G.R. No.

211356 September 29, 2014

CRISOSTOMO B. AQUINO, Petitioner,

vs.
MUNICIPALITY OF MALAY, AKLAN, represented by HON. MAYOR JOHN P. YAP, SANGGUNIANG
BA YAN OF MALAY, AKLAN, represented by HON. EZEL FLORES, DANTE PASUGUIRON, ROWEN
AGUIRRE, WILBEC GELITO, JUPITER GALLENERO, OFFICE OF THE MUNICIPAL ENGINEER,
OFFICE OF THE MUNICIPAL TREASURER, BORACAY PNP CHIEF, BORACAY FOUNDATION, INC.,
represented by NENETTE GRAF, MUNICIPAL AUXILIARY POLICE, and JOHN and JANE
DOES, Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari challenging the Decision 1 and the Resolution of the
Court of Appeals (CA) in CA-G.R. SP No. 120042 dated August 13, 2013 and February 3, 2014,
respectively. The assailed rulings denied Crisostomo Aquino's Petition for Certiorari for not being the proper
remedy to question the issuance and implementation of Executive Order No. 10, Series of 2011 (EO 10),
ordering the demolition of his hotel establishment.

The Facts

Petitioner is the president and chief executive officer of Boracay Island West Cove Management
Philippines, Inc. (Boracay West Cove). On January 7, 2010, the company applied for a zoning compliance
with the municipal government of Malay, Aklan.2 While the company was already operating a resort in the
area, the application sought the issuance of a building permit covering the construction of a three-storey
hotel over a parcel of land measuring 998 sqm. located in Sitio Diniwid, Barangay Balagab, Boracay Island,
Malay, Aklan,which is covered by a Forest Land Use Agreement for Tourism Purposes (FLAgT) issued by
the Department of Environment and Natural Resources (DENR) in favor of Boracay West Cove.

Through a Decision on Zoning dated January 20, 2010, the Municipal Zoning Administrator denied
petitioner’s application on the ground that the proposed construction site was withinthe "no build zone"
demarcated in Municipal Ordinance 2000-131 (Ordinance).3 As provided in the Ordinance:

SECTION 2. – Definition of Terms. Asused in this Ordinance, the following words, terms and phrases shall
mean as follows:

xxxx

(b) No Build Zone – the space twenty-five (25) meters from the edge of the mean high water mark measured
inland;

xxxx

SECTION 3. – No building or structure of any kind whether temporary or permanent shall be allowed to be
set up, erected or constructed on the beaches around the Island of Boracay and in its offshore waters.
During the conduct of special activities or special events, the Sangguniang Bayan may, through a
Resolution, authorize the Office of the Mayor to issue Special Permits for construction of temporary
structures on the beach for the duration of the special activity as embodied in the Resolution.
In due time, petitioner appealed the denial action to the Office of the Mayor on February 1, 2010. On May
13, 2010, petitioner followed up his appeal through a letter but no action was ever taken by the respondent
mayor. On April 5, 2011, however, a Notice of Assessment was sent to petitioner asking for the settlement
of Boracay West Cove’s unpaid taxes and other liabilities under pain of a recommendation for closure in
view of its continuous commercial operation since 2009 sans the necessaryzoning clearance, building
permit, and business and mayor’s permit. In reply, petitioner expressed willingness to settle the company’s
obligations, butthe municipal treasurer refused to accept the tendered payment. Meanwhile, petitioner
continued with the construction, expansion, and operation of the resort hotel.

Subsequently, on March 28, 2011, a Cease and Desist Order was issued by the municipal government,
enjoining the expansion of the resort, and on June 7, 2011, the Office of the Mayor of Malay, Aklan issued
the assailed EO 10, ordering the closure and demolition of Boracay West Cove’s hotel.

EO 10 was partially implemented on June 10, 2011. Thereafter, two more instances followed wherein
respondents demolished the improvements introduced by Boracay West Cove, the most recent of which
was made in February 2014.

Alleging that the order was issued and executed with grave abuse of discretion, petitioner filed a Petition
for Certiorari with prayer for injunctive relief with the CA. He argued that judicial proceedings should first be
conducted before the respondent mayor could order the demolition of the company’s establishment; that
Boracay West Cove was granted a FLAgT by the DENR, which bestowed the company the right to construct
permanent improvements on the area in question; that since the area is a forestland, it is the DENR—and
not the municipality of Malay, or any other local government unit for that matter—that has primary
jurisdiction over the area, and that the Regional Executive Director of DENR-Region 6 had officially issued
an opinion regarding the legal issues involved in the present case; that the Ordinance admits of exceptions;
and lastly, that it is the mayor who should be blamed for not issuing the necessary clearances in the
company’s favor.

In rebuttal, respondents contended that the FLAgT does not excuse the company from complying with the
Ordinance and Presidential Decree No. 1096 (PD 1096), otherwise known as the National Building Code
of the Philippines. Respondents also argued that the demolition needed no court order because the
municipal mayor has the express power under the Local Government Code (LGC) to order the removal of
illegally constructed buildings.

Ruling of the Court of Appeals

In its assailed Decision dated August 13, 2013, the CA dismissed the petition solely on procedural ground,
i.e., the special writ of certiorari can only be directed against a tribunal, board, or officer exercising judicial
or quasi-judicial functions and since the issuance of EO 10 was done in the exercise of executive functions,
and not of judicial or quasi-judicial functions, certiorari will not lie. Instead, the proper remedy for the
petitioner, according to the CA, is to file a petition for declaratory relief with the Regional Trial Court.

Petitioner sought reconsideration but this was denied by the CA on February 3, 2014 through the challenged
Resolution. Hence, the instant petition raising arguments on both procedure and substance.

The Issues

Stripped to the essentials, the pivotal issues in the extant case are as follows:

1. The propriety under the premises of the filing of a petition for certiorari instead of a petition for
declaratory relief;

a. Whether or not declaratory reliefis still available to petitioner;

 b. Whether or not the CA correctly ruled that the respondent mayor was performing neither
a judicial nor quasi-judicial function when he ordered the closure and demolition of Boracay
West Cove’s hotel;

2. Whether or not respondent mayor committed grave abuse of discretion when he issued EO 10;
NO

a. Whether or not petitioner’s right to due process was violated when the respondent mayor
ordered the closure and demolition of Boracay West Cove’s hotel without first conducting
judicial proceedings;

b. Whether or not the LGU’s refusal to issue petitioner the necessary building permit and
clearances was justified;

c. Whether or not petitioner’s rights under the FLAgT prevail over the municipal ordinance
providing for a no-build zone; and

d. Whether or not the DENR has primary jurisdiction over the controversy, not the LGU.

The Court’s Ruling

We deny the petition.

Certiorari, not declaratory relief, is the proper remedy

a. Declaratory relief no longer viable

Resolving first the procedural aspect of the case, We find merit in petitioner’s contention that the special
writ of certiorari, and not declaratory relief, is the proper remedy for assailing EO 10. As provided under
Sec. 1, Rule 63 of the Rules of Court:

SECTION 1. Who may file petition. – Any person interested under a deed, will, contract or other written
instrument, whose rights are affected by a statute, executive order or regulation, ordinance or any other
governmental regulation may, before breach or violation thereof, bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or
duties, thereunder. x x x (emphasis added)

An action for declaratory relief presupposes that there has been no actual breach of the instruments
involved or of the rights arising thereunder. Since the purpose of an action for declaratory relief is to secure
an authoritative statement of the rights and obligations of the parties under a statute, deed, or contract for
their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an
alleged breach thereof, it may be entertained before the breach or violation of the statute, deed or contract
to which it refers. A petition for declaratory relief gives a practical remedy for ending controversies that have
not reached the state where another relief is immediately available; and supplies the need for a form of
action that will set controversies at rest before they lead to a repudiation of obligations, an invasion of rights,
and a commission of wrongs.4

In the case at bar, the petition for declaratory relief became unavailable by EO 10’s enforcement and
implementation. The closure and demolition of the hotel rendered futile any possible guidelines that may
be issued by the trial court for carrying outthe directives in the challenged EO 10. Indubitably, the CA erred
when it ruled that declaratory relief is the proper remedy given such a situation.

b. Petitioner correctly resorted to certiorari

On the propriety of filing a petition for certiorari, Sec. 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting
to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging
the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of
such tribunal, board or officer, and granting such incidental reliefs as law and justice may require. x x x

For certiorari to prosper, the petitioner must establish the concurrence of the following requisites, namely:

1. The writ is directed against a tribunal, board, or officer exercising judicial or quasi-judicial
functions;

2. Such tribunal, board, or officer has acted without or in excess of jurisdiction, or with grave abuse
of discretion amounting to lack or excess of jurisdiction; and

3. There is no appeal or any plain speedy, and adequate remedy in the ordinary course of law. 5

Guilty of reiteration, the CA immediately dismissed the Petition for Certiorari upon determining that the first
element is wanting—that respondent mayor was allegedly not exercising judicial or quasi-judicial functions
when he issued EO 10.

We are not persuaded.

The CA fell into a trap when it ruled that a mayor, an officer from the executive department, exercises an
executive function whenever he issues an Executive Order. This is tad too presumptive for it is the nature
of the act to be performed, rather than of the office, board, or body which performs it, that determines
whether or not a particular act is a discharge of judicial or quasi judicial functions. The first requirement for
certiorari is satisfied if the officers act judicially in making their decision, whatever may be their public
character.6

It is not essential that the challenged proceedings should be strictly and technically judicial, in the sense in
which that word is used when applied to courts of justice, but it is sufficient if they are quasi-judicial.7 To
contrast, a party is said to be exercising a judicial function where he has the power to determine what the
law is and what legal rights of the parties are, and then undertakes to determine these questions and
adjudicate upon the rights of the parties, whereas quasi-judicial function is "a term which applies to the
actions, discretion, etc., of public administrative officers or bodies x x x required to investigate facts or
ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for their official
action and to exercise discretion of a judicial nature."8

In the case at bench, the assailed EO 10 was issued upon the respondent mayor’s finding that Boracay
West Cove’s construction, expansion, and operation of its hotel inMalay, Aklan is illegal. Such a finding of
illegality required the respondent mayor’s exercise of quasijudicial functions, against which the special writ
of certiorari may lie. Apropos hereto is Our ruling in City Engineer of Baguio v. Baniqued:9

There is no gainsaying that a city mayor is an executive official nor is the matter of issuing demolition notices
or orders not a ministerial one. In determining whether or not a structure is illegal or it should be demolished,
property rights are involved thereby needing notices and opportunity to be heard as provided for in the
constitutionally guaranteed right of due process. In pursuit of these functions, the city mayor has to exercise
quasi-judicial powers.
With the foregoing discussion, the CA erred in ruling that the respondent mayor was merely exercising his
executive functions, for clearly, the first requisite for the special writ has been satisfied.

Aside from the first requisite, We likewise hold that the third element, i.e., the unavailability of a plain,
speedy,or adequate remedy, is also present herein. While it may be argued that, under the LGC, Executive
Orders issued by mayors are subject to review by provincial governors,10 this cannot be considered as an
adequate remedy given the exigencies of petitioner’s predicament. In a litany of cases, We have held that
it is inadequacy, not the mere absence of all other legal remedies and the danger of failure of justice without
the writ, that must usually determine the propriety of certiorari. A remedy is plain, speedy and adequate ifit
will promptly relieve the petitioner from the injurious effects of the judgment, order, or resolution of the lower
court or agency. It is understood, then, that a litigant need not mark time by resorting to the less speedy
remedy of appeal in order to have an order annulled and set aside for being patently void for failureof the
trial court to comply with the Rules of Court.11

Before applying this doctrine, it must first be borne in mind that respondents in this case have already taken
measures towards implementing EO 10. In fact, substantial segments of the hotel have already been
demolished pursuant to the mayor’s directive. It is then understandable why petitioner prayed for the
issuance ofan injunctive writ––a provisional remedy that would otherwise have been unavailable had he
sought a reversal from the office of the provincial governor of Aklan. Evidently, petitioner correctly saw the
urgent need for judicial intervention via certiorari.

In light of the foregoing, the CA should have proceeded to grab the bull by its horns and determine the
existence of the second element of certiorari––whether or not there was grave abuse of discretion on the
part of respondents.

Upon Our finding that a petition for certiorari under Rule 65 is the appropriate remedy, We will proceed to
resolve the core issues in view of the urgency of the reliefs prayed for in the petition. Respondents did not
commit grave abuse of discretion

a. The hotel’s classification as a nuisance

Article 694 of the Civil Code defines "nuisance" as any act, omission, establishment, business, condition or
property, or anything else that (1) injures or endangers the health or safety of others; (2) annoys or offends
the senses; (3) shocks, defies or disregards decency or morality; (4) obstructs or interferes with the free
passage of any public highway or street, or any body of water; or (5) hinders or impairs the use of property.12

In establishing a no build zone through local legislation, the LGU effectively made a determination that
constructions therein, without first securing exemptions from the local council, qualify as nuisances for they
pose a threat to public safety. No buildzones are intended for the protection of the public because the
stability ofthe ground’s foundation is adversely affected by the nearby body of water. The ever present
threat of high rising storm surges also justifies the ban on permanent constructions near the shoreline.
Indeed, the area’s exposure to potential geo-hazards cannot be ignored and ample protection to the
residents of Malay, Aklan should be afforded.

