Case No. 1 G.R. No.

211356, September 29, 2014

CRISOSTOMO B. AQUINO, Petitioner, v. MUNICIPALITY OF MALAY, AKLAN,

REPRESENTED BY HON. MAYOR JOHN P. YAP, SANGGUNIANG BAYAN 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.

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 within the "no build zone" demarcated in Municipal Ordinance
2000-131 (Ordinance).[3] As provided in the Ordinance:

SECTION 2. Definition of Terms. As used 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 necessary zoning
clearance, building permit, and business and mayor's permit. In reply, petitioner
expressed willingness to settle the company's obligations, but the 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 relief is 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;

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 out the
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
in Malay, Aklan is illegal. Such a finding of illegality required the respondent mayor's
exercise of quasi-judicial 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
if it 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 failure of 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 of an
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 build
zones are intended for the protection of the public because the stability of the
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: nuisance per se and

nuisance per 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 that which 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

se since this type of nuisance is generally defined as an act, occupation,
or structure, which is a nuisance at all times and under any
[15]
circumstances, regardless of location or surrounding.  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 fulfill the objectives of the government. Otherwise stated, the
government may enact legislation that may interfere with personal liberty, property,
lawful businesses 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 as the executive official of the town; it has also been endowed with authority
to 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 to secure 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:

x x x x
(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:

x x x x

(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.

No building or structure shall be allowed 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
(a) 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 as verified to by the Building Inspector and the Sangguniang Bayan
shall be issued a Certificate of Occupancy by the Office of the Municipal
Engineer.
No Business or Mayor's Permit shall be issued to businesses being
(c) undertaken on buildings or structures which were not issued a certificate
of Occupancy beginning January 2001 and thereafter.

x x x x

SECTION 10. Penalties.

x x x x

(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, beaches or 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 herein above 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 the
application 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. [21] What 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
be heard 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 se or a nuisance per
accidens becomes immaterial. The hotel was demolished not exactly because it is a
nuisance but because it failed to comply with the legal requirements prior to
construction. It just so 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 detachable from the foundation or the
ground introduced by the SECOND PARTY in the 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.

x x x x

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
municipality and 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:

x x x x

(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 projects x 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 of discretion on the part of the respondent mayor,
petitioner argued that the hotel site is a forestland under the primary jurisdiction of
the DENR. As such, 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.

x x x x

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

x x x x

(2) For a Municipality:

x x x x

(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 an opinion favorable 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 concerns the 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 quasi-judicial
powers to order the closing and demolition of establishments. 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 above-quoted, 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. 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.

Peralta, Villarama, Jr., Reyes, and Jardeleza, JJ., concur.

October 23, 2014

N O T I C E OF J U D G M E N T

Sirs/Mesdames:

Please take notice that on ___September 29, 2014___ a Decision, copy attached
herewith, was rendered by the Supreme Court in the above-entitled case, the
original of which was received by this Office on October 23, 2014 at 12:30 p.m.

Very truly yours,

(SGD)
WILFREDO V. LAPITAN
Division Clerk of Court

Case No. 2
SECOND DIVISION
[ G.R. No. 180110, May 30, 2016 ]
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' Decision [1] dated May 30,
2007 and Resolution[2] 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 facts 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 Brunei-Malaysia-Philippines Cable Network System (BMP-CNS),
the Philippines-Italy (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).[6] Moreover, it alleges that the Wet Segment is laid
in international, 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 system. [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 P 203,300,000.00
BMP-CNS P 65,662,000.00
SEA-ME-WE-3 CNS P P 7,540,000.00
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 P 52,529,600.00
019-00968 APCN P 162,640,000.00
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 10, 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]

Alter 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, but the same was likewise dismissed by
the RTC in an Order[19] 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. 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 11 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 court
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 Code. [24]

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 ana 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.[31] 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 feet 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 tactual finding from a legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the P.I., 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 docs
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 x x x." Kenneth Gulp 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
property 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.[40] Besides, 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 (UNCLOS) 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 Article 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 79[46] 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 taxation. [50]

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
1, 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, are hereby withdrawn upon the effectivity of this Code.

x x x x

Section 234. Exemptions from Real Property Tax. - The following arc 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

(c) 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
juridical, including all government-owned or controlled corporations arc
hereby withdrawn upon the effectivity 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.[56] Capwire 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 are 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.

Velasco, Jr., (Chairperson), Peralta, Perez, and Mendoza,* JJ., concur.

Jardeleza, J., on leave.

June 17, 2016

N O T I C E OF J U D G M E N T

Sirs/Mesdames:

Please take notice that on ___May 30, 2016___ a Decision, copy attached hereto,
was rendered by the Supreme Court in the above-entitled case, the original of which
was received by this Office on June 17, 2016 at 1:30 p.m.

Very truly yours,

(SGD)
WILFREDO V. LAPITAN
Division Clerk of Court
Case No. 3

EN BANC
[ G.R. No. 170867, December 04, 2018 ]
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY RAPHAEL P.M.
LOTILLA, SECRETARY, DEPARTMENT OF ENERGY (DOE), MARGARITO B.
TEVES, SECRETARY, DEPARTMENT OF FINANCE (DOF), AND ROMULO L.
NERI, SECRETARY, DEPARTMENT OF BUDGET AND MANAGEMENT (DBM),
PETITIONERS, VS. PROVINCIAL GOVERNMENT OF
PALAWAN,REPRESENTED BY GOVERNOR ABRAHAM KAHLIL B. MITRA,
RESPONDENT.

[G.R. No. 185941]

BISHOP PEDRO DULAY ARIGO, CESAR N. SARINO, DR. JOSE ANTONIO N.

SOCRATES, PROF. H. HARRY L. ROQUE, JR., PETITIONERS, VS. HON.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, HON. ENERGY SECRETARY
ANGELO T. REYES, HON. FINANCE SECRETARY MARGARITO B. TEVES,
HON. BUDGET AND MANAGEMENT SECRETARY ROLANDO D. ANDAYA, JR.,
HON. PALAWAN GOVERNOR JOEL T. REYES, HON. REPRESENTATIVE
ANTONIO C. ALVAREZ (1ST DISTRICT), HON. REPRESENTATIVE ABRAHAM
MITRA (2ND DISTRICT), RAFAEL E. DEL PILAR, PRESIDENT AND CEO, PNOC
EXPLORATION CORPORATION, RESPONDENTS.

DECISION
TIJAM, J.:
G.R. No. 170867 is a petition for review on certiorari[1] under Rule 45 of the Rules of
Court assailing the Decision[2] dated December 16, 2005 of the Regional Trial Court
(RTC) of Palawan, Branch 95 in Civil Case No. 3779 which declared the Province of
Palawan entitled to forty percent (40%) of the government's earnings derived from
the Camago-Malampaya natural gas project since October 16, 2001. The petition
also seeks ad cautelam to nullify the RTC Amended Order [3] dated January 16, 2006
which directed the "freezing" of said 40% share under pain of contempt.

G.R. No. 185941 is a petition for review on certiorari[4] under Rule 45 of the Rules of
Court assailing the Resolution [5] dated May 29, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 102247 which dismissed the certiorari petition questioning the
constitutionality of Executive Order (E.O.) No. 683, [6] and the CA Resolution[7] dated
December 16, 2008 which denied the motion for reconsideration.

The Antecedents
The Camago-Malampaya Natural Gas Project

On December 11, 1990, the Republic of the Philippines (Republic or National

Government), through the Department of Energy (DoE), entered into Service
Contract No. 38 with Shell Philippines Exploration B.V. and Occidental Philippines,
Incorporated (collectively SPEX/OXY), as Contractor, for the exclusive conduct of
petroleum operations in the area known as "Camago-Malampaya" located offshore
northwest of Palawan. Exploration of the area led to the drilling of the Camago-
Malampaya natural gas reservoir about 80 kilometers from the main island of
Palawan and 30 kms from the platform. [8]

The nearest point of the Camago-Malampaya production area is at a distance of

93.264 kms or 50.3585 nautical miles to the Kalayaan Island Group (Kalayaan);
55.476 kms or 29.9546 nm to mainland Palawan (Nacpan Point, south of Patuyo
Cove, Municipality of El Nido); and 48.843 kms or 26.9546 nm to the Province of
Palawan (northwest of Tapiutan Island, Municipality of El Nido). [9]

The quantity of natural gas contained in the Camago-Malampaya was estimated to

be sufficient to justify the pursuit of gas-to-power projects having an aggregate
power-generating capacity of approximately 3,000 megawatts operating at baseload
for 20 to 25 years.[10]

Service Contract No. 38, as clarified by the Memorandum of Clarification between

the same parties dated December 11, 1990, provides for a production sharing
scheme whereby the National Government was entitled to receive an amount equal
to sixty percent (60%) of the net proceeds [11] from the sale of petroleum (including
natural gas) produced from petroleum operations while SPEX/OXY, as service
contractor, was entitled to receive an amount equal to forty percent (40%) of the net
proceeds.[12]

The Contractor was subsequently composed of the consortium of SPEX, Shell

Philippines LLC, Chevron Malampaya LLC and Philippine National Oil Company-
Exploration Corporation (PNOC-EC).[13]

Administrative Order No. 381

On February 17, 1998, President Fidel V. Ramos issued Administrative Order (A.O.)
No. 381[14] which, in part, stated that the Province of Palawan was expected to
receive about US$2.1 Billion from the estimated US$8.1 Billion total government
share from the Camago-Malampaya natural gas project for the 20-year contract
period.[15]
On June 10, 1998, DoE Secretary Francisco L. Viray wrote Palawan Governor
Salvador P. Socrates, requesting for the deferment of payment of 50% of Palawan's
share in the project for the first seven years of operations, estimated at US$222.89
Million, which it would use to pay for the National Power Corporation's Take-or-Pay
Quantity (TOPQ) obligations under the latter's Gas Sale and Purchase Agreements
with SPEX/OXY.[16]

On October 16, 2001, the Camago-Malampaya natural gas project was inaugurated.
[17]

Palawan's Claim

The Provincial Government of Palawan asserted its claim over forty percent (40%)
of the National Government's share in the proceeds of the project. It argued that
since the reservoir is located within its territorial jurisdiction, it is entitled to said
share under Section 290[18] of the Local Government Code. The National
Government disputed the claim, arguing that since the gas fields were approximately
80 k.ms from Palawan's coastline, they are outside the territorial jurisdiction of the
province and is within the national territory of the Philippines. [19]

Negotiations took place between the National Government and the Provincial
Government of Palawan on the sharing of the proceeds from the project, with the
former proposing to give Palawan 20% of said proceeds after tax. The negotiations,
however, were unsuccessful. On March 14, 2003, in a letter to the Secretaries of the
Department of Energy (DoE), the Department of Budget and Management (DBM)
and the Department of Finance (DoF), Palawan Governor Mario Joel T. Reyes
(Governor Reyes) reiterated his province's demand for the release of its 40% share.
Attached to said letter was Resolution No. 5340-03 [20] of the Sangguniang
Panlalawigan of Palawan calling off further negotiations with the National
Government and authorizing Governor Reyes to engage legal services to prosecute
the province's claim.[21]

Civil Case No. 3779

On May 7, 2003, the Provincial Government of Palawan filed a petition [22] for

declaratory relief before the RTC of Palawan and Puerto Princesa against DoE
Secretary Vicente S. Perez, Jr., DoF Secretary Jose Isidro N. Camacho and DBM
Secretary Emilia T. Boncodin (Department Secretaries), docketed as Civil Case No.
3779. It sought judicial determination of its rights under A.O. No. 381 (1998),
Republic Act (R.A.) No. 7611 [23] or the Strategic Environmental Plan (SEP) for
Palawan Act, Section 290 of R.A. No. 7160 [24] or the Local Government Code of
1991 (Local Government Code), and Provincial Ordinance No. 474 [25] (series of
2000). It asked the RTC to declare that the Camago-Malampaya natural gas
reservoir is part of the territorial jurisdiction of the Province of Palawan and that the
Provincial Government of Palawan was entitled to receive 40% of the National
Government's share in the proceeds of the Camago-Malampaya natural gas project.
[26]

