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It is reported that PAGCOR is the third largest source of

Contents government revenue, next to the Bureau of Internal

TAXATION .....................................................................................................................................................
Revenue and the Bureau of Customs. PAGCOR 1 earned in
1989- P3.43 Billion; and directly remitted
BASCO VS PAGCOR ............................................................................................................................. 1 to the
National Government a total of P2.5 Billion in form of
Manila Electric v Province of Laguna .................................................................................................... 3
franchise tax, government's income share, the
Phil Petroleum Corp v. Mun of Pililla ....................................................................................................
President's Social Fund and Host Cities' 4 share. In
addition, PAGCOR sponsored other
MCIA v Marcos ...................................................................................................................................... 6 socio-cultural and
charitable projects on its own or in cooperation with
City Government of Quezon City v Bayan Telecom
various governmental agencies, and other private
MISSING .............................................................................................................................................. 10
associations and organizations. In its 3 1/2 years of
Manila International Airport Authority v. CA......................................................................................
operation under the present administration, 10 PAGCOR
remitted to the government a total of13
Digital Telecom v Pangasinan ............................................................................................................. P6.2 Billion. As of
December 31, 1989, PAGCOR was employing 4,494
City of Iloilo v Smart Communications ................................................................................................ 16
employees in its nine (9) casinos nationwide, directly
GSIS v City Treasurer of Manila MISSING ............................................................................................
supporting the livelihood of Four17Thousand Four
Hundred Ninety-Four (4,494) families.17
Pimentel v Aguirre ..............................................................................................................................
Herein petitioners as taxpayers and18Chairman of the
Villafuerte v Robredo ..........................................................................................................................
Committee on Laws of the City Council of Manila
POLICE POWER ............................................................................................................................................ 21
question the validity of P.D. No. 1869 on the ff. grounds:
City of Gen Santos v. COA ................................................................................................................... 21
1.) the same is "null and void" for being "contrary to
US v. Salaveria MISSING ...................................................................................................................... 22
morals, public policy and public order," ;
Binay v Domingo MISSING .................................................................................................................. 22
2.) violative of the equal protection clause and local
Tatel v Mun of Virac ............................................................................................................................
autonomy (P.D. 1869 constitutes a waiver 22 of the right of
the City of Manila to impose taxes23
Tano v Socrates MISSING .................................................................................................................... and legal fees) ;
Lim v Pacquing .................................................................................................................................... 23
3.) it runs counter to the state policies
De la Cruz v Paras ................................................................................................................................ 24 enunciated in
Sections 11 (Personal Dignity and Human Rights), 12
Ortigas v FEATI Bank ........................................................................................................................... 24
(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.

BASCO VS PAGCOR WON petitioner’s contentions are tenable.
The Philippine Amusements and Gaming Corporation NO.
(PAGCOR) was created under P.D. 1869 to enable the
Government to regulate and centralize all games of RATIONALE FOR PD 1869’s enactment
chance authorized by existing franchise or permitted by
Enacted pursuant to the policy of the government to
law. "regulate and centralize thru an appropriate institution
PAGCOR is given territorial jurisdiction all over the all games of chance authorized by existing franchise or
Philippines. Under its Charter's repealing clause, all permitted by law"
laws, decrees, executive orders, rules and regulations, A reliable source of much needed revenue for the cash
inconsistent therewith, are accordingly repealed, strapped Government. It provided funds for social
amended or modified. impact projects and subjected gambling to "close
scrutiny, regulation, supervision and control of the . And if Congress can grant the City of Manila the power
Government" to tax certain matters, it can also provide for
exemptions or even take back the power.
With the creation of PAGCOR and the direct
intervention of the Government, the evil practices and The City of Manila's power to impose license fees on
corruptions that go with gambling will be minimized if gambling, has long been revoked. As early as 1975, the
not totally eradicated. 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
AUTONOMY (on taxation power)
on the National Government.
Petitioners in invoking the principle of local autonomy
Therefore, only the National Government has the
must have in mind Section 13 par. (2) of P.D. 1869
power to issue "licenses or permits" for the operation of
which exempts PAGCOR, as the franchise holder from
gambling. Necessarily, the power to demand or collect
paying any "tax of any kind or form, income or
license fees which is a consequence of the issuance of
otherwise, as well as fees, charges or levies of whatever
"licenses or permits" is no longer vested in the City of
nature, whether National or Local."
(2) Income and other taxes. — a) Franchise Holder: No
Local governments have no power to tax
tax of any kind or form, income or otherwise as well as
instrumentalities of the National Government. PAGCOR
fees, charges or levies of whatever nature, whether
is a government owned or controlled corporation with
National or Local, shall be assessed and collected under
an original charter, PD 1869. All of its shares of stocks
this franchise from the Corporation; nor shall any form
are owned by the National Government.
or tax or charge attach in any way to the earnings of the
Corporation, except a franchise tax of five (5%) percent "SUPREMACY" of the National Government over local
of the gross revenues or earnings derived by the governments.
Corporation from its operations under this franchise.
PAGCOR has a dual role, to operate and to regulate
Such tax shall be due and payable quarterly to the
gambling casinos. The latter role is governmental, which
National Government and shall be in lieu of all kinds of
places it in the category of an agency or instrumentality
taxes, levies, fees or assessments of any kind, nature or
of the Government. Being an instrumentality of the
description, levied, established or collected by any
Government, PAGCOR should be and actually is exempt
municipal, provincial or national government authority
from local taxes. Otherwise, its operation might be
(Section 13 [2]).
burdened, impeded or subjected to control by a mere
Their contention is without merit for the ff. reasons: Local government.
(based on jurisprudence)
The states have no power by taxation or otherwise, to
The City of Manila, being a mere Municipal corporation retard, impede, burden or in any manner control the
has no inherent right to impose taxes Thus, "the operation of constitutional laws enacted by Congress to
Charter or statute must plainly show an intent to confer carry into execution the powers vested in the federal
that power or the municipality cannot assume it" . Its government. (MC Culloch v. Marland, 4 Wheat 316, 4 L
"power to tax" therefore must always yield to a Ed. 579).
legislative act which is superior having been passed
Local Government has been described as a political
upon by the state itself which has the "inherent power
subdivision of a nation or state which is constituted by
to tax".
law and has substantial control of local affairs. In a
The Charter of the City of Manila is subject to control by unitary system of government, such as the government
Congress. It should be stressed that "municipal under the Philippine Constitution, local governments
corporations are mere creatures of Congress" which has can only be an intra sovereign subdivision of one
the power to "create and abolish municipal sovereign nation, it cannot be an imperium in imperio.
corporations" due to its "general legislative powers" . Local government in such a system can only mean a
Congress, therefore, has the power of control over Local
measure of decentralization of the function of On the basis of the above ordinance, respondent
government Provincial Treasurer sent a demand letter to MERALCO
for the corresponding tax payment. Petitioner
As to what state powers should be "decentralized" and
MERALCO paid the tax, which then amounted to
what may be delegated to local government units
P19,520.628.42, under protest. A formal claim for
remains a matter of policy, which concerns wisdom. It is
refund was thereafter sent by MERALCO to the
therefore a political question.
Provincial Treasurer of Laguna claiming that the
What is settled is that the matter of regulating, taxing franchise tax it had paid and continued to pay to the
or otherwise dealing with gambling is a State concern National Government pursuant to P.D. 551 already
and hence, it is the sole prerogative of the State to included the franchise tax imposed by the Provincial Tax
retain it or delegate it to local governments. Ordinance. MERALCO, contended that the imposition of
a franchise tax under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as it concerned MERALCO,
contravened the provisions of Section 1 of P.D. 551