Challenging the validity of the public respondents’ actuations, petitioner posits that the hotel cannot
summarily be abated because it is not a nuisance per se, given the hundred million peso-worth of capital
infused in the venture. Citing Asilo, Jr. v. People,13 petitioner also argues that respondents should have first
secured a court order before proceeding with the demolition. Preliminarily, We agree with petitioner’s
posture that the property involved cannot be classified as a nuisance per se, but not for the reason he so
offers. Property valuation, after all, is not the litmus test for such a determination. More controlling is the
property’s nature and conditions, which should be evaluated to see if it qualifies as a nuisance as defined
under the law.
As jurisprudence elucidates, nuisances are of two kinds: nuisanceper se and nuisanceper accidens. The
first is recognized as a nuisance under any and all circumstances, because it constitutes a direct menace
to public health or safety, and, for that reason, may be abated summarily under the undefined law of
necessity. The second is thatwhich depends upon certain conditions and circumstances, and its existence
being a question of fact, it cannot be abated without due hearing thereon in a tribunal authorized to decide
whether such a thing does in law constitute a nuisance.14

In the case at bar, the hotel, in itself, cannot be considered as a nuisance per sesince this type of nuisance
is generally defined as an act, occupation, or structure, which is a nuisance at all timesand under any
circumstances, regardless of locationor surrounding.15 Here, it is merely the hotel’s particular incident––its
location––and not its inherent qualities that rendered it a nuisance. Otherwise stated, had it not been
constructed in the no build zone, Boracay West Cove could have secured the necessary permits without
issue. As such, petitioner is correct that the hotel is not a nuisance per se, but to Our mind, it is still a
nuisance per accidens.

b. Respondent mayor has the power to order the demolition of illegal constructions

Generally, LGUs have no power to declare a particular thing as a nuisance unless such a thing is a nuisance
per se.16 So it was held in AC Enterprises v. Frabelle Properties Corp:17

We agree with petitioner’s contention that, under Section 447(a)(3)(i) of R.A. No. 7160, otherwise known
as the Local Government Code, the Sangguniang Panglungsod is empowered to enact ordinances
declaring, preventing or abating noise and other forms of nuisance. It bears stressing, however, that the
Sangguniang Bayan cannot declare a particular thing as a nuisance per se and order its condemnation. It
does not have the power to find, as a fact, that a particular thing is a nuisance when such thing is not a
nuisance per se; nor can it authorize the extrajudicial condemnation and destruction of that as a nuisance
which in its nature, situation or use is not such. Those things must be determined and resolved in the
ordinary courts of law.If a thing, be in fact, a nuisance due to the manner of its operation, that question
cannot be determined by a mere resolution of the Sangguniang Bayan. (emphasis supplied)

Despite the hotel’s classification as a nuisance per accidens, however, We still find in this case that the
LGU may nevertheless properly order the hotel’s demolition. This is because, in the exercise of police
power and the general welfare clause,18 property rights of individuals may be subjected to restraints and
burdens in order to fulfil the objectives of the government.

Otherwise stated, the government may enact legislation that may interfere with personal liberty, property,
lawfulbusinesses and occupations to promote the general welfare.19

One such piece of legislation is the LGC, which authorizes city and municipal governments, acting through
their local chief executives, to issue demolition orders. Under existing laws, the office of the mayor is given
powers not only relative to its function asthe executive official of the town; it has also been endowed with
authorityto hear issues involving property rights of individuals and to come out with an effective order or
resolution thereon.20 Pertinent herein is Sec. 444 (b)(3)(vi) of the LGC, which empowered the mayor to
order the closure and removal of illegally constructed establishments for failing tosecure the necessary
permits, to wit:

Section 444.The Chief Executive: Powers, Duties, Functions and Compensation. –

xxxx

(b) For efficient, effective and economical governance the purpose of which is the general welfare of the
municipality and its inhabitants pursuant to Section 16 of this Code, the municipal mayor shall:
xxxx

(3) Initiate and maximize the generation of resources and revenues, and apply the same to the
implementation of development plans, program objectives and priorities as provided for under Section 18
of this Code, particularly those resources and revenues programmed for agro-industrial development and
country-wide growth and progress, and relative thereto, shall:

xxxx

(vi) Require owners of illegally constructed houses, buildings or other structures to obtain the necessary
permit, subject to such fines and penalties as may be imposed by law or ordinance, or to make necessary
changes in the construction of the same when said construction violates any law or ordinance, or to order
the demolition or removal of said house, building or structure within the period prescribed by law or
ordinance. (emphasis supplied)

c. Requirements for the exercise of the power are present

i. Illegality of structures

In the case at bar, petitioner admittedly failed to secure the necessary permits, clearances, and exemptions
before the construction, expansion, and operation of Boracay Wet Cove’s hotel in Malay, Aklan. To recall,
petitioner declared that the application for zoning compliance was still pending with the office of the mayor
even though construction and operation were already ongoing at the same time. As such, it could no longer
be denied that petitioner openly violated Municipal Ordinance 2000-131, which provides:

SECTION 9. – Permits and Clearances.

(a) No building or structure shall beallowed to start construction unless a Building Permit therefore has been
duly issued by the Office of the Municipal Engineer.Once issued, the building owner or any person in charge
of the construction shall display on the lot or on the building undergoing construction a placard containing
the Building Permit Number and the date of its issue. The office of the Municipal Engineer shall not issue
any building permit unless:

1. The proposed construction has been duly issued a Zoning Clearance by the Office of the
Municipal Zoning Officer;

2. The proposed construction has been duly endorsed by the Sangguniang Bayan through a Letter
of Endorsement.

(b) Only buildings/structures which has complied with all the requirements for its
construction asverified to by the Building Inspector and the Sangguniang Bayan shall be
issued a Certificate of Occupancy by the Office of the Municipal Engineer.

(c) No Business or Mayor’s Permit shall be issued to businesses being undertaken on

buildings or structures which were not issued a certificate of Occupancy beginning January
2001 and thereafter.

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SECTION 10. – Penalties.

xxxx
 (e) Any building, structure, or contraption erected in any public place within the Municipality of
Malay such as but not limited to streets, thoroughfares, sidewalks, plazas, beachesor in any other
public place are hereby declared as nuisance and illegal structure.Such building structure or
contraption shall be demolished by the owner thereof or any of his authorized representative within
ten (10) days from receipt of the notice to demolish. Failure or refusal on the part of the owner or
any of his authorized representative to demolish the illegal structure within the period here inabove
specified shall automatically authorize the government of the Municipality of Malay to demolish the
same, gather and keep the construction materials of the demolished structure. (emphasis supplied)

Petitioner cannot justify his position by passing the blame onto the respondent mayor and the latter’s failure
to act on his appeal for this does not, in any way, imply that petitioner can proceed with his infrastructure
projects. On the contrary,this only means that the decision of the zoning administrator denying
theapplication still stands and that petitioner acquired no right to construct on the no build zone. The illegality
of the construction cannot be cured by merely tendering payment for the necessary fees and permits since
the LGU’s refusal rests on valid grounds.

Instead of taking the law into his own hands, petitioner could have filed, as an alternative, a petition for
mandamus to compel the respondent mayor to exercise discretion and resolve the controversy pending
before his office. There is indeed an exception to the rule that matters involving judgment and discretion
are beyond the reach of a writ of mandamus, for such writ may be issued to compel action in those matters,
when refused. Whether or not the decision would be for or against petitioner would be for the respondent
mayor to decide, for while mandamus may be invoked to compel the exercise of discretion, it cannot compel
such discretion to be exercised in a particular way. 21What would have been important was for the
respondent mayor to immediately resolve the case for petitioner to be able to go through the motions that
the zoning clearance application process entailed.

Alas, petitioner opted to defy the zoning administrator’s ruling. He consciously chose to violate not only the
Ordinance but also Sec. 301 of PD 1096, laying down the requirement of building permits, which provides:

Section 301. Building Permits. No person, firm or corporation, including any agency or instrumentality of
the government shall erect, construct, alter, repair, move, convert or demolish any building or structure or
cause the same to be done without first obtaining a building permit therefor from the Building Official
assigned in the place where the subject building is located or the building work is to be done.

This twin violation of law and ordinance warranted the LGU’s invocation of Sec. 444 (b)(3)(vi) of the LGC,
which power is separate and distinct from the power to summarily abate nuisances per se. Under the law,
insofar as illegal constructions are concerned, the mayor can, after satisfying the requirement of due notice
and hearing, order their closure and demolition.

ii. Observance of procedural due process rights

In the case at bench, the due process requirement is deemed to have been sufficiently complied with. First,
basic is the rule that public officers enjoy the presumption of regularity in the performance of their
duties.22 The burden is on the petitioner herein to prove that Boracay West Cove was deprived of the
opportunity to beheard before EO 10 was issued. Regrettably, copies of the Cease and Desist Order issued
by the LGU and of the assailed EO 10 itself were never attached to the petition before this Court, which
documents could have readily shed light on whether or not petitioner has been accorded the 10-day grace
period provided in Section 10 of the Ordinance. In view of this fact, the presumption of regularity must be
sustained. Second, as quoted by petitioner in his petition before the CA, the assailed EO 10 states that
petitioner received notices from the municipality government on March 7 and 28, 2011, requiring Boracay
West Cove to comply with the zoning ordinance and yet it failed to do so.23 If such was the case, the grace
period can be deemed observed and the establishment was already ripe for closure and demolition by the
time EO 10 was issued in June. Third, the observance of the 10-day allowance for the owner to demolish
the hotel was never questioned by petitioner so there is no need to discuss the same. Verily, the only
grounds invoked by petitioner in crying due process violation are (1) the absence of a court order prior to
demolition and (2) the municipal government’s exercise of jurisdiction over the controversy instead of the
DENR. Therefore, it can no longer be belatedly argued that the 10-day grace period was not observed
because to entertain the same would result in the violation of the respondents’ own due process rights.
Given the presence of the requirements under Sec. 444 (b)(3)(vi) of the LGC, whether the building
constituted a nuisance per seor a nuisance per accidensbecomes immaterial. The hotelwas demolished
not exactly because it is a nuisance but because it failed to comply with the legal requirements prior to
construction. It justso happened that, in the case at bar, the hotel’s incident that qualified it as a nuisance
per accidens––its being constructed within the no build zone––further resulted in the non-issuance of the
necessary permits and clearances, which is a ground for demolition under the LGC. Under the premises, a
court order that is required under normal circumstances is hereby dispensed with.

d. The FLAgT cannot prevail over the municipal ordinance and PD 1096

Petitioner next directs our attention to the following FLAgT provision:

VII. The SECOND PARTY may construct permanent and/or temporary improvements or infrastructure in
the FLAgT Area necessary and appropriate for its development for tourism purposes pursuant to the
approved SMP. "Permanent Improvements" refer to access roads, and buildings or structures which adhere
to the ground in a fixed and permanent manner. On the other hand, "Temporary Improvements" include
those which are detachablefrom the foundation or the ground introduced by the SECOND PARTY inthe
FLAgT Area and which the SECOND PARTY may remove or dismantle upon expiration or cancellation of
this AGREEMENT x x x.24

Taken in conjunction with the exceptions laid down in Sections 6 and 8 of the Ordinance, petitioner argues
that Boracay West Cove is exempted from securing permits from the LGU. Said exceptions read:

SECTION 6. – No building or structure shall be allowed to be constructed on a slope Twenty Five Percent
(25%) or higher unless provided with soil erosion protective structures and authorized by the Department
of Environment and Natural Resources.

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SECTION 8. – No building or structure shall be allowed to be constructed on a swamp or other water-

clogged areas unless authorized by the Department of Environment and Natural Resources.

According to petitioner, the fact that it was issued a FLAgT constitutes sufficient authorization from the
DENR to proceed with the construction of the three-storey hotel.

The argument does not persuade.

The rights granted to petitioner under the FLAgT are not unbridled. Forestlands, although under the
management of the DENR, are not exempt from the territorial application of municipal laws, for local
government units legitimately exercise their powers of government over their defined territorial jurisdiction.