Commenting on the petition, the Republic maintained that Palawan was not entitled
to the 40% share because the Camago-Malampaya reservoir is outside its territorial
jurisdiction. It postulated that Palawan's territorial jurisdiction is limited to its land
area and to the municipal waters within 15 km from its coastline. It denied being
estopped by the acts of government officials who earlier acknowledged Palawan's
share in the proceeds of the project.[27]

The Interim Agreement

On February 9, 2005, DoE Secretary Vincent S. Perez, Jr., DBM Secretary Mario L.
Relampagos and DoF Secretary Juanita D. Amatong, with authority from President
Gloria Macapagal-Arroyo, executed an Interim Agreement [28] with the Province of
Palawan, represented by its Governor Reyes. The agreement provided for the equal
sharing between the National Government and the Province of Palawan of 40% of
(a) the funds already remitted to the National Government under Service Contract
No. 38 and (b) the funds to be remitted to the National Government up the earlier of
(i) the effective date of the final and executory judgment on the petition by a court of
competent jurisdiction on Civil Case No. 3779, or (ii) June 30, 2010. The parties also
agreed that the amount of P600 Million, which was previously released to the
Province of Palawan under E.O. Nos. 254 and 254-A, would be deducted from the
initial release of the province's 50% share. Furthermore, the release of funds under
the agreement would be without prejudice to the respective positions of the parties .
in any legal dispute regarding the territorial jurisdiction over the Camago-Malampaya
area. Should Civil Case No. 3779 be decided with finality in favor of either party, the
Interim Agreement treated the share which the prevailing party has received as
financial assistance to the other.[29]

The Province of Palawan claims that the National Government failed to fulfill
their commitments under the Interim Agreement and that it has not received
its stipulated share since it was signed.[30]

The RTC Rulings in Civil Case No. 3779

On December 16, 2005, the RTC decided Civil Case No. 3779 in favor of the
Province of Palawan, disposing as follows:
WHEREFORE, premises considered, the Court declares that the province of
Palawan is entitled to the 40% share of the national wealth pursuant to the
provisions of Sec. 7, Article X of the 1987 Constitution and this right is in accord with
the provisions of the Enabling Act, R.A. 7160 (The Local Government Code of
1991), computed based on revenues generated from the Camago-Malampaya
Natural Gas Project since October 16, 2001.

IT IS SO ORDERED.[31]
The RTC held that it was "unthinkable" to limit Palawan's territorial jurisdiction to its
landmass and municipal waters considering that the Local Government Code
empowered them to protect the environment, and R.A. No. 7611 adopted a
comprehensive framework for the sustainable development of Palawan compatible
with protecting and enhancing the natural resources and endangered environment of
the province.[32]

Applying the principles of decentralization and devolution of powers to local

government units (LGUs) as recognized in the 1987 Constitution, the RTC explained
that the State's resources must be shared with the LGUs if they were expected to
deliver basic services to their constituents and to discharge their functions as agents
of the State in enforcing laws, preserving the integrity of the national territory and
protecting the environment.[33]

The RTC rejected the Department Secretaries' reliance on the cases of Tan v.
COMELEC[34] and Laguna Lake Development Authority v. CA [35] (LLDA) in arguing
that territorial jurisdiction refers only to landmass. The RTC held that the cases were
inapplicable as Tan was an election controversy involving the creation of a new
province while LLDA merely highlighted the primacy of the said agency's Charter
over the Local Government Code. The 1950 case of Municipality of Paoay v.
Manaois,[36] where a municipality was declared as holding only a usufruct, not
exclusive. ownership, over the municipal waters, was also held to be inapplicable
since it was rendered before the principle of local autonomy was instituted in the
1987 Constitution and the Local Government Code. [37]

The RTC further declared that the Regalian Doctrine could not be used by the
Department Secretaries as a shield to defeat the Constitutional provision giving
LGUs an equitable share in the proceeds of the utilization and development of
national wealth within their respective areas. The doctrine, said the RTC, is subject
to this Constitutional limitation and the 40% LGU share set by the Local Government
Code.[38]

Finally, the RTC noted that from 1992 to 1998, Palawan received a total of
P116,343,197.76 from collections derived from the West Linapacan Oil Fields, and
that former President Fidel V. Ramos issued A.O. No. 381 acknowledging Palawan's
claim and share in the proceeds of the Camago-Malampaya project. The RTC, thus,
held that by its previous actions and issuances, the National Government legally
acknowledged Palawan's claim to the proceeds of the Camago-Malampaya project
and it was "too late in the day for [it] to take a 180 degree turn." [39]

On December 29, 2005, the Provincial Government of Palawan filed a motion to

require the Secretaries of the DoE, DoF and DBM to render a full accounting of
actual payments made by SPEX to the Bureau of Treasury from October 1, 2001 to
December 2005, and to freeze and/or place Palawan's 40% share in an escrow
account.[40]

On January 4, 2006, the aforesaid Secretaries filed an urgent manifestation

asserting that the motion was premature and should not be heard by the RTC
because the Republic still had fifteen (15) days to appeal. [41]

The Provincial Government of Palawan countered that pending finality of the

December 16, 2005 Decision, there was a need to secure its 40% share over which
it had a "vested and inchoate right." [42]

The RTC subsequently issued an Order which was erroneously dated December 16,
2006 and later amended to indicate the date as January 16, 2006. [43] The dispositive
portion of the Amended Order[44] reads:
WHEREFORE, premises considered, the public respondents individually or
collectively DIRECTED within ten (10) days from receipt of this Order pursuant to a
"Freeze Order" hereby granted by this Court:

a. HON. Respondent SECRETARY OF THE DEPARTMENT OF ENERGY

RAPHAEL P.M. LOTILLA

To render a FULL ACCOUNTING of the total gross collections derived by the

National Government from the development and utilization of Camago-Malampaya
national gas project for the period January 2002 to December 2005, including its
conversion to peso denomination and showing the 40% LGU share and henceforth,
submit MONTHLY an accounting of all succeeding collections until the finality of the
decision;

b. HON. Respondent SECRETARY OF FINANCE MARGARITO TEVEZ-

To submit a full report of the actual payments made by Shell Spex from January
2002 to December 2005 deposited under Special Account 151 of the Bureau of
Treasury, Department of Finance, including the dates when the payments were
made, the Official Receipts covering the same and the present status, particularly
the disputed 40% LOU share for Palawan and to make MONTHLY reports of actual
payments received during the pendency of this case;

c. HON. Respondent SECRETARY DEPARTMENT OF BUDGET [sic] ROMULO

NERI

Effective immediately, NOT TO ISSUE nor CHARGE allotment release orders,

disbursements and cash allocation against the deposit/account Special Fund 151
corresponding to the 40% LOU share for the period January 2002 to December
2005 pending the finality of the decision in this case.

d. ALL RESPONDENTS, collectively or individually, effective immediately, CEASE

and DESIST from USING/DISBURSING the 40% share of the LOU-Palawan, for any
other purpose, except in compliance with the decision of this Court dated December
16, 2005, under pain of CONTEMPT, until the finality of the decision;

e. Furthermore, the HON. Respondent Secretary of Finance Margarito Tevez [sic]

and/or his subordinate officer Hon. Omar T. Cruz Treasurer of the Philippines, to
deposit in escrow in the LAND BANK OF THE PHILIPPINES the fund/deposit to the
40% disputed LOU share, identified as Special Account 151, and to "freeze" said
account, under pain of CONTEMPT, until finality of the decision or except as
directed by this Court pursuant to the Decision dated December 16, 2005.

IT IS SO ORDERED.[45]
The RTC held that the motion for full accounting and freezing of Palawan's claimed
40% share was actually part of the petition for review which sought to declare the
duties of the National Government and the rights of the Provincial Government of
Palawan, and that a resolution thereof would guide this Court as to the actual
amount due the local government since it is not a trier of facts. [46] The RTC also
noted that the National Government's track record in complying with the
Constitutional provisions on local autonomy was not exactly immaculate as
supposedly evidenced by the case of Gov. Mandanas v. Hon. Romulo[47] where, after
sharing with the Province of Palawan collections from the West Linapacan oil fields
from 1992 to 1998, the National Government "turned its back on its legal
commitment to the former." The trial court stressed that the local government of
Palawan was merely preempting any possible dissipation of funds that would render
any judgment favorable to it an empty victory. [48]
On February 6, 2006, the Department Secretaries filed a motion for
reconsideration[49] of the Amended Order dated January 16, 2006. [50]

G.R. No. 170867

On February 16, 2006, the Republic, represented by DoE Secretary Raphael P.M.
Lotilla, DoF Secretary Margarita B. Teves and DBM Secretary Romulo L. Neri,
challenged the RTC's December 16, 2005 Decision before this Court through a
petition for review[51] docketed as G.R. No. 170867. In the same petition, the
Republic, in anticipation of the RTC's denial of its motion for reconsideration, also
assailed the January 16, 2006 Amended Order ad cautelam, ascribing grave abuse
of discretion to the RTC for granting affirmative relief in a special civil action for
declaratory relief.[52]

On June 6, 2006, the RTC in its Order[53] lifted its January 16, 2006 Order, holding
that:
[A] becoming sense of modesty on the part of this Court, compels it to defer to the
Supreme Court's First Division as the Movants have deviously appealed to the High
Court the very issues raised in the Motion for Reconsideration now pending before
this Court.[54]
The dispositive portion of the RTC's June 6, 2006 Order, thus, reads:
WHEREFORE, premises considered, the Amended Order dated January 16, 2006 is
hereby LIFTED and SET ASIDE to await final determination thereof in view of the
Petition for Review on Certiorari filed by Movants in this case directly with the
Supreme Court.

IT IS SO ORDERED.[55]
Consequently, the Republic manifested to the Court that its ad cautelam arguments
relative to the Amended Order dated January 16, 2006 need no longer be resolved
unless the Provincial Government of Palawan raised the same in its comment. [56]

The Provisional Implementation Agreement

On July 25, 2007, the duly authorized representatives of the National Government
and the Province of Palawan, with the conformity of the Representatives of the
Congressional Districts of Palawan, agreed on a Provisional Implementation
Agreement (PIA) that allowed 50% of the disputed 40% of the Net Government
Share in the proceeds of Service Contract No. 38 to be utilized for the immediate
and effective implementation of development projects for the people of Palawan. [57]
E.O. No. 683

On December 1, 2007, President Gloria Macapagal-Arroyo issued E.O. No. 683

which authorized the release of funds to the implementing agencies pursuant to the
PIA, without prejudice to any ongoing discussion or the final judicial resolution of
Palawan's claim of territorial jurisdiction over the Camago-Malampaya area. E.O.
No. 683 provided:
SECTION 1. Subject to existing laws, and the usual government accounting and
auditing rules and regulations, the Department of Budget and Management (DBM) is
hereby authorized to release funds to the implementing agencies (lA) pursuant to
the PIA, upon the endorsement and submission by the DOE and/or the PNOC
Exploration Corporation of the following documents:

1.1. Directive by the Office of the President or written request of the Province of
Palawan, the Palawan Congressional Districts or the Highly Urbanized City of
Puerto Princes[a], for the funding of designated projects;

1.2. A certification that the designated projects fall under the investment program of
the Province of Palawan, City of Puerto Princesa, and/or the development projects
identified in the development program of the National Government or its agencies;
and

1.3. Bureau of Treasury certification on the availability of funds from the 50% of the
40% share being claimed by the Province of Palawan from the Net Government
Share under SC 38;

Provided, that the DBM shall be subject to the actual collections deposited with the
National Treasury, and shall be in accordance with the Annual Fiscal Program of the
National Government.

SECTION 2. The IA to whom the DBM released the funds pursuant to Section 1
hereof shall be accountable for the implementation of the projects and the
expenditures thereon, subject to applicable laws and existing budgeting, accounting
and auditing rules and regulations. For recording purposes, the DBM may authorize
the IAs to open and maintain a special account for the amounts released pursuant to
this Executive Order (EO).