Manila Electric v Province of Laguna The claim for refund of petitioner was denied in a letter
MANILA ELECTRIC COMPANY vs. PROVINCE OF signed by Governor Jose D. Lina relied on a more recent
LAGUNA law, i.e. Republic Act No. 7160 or the Local Government
Code of 1991, than the old decree invoked by
G.R. 131359 petitioner.
On various dates, certain municipalities of the Province Whether or not a Local Government Unit may validly
of Laguna, by virtue of existing laws then in effect, impose tax to its constituents, in this case the
issued resolutions through their respective municipal MERALCO, in view of the local autonomy granted by the
councils granting franchise in favor of petitioner Manila 1987 Constitution despite the imposition of taxes by
Electric Company ("MERALCO") for the supply of electric other laws.
light, heat and power within their concerned areas. On
19 January 1983, MERALCO was likewise granted a RULING: Yes.
franchise by the National Electrification Administration Prefatorily, it might be well to recall that local
to operate an electric light and power service in the governments do not have the inherent power to
Municipality of Calamba, Laguna. tax except to the extent that such power might be
On 12 September 1991, Republic Act No. 7160, delegated to them either by the basic law or by statute.
otherwise known as the "Local Government Code of Presently, under Article X of the 1987 Constitution, a
1991," was enacted to take effect on 01 January 1992 general delegation of that power has been given in
enjoining local government units to create their own favor of local government units. Thus:
sources of revenue and to levy taxes, fees and charges, Sec. 3. The Congress shall enact a local government
subject to the limitations expressed therein, consistent code which shall provide for a more responsive and
with the basic policy of local autonomy. Pursuant to the accountable local government structure instituted
provisions of the Code, respondent province enacted through a system of decentralization with effective
Laguna Provincial Ordinance No. 01-92, effective 01 mechanisms of recall, initiative, and referendum,
January 1993, providing, in part, as follows: allocate among the different local government units
Sec. 2.09. Franchise Tax. — There is hereby imposed a their powers, responsibilities, and resources, and
tax on businesses enjoying a franchise, at a rate of fifty provide for the qualifications, election, appointment
percent (50%) of one percent (1%) of the gross annual and removal, term, salaries, powers and functions, and
receipts, which shall include both cash sales and sales duties of local officials, and all other matters relating to
on account realized during the preceding calendar year the organization and operation of the local units.
within this province, including the territorial limits on
any city located in the province.
Sec. 5. Each local government unit shall have the
power to create its own sources of revenues and to
levy taxes, fees, and charges subject to such guidelines
and limitations as the Congress may provide,
consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively Phil Petroleum Corp v. Mun of Pililla
to the local governments. PHILIPPINE PETROLEUM CORPORATION vs.
Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax Facts:
power must be deemed to exist although Congress may 1. Petitioner, Philippine Petroleum Corporation (PPC for
provide statutory limitations and guidelines. The basic short) is a business enterprise engaged in the
rationale for the current rule is to safeguard the viability manufacture of lubricated oil basestock which is a
and self-sufficiency of local government units by directly petroleum product, with its refinery plant situated at
granting them general and broad tax powers. Malaya, Pililla, Rizal, conducting its business activities
Nevertheless, the fundamental law did not intend the within the territorial jurisdiction of the Municipality of
delegation to be absolute and unconditional; the Pililla, Rizal.
constitutional objective obviously is to ensure that,
while the local government units are being 2. Under Section 142 of the National Internal Revenue
strengthened and made more autonomous, the Code of 1939, manufactured oils and other fuels are
legislature must still see to it that (a) the taxpayer will subject to specific tax.
not be over-burdened or saddled with multiple and 3. Later, Presidential Decree No. 231, otherwise known
unreasonable impositions; (b) each local government as the Local Tax Code was issued by former President
unit will have its fair share of available resources; (c) Ferdinand E. Marcos governing the exercise by
the resources of the national government will not be provinces, cities, municipalities and barrios of their
unduly disturbed; and (d) local taxation will be fair, taxing and other revenue-raising powers. Sections 19
uniform, and just. and 19 (a) thereof, provide among others, that the
The 1991 Code explicitly authorizes provincial municipality may impose taxes on business, except on
governments, notwithstanding "any exemption granted those for which fixed taxes are provided on
by any law or other special law, . . . (to) impose a tax on manufacturers, importers or producers of any article of
businesses enjoying a franchise." commerce of whatever kind or nature, including
brewers, distillers, rectifiers, repackers, and
Indicative of the legislative intent to carry out the compounders of liquors, distilled spirits and/or wines in
Constitutional mandate of vesting broad tax powers to accordance with the schedule listed therein.
local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax 4. The Secretary of Finance issued a Circular directed to
exemptions or incentives theretofore enjoyed by all provincial, city and municipal treasurers to refrain
certain entities. This law states: from collecting any local tax imposed in old or new tax
ordinances in the business of manufacturing,
Sec. 193. Withdrawal of Tax Exemption Privileges — wholesaling, retailing, or dealing in petroleum products
Unless otherwise provided in this Code, tax exemptions subject to the specific tax under the National Internal
or incentives granted to, or presently enjoyed by all Revenue Code.
persons, whether natural or juridical, including
government-owned or controlled corporations, except 5. Likewise, another Circular was issued by the
local water districts, cooperatives duly registered under Secretary of Finance instructing all City Treasurers to
R.A. No. 6938, non-stock and non-profit hospitals and refrain from collecting any local tax imposed in tax
educational institutions, are hereby withdrawn upon the ordinances enacted before or after the effectivity of the
effectivity of this Code. Local Tax Code on the businesses of manufacturing,
wholesaling, retailing, or dealing in, petroleum products
subject to the specific tax under the National Internal Ruling:
Revenue Code.
Petitioner PPC contends that: (a) Provincial Circular No.
6. Meanwhile, Respondent Municipality of Pililla 2673 declared as contrary to national economic policy
enacted Municipal Tax Ordinance No. 1 otherwise the imposition of local taxes on the manufacture of
known as "The Pililla Tax Code of 1974". Sections 9 and petroleum products as they are already subject to
10 of the said ordinance imposed a tax on business, specific tax under the National Internal Revenue Code;
except for those for which fixed taxes are provided in (b) the above declaration covers not only old tax
the Local Tax Code. ordinances but new ones, as well as those which may be
enacted in the future; (c) both Provincial Circulars (PC)
7. P.D. 436 was promulgated increasing the specific tax
26-73 and 26 A-73 are still effective, hence, unless and
on lubricating oils, gasoline, bunker fuel oil, diesel fuel
until revoked, any effort on the part of the respondent
oil and other similar petroleum products levied under
to collect the suspended tax on business from the
Sections 142, 144 and 145 of the National Internal
petitioner would be illegal and unauthorized; and (d)
Revenue Code, as amended, and granting provinces,
Section 2 of P.D. 436 prohibits the imposition of local
cities and municipalities certain shares in the specific
taxes on petroleum products.
tax on such products in lieu of local taxes imposed on
petroleum products. There is no question that Pililla's Municipal Tax
Ordinance No. 1 imposing the assailed taxes, fees and
8. Provincial Circular No. 6-77 was also issued directing
charges is valid as it conforms with the mandate of law.
all city and municipal treasurers to refrain from
collecting the so-called storage fee on flammable or But P.D. No. 426 amending the Local Tax Code is
combustible materials imposed under the local tax deemed to have repealed Provincial Circulars issued by
ordinance of their respective locality, said fee partaking the Secretary of Finance when Sections 19 and 19 (a),
of the nature of a strictly revenue measure or service were carried over into P.D. No. 426 and no exemptions
charge. were given to manufacturers, wholesalers, retailers, or
dealers in petroleum products.
9. P.D. 1158 otherwise known as the National Internal
Revenue Code of 1977 was enacted, Section 153 of Well-settled is the rule that administrative regulations
which specifically imposes specific tax on refined and must be in harmony with the provisions of the law. In
manufactured mineral oils and motor fuels. case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails.
10. Enforcing the provisions of the above-mentioned
ordinance, the respondent filed a complaint on April 4, Furthermore, while Section 2 of P.D. 436 prohibits the
1986 docketed as Civil Case No. 057-T against PPC for imposition of local taxes on petroleum products, said
the collection of the business tax from 1979 to 1986; decree did not amend Sections 19 and 19 (a) of P.D. 231
storage permit fees from 1975 to 1986; mayor's permit as amended by P.D. 426, wherein the municipality is
and sanitary inspection fees from 1975 to 1984. PPC, granted the right to levy taxes on business of
however, have already paid the last-named fees starting manufacturers, importers, producers of any article of
1985 (Rollo, p. 74). commerce of whatever kind or nature. A tax on
business is distinct from a tax on the article itself. Thus,
11. The trial court rendered a decision against the
if the imposition of tax on business of manufacturers,
petitioner. Hence, the instant petition.
etc. in petroleum products contravenes a declared
Issue: national policy, it should have been expressly stated in
P.D. No. 436.
Whether petitioner PPC whose oil products are subject
to specific tax under the NIRC, is still liable to pay (a) tax The exercise by local governments of the power to tax is
on business and (b) storage fees, considering Provincial ordained by the present Constitution. To allow the
Circular No. 6-77; and mayor's permit and sanitary continuous effectivity of the prohibition set forth in PC
inspection fee unto the respondent Municipality of No. 26-73 (1) would be tantamount to restricting their
Pililla, Rizal, based on Municipal Ordinance No. 1. power to tax by mere administrative issuances. Under
Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by be required before any individual or juridical entity shall
Congress can define and limit such power of local engage in any business or occupation under the
governments. Thus: provisions of the Code.

Each local government unit shall have the power to However, since the Local Tax Code does not provide the
create its own sources of revenues and to levy taxes, prescriptive period for collection of local taxes, Article
fees, and charges subject to such guidelines and 1143 of the Civil Code applies. Said law provides that an
limitations as the Congress may provide, consistent with action upon an obligation created by law prescribes
the basic policy of local autonomy . . . within ten (10) years from the time the right of action
accrues. The Municipality of Pililla can therefore enforce
Provincial Circular No. 6-77 enjoining all city and
the collection of the tax on business of petitioner PPC
municipal treasurers to refrain from collecting the so-
due from 1976 to 1986, and NOT the tax that had
called storage fee on flammable or combustible
accrued prior to 1976.
materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the
payment of storage permit fee.

