1. MERALCO v.

Province of Laguna

On petitioner’s imposition of franchise tax as a violation of the non-impairment clause of the

Constitution

No, there is no violation of the non-impairment clause, hence, the provincial ordinance is valid
and constitutional. The Local Government Code of 1991 has incorporated and adopted, by and large,
the provisions of the now repealed Local Tax Code. It explicitly authorizes provincial governments,
notwithstanding “any exemption granted by any law or other special law, (to) impose a tax on
businesses enjoying a franchise.” Indicative of the legislative intent to carry out the Constitutional
mandate of vesting broad tax powers to local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by
certain entities. A franchise partakes the nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution. Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such privilege shall be
subject to amendment, alteration or repeal by Congress as and when the common good so requires.

Other pertinent facts:

Local governments do not have the inherent power to impose taxes except to the extent that
such power might be delegated to them either by the basic law or by statute. Under Article X of the
1987 Constitution, a general delegation of that power has been given in favor of local government units.
Where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist
although Congress may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by directly granting
them general and broad tax powers.

Nevertheless, the fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the local government units
are being strengthened and made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each
local government unit will have its fair share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just.

The Code, in addition, contains a general repealing which 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. These policy considerations are consistent with the State policy to ensure autonomy to
local governments and the objective of the LGC that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.

The power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities if local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption
 privileges granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarity situated enterprises, and there was a need for these entities to share in the
requirements of development, fiscal or otherwise, by paying the taxes and other charges due from
them.

While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise,
these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can
rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its governmental
immunity.

Truly, tax exemptions of this kind may not be revoked without impairing the obligations of
contracts. 14 These contractual tax exemptions, however, are not to be confused with tax exemptions
granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of
the non-impairment clause of the Constitution.15 Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when the common
good so requires.

2. National Power Corporation (NAPOCOR) v. City of Cabanatuan

On NPC’s liability to pay franchise tax to the City of Cabanatuan

It is liable. Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its
source from the very existence of the state whose social contract with its citizens obliges it to promote
public interest and common good. The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.

The power to tax is no longer vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution. In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

Other pertinent facts:

Franchise tax is imposed based not on the ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity
 from the National Government. It can sue and be sued under its own name, and can exercise all the
powers of a corporation under the Corporation Code.

To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 classifies
government-owned or controlled corporations (GOCCs) into those performing governmental functions
and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation,

whether performing governmental or proprietary functions, which is directly chartered by
special law or if organized under the general corporation law is owned or controlled by the
government directly, or indirectly through a parent corporation or subsidiary corporation, to
the extent of at least a majority of its outstanding voting capital stock.”

Governmental functions are those pertaining to the administration of government, and as such,
are treated as absolute obligation on the part of the state to perform while proprietary functions are
those that are undertaken only by way of advancing the general interest of society, and are merely
optional on the government. Included in the class of GOCCs performing proprietary functions are
"business-like" entities such as the National Steel Corporation (NSC), the National Development
Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS),
and the National Water Sewerage Authority (NAWASA).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances
duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance
No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner from
the coverage thereof.

3. MIAA v. CA

On MIAA’s tax exemption on real estate tax imposed by local government

It is exempted. 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.

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. 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.
 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".
Other pertinent facts:

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.

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.”

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.

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property
owned by the Republic of the Philippines." 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.

4. Saguitan v. City of Mandaluyong

On the issue whether or not City of Mandaluyong’s exercise of power of eminent domain by
expropriating petitioner’s lands through a mere resolution and through an ordinance as mandated by
the Local Government Code of 1991 is valid.

No, it is invalid. The exercise of the right of eminent domain, whether directly by the State, or
by its authorized agents, is necessarily in derogation of private rights, and the rule in that case is that
the authority must be strictly construed. The law in this case is clear and free from ambiguity. Section
 19 of the Code requires an ordinance, not a resolution, for the exercise of the power of eminent domain.
Hence, while the court remains conscious of the constitutional policy of promoting local autonomy, it
cannot grant judicial sanction to a local government unit's exercise of its delegated power of eminent
domain in contravention of the very law giving it such power. It should be noted, however, that the
ruling in this case will not preclude the City of Mandaluyong from enacting the necessary ordinance
and thereafter reinstituting expropriation proceedings, for so long as it has complied with all other
legal requirements.

Other pertinent facts:

The court has reiterated its ruling in Municipality of Parañaque v. V.M. Realty Corporation
regarding the distinction between an ordinance and a resolution. In that 1998 case it was held that:

“The Court is not convinced by petitioner's insistence that the terms "resolution" and
"ordinance" are synonymous. A municipal ordinance is different from a resolution. An
ordinance is a law, but a resolution is merely a declaration of the sentiment or opinion of a
lawmaking body on a specific matter. An ordinance possesses a general and permanent
character, but a resolution is temporary in nature. Additionally, the two are enacted differently
— a third reading is necessary for an ordinance, but not for a resolution, unless decided
otherwise by a majority of all the Sanggunian members.”

The Court has already discussed this inconsistency between the Code and the IRR, which is
more apparent than real, in Municipality of Parañaque vs. V.M. Realty Corporation, which provides:

“Petitioner relies on Article 36, Rule VI of the Implementing Rules, which requires only a
resolution to authorize an LGU to exercise eminent domain. This is clearly misplaced, because
Section 19 of RA 7160, the law itself, surely prevails over said rule which merely seeks to
implement it. It is axiomatic that the clear letter of the law is controlling and cannot be amended
by a mere administrative rule issued for its implementation. Besides, what the discrepancy
seems to indicate is a mere oversight in the wording of the implementing rules, since Article 32,
Rule VI thereof, also requires that, in exercising the power of eminent domain, the chief
executive of the LGU must act pursuant to an ordinance.”