SECTION 3. The National government, with due regard to the pending judicial
dispute, shall allow the Province of Palawan, the Congressional Districts of Palawan
and the City of Puerto Princesa to securitize their respective shares in the 50% of
the disputed 40% of the Net Government Share in the proceeds of SC 38 pursuant
to the PIA. For the purpose, the DOE shall, in consultation with the Department of
Finance, be responsible for preparing the Net Government Revenues for the period
of to June 30, 2010.

SECTION 4. The amounts released pursuant to this EO shall be without prejudice to

any on-going discussions or final judicial resolution of the legal dispute regarding the
National Government's territorial jurisdiction over the areas covered by SC 38 in
relation to the claim of the Province of Palawan under Sec. 290 of RA 7160.
CA-G.R. SP No. 102247

On February 7, 2008, a petition for certiorari[58] questioning the constitutionality of

E.O. No. 683 was filed before the CA by Bishop Pedro Dulay. Arigo, Cesar N.
Sarino, Dr. Jose Antonio N. Socrates and Prof. H. Harry L. Roque, Jr. (Arigo, et al.),
as citizens and taxpayers, against Executive Secretary Eduardo R. Ermita
(Executive Secretary Ermita), DoE Secretary Angelo T. Reyes (DoE Secretary
Reyes), DoF Secretary Margarito B. Teves, DBM Secretary Rolando D. Andaya, Jr.,
Palawan Governor Reyes, Representative Antonio C. Alvarez (Alvarez) of the First
District of Palawan, Representative Abraham Mitra (Mitra) and Rafael E. Del Pilar,
President and Chief Executive Officer, PNOC-EC. Docketed as CA-G.R. SP No.
102247, the petition also asked the CA to: (1) prohibit respondents therein from
disbursing funds allocated under E.O. No. 683; (2) direct the National Government
to release the 40% allocation of the Province of Palawan from the proceeds of the
Camago-Malampaya project pursuant to the sharing formula under the Constitution
and the Local Government Code; and (3) prohibit the parties to the PIA from
implementing the same for being violative of the Constitution and the Local
Government Code.[59]

In a Resolution dated March 18, 2008, the CA required Arigo, et al. to submit, within
five (5) days from notice, copies of relevant pleadings and other material documents,
namely: (1) the petition for review on certiorari, docketed as G.R. No. 170867, filed
before this Court; (2) the RTC's Decision in Civil Case No. 3779; (3) the motion for
reconsideration of said RTC Decision; (4) the Service Contract No. 38; and (5) the
PIA, as required under Section 1, Rule 65, in relation to Section 3, Rule 46 of the
Rules of Court.[60]

Arigo, et al. asked for additional ten (10) days to comply with the Resolution, which
the CA granted. They later submitted the required documents except for the copies
of the petition in G.R. No. 170867 and the PIA. They informed the CA that despite
having made a formal request for said petition, they were unable to secure a copy
because they were not parties to the case. The Third Division's Clerk of Court also
informed them that the records of G.R. No. 170867 were unavailable as the case
had already been submitted to the ponente for resolution. Though unable to obtain a
copy of the PIA, they submitted a copy of Service Contract No. 38 which they
supposedly secured from "unofficial sources." Considering the difficulty they
allegedly encountered in obtaining the documents, they asked the CA to direct DoE
Secretary Reyes and Executive Secretary Ermita to submit a copy of the petition in
G.R. No. 170867 and Service Contract No. 38, respectively. They also asked the CA
to require any of the respondents officials of the Province of Palawan to submit a
copy of the PIA to which they were supposed to have been signatories. [61]

Ruling of the CA

In the CA's Resolution[62] dated May 29, 2008, Arigo et al.'s petition for certiorari was
denied due course and dismissed. The CA held that the task of submitting relevant
documents fell squarely on Arigo, et al. as petitioners invoking its jurisdiction. It
added that Arigo, et al. should have submitted a certification from this Court's Third
Division concerning the unavailability of the records of G.R. No. 170867 and that
they could have simply secured a copy of the PIA from the Malacañang Records
Office as the official repository of all documents related to the Executive's functions.

The CA also held that apart from its procedural defect, the petition was also
prematurely filed considering that it was anchored on the same essential facts and
circumstances and raised the same issues in G.R. No. 170867. The CA likewise
noted that the interim undertaking between the parties to the PIA was contingent on
the final adjudication of G.R. No. 170867. Taking judicial notice of on-going efforts of
both legislative and executive departments to arrive at a common position in
redefining the country's baseline in the light of the United Nations Convention on the
Law of the Sea (UNCLOS), the appeals court further explained that ruling on the
case may be tantamount to a collateral adjudication of the archipelagic baseline
which involved a policy issue. [63]

Arigo, et al. asked the CA to reconsider its May 29, 2008 Resolution and later
submitted an original duplicate of the Resolution [64] dated June 23, 2008 of this
Court's Third Division which denied their counsel's request for certified true copies of
certain documents since it was not a counsel for any party. [65]

On December 16, 2008, the CA issued a Resolution [66] denying the motion for
reconsideration.

G.R. No. 185941 (Arigo, et al. petition)

On February 23, 2009, Arigo, et al. filed a petition for review on certiorari[67] over the
CA's May 29, 2008 and December 16, 2008 Resolutions, arguing that the case was
ripe for decision and that the documents required by the CA were not necessary.
[68]
 They assert anew their constitutional challenge to E.O. No. 638, claiming that it
was in violation of the mandated equitable sharing of resources between the
National Government and LGUs.[69]

Consolidation of Cases

On June 23, 2009, the Court in its Resolution [70] consolidated G.R. No. 185941 with
G.R. No. 170867.

Oral Argument

On September 1, 2009[71] and November 24, 2009,[72] the cases were heard on oral

argument. After the parties presented their respective arguments, the Court heard
the opinions of Atty. Henry Bensurto, Jr. (Atty. Bensurto) of the Department of
Foreign Affairs and Dean Raul Pangalangan of the University of the Philippines
as amici curiae.

Remittances under Service Contract No. 38

As of August 31, 2009, the amounts remitted to the DoE under Service Contract No.
38 are as follows:[73]

Year Total Collection

2002 646,333,100.11
2003 1,475,334,680.12
2004 1,631,245,574.33
2005 2,393,400,010.73
2006 5,369,720,905.73
2007 8,228,450 883.72
2008 25,498 646,553.39
January 1 to August 31, 2009 15,947,078,304.12
Total 61,190,210,012.25
Based on the aforesaid remittances, the Republic computed the share claimed by
the Province of Palawan (as of August 31, 2009) as follows: [74]
 Source of Assistance to the LGUs
Year DoE Share[75] Palawan's 40%
Total Collection
Claim
2002 10,113,578.87 636,219,521.24 646,333,100.11
2003 1,475,334,680.12 1,475,334,680.12
2004 1,631,245,574.33 1,631,245,574.33
2005 2,393 400,010.73 2,393,400,010.73
2006 5,369,720,905.73 5,369,720,905.73
2007 8,228 450,883.72 8,228,450,883.72
2008 15,057,426,163.39 10,441,220,390.00 25,498,646,553.39
January 1 to August
10,600,881,085.36 5,346,197,218.76 15,947,078,304.12
31, 2009
Total 25,668,420,827.62 35,521,789,184.63 61,190,210,012.25
The Parties' Submissions

Precised, the parties' respective arguments are as follows:

The Republic

1. An LGU's territorial jurisdiction refers only to its land area. [76]

1.1. Since Section 7 of the Local Government Code uses "population" and "land
area" as indicators in the creation and conversion of LGUs, it follows that the
territorial jurisdiction is the land where the people live and excludes seas or marine
areas.[77]
1.2. In describing the territorial requirement for a province, Section 461(a)(i) of the
Local Government Code speaks of "a contiguous territory, as certified by the Lands
Management Bureau" while Section 461(b) of the same law provides that "the
territory need not be contiguous if it comprises two (2) or more islands," indicating
that "territory" is limited to the landmass. [78]
1.3. "Territory" as used in Section 461 of the Local Government Code and "land
area" as used in Section 7 of the same law, must be attested to by the Lands
Management Bureau which has jurisdiction only over land areas. [79]
1.4. In Tan,[80] the Court interpreted "territory" to refer only to the mass of land above
sea water and excludes the waters over which the political unit exercises control.
[81]
 The RTC erred in holding that Tan is not applicable when it also involved the
issue of whether the province should include the waters around it. Tan applies
whether the purpose is the creation of a province or the determination of its territorial
jurisdiction.[82]
2. The area referred to under Section 7, Article X of the 1987 Constitution, which
grants LGUs a share in the proceeds of the utilization and development of national
wealth within their respective areas, refers .to the territorial boundaries of the LGU
as defined in its charter and not to its exercise of jurisdiction. [83]
2.1. As examples of such national wealth, members of the 1986 Constitutional
Commission referred to natural resources found inland or onshore, even when
offshore explorations were being conducted years before the Commission was
formed.[84]
2.2. The Local Government Code provides that the territorial jurisdiction of
municipalities, cities and barangays should be identified by metes and bounds, thus
confirming that "territorial jurisdiction" refers to the LOU's territorial boundaries. [85]
3. The Camago-Malampaya reservoir is outside the territorial boundaries of the
Province of Palawan as defined in its Charter. Under said Charter, Palawan's
territory is composed only of islands. [86]