The storage permit fee being imposed by Pililla's tax

MCIA v Marcos
ordinance is a fee for the installation and keeping in
(Note: I think this case is irrelevant today because as
storage of any flammable, combustible or explosive
what we have discussed, recently the SC decided that
substances. Inasmuch as said storage makes use of
the NAIA is exempt from local tax. However, the taxes
tanks owned not by the municipality of Pililla, but by
paid by MCIA before cannot be refunded anymore.)
petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is I included here some of the provisions in LGC.
envisioned in Section 37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance vs.
No. 1 prescribing a permit fee is a permit fee allowed HON. FERDINAND J. MARCOS, in his capacity as the
under Section 36 of the amended Code. Presiding Judge of the Regional Trial Court, Branch 20,
Cebu City, THE CITY OF CEBU, represented by its Mayor
As to the authority of the mayor to waive payment of
the mayor's permit and sanitary inspection fees, the
CESA, respondents.
trial court did not err in holding that "since the power to
tax includes the power to exempt thereof which is FACTS:
essentially a legislative prerogative, it follows that a
municipal mayor who is an executive officer may not Since the time of its creation, petitioner MCIAA enjoyed
unilaterally withdraw such an expression of a policy the privilege of exemption from payment of realty taxes
thru the enactment of a tax." The waiver partakes of in accordance with Section 14 of its Charter. However,
the nature of an exemption. It is an ancient rule that the Office of the Treasurer of the City of Cebu,
exemptions from taxation are construed in strictissimi demanded payment for realty taxes on several parcels
juris against the taxpayer and liberally in favor of the of land belonging to the petitioner, located at Lahug,
taxing authority (Esso Standard Eastern, Inc. v. Acting Cebu City.
Commissioner of Customs, 18 SCRA 488 [1966]). Tax Petitioner objected to such demand for payment as
exemptions are looked upon with disfavor (Western baseless and unjustified, claiming in its favor the
Minolco Corp. v. Commissioner of Internal Revenue, aforecited Section 14 of RA 6958 which exempt it from
124 SCRA 121 [1983]). Thus, in the absence of a clear payment of realty taxes. It was also asserted that it is an
and express exemption from the payment of said fees, instrumentality of the government performing
the waiver cannot be recognized. As already stated, it is governmental functions, citing section 133 of the Local
the law-making body, and not an executive like the Government Code of 1991 which puts limitations on the
mayor, who can make an exemption. Under Section 36 taxing powers of local government units:
of the Code, a permit fee like the mayor's permit, shall
Respondent City refused to cancel and set aside same category as an instrumentality of Government. An
petitioner's realty tax account, insisting that the MCIAA instrumentality of Government is one created to
is a government-controlled corporation whose tax perform governmental functions primarily to promote
exemption privilege has been withdrawn by virtue of certain aspects of the economic life of the
Sections 193 and 234 of the Local Governmental Code people. Considering its task "not merely to efficiently
that took effect on January 1, 1992. operate and manage the MCIA, but more importantly,
to carry out the Government policies of promoting and
As the City of Cebu was about to issue a warrant of levy
developing the Central Visayas and Mindanao regions as
against the properties of petitioner, the latter was
centers of international trade and tourism, and
compelled to pay its tax account "under protest" and
accelerating the development of the means of
thereafter filed a Petition for Declaratory. MCIAA ba ally
transportation and communication in the country," and
contended that the taxing powers of local government
that it is an attached agency of the DOTC, the petitioner
units do not extend to the levy of taxes or fees of any
"may stand in the same footing as an agency or
kind on an instrumentality of the national government.
instrumentality of the national government." Hence, its
Petitioner insisted that while it is indeed a government-
tax exemption privilege under Section 14 of its Charter
owned corporation, it nonetheless stands on the same
"cannot be considered withdrawn with the passage of
footing as an agency or instrumentality of the national
the LGC because Section 133 thereof specifically states
government. Petitioner insisted that while it is indeed a
that the taxing powers of local government units shall
government-owned corporation, it nonetheless stands
not extend to the levy of taxes of fees or charges of any
on the same footing as an agency or instrumentality of
kind on the national government its agencies and
the national government by the very nature of its
powers and functions.
Second: that being an instrumentality of the National
Respondent City, however, asserted that MACIAA is not
Government, respondent City of Cebu has no power nor
an instrumentality of the government but merely a
authority to impose realty taxes upon it in accordance
government-owned corporation performing proprietary
with the aforesaid Section 133 of the LGC, as explained
functions As such, all exemptions previously granted to
in Basco vs. Philippine Amusement and Gaming
it were deemed withdrawn by operation of law, as
provided under Sections 193 and 234 of the Local
Government Code. Respondent’s Contention:

RTC dismissed the petition. It reasoned out: RA 7160 -As local a government unit and a political subdivision, it
expressly provides that "All general and special laws, has the power to impose, levy, assess, and collect taxes
acts, city charters, decrees, executive orders, within its jurisdiction. Such power is guaranteed by the
proclamations and administrative regulations, or part or Constitution and enhanced further by the LGC. While it
parts thereof which are inconsistent with any of the may be true that under its Charter the petitioner was
provisions of this Code are hereby repealed or modified exempt from the payment of realty taxes, this
accordingly." With that repealing clause in RA 7160, it is exemption was withdrawn by Section 234 of the LGC.
safe to infer and state that the tax exemption provided
- Petitioner is likewise a government-owned
for in RA 6958 creating petitioner had been expressly
corporation, and Section 234 thereof does not
repealed by the provisions of the New Local
distinguish between government-owned corporations
Government Code of 1991. So that petitioner in this
performing governmental and purely proprietary
case has to pay the assessed realty tax of its properties.
functions. Petitioner is a governmental-owned
Issue: corporation, and to reject the application of Basco
because it was "promulgated . . . before the enactment
Whether or not the MCIAA may be taxed.
and the singing into law of R.A. No. 7160," and was not,
Petitioner’s contention: therefore, decided "in the light of the spirit and
intention of the framers of the said law.
First: Although it is a government-owned or controlled
corporation it is mandated to perform functions in the SC Ruling:
Yes. MCIAA may be taxed. persons, whether natural or juridical, including
government-owned, or controlled corporations, except
There can be no question that under Section 14 of R.A.
local water districts, cooperatives duly registered under
No. 6958 the petitioner is exempt from the payment of
R.A. 6938, non stock and non profit hospitals and
realty taxes imposed by the National Government or
educational constitutions, are hereby withdrawn upon
any of its political subdivisions, agencies, and
the effectivity of this Code.
instrumentalities. Nevertheless, since taxation is the
rule and exemption therefrom the exception, the Reading together Section 133, 232 and 234 of the LGC,
exemption may thus be withdrawn at the pleasure of we conclude that as a general rule, as laid down in
the taxing authority. The only exception to this rule is Section 133 the taxing powers of local government units
where the exemption was granted to private parties cannot extend to the levy of inter alia, "taxes, fees, and
based on material consideration of a mutual nature, charges of any kind of the National Government, its
which then becomes contractual and is thus covered by agencies and instrumentalties, and local government
the non-impairment clause of the Constitution. units"; however, pursuant to Section 232, provinces,
cities, municipalities in the Metropolitan Manila Area
The LGC, enacted pursuant to Section 3, Article X of the
may impose the real property tax except on, inter alia,
constitution provides for the exercise by local
"real property owned by the Republic of the Philippines
government units of their power to tax, the scope
or any of its political subdivisions except when the
thereof or its limitations, and the exemption from
beneficial used thereof has been granted, for
taxation. (Read Sec 133 of the LGC)
consideration or otherwise, to a taxable person", as
Sec. 133. Common Limitations on the Taxing Power of provided in item (a) of the first paragraph of Section
Local Government Units. — Unless otherwise provided 234.
herein, the exercise of the taxing powers of provinces,
As to tax exemptions or incentives granted to or
cities, municipalities, and barangays shall not extend to
presently enjoyed by natural or juridical persons,
the levy of the following:
including government-owned and controlled
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE corporations, Section 193 of the LGC prescribes the
NATIONAL GOVERNMENT, ITS AGENCIES AND general rule, viz., they are withdrawn upon the
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. effectivity of the LGC, except upon the effectivity of the
LGC, except those granted to local water districts,
Among the "taxes" enumerated in the LGC is real cooperatives duly registered under R.A. No. 6938, non
property tax, which is governed by Section 232. It reads stock and non-profit hospitals and educational
as follows: institutions, and unless otherwise provided in the LGC.
Sec. 232. Power to Levy Real Property Tax. — A province The latter proviso could refer to Section 234, which
or city or a municipality within the Metropolitan Manila enumerates the properties exempt from real property
Area may levy on an annual ad valorem tax on real tax. But the last paragraph of Section 234 further
property such as land, building, machinery and other qualifies the retention of the exemption in so far as the
improvements not hereafter specifically exempted. real property taxes are concerned by limiting the
retention only to those enumerated there-in; all others
Section 234 of LGC provides for the exemptions from not included in the enumeration lost the privilege upon
payment of real property taxes and withdraws previous the effectivity of the LGC. Moreover, even as the real
exemptions therefrom granted to natural and juridical property is owned by the Republic of the Philippines, or
persons, including government owned and controlled any of its political subdivisions covered by item (a) of
corporations, except as provided therein. the first paragraph of Section 234, the exemption is
Section 193 of the LGC is the general provision on withdrawn if the beneficial use of such property has
withdrawal of tax exemption privileges. been granted to taxable person for consideration or
Sec. 193. Withdrawal of Tax Exemption Privileges. —
Unless otherwise provided in this code, tax exemptions Since the last paragraph of Section 234 unequivocally
or incentives granted to or presently enjoyed by all withdrew, upon the effectivity of the LGC, exemptions
from real property taxes granted to natural or juridical
persons, including government-owned or controlled An "agency" of the Government refers to "any of the
corporations, except as provided in the said section, and various units of the Government, including a
the petitioner is, undoubtedly, a government-owned department, bureau, office instrumentality, or
corporation, it necessarily follows that its exemption government-owned or controlled corporation, or a local
from such tax granted it in Section 14 of its charter, R.A. government or a distinct unit therein;" while an
No. 6958, has been withdrawn. "instrumentality" refers to "any agency of the National
Government, not integrated within the department
Petitioner can no longer invoke the general rule in
framework, vested with special functions or jurisdiction
Section 133 that the taxing powers of the local
by law, endowed with some if not all corporate powers,
government units cannot extend to the levy of: (o)
administering special funds, and enjoying operational
taxes, fees, or charges of any kind on the National
autonomy; usually through a charter. This term includes
Government, its agencies, or instrumentalities, and
regulatory agencies, chartered institutions and
local government units.
government-owned and controlled corporations".