Furthermore, the conditions set forth in the FLAgT and the limitations circumscribed in the ordinance are
not mutually exclusive and are, in fact, cumulative. As sourced from Sec. 447 (a)(5)(i) of the LGC:

Section 447.Powers, Duties, Functions and Compensation. –

(a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances,
approve resolutions and appropriate funds for the general welfare of the municipalityand its
 inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers
of the municipality as provided for under Section 22 of this Code, and shall:

xxxx

(5) Approve ordinances which shall ensure the efficient and effective delivery of the basic services
and facilities as provided for under Section 17 of this Code, and in addition to said services and
facilities, shall:

(i) Provide for the establishment, maintenance, protection, and conservation of communal forests
and watersheds, tree parks,greenbelts, mangroves, and other similar forest development projectsx
x x. (emphasis added)

Thus, aside from complying with the provisions in the FLAgT granted by the DENR, it was incumbent on
petitioner to likewise comply with the no build zone restriction under Municipal Ordinance 2000-131, which
was already in force even before the FLAgT was entered into. On this point, it is well to stress that Sections
6 and 8 of the Ordinance do not exempt petitioner from complying with the restrictions since these
provisions adverted to grant exemptions from the ban on constructions on slopes and swamps, not on the
no build zone.

Additionally, the FLAgT does not excuse petitioner from complying with PD 1096. As correctly pointed out
by respondents, the agreement cannot and will not amend or change the law because a legislative act
cannot be altered by mere contractual agreement. Hence, petitioner has no valid reason for its failure to
secure a building permit pursuant to Sec. 301 of the National Building Code.

e. The DENR does not have primary jurisdiction over the controversy

Lastly, in ascribing grave abuse ofdiscretion on the part of the respondent mayor, petitioner argued that the
hotel site is a forestland under the primary jurisdiction of the DENR. Assuch, the merits of the case should
have been passed upon by the agency and not by the LGU. In the alternative, petitioner explains that even
if jurisdiction over the matter has been devolved in favor of the LGU, the DENR still has the power of review
and supervision over the former’s rulings. As cited by the petitioner, the LGC reads:

Section 17.Basic Services and Facilities. –

xxxx

(b) Such basic services and facilities include, but are not limited to, the following:

xxxx

(2) For a Municipality:

xxxx

(ii) Pursuant to national policies and subject to supervision, control and review of the DENR, implementation
of community-based forestry projects which include integrated social forestry programs and similar projects;
management and control of communal forests with an area not exceeding fifty (50) square kilometers;
establishment of tree parks, greenbelts, and similar forest development projects. (emphasis added)

Petitioner has made much of the fact that in line with this provision, the DENR Region 6 had issued
anopinion favourable to petitioner.25 To petitioner, the adverted opinion effectively reversed the findings of
the respondent mayor that the structure introduced was illegally constructed.
We disagree.

In alleging that the case concernsthe development and the proper use of the country’s environment and
natural resources, petitioner is skirting the principal issue, which is Boracay West Cove's non-compliance
with the permit, clearance, and zoning requirements for building constructions under national and municipal
laws. He downplays Boracay West Cove's omission in a bid to justify ousting the LGU of jurisdiction over
the case and transferring the same to the DENR. He attempts to blow the issue out of proportion when it
all boils down to whether or not the construction of the three-storey hotel was supported by the necessary
documentary requirements.

Based on law and jurisprudence, the office of the mayor has quasijudicial powers to order the closing and
demolition of establishments.1âwphi1 This power granted by the LGC, as earlier explained, We believe, is
not the same power devolved in favor of the LGU under Sec. 17 (b )(2)(ii), as abovequoted, which is subject
to review by the DENR. The fact that the building to be demolished is located within a forestland under the
administration of the DENR is of no moment, for what is involved herein, strictly speaking, is not an issue
on environmental protection, conservation of natural resources, and the maintenance of ecological balance,
but the legality or illegality of the structure.1âwphi1 Rather than treating this as an environmental issue
then, focus should not be diverted from the root cause of this debacle-compliance.

Ultimately, the purported power of review by a regional office of the DENR over respondents' actions
exercised through an instrumentality of an ex-parte opinion, in this case, finds no sufficient basis. At best,
the legal opinion rendered, though perhaps informative, is not conclusive on the courts and should be taken
with a grain of salt.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED for lack of merit. The Decision and
the Resolution of the Court of Appeals in CA-G.R. SP No. 120042 dated August 13, 2013 and February 3,
2014, respectively, are hereby AFFIRMED.

SO ORDERED.
G.R. No. 180110

CAPITOL WIRELESS, INC., Petitioner,

vs.
THE PROVINCIAL TREASURER OF BATANGAS, THE PROVINCIAL ASSESSOR OF BATANGAS,
THE MUNICIPAL TREASURER AND ASSESSOR OF NASUGBU, BATANGAS, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul
and set aside the Court of Appeals’ Decision1 dated May 30, 2007 and Resolution2 dated October 8, 2007
in CA-G.R. SP No. 82264, which both denied the appeal of petitioner against the decision of the Regional
Trial Court.

Below are the acts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing
international telecommunications services. 3 As such provider, Capwire has signed agreements with other
local and foreign telecommunications companies covering an international network of submarine cable
systems such as the Asia Pacific Cable Network System (APCN) (which connects Australia, Thailand,
Malaysia, Singapore, Hong Kong, Taiwan, Korea, Japan, Indonesia and the Philippines); the
BruneiMalaysia-Philippines Cable Network System (BMP-CNS), the PhilippinesItaly (SEA-ME-WE-3 CNS),
and the Guam Philippines (GP-CNS) systems. 4 The agreements provide for co-ownership and other rights
among the parties over the network. 5

Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the APCN, while the
landing stations or terminals and Segment E of APCN located in Nasugbu, Batangas are allegedly owned
by the Philippine Long Distance Telephone Corporation (PLDT). 6Moreover, it alleges that the Wet Segment
is laid in inten1ational, and not Philippine, waters. 7

Capwire claims that as co-owner, it does not own any particular physical part of the cable system but,
consistent with its financial contributions, it owns the right to use a certain capacity of the said systern. 8 This
property right is allegedly reported in its financial books as "Indefeasible Rights in Cable Systems."9

However, for loan restructuring purposes, Capwire claims that "it was required to register the value of its
right," hence, it engaged an appraiser to "assess the market value of the international submarine cable
system and the cost to Capwire." 10 On May 15, 2000, Capwire submitted a Sworn Statement of True Value
of Real Properties at the Provincial Treasurer's Office, Batangas City, Batangas Province, for the Wet
Segment of the system, stating:

System Sound Value

APCN P203,300,000.00

BMP-CNS p 65,662,000.00

SEA-ME-WE-3 CNSP P7,540,000.00

GP-CNS P1,789,000.00
Capwire claims that it also reported that the system "interconnects at the PLDT Landing Station in Nasugbu,
Batangas," which is covered by a transfer certificate of title and tax declarations in the name of PLDT. 11

As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued the following
Assessments of Real Property (ARP) against Capwire:

ARP Cable System Assessed Value

019-00967 BMP-CNS P52,529,600.00

019-00968 APCN P162,640,000.00

019-00969 SEA-ME-WE3-CNS P: 6,032,000.00

019-00970 GP-CNS P: 1,431,200.00

In essence, the Provincial Assessor had determined that the submarine cable systems described in
Capwire's Sworn Statement of True Value of Real Properties are taxable real property, a determination that
was contested by Capwire in an exchange of letters between the company and the public
respondent. 12 The reason cited by Capwire is that the cable system lies outside of Philippine territory, i.e.,
on international waters. 13

On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a Notice of Auction Sale,
respectively, from the respondent Provincial Treasurer of Batangas (Provincial Treasurer). 14

On March I 0, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy,
Notice of Auction Sale and/or Auction Sale with the Regional Trial Court (RTC) of Batangas City. 15

After the filing of the public respondents' Comment, 16 on May 5, 2003, the RTC issued an Order dismissing
the petition for failure of the petitioner Capwire to follow the requisite of payment under protest as well as
failure to appeal to the Local Board of Assessment Appeals (LBAA), as provided for in Sections 206 and
226 of Republic Act (R.A.) No. 7160, or the Local Government Code. 17

Capwire filed a Motion for Reconsideration,18 but the same was likewise dismissed by the RTC in an
Order19 dated August 26, 2003. It then filed an appeal to the Court of Appeals. 20

On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed by Capwire
and affirming the order of the trial court.1âwphi1 The dispositive portion of the CA's decision states:

WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August
26, 2003 of the Regional Trial Court, Branch II of Batangas City, are AFFIRMED.

SO ORDERED.21

The appellate court held that the trial court correctly dismissed Capwire's petition because of the latter's
failure to comply with the requirements set in Sections 226 and 229 of the Local Government Code, that is,
by not availing of remedies before administrative bodies like the LBAA and the Central Board of Assessment
Appeals (CBAA). 22 Although Capwire claims that it saw no need to undergo administrative proceedings
because its petition raises purely legal questions, the appellate comi did not share this view and noted that
the case raises questions of fact, such as the extent to which parts of the submarine cable system lie within
the territorial jurisdiction of the taxing authorities, the public respondents.23 Further, the CA noted that
Capwire failed to pay the tax assessed against it under protest, another strict requirement under Section
252 of the Local Government Code24

Hence, the instant petition for review of Capwire.

Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or payment of the tax
under protest, is inapplicable to the case at bar since there is no question of fact involved, or that the
question involved is not the reasonableness of the amount assessed but, rather, the authority and power
of the assessor to impose the tax and of the treasurer to collect it.25 It contends that there is only a pure
question of law since the issue is whether its submarine cable system, which it claims lies in international
waters, is taxable.26 Capwire holds the position that the cable system is not subject to tax. 27

Respondents assessors and treasurers of the Province of Batangas and Municipality of Nasugbu, Batangas
disagree with Capwire and insist that the case presents questions of fact such as the extent and portion of
the submarine cable system that lies within the jurisdiction of the said local governments, as well as the
nature of the so-called indefeasible rights as property of Capwire.28 Such questions are allegedly resolvable
only before administrative agencies like the Local Board of Assessment Appeals. 29

The Court confronts the following issues: Is the case cognizable by the administrative agencies and
covered by the requirements in Sections 226 and 229 of the Local Government Code which makes the
dismissal of Capwire's petition by the RTC proper? May submarine communications cables be classified
as taxable real property by the local governments?

The petition is denied. No error attended the ruling of the appellate court that the case involves factual
questions that should have been resolved before the appropriate administrative bodies.

In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before allowing any resort to a judicial action, except
when the assessment itself is alleged to be illegal or is made without legal authority.30

For example, prior resort to administrative action is required when among the issues raised is an allegedly
erroneous assessment, like when the reasonableness of the amount is challenged, while direct court action
is permitted when only the legality, power, validity or authority of the; assessment itself is in question.JI
Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when
questions of fact are raised, but the exception of direct court action is allowed when purely questions of law
are involved.32

This Court has previously and rather succinctly discussed the difference between a question of fact and a
question of law. In Cosmos Bottling Corporation v. Nagrama, Jr., 33 it held:

The Court has made numerous dichotomies between questions of law and fact. A reading
of these dichotomies shows that labels attached to law and fact are descriptive rather than
definitive. We are not alone in Our difficult task of clearly distinguishing questions of fact
from questions of law. The United States Supreme Court has ruled that: "we [do not] yet
know of any other rule or principle that will unerringly distinguish a factual finding from a
legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the PI., the Court ruled:

There is a question of law in a given case when the doubt or difference

arises as to what the law is on a certain state of facts; there is a question
of fact when the doubt or difference arises as to the truth or the falsehood
of alleged facts.
 We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

x x x A question of law exists when the doubt or controversy concerns the

correct application of law or jurisprudence to a certain set of facts; or when
the issue does not call for an examination of the probative value of the
evidence presented, the truth or falsehood of facts being admitted. In
contrast, a question of fact exists when the doubt or difference arises as
to the truth or falsehood of facts or when the query invites calibration of
the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances as well as
their relation to each other and to the whole, and the probability of the
situation.

For the sake of brevity, We shall label this the law application and calibration dichotomy.

In contrast, the dynamic legal scholarship in the United States has birthed many
commentaries on the question of law and question of fact dichotomy. As early as 1944, the
law was described as growing downward toward "roots of fact" which grew upward to meet
it. In 1950, the late Professor Louis Jaffe saw fact and law as a spectrum, with one shade
blending imperceptibly into the other. Others have defined questions of law as those that
deal with the general body of legal principles; questions of fact deal with "all other
phenomena xx x." Kenneth Culp Davis also weighed in and noted that the difference
between fact and law has been characterized as that between "ought" questions and "is"
questions.34

Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's case is one
replete with questions of fact instead of pure questions of law, which renders its filing in a judicial forum
improper because it is instead cognizable by local administrative bodies like the Board of Assessment
Appeals, which are the proper venues for trying these factual issues. Verily, what is alleged by Capwire in
its petition as "the crux of the controversy," that is, "whether or not an indefeasible right over a submarine
cable system that lies in international waters can be subject to real property tax in the Philippines,"35 is not
the genuine issue that the case presents - as it is already obvious and fundamental that real property that
lies outside of Philippine territorial jurisdiction cannot be subjected to its domestic and sovereign power of
real property taxation - but, rather, such factual issues as the extent and status of Capwire's ownership of
the system, the actual length of the cable/s that lie in Philippine territory, and the corresponding assessment
and taxes due on the same, because the public respondents imposed and collected the assailed real
property tax on the finding that at least a portion or some portions of the submarine cable system that
Capwire owns or co-owns lies inside Philippine territory. Capwire's disagreement with such findings of the
administrative bodies presents little to no legal question that only the courts may directly resolve.

Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they have been
already admitted or established, when they have not, since no evidence of such have yet been presented
in the proper agencies and even in the current petition. As such, it remains unsettled whether Capwire is a
mere co-owner, not full owner, of the subject submarine cable and, if the former, as to what extent; whether
all or certain portions of the cable are indeed submerged in water; and whether the waters wherein the
cable/s is/are laid are entirely outside of Philippine territorial or inland waters, i.e., in international waters.
More simply, Capwire argues based on mere legal conclusions, culminating on its claim of illegality of
respondents' acts, but the conclusions are yet unsupported by facts that should have been threshed out
quasi-judicially before the administrative agencies. It has been held that "a bare characterization in a petition
of unlawfulness, is merely a legal conclusion and a wish of the pleader, and such a legal conclusion
unsubstantiated by facts which could give it life, has no standing in any court where issues must be
presented and determined by facts in ordinary and concise language."36 Therefore, Capwire's resort to
judicial action, premised on its legal conclusion that its cables (the equipment being taxed) lie entirely on
international waters, without first administratively substantiating such a factual premise, is improper and
was rightly denied. Its proposition that the cables lie entirely beyond Philippine territory, and therefore,
outside of Philippine sovereignty, is a fact that is not subject to judicial notice since, on the contrary, and as
will be explained later, it is in fact certain that portions of the cable would definitely lie within Philippine
waters. Jurisprudence on the Local Government Code is clear that facts such as these must be threshed
out administratively, as the courts in these types of cases step in at the first instance only when pure
questions of law are involved.

Nonetheless, We proceed to decide on whether submarine wires or cables used for communications may
be taxed like other real estate.

We hold in the affirmative.

Submarine or undersea communications cables are akin to electric transmission lines which this Court has
recently declared in Manila Electric Company v. City Assessor and City Treasurer of Lucena City, 37 as "no
longer exempted from real prope1iy tax" and may qualify as "machinery" subject to real property tax under
the Local Government Code. To the extent that the equipment's location is determinable to be within the
taxing authority's jurisdiction, the Court sees no reason to distinguish between submarine cables used for
communications and aerial or underground wires or lines used for electric transmission, so that both pieces
of property do not merit a different treatment in the aspect of real property taxation. Both electric lines and
communications cables, in the strictest sense, are not directly adhered to the soil but pass through posts,
relays or landing stations, but both may be classified under the term "machinery" as real property under
Article 415(5)38 of the Civil Code for the simple reason that such pieces of equipment serve the owner's
business or tend to meet the needs of his industry or works that are on real estate. Even objects in or on a
body of water may be classified as such, as "waters" is classified as an immovable under Article 415(8)39
of the Code. A classic example is a boathouse which, by its nature, is a vessel and, therefore, a personal
property but, if it is tied to the shore and used as a residence, and since it floats on waters which is
immovable, is considered real property.40Besides, the Court has already held that "it is a familiar
phenomenon to see things classed as real property for purposes of taxation which on general principle
might be considered personal property."41

Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables from
real property taxation, then this interpretation applies and Capwire's submarine cable may be held subject
to real property tax.

Having determined that Capwire is liable, and public respondents have the right to impose a real property
tax on its submarine cable, the issue that is unresolved is how much of such cable is taxable based on the
extent of Capwire's ownership or co-ownership of it and the length that is laid within respondents' taxing
jurisdiction. The matter, however, requires a factual determination that is best performed by the Local and
Central Boards of Assessment Appeals, a remedy which the petitioner did not avail of.

At any rate, given the importance of the issue, it is proper to lay down the other legal bases for the local
taxing authorities' power to tax portions of the submarine cables of petitioner. It is not in dispute that the
submarine cable system's Landing Station in Nasugbu, Batangas is owned by PLDT and not by Capwire.
Obviously, Capwire is not liable for the real property tax on this Landing Station. Nonetheless, Capwire
admits that it co-owns the submarine cable system that is subject of the tax assessed and being collected
by public respondents. As the Court takes judicial notice that Nasugbu is a coastal town and the surrounding
sea falls within what the United Nations Convention on the Law of the Sea (UN CLOS) would define as the
country's territorial sea (to the extent of 12 nautical miles outward from the nearest baseline, under Part II,
Sections 1 and 2) over which the country has sovereignty, including the seabed and subsoil, it follows that
indeed a portion of the submarine cable system lies within Philippine territory and thus falls within the
jurisdiction of the said local taxing authorities.42 It easily belies Capwire's contention that the cable system
is entirely in international waters. And even if such portion does not lie in the 12-nautical-mile vicinity of the
territorial sea but further inward, in Prof Magallona v. Hon. Ermita, et al.43 this Court held that "whether
referred to as Philippine 'internal waters' under A1iicle I of the Constitution 44 or as 'archipelagic waters'
under UNCLOS Part III, Article 49(1, 2, 4),45 the Philippines exercises sovereignty over the body of water
lying landward of (its) baselines, including the air space over it and the submarine areas underneath."
Further, under Part VI, Article 7946 of the UNCLOS, the Philippines clearly has jurisdiction with respect to
cables laid in its territory that are utilized in support of other installations and structures under its jurisdiction.

And as far as local government units are concerned, the areas described above are to be considered
subsumed under the term "municipal waters" which, under the Local Government Code, includes "not only
streams, lakes, and tidal waters within the municipality, not being the subject of private ownership and not
comprised within the national parks, public forest, timber lands, forest reserves or fishery reserves, but also
marine waters included between two lines drawn perpendicularly to the general coastline from points where
the boundary lines of the municipality or city touch the sea at low tide and a third line parallel with the
general coastline and fifteen (15) kilometers from it."47 Although the term "municipal waters" appears in the
Code in the context of the grant of quarrying and fisheries privileges for a fee by local governments,48 its
inclusion in the Code's Book II which covers local taxation means that it may also apply as guide in
determining the territorial extent of the local authorities' power to levy real property taxation.

Thus, the jurisdiction or authority over such part of the subject submarine cable system lying within
Philippine jurisdiction includes the authority to tax the same, for taxation is one of the three basic and
necessary attributes of sovereignty, 49 and such authority has been delegated by the national legislature to
the local governments with respect to real property.50taxation.

As earlier stated, a way for Capwire to claim that its cable system is not covered by such authority is by
showing a domestic enactment or even contract, or an international agreement or treaty exempting the
same from real property taxation. It failed to do so, however, despite the fact that the burden of proving
exemption from local taxation is upon whom the subject real property is declared. 51 Under the Local
Government Code, every person by or for whom real property is declared, who shall claim tax exemption
for such property from real property taxation "shall file with the provincial, city or municipal assessor within
thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support
of such claim."52 Capwire omitted to do so. And even under Capwire's legislative franchise, RA 4387, which
amended RA 2037, where it may be derived that there was a grant of real property tax exemption for
properties that are part of its franchise, or directly meet the needs of its business, 53 such had been expressly
withdrawn by the Local Government Code, which took effect on January l, 1992, Sections 193 and 234 of
which provide:54

Section 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, nonstock and nonprofit hospitals and educational institutions, arc hereby
withdrawn upon the effectivity of this Code.

xxxx

Section 234. Exemptions from Real Property Tax. - The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration of otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,

mosques, nonprofit or religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
 (c) All machineries and equipment that are actually, directly and exclusively used
by local water districts and government-owned or controlled corporations engaged
in the supply and distribution of water and/or generation and transmission of
electric power;

(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
.iuridical, including all government-owned or controlled corporations arc hereby
withdrawn upon the cffectivity of this Code.55

Such express withdrawal had been previously held effective upon exemptions bestowed by legislative
franchises granted prior to the effectivity of the Local Government Code.56Capwire fails to allege or provide
any other privilege or exemption that were granted to it by the legislature after the enactment of the Local
Government Code. Therefore, the presumption stays that it enjoys no such privilege or exemption. Tax
exemptions arc strictly construed against the taxpayer because taxes are considered the lifeblood of the
nation.57

WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision dated May 30, 2007 and Resolution
dated October 8. 2007 are AFFIRMED.

SO ORDERED
G.R. No. 193462 February 4, 2014

DENNIS A.B. FUNA, Petitioner,

vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON AUDIT, Respondents.

DECISION

PEREZ, J.:

This is a petition for mandamus1 to compel:

1.) the Commission on Audit (COA) to audit and examine the funds of the Manila Economic and
Cultural Office (MECO), and

2.) the MECO to submit to such audit and examination.

The antecedents:

Prelude

The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a stalemate
espousing competing assertions of sovereignty.3 On one hand is the communist People�s Republic of
China (PROC) which controls the mainland territories, and on the other hand is the nationalist Republic of
China (ROC) which controls the island of Taiwan. For a better part of the past century, both the PROC and
ROC adhered to a policy of "One China" i.e., the view that there is only one legitimate government in China,
but differed in their respective interpretation as to which that government is.4

With the existence of two governments having conflicting claims of sovereignty over one country, came the
question as to which of the two is deserving of recognition as that country�s legitimate government. Even
after its relocation to Taiwan, the ROC used to enjoy diplomatic recognition from a majority of the world�s
states, partly due to being a founding member of the United Nations (UN). 5 The number of states partial to
the PROC�s version of the One China policy, however, gradually increased in the 1960s and 70s, most
notably after the UN General Assembly adopted the monumental Resolution 2758 in 1971. 6 Since then,
almost all of the states that had erstwhile recognized the ROC as the legitimate government of China,
terminated their official relations with the said government, in favor of establishing diplomatic relations with
the PROC.7 The Philippines is one of such states.

The Philippines formally ended its official diplomatic relations with the government in Taiwan on 9 June
1975, when the country and the PROC expressed mutual recognition thru the Joint Communiqu� of the
Government of the Republic of the Philippines and the Government of the People�s Republic of China
(Joint Communiqu�).8

Under the Joint Communiqu�, the Philippines categorically stated its adherence to the One China policy
of the PROC. The pertinent portion of the Joint Communiqu� reads:9

The Philippine Government recognizes the Government of the People�s Republic of China as the sole
legal government of China, fully understands and respects the position of the Chinese Government that
there is but one China and that Taiwan is an integral part of Chinese territory, and decides to remove all its
official representations from Taiwan within one month from the date of signature of this communiqu�.
(Emphasis supplied)
The Philippines� commitment to the One China policy of the PROC, however, did not preclude the country
from keeping unofficial relations with Taiwan on a "people-to-people" basis.10Maintaining ties with Taiwan
that is permissible by the terms of the Joint Communiqu�, however, necessarily required the Philippines,
and Taiwan, to course any such relations thru offices outside of the official or governmental organs.

Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines maintained an
unofficial relationship facilitated by the offices of the Taipei Economic and Cultural Office, for the former,
and the MECO, for the latter.11

The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation under Batas
Pambansa Blg. 68 or the Corporation Code.13 The purposes underlying the incorporation of MECO, as
stated in its articles of incorporation,14 are as follows:

1. To establish and develop the commercial and industrial interests of Filipino nationals here and
abroad, and assist on all measures designed to promote and maintain the trade relations of the
country with the citizens of other foreign countries;

2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the
corporate purposes provided they are not subject to conditions defeatist for or incompatible with
said purpose;

3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be
necessary for the use and need of the corporation, and to dispose of the same in like manner when
they are no longer needed or useful; and

4. To do and perform any and all acts which are deemed reasonably necessary to carry out the
purposes. (Emphasis supplied)

From the moment it was incorporated, the MECO became the corporate entity "entrusted" by the Philippine
government with the responsibility of fostering "friendly" and "unofficial" relations with the people of Taiwan,
particularly in the areas of trade, economic cooperation, investment, cultural, scientific and educational
exchanges.15 To enable it to carry out such responsibility, the MECO was "authorized" by the government
to perform certain "consular and other functions" that relates to the promotion, protection and facilitation of
Philippine interests in Taiwan.16

At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers (OFWs) in
Taiwan; promotes the Philippines as a tourist and investment destination for the Taiwanese; and facilitates
the travel of Filipinos and Taiwanese from Taiwan to the Philippines, and vice versa.17

Facts Leading to the Mandamus Petition

On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the latest financial and
audit report" of the MECO invoking, for that purpose, his "constitutional right to information on matters of
public concern." The petitioner made the request on the belief that the MECO, being under the "operational
supervision" of the Department of Trade and Industry (DTI), is a government owned and controlled
corporation (GOCC) and thus subject to the audit jurisdiction of the COA.19

Petitioner�s letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following day.