4. On municipal waters:
4.1. As argued in the petition: Assuming an LGU's territory includes the waters
around its land area, the same should refer only to the municipal waters as defined
under Section 131(r) of the Local Government Code and Section 4.58 [87] of R.A. No.
8550,[88] otherwise known as the Philippine Fisheries Code of 1998. [89]
4.1.1. In defining "municipal waters," Section 131(r) of the Local Government Code
only includes marine waters within fifteen (15) kms from the coastline. Section 4.58
of R.A. No. 8550 gives a similar definition of "municipal waters." [90]
4.1.2. Under Sections 6 and 7 of R.A. No. 8550, it is the Department of Agriculture,
through the Bureau of Fisheries and Aquatic Resources, that has jurisdiction over
Philippine waters beyond the 15-km limit of municipal waters, with respect to the
issuance of license, charging of fees and access to fishery resources. [91]
4.1.3. Section 16 of R.A. No. 8550 provides that the jurisdiction of a municipal or city
government extends only to the municipal waters, while Section 65 of the same law
provides that the enforcement of laws and the formulation of rules, except in
municipal waters, are vested in the National Government. [92]
4.1.4. Thus, the LGUs' authority may be enforced only within the 15-km limit of the
municipal waters. Beyond it, jurisdiction rests with the National Government through
the Philippine Navy, Philippine Coast Guard, Philippine National Police-Maritime
Command, and the Department of Agriculture in their respective areas of concern. [93]
4.1.5. It was held in Municipality of Paoay [94] that a municipality's right over municipal
waters consists merely of usufruct. Contrary to the RIC's pronouncement, the
decision in said case remains good law since nothing in the 1987 Constitution
overthrew the principle that the State owns all natural resources whether found on
land or under the sea.[95]
4.1.6. Even assuming that the LGU's territory extends 'to the municipal waters, the
Camago-Malampaya natural gas reservoir is located approximately 80 kms from
mainland Palawan, thus, way beyond the 15-km radius. [96]
4.2. As argued in the Memorandum: Under the Local Government Code, the 15-km
municipal waters and beyond, including the continental margin, do not' form part of
the territory of an LGU.[97]
4.2.1. In Tan, the Court excluded from the territory of the political unit the "waters
over which [it] exercises control" or the municipal waters. [98]
4.2.3. The Local Government Code and the Philippine Fisheries Code did not
redefine and extend the territorial jurisdiction of LGUs to include the 15-km municipal
waters. Instead, they merely granted "extraterritorial" jurisdiction over the municipal
waters, which is limited only to the waters, excluding the seabed, subsoil and
continental shelf; to fishery and aquatic resources, excluding other resources; and to
revenue generation and regulation of said resources. [99]
4.2.4. Other than the 15-km municipal waters, the Local Government Code did not
vest jurisdiction beyond the LGU's territorial boundaries. [100]
5. Under the Archipelagic and Regalian Doctrines enshrined in the 1987
Constitution, the maritime area between Kalayaan and mainland Palawan belongs to
the national territory and does not pertain to any local government unit. [101]
5.1. The fact that a territorial sea belongs to the internal waters of a coastal State
does not necessarily imply that it belongs to the province or local government
closest to it. R.A. No. 3046, entitled An Act to Define the Baselines of the Territorial
Sea of the Philippines, as amended by R.A. No. 5446, which defines the State's
"internal waters," does not expressly state that the internal waters should also
belong to the LGU.[102]
5.2. The Archipelagic Doctrine, as enunciated in the UNCLOS and affirmed in Article
I of the 1987 Constitution, pertains to the sovereign state and does not place within
the territory of LGUs the waters between and surrounding its islands. Nowhere in
international or domestic law does it state that said doctrine applies in pari materia to
LGUs.[103]
5.3. The application of the Archipelagic Doctrine to a political ·subdivision will
encroach on territories that belong to the State. Section 3 of the Water Code
provides that "all waters belong to the State" and Section 5 of the same law
specifies that "seawater belongs to the State." So also, while the definition of
Philippine waters under the Philippine Fisheries Code acknowledges that waters
may exist in political subdivisions, nothing therein implies that such waters form part
of the territory of the LGU. Furthermore, said definition treats the waters connecting
the islands as a separate group from the waters existing in the political subdivisions,
implying that waters between islands are not deemed found in LGUs. [104]
5.4. The Regalian Doctrine, as embodied in Section 2, Article XII of the 1987
Constitution, is all encompassing; thus, it behooves the claimant to present proof of
title before his right is recognized. Without a specific and unmistakable grant by the
State, the property remains to be that of the State and the LGU cannot claim an area
to be part of its territorial jurisdiction. Inclusion of any land or water as part of
Palawan's territory must be expressly provided by law and not merely inferred by
vague and ambiguous construction. Statutes in derogation of authority should be
construed in favor of the State and should not be permitted to divest it of any of its
rights or prerogatives unless the legislature expressly intended otherwise. [105]
5.5. In a number of cases involving conflicting claims of the United States Federal
Government and the coastal states over natural wealth found within the latter's
adjoining maritime area, the Supreme Court of the United States of America (U.S.),
applying the Federal Paramountcy Doctrine, consistently ruled on the fundamental
right of the national government over the national wealth in maritime areas, to the
exclusion of the coastal state. The reason behind the doctrine equally applies to the
conflicting claims between the Philippine National Government and the Province of
Palawan. In fact, there are more reasons to apply the doctrine in the Philippines
since unlike the individual states of the America which preexisted the U.S., the LGUs
are creations and agents of the Philippine National Government. [106]
6. The inclusion of the Kalayaan Group of Islands (Kalayaan) to the Province of
Palawan under Presidential Decree (P.D.) No. 1596 [107] did not ipso facto make the
waters between Kalayaan and the main island of Palawan part of the territorial
jurisdiction of Palawan.[108]
6.1. There is nothing in P.D. No. 1596, or the charter of Palawan, Act No. 1396, that
states that the waters around Kalayaan are part of Palawan's territory. P.D. No.
1596 refers to Kalayaan as a cluster of islands and islets while Act No. 1396
identifies the islands included in the Province of Palawan. Thus, the areas referred
to are limited to the landmass. Since the Camago-Malampaya reservoir is not an
island, it cannot possibly be covered by either statute. More importantly, the
reservoir is outside the geographical lines mentioned in said laws. [109]
6.2. Absent an express grant by Congress, the Province of Palawan cannot validly
claim that the area between mainland Palawan and Kalayaan are automatically part
of its territorial jurisdiction.[110]
7. Section 1, Article X of the 1987 Constitution provides that the territorial and
political subdivisions of the Republic are the provinces, cities, municipalities and
barangays. It, however, does not require that every portion of the Philippine territory
be made part of the territory of an LOU. It was intended merely to institutionalize the
LGUs. And even on the supposition that the Constitution intended to apportion the
Philippine territory to the LGUs, legislation is still needed to implement said
provision. However, no law has been enacted to divide the Philippine territory,
including its continental margin and exclusive . economic zones, to all LGUs. [111]

8. Palawan's territorial boundaries do not embrace the continental shelf where the
Camago-Malampaya reservoir is located. Contrary to Dean Raul Pangalagan's view,
the UNCLOS cannot be considered to have vested the LGUs with their own
continental shelf based on the doctrine of transformation. The concept of continental
shelf under the UNCLOS does not automatically apply to a province. [112]
8.1. A treaty is an agreement between states and governs the legal relations
between nations. And even if the UNCLOS were to be deemed transformed as part
of municipal law after its ratification by the Batasang Pambansa in 1984 under
Resolution No. 121, it did not automatically amend the Local Government Code and
the charters of the LGUs. No such intent is manifest either in the UNCLOS nor
Resolution No. 121. Instead, the UNCLOS, as transformed into our municipal law, is
to be applied verba legis.[113]
8.2. Under the express terms of the UNCLOS, the rights and duties over maritime
zones and the continental shelf pertain to the State, and no provision therein
suggests any reference to an LGU.[114]
8.3. In other sovereign states such as Canada and the U.S., the maritime zones
were ruled to be outside the LGUs' territorial jurisdiction. The Federal Paramountcy
Doctrine was upheld in four leading U.S. cases where the claims of various U.S.
coastal states over the marginal and coastal waters and the continental shelf were
rejected.[115]
9. The State is not estopped by the alleged mistakes of its officials or agents. [116]
9.1. On June 10, 1988, the DoE requested the Province of Palawan for a seven-year
deferment of payment to enable the National Government to pay a portion of NPC's
TOPQ obligations. On February 17, 1998, President Ramos issued A.O. No. 381
which projected US$2.1 Billion as Palawan's share from the Camago-Malampaya
project. Although they seem to acknowledge Palawan's share in the proceeds of the
Camago-Malampaya project, they cannot contravene the laws that delineate
Palawan's territorial jurisdiction. Furthermore, the President has no authority to
expand the territorial jurisdiction of a province as this can only be done by Congress.
[117]

9.2. In issuing A.O. No. 381, President Ramos made no misrepresentation as to give
rise to estoppel. The statements in said A.O. were not calculated to mislead the
Province of Palawan; they were not even directed to Palawan. No estoppel can be
invoked if the complaining party has not been misled to his prejudice. There is no
proof that the Province of Palawan sustained injury as a result of a
misrepresentation.[118]
9.3. The doctrine of estoppel should be applied only in extraordinary circumstances
and should not be given effect beyond what is necessary to accomplish justice
between the parties.[119]
9.4. The doctrine of estoppel does not preclude the correction of an erroneous
construction by the officer himself, by his successor in office, or by the court in an
appropriate case. An erroneous construction creates no vested right and cannot be
taken as precedent.[120]
9.5. Accordingly, the Province of Palawan cannot rely on the fact that in 1992, they
shared in the proceeds derived from the West Linapacan oil fields located
approximately 76 kms off the western coastline of Palawan. [121]
9.6. The public funds available for various projects in other provinces would be
significantly reduced if Palawan is allowed to receive its claimed 40% share in the
Camago-Malampaya project.[122]
10. Ordinance No. 474, series of 2000, enacted by the Sangguniang
Panlalawigan of Palawan and delineating the territorial jurisdiction of the province to
include the Camago-Malampaya area, is ultra vires.[123]
10.1. Ordinance No. 474 conflicts with the Charter of the Province of Palawan as it
expanded the boundaries of the province and included the area between its
constituent islands. It is also in conflict with the limits of LGUs' rights over marine
areas under the Local Government Code, the Fisheries Code and other pertinent
laws.[124]
10.2. An LGU cannot fix its territorial jurisdiction, or limit or expand the same through
an ordinance. Pursuant to Section 10, Article X of the 1987 Constitution and
Sections 6 and 10 of the Local Government Code, only Congress can create, divide
or merge LGUs and alter their boundaries, subject to the plebiscite requirement. An
ordinance cannot contravene the Constitution or any statute. [125]
10.3. As plotted by the National Mapping and Resource Information Authority
(NAMRIA), the territorial boundaries of Palawan under Ordinance No. 474 appear to
be inconsistent with the delineation of the Philippine territory under the Treaty of
Paris.[126]
11. Section 3(1) of R.A. No. 7611 or SEP for Palawan Act contains a definition of
"Palawan." The Camago-Malampaya reservoir is undoubtedly within the area
described and plotted on the map. However, R.A. No. 7611 did not redefine
Palawan's territory or amend its charter.[127]
11.1. With the words "(A)s used in this Act," Section 3 of R.A. No. 7611 limited the
application of the definitions therein to said law which was enacted to promote
sustainable development goals for the province through proper conservation,
utilization and development of natural resources. [128]
11.2. Just like Palawan's Charter, Section 3(1) of R.A. No. 7611 limited the territory
to the islands and islets within the area.[129]
11.3. The metes and bounds under Section 3(1) of R.A. No. 7611, when plotted on
the map, excluded portions of mainland Palawan and several islands, municipalities
or portions thereof.[130]
11.4. The basis of the description of Palawan is unclear and there is no record that
the alteration in Palawan's boundaries complied with Section 10, Article X of the
1987 Constitution which requires that the alteration be in accordance with the criteria
established in the local government code and approved by a majority of the votes
cast in a plebiscite in the political unit(s) directly affected. [131]
11.5. Based on the Declaration of Policy in R.A. No. 7611, the object of the law is
not to expand the territory of Palawan but to make the province an agent of the
National Government in the protection of the environment. There is nothing in the
title of the law or any of its provisions indicating that there was a legislative intent to
expand or alter the boundaries of the province or to remove certain municipalities
from its territory.[132]
11.6. If the description of Palawan under R.A. No. 7611 would be read as a new
definition of its territory, it would be unconstitutional because the title .of the law
does not indicate that boundaries would be expanded, in contravention of the
Constitutional requirement that every bill must embrace only one subject to be
expressed in its title.[133]
11.7. Even if the term "territorial jurisdiction" were to be understood as including the
grant of limited extraterritorial jurisdiction, the Camago-Malampaya reservoir
remains to be beyond Palawan's jurisdiction under R.A. No. 7611. The said law did
not expand the province's police or administrative jurisdiction; it did not impose any
additional function or jurisdiction on the Province of Palawan. If anything, the SEP
limited the province's governmental authority since all LGUs in the area must align
their projects and budgets with the SEP. Furthermore, tasked to implement the SEP
was not the province but the Palawan Council for Sustainable Development (PCSD),
a national agency created under the law, composed of both national and local
officials. The participation of local officials did not turn PCSD into an arm of the
Province of Palawan; their inclusion is to allow a holistic view of the environmental
issues and opportunities for coordination.[134]
12. A.O. No. 381 was not issued to redefine Palawan's territory; its title precisely
states that it was issued to provide for the fulfillment by the National Power
Corporation of its obligations under the December 30, 1997 Agreement for Sale and
Purchase of Natural Gas with SPEX/OXY and for the compliance of the National
Government's performance undertaking. Palawan was mentioned but not in the
context of redefining its territory. Only a statute can expand the territory or
boundaries of an LGU.[135]

13. Sections 465 and 468 of the Local Government Code which respectively
authorize the Provincial Governor to adopt measures to safeguard marine resources
of the province and the Sangguniang Panlalawigan to impose penalties for
destructive fishing, did not give the provinces government authority over marine
resources beyond the municipal waters.[136]

14. Palawan's Claim that it exercises jurisdiction over the Camago-Malampaya area
is bereft of credible proof. Absent a law which vests LGUs jurisdiction over areas
outside their territorial boundaries, its acts over the Camago-Malampaya area
are ultra vires or at most an exercise of extraterritorial jurisdiction. [137]