Other issues:
Not Relevant to the taxation power but can be read for
(a) whether the parcels of land in question belong to
review purposes in Constitutional law. (RP; agency;
the Republic of the Philippines whose beneficial use has
been granted to the petitioner
This view does not persuade us. In the first place, the
(b) whether the petitioner is a "taxable person".
petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly Section 15 of the petitioner's Charter provides that the
mentions the word "instrumentalities"; and in the "airports" referred to are the "Lahug Air Port" in Cebu
second place it fails to consider the fact that the City and the "Mactan International AirPort in the
legislature used the phrase "National Government, its Province of Cebu", which belonged to the Republic of
agencies and instrumentalities" "in Section 133(o),but the Philippines, then under the Air Transportation
only the phrase "Republic of the Philippines or any of its Office (ATO).
political subdivision "in Section 234(a).
It may be reasonable to assume that the term "lands"
The terms "Republic of the Philippines" and "National refer to "lands" in Cebu City then administered by the
Government" are not interchangeable. The former is Lahug Air Port and includes the parcels of land the
boarder and synonymous with "Government of the respondent City of Cebu seeks to levy on for real
Republic of the Philippines" which the Administrative property taxes. This section involves a "transfer" of the
Code of the 1987 defines as the "corporate "lands" among other things, to the petitioner and not
governmental entity though which the functions of the just the transfer of the beneficial use thereof, with the
government are exercised through at the Philippines, ownership being retained by the Republic of the
including, saves as the contrary appears from the Philippines.
context, the various arms through which political
This "transfer" is actually an absolute conveyance of the
authority is made effective in the Philippines, whether
ownership thereof because the petitioner's authorized
pertaining to the autonomous reason, the provincial,
capital stock consists of, inter alia "the value of such
city, municipal or barangay subdivision or other forms
real estate owned and/or administered by the
of local government." These autonomous regions,
airports." Hence, the petitioner is now the owner of the
provincial, city, municipal or barangay subdivisions" are
land in question and the exception in Section 234(c) of
the political subdivision.
the LGC is inapplicable.
On the other hand, "National Government" refers "to
Moreover, the petitioner cannot claim that it was never
the entire machinery of the central government, as
a "taxable person" under its Charter. It was only
distinguished from the different forms of local
exempted from the payment of real property taxes. The
Governments." The National Government then is
grant of the privilege only in respect of this tax is
composed of the three great departments the
conclusive proof of the legislative intent to make it a
executive, the legislative and the judicial.
taxable person subject to all taxes, except real property 3. When local governments invoke the power to
tax. tax on national government instrumentalities,
such power is construed strictly against local
Even if the petitioner was originally not a taxable person
for purposes of real property tax, in light of the forgoing
4. Another rule is that a tax exemption is strictly
disquisitions, it had already become even if it be
construed against the taxpayer claiming the
conceded to be an "agency" or "instrumentality" of the
exemption. However, when Congress grants an
Government, a taxable person for such purpose in view
exemption to a national government
of the withdrawal in the last paragraph of Section 234
instrumentality from local taxation, such
of exemptions from the payment of real property taxes,
exemption is construed liberally in favor of the
which, as earlier adverted to, applies to the petitioner.
national government instrumentality.
Reliance on Basco vs. Philippine Amusement and 5. There is also no reason for local governments to
Gaming Corporation is unavailing since it was decided tax national government instrumentalities for
before the effectivity of the LGC. Besides, nothing can rendering essential public services to
prevent Congress from decreeing that even inhabitants of local governments. The only
instrumentalities or agencies of the government exception is when the legislature clearly
performing governmental functions may be subject to intended to tax government instrumentalities
tax. Where it is done precisely to fulfill a constitutional for the delivery of essential public services for
mandate and national policy, no one can doubt its sound and compelling policy considerations.
wisdom. 6. Doctrine emanates from the "supremacy" of
the National Government over local
governments - 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
City Government of Quezon City v Bayan Telecom carry into execution the powers vested in the
MISSING federal government. (MC Culloch v. Maryland, 4
Wheat 316, 4 L Ed. 579)
7. 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
Manila International Airport Authority v. CA
which has the inherent power to wield it.
FACTS: MIAA was created in 1983 by Executive Order
MIAA is exempt from real estate tax because:
903 (MIAA Charter) to operate the NAIA Complex in
1. It is not a GOCC but an instrumentality of the Paranaque City.
National Government. LGUs may only tax
The MIAA Charter provides that no portion of the land
GOCCs, not instrumentalities [Sec 133(o) in
transferred to MIAA shall be disposed of through sale or
relation to Sec 234(a)]
any other mode unless specifically approved by the
2. Section 133(o) recognizes the basic principle
President of the Philippines. MIAA is also exempt from
that local governments cannot tax the national
real estate tax.
government, which historically merely
delegated to local governments the power to In 1991, the Local Government Code was enacted
tax. While the 1987 Constitution now includes wherein Section 193 expressly withdrew the tax
taxation as one of the powers of local exemption privileges of "government-owned and-
governments, local governments may only controlled corporations."
exercise such power "subject to such guidelines
The City of Parañaque imposed real estate tax and sent
and limitations as the Congress may provide
Final Notices of Real Estate Tax Delinquency for the
taxable years 1992 to 2001. The City then issued notices First, MIAA is not a government-owned or controlled
of levy and warrants of levy on the Airport Lands and corporation but an instrumentality of the National
Buildings and later, a public auction sale was scheduled Government and thus exempt from local taxation.
for the MIAA properties.
 A government-owned or controlled corporation
MIAA filed with the Court of Appeals an original petition must be "organized as a stock or non-stock
for prohibition and injunction to stop the public auction corporation." MIAA is not organized as a stock
but the TRO was served only after the auction sale. or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock
MIAA Arguments:
divided into shares.
 Section 21 of the MIAA Charter specifically  MIAA is also not a non-stock corporation
exempts MIAA from the payment of real estate because it has no members. Section 87 of the
tax. Corporation Code defines a non-stock
 MIAA insists that it is also exempt from real corporation as "one where no part of its income
estate tax under Section 234 of the Local is distributable as dividends to its members,
Government Code because the Airport Lands trustees or officers." A non-stock corporation
and Buildings are owned by the Republic must have members. Even if we assume that
 MIAA invokes the principle that the government the Government is considered as the sole
cannot tax itself. MIAA points out that the member of MIAA, this will not make MIAA a
reason for tax exemption of public property is non-stock corporation. Non-stock corporations
that its taxation would not inure to any public cannot distribute any part of their income to
advantage, since in such a case the tax debtor is their members. Section 11 of the MIAA Charter
also the tax creditor. mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This
City of Paranaque Arguments: prevents MIAA from qualifying as a non-stock
 Section 193 of the Local Government Code, corporation.
which expressly withdrew the tax exemption  MIAA is a government instrumentality vested
privileges of "government-owned and- with corporate powers to perform efficiently its
controlled corporations" upon the effectivity of governmental functions. MIAA is like any other
the Local Government Code. government instrumentality, the only difference
 An international airport is not among the is that MIAA is vested with corporate powers.
exceptions mentioned in Section 193 of the When the law vests in a government
Local Government Code. Thus, respondents instrumentality corporate powers, the
assert that MIAA cannot claim that the Airport instrumentality does not become a corporation.
Lands and Buildings are exempt from real estate Unless the government instrumentality is
tax. organized as a stock or non-stock corporation, it
 The ruling of this Court in Mactan International remains a government instrumentality
Airport v. Marcos8 where we held that the Local exercising not only governmental but also
Government Code has withdrawn the corporate powers. Thus, MIAA exercises the
exemption from real estate tax granted to governmental powers of eminent domain,
international airports. police authority and the levying of fees and
charges. At the same time, MIAA exercises "all
ISSUE: WON the Local Government Code has withdrew the powers of a corporation under the
the exemption from real estate tax of MIAA Corporation Law, insofar as these powers are
not inconsistent with the provisions of this
HELD: No. MIAA's Airport Lands and Buildings are
Executive Order." Likewise, when the law makes
exempt from real estate tax imposed by local
a government instrumentality operationally
autonomous, the instrumentality remains part
MIAA NOT A GOCC BUT AN INSTRUMENTALITY OF THE of the National Government machinery
NATIONAL GOVERNMENT although not integrated with the department
framework. The MIAA Charter expressly states compelling policy requires such transfer of public funds
that transforming MIAA into a "separate and from one government pocket to another.
autonomous body" will make its operation
There is also no reason for local governments to tax
more "financially viable."
national government instrumentalities for rendering
TAXATION essential public services to inhabitants of local
governments. The only exception is when the
A government instrumentality like MIAA falls under
legislature clearly intended to tax government
Section 133(o) of the Local Government Code, which
instrumentalities for the delivery of essential public
services for sound and compelling policy
SEC. 133. Common Limitations on the Taxing Powers of considerations. There must be express language in the
Local Government Units. – Unless otherwise provided law empowering local governments to tax national
herein, the exercise of the taxing powers of provinces, government instrumentalities. Any doubt whether such
cities, municipalities, and barangays shall not extend power exists is resolved against local governments.
to the levy of the following:
Thus, Section 133 of the Local Government Code states
xxxx that "unless otherwise provided" in the Code, local
governments cannot tax national government
(o) Taxes, fees or charges of any kind on the National instrumentalities.
Government, its agencies and instrumentalities and
local government units.(Emphasis and underscoring As this Court held in Basco v. Philippine Amusements
supplied) and Gaming Corporation:

Section 133(o) recognizes the basic principle that local The states have no power by taxation or otherwise, to
governments cannot tax the national government, retard, impede, burden or in any manner control the
which historically merely delegated to local operation of constitutional laws enacted by Congress to
governments the power to tax. While the 1987 carry into execution the powers vested in the federal
Constitution now includes taxation as one of the powers government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L
of local governments, local governments may only Ed. 579)
exercise such power "subject to such guidelines and
This doctrine emanates from the "supremacy" of the
limitations as the Congress may provide."18
National Government over local governments.
When local governments invoke the power to tax on
"Justice Holmes, speaking for the Supreme Court, made
national government instrumentalities, such power is
reference to the entire absence of power on the part of
construed strictly against local governments. The rule is
the States to touch, in that way (taxation) at least, the
that a tax is never presumed and there must be clear
instrumentalities of the United States (Johnson v.
language in the law imposing the tax. Any doubt
Maryland, 254 US 51) and it can be agreed that no state
whether a person, article or activity is taxable is
or political subdivision can regulate a federal
resolved against taxation. This rule applies with greater
instrumentality in such a way as to prevent it from
force when local governments seek to tax national
consummating its federal responsibilities, or even to
government instrumentalities.
seriously burden it in the accomplishment of them."
Another rule is that a tax exemption is strictly construed (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
against the taxpayer claiming the exemption. However, emphasis supplied)
when Congress grants an exemption to a national
Otherwise, mere creatures of the State can defeat
government instrumentality from local taxation, such
National policies thru extermination of what local
exemption is construed liberally in favor of the national
authorities may perceive to be undesirable activities or
government instrumentality.
enterprise using the power to tax as "a tool for
There is, moreover, no point in national and local regulation" (U.S. v. Sanchez, 340 US 42).
governments taxing each other, unless a sound and
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 Section 137 LGC withdrew any exemption from the
or creation of the very entity which has the inherent payment of franchise tax by authorizing the LGUs to
power to wield it. 20 impose a franchise tax on businesses at a rate not
exceeding 50% of 1% of the gross annual receipts of the
business. Section 232 also authorizes the imposition of
an ad valorem tax on real property by the LGUs within
Second, the real properties of MIAA are owned by the the Metropolitan Manila Area wherein the land,
Republic of the Philippines and thus exempt from real building, machinery and other improvement not
estate tax. thereinafter specifically exempted.