On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum 20 referring the petitioner�s
request to COA Assistant Commissioner Emma M. Espina for "further disposition." In this memorandum,
however, Assistant Commissioner Naranjo revealed that the MECO was "not among the agencies audited
by any of the three Clusters of the Corporate Government Sector."21
On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its contents.

Mandamus Petition

Taking the 25 August 2010 memorandum as an admission that the COA had never audited and examined
the accounts of the MECO, the petitioner filed the instant petition for mandamus on 8 September 2010.
Petitioner filed the suit in his capacities as "taxpayer, concerned citizen, a member of the Philippine Bar
and law book author."22 He impleaded both the COA and the MECO.

Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its duty under
Section 2(1), Article IX-D of the Constitution to audit the accounts of an otherwise bona fide GOCC or
government instrumentality. It is the adamant claim of the petitioner that the MECO is a GOCC without an
original charter or, at least, a government instrumentality, the funds of which partake the nature of public
funds.23

According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an
instrumentality under the Executive Order No. (EO) 292, s. 1987 or the Administrative Code: it is a non-
stock corporation vested with governmental functions relating to public needs; it is controlled by the
government thru a board of directors appointed by the President of the Philippines; and while not integrated
within the executive departmental framework, it is nonetheless under the operational and policy supervision
of the DTI.24 As petitioner substantiates:

1. The MECO is vested with government functions. It performs functions that are equivalent to
those of an embassy or a consulate of the Philippine government. 25 A reading of the authorized
functions of the MECO as found in EO No. 15, s. 2001, reveals that they are substantially the same
functions performed by the Department of Foreign Affairs (DFA), through its diplomatic and
consular missions, per the Administrative Code.26

2. The MECO is controlled by the government. It is the President of the Philippines that actually
appoints the directors of the MECO, albeit indirectly, by way of "desire letters" addressed to the
MECO�s board of directors.27 An illustration of this exercise is the assumption by Mr. Antonio
Basilio as chairman of the board of directors of the MECO in 2001, which was accomplished when
former President Gloria Macapagal-Arroyo, through a memorandum 28 dated 20 February 2001,
expressed her "desire" to the board of directors of the MECO for the election of Mr. Basilio as
chairman.29

3. The MECO is under the operational and policy supervision of the DTI. The MECO was placed
under the operational supervision of the DTI by EO No. 328, s. of 2004, and again under the policy
supervision of the same department by EO No. 426, s. 2005.30

To further bolster his position that the accounts of the MECO ought to be audited by the COA, the petitioner
calls attention to the practice, allegedly prevailing in the United States of America, wherein the American
Institute in Taiwan (AIT)�the counterpart entity of the MECO in the United States�is supposedly audited
by that country�s Comptroller General.31Petitioner claims that this practice had been confirmed in a
decision of the United States Court of Appeals for the District of Columbia Circuit, in the case of Wood, Jr.,
ex rel. United States of America v. The American Institute in Taiwan, et al. 32

The Position of the MECO

The MECO prays for the dismissal of the mandamus petition on procedural and substantial grounds.

On procedure, the MECO argues that the mandamus petition was prematurely filed. 33
The MECO posits that a cause of action for mandamus to compel the performance of a ministerial duty
required by law only ripens once there has been a refusal by the tribunal, board or officer concerned to
perform such a duty.34 The MECO claims that there was, in this case, no such refusal either on its part or
on the COA�s because the petitioner never made any demand for it to submit to an audit by the COA or
for the COA to perform such an audit, prior to filing the instant mandamus petition.35The MECO further
points out that the only "demand" that the petitioner made was his request to the COA for a copy of the
MECO�s latest financial and audit report� which request was not even finally disposed of by the time the
instant petition was filed.36

On the petition�s merits, the MECO denies the petitioner�s claim that it is a GOCC or a government
instrumentality.37 While performing public functions, the MECO maintains that it is not owned or controlled
by the government, and its funds are private funds.38 The MECO explains:

1. It is not owned or controlled by the government. Contrary to the allegations of the petitioner, the
President of the Philippines does not appoint its board of directors.39 The "desire letter" that the
President transmits is merely recommendatory and not binding on the corporation.40 As a
corporation organized under the Corporation Code, matters relating to the election of its directors
and officers, as well as its membership, are governed by the appropriate provisions of the said
code, its articles of incorporation and its by-laws.41 Thus, it is the directors who elect the
corporation�s officers; the members who elect the directors; and the directors who admit the
members by way of a unanimous resolution. All of its officers, directors, and members are private
individuals and are not government officials.42

2. The government merely has policy supervision over it. Policy supervision is a lesser form of
supervision wherein the government�s oversight is limited only to ensuring that the corporation�s
activities are in tune with the country�s commitments under the One China policy of the
PROC.43 The day-to-day operations of the corporation, however, remain to be controlled by its duly
elected board of directors.44

The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can potentially
violate the country�s commitment to the One China policy of the PROC.45Thus, the MECO cautions
against applying to the present mandamus petition the pronouncement in the Wood decision regarding the
alleged auditability of the AIT in the United States.46

The Position of the COA

The COA, on the other hand, advances that the mandamus petition ought to be dismissed on procedural
grounds and on the ground of mootness.

The COA argues that the mandamus petition suffers from the following procedural defects:

1. The petitioner lacks locus standi to bring the suit. The COA claims that the petitioner has not
shown, at least in a concrete manner, that he had been aggrieved or prejudiced by its failure to
audit the accounts of the MECO.47

2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA faults the filing
of the instant mandamus petition directly with this Court, when such petition could have very well
been presented, at the first instance, before the Court of Appeals or any Regional Trial Court. 48 The
COA claims that the petitioner was not able to provide compelling reasons to justify a direct resort
to the Supreme Court.49

At any rate, the COA argues that the instant petition already became moot when COA Chairperson Maria
Gracia M. Pulido-Tan (Pulido-Tan) issued Office Order No. 2011-69850 on 6 October 2011.51 The COA
notes that under Office Order No. 2011-698, Chairperson Pulido-Tan already directed a team of auditors
to proceed to Taiwan, specifically for the purpose of auditing the accounts of, among other government
agencies based therein, the MECO.52

In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA clarifies that
it does not consider the former as a GOCC or a government instrumentality. On the contrary, the COA
maintains that the MECO is a non-governmental entity.53

The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect
to the "verification fees" for overseas employment documents that it collects from Taiwanese employers on
behalf of the DOLE.54 The COA claims that, under Joint Circular No. 3-99,55 the MECO is mandated to remit
to the Department of Labor and Employment (DOLE) a portion of such "verification fees."56 The COA,
therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share"
subject to a partial audit of its accounts under Section 26 of the Presidential Decree No. 1445 or the State
Audit Code of the Philippines (Audit Code).57

OUR RULING

We grant the petition in part. We declare that the MECO is a non-governmental entity. However, under
existing laws, the accounts of the MECO pertaining to the "verification fees" it collects on behalf of the
DOLE as well as the fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are subject
to the audit jurisdiction of the COA. Such fees pertain to the government and should be audited by the COA.

We begin with the preliminary issues.

Mootness of Petition

The first preliminary issue relates to the alleged mootness of the instant mandamus petition, occasioned by
the COA�s issuance of Office Order No. 2011-698. The COA claims that by issuing Office Order No. 2011-
698, it had already conceded its jurisdiction over the accounts of the MECO and so fulfilled the objective of
the instant petition.58 The COA thus urges that the instant petition be dismissed for being moot and
academic.59

We decline to dismiss the mandamus petition on the ground of mootness.

A case is deemed moot and academic when, by reason of the occurrence of a supervening event, it ceases
to present any justiciable controversy.60 Since they lack an actual controversy otherwise cognizable by
courts, moot cases are, as a rule, dismissible.61

The rule that requires dismissal of moot cases, however, is not absolute. It is subject to exceptions. In David
v. Macapagal-Arroyo,62 this Court comprehensively captured these exceptions scattered throughout our
jurisprudence:

The "moot and academic" principle is not a magical formula that can automatically dissuade the courts in
resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there is a grave violation
of the Constitution;63 second, the exceptional character of the situation and the paramount public interest
is involved;64 third, when constitutional issue raised requires formulation of controlling principles to guide
the bench, the bar, and the public;65 and fourth, the case is capable of repetition yet evading review. 66

In this case, We find that the issuance by the COA of Office Order No. 2011-698 indeed qualifies as a
supervening event that effectively renders moot and academic the main prayer of the instant mandamus
petition. A writ of mandamus to compel the COA to audit the accounts of the MECO would certainly be a
mere superfluity, when the former had already obliged itself to do the same.

Be that as it may, this Court refrains from dismissing outright the petition. We believe that the mandamus
petition was able to craft substantial issues presupposing the commission of a grave violation of the
Constitution and involving paramount public interest, which need to be resolved nonetheless:

First. The petition makes a serious allegation that the COA had been remiss in its constitutional or legal
duty to audit and examine the accounts of an otherwise auditable entity in the MECO.

Second. There is paramount public interest in the resolution of the issue concerning the failure of the COA
to audit the accounts of the MECO. The propriety or impropriety of such a refusal is determinative of whether
the COA was able to faithfully fulfill its constitutional role as the guardian of the public treasury, in which
any citizen has an interest.

Third. There is also paramount public interest in the resolution of the issue regarding the legal status of the
MECO; a novelty insofar as our jurisprudence is concerned. We find that the status of the MECO�whether
it may be considered as a government agency or not�has a direct bearing on the country�s commitment
to the One China policy of the PROC.67

An allegation as serious as a violation of a constitutional or legal duty, coupled with the pressing public
interest in the resolution of all related issues, prompts this Court to pursue a definitive ruling thereon, if not
for the proper guidance of the government or agency concerned, then for the formulation of controlling
principles for the education of the bench, bar and the public in general.68 For this purpose, the Court invokes
its symbolic function.69

If the foregoing reasons are not enough to convince, We still add another:

Assuming that the allegations of neglect on the part of the COA were true, Office Order No. 2011-698 does
not offer the strongest certainty that they would not be replicated in the future. In the first place, Office Order
No. 2011-698 did not state any legal justification as to why, after decades of not auditing the accounts of
the MECO, the COA suddenly decided to do so. Neither does it state any determination regarding the true
status of the MECO. The justifications provided by the COA, in fact, only appears in the memorandum 70 it
submitted to this Court for purposes of this case.

Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely dependent upon the
judgment of the incumbent chairperson of the COA; susceptible of being undone, with or without reason,
by her or even her successor. Hence, the case now before this Court is dangerously capable of being
repeated yet evading review.

Verily, this Court should not dismiss the mandamus petition on the ground of mootness.

Standing of Petitioner

The second preliminary issue is concerned with the standing of the petitioner to file the instant mandamus
petition. The COA claims that petitioner has none, for the latter was not able to concretely establish that he
had been aggrieved or prejudiced by its failure to audit the accounts of the MECO. 71

Related to the issue of lack of standing is the MECO�s contention that petitioner has no cause of action
to file the instant mandamus petition. The MECO faults petitioner for not making any demand for it to submit
to an audit by the COA or for the COA to perform such an audit, prior to filing the instant petition. 72

We sustain petitioner�s standing, as a concerned citizen, to file the instant petition.

The rules regarding legal standing in bringing public suits, or locus standi, are already well-defined in our
case law. Again, We cite David, which summarizes jurisprudence on this point: 73

By way of summary, the following rules may be culled from the cases decided by this
Court.1a\^/phi1 Taxpayers, voters, concerned citizens, and legislators may be accorded standing to sue,
provided that the following requirements are met:

(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
measure is unconstitutional;

(3) for voters, there must be a showing of obvious interest in the validity of the election law in
question;

(4) for concerned citizens, there must be a showing that the issues raised are of transcendental
importance which must be settled early; and

(5) for legislators, there must be a claim that the official action complained of infringes upon their
prerogatives as legislators.

We rule that the instant petition raises issues of transcendental importance, involved as they are with the
performance of a constitutional duty, allegedly neglected, by the COA. Hence, We hold that the petitioner,
as a concerned citizen, has the requisite legal standing to file the instant mandamus petition.

To be sure, petitioner does not need to make any prior demand on the MECO or the COA in order to
maintain the instant petition. The duty of the COA sought to be compelled by mandamus, emanates from
the Constitution and law, which explicitly require, or "demand," that it perform the said duty. To the mind of
this Court, petitioner already established his cause of action against the COA when he alleged that the COA
had neglected its duty in violation of the Constitution and the law.

