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Part 1 General Principles

A. Corporation
1. definition
Section 2. Corporation defined. – A corporation is an artificial being created by operation of law,
having the right of succession and the powers, attributes and properties expressly authorized
by law or incident to its existence. (BP blg 68)
2. Classification
Public Corporation – organized for government of a portion of a state, such as a local government
unit. It is Created for the public use.
Private Corporation – formed for some private purpose, benefit, aim or end such as a business
corporation formed and organized under a general law on corporation. It is created for private
objects.
Quasi-public Corporation – a private corporation that renders public service or supplies public wants
such as utilities companies. It combines the elements of both public and private. Though organized
for private profit, they are compelled by law or contract to render public service.
Special classes of Corporations
De facto Corporation -
company which operates as if it were a corporationalthough it has not completed the legal steps to
become incorporated (has not filedits Articles, for example) or has been dissolved or suspended but
continues tofunction. The court temporarily treats the corporation as if it were legal in order toavoid
unfairness to people who thought the corporation was legal.
Corporation by prescription
Under the principles of common law, where a body of men have been for a long time in the
exercise of corporate powers, presumption arises of an ancient charter, granted to their
predecessors, making the exercise of such powers by them lawful and rightful, a lost grant or
charter from the crown being presumed.
Corporation by estoppel
As between private litigants they may, by their agreements, admissions, or conduct, place
themselves where they would not be permitted to deny the fat of the existence of the corporation.
3. Public and private corporations , distinguished
Areas Public Corporation Private Corporation
purpose For administration of civil of
local governments
For private aim, gain or
benefits of its members
creation Creations of the state either
by general or special act,
Created by the will of the
incorporators with the
recognizance of the state
manner Involuntary consequence of
legislation
Voluntary agreement by and
among members

Test for determination
*Purpose of Creation
- if created as an agent of State to carry out Governmental functions, then it is
Public, otherwise it is private.
*Relation of the Corporation to the State
- if created as its own agency or instrumentality in carrying out its governmental
functions, then said corporation is considered public, otherwise, it is private.
4. Public corporation, Classified
Quasi- corporation – created for a limited purpose
Municipal Corporations – a body politic and corporate constituted by the incorporation of
the inhabitants for the purpose of local government. It refers to Local Government Units.
The Supreme Court, however, held that not all corporations, which are not government owned or
controlled, are ipso facto to be considered private corporations as there exists another distinct class
of corporations or chartered institutions which are otherwise known as “public corporations.” These
corporations are treated by law as agencies or instrumentalities of the government which are not
subject to the tests of ownership or control and economic viability but to a different criteria relating
to their public purposes/interests or constitutional policies and objectives and their administrative
relationship to the government or any of its departments or offices. As presently constituted, the
BSP is a public corporation created by law for a public purpose, attached to the Department of
Education Culture and Sports pursuant to its Charter and the Administrative Code of 1987. It is not
a private corporation which is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law. The economic viability test would
only apply if the corporation is engaged in some economic activity or business function for the
government, which is not the case for BSP. Therefore, being a public corporation, the funds of the
BSP fall under the jurisdiction of the Commission on Audit. Boy Scouts of the Philippines vs.
Commission on Audit, G.R. No. 177131. June 7, 2011.
B. Municipal Corporations
1. Elements
a. Legal creation/incorporation
- refers to the law crating or authorizing the creation or incorporationof a municipal
corporation.
- refers to the statute -> LGUs
- refers to the ordinance of Province or HUC -> barangay
b. Corporate name
- name of municipal corporation by which it is incorporated and known
- In which all corporate acts are done
- sampol(city of talisay)
c. Inhabitants
- refers to natural persons, the constituents, who compose the municipal corporation.
d. Territory
- refers to the land mass where the inhabitants reside, together with the waters, and
the air space above the land and water.
- corresponds to the jurisdiction of a municipal corporation in the discharge of its
powers and functions (subject to constitutional and statutory limitations)
2. Dual nature and functions
Governmental function
- involves the administration of the power of the state and promoting the public welfare
- exercise this function as an agent of the state
- sampol (passage of ordinance, preservation of the public peace and other regulatory
measures)
Proprietary function
- is exercised for the special benefit and advantage of the community and for the attainment
of their collective needs.
- exercise this function as an entity representing the inhabitants
- sampol (maintenance of parks, cemeteries, and fiesta celebrations)
Cases:
Lidasan v Comelec
G.R. No. L-28089 October 25, 1967
Sanchez, J .:

Facts:
1. Lidasan, a resident and taxpayer of the detached portion of Parang, Cotabato, and a qualified voter for
the 1967 elections assails the constitutionality of RA 4790 and petitioned that Comelec's resolutions
implementing the same for electoral purposes be nullified. Under RA 4790, 12 barrios in two
municipalities in the province of Cotabato are transferred to the province of Lanao del Sur. This brought
about a change in the boundaries of the two provinces.

2. Barrios Togaig and Madalum are within the municipality of Buldon inthe Province of Cotabato, and that
Bayanga, Langkong, Sarakan, Kat-bo, Digakapan, Magabo, Tabangao, Tiongko, Colodan and
Kabamakawan are parts and parcel of another municipality, the municipality of Parang, also in
the Province of Cotabato and not of Lanao del Sur.

3. Apprised of this development, the Office of the President, recommended to Comelec that the operation
of the statute be suspended until "clarified by correcting legislation."

4. Comelec, by resolution declared that the statute should be implemented unless declared
unconstitutional by the Supreme Court.

ISSUE: Whether or not RA 4790, which is entitled "An Act Creating the Municipality of Dianaton in the
Province of Lanao del Sur", but which includes barrios located in another province — Cotabato is
unconstitutional for embracing more than one subject in the title

YES. RA 4790 is null and void

1. The constitutional provision contains dual limitations upon legislative power. First. Congress is to refrain
from conglomeration, under one statute, of heterogeneous subjects. Second. The title of the bill is to be
couched in a language sufficient to notify the legislators and the public and those concerned of the
import of the single subject thereof. Of relevance here is the second directive. The subject of the
statute must be "expressed in the title" of the bill. This constitutional requirement "breathes the spirit
of command." Compliance is imperative, given the fact that the Constitution does not exact of Congress
the obligation to read during its deliberations the entire text of the bill. In fact, in the case of House Bill
1247, which became RA 4790, only its title was read from its introduction to its final approval in the
House where the bill, being of local application, originated.

2. The Constitution does not require Congress to employ in the title of an enactment, language of such
precision as to mirror, fully index or catalogue all the contents and the minute details therein. It suffices
if the title should serve the purpose of the constitutional demand that it inform the legislators, the
persons interested in the subject of the bill, and the public, of the nature, scope and consequences of
the proposed law and its operation. And this, to lead them to inquire into the body of the bill, study and
discuss the same, take appropriate action thereon, and, thus, prevent surprise or fraud upon the
legislators.

3. The test of the sufficiency of a title is whether or not it is misleading; and, which technical accuracy is
not essential, and the subject need not be stated in express terms where it is clearly inferable from the
details set forth, a title which is so uncertain that the average person reading it would not be informed
of the purpose of the enactment or put on inquiry as to its contents, or which is misleading, either in
referring to or indicating one subject where another or different one is really embraced in the act, or in
omitting any expression or indication of the real subject or scope of the act, is bad.

4. The title — "An Act Creating the Municipality of Dianaton, in the Province of Lanao del Sur" — projects
the impression that only the province of Lanao del Sur is affected by the creation of Dianaton. Not the
slightest intimation is there that communities in the adjacent province of Cotabato are incorporated in
this new Lanao del Sur town. The phrase "in the Province of Lanao del Sur," read without subtlety or
contortion, makes the title misleading, deceptive. For, the known fact is that the legislation has a two-
pronged purpose combined in one statute: (1) it creates the municipality of Dianaton purportedly from
twenty-one barrios in the towns of Butig and Balabagan, both in the province of Lanao del Sur; and (2)
it also dismembers two municipalities in Cotabato, a province different from Lanao del Sur.

5. Finally, the title did not inform the members of Congress the full impact of the law. One, it did not
apprise the people in the towns of Buldon and Parang in Cotabato and in the province of Cotabato itself
that part of their territory is being taken away from their towns and province and added to the adjacent
Province of Lanao del Sur. Two, it kept the public in the dark as to what towns and provinces were
actually affected by the bill.

Learning from this case
“ a local government unit must be self sufficient to enable it to exercise its corporate powers and serve
its constituents”


S Surigao Electric Co., Inc.vs. Municipality of Surigao
GR No. L-22766 August 30, 1968

FACTS:
On June 18,1960, Congress amended the Public Service Act and introduced doing away with the
requirement of a certificate of public convenience and necessity from the Public Service Commission for
“public services owned or operated by government entities or government-owned and controlled
corporations (GOCC),” but at the same time affecting its power of regulation which while exempting
public services owned or operated by any instrumentality of the government or any GOCC from its
supervision, jurisdiction and control stops short of including “the fixing of rates”.
Surigao Electric Co., and Arturo Lumanlan filed a petition for review challenging the validity of the order of
respondent Public Service Commission, dated July 11, 1963, wherein it held that it had “no alternative
but to approve the tentative schedule of rates submitted by the applicant”, the Municipality of Surigao.

ISSUE:
Whether or not a municipal government can directly maintain & operate an electric plant without obtaining
a specific franchise for the purpose and without a certificate of public convenience and necessity duly
issued by the PSC.

HELD:
Yes.
The Municipality of Surigao is not a GOCC. However, it cannot be said that it is not a government entity.
As early as 1916, in Mendoza v. de Leon (33 Phil. 508), the dual character of a municipal corporation has
long been recognized: (1) as Governmental, being a branch of the general administration of the State,
and (2) as Quasi-Private and Corporate.

It is an undeniable fact that “legislative and government powers” are “conferred upon a municipality…to
enable it to aid a state in properly governing that portion of the people residing within its municipality,
such powers (being) in their nature public, xxx (1 Dilon, Commentaries on the Law of Municipal
Corporations, 5th ed., p.68 [1911]).

“Governmental affairs do not lose their governmental character by being delegated to the municipal
governments…to preserve the peace, protect the morals and health of the community and so on is to
administer government, whether it be done by the central government itself or is shifted to a local
organization.” (Mendoza v. de Leon).
Learning:
A municipal corporation is a government entity and functions as an extension of the national
government, and, therefore, it is an instrumentality of the latter. By express provisions of Sec.14(e) of
RA 2677, an instrumentality of the national government is exempted from the jurisdiction of the PSC
except with respect to the fixing of rates.

Section 15. Political and Corporate Nature of Local Government Units. - Every local
government unit created or recognized under this Code is a body politic and corporate
endowed with powers to be exercised by it in conformity with law. As such, it shall exercise
powers as a political subdivision of the national government and as a corporate entity
representing the inhabitants of its territory.


Municipality of San Fernando, La Union v. Firme
G.R. No. L-52179 April 8, 1991

Facts:

At about 7 o’clock in the morning of December 16, 1965, a collision occurred involving a
passenger jeepney driven by Bernardo Balagot and owned by the Estate of Macario Nieveras, a gravel
and sand truck driven by Jose Manandeg and owned by Tanquilino Velasquez and a dump truck of the
Municipality of San Fernando, La Union and driven by Alfredo Bislig. Due to the impact, several
passengers of the jeepney including Laureano Baniña Sr. died as a result of the injuries they sustained
and four (4) others suffered varying degrees of physical injuries.

On December 11, 1966, the private respondents instituted a compliant for damages against the
Estate of Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger
jeepney. However, the aforesaid defendants filed a Third Party Complaint against the petitioner and the
driver of a dump truck of petitioner.

Issue:

whether or not the municipality is liable for the torts committed by its employee, the test of
liability of the municipality depends on whether or not the driver, acting in behalf of the municipality, is
performing governmental or proprietary functions

Held:

Municipal corporations are suable because their charters grant them the competence to sue
and be sued. Nevertheless, they are generally not liable for torts committed by them in the discharge of
governmental functions and can be held answerable only if it can be shown that they were acting in a
proprietary capacity. In permitting such entities to be sued, the State merely gives the claimant the right
to show that the defendant was not acting in its governmental capacity when the injury was committed or
that the case comes under the exceptions recognized by law. Failing this, the claimant cannot recover.

In the case at bar, the driver of the dump truck of the municipality insists that he was on his way
to the Naguilian river to get a load of sand and gravel for the repair of San Fernando’s municipal streets.

In the absence of any evidence to the contrary, the regularity of the performance of official duty
is presumed pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court.

The municipality cannot be held liable for the torts committed by its regular employee,
who was then engaged in the discharge of governmental functions. Hence, the death of the
passenger –– tragic and deplorable though it may be –– imposed on the municipality no duty to pay
monetary compensation.
What is the importance of the distinction between these dual functions?
- in the liability of municipalities for their acts and those of their officers
- in the extent of legislative control over the same

3. Sources of Powers
- Article 2, sec 25, 1987 constitution
- Article 10, sec 5-7, RA 7160
- their charter, the statute creating them
- other laws, decrees, executive orders, proclamations and administrative regulations
(revised administrative Code of the Phil)
4. Classification Of Powers
a. Express – those that are expressly granted to them
b. Implied – those that are implied from those that are granted to them
c. inherent – those that are necessary, appropriate or incidental for their efficient and
effective governance
d. those that are essential to the promotion of the general welfare of their inhabitants
5. Types of municipal corporations
a. de jure – if its creation perfectly complies with all the requirements of incorporation.
b. de facto – when not all requirements were complied with in its incorporation but
there are at least:
i. valid law authorizing incorporation
ii. attempt in good faith to organize it
iii. colorable compliance with law
iv. assumption of corporate powers
- recognized by the court as such on the ground of public policy in all proceedings
except a direct attack by the state questioning its corporate existence.
Cases:
Pelaez vs auditor general
- Supreme court denied the president the power to create a local government unit
because the creation of local government unit is essentially legislative.
- the executive orders of the president which created certain municipalities were declared
unconstitutional
- the authority to create municipal corporation is essentially legislative in nature
- the supreme court observed that since January 1, 1960, when RA 2370 became effective
* barrios may not be created or their boundaries altered nor their names changed
Except: 1. Act of Congress
2. corresponding provincial boards (upon petition of the voters
in the areas affected and the recommendation of the council of
the municipality or municipalities in which the proposed barrio
is situated.
* Recognition of a de facto municipal corporation as such is primarily based on the premise that
municipal corporations can exist by prescription.
*Hence, acts of de facto municipal corporations will be respected and will be recognize as valid
binding as if it is a de jure corporation

Sultan OSOP Camid:
“ municipal corporations may exist by prescription where it is shown that the community has;
i. claimed and exercised corporate functions
ii. with the knowledge and acquiescence of the legislature,
iii. without interruption or objection for a period long enough to afford
title by prescription.”
Municipality of San Narciso case:
a. Pelaez case limited its nullificatory effect only to those executive orders
specifically challenged therein,
b. the court considered the applicability of sec 442 (d) of the local government
Code
Further Supreme Court considere the following factors having validated the Creation:
i. the fact that for nearly thirty years the validity of the creation had never been
challenged;
ii. the fact that following the ruling on pelaez no quo warranto suit was filed to
question the validity of the executive order crating such municipality
iii. the fact that the municipality was later classified as a fifth class municipality,
organized as part of a municipal circuit court and considered part of the legislative district in the
constitution.

Section 442 (d) cannot be applied (sultan osop camid case)
i. where the executive order creating the municipality has already been
annulled by the supreme court.
ii. the alleged continued exercise of powers has not been factually
established in a trial.
Municipality of candijay  same with San Narciso Case
Municipality of Jimenez Case
“Supreme Court has since held that where a municipality created as such by executive order
is later impliedly recognized and its acts are accorded legal validity, its creation can no longer
be questioned.”
8. Method of challenging municipal corporations
- An inquiry into the legal existence of a municipal Corporation is reserved to the State in a
direct proceeding for quo warranto. (malabang vs benito)
- The prohibition on collateral attack applies only when the municipal corporation is
atleast a de facto corporation.

What? i. its existence maybe questioned collaterally or directly in any action or
proceeding
Who? ii. by anyone whose rights or interest are affected thereby, including the citizens
of the territory incorporated,
Except? iii. Unless they are stopped by their conduct from doing so.
C. Overview of the Philippine local Government System
1. The unitary vs Federal form of government