It has been ruled out that of two reasonably possible constructions, one which would diminish
or restrict fundamental right of the people and the other of which would not do so, the latter
construction must be adopted so as to allow full enjoyment of such fundamental right.

5. City of Cebu v. Cuizon

On the legal capacity of the City Councilors to question the validity of the contract entered into by the
City Mayor

Yes, the city councilors have the right and legal interest to file suit and to prevent what they
believe to be unlawful disbursements of city funds by virtue of the questioned contracts and
commitments entered into by the city mayor notwithstanding the city council’s revocation of his/her
authority with due notice thereof to the bank. City councilors are deemed to possess the necessary
 authority, and interest, if not duty, to file the present suit on behalf of the City and to prevent the
disbursement of city finds under contracts impugned by them to have been entered into by the city
mayor without lawful authority and in violation of law. Taxpayer suit is proper only when there has
been an unlawful expenditure of public funds.

Other pertinent facts:

In this case where the defendant city mayor’s acts and contracts purportedly entered into on
behalf of the city are precisely questioned as unlawful, the city mayor would be the last person to file
such a suit on behalf of the city, since he precisely maintains the contrary position that his acts have
been lawful and thus duly bind the city.

To adhere to the lower court’s interpretation would mean that no action against a city mayor’s
acts and contracts in the name and on behalf of the city could ever be questioned and subjected to
judicial action for a declaration of nullity and invalidity, since no city mayor would file such an action
on to question, much less nullify, contracts executed by him on behalf of the city and which he
naturally believes to be valid and within his authority.

6. Rabuco v. Villegas

On the issue whether or not RA 3120 is unconstitutional as it infringes the right to due process

RA 3120 is held constitutional on the strength of the established doctrine that the subdivision of
communal land of the State (although titled in the name of the municipal corporation) and conveyance
of the resulting subdivision lots by sale on installment basis to bona fide occupants by Congressional
authorization and disposition does not constitute infringements of the due process clause or the
eminent domain provisions of the Constitution, but operates simply as a manifestation of the
legislature’s right of control and power to deal with State property.

Hence, when a property is owned by a political subdivision in its public and governmental
capacity, the Congress has absolute control as distinguished from patrimonial property owned by it in
its private or proprietary capacity of which it could not be deprived without due process and without
just compensation.

Other pertinent facts:

The lots in question are manifestly owned by the city in its public or governmental capacity and
not in its private or proprietary capacity of which it could not be deprived without due process and just
compensation. The law in question, Republic Act No. 3120 converts the Malate area into disposable and
alienable lands of the State for subdivision into smaller lots which will later be resold to bona fide
occupants thereof. Said law was intended to implement the social justice policy of the Constitution and
the government’s program of land for the landless. It is a manifestation of the legislature’s right and
power to deal with State property which includes those held by municipal corporations in their public
or governmental capacity.
7. Municipality of Pilila, Rizal v. CA
On the issue of Atty. Mendiola’s legal capacity/authority to file a petition in behalf of and in the name
of the Municipality of Pilila, Province of Rizal

No, Atty. Mendiola has no authority to file a petition in behalf of and in the name of the
Municipality of Pilila. Only the provincial fiscal and the municipal attorney can represent a province or
municipality in their lawsuits. The provision is mandatory. The municipality’s authority to employ a
private lawyer is expressly limited only to situations where the provincial fiscal is disqualified to
represent it. And for the aforementioned exception to apply, the fact that the provincial fiscal was
disqualified to handle the municipality’s case must appear on record. In the instant case, there is
nothing in the records to show that the provincial fiscal is disqualified to act as counsel for the
Municipality of Pilila on appeal, hence the appearance of herein private counsel is without authority of
law.

Other pertinent facts:

Jurisprudence provides that:

Ramos v. CA – “Private attorneys cannot represent a province or municipality in

lawsuits.”

Province of Cebu v. IAC – “When the provincial fiscal is disqualified to serve any
municipality or other political subdivision of a province, a special attorney may be employed by
its council.”

The submission of Atty. Mendiola that the exception is broad enough to include situations
wherein the provincial fiscal refuses to handle the case cannot be sustained. The fiscal’s refusal to
represent the municipality is not a legal justification for employing the services of private counsel.
Unlike a practicing lawyer who has the right to decline employment, a fiscal cannot refuse to perform
his functions on grounds not provided for by law without violating his oath of office. Instead of
engaging the services of a special attorney, the municipal council should request the Secretary of Justice
to appoint an acting provincial fiscal in place of the provincial fiscal who has declined to handle and
prosecute its case in court, pursuant to Section 1679 of the Revised Administrative Code.

Furthermore, even assuming that the representation of the municipality by Atty. Mendiola was
duly authorized, said authority is deemed to have been revoked by the municipality when the latter,
through the municipal mayor and without said counsel’s participation, entered into a compromise
agreement with herein private respondent with regard to the execution of the judgment in its favor and
thereafter filed personally with the court below two pleadings entitled and constitutive of a
“Satisfaction of Judgment” and a “Release and Quitclaim”.

A client, by appearing personally and presenting a motion by himself, is considered to have

impliedly dismissed his lawyer. Herein counsel cannot pretend to be authorized to continue
representing the municipality since the latter is entitled to dispense with his services at any time. Both
at common law and under Section 26, Rule 138 of the Rules of Court, a client may dismiss his lawyer at
any time or at any stage of the proceedings, and there is nothing to prevent a litigant from appearing
before the court to conduct his own litigation.