Principle of Hierarchy of Courts

The last preliminary issue is concerned with the petition�s non-observance of the principle of hierarchy of
courts. The COA assails the filing of the instant mandamus petition directly with this Court, when such
petition could have very well been presented, at the first instance, before the Court of Appeals or any
Regional Trial Court.74 The COA claims that the petitioner was not able to provide compelling reasons to
justify a direct resort to the Supreme Court.75

In view of the transcendental importance of the issues raised in the mandamus petition, as earlier
mentioned, this Court waives this last procedural issue in favor of a resolution on the merits.76

II

To the merits of this petition, then.

ISSUE:

The single most crucial question asked by this case is whether the COA is, under prevailing law, mandated
to audit the accounts of the MECO. Conversely, are the accounts of the MECO subject to the audit
jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction of the COA.

Under Section 2(1) of Article IX-D of the Constitution,77 the COA was vested with the "power, authority and
duty" to "examine, audit and settle" the "accounts" of the following entities:

1. The government, or any of its subdivisions, agencies and instrumentalities;

2. GOCCs with original charters;

3. GOCCs without original charters;

4. Constitutional bodies, commissions and offices that have been granted fiscal autonomy under
the Constitution; and

5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the
government, which are required by law or the granting institution to submit to the COA for audit as
a condition of subsidy or equity.78

The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue," "receipts,"
"expenditures" and "uses of funds and property" of the foregoing entities.79

Complementing the constitutional power of the COA to audit accounts of "non-governmental entities
receiving subsidy or equity xxx from or through the government" is Section 29(1) 80 of the Audit Code, which
grants the COA visitorial authority over the following non-governmental entities:

1. Non-governmental entities "subsidized by the government";

2. Non-governmental entities "required to pay levy or government share";

3. Non-governmental entities that have "received counterpart funds from the government"; and

4. Non-governmental entities "partly funded by donations through the government."

Section 29(1) of the Audit Code, however, limits the audit of the foregoing non-governmental entities only
to "funds xxx coming from or through the government."81 This section of the Audit Code is, in turn,
substantially reproduced in Section 14(1), Book V of the Administrative Code. 82

In addition to the foregoing, the Administrative Code also empowers the COA to examine and audit "the
books, records and accounts" of public utilities "in connection with the fixing of rates of every nature, or in
relation to the proceedings of the proper regulatory agencies, for purposes of determining franchise tax." 83

Both petitioner and the COA claim that the accounts of the MECO are within the audit jurisdiction of the
COA, but vary on the extent of the audit and on what type of auditable entity the MECO is. The petitioner
posits that all accounts of the MECO are auditable as the latter is a bona fide GOCC or government
instrumentality.84 On the other hand, the COA argues that only the accounts of the MECO that pertain to
the "verification fees" it collects on behalf of the DOLE are auditable because the former is merely a non-
governmental entity "required to pay xxx government share" per the Audit Code. 85

We examine both contentions.

The MECO Is Not a GOCC or

Government Instrumentality
We start with the petitioner�s contention.

Petitioner claims that the accounts of the MECO ought to be audited by the COA because the former is a
GOCC or government instrumentality. Petitioner points out that the MECO is a non-stock corporation
"vested with governmental functions relating to public needs"; it is "controlled by the government thru a
board of directors appointed by the President of the Philippines"; and it operates "outside of the
departmental framework," subject only to the "operational and policy supervision of the DTI." 86 The MECO
thus possesses, petitioner argues, the essential characteristics of a bona fide GOCC and government
instrumentality.87

We take exception to petitioner�s characterization of the MECO as a GOCC or government instrumentality.

The MECO is not a GOCC or government instrumentality.

Government instrumentalities are agencies of the national government that, by reason of some "special
function or jurisdiction" they perform or exercise, are allotted "operational autonomy" and are "not integrated
within the department framework."88 Subsumed under the rubric "government instrumentality" are the
following entities:89

1. regulatory agencies,

2. chartered institutions,

3. government corporate entities or government instrumentalities with corporate powers

(GCE/GICP),90 and

4. GOCCs

The Administrative Code defines a GOCC:91

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: x x
x.

The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the GOCC
Governance Act of 2011, to wit:92

(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government of the Republic of the Philippines directly or through its
instrumentalities either wholly or, where applicable as in the case of stock corporations, to the extent of at
least a majority of its outstanding capital stock: x x x.

GOCCs, therefore, are "stock or non-stock" corporations "vested with functions relating to public needs"
that are "owned by the Government directly or through its instrumentalities."93 By definition, three attributes
thus make an entity a GOCC: first, its organization as stock or non-stock corporation;94 second, the public
character of its function; and third, government ownership over the same.

Possession of all three attributes is necessary to deem an entity a GOCC.

In this case, there is not much dispute that the MECO possesses the first and second attributes. It is the
third attribute, which the MECO lacks.
The MECO Is Organized as a Non-Stock Corporation

The organization of the MECO as a non-stock corporation cannot at all be denied. Records disclose that
the MECO was incorporated as a non-stock corporation under the Corporation Code on 16 December
1977.95 The incorporators of the MECO were Simeon R. Roxas, Florencio C. Guzon, Manuel K. Dayrit, Pio
K. Luz and Eduardo B. Ledesma, who also served as the corporation�s original members and directors.96

The purposes for which the MECO was organized also establishes its non-profit character, to wit:97

1. To establish and develop the commercial and industrial interests of Filipino nationals here and
abroad and assist on all measures designed to promote and maintain the trade relations of the
country with the citizens of other foreign countries;

2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the
corporate purposes provided they are not subject to conditions defeatist for or incompatible with
said purpose;

3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be
necessary for the use and need of the corporation, and in like manner when they are

4. To do and perform any and all acts which are deemed reasonably necessary to carry out the
purposes. (Emphasis supplied)

The purposes for which the MECO was organized are somewhat analogous to those of a trade, business
or industry chamber,98 but only on a much larger scale i.e., instead of furthering the interests of a particular
line of business or industry within a local sphere, the MECO seeks to promote the general interests of the
Filipino people in a foreign land.

Finally, it is not disputed that none of the income derived by the MECO is distributable as dividends to any
of its members, directors or officers.

Verily, the MECO is organized as a non-stock corporation.

The MECO Performs Functions with a Public Aspect.

The public character of the functions vested in the MECO cannot be doubted either. Indeed, to a certain
degree, the functions of the MECO can even be said to partake of the nature of governmental functions.
As earlier intimated, it is the MECO that, on behalf of the people of the Philippines, currently facilitates
unofficial relations with the people in Taiwan.

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

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

1. Formulation and implementation of a program to attract and promote

investments from Taiwan to Philippine industries and businesses, especially in
manufacturing, tourism, construction and other preferred areas of investments;
 2. Promotion of the export of Philippine products and Filipino manpower services,
including Philippine management services, to Taiwan;

3. Negotiation and/or assistance in the negotiation and conclusion of agreements

or other arrangements concerning trade, investment, economic cooperation,
technology transfer, banking and finance, scientific, cultural, educational and other
modes of cooperative endeavors between the Philippines and Taiwan, on a
people-to-people basis, in accordance with established rules and regulations;

4. Reporting on, and identification of, employment and business opportunities in

Taiwan for the promotion of Philippine exports, manpower and management
services, and tourism;

5. Dissemination in Taiwan of information on the Philippines, especially in the fields

of trade, tourism, labor, economic cooperation, and cultural, educational and
scientific endeavors;

6. Conduct of periodic assessment of market conditions in Taiwan, including

submission of trade statistics and commercial reports for use of Philippine
industries and businesses; and

7. Facilitation, fostering and cultivation of cultural, sports, social, and educational

exchanges between the peoples of the Philippines and Taiwan.

SECTION 2. In addition to the above-mentioned authority and subject to the conditions

stated in Section 3 hereof, MECO, through its branch offices in Taiwan, is hereby
authorized to perform the following functions:

1. Issuance of temporary visitors� visas and transit and crew list visas, and such
other visa services as may be authorized by the Department of Foreign Affairs;

2. Issuance, renewal, extension or amendment of passports of Filipino citizens in

accordance with existing regulations, and provision of such other passport services
as may be required under the circumstances;

3. Certification or affirmation of the authenticity of documents submitted for

authentication;

4. Providing translation services;

5. Assistance and protection to Filipino nationals and other legal/juridical persons

working or residing in Taiwan, including making representations to the extent
allowed by local and international law on their behalf before civil and juridical
authorities of Taiwan; and

6. Collection of reasonable fees on the first four (4) functions enumerated above
to defray the cost of its operations.

A perusal of the above functions of the MECO reveals its uncanny similarity to some of the functions
typically performed by the DFA itself, through the latter�s diplomatic and consular missions.100 The
functions of the MECO, in other words, are of the kind that would otherwise be performed by the
Philippines� own diplomatic and consular organs, if not only for the government�s acquiescence that they
instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a public aspect.

The MECO Is Not Owned or Controlled by the Government Organization as a non-stock corporation and
the mere performance of functions with a public aspect, however, are not by themselves sufficient to
consider the MECO as a GOCC. In order to qualify as a GOCC, a corporation must also, if not more
importantly, be owned by the government.

The government owns a stock or non-stock corporation if it has controlling interest in the corporation. In a
stock corporation, the controlling interest of the government is assured by its ownership of at least fifty-one
percent (51%) of the corporate capital stock.101 In a non-stock corporation, like the MECO, jurisprudence
teaches that the controlling interest of the government is affirmed when "at least majority of the members
are government officials holding such membership by appointment or designation" 102 or there is otherwise
"substantial participation of the government in the selection" of the corporation�s governing board.103

In this case, the petitioner argues that the government has controlling interest in the MECO because it is
the President of the Philippines that indirectly appoints the directors of the corporation. 104 The petitioner
claims that the President appoints directors of the MECO thru "desire letters" addressed to the
corporation�s board.105 As evidence, the petitioner cites the assumption of one Mr. Antonio Basilio as
chairman of the board of directors of the MECO in 2001, which was allegedly accomplished when former
President Macapagal-Arroyo, through a memorandum dated 20 February 2001, expressed her "desire" to
the board of directors of the MECO for the election of Mr. Basilio as chairman. 106

The MECO, however, counters that the "desire letters" that the President transmits are merely
recommendatory and not binding on it.107 The MECO maintains that, as a corporation organized under the
Corporation Code, matters relating to the election of its directors and officers, as well as its membership,
are ultimately governed by the appropriate provisions of the said code, its articles of incorporation and its
by-laws.108

As between the contrasting arguments, We find the contention of the MECO to be the one more consistent
with the law.

The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was correct in
postulating that, as a corporation organized under the Corporation Code, it is governed by the appropriate
provisions of the said code, its articles of incorporation and its by-laws. In this case, it is the by-laws109 of
the MECO that stipulates that its directors are elected by its members; its officers are elected by its directors;
and its members, other than the original incorporators, are admitted by way of a unanimous board
resolution, to wit:

SECTION II. MEMBERSHIP

Article 2. Members shall be classified as (a) Regular and (b) Honorary.

(a) Regular members � shall consist of the original incorporators and such other members who,
upon application for membership, are unanimously admitted by the Board of Directors.

(b) Honorary member � A person of distinction in business who as sympathizer of the objectives
of the corporation, is invited by the Board to be an honorary member.

SECTION III. BOARD OF DIRECTORS

Article 3. At the first meeting of the regular members, they shall organize and constitute themselves as a
Board composed of five (5) members, including its Chairman, each of whom as to serve until such time as
his own successor shall have been elected by the regular members in an election called for the purpose.
The number of members of the Board shall be increased to seven (7) when circumstances so warrant and
by means of a majority vote of the Board members and appropriate application to and approval by the
Securities and Exchange Commission. Unless otherwise provided herein or by law, a majority vote of all
Board members present shall be necessary to carry out all Board resolutions.

During the same meeting, the Board shall also elect its own officers, including the designation of the
principal officer who shall be the Chairman. In line with this, the Chairman shall also carry the title Chief
Executive Officer. The officer who shall head the branch or office for the agency that may be established
abroad shall have the title of Director and Resident Representative. He will also be the Vice-Chairman. All
other members of the Board shall have the title of Director.

xxxx

SECTION IV. EXECUTIVE COMMITTEE

Article 5. There shall be established an Executive Committee composed of at least three (3) members of
the Board. The members of the Executive Committee shall be elected by the members of the Board among
themselves.

xxxx

SECTION VI. OFFICERS: DUTIES, COMPENSATION

Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-Chairman, Chief
Finance Officer, and a Secretary. Except for the Secretary, who is appointed by the Chairman of the Board,
other officers and employees of the corporation shall be appointed by the Board.