15. The proposition of the amici curiae that the principle of equity justifies granting
Palawan 40% of the government's share in the Camago-Malampaya project, may
set a dangerous precedent. Furthermore, the principle of equity cannot be applied
when there is a law applicable to the case. Applicable to the instant case are Section
7, Article X of the 1987 Constitution and Section 290 of the Local Government Code
based on which the Province of Palawan is not entitled to share in the proceeds of
the Camago-Malampaya project.[138]
15.1. The concerns of the amici curiae appear to rest on the possible damage to the
environment surrounding Palawan. However, this eventuality is covered by the
Contractor's obligations under the Environmental Compliance Certificate (ECC)
which required SPEX to ensure minimal impact on the environment and to provide
for an Environmental Guarantee Fund to cover expenses for environmental
monitoring and to compensate for whatever damage that may be caused by the
project.[139]
16. The PIA and E.O. No. 683 do not constitute evidence of the Republic's
admission that Palawan is entitled to the proceeds of the Camago-Malampaya
project. In civil cases, an offer of compromise is not admissible in evidence against
the offeror. Furthermore, the whereas clauses of E.O. No. 683 clearly show that the
President issued the E.O. based on a "broad perspective of the requirements to
develop Palawan as a major tourism destination" and Section 25 of the Local
Government Code which authorizes the President, on the LGU's request, to provide
financial assistance to the LGU. The E.O. also expressly states that the amounts
released shall be without prejudice to the final resolution of the legal dispute
between the National Government and the Province of Palmvan regarding the
latter's claimed share under the Service Contract No. 38. [140]

17. The National Government has no intention to deprive the Province of Palawan a
share in the proceeds of the Camago-Malampaya project ifwere so entitled. [141]

18. The RTC committed grave abuse of discretion when it issued Amended Order
dated January 16, 2006 because it granted affirmative relief in a special civil action
for declaratory relief.[142]
18.1. While courts have the inherent power to issue interlocutory orders as may be
necessary to carry its jurisdiction into effect, such authority should be exercised as
necessary in light of the jurisdiction conferred in the main action. In this case, the
main action is one for declaratory relief, which is a preventive and anticipatory
remedy designed to declare the parties' rights or to express the court's opinion on a
question of law, without ordering anything to be done.[143]
19. Arigo, et al. have no legal standing to question E.O. No. 683 either as citizens or
as taxpayers since they have not shown any actual or threatened injury or that the
case involves disbursement of public funds in contravention of law. [144]

20. G.R. No. 185941 is not ripe for judicial adjudication considering that there is still
no final determination as to whether the Province of Palawan is entitled to share in
the proceeds of the Camago-Malampaya project. Also, the interim undertaking of the
parties under the PIA is contingent on the final adjudication of G.R. No. 170867.
Furthermore, the validity and manner by which the funds were realigned under E.O.
No. 683 could not be questioned since they are considered as financial assistance
subject to the discretion of the President pursuant to the authority granted by
Section 25(c) of the Local Government Code. [145]
Arigo, et al.

1. Their petition was not prematurely filed. While the interim undertaking between
the National Government and the Province of Palawan under the PIA was
contingent on the final adjudication of G.R. No. 170867, disbursements of public
funds would ensue or were already taking place in violation of the provisions of the
Constitution and the Local Government Code on the equitable sharing of national
wealth between the National Government and the LGUs. [146]

2. Neither Governor Reyes nor Representatives Alvarez and Mitra had the authority
to sign the PIA on behalf of the cities, municipalities and barangays of Palawan. In
fact, the cities, municipalities and barangays have a bigger share that the Provincial
Government in the allocation of the revenues from the Camago-Malampaya project.
Under Section 292 of the Local Government Code, the city or municipality gets 45%
and the barangay gets 35%, or a combined share of 80% as against the Province's
share of only 20%. Governor Reyes and Representatives Alvarez and Mitra could
not sign the PIA as if they were the sole recipients of the proceeds of the Camago-
Malampaya project.[147]

3. The PIA reduces the share of Palawan's LGUs in two ways: first, by making "net
proceeds" the basis for sharing instead of "gross collection" as provided by Section
290 of the Local Government Code; and second, by cutting down the LGUs'
equitable share in such proceeds by half, with the Province solely claiming such
allocation.[148]

4. The equitable share of LGUs in the utilization and development of national wealth
is not subject to compromise.[149]

5. The PIA requires that any fund allocation is subject to the prior approval of the
DoE and/or the PNOC-EC and to actual collections deposited with the National
Treasury, in contravention of the Local Government Code, which requires that the
proceeds of the utilization of natural resources should be directly released to each
LGU without need of further action, and the Court's ruling in Pimentel, Jr. v. Hon.
Aguirre[150] on the automatic· release of the LGUs' shares in the National Internal
Revenue.[151]

6. In providing that only those projects identified by the Office of the President, or the
Province of Palawan, or the Palawan Congressional Districts, or the Highly
Urbanized City of Puerto Princesa, may be funded, the PIA violates the intent of the
Local Government Code to grant autonomy to LGUs. [152]

7. The PIA allows the securitization of the shares of the LGUs and the National
Government in the utilization of the Camago-Malampaya Oil and Gas resources, but
the National Government cannot securitize what it does not own legally and neither
can the Province of Palawan securitize what it does not fully own. [153]

8. E.O. No. 683 is nothing more than a realignment of funds carried out in violation
of the Constitutional provision giving LGUs an equitable share in the proceeds of the
utilization of national wealth, for in usual budgeting procedures of Congress, such
share should be included in the appropriation for "Allocation to LGUs" which is
classified as a mandatory obligation of the National Government and automatically
released to the LGUs.[154]

9. E.O. No. 683 is a usurpation of the power of the purse lodged in Congress under
Section 29(1) and (3),[155] Article VI of the 1987 Constitution. Since the proceeds
from the Camago-Malampaya project is the production share of the government in a
service contract, it cannot be disbursed without an appropriation law. [156]

10. E.O. No. 683 fails to consider its implications on the country's claim to an
Extended Continental Shelf (ECS) under the UNCLOS III regime. The best way to
claim an ECS is to consider the Camago-Malampaya area and the Kalayaan tb be
part of Palawan's continental shelf. One basis for the Philippine claim to Kalayaan is
that it constitutes a natural prolongation of Palawan's land territory. [157]

11. The Republic's invocation of U.S. case law to dispute the LGUs' entitlement
under Section 7, Article X of the 1987 Constitution is inappropriate and odd for a
unitary state like the Philippines. Said provision in the unitary Philippine state only
means that the entitlement exists only because of a constitutional grant and not
because the LGUs have sovereignty and jurisdiction in their respective areas distinct
from the Republic's.[158]

12. The definition of "municipal waters" under applicable laws is irrelevant. The
Camago-Malampaya reservoir is located in the continental shelf which, under Article
76 of the UNCLOS, pertains to the seabed and subsoil as the natural prolongation of
the landmass.[159]

13. The constitutionality of E.O. No. 683 may be resolved without reference to the
conflicting territorial claims in G.R. No. 170867. In making reference to said case,
they merely meant to provide a historical backdrop to the issuance of E.O. No. 683.
It is for this reason that they attached only a copy of E.O. No. 683 to their petition. [160]

14. R.A. No. 7611 and A.O. No. 381 both recognize that the Camago-Malampaya
area falls with the continental shelf of Palawan. As regards the Republic's contention
that R.A. No. 7611 is illegal for having redrawn the boundaries of the Province of
Palawan without a plebiscite, the same ignores the fact that R.A. No. 7611 only
incorporates the continental shelf regime found in Article II of the 1987 Constitution.
A plebiscite was unnecessary because the 1987 Constitution was overwhelmingly
ratified.[161]

15. The CA erred in dismissing CA-G.R. SP No. 102247 in deference to executive

and legislative deliberations on the country's baselines as it is in violation of its
constitutional duty to interpret the constitutional provisions defining the national
territory. Furthermore, until revoked or amended, the country's existing law on
baselines (R.A. No. 3046 as amended by R.A. No. 5446) remains good law. [162]

16. The CA erred in dismissing their action for certiorari for failure to submit a copy
of the PIA considering that the terms of E.O. No. 683 embody all the provisions of
the assailed PIA. It was also unnecessary to submit a copy of the petition in G.R.
No. 170867 as it was only tangential to the resolution of the case. Furthermore, the
alleged failure to submit said documents has been mooted by the June 23, 2008
Resolution of the Court's Third Division indicating that non-parties could not have
access to the records of G.R. No. 170867. At any rate, the records of said case are
now a matter of judicial notice to this Court. [163]

The Province of Palawan

1. Section 7 of the Local Government Code, on the creation and conversion of

LGUs, does not expressly provide that an LGU's territorial jurisdiction refers only to
its land area.[164]
1.1. Land area is included as one of the requisites for the creation or conversion of
an LGU because evidently, no LGU can be created out of the maritime area alone.
[165]

1.2. Another requisite - population - is determined as the total number of inhabitants

within the territorial jurisdiction of the LGU. The law thus aptly uses the phrase
"territorial jurisdiction" instead of territory or land area since there are communities
that live in coastal areas or low-water areas that form part of the sea. If a local
government's territorial jurisdiction is limited to its land area, then these communities
will not belong to any LGU.[166]
2. Section 461 of the Local Government Code does not define the territorial
jurisdiction of a province. It merely specifies the requisites for the creation of a
province. In fact, said provision shows that territory and population are alternative
requirements for the creation of a new province, with income being the
indispensable requirement. It does not necessarily exclude the maritime area over
which a province exercises control and authority, but merely provides that to
detennine whether an area is sufficient to constitute a province, only the landmass
or land territory shall be included.[167]

3. In Tan, which involves the creation of a province under the old Local Government
Code, the Court held that the word "territory" as used in said law "has reference only
to the mass of land area and excludes the waters over which the political unit
exercises control." This ruling affirms that an LGU exercises control over waters,
making them part of the political unit's territorial jurisdiction. Furthermore, Tan only
defines the word "territory" as used in Section 197 of the old Local Government
Code. In convoluting the words "territory" and "territorial jurisdiction," the Republic
misapplied the doctrine laid out in Tan.[168]

4. Section 7, Article X of the 1987 Constitution provides that the LGU is "entitled to
an equitable share in the proceeds of the utilization and development of the national
wealth within their respective areas, in the manner provided by law x x x." The
provision does not state "within their respective land areas." The word "area" should
accordingly be construed in its ordinary meaning to mean a distinct part of the
surface of something. It, therefore, encompasses land, maritime area and the space
above them.[169]

5. The delineation of the territorial jurisdiction by metes and bounds is required only
for landlocked LGUs.[170]

6. Limiting the LGU's territorial jurisdiction to its land area is inconsistent with the
State's policy of local autonomy as enshrined in Section 25, Article II of the 1987
Constitution and amplified in Section 2 of the Local Government Code. Extending
such jurisdiction to all areas where the Province of Palawan has control or authority
will give it more resources to discharge its responsibilities, particularly in the
enforcement of environmental laws in its vast marine area. [171]

7. Numerous provisions of the Local Government Code indicate that an LGU's

territorial jurisdiction includes the maritime area. Section 138 speaks of public waters
within the territorial jurisdiction of the province. Section 465(3)(v) authorizes the
Provincial Governor to adopt adequate measures to safeguard and conserve the
province's marine resources. Section 468(1)(vi) empowers the Sangguniang
Panlalawigan to protect the environment and impose appropriate penalties for acts
that endanger it, such as dynamite fishing. More importantly, Section 3, which
provides for the operative principles of decentralization and local autonomy, states
that the vesting of duties in the LGU shall be accompanied with provision for
reasonably adequate resources to effectively carry them out. When the same
provision speaks of ecological balance which the LGUs shall manage with the
National Government, it encompasses the maritime area.[172]
7.1. The environmental impact that the Camago-Malampaya project may have on
the people of Palawan requires that the Province of Palawan must equitably share in
its proceeds so it can have adequate resources to ensure that the extraction of
natural gas will not have a deleterious effect on its environment. [173]
8. The Provincial Government of Palawan exercises administrative, environmental
and police jurisdiction over public waters within its territorial jurisdiction, including the
Camago-Malampaya reservoir. Local police, under the supervision of local
executives, maintain peace and order over the said area. Crimes committed therein
are filed and tried in Palawan courts. The provincial government also enforces local
and national environmental laws over this area. In fact, SPEX consistently
recognized Palawan as the location of the project, having obtained the necessary
endorsement from the Sangguniang Panlalawigan of Palawan before starting its
operations, in accordance with Sections 26 and 27 of the Local Government Code.
Furthermore, the plant, equipment and platform of SPEX, situated offshore, were
declared for tax purposes with the Province of Palawan. [174]

