respondent Secretary has had sufficient time to gather the necessary evidence to
build a case against the Mayor without suspending him a day longer. What is intriguing is that the
respondent Secretary has been cracking down, so to speak, on the Mayor piecemeal apparently, to pin
him down ten times the pain, when he, the respondent Secretary, could have pursued a consolidated
effort.

We reiterate that we are not precluding the President, through the Secretary of Interior from exercising a
legal power, yet we are of the opinion that the Secretary of Interior is exercising that power oppressively,
and needless to say, with a grave abuse of discretion.

The Court is aware that only the third suspension is under questions, and that any talk of future
suspensions is in fact premature. The fact remains, however, that Mayor Ganzon has been made to serve
a total of 120 days of suspension and the possibility of sixty days more is arguably around the corner
(which amounts to a violation of the Local Government Code which brings to light a pattern of
suspensions intended to suspend the Mayor the rest of his natural tenure. The Court is simply foreclosing
what appears to us as a concerted effort of the State to perpetuate an arbitrary act.

As we said, we can not tolerate such a state of affairs.

We are therefore allowing Mayor Rodolfo Ganzon to suffer the duration of his third suspension and lifting,
for the purpose, the Temporary Restraining Order earlier issued. Insofar as the seven remaining charges
are concerned, we are urging the Department of Local Government, upon the finality of this Decision, to
undertake steps to expedite the same, subject to Mayor Ganzon's usual remedies of appeal, judicial or
administrative, or certiorari, if warranted, and meanwhile, we are precluding the Secretary from meting out
further suspensions based on those remaining complaints, notwithstanding findings of prima
facie evidence.

In resume the Court is laying down the following rules:

1. Local autonomy, under the Constitution, involves a mere decentralization of administration, not of
power, in which local officials remain accountable to the central government in the manner the law may
provide;

2. The new Constitution does not prescribe federalism;

3. The change in constitutional language (with respect to the supervision clause) was meant but to deny
legislative control over local governments; it did not exempt the latter from legislative regulations provided
regulation is consistent with the fundamental premise of autonomy;

4. Since local governments remain accountable to the national authority, the latter may, by law, and in the
manner set forth therein, impose disciplinary action against local officials;
5. "Supervision" and "investigation" are not inconsistent terms; "investigation" does not signify "control"
(which the President does not have);

6. The petitioner, Mayor Rodolfo Ganzon. may serve the suspension so far ordered, but may no longer be
suspended for the offenses he was charged originally; provided:

a) that delays in the investigation of those charges "due to his fault, neglect or request, (the time
of the delay) shall not be counted in computing the time of suspension. [Supra, sec. 63(3)]

b) that if during, or after the expiration of, his preventive suspension, the petitioner commits
another or other crimes and abuses for which proper charges are filed against him by the
aggrieved party or parties, his previous suspension shall not be a bar to his being preventively
suspended again, if warranted under subpar. (2), Section 63 of the Local Government Code.

WHEREFORE, premises considered, the petitions are DISMISSED. The Temporary Restraining Order
issued is LIFTED.1âwphi1 The suspensions of the petitioners are AFFIRMED, provided that the
petitioner, Mayor Rodolfo Ganzon, may not be made to serve future suspensions on account of any of the
remaining administrative charges pending against him for acts committed prior to August 11, 1988. The
Secretary of Interior is ORDERED to consolidate all such administrative cases pending against Mayor
Ganzon.

The sixty-day suspension against the petitioner, Mary Ann Rivera Artieda, is AFFIRMED. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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.

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 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 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 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 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 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 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.

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 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 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.

Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Griño-Aquino,
Medialdea, Regalado and Davide, Jr., JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I
agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire activity
known as gambling properly pertain to "state policy." It is, therefore, the political departments of
government, namely, the legislative and the executive that should decide on what government should do
in the entire area of gambling, and assume full responsibility to the people for such policy.

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their authority, except only
when such policies pose a clear and present danger to the life, liberty or property of the individual. This
case does not involve such a factual situation.

However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and eviscerates one's self-respect, which in the long run will
corrode whatever is left of the Filipino moral character. Gambling has wrecked and will continue to wreck
families and homes; it is an antithesis to individual reliance and reliability as well as personal industry
which are the touchstones of real economic progress and national development.

Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the
government out of "legalized" gambling will, in the long run, be more than offset and negated by the
irreparable damage to the people's moral values.

Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally
flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate.

One can go through the Court's decision today and mentally replace the activity referred to therein
as gambling, which is legal only because it is authorized by law and run by the government, with the
activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized by
law, franchised, and "regulated" by the government, in return for the substantial revenues it would yield
the government to carry out its laudable projects, such as infrastructure and social amelioration? The
question, I believe, answers itself. I submit that the sooner the legislative department outlaws all forms of
gambling, as a fundamental state policy, and the sooner the executive implements such policy, the better
it will be for the nation.

Melencio-Herrera, J., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 183591 - THE PROVINCE OF NORTH COTABATO, ET AL. v. THE GOVERNMENT OF THE
REPUBLIC OF THE PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET AL.

G.R. No. 183752 - CITY GOVERNMENT OF ZAMBOANGA, ET AL. v. THE GOVERNMENT OF THE
REPUBLIC OF THE PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET AL.

G.R. No. 183893 - THE CITY OF ILIGAN, duly represented by CITY MAYOR LAURENCE LLUCH
CRUZ v. THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES PEACE PANEL ON
ANCESTRAL DOMAIN (GRP), ET AL.

G.R. No. 183951 - THE PROVINCIAL GOVERNMENT OF ZAMBOANGA DEL NORTE, as represented
by HON. ROLANDO E. YEBES, ET AL. v. THE GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP), ET AL.

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

FRANKLIN M. DRILON and ADEL ABBAS TAMANO, petitioners-in-intervention.

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

MUNICIPALITY OF LINAMON duly represented by its Municipal Mayor NOEL N. DEANO, petitioner-
in-intervention.

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

THE CITY OF ISABELA, BASILAN PROVINCE, represented by MAYOR CHERRYLYN P. SANTOS-

AKBAR, petitioner-in-intervention.

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

THE PROVINCE OF SULTAN KUDARAT, represented by HON. SUHARTO T. MANGUDDATU, in his

capacity as Provincial Governor and a resident of the Province of Sultan Kudarat, petitioner-in-
intervention.

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

RUY ELIAS LOPEZ, petitioner-in-intervention.

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

CARLO B. GOMEZ, ET AL., petitioner-in-intervention.

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

SEPARATE OPINION
CHICO-NAZARIO, J.:

The piece of writing being assailed in these consolidated Petitions is a peace negotiation document,
namely the Memorandum of Agreement on the Ancestral Domain Aspect of the GRP-MILF Tripoli
Agreement of Peace of 2001 (MOA). The Solicitor General explained that this document, prepared by
the joint efforts of the Government of the Republic of the Philippines (GRP) Peace Panel and the Moro
Islamic Liberation Front (MILF) Peace Panel, was merely a codification of consensus points reached
between both parties and the aspirations of the MILF to have a Bangsamoro homeland.1 Subsequently,
the Solicitor General moved for the dismissal of the consolidated cases at bar based on changed
circumstances as well as developments which have rendered them moot, particularly the Executive
Department's statement that it would no longer sign the questioned peace negotiation
document.2 Nonetheless, several parties to the case, as well as other sectors, continue to push for what
they call a "complete determination" of the constitutional issues raised in the present Petitions.

I believe that in light of the pronouncement of the Executive Department to already abandon the MOA, the
issue of its constitutionality has obviously become moot.

The rule is settled that no question involving the constitutionality or validity of a law or governmental act
may be heard and decided by the court unless there is compliance with the legal requisites for judicial
inquiry, namely: that the question must be raised by the proper party; that there must be an actual case or
controversy; that the question must be raised at the earliest possible opportunity; and, that the decision
on the constitutional or legal question must be necessary to the determination of the case itself. But the
most important are the first two requisites.3

For a court to exercise its power of adjudication, there must be an actual case or controversy — one
which involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
resolution; the case must not be moot or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice. A case becomes moot and academic when its
purpose has become stale.4 An action is considered "moot" when it no longer presents a justiciable
controversy because the issues involved have become academic or dead or when the matter in
dispute has already been resolved and hence, one is not entitled to judicial intervention unless the issue
is likely to be raised again between the parties. Simply stated, there is nothing for the court to resolve as
the determination thereof has been overtaken by subsequent events.5

Such is the case here.