The Deputy Representative and other officials and employees of a branch office or agency abroad are
appointed solely by the Vice Chairman and Resident Representative concerned. All such appointments
however are subject to ratification by the Board.

It is significant to note that none of the original incorporators of the MECO were shown to be government
officials at the time of the corporation�s organization. Indeed, none of the members, officers or board of
directors of the MECO, from its incorporation up to the present day, were established as government
appointees or public officers designated by reason of their office. There is, in fact, no law or executive order
that authorizes such an appointment or designation. Hence, from a strictly legal perspective, it appears that
the presidential "desire letters" pointed out by petitioner�if such letters even exist outside of the case of
Mr. Basilio�are, no matter how strong its persuasive effect may be, merely recommendatory.

The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.

The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from any other
class of government instrumentality. The other government instrumentalities i.e., the regulatory agencies,
chartered institutions and GCE/GICP are all, by explicit or implicit definition, creatures of the law. 110 The
MECO cannot be any other instrumentality because it was, as mentioned earlier, merely incorporated under
the Corporation Code.

Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is operating
under the policy supervision of the DTI is no longer a relevant issue to be reckoned with for purposes of
this case.
For whatever it is worth, however, and without justifying anything, it is easy enough for this Court to
understand the rationale, or necessity even, of the executive branch placing the MECO under the policy
supervision of one of its agencies.

It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was not intended
to operate as any other ordinary corporation. And it is not. Despite its private origins, and perhaps
deliberately so, the MECO was "entrusted"111 by the government with the "delicate and
precarious"112 responsibility of pursuing "unofficial"113 relations with the people of a foreign land whose
government the Philippines is bound not to recognize. The intricacy involved in such undertaking is the
possibility that, at any given time in fulfilling the purposes for which it was incorporated, the MECO may find
itself engaged in dealings or activities that can directly contradict the Philippines� commitment to the One
China policy of the PROC. Such a scenario can only truly be avoided if the executive department exercises
some form of oversight, no matter how limited, over the operations of this otherwise private entity.

Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other private
corporations. From its over-reaching corporate objectives, its special duty and authority to exercise certain
consular functions, up to the oversight by the executive department over its operations�all the while
maintaining its legal status as a non-governmental entity�the MECO is, for all intents and purposes, sui
generis.

Certain Accounts of the MECO May

Be Audited By the COA.

We now come to the COA�s contention.

The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect
to the "verification fees" for overseas employment documents that the latter collects from Taiwanese
employers on behalf of the DOLE.114The COA claims that, under Joint Circular No. 3-99, the MECO is
mandated to remit to the national government a portion of such "verification fees."115 The COA, therefore,
classifies the MECO as a non-governmental entity "required to pay xxx government share" per the Audit
Code.116

We agree that the accounts of the MECO pertaining to its collection of "verification fees" is subject to the
audit jurisdiction of the COA. However, We digress from the view that such accounts are the only ones that
ought to be audited by the COA. Upon careful evaluation of the information made available by the records
vis-�-vis the spirit and the letter of the laws and executive issuances applicable, We find that the accounts
of the MECO pertaining to the fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001,
are likewise subject to the audit jurisdiction of the COA.

Verification Fees Collected by the MECO

In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share in the
"verification fees" for overseas employment documents it collects on behalf of the DOLE.

The "verification fees" mentioned here refers to the "service fee for the verification of overseas employment
contracts, recruitment agreement or special powers of attorney" that the DOLE was authorized to collect
under Section 7 of EO No. 1022,118 which was issued by President Ferdinand E. Marcos on 1 May 1985.
These fees are supposed to be collected by the DOLE from the foreign employers of OFWs and are
intended to be used for "the promotion of overseas employment and for welfare services to Filipino workers
within the area of jurisdiction of [concerned] foreign missions under the administration of the [DOLE]." 119

Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the Department
of Finance and the COA in an effort to implement Section 7 of Executive Order No. 1022.120 Thus, under
Joint Circular 3-99, the following officials have been tasked to be the "Verification Fee Collecting Officer"
on behalf of the DOLE:121

1. The labor attach� or duly authorized overseas labor officer at a given foreign post, as duly
designated by the DOLE Secretary;

2. In foreign posts where there is no labor attach� or duly authorized overseas labor officer, the
finance officer or collecting officer of the DFA duly deputized by the DOLE Secretary as approved
by the DFA Secretary;

3. In the absence of such finance officer or collecting officer, the alternate duly designated by the
head of the foreign post.

Since the Philippines does not maintain an official post in Taiwan, however, the DOLE entered into a
"series" of Memorandum of Agreements with the MECO, which made the latter the former�s collecting
agent with respect to the "verification fees" that may be due from Taiwanese employers of OFWs.122 Under
the 27 February 2004 Memorandum of Agreement between DOLE and the MECO, the "verification fees"
to be collected by the latter are to be allocated as follows: (a) US$ 10 to be retained by the MECO as
administrative fee, (b) US $10 to be remitted to the DOLE, and (c) US$ 10 to be constituted as a common
fund of the MECO and DOLE.123

Evidently, the entire "verification fees" being collected by the MECO are receivables of the DOLE.124 Such
receipts pertain to the DOLE by virtue of Section 7 of EO No. 1022.

Consular Fees Collected by the MECO

Aside from the DOLE "verification fees," however, the MECO also collects "consular fees," or fees it collects
from the exercise of its delegated consular functions.

The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said section authorizes the
MECO to collect "reasonable fees" for its performance of the following consular functions:

1. Issuance of temporary visitors� visas and transit and crew list visas, and such other visa
services as may be authorized by the DFA;

2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with

existing regulations, and provision of such other passport services as may be required under the
circumstances;

3. Certification or affirmation of the authenticity of documents submitted for authentication; and

4. Providing translation services.

Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no consular office
for the collection of the "consular fees." Thus, the authority for the MECO to collect the "reasonable fees,"
vested unto it by the executive order.

The "consular fees," although held and expended by the MECO by virtue of EO No. 15, s. 2001, are, without
question, derived from the exercise by the MECO of consular functions�functions it performs by and only
through special authority from the government. There was never any doubt that the visas, passports and
other documents that the MECO issues pursuant to its authorized functions still emanate from the Philippine
government itself.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under EO No.
15, s. 2001. They must be reasonable as the authorization requires. It is the government that has ultimate
control over the disposition of the "consular fees," which control the government did exercise when it
provided in Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by the MECO "to defray the
cost of its operations."

The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be Audited by the
COA.

Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non-
governmental entities "required to pay xxx or have government share" but only with respect to "funds xxx
coming from or through the government." This provision of law perfectly fits the MECO:

First. The MECO receives the "verification fees" by reason of being the collection agent of the DOLE�a
government agency. Out of its collections, the MECO is required, by agreement, to remit a portion thereof
to the DOLE. Hence, the MECO is accountable to the government for its collections of such "verification
fees" and, for that purpose, may be audited by the COA.

Second. Like the "verification fees," the "consular fees" are also received by the MECO through the
government, having been derived from the exercise of consular functions entrusted to the MECO by the
government. Hence, the MECO remains accountable to the government for its collections of "consular fees"
and, for that purpose, may be audited by the COA.

Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the MECO and
Section 2(6) of EO No. 15, s. 2001, vis-�-vis, respectively, the "verification fees" and the "consular fees,"
grant and at the same time limit the authority of the MECO to collect such fees. That grant and limit require
the audit by the COA of the collections thereby generated.

Conclusion

The MECO is not a GOCC or government instrumentality. It is a sui generis private entity especially
entrusted by the government with the facilitation of unofficial relations with the people in Taiwan without
jeopardizing the country�s faithful commitment to the One China policy of the PROC. However, despite its
non-governmental character, the MECO handles government funds in the form of the "verification fees" it
collects on behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001.
Hence, under existing laws, the accounts of the MECO pertaining to its collection of such "verification fees"
and "consular fees" should be audited by the COA.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila Economic and
Cultural Office is hereby declared a non-governmental entity. However, the accounts of the Manila
Economic and Cultural Office pertaining to: the verification fees contemplated by Section 7 of Executive
Order No. 1022 issued 1 May 1985, that the former collects on behalf of the Department of Labor and
Employment, and the fees it was authorized to collect under Section 2(6) of Executive Order No. 15 issued
16 May 2001, are subject to the audit jurisdiction of the COA.

SO ORDERED.
G.R. No. L-52179 April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION,petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANI�A, IAUREANO BANI�A, JR., SOR
MARIETA BANI�A, MONTANO BANI�A, ORJA BANI�A, AND LYDIA R. BANI�A,respondents.

Mauro C. Cabading, Jr. for petitioner.

Simeon G. Hipol for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary mandatory injunction
seeking the nullification or modification of the proceedings and the orders issued by the respondent Judge
Romeo N. Firme, in his capacity as the presiding judge of the Court of First Instance of La Union, Second
Judicial District, Branch IV, Bauang, La Union in Civil Case No. 107-BG, entitled "Juana Rimando Bani�a,
et al. vs. Macario Nieveras, et al." dated November 4, 1975; July 13, 1976; August 23,1976; February 23,
1977; March 16, 1977; July 26, 1979; September 7, 1979; November 7, 1979 and December 3, 1979 and
the decision dated October 10, 1979 ordering defendants Municipality of San Fernando, La Union and
Alfredo Bislig to pay, jointly and severally, the plaintiffs for funeral expenses, actual damages consisting of
the loss of earning capacity of the deceased, attorney's fees and costs of suit and dismissing the complaint
against the Estate of Macario Nieveras and Bernardo Balagot.

The antecedent facts are as follows:

Petitioner Municipality of San Fernando, La Union is a municipal corporation existing under and in
accordance with the laws of the Republic of the Philippines. Respondent Honorable Judge Romeo N. Firme
is impleaded in his official capacity as the presiding judge of the Court of First Instance of La Union, Branch
IV, Bauang, La Union. While private respondents Juana Rimando-Bani�a, Laureano Bani�a, Jr., Sor
Marietta Bani�a, Montano Bani�a, Orja Bani�a and Lydia R. Bani�a are heirs of the deceased Laureano
Bani�a Sr. and plaintiffs in Civil Case No. 107-Bg before the aforesaid court.

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

On December 11, 1966, the private respondents instituted a compliant for damages against the Estate of
Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger jeepney, which
was docketed Civil Case No. 2183 in the Court of First Instance of La Union, Branch I, San Fernando, La
Union. However, the aforesaid defendants filed a Third Party Complaint against the petitioner and the driver
of a dump truck of petitioner.

Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent judge and
was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order dated May 7, 1975, the
private respondents amended the complaint wherein the petitioner and its regular employee, Alfredo Bislig
were impleaded for the first time as defendants. Petitioner filed its answer and raised affirmative defenses
such as lack of cause of action, non-suability of the State, prescription of cause of action and the negligence
of the owner and driver of the passenger jeepney as the proximate cause of the collision.
In the course of the proceedings, the respondent judge issued the following questioned orders, to wit:

(1) Order dated November 4, 1975 dismissing the cross-claim against Bernardo Balagot;

(2) Order dated July 13, 1976 admitting the Amended Answer of the Municipality of San Fernando,
La Union and Bislig and setting the hearing on the affirmative defenses only with respect to the
supposed lack of jurisdiction;

(3) Order dated August 23, 1976 deferring there resolution of the grounds for the Motion to Dismiss
until the trial;

(4) Order dated February 23, 1977 denying the motion for reconsideration of the order of July 13,
1976 filed by the Municipality and Bislig for having been filed out of time;

(5) Order dated March 16, 1977 reiterating the denial of the motion for reconsideration of the order
of July 13, 1976;

(6) Order dated July 26, 1979 declaring the case deemed submitted for decision it appearing that
parties have not yet submitted their respective memoranda despite the court's direction; and

(7) Order dated September 7, 1979 denying the petitioner's motion for reconsideration and/or order
to recall prosecution witnesses for cross examination.

On October 10, 1979 the trial court rendered a decision, the dispositive portion is hereunder quoted as
follows:

IN VIEW OF ALL OF (sic) THE FOREGOING, judgment is hereby rendered for the plaintiffs, and
defendants Municipality of San Fernando, La Union and Alfredo Bislig are ordered to pay jointly
and severally, plaintiffs Juana Rimando-Bani�a, Mrs. Priscilla B. Surell, Laureano Bani�a Jr., Sor
Marietta Bani�a, Mrs. Fe B. Soriano, Montano Bani�a, Orja Bani�a and Lydia B. Bani�a the sums
of P1,500.00 as funeral expenses and P24,744.24 as the lost expected earnings of the late
Laureano Bani�a Sr., P30,000.00 as moral damages, and P2,500.00 as attorney's fees. Costs
against said defendants.

The Complaint is dismissed as to defendants Estate of Macario Nieveras and Bernardo Balagot.