9. Based on the Senate deliberations on the Local Government Code, it is a

foregone conclusion that the Province of Palawan has equitable share in the
proceeds of the Camago-Malampaya project. [175]

10. Under Section S(a) of the Local Government Code, any question on a particular
provision of law on the power of an LGU shall be liberally construed, and any doubt
shall be resolved, in favor of the LGU. [176]

11. Neither the Local Government Code nor the Philippine Fisheries Code provides
that beyond the land area, the LGU's territorial jurisdiction can extend only up to the
15-km stretch of municipal waters.[177]
11.1. The definition of "municipal waters" in Section 131(r) of the Local Government
Code shall be used only for purposes of local government taxation inasmuch as it is
found under Title I of Book II on Local Taxation and Fiscal Matters. Section 131(r)
also indicates that the definition applies when the term "municipal waters" is used in
Title I which refers to Local Government Taxation. If anything, the definition bolsters
the argument that the LGU's territorial jurisdiction extends to the maritime area. [178]
11.2. The Philippine Fisheries Code did not limit or define the territorial jurisdiction of
an LGU. The definition of "municipal waters" under both this law and the Local
Government Code was intended merely to qualify the degree of governmental
powers to be exercised by the coastal municipality or city over said waters. [179]
11.3. Palawan is composed of 1,786 islands and islets. Twelve (12) out of its twenty-
three (23) municipalities are island municipalities. Between them are expansive
maritime areas that exceed the 15-km municipal water-limit. It will, thus, be
inevitable for the province to exercise governmental powers over these areas. If
Palawan will be authorized to enforce laws only up to the municipal water-limit, it will
be tantamount to a duplication of functions already being performed by the
component municipalities. It will also render the province inutile in enforcing laws in
maritime areas between these municipalities. It was not the intention of the
lawmakers, in enacting the Local Government Code, to create a vacuum in the
enforcement of laws in these areas or to disintegrate LGUs. [180]
12. Laws other than the Local Government Code recognize that the Province of
Palawan has territorial jurisdiction over the maritime area beyond the municipal
waters.[181]
12.1. R.A. No. 7611 defines Palawan as comprising islands and islets and the
surrounding sea, which includes the entire coastline up to the open sea. [182]
12.1.1. Based on the coordinates of Palawan provided in Section 3(1) of R.A.· No.
7611, the Camago-Malampaya reservoir is within the territorial jurisdiction of the
province.[183]
12.1.2. R.A. No. 7611 did not alter the territorial jurisdiction of Palawan, as provided
in Section 37 of its charter, Act No. 2711. R.A. No. 7611 merely recognized the fact
that the islands comprising Palawan are bounded by waters that form part of its
territorial jurisdiction. Palawan's area as described in said law could be called the
province's "environmental jurisdiction."[184]
12.1.3. Pursuant to R.A. No. 7611, the Palawan Council for Sustainable
Development (PCSD) shall establish a graded system of protection and
development control over the whole of Palawan, including mangroves, coral reefs,
seagrass beds and the surrounding sea.[185]
12.1.4. R.A. No. 7611 encompasses the entire ecological system of Palawan,
including the coastal and marine areas which it considers a main component of the
Environmentally Critical Areas Network.[186]
12.1.5. Local government officials of Palawan have representations in PCSD, the
agency tasked to enforce the integrated plan under R.A. No. 7611. Since the
enforcement of environmental laws is a joint obligation of the national and local
governments, with local communities being the real stakeholders, LGUs should
benefit from the proceeds of the natural wealth found in their territorial jurisdictions.
[187]

12.1.6. The Republic's attempt to remove the Camago-Malampaya area from the
Province of Palawan is contrary to the declared state policy of adopting an
integrated ecological system for Palawan under R.A. No. 7611. [188]
12.2. A.O. No. 381 explicitly declared that the Camago-Malampaya reservoir is
located offshore northwest of Pal awan and that the Province of Palawan was
expected to receive about US$2.1 Billion from the total govetnment share of US$8.1
Billion out of the proceeds from the Camago-Malampaya project. [189]
12.3. P.D. No. 1596 declared Kalayaan as a distinct and separate municipality of the
Province of Palawan. In delineating Kalayaan's boundaries, P.D. No. 1596 included
the seabed, subsoil, continental margin and airspace. [190]
12.3.1. P.D. No. 1596 states that the Republic's claim to Kalayaan is foremost based
on the fact that said group of islands is part of the Philippine archipelago's
continental margin which includes the continental shelf. The continental shelf is the
submerged natural prolongation of the land territory and is an integral part of the
landmass it is contiguous with. Oil and gas are found not in the waters off Palawan
but in the continental shelf which is contiguous to and a prolongation of the
landmass of Palawan.[191]
13. The Province of Palawan cannot be said to be holding a mere usufruct over the
municipal waters based on the 1950 case of Municipality of Paoay. Said case is not
applicable as it was decided when there was a concentration of powers and
resources in the national government, unlike the decentralized system espoused in
the Local Government Code.[192]

14. The federal paramountcy doctrine is a constitutional law doctrine followed in

federal states, particularly in the U.S. and Canada. The application of this doctrine to
the Philippine setting is legally inconceivable because the Philippines has not
adopted a federal form of government. Furthermore, most of the states in the U.S.
were previously independent states who were obliged to surrender their sovereign
functions over their maritime area or marginal belt to the federal government when
they joined the federal union. Contrarily, the Philippines had a unitary system of
government until it adopted the ideas of decentralization and local autonomy as
fundamental state principles. Instead of different states surrendering
their imperium and dominium over the maritime area to a federal government, the
Philippine setting works in the opposite as the National Government, which is
presumed to own all resources within the Philippine territory, is mandated to share
the proceeds of the national wealth with the LGUs. [193]

15. The Republic is divided into political and territorial subdivisions. Thus, for a
territory to be part of the Republic, it must belong to a political and territorial
subdivision. These subdivisions are the provinces, cities, municipalities and
barangays, and they are indispensable partners of the National Government in the
proper and efficient exercise of governmental powers and functions. The Camago-
Malampaya reservoir, which is part of the Philippines, must necessarily belong to a
political and territorial subdivision. That subdivision is the Province of Palawan which
has long been exercising governmental powers and functions over the area. [194]
15.1. Since the Camago-Malampaya reservoir is nearest to the Province of Palawan
than any other LGU, it is imperative that the province becomes the National
Government's co-protector and co administrator in said maritime area.[195]
15.2. Under Section 25(b) of the Local Government Code, national agencies are to
coordinate with LGUs in planning and implementing national projects, while under
Section 3(i) of the same law, LGUs shall share with the National Government the
responsibility of maintaining ecological balance within their territorial jurisdiction.
Thus, governmental powers are not solely exercised by the National Government
but are shared with LGUs. However, they cannot be effective partners of the
National Government without sufficient resources. For this reason, the 1987
Constitution grants them an equitable share in the proceeds of the utilization of
national wealth.[196]
15.3. Numerous cases of illegal fishing, poaching and illegal entry have been
committed within the waters surrounding Palawan, particularly westward of mainland
Palawan and bound by the South China Sea, along the same area where the
Camago-Malampaya project is located. These cases were prosecuted and tried
before the courts of Palawan. In Hon. Roldan, Jr. v. Judge Arca,[197] an illegal fishing
case, the jurisdiction of the Court of First Instance of Palawan was upheld given that
the vessels seized were engaged in prohibited fishing within the territorial waters of
Palawan, in obedience to the rule that the place where a criminal offense was
committed not only determines the venue of the case but is also an essential
element of jurisdiction.[198]
15.4. Sections 26 and 27 of the Local Government Code require mandatory
consultation with the LGUs concerned and the approval of their respective
Sanggunian before the National Government may commence any project that will
have an environmental impact. The National Government and SPEX recognized
Palawan's jurisdiction over the Camago-Malampaya area when it requested the
indorsement of the Sangguniang Panlalawigan of Palawan before commencing the
Camago-Malampaya project, and when SPEX obtained an ECC in compliance with
the requirement of PCSD, an agency created by R.A. No. 7611. [199]
15.5. In the implementation of tariff and customs laws, the Province of Palawan is
being referred to by the Bureau of Customs as the place of origin of the barrels of
condensate (crude oil) being exported to Singapore from the Camago-Malampaya
area. Export Declarations for said condensate, as issued by the Department of
Trade and Industry, also showed Palawan as the place of origin. [200]
15.6. In Tano v. Socrates,[201] the Court upheld the ordinances, passed by
the Sangguniang Panlalawigan of Palawan and the Sangguniang Panlungsod of the
City of Puerto Princesa, which banned the transport of live fish to protect their
seawater and corals from the effects of destructive fishing, in recognition of the
LGUs' power and duty to protect the right of the people to a balanced ecology. The
destructive way of catching live fish had been conducted not just within the 15-k.m
municipal waters of Palawan but also beyond said waters. [202]
16. Palawan's claim is not inconsistent with, but upholds, the archipelagic and
regalian doctrines enshrined in the 1987 Constitution. [203]
16.1. The Province of Palawan agrees that all waters within the Philippine
archipelago are owned by the Republic. The issue in this case, however, is not the
ownership of the Camago-Malampaya reservoir. The Province of Palawan is not
claiming dominion over said area. It merely contends that since the reservoir is
located in an area over which it exercises control and shares in the National
Government's management responsibility, it is only just and equitable that the
Province of Palawan should share in the proceeds generated from its utilization.
Furthermore, the law does not require that the LGUs should own the area where the
national wealth is located before they can share in the proceeds of its use and
development; it merely requires that the national wealth be "found within their
respective areas." It is, thus, error for the Republic to assert that the Camago--
Malampaya area is not part of Palawan's territorial jurisdiction because it belongs to
the State. Otherwise, no LGU will share in the proceeds derived from the utilization
and development of national wealth because the State owns it under the regalian
doctrine.[204]
17. International law has no application in this case. While the UNCLOS establishes
various maritime regimes of archipelagos like the Philippines, nothing therein
purports to govern internal matters such as the sharing of national wealth between
its national government and political subdivisions. [205]

18. The State has long recognized the fact that the Camago-Malampaya area is part
of Palawan.[206]
18.1. Palawan was allotted P38,110,586.00 as its share in the national wealth based
on actual 1992 collections from petroleum operations in the West Linapacan oil
fields, situated offshore, about the same. distance from mainland Palawan as the
Camago-Malampaya reservoir. Furthermore, from 1993 to 1998, DBM consistently
released to Palawan its 40% share from the West Linapacan oil production.
Because these are lawful executive acts, the Republic may not invoke the rule that it
cannot be placed in estoppel by the mistakes of its agents. [207]
18.2. Jurisprudence holds that estoppels against the public, which are little favored,
must be applied with circumspection and only in special cases where the interests of
justice clearly require it. To deprive Palawan of its constitutional right to a just share
in the national wealth will indisputably work injustice to its people and generations to
come. As it is, developmental projects have been adversely stunted as a result of
the National Government's withdrawal of its commitment to give Palawan its 40%
share.[208]
18.3. It has been held that the contemporaneous construction of a statute· by the
executive officers of the government is entitled to great respect and unless shown to
be clearly erroneous, should ordinarily control the construction of the statute by the
courts.[209]
19. Ordinance No. 474 (series of 2000), which the Sangguniang Panlalawigan of
Palawan enacted to delineate the territorial jurisdiction of the Province of Palawan,
including therein the Camago-Malampaya area, is valid. Laws, including ordinances,
enjoy the presumption of constitutionality. Moreover, there is no flaw in the
Ordinance since it does not contravene Section 10, Article X of the Constitution or
Sections 6 and 10 of the Local Government Code. It is likewise settled that a statute
or ordinance cannot be impugned collaterally. [210]