The Airport Lands and Buildings of MIAA are property Digitel was granted, under Provincial Ordinance No. 18-
of public dominion and therefore owned by the State 92, a provincial franchise to install, maintain and
or the Republic of the Philippines. The Airport Lands operate a telecommunications system within
and Buildings are devoted to public use because they Pangasinan. Under the Sec 6 of the provincial franchise,
are used by the public for international and domestic the grantee is required to pay franchise and real
travel and transportation. property taxes.

As properties of public dominion, the Airport Lands The Sangguniang Panlalawigan also enacted Provincial
and Buildings are outside the commerce of man. Tax Ordinance 1 (Real Property Tax Ordinance of 1992).
Before MIAA can encumber26 the Airport Lands and Section 4, however, expanded the application of Sec. 6
Buildings, the President must first withdraw from of the provincial franchise of Digitel to include
public use the Airport Lands and Buildings. machineries and other improvements, not thereinafter
exempted,. Provincial Tax Ordinance No 4 was then
Real Property owned by the Republic is not taxable. enacted. Sections 4, 5 and 6 positively imposed a
Section 234(a) of the Local Government Code exempts franchise tax on businesses enjoying a franchise within
from real estate tax any "[r]eal property owned by the the province of Pangasinan.
Republic of the Philippines." This exemption should be
read in relation with Section 133(o) of the same Code, Thereafter, Digitel was granted by RA 7678 a legislative
which prohibits local governments from imposing franchise. Under its legislative franchise, particularly
"[t]axes, fees or charges of any kind on the National Sec. 5 thereof, petitioner DIGITEL became liable for the
Government, its agencies and instrumentalities x x x." payment of a franchise tax “as may be prescribed by
The real properties owned by the Republic are titled law of all gross receipts of the telephone or other
either in the name of the Republic itself or in the name telecommunications businesses transacted under it by
of agencies or instrumentalities of the National the grantee,” as well as real property tax “on its real
Government. The Administrative Code allows real estate, and buildings “exclusive of this franchise.”
property owned by the Republic to be titled in the name
Later, the Province of Pangasinan found that Digitel had
of agencies or instrumentalities of the national
a franchise tax deficiency for the years of 1992, 1993
government. Such real properties remain owned by the
and 1994.
Republic and continue to be exempt from real estate
tax. In the interregnum, on 16 March 1995, Congress passed
RA 7925, otherwise known as “The Public
Telecommunications Policy Act of the Philippines.”
Digital Telecom v Pangasinan Section 23 of this law entitled Equality of Treatment in
Digitel telecommunications vs Province of pangasinan the Telecommunications Industry, provided for the ipso
facto application to any previously granted
Facts: The present petition stemmed from a Complaint telecommunications franchises of any advantage, favor,
for Mandamus, Collection of Sum of Money and privilege, exemption or immunity granted under
Damages instituted by the Province of Pangasinan existing franchises, or those still to be granted, to be
against Digital Telecommunications Philippines, Inc. accorded immediately and unconditionally to earlier
Thereafter, Digitel opposed Pangasinan’s claim on the b.) WON Digitel is exempt from payment of real
ground that prior to the approval of its legislative estate tax under its legislative franchise.
franchise, its operation of a telecommunications system
was done under a Facilities Management Agreement it
had previously executed with the DOTC. It clarified that a.) No: Prior to the enactment of its legislative
since “the facilities in Pangasinan are just part of the franchise, Digitel did not enjoy any exemption
government owned facilities awarded to DIGITEL,” not from the payment of franchise and real
only did the DOTC retain ownership of said facilities, the property taxes. In fact the provincial franchise
latter likewise “provided for the budget for) expenses made Digitel liable for the payment of such
under its allocation from the government;” hence, “all taxes.
revenues generated from the operation of the facilities
inured to the DOTC;” and all the fees received by
petitioner DIGITEL were purely for services rendered. The case at bar is actually not one of first impression.
Further, it argued that under its legislative franchise, Indeed, as far back as 2001, this Court has had the
the payment of a franchise tax to the BIR would be “in occasion to rule against the claim for tax exemption
lieu of all taxes” on said franchise or the earnings under RA 7925. In the case of PLDT v. City of Davao, we
therefrom. already clarified the confusion brought about by the
The Province of Pangasinan filed a Complaint for effect of Section 23 of Republic Act No. 7925 – that the
Mandamus, Collection of Sum of Money and Damages word “exemption” as used in the statute refers or
before Branch 68 of the RTC of Lingayen, Pangasinan. pertains merely to an exemption from regulatory or
reporting requirements of the DOTC or the NTC and
The trial court decided the Province. It ruled that not to the grantee’s tax liability. In said case, the Court
Digitel’s legislative franchise does not work to exempt ruled that Congress did not intend Section 23 to
the latter from payment of provincial franchise and real operate as a blanket tax exemption to all telcos.
property taxes. It ruled that provincial and legislative Moreover, tax exemptions must be expressed in the
franchises are separate and distinct from each other. statute in clear language that leaves no doubt of the
Moreover, it pointed out that LGC already withdrew any intention of the legislature to grant such exemption.
exemption granted to anyone. And, even if it is granted, the exemption must be
interpreted in strictissimi juris against the taxpayer and
On the other hand, Digitel maintains that its legislative
liberally in favor of the taxing authority.
franchise being an earlier enactment, by virtue of
Section 23 of Republic Act No. 7925, the ipso facto, Moreover, it ruled that PLDT’s theory will leave the
immediate and unconditional application to it of the tax Government with the burden of having to keep track of
exemption found in the franchises of Globe, Smart and all granted telecommunications franchises, lest some
Bell. Stated simply, Section 23 of Republic Act No. 7925, companies be treated unequally. It is different if
in relation to the pertinent provisions of the legislative Congress enacts a law specifically granting uniform
franchises of Globe, Smart and Bell, “the national advantages, favor, privilege, exemption, or immunity to
franchise tax for which Digitel is liable to pay shall be ‘in all telecommunications entities. R.A. No. 7925 is thus a
lieu of any and all taxes of any kind, nature or legislative enactment designed to set the national policy
description levied, established or collected by any on telecommunications and provide the structures to
authority whatsoever, municipal, provincial, or national, implement it to keep up with the technological
from which the grantee is hereby expressly granted.’ advances in the industry and the needs of the public.
The thrust of the law is to promote gradually the
deregulation of the entry, pricing, and operations of all
a.) WON Digitel is exempt from the payment of public telecommunications entities and thus promote a
provincial franchise tax in view of Section 23 of level playing field in the telecommunications industry.
RA 7925 in relation to the exemptions enjoyed There is nothing in the language of §23 nor in the
by other telcos. proceedings of both the House of Representatives and
the Senate in enacting R.A. No. 7925 which shows that
it contemplates the grant of tax exemptions to all and exclusively used by the grantee in its
telecommunications entities, including those whose franchise.
exemptions had been withdrawn by the LGC. The issue
is then settled, the Court has no recourse but to deny
Digitel’s claim for exemption from payment of The present issue actually boils down to a dispute
provincial franchise tax. The foregoing pronouncement between the inherent taxing power of Congress and the
notwithstanding, in view of the passage of RA 7716 delegated authority to tax of the local government
abolishing the franchise tax imposed on borne by the 1987 Constitution. In the PLDT v. City of
telecommunications companies effective 1 January Davao, we already sustained the power of Congress to
1996 and in its place is imposed a 10% VAT, the “in-lieu- grant exemptions over and above the power of the
of-all-taxes” clause/provision in the legislative local government’s delegated taxing authority
franchises of Globe, Smart and Bell, among others, has notwithstanding the source of such power. Had
now become functus officio, made inoperative for lack Congress intended to tax each and every real property
of a franchise tax. Therefore, taking into consideration of Digitel, regardless of whether or not it is used in the
the above, from 1 January 1996, Digitel ceased to be business or operation of its franchise, it would not have
liable for national franchise tax and in its stead is incorporated a qualifying phrase, which such
imposed a 10% VAT in accordance with Section 108 of manifestation admittedly is. And, to our minds, “the
the Tax Code. issue in this case no longer dwells on whether Congress
has the power to exempt” Digitel’s properties from
b.) Yes. Pertinent Provision: SECTION 5. Tax
realty taxes by its enactment of RA 7678 which contains
Provisions. – The grantee shall be liable to pay
the phrase “exclusive of this franchise,” in the face of
the same taxes on its real estate, buildings, and
the mandate of the Local Government Code. The more
personal property exclusive of this franchise as
pertinent issue to consider is whether or not, by passing
other persons or corporations are now or
Ra7678, Congress intended to exempt Digitel’s real
hereafter may be required by law to pay x x x.
properties actually, directly and exclusively used by the
Owing to the phrase “exclusive of this
grantee in its franchise. The fact that Republic Act No.
franchise,” petitioner DIGITEL stands firm in its
7678 was a later piece of legislation can be taken to
position that it is equally exempt from the
mean that Congress, knowing fully well that the Local
payment of real property tax. It maintains that
Government Code had already withdrawn exemptions
said phrase found in Section 5 qualifies or
from real property taxes, chose to restore such
delimits the scope of its liability respecting real
immunity even to a limited degree. In view of the
property tax –that real property tax should only
unequivocal intent of Congress to exempt from real
be imposed on its assets that are actually,
property tax those real properties actually, directly and
directly and exclusively used in the conduct of
exclusively used by petitioner DIGITEL in the pursuit of
its business pursuant to its franchise. According
its franchise, respondent Province of Pangasinan can
to the Province, however, “the phrase ‘exclusive
only levy real property tax on the remaining real
of this franchise’ in the legislative franchise of
properties of the grantee located within its territorial
Digitel did not specifically or categorically
jurisdiction not part of the above-stated classification.
express that such franchise grant intended to
Said exemption, however, merely applies from the time
provide privilege to the extent of impliedly
of the effectivity of petitioner DIGITEL’s legislative
repealing RA 7160.” Thus, the question is,
franchise and not a moment sooner.
whether or not petitioner DIGITEL’s real
properties located within the territorial In fine, petitioner DIGITEL is found accountable to
jurisdiction of respondent Province of respondent Province of Pangasinan for the following tax
Pangasinan are exempt from real property liabilities: 1) as to provincial franchise tax, from 13
taxes by virtue of Section 5 of Republic Act No. November 1992 until actually paid; and 2) as to real
7678. We rule in the affirmative. However, it is property tax, for the period starting from 13 November
with the caveat that such exemption solely 1992 until 28 December 1992, it shall be imposed only
applies to those real properties actually, directly on the lands and buildings of petitioner DIGITEL located
within the subject jurisdiction; for the period
commencing from 29 December 1992 until 16 February ISSUE:
1994, in addition to the lands and buildings WON SEC. 193 of LGC applied to the exemption granted
aforementioned, it shall similarly be imposed on
machineries and other improvements; and, by virtue of
the National Franchise of petitioner DIGITEL or Republic
Act No. 7678, in accordance with the Court’s ruling in
the abovementioned Bayantel case, from the date of No…
effectivity on 17 February 1994 until the present, it shall
be imposed only on real properties NOT actually, Section 193. Withdrawal of Tax
Exemption Privileges. Unless otherwise
directly and exclusively used in the franchise of
provided in this Code, tax exemptions
petitioner DIGITEL. In addition to the foregoing
or incentives granted to, or presently
summary, pertinent provisions of law respecting enjoyed by all persons, whether
interests, penalties and surcharges shall also be made natural or juridical, including
to apply to herein subject tax liabilities. government-owned or controlled
corporations, except local water
City of Iloilo v Smart Communications
districts, cooperatives duly registered
CITY OF ILOILO v. SMART TELECOMMUNICATIONS under RA No. 6938, non-stock and non-
PRINCIPLES: profit hospitals and educational
institutions, are hereby withdrawn
Section 193. Withdrawal of Tax Exemption Privileges of upon the effectivity of this
the LGC applies only to those tax exemption privileges Code. [Emphasis supplied.]
granted prior to the effectivity of the Code.