SO ORDERED. (Rollo, p. 30)

Petitioner filed a motion for reconsideration and for a new trial without prejudice to another motion which
was then pending. However, respondent judge issued another order dated November 7, 1979 denying the
motion for reconsideration of the order of September 7, 1979 for having been filed out of time.

Finally, the respondent judge issued an order dated December 3, 1979 providing that if defendants
municipality and Bislig further wish to pursue the matter disposed of in the order of July 26, 1979, such
should be elevated to a higher court in accordance with the Rules of Court. Hence, this petition.

Petitioner maintains that the respondent judge committed grave abuse of discretion amounting to excess
of jurisdiction in issuing the aforesaid orders and in rendering a decision. Furthermore, petitioner asserts
that while appeal of the decision maybe available, the same is not the speedy and adequate remedy in the
ordinary course of law.

On the other hand, private respondents controvert the position of the petitioner and allege that the petition
is devoid of merit, utterly lacking the good faith which is indispensable in a petition for certiorari and
prohibition. (Rollo, p. 42.) In addition, the private respondents stress that petitioner has not considered that
every court, including respondent court, has the inherent power to amend and control its process and orders
so as to make them conformable to law and justice. (Rollo, p. 43.)

The controversy boils down to the main issue of whether or not the respondent court committed grave
abuse of discretion when it deferred and failed to resolve the defense of non-suability of the State amounting
to lack of jurisdiction in a motion to dismiss.

In the case at bar, the respondent judge deferred the resolution of the defense of non-suability of the State
amounting to lack of jurisdiction until trial. However, said respondent judge failed to resolve such defense,
proceeded with the trial and thereafter rendered a decision against the municipality and its driver.

The respondent judge did not commit grave abuse of discretion when in the exercise of its judgment it
arbitrarily failed to resolve the vital issue of non-suability of the State in the guise of the municipality.
However, said judge acted in excess of his jurisdiction when in his decision dated October 10, 1979 he held
the municipality liable for the quasi-delict committed by its regular employee.

The doctrine of non-suability of the State is expressly provided for in Article XVI, Section 3 of the
Constitution, to wit: "the State may not be sued without its consent."

Stated in simple parlance, the general rule is that the State may not be sued except when it gives consent
to be sued. Consent takes the form of express or implied consent.

Express consent may be embodied in a general law or a special law. The standing consent of the State to
be sued in case of money claims involving liability arising from contracts is found in Act No. 3083. A special
law may be passed to enable a person to sue the government for an alleged quasi-delict, as in Merritt v.
Government of the Philippine Islands (34 Phil 311). (see United States of America v. Guinto, G.R. No.
76607, February 26, 1990, 182 SCRA 644, 654.)

Consent is implied when the government enters into business contracts, thereby descending to the level of
the other contracting party, and also when the State files a complaint, thus opening itself to a counterclaim.
(Ibid)

Municipal corporations, for example, like provinces and cities, are agencies of the State when they are
engaged in governmental functions and therefore should enjoy the sovereign immunity from suit.
Nevertheless, they are subject to suit even in the performance of such functions because their charter
provided that they can sue and be sued. (Cruz, Philippine Political Law, 1987 Edition, p. 39)

A distinction should first be made between suability and liability. "Suability depends on the consent of the
state to be sued, liability on the applicable law and the established facts. The circumstance that a state is
suable does not necessarily mean that it is liable; on the other hand, it can never be held liable if it does
not first consent to be sued. Liability is not conceded by the mere fact that the state has allowed itself to be
sued. When the state does waive its sovereign immunity, it is only giving the plaintiff the chance to prove,
if it can, that the defendant is liable." (United States of America vs. Guinto, supra, p. 659-660)

Anent the issue of whether or not the municipality is liable for the torts committed by its employee, the test
of liability of the municipality depends on whether or not the driver, acting in behalf of the municipality, is
performing governmental or proprietary functions. As emphasized in the case of Torio vs. Fontanilla (G. R.
No. L-29993, October 23, 1978. 85 SCRA 599, 606), the distinction of powers becomes important for
purposes of determining the liability of the municipality for the acts of its agents which result in an injury to
third persons.
Another statement of the test is given in City of Kokomo vs. Loy, decided by the Supreme Court of Indiana
in 1916, thus:

Municipal corporations exist in a dual capacity, and their functions are twofold. In one they exercise
the right springing from sovereignty, and while in the performance of the duties pertaining thereto,
their acts are political and governmental. Their officers and agents in such capacity, though elected
or appointed by them, are nevertheless public functionaries performing a public service, and as
such they are officers, agents, and servants of the state. In the other capacity the municipalities
exercise a private, proprietary or corporate right, arising from their existence as legal persons and
not as public agencies. Their officers and agents in the performance of such functions act in behalf
of the municipalities in their corporate or individual capacity, and not for the state or sovereign
power." (112 N.E., 994-995) (Ibid, pp. 605-606.)

It has already been remarked that municipal corporations are suable because their charters grant them the
competence to sue and be sued. Nevertheless, they are generally not liable for torts committed by them in
the discharge of governmental functions and can be held answerable only if it can be shown that they were
acting in a proprietary capacity. In permitting such entities to be sued, the State merely gives the claimant
the right to show that the defendant was not acting in its governmental capacity when the injury was
committed or that the case comes under the exceptions recognized by law. Failing this, the claimant cannot
recover. (Cruz, supra, p. 44.)

In the case at bar, the driver of the dump truck of the municipality insists that "he was on his way to the
Naguilian river to get a load of sand and gravel for the repair of San Fernando's municipal streets." (Rollo,
p. 29.)

In the absence of any evidence to the contrary, the regularity of the performance of official duty is presumed
pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court. Hence, We rule that the driver of the
dump truck was performing duties or tasks pertaining to his office.

We already stressed in the case of Palafox, et. al. vs. Province of Ilocos Norte, the District Engineer, and
the Provincial Treasurer (102 Phil 1186) that "the construction or maintenance of roads in which the truck
and the driver worked at the time of the accident are admittedly governmental activities."

After a careful examination of existing laws and jurisprudence, We arrive at the conclusion that the
municipality cannot be held liable for the torts committed by its regular employee, who was then engaged
in the discharge of governmental functions. Hence, the death of the passenger �� tragic and deplorable
though it may be �� imposed on the municipality no duty to pay monetary compensation.

All premises considered, the Court is convinced that the respondent judge's dereliction in failing to resolve
the issue of non-suability did not amount to grave abuse of discretion. But said judge exceeded his
jurisdiction when it ruled on the issue of liability.

ACCORDINGLY, the petition is GRANTED and the decision of the respondent court is hereby modified,
absolving the petitioner municipality of any liability in favor of private respondents.

SO ORDERED.
G.R. No. 157860 December 1, 2003

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,

vs.
THE PROVINCE OF TARLAC, respondent.

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking the reversal of the Decision of the
Court of Appeals dated November 28, 20021 and Resolution dated April 8, 2003.2

The facts are undisputed.

On March 26, 1996, the Sangguniang Panlalawigan of Tarlac passed Resolution No. 068-96, which
authorized and approved the conversion of Urquico Memorial Athletic Field into a Government Center, as
well as the segregation and donation of portions of said land to different government agencies for the
purpose of constructing or relocating their office buildings. After receiving two letters of invitation regarding
the project, the Government Service Insurance System (GSIS) decided to put up an office at the site.3

Thus, Tarlac Governor Margarita Cojuangco issued a Notice of Construction on December 13, 1996, for
the building of the GSIS office on the designated lot.4

The Province of Tarlac and the GSIS then executed a Memorandum of Agreement (MOA) on December
13, 1997, whereby the Province of Tarlac donated the said lot to the GSIS subject to the conditions
stipulated therein. On the same date, the Province executed a Deed of Donation over the subject lot in
favor of the GSIS, which was duly accepted by the latter. As stipulated in the MOA, the GSIS donated
P2,000,000.00 to the Province of Tarlac as financial assistance.5

On September 17, 1997, the City of Tarlac issued a building permit to the GSIS for the construction of its
office. The Sangguniang Panlalawigan then passed Resolution No. 013-97, which reiterated the authority
granted to Gov. Cojuangco by Resolution No. 068-96.6

Subsequently, Gov. Jose Yap was elected as the new chief executive of Tarlac, and he officially entered
upon his duties on July 1, 1998. He wrote a letter to the GSIS, inviting the latter to reevaluate their respective
positions with respect to the MOA of December 13, 1997. Evidently, Gov. Yap was of the opinion that the
provisions of the Deed of Donation were unfair to the Province. Later, the Provincial Administrator wrote
the GSIS, demanding the payment of P33,590,000.00 representing the balance of the value of the lot
donated, which the GSIS refused to pay.7

On March 11, 1999, the Province of Tarlac then filed a Complaint against the GSIS for declaration of nullity
of donation and memorandum of agreement, recovery of possession and enforcement of Article 449 in
relation to Articles 450 and 451 of the Civil Code, and damages, before the Regional Trial Court of Tarlac
City, Branch 63.8 During the pre-trial, the parties agreed to submit the case for decision on the basis of the
pleadings and annexes submitted by the parties, since only legal issues were involved.

On August 25, 1999, the trial court rendered its decision in favor of the validity of the donation to the GSIS
and dismissed the complaint for declaration of nullity of donation and memorandum of agreement, recovery
of possession and enforcement of Article 449 in relation to Articles 450 and 451 of the Civil Code, and
damages filed by the Province of Tarlac.

Respondent Province of Tarlac appealed to the Court of Appeals,9 which rendered a decision on November
28, 2002, the dispositive portion of which states:
 WHEREFORE, the assailed decision is hereby REVERSED and SET ASIDE. The deed of donation
and Memorandum of Agreement both dated April 30, 1997 between the parties is hereby declared
NULL and VOID. Petitioner is ORDERED to reimburse respondent all the necessary and useful
expenses respondent incurred on the property.

SO ORDERED.10

Petitioner GSIS filed the instant petition raising a sole assignment of error:

WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF DONATION
AND MEMORANDUM OF AGREEMENT ARE NULL AND VOID.11

In deciding the instant case, the Court of Appeals relied on Section 381 of Republic Act No. 7160, better
known as the Local Government Code of 1991, which provides:

SECTION 381. Transfer Without Cost. — Property which has become unserviceable or is no longer
needed may be transferred without cost to another office, agency, subdivision or instrumentality of
the national government or another local government unit at an appraised valuation determined by
the local committee on awards. Such transfer shall be subject to the approval of the sanggunian
concerned making the transfer and by the head of the office, agency, subdivision, instrumentality
or local government unit receiving the property.

In effect, the appellate court ruled that the donation of the subject property by the Province of Tarlac
to the GSIS was void, because it was executed without first securing an appraised valuation of the
property from the local committee on awards.12

On the other hand, petitioner insists that the donation is perfectly valid, stating that there is nothing
in the Local Government Code which expressly states that the lack of an appraised valuation
renders the subject transfer void. Further, it contends that at best, an appraised valuation is merely
a formal and procedural requisite, the lack of which cannot overturn substantive and vested rights. 13

Considering that the assailed donation is clearly onerous, the rules on contracts will
apply.14 Pertinently, the Civil Code expressly defines the different kinds of void and inexistent
contracts, to wit:

ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;

(7) Those expressly prohibited or declared void by law.

 These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

A transfer of real property by a local government unit to an instrumentality of government without first
securing an appraised valuation from the local committee on awards does not appear to be one of the void
contracts enumerated in the afore-quoted Article 1409 of the Civil Code. Neither does Section 381 of the
Local Government Code expressly prohibit or declare void such transfers if an appraised valuation from the
local committee on awards is not first obtained.

The freedom of contract is both a constitutional and statutory right and to uphold this right, courts should
move with all the necessary caution and prudence in holding contracts void.15 Furthermore, a duly executed
contract carries with it the presumption of validity.16 In the assailed decision, the Court of Appeals simply
ruled that the absence of a prior appraised valuation by the local committee on awards rendered the
donation null and void. This, to our mind, did not sufficiently overcome the presumption of validity of the
contract, considering that there is no express provision in the law which requires that the said valuation is
a condition sine qua non for the validity of a donation.

There being a perfected contract, the Province of Tarlac, through Gov. Yap, cannot revoke or renounce the
same without the consent of the other party. From the moment of perfection, the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage, and law. 17 The contract has the force of law
between the parties and they are expected to abide in good faith by their respective contractual
commitments. Just as nobody can be forced to enter into a contract, in the same manner, once a contract
is entered into, no party can renounce it unilaterally or without the consent of the other. It is a general
principle of law that no one may be permitted to change his mind or disavow and go back upon his own
acts, or to proceed contrary thereto, to the prejudice of the other party. 18

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Decision of the Court of Appeals
dated November 28, 2002 and its Resolution dated April 8, 2003 are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Tarlac City, Branch 63, dated August 25, 1999 is REINSTATED. No
costs.

SO ORDERED.