20. Since the RTC has deferred its ruling on the propriety of the Amended Order
dated January 16, 2006 to this Court, the Province of Palawan asks that said Order
be sustained because:
20.1. Under Section 6, Rule 135 of the Rules of Court, when by law jurisdiction is
conferred on a court, all auxiliary writs and processes necessary to carry it into effect
may be employed by such court. The Amended Order merely sought to protect the
subject of the litigation and to ensure that the RTC's decision may be carried into
effect when it attains finality.[211]
20.2. The Amended Order encompasses issues that were raised and passed upon
by the RTC, particularly, the issue of whether the Province of Palawan is entitled to
receive 40% of the government's share in the proceeds of the Camago-Malampaya
project.[212]
20.3. In a catena of decisions, the Court has allowed affirmative and even injunctive
reliefs in cases for declaratory relief.[213]
21. The Provincial Governor's signing of the PIA was valid. [214]
21.1. Under Article 85(b)(1)(vi), Rule XV of the Implementing Rules and Regulations
of the Local Government Code, the Provincial Governor is authorized to represent
the province in all its business transactions and to sign all contracts on its behalf
upon the authority of the Sangguniang Panlalawigan or pursuant to law or
ordinance. The Provincial Governor of Palawan signed the PIA with the authority of
the Sangguniang Panlalawigan, representing all of its component municipalities and
its capital city of Puerto Princesa. Palawan's two congressmen also signed the PIA
to warrant that they were the duly elected representatives of the province and to
comply with the requirement under the General Appropriations Act that
implementation of the projects must be in coordination with them. [215]
21.2. The Province of Palawan is the only LGU which has territorial jurisdiction over
the Camago-Malampaya area under R.A. No. 7611.[216]
21.3. It may have been the Provincial Governor that signed the PIA, but the
proposed projects thereunder would be implemented province-wide, to include all
component municipalities and barangays as well as Puerto Princesa. This is more
advantageous to the 23 municipalities of Palawan compared to Arigo, et al.'s stand
that "the sharing should be one municipality (45%) and one barangay (35%) or a
total of 80%, with the balance of 20% for the rest of Palawan's 22 municipalities
including Puerto Princesa City."[217]
22. E.O. No. 683, which uses "net proceeds" of Camago-Malampaya project as the
basis of sharing, does not violate Section 290 of the Local Government Code where
the share of the LGU is based on gross collection. [218]
22.1. The allocation of funds under E.O. No. 683 is not, strictly speaking, the sharing
of proceeds of national wealth development under Section 290 of the Local
Government Code considering that Palawan's claimed 40% share is still under
litigation.[219]
22.2. In any case, "gross collection" under Section 290 of the Local Government
Code cannot refer to gross proceeds because under Service Contract No. 38 and
A.O. No. 381, the production sharing scheme involves deduction of exploration,
development and production costs from the gross proceeds of the gas sales. Since
the net proceeds referred to in E.O. No. 683 is the same amount as the
government's gross collection from the Camago-Malampaya project, the Local
Government Code was not violated.[220]
23. The Pimentel ruling cannot be applied to the release of funds under E.O. No.
683. It does not refer to the LGU's claimed 40% share; it is in the form of financial
assistance pursuant to Section 25(c) of the Local Government Code which
authorizes the President to direct the appropriate national agency to provide
financial and other forms of assistance to the LGU. The funds were appropriated in
the General Appropriations Act of 2007 and 2008 for the DoE and not under the
items for allocations from national wealth to LGUs. [221]

24. CA-G.R. SP No. 102247 was correctly dismissed by the CA. Failure to submit
essential and necessary documents is a sufficient ground to dismiss a petition under
Rule 46 of the Rules of Court. Arigo, et al. prematurely filed its petition before the CA
as it was anchored on the same basic issues to be resolved in G.R. No. 170867.
Furthermore, Arigo, et al. had no legal standing either as real parties-in interest, as
they failed to establish that they would be benefitted or injured by the judgment in
the suit, or as taxpayers, as they failed to show that the E.O. No. 638 and PIA
involved an illegal disbursement of public funds. [222]

Ruling of the Court

LGUs' share in national wealth

Under Section 25, Article II of the 1987 Constitution, "(t)he State shall ensure the
autonomy of local governments." In furtherance of this State policy, the 1987
Constitution conferred on LGUs the power to create its own sources of revenue and
the right to share not only in the national taxes, but also in the proceeds of the
utilization of national wealth in their respective areas. Thus, Sections 5, 6, and 7 of
Article X of the 1987 Constitution provides:
Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy 'taxes, fees, and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.

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

Section 7. Local governments shall be entitled to an equitable share in the

proceeds of the utilization and development of the national wealth within their
respective areas, in the manner provided by law, including sharing the same with
the inhabitants by way of direct benefits. (Emphasis ours)
At the center of this controversy is Section 7, an innovation in the 1987 Constitution
aimed at giving fiscal autonomy to local governments. Deliberations of the 1986
Constitutional Commission reveal the rationale for this provision, thus:
MR. OPLE. x x x

Just to cite specific examples, in the case of timberland within the area of jurisdiction
of the Province of Quirino or the Province of Aurora, we feel that the local
governments ought to share in whatever revenues are generated from this particular
natural resource which is also considered a national resource in a proportion to be
determined by Congress. This may mean sharing not with the local government but
with the local population. The geothermal plant in the Machan, Makiling-Banahaw
area in Laguna, the Tiwi Geothermal Plant in Albay, there is a sense in which the
people in these areas, hosting the physical facility based on the resources found
under the ground in their area which are considered national wealth, should
participate in terms of reasonable rebates on the cost of power that they pay. This is
true of the Maria Cristina area in Central Mindanao, for example. May I point out that
in the previous government, this has always been a very nettlesome subject of the
Cabinet debates. Are the people in the locality, where God chose to locate His
bounty, not entitled to some reasonable modest sharing of this with the
national government? Why should the national government claim all the
revenues arising from them? And the usual reply of the technocrats at that time is
that there must be uniform treatment of all citizens regardless of where God's gifts
are located, whether below the ground or above the ground. This, of course, has led
to popular disenchantment. In Albay, for example, the government then promised a
20-percent rebate in power because of the contributions of the Tiwi Plant to the
Luzon grid. Although this was ordered, I remember that the Ministry of Finance,
together with the National Power Corporation, refused to implement it. There is a
bigger economic principle behind this, the principle of equity. If God chose to
locate the great rivers and sources of hydroelectric power in Iligan, in Central
Mindanao, for example, or in the Cordillera, why should the national
government impose fuel adjustment taxes in order to cancel out the
comparative advantage given to the people in these localities through these
resources? So, it is in that sense that under Section 8, the local populations, if not
the local governments, should have a share of whatever national proceeds may be
realized from this natural wealth of the nation located within their jurisdictions.

x x x x

MR. NATIVIDAD. The history of local governments shows that the usual
weaknesses of local governments are: 1) fiscal inability to support itself; 2) lack
of sufficient authority to carry out its duties; and 3) lack of authority to appoint key
officials.

Under this Article, are these traditional weaknesses of local governments addressed
to [sic]?

MR. NOLLEDO. Yes. The first question is on fiscal inability to support itself. It will be
noticed that we widened the taxing powers if local governments. I explained that
exhaustively yesterday unless the Gentleman wants me to explain again.

MR. NATIVIDAD. No, that is all right with me.

MR. NOLLEDO. There is a right of retention of local taxes by local governments and
according to the Natividad, Ople, Maambong, de los Reyes amendment, local
government units shall share in the proceeds of the exploitation of the
national wealth within the area or region, etc. x x x

x x x x

MR. OPLE. x x x

In the hinterland regions of the Philippines, most municipalities receive an

annual income of only about P200,000 so that after paying the salaries of local
officials and employees, nothing is left to fund any local development project.
This is a prescription for a self-perpetuating stagnation and backwardness,
and numbing community frustrations, as well as a chronic disillusionment
with the central government. The thrust towards local autonomy in this entire
Article on Local Governments may suffer the fate of earlier heroic efforts of
decentralization which, without innovative features for local income generation,
remained a pious hope and a source of discontent. To prevent this, this amendment
which Commissioner Davide and I jointly propose will open up a whole new source
of local financial self-reliance by establishing a constitutional principle of local
governments, and their populations, sharing in the proceeds of national wealth in
their areas of jurisdiction. The sharing with the national government can be in the
form of shares from revenues, fees and charges levied on the exploitation or
development and utilization of natural resources such as mines, hydro electric and
geothermal facilities, timber, including rattan, fisheries, and processing industries
based on indigenous raw materials.

But the sharing, Madam President, can also take the form of direct benefits to the
population in terms of price advantages to the people where, say, cheaper electric
power is sourced from a local hydroelectric or geothermal facility. For example, in
the provinces reached by the power from the Maria Cristina hydro-electric facility in
Mindanao, the direct benefits to the population cited in this section can take the form
of lower prices of electricity. The same benefit can be extended to the people of
Albay, for example, where volcanic steam in Tiwi provides 55 megawatts of cheap
power to the Luzon grid.

The existing policy of slapping uniform fuel adjustment taxes to equalize rates
throughout the country in the name of price standardization will have to yield to a
more rational pricing policy that recognizes the entitlement of local
communities to the enjoyment of their own comparative advantage based on
resources that God has given them. And so, Madam President, I ask that the
Committee consider this proposed amendment.[223] (Emphasis ours)
The Local Government Code gave flesh to Section 7, providing that:
Section 18. Power to Generate and Apply Resources. - Local government units
shall have the power and authority to establish an organization that shall be
responsible for the efficient and effective implementation of their development plans,
program objectives and priorities; to create their own sources of revenues and to
levy taxes, fees, and charges which shall accrue exclusively for their use and
disposition and which shall be retained by them; to have a just share in national
taxes which shall be automatically and directly released to them without need of any
further action; to have an equitable share in the proceeds from the utilization
and development of the national wealth and resources within their respective
territorial jurisdictions including sharing the same with the inhabitants by way
of direct benefits; to acquire, develop, lease, encumber, alienate, or otherwise
dispose of real or personal property held by them in their proprietary capacity and to
apply their resources and assets for productive, developmental, or welfare purposes,
in the exercise or furtherance of their governmental or proprietary powers and
functions and thereby ensure their development into self-reliant communities and
active participants in the attainment of national goals.

Section 289. Share in the Proceeds from the Development and. Utilization of the
National Wealth. - Local government units shall have an equitable share in the
proceeds derived from the utilization and development of the national wealth
within their respective areas, including sharing the same with the inhabitants
by way of direct benefits.

Section 290. Amount of Share of Local Government Units. - Local government units

shall, in addition to the internal revenue allotment, have a share of forty percent
(40%) of the gross collection derived by the national government from the
preceding fiscal year from mining taxes, royalties, forestry and fishery charges,
and such other taxes, fees, or charges, including related surcharges, interests, or
fines, and from its share in any co-production, joint venture or production
sharing agreement in the utilization and development of the national wealth
within their territorial jurisdiction.

Section 291. Share of the Local Governments from any Government Agency or

Owned or Controlled Corporation. - Local government units shall have
a share based on the preceding fiscal year from the proceeds derived by any
government agency or government owned or controlled corporation engaged
in the utilization and development of the national wealth based on the following
formula whichever will produce a higher share for the local government unit:

(a) One percent (1%) of the gross sales or receipts of the preceding calendar year;
or

(b) Forty percent (40%) of the mining taxes, royalties, forestry and fishery charges
and such other taxes, fees or charges, including related surcharges, interests, or
fines the government agency or government owned or controlled corporation would
have paid if it were not otherwise exempt. (Emphasis ours)
Underlying these and other fiscal prerogatives granted to the LGUs under the Local
Government Code is an enhanced policy of local autonomy that entails not only a
sharing of powers, but also of resources, between the National Government and the
LGUs. Thus, during the Senate deliberations on the proposed local government
code, it was emphasized:
Senator Gonzales. The old concept of local autonomy, Mr. President, is, we grant
more powers, more functions, more duties, more prerogatives, more responsibilities
to local government units. But actually that is not autonomy. Because autonomy,
without giving them the resources or the means in order that they can effectively
carry out their enlarged duties and responsibilities, will be a sham autonomy. I
understand that the Gentleman's concept of autonomy is really centered in not
merely granting them more powers and more responsibilities, but also more means;
meaning, funding, more powers to raise funds in order that they can put into effect
whatever policies, decisions and programs that the local government may approve.
Is my understanding correct, Mr. President?