The petitioner argues, too, that SMARTs claim for
SMART received a letter of assessment dated February exemption from taxes under Section 9 of its franchise is
12, 2002 from petitioner requiring it to pay deficiency not couched in plain and unequivocal language such
local franchise and business taxes. SMART protested that it restored the withdrawal of tax exemptions under
claiming that the exemption from payment of local Section 193 above. It claims that if Congress intended
franchise and business taxes based on Section 9 of its that the tax exemption privileges withdrawn by Section
legislative franchise under Republic Act (R.A.) No. 7294 193 of RA 7160 [LGC] were to be restored in
(SMARTs franchise). Under SMARTs franchise, it was respondents [SMARTs] franchise, it would have so
required to pay a franchise tax equivalent to 3% of all expressly provided therein and not merely [restored the
gross receipts, which amount shall be in lieu of all exemption] by the simple expedient of including the in
taxes. SMART contends that the in lieu of all taxes clause lieu of all taxes provision in said franchise.[10]
covers local franchise and business taxes.
We have indeed ruled that by virtue of Section 193 of
the LGC, all tax exemption privileges then enjoyed by all
Through a letter, petitioner denied SMARTs protest,
persons, save those expressly mentioned, have been
citing the failure of SMART to comply with Section 252
withdrawn effective January 1, 1992 the date of
of R.A. No. 7160 or the Local Government Code (LGC)
effectivity of the LGC.[11] The first clause of Section 137
before filing the protest against the assessment. Section
of the LGC states the same rule.[12] However, the
252 of the LGC requires payment of the tax before any
withdrawal of exemptions, whether under Section
protest against the tax assessment can be made.
193 or 137 of the LGC, pertains only to those
already existing when the LGC was enacted. The
SMART filed a case against petitioner with the RTC. RTC
intention of the legislature was to remove all tax
decided in favor of SMART.
exemptions or incentives granted prior to the
LGC.[13] As SMARTs franchise was made effective "A. Whether or not the president committed grave
on March 27, 1992 after the effectivity of the LGC abuse of discretion in ordering all LGUS to adopt a 25%
cost reduction program in violation of the LGU’S fiscal
Section 193 will therefore not apply in this case.

"B. Whether or not the president committed grave

abuse of discretion in ordering the withholding of 10%
of the LGU’S IRA”
GSIS v City Treasurer of Manila MISSING
Pimentel v Aguirre
Taxation: Just Share in the National Taxes A. Alleged Violation on LGU’S Fiscal Autonomy
Facts: No. Section 1 of the AO is merely an advisory not a
mandate. Hence, the President did not exercise power
On December 27, 1997, the President of the
of control over the LGU so there is no violation on fiscal
Philippines issued AO 372 entitled ADOPTION OF
The AO was made because of the depreciation of peso Under existing law, local government units, in addition
during that time. to having administrative autonomy in the exercise of
their functions, enjoy fiscal autonomy as well. Fiscal
Petitioner seeks to annul Sec. 1 and Sec. 4 of the AO 372
autonomy means that local governments have the
on the grounds that:
power to create their own sources of revenue in
1. insofar as it requires local government units to addition to their equitable share in the national taxes
reduce their expenditures by 25 percent of their released by the national government, as well as the
authorized regular appropriations for non- power to allocate their resources in accordance with
personal services; (Sec. 1) and their own priorities.

2. to enjoin respondents from implementing Local fiscal autonomy does not however rule out any
Section 4 of the Order, which withholds a manner of national government intervention by way of
portion of their internal revenue allotments. supervision, in order to ensure that local programs,
fiscal and otherwise, are consistent with national
goals. Significantly, the President, by constitutional fiat,
The following are the Sections of the AO the petitioner is the head of the economic and planning agency of the
seeks to annul: government.

SECTION 1. All government departments and agencies, However, under the Constitution, the formulation and
including state universities and colleges, government- the implementation of such policies and programs are
owned and controlled corporations and local subject to "consultations with the appropriate public
governments units will identify and implement agencies, various private sectors, and local government
measures in FY 1998 that will reduce total units." The President cannot do so unilaterally.
expenditures for the year by at least 25% of authorized
Section 284 of the LGC provides:
regular appropriations for non-personal services
items…xxx "x x x [I]n the event the national government incurs an
unmanaged public sector deficit, the President of the
SECTION 4. Pending the assessment and evaluation by
Philippines is hereby authorized, upon the
the Development Budget Coordinating Committee of
recommendation of [the] Secretary of Finance,
the emerging fiscal situation, the amount equivalent to
Secretary of the Interior and Local Government and
10% of the internal revenue allotment to local
Secretary of Budget and Management, and subject to
government units shall be withheld.
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 national internal revenue. This is mandated by no less
the allotment be less than thirty percent (30%) of the than the Constitution (Sec. 6 of Art. X of the
collection of national internal revenue taxes of the third Constitution). The Local Government Code [Sec. 286
fiscal year preceding the current fiscal year x x x." (a)] specifies further that the release shall be made
directly to the LGU concerned within five (5) days after
There are therefore several requisites before the
every quarter of the year and "shall not be subject to
President may interfere in local fiscal matters:
any lien or holdback that may be imposed by the
(1) an unmanaged public sector deficit of the national national government for whatever purpose." As a rule,
government; the term "shall" is a word of command that must be
given a compulsory meaning. The provision is,
(2) consultations with the presiding officers of the therefore, imperative.
Senate and the House of Representatives and the
presidents of the various local leagues; and Section 4 of AO 372, however, orders the withholding,
effective January 1, 1998, of 10 percent of the LGUs' IRA
(3) the corresponding recommendation of the "pending the assessment and evaluation by the
secretaries of the Department of Finance, Interior and Development Budget Coordinating Committee of the
Local Government, and Budget and Management. emerging fiscal situation" in the country. Such
While the wordings of Section 1 of AO 372 have a rather withholding clearly contravenes the Constitution and
commanding tone, and while we agree with petitioner the law. Although temporary, it is equivalent to a
that the requirements of Section 284 of the Local holdback, which means "something held back or
Government Code have not been satisfied, we are withheld, often temporarily."[32] Hence, the "temporary"
prepared to accept the solicitor general's nature of the retention by the national government
assurance that the directive to "identify and implement does not matter. Any retention is prohibited.
measures x x x that will reduce total expenditures x x In sum, while Section 1 of AO 372 may be upheld as an
x by at least 25% of authorized regular appropriation" is advisory effected in times of national crisis, Section 4
merely advisory in character, and does not constitute a thereof has no color of validity at all. The latter
mandatory or binding order that interferes with local provision effectively encroaches on the fiscal autonomy
autonomy. The language used, while authoritative, does of local governments. Concededly, the President was
not amount to a command that emanates from a boss well-intentioned in issuing his Order to withhold the
to a subaltern. LGUs IRA, but the rule of law requires that even the
Rather, the provision is merely an advisory to prevail best intentions must be carried out within the
upon local executives to recognize the need for fiscal parameters of the Constitution and the law. Verily,
restraint in a period of economic difficulty. Indeed, all laudable purposes must be carried out by legal
concerned would do well to heed the President's call to methods.
unity, solidarity and teamwork to help alleviate the
crisis. It is understood, however, that no legal sanction
may be imposed upon LGUs and their officials who do Villafuerte v Robredo
not follow such advice. It is in this light that we sustain The Facts
the solicitor general's contention in regard to Section 1.