The MOA has not even been signed, and will never be. Its provisions will not at all come into effect. The
MOA will forever remain a draft that has never been finalized. It is now nothing more than a piece of
paper, with no legal force or binding effect. It cannot be the source of, nor be capable of violating, any
right. The instant Petitions, therefore, and all other oppositions to the MOA, have no more leg to stand on.
They no longer present an actual case or a justiciable controversy for resolution by this Court.

An actual case or controversy exists when there is a conflict of legal rights or an assertion of opposite
legal claims, which can be resolved on the basis of existing law and jurisprudence. A justiciable
controversy is distinguished from a hypothetical or abstract difference or dispute, in that the former
involves a definite and concrete dispute touching on the legal relations of parties having adverse legal
interests. A justiciable controversy admits of specific relief through a decree that is conclusive in
character, whereas an opinion only advises what the law would be upon a hypothetical state of facts.6

For the Court to still rule upon the supposed unconstitutionality of the MOA will merely be an academic
exercise. It would, in effect, only be delivering an opinion or advice on what are now hypothetical or
abstract violations of constitutional rights.
In Abbas v. Commission on Elections,7 the 1976 Tripoli Agreement and Republic Act No. 6734 (the
Organic Act for the Autonomous Region in Muslim Mindanao) were challenged for purported violations of
the provisions of the Constitution on freedom of religion. The Court held therein that it should not inquire
into the constitutionality of a peace agreement which was already consummated (the 1976 Tripoli
Agreement) and an Organic Act which was already passed into law (R.A. No. 6734) just because of
potential conflicts with the Constitution. Then, with more reason should this Court desist from ruling on the
constitutionality of the MOA which is unsigned, and now entirely abandoned, and as such, cannot even
have any potential conflict with the Constitution.

The Court should not feel constrained to rule on the Petitions at bar just because of the great public
interest these cases have generated. We are, after all, a court of law, and not of public opinion. The
power of judicial review of this Court is for settling real and existent dispute, it is not for allaying fears or
addressing public clamor. In acting on supposed abuses by other branches of government, the Court
must be careful that it is not committing abuse itself by ignoring the fundamental principles of
constitutional law.

The Executive Department has already manifested to this Court, through the Solicitor General, that it will
not sign the MOA in its present form or in any other form. It has declared the same intent to the
public. For this Court to insist that the issues raised in the instant Petitions cannot be moot for they are
still capable of repetition is to totally ignore the assurance given by the Executive Department that it will
not enter into any other form of the MOA in the future. The Court cannot doubt the sincerity of the
Executive Department on this matter. The Court must accord a co-equal branch of the government
nothing less than trust and the presumption of good faith.

Moreover, I deem it beyond the power of this Court to enjoin the Executive Department from entering into
agreements similar to the MOA in the future, as what petitioners and other opponents of the MOA pray
for. Such prayer once again requires this Court to make a definitive ruling on what are mere hypothetical
facts. A decree granting the same, without the Court having seen or considered the actual agreement and
its terms, would not only be premature, but also too general to make at this point. It will perilously tie the
hands of the Executive Department and limit its options in negotiating peace for Mindanao.

Upon the Executive Department falls the indisputably difficult responsibility of diffusing the highly volatile
situation in Mindanao resulting from the continued clashes between the Philippine military and Muslim
rebel groups. In negotiating for peace, the Executive Department should be given enough leeway and
should not be prevented from offering solutions which may be beyond what the present Constitution
allows, as long as such solutions are agreed upon subject to the amendment of the Constitution by
completely legal means.

Peace negotiations are never simple. If neither party in such negotiations thinks outside the box, all they
would arrive at is a constant impasse. Thus, a counsel for one of the intervenors who assert the
unconstitutionality of the MOA8 had no choice but to agree as follows:

ASSOCIATE JUSTICE QUISUMBING: Well, we realize the constitutional constraints of

sovereignty, integrity and the like, but isn't there a time that surely will come and the life of our
people when they have to transcend even these limitations?

DEAN AGABIN: Yes, we have seen it happen in several instances, Your Honor.

xxx

ASSOCIATE JUSTICE QUISUMBING: And in pursuit of that purpose, the Supreme Court cannot
look beyond the horizon and look for more satisfying result?
 DEAN AGABIN: Well, if you mean by looking beyond the horizon, it would mean a violation of the
provisions of the Constitution, then it should not be, Your Honor.

ASSOCIATE JUSTICE QUISUMBING: In some part, we have gone to Malaysia. We have gone
to the OIC, and we have even gone to Libya.

DEAN AGABIN: Yes, Your Honor. But in all these, we have always insisted on preserving the
territorial integrity of the country.

ASSOCIATE JUSTICE QUISUMBING: And this dicta or [dogma] is unassailable forever. There
cannot be an exception.

DEAN AGABIN: It is unassailable under the present Constitution, Your Honor.

ASSOCIATE JUSTICE QUISUMBING: But, at least, you can also agree that the Constitution
ought to be changed in order for a country to fulfill its internal obligation as a matter of necessity.

DEAN AGABIN: Yes, if the people so will it, your Honor.

ASSOCIATE JUSTICE QUISUMBING: You remember how the emperor of Japan lost his
divinity? They just changed their Constitution, isn't it?

DEAN AGABIN: Yes, it was enforced upon him by Mr. McArthur, and they have no choice.

ASSOCIATE JUSTICE QUISUMBING: Isn't that a very good example of thinking outside the
box? That one day even those who are underground may have to think. But frankly now Dean,
before I end, may I ask, is it possible to meld or modify our Constitutional Order in order to have
some room for the newly developing international notions on Associative Governance Regulation
Movement and Human Rights?

DEAN AGABIN: Yes. It is possible, Your Honor, with the consent of the people.

ASSOCIATE JUSTICE QUISUMBING: And, therefore, we vote it to a referendum or any

consultation beforehand?

DEAN AGABIN: If there is such a proposal for or amendment or revision of the Constitution, yes,
Your Honor.

ASSOCIATE JUSTICE QUISUMBING: So, either initiative or CHA-CHA or CON-AS?

DEAN AGABIN: Yes, Your Honor.9

It must be noted that the Constitution has been in force for three decades now, yet, peace in Mindanao
still remained to be elusive under its present terms. There is the possibility that the solution to the peace
problem in the Southern Philippines lies beyond the present Constitution. Exploring this possibility and
considering the necessary amendment of the Constitution are not per se unconstitutional. The
Constitution itself implicitly allows for its own amendment by describing, under Article XVII, the means and
requirements therefor. In Tan v. Macapagal,10 where petitioners claim that the Constitutional Convention
was without power to consider, discuss, or adopt proposals which seek to revise the Constitution through
the adoption of a form of government other than the form outlined in the then governing Constitution, the
Court ruled that:
 [A]s long as any proposed amendment is still unacted on by [the Convention], there is no room for
the interposition of judicial oversight. Only after it has made concrete what it intends to submit for
ratification may the appropriate case be instituted. Until then, the Courts are devoid of jurisdiction.
x x x.

At this point, there is far from a concrete proposed amendment to the Constitution which the Court can
take cognizance of, much less render a pronouncement upon.

At most, the Court can only exhort the Executive Department to keep in mind that it must negotiate and
secure peace in Mindanao under terms which are most beneficial for the country as a whole, and not just
one group of Muslim insurgents. Transparency and consultation with all major players, which necessarily
include affected local government units and their constituents, are essential to arrive at a more viable and
acceptable peace plan. The nature and extent of any future written agreements should be clearly
established from the very beginning, and the terms thereof carefully drafted and clearly worded, to avoid
misunderstandings or misconstructions by the parties and the public. If a document is meant to be a list of
consensus points still subject to further negotiations, then it should just simply state so.

As a final note, I find it necessary to stress that the Court must not allow itself to be mired in controversies
affecting each step of the peace process in Mindanao. It is not within the province or even the
competence of the Judiciary to tell the Executive Department exactly what and what not, how and how
not, to negotiate for peace with insurgents. Given this kind of situation where war and peace hang in the
balance, where people's lives are at stake, and the Executive Department, under its residual powers, is
tasked to make political decisions in order to find solutions to the insurgency problem, the Court should
respect the political nature of the issues at bar and exercise judicial restraint until an actual controversy is
brought before it.

In view of the foregoing, I vote for the GRANT of the Motion to Dismiss filed by the Solicitor General and,
accordingly, for the DISMISSAL of the Petitions at bar for being MOOT and ACADEMIC.

MINITA V. CHICO-NAZARIO
Associate Justice