Senator Pimentel. The distinguished Gentleman is correct, Mr. President, Book II of

the draft bill under consideration deals with fiscal matters. [224]
This push for both administrative and fiscal autonomy was reaffirmed during the
deliberations of the Bicameral Conference Committee on the proposed Local
Government Code and the eventual signing of the Bicameral Conference Committee
Report. On these occasions, Senator Aquilino Q. Pimentel, Jr., as Committee
Chairman for the Senate panel, declared:
CHAIRMAN PIMENTEL: Mr. Chairman, in response to your opening statement, let
me say in behalf of the Senate panel that we believe the local government code is
long overdue. It is time that we really empower our people in the countryside. And to
do this, the local government code version of the Senate is based upon two
premises. No. 1, we have to share power between the national government and
local government. And No. 2, we have to share resources between the national
government and local government. It is the only way by which we believe
countryside development will become a reality in our nation. We can all speak out
and spew rhetoric about countryside development, but unl ss and until local
governments are empowered and given financial wherewithal to transform the
countryside by the delivery of basic services, then we can never attain such a dream
of ensuring that we share the development of this nation to the countryside where
most of our people reside. x x x [225]

x x x x

CHAIRMAN PIMENTEL. x x x

Yes, we'd like to announce that finally, after three years of deliberation and hundreds
of meeting not only by the Technical Committee, but by the Bicameral Conference
Committee itself, we have finally come up with the final version of the Local·
Government Code for 1991.

x x x And if there's any one thing that the Local Government Code will do for our
country, it is to provide the mechanism for the development of the countryside
without additional cost to the government because here, what we are actually doing
is merely to reallocate the funds of the national government giving a substantial
portion of those funds to the Local Government Units so that they, in turn, can begin
the process of development in their own respective territories.

And to my mind, this would be a signal achievement of the Senate and the House of
Representatives. And that finally, we are placing in the hands of the local
government officials their wherewithals [sic] and the tools necessary for the
development of the people in the countryside and of our Local Government Units in
particular.

x x x x[226]
None of the parties in the instant cases dispute the LGU's entitlement to an
equitable share in the proceeds of the utilization and development of national wealth
within their respective areas. The question principally raised here is whether the
national wealth, in this case the Camago-Malampaya reservoir, is within the
Province of Palawan's "area" for it to be entitled to 40% of the government's
share under Service Contract No. 38. The issue, therefore, hinges on what
comprises the province's "area" which the Local Government Code has
equated as its "territorial jurisdiction." While the Republic asserts that the term
pertains to the LGU's territorial boundaries, the Province of Palawan construes it as
wherever the LGU exercises jurisdiction.
Territorial jurisdiction refers to territorial boundaries as defined in the LGU's
charter

The Local Government Code does not define the term "territorial jurisdiction."
Provisions therein, however, indicate that territorial jurisdiction refers to the LGU's
territorial boundaries.

Under the Local Government Code, a "province" is composed of a cluster of

municipalities, or municipalities and component cities. [227] A "municipality," in turn, is
described as a group of barangays, [228] while a "city" is referred to as consisting of
more urbanized and developed barangays.[229]

In the creation of municipalities, cities and barangays, the Local Government Code
uniformly requires that the territorial jurisdiction of these government units be
"properly identified by metes and bounds," thus:
Section 386. Requisites for Creation. –
xxxx
(b) The territorial jurisdiction of the new barangay shall be properly identified
by metes and bounds or by more or less permanent natural boundaries. The
territory need not be contiguous if it comprises two (2) or more islands.

xxxx
Section 442. Requisites for Creation. –
xxxx
(b) The territorial jurisdiction of a newly-created municipality shall be properly
identified by metes and bounds. The requirement on land area shall not apply
where the municipality proposed to be created is composed of one (1) or more
islands. The territory need not be contiguous if it comprises two (2) or more islands.

xxxx
Section 450. Requisites for Creation.
xxxx
(b) The territorial jurisdiction of a newly-created city shall be properly
identified by metes and bounds. The requirement on land area shall not apply
where the city proposed to be created is composed of one (1) or more islands. The
territory need not be contiguous if it comprises two (2) or more islands.
x x x x (Emphasis ours)
The intention, therefore, is to consider an LGU's territorial jurisdiction as pertaining
to a physical location or area as identified by its boundaries. This is also clear from
other provisions of the Local Government Code, particularly Sections 292 and 294,
on the allocation of LGUs' shares from the utilization of national wealth, which speak
of the location of the natural resources:
Section 292. Allocation of Shares. - The share in the preceding

Section shall be distributed in the following manner:

(a) Where the natural resources are located in the province:

(1) Province - Twenty percent (20%);

(2) Component City/Municipality - Forty-five percent (45%); and
(3) Barangay - Thirty-five percent (35%)

Provided, however, That where the natural resources are located in two (2) or more
provinces, or in two (2) or more component cities or municipalities or in two (2) or
more barangays, their respective shares shall be computed on the basis of:

(1) Population - Seventy percent (70%); and

(2) Land area - Thirty percent (30%)

(b) Where the natural resources are located in a highly urbanized or independent

component city:

(1) City - Sixty-five percent (65%); and

(2) Barangay - Thirty-five percent (35%)

Provided, however, That where the natural resources are located in such two (2) or
more cities, the allocation of shares shall be based on the formula on population and
land area as specified in paragraph (a) of this Section.

Section 294. Development and Livelihood Projects. - The proceeds from the share
of local government units pursuant to this chapter shall be appropriated by their
respective sanggunian to finance local government and livelihood projects:
Provided, however, That at least eighty percent (80%) of the proceeds derived from
the development and utilization of hydrothermal, geothermal, and other sources of
energy shall be applied solely to lower the cost of electricity in the local government
unit where such a source of energy is located. (Emphasis ours)
That "territorial jurisdiction" refers to the LGU's territorial boundaries is a construction
reflective of the discussion of the framers of the 1987 Constitution who referred to
the local government as the "locality" that is "hosting" the national resources and a
"place where God chose to locate His bounty." [230] It is also consistent with the
language ultimately used by the Constitutional Commission when they referred to
the national wealth as those found within (the LGU's) respective areas. By definition,
"area" refers to a particular extent of space or surface or a geographic region.[231]

Such construction is in conformity with the pronouncement in Sen. Alvarez v. Hon.

Guingona, Jr.[232] where the Court, in explaining the need for adequate resources for
LGUs to undertake the responsibilities ensuing from decentralization, made the
following disquisition in which "territorial jurisdiction" was equated with territorial
boundaries:
The practical side to development through a decentralized local government system
certainly concerns the matter of financial resources. With its broadened powers and
increased responsibilities, a local government unit must now operate on a much
wider scale. More extensive operations, in turn, entail more expenses.
Understandably, the vesting of duty, responsibility and accountability in every local
government unit is accompanied with a provision for reasonably adequate resources
to discharge its powers and effectively carry out its functions. Availment of such
resources is effectuated through the vesting in every local government unit of (1) the
right to create and broaden its own source of revenue; (2) the right to be allocated a
just share in national taxes, such share being in the form of internal revenue
allotments (IRAs); and (3) the right to be given its equitable share in the proceeds
of the utilization and development of the national wealth, if any, within
its territorial boundaries.[233] (Emphasis ours)
An LGU has been defined as a political subdivision of the State which is constituted
by law and possessed of substantial control over its own affairs. [234] LGUs, therefore,
are creations of law. In this regard, Sections 6 and 7 of the Local Government Code
provide:
Section 6. Authority to Create Local Government Units. - A local government unit
may be created, divided, merged, abolished, or its boundaries substantially altered
either by law enacted by Congress in the case of a province, city, municipality, or
any other political subdivision, or by ordinance passed by the sangguniang
panlalawigan or sangguniang panlungsod concerned in the case of a barangay
located within its territorial jurisdiction, subject to such limitations and requirements
prescribed in this Code.
Section 7. Creation and Conversion. - As a general rule, the creation of a local
government unit or its conversion from one level to another level shall be based on
verifiable indicators of viability and projected capacity to provide services, to wit:

(a) Income. - It must be sufficient, based on acceptable standards, to provide for all
essential government facilities and services and special functions commensurate
with the size of its population, as expected of the local government unit concerned;

(b) Population. - It shall be determined as the total number of inhabitants within the
territorial jurisdiction of the local government unit concerned; and

(c) Land Area. - It must be contiguous, unless it comprises two or more islands or is
separated by a local government unit independent of the others; properly identified
by metes and bounds with technical descriptions; and sufficient to provide for
such basic services and facilities to meet the requirements of its populace.

Compliance with the foregoing indicators shall be attested to by the Department of

Finance (DOF), the National Statistics Office (NSO), and the Lands Management
Bureau (LMB) of the Department of Environment and Natural Resources (DENR).
(Emphasis ours)
In enacting charters of LGUs, Congress .is called upon to properly identify their
territorial jurisdiction by metes and bounds. Mariano, Jr. v. COMELEC[235] stressed
the need to demarcate the territorial boundaries of LGUs with certitude because they
define the limits of the local governments' territorial jurisdiction. Reiterating
this dictum, the Court, in Municipality of Pateros v. Court of Appeals, et al.,[236] held:
[W]e reiterate what we already said about the importance and sanctity of the
territorial jurisdiction of an LGU:

The importance of drawing with precise strokes the territorial boundaries of a

local unit of government cannot be overemphasized. The boundaries must be
clear for they define the limits of the territorial jurisdiction of a local
government unit. It can legitimately exercise powers of government only
within the limits of its territorial jurisdiction. Beyond these limits, its acts
are ultra vires. Needless to state, any uncertainty in the boundaries of local
government units will sow costly conflicts in the exercise of governmental powers
which ultimately will prejudice the people's welfare. This is the evil sought to be
avoided by the Local Government Unit in requiring that the land area of a local
government unit must be spelled out in metes and bounds, with technical
descriptions.[237] (Emphasis ours)
Clearly, therefore, a local government's territorial jurisdiction cannot extend beyond
the boundaries set by its organic law.

Area as delimited by law and not exercise of jurisdiction as basis of the LGU's
equitable share

The Court cannot subscribe to the argument posited by the Province of Palawan that
the national wealth, the proceeds from which the State is mandated to share with the
LGUs, shall be wherever the local government exercises any degree of jurisdiction.

An LGU's territorial jurisdiction is not necessarily co-extensive with its exercise or

assertion of powers. To hold otherwise may result in condoning acts that are
clearly ultra vires. It may lead to, in the words of the Republic, LGUs "rush[ing] to
exercise its powers and functions in areas rich in natural resources (even if outside
its boundaries) with the intention of seeking a share in the proceeds of its
exploration"[238] - a situation that "would sow conflict not only among the local
government units and the national government but worse, between and among local
government units."[239]

There is likewise merit in the Republic's assertion that Palawan's interpretation of

what constitutes an LGU's territorial jurisdiction may produce absurd consequences.
Indeed, there are natural resources, such as forests and mountains, which can be
found within the LGU's territorial boundaries, but are, strictly speaking, under
national jurisdiction, specifically that of the Department of Environment and Natural
Resources.[240] To equate territorial jurisdiction to areas where the LGU exercises
jurisdiction means that these natural resources will have to be excluded from the
sharing scheme although they are geographically within the LGU's territorial limits.
[241]
 The consequential incongruity of this scenario finds no support either in the
language or in the context of the equitable sharing provisions of the 1987
Constitution and the Local Government Code.

The Court finds it appropriate to also cite Section 150 of