In 1995, the Commission on Audit (COA) conducted an

examination and audit on the manner the local
B. The withholding of the IRA (Just share from
government units (LGUs) utilized their Internal Revenue
national tax)
Allotment (IRA) for the calendar years 1993-1994. The
Yes. The President committed grave abuse of discretion examination yielded an official report, showing that a
in withholding the IRA of the LGU. substantial portion of the 20% development fund of
some LGUs was not actually utilized for development
Section 4 of AO 372 cannot, however, be upheld. A projects but was diverted to expenses properly
basic feature of local fiscal autonomy is chargeable against the Maintenance and Other
the automatic release of the shares of LGUs in the
Operating Expenses (MOOE), in stark violation of
Section 287 of R.A. No. 7160, otherwise known as the The petitioners argue that the assailed issuances of the
Local Government Code of 1991 (LGC). Thus, on respondent interfere with the local and fiscal autonomy
December 14, 1995, the DILG issued MC No. 95-216,5 of LGUs embodied in the Constitution and the LGC. In
enumerating the policies and guidelines on the particular, they claim that MC No. 2010-138
utilization of the development fund component of the transgressed these constitutionally-protected liberties
IRA. It likewise carried a reminder to LGUs of the strict when it restricted the meaning of “development” and
mandate to ensure that public funds, like the 20% enumerated activities which the local government must
development fund, “shall be spent judiciously and only finance from the 20% development fund component of
for the very purpose or purposes for which such funds the IRA and provided sanctions for local authorities who
are intended.”6 shall use the said component of the fund for the
excluded purposes stated therein.33 They argue that the
On September 20, 2005, then DILG Secretary Angelo T. respondent cannot substitute his own discretion with
Reyes and Department of Budget and Management that of the local legislative council in enacting its annual
Secretary Romulo L. Neri issued Joint MC No. 1, series of budget and specifying the development projects that
2005,7 pertaining to the guidelines on the appropriation the 20% component of its IRA should fund.34
and utilization of the 20% of the IRA for development
projects, which aims to enhance accountability of the The argument fails to persuade.
LGUs in undertaking development projects. The said
memorandum circular underscored that the 20% of the To safeguard the state policy on local autonomy, the
IRA intended for development projects should be Constitution confines the power of the President over
utilized for social development, economic development LGUs to mere supervision.39 “The President exercises
and environmental management.8 ‘general supervision’ over them, but only to ‘ensure
that local affairs are administered according to law.’ He
On August 31, 2010, the respondent, in his capacity as has no control over their acts in the sense that he can
DILG Secretary, issued the assailed MC No. 2010-83,9 substitute their judgments with his own.”40 Thus,
entitled “Full Disclosure of Local Budget and Finances, Section 4, Article X of the Constitution, states:
and Bids and Public Offerings,” which aims to promote
Section 4. The President of the Philippines shall exercise
good governance through enhanced transparency and
general supervision over local governments. Provinces
accountability of LGUs.
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.

THE HON. SECRETARY OF THE INTERIOR AND LOCAL In Province of Negros Occidental v. Commissioners,
GOVERNMENT COMMITTED GRAVE ABUSE OF Commission on Audit,41 the Court distinguished general
DISCRETION AMOUNTING TO LACK OR EXCESS OF supervision from executive control in the following
The President’s power of general supervision means the
power of a superior officer to see to it that subordinates
perform their functions according to law. This is
distinguished from the President’s power of control
which is the power to alter or modify or set aside what
a subordinate officer had done in the performance of
Ruling of the Court his duties and to substitute the judgment of the
President over that of the subordinate officer. The
power of control gives the President the power to
revise or reverse the acts or decisions of a subordinate provide the corresponding penalties therefor. It simply
officer involving the exercise of discretion.42 (Citations stated a reminder to LGUs that there are existing rules
omitted) to consider in the disbursement of the 20%
development fund and that non-compliance therewith
may render them liable to sanctions which are provided
It is the petitioners’ contention that the respondent
in the LGC and other applicable laws. Nonetheless, this
went beyond the confines of his supervisory powers, as
warning for possible imposition of sanctions did not
alter ego of the President, when he issued MC No.
alter the advisory nature of the issuance.
2010-138. They argue that the mandatory nature of the
circular, with the threat of imposition of sanctions for
At any rate, LGUs must be reminded that the local
non-compliance, evinces a clear desire to exercise
autonomy granted to them does not completely severe
control over LGUs.43
them from the national government or turn them into
impenetrable states. Autonomy does not make local
The Court, however, perceives otherwise.
governments sovereign within the state.46 In Ganzon v.
Court of Appeals,47 the Court reiterated:
A reading of MC No. 2010-138 shows that it is a mere
reiteration of an existing provision in the LGC. It was Autonomy, however, is not meant to end the relation of
plainly intended to remind LGUs to faithfully observe partnership and interdependence between the central
the directive stated in Section 287 of the LGC to utilize administration and local government units, or
the 20% portion of the IRA for development projects. It otherwise, to usher in a regime of federalism. The
was, at best, an advisory to LGUs to examine Charter has not taken such a radical step. Local
themselves if they have been complying with the law. It governments, under the Constitution, are subject to
must be recalled that the assailed circular was issued in regulation, however limited, and for no other purpose
response to the report of the COA that a substantial than precisely, albeit paradoxically, to enhance self-
portion of the 20% development fund of some LGUs government.48
was not actually utilized for development projects but
was diverted to expenses more properly categorized as
Thus, notwithstanding the local fiscal autonomy being
MOOE, in violation of Section 287 of the LGC. This
enjoyed by LGUs, they are still under the supervision of
intention was highlighted in the very first paragraph of
the President and maybe held accountable for
MC No. 2010-138.
malfeasance or violations of existing laws. “Supervision
is not incompatible with discipline. And the power to
discipline and ensure that the laws be faithfully
The petitioners misread the issuance by claiming that executed must be construed to authorize the President
the provision of sanctions therein is a clear indication of to order an investigation of the act or conduct of local
the President’s interference in the fiscal autonomy of officials when in his opinion the good of the public
LGUs. The relevant portion of the assailed issuance service so requires.”49
reads, thus:
Clearly then, the President’s power of supervision is not
All local authorities are further reminded that utilizing
antithetical to investigation and imposition of sanctions
the 20% component of the Internal Revenue Allotment,
whether willfully or through negligence, for any purpose WHEREFORE, in view of the foregoing considerations,
beyond those expressly prescribed by law or public the petition is DISMISSED for lack of merit.
policy shall be subject to the sanctions provided under
the Local Government Code and under such other SO ORDERED.
applicable laws.45

Significantly, the issuance itself did not provide for

sanctions. It did not particularly establish a new set of
acts or omissions which are deemed violations and
POLICE POWER Yes. The constitutional mandate for local autonomy
supports petitioner city’s issuance of Executive Order
No. 40, series of 2008, creating change management
City of Gen Santos v. COA teams as an initial step for its organization development
Doctrine: Local autonomy also grants local governments the
In order to be able to deliver more effective and power to streamline and reorganize. This power is
efficient services, the law allows local government units inferred from Section 76 of the Local Government Code
the power to reorganize. In doing so, they should be on organizational structure and staffing pattern, and
given leeway to entice their employees to avail of Section 16 otherwise known as the general welfare
severance benefits that the local government can clause:
afford. However, local government units may not Section 76. Organizational Structure and Staffing
provide such when it amounts to a supplementary Pattern. - Every local government unit shall design and
retirement benefit scheme. implement its own organizational structure and staffing
Facts: pattern taking into consideration its service
requirements and financial capability, subject to the
City of Gensa issued Ordinance No. 08 (Scheme on Early minimum standards and guidelines prescribed by the
Retirement for Valued Employees Security Scheme on Civil Service Commission.
Early Retirement for Valued Employees Security -
SERVES), designed "to entice those employees who were Section 16. General Welfare. - Every local government
unproductive due to health reasons to avail of the unit shall exercise the powers expressly granted, those
incentives being offered therein by way of early necessarily implied therefrom, as well as powers
retirement package." necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to
The contextual background in the passing of Ordinance the promotion of the general welfare. Within their
No. 08, series of 2009, was not contested by respondent respective territorial jurisdictions, local government
Commission on Audit. units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health
However, in response to the endorsement of the city
and safety, enhance the right of the people to a
audit team leader, respondent Commission’s regional
balanced ecology, encourage and support the
director agreed that the grant lacked legal basis.
development of appropriate and self-reliant scientific
The Commission’s regional director forwarded the and technological capabilities, improve public morals,
matter to the Office of General Counsel which issued enhance economic prosperity and social justice,
COA-LSS Opinion No. 2010-021. Respondent promote full employment among their residents,
Commission on Audit observed that GenSan SERVES maintain peace and order, and preserve the comfort
was not based on a law passed by Congress but on and convenience of their inhabitants.
ordinances and resolutions passed and approved by the
Section 5, paragraph (a) of the Local Government Code
Sangguniang Panlungsod and Executive Orders by the
states that "any provision on a power of a local
city mayor. Moreover, nowhere in Republic Act No.
government unit shall be liberally interpreted in its
7160, otherwise known as the Local Government Code,
favor, and in case of doubt, any question thereon shall
does it provide a specific power for local government
be resolved in favor or devolution of powers x x x."
units to establish an early retirement program.
Section 5, paragraph (c) also provides that "the general
welfare provisions in this Code shall be liberally
Whether Gensan has the power to reorganize through interpreted to give more powers to local government
ordinance no. 08 without requiring a law authorizing it units in accelerating economic development and
for its validity. upgrading the quality of life for the people in the
community." These rules of interpretation emphasize
the policy of local autonomy and the devolution of plan – other than the GSIS – for government officers
powers to the local government units. and employees, in order to prevent the undue and
inequitous proliferation of such plans. x x x. To ignore
Designing and implementing a local government unit’s
this and rule otherwise would be tantamount to
own "organizational structure and staffing pattern" also
permitting every other government office or agency to
implies the power to revise and reorganize. Without
put up its own supplementary retirement benefit plan
such power, local governments will lose the ability to
under the guise of such "financial assistance.71
adjust to the needs of its constituents. Effective and
efficient governmental services especially at the local
government level require rational and deliberate
The Court declares Section 6 on post-retirement
changes planned and executed in good faith from time
incentives as valid.
to time.

(However, thought the reorganization has legal basis,

the Court nevertheless partially granted the validity of US v. Salaveria MISSING
said Ordinance because some of its provisions run
contrary to law. To this effect the following is for your
Binay v Domingo MISSING
guidance, but this is not necessary as to the topic
concerns us)
Tatel v Mun of Virac
The Court agree with respondent Commission on Audit TATEL VS MUNICIPALITY OF VIRAC
but only insofar as the invalidity of Section 5 of the
ordinance is concerned. FACTS:

Section 5. GenSan SERVES Program Incentives On Top of Complaints were received from the residents of barrio
Government Service Insurance System (GSIS) and PAG- Sta. Elena on March 18, 1966 against the disturbance
IBIG Benefits – Any personnel qualified and approved to caused by the operation of the abaca bailing machine
receive the incentives of this program shall be entitled inside the warehouse of petitioner which affected the
to whatever retirement benefits the GSIS or PAG-IBIG is peace and tranquility of the neighborhood due to the
granting to a retiring government employee. smoke, obnoxious odor and dust emitted by the
machine. A committee was appointed by the municipal
Moreover, an eligible employee shall receive an early council of Virac to investigate the matter. The
retirement incentive provided under this program at committee noted the crowded nature of the
the rate of one and one-half (1 1/2) months of the neighborhood with narrow roads and the surrounding
employee’s latest basic salary for every year of service residential houses, so much so that an accidental fire
in the City Government.9 within the warehouse of the petitioner occasioned by
Section 5 refers to an "early retirement incentive," the the continuance of the activity inside the warehouse
amount of which is pegged on the beneficiary’s years of and the storing of inflammable materials created a
service in the city government. The ordinance provides danger to the lives and properties of the people within
that only those who have rendered service to the city the neighborhood.
government for at least 15 years may Resultantly, Resolution No. 29 was passed by the
apply.75 Consequently, this provision falls under the Municipal Council of Virac on April 22, 1966 declaring
definition of a retirement benefit. Applying the the warehouse owned and operated by petitioner a
definition in Conte, it is a form of reward for an public nuisance within the purview of Article 694 of the
employee’s loyalty and service to the city government, New Civil Code.
and it is intended to help the employee enjoy the
remaining years of his or her life by lessening his or her His motion for reconsideration having been denied by
financial worries. the Municipal Council of Virac, petitioner instituted the
present petition for prohibition with preliminary
Sec. 28 (b) as amended by RA 4968 in no uncertain injunction.
terms bars the creation of any insurance or retirement
WON Ordinance No. 13, S. 1952 of the Municipality of Such order was issued, upon motion by ADC for
Virac is a valid exercise of police power execution of Final Judgment under Manila Ordinace
Petitioner Guingona (as executive secretary) issued a
Ordinance No. 13, series of 1952, was passed by the
directive to then chairman of Games and Amusement
Municipal Council of Virac in the exercise of its police
Board (GAB) to hold in abeyance the grant of authority
power. It is a settled principle of law that municipal
or if any had been issued, to withdraw such grant of
corporations are agencies of the State for the
authority, to Associated Development Corporation to
promotion and maintenance of local self-government
operate the jai- alai in the City of Manila, until the
and as such are endowed with the police powers in
following legal questions are properly resolved:
order to effectively accomplish and carry out the
declared objects of their creation. Its authority
emanates from the general welfare clause under the
Whether P.D. 771 which revoked all existing Jai-Alai
Administrative Code, which reads:
franchisers issued by local governments as of 20 August
The municipal council shall enact such ordinances and 1975 is unconstitutional.
make such regulations, not repugnant to law, as may be
necessary to carry into effect and discharge the powers
and duties conferred upon it by law and such as shall Xxx
seem necessary and proper to provide for the health
and safety, promote the prosperity, improve the
morals, peace, good order, comfort and convenience of Additional Facts:
the municipality and the inhabitants thereof, and for
the protection of property therein. On 20 June 1953, Congress enacted Republic Act No.
954, entitled "An Act to Prohibit With Horse Races and
For an ordinance to be valid, it must not only be within Basque Pelota Games (Jai-Alai), And To Prescribe
the corporate powers of the municipality to enact but Penalties For Its Violation".
must also be passed according to the procedure
prescribed by law, and must be in consonance with
certain well established and basic principles of a On 07 September 1971, however, the Municipal Board
substantive nature. These principles require that a of Manila nonetheless passed Ordinance No. 7065
municipal ordinance (1) must not contravene the entitled "An Ordinance Authorizing the Mayor To Allow
Constitution or any statute (2) must not be unfair or And Permit The Associated Development Corporation
oppressive (3) must not be partial or discriminatory (4) To Establish, Maintain And Operate A Jai-Alai In The City
must not prohibit but may regulate trade (5) must be Of Manila, Under Certain Terms And Conditions And For
general and consistent with public policy, and (6) must Other Purposes."
not be unreasonable. 5 Ordinance No. 13, Series of
1952, meets these criteria.
On 20 August 1975, Presidential Decree No. 771 was
issued by then President Marcos. The decree, entitled
"Revoking All Powers and Authority of Local
Tano v Socrates MISSING Government(s) To Grant Franchise, License or Permit
And Regulate Wagers Or Betting By The Public On Horse
Lim v Pacquing And Dog Races, Jai-Alai Or Basque Pelota, And Other
Facts: Forms Of Gambling", in Section 3 thereof, expressly
revoked all existing franchises and permits issued by
Judge Pacquing had issued an order directing the local governments.
mayor Manila mayor Alfredo S. Lim to issue the
permit/license to operate the jai-alai in favor of
Associated Development Corporation.
Issue: It cannot be argued that the control and regulation of
gambling do not promote public morals and welfare.
Whether P.D. 771 is a valid exercise of police power?
Gambling is essentially antagonistic and self-reliance. It
breeds indolence and erodes the value of good, honest
and hard work. It is, as very aptly stated by PD No. 771,
Ruling: a vice and a social ill which government must minimize
Yes. (if not eradicate) in pursuit of social and economic
The police power has been described as the least
limitable of the inherent powers of the State. It is based
on the ancient doctrine — salus populi est suprema lex Jai-alai is not a mere economic activity which the law
(the welfare of the people is the supreme law.) In the seeks to regulate. It is essentially gambling and whether
early case of Rubi v. Provincial Board of Mindoro (39 it should be permitted and, if so, under what conditions
Phil. 660), this Court through Mr. Justice George A. are questions primarily for the lawmaking authority to
Malcolm stated thus: determine, talking into account national and local
interests. Here, it is the police power of the State that is
The police power of the State . . . is a power
co-extensive with self-protection, and is not inaptly
termed the "law of overruling necessity." It may be said
to be that inherent and plenary power in the State
which enables it to prohibit all things hurtful to the
De la Cruz v Paras MISSING
comfort, safety and welfare of society. Carried onward
by the current of legislation, the judiciary rarely
attempts to dam the onrushing power of legislative Ortigas v FEATI Bank
discretion, provided the purposes of the law do not go ORTIGAS VS FEATI BANK
beyond the great principles that mean security for the Facts:
public welfare or do not arbitrarily interfere with the
right of the individual. Plaintiff is engaged in real estate business, developing
and selling lots to the public, particularly the Highway
Hills Subdivision along EDSA. On March 4, 1952,
In the matter of PD No. 771, the purpose of the law is plaintiff, as vendor, and Augusto Padilla and Natividad
clearly stated in the "whereas clause" as follows: Angeles, as vendees, entered into separate agreements
of sale on installments over two parcels of land of the
WHEREAS, it has been reported that in spite of the Subdivision. On July 19, 1962, the said vendees
current drive of our law enforcement agencies against transferred their rights and interests over the aforesaid
vices and illegal gambling, these social ills are still lots in favor of one Emma Chavez. Upon completion of
prevalent in many areas of the country; payment of the purchase price, the plaintiff executed
WHEREAS, there is need to consolidate all the efforts of the corresponding deeds of sale in favor of Emma
the government to eradicate and minimize vices and Chavez. Both the agreements (of sale on installment)
other forms of social ills in pursuance of the social and and the deeds of sale contained the stipulations or
economic development program under the new society; restrictions that:

WHEREAS, in order to effectively control and regulate 1. The parcel of land shall be used exclusively for
wagers or betting by the public on horse and dog races, residential purposes, and she shall not be entitled to
jai-alai and other forms of gambling there is a necessity take or remove soil, stones or gravel from it or any
to transfer the issuance of permit and/or franchise from other lots belonging to the Seller.
local government to the National Government. 2. All buildings and other improvements (except the
fence) which may be constructed at any time in said lot
must be, (a) of strong materials and properly painted,
(b) provided with modern sanitary installations
connected either to the public sewer or to an approved
septic tank, and (c) shall not be at a distance of less than
two (2) meters from its boundary lines.

Eventually said lots were bought by defendant. Lot 5

directly from Chavez and Lot 6 from Republic Flour Mills
by deed of exchange, with same restrictions. Plaintiff
claims that restriction is for the beautification of the
subdivision. Defendant claimed of the
commercialization of western part of EDSA. Defendant
began constructing a commercial bank building. Plaintiff
demand to stop it, which forced him to file a case,
which was later dismissed, upholding police power.
Motion for recon was denied, hence the appeal.


Whether or Not non-impairment clause violated.


No. Resolution is a valid exercise of police power. EDSA,

a main traffic artery which runs through several cities
and municipalities in the Metro Manila area, supports
an endless stream of traffic and the resulting activity,
noise and pollution are hardly conducive to the health,
safety or welfare of the residents in its route. Health,
safety, peace, good order and general welfare of the
people in the locality are justifications for this. It should
be stressed, that while non-impairment of contracts is
constitutionally guaranteed, the rule is not absolute,
since it has to be reconciled with the legitimate exercise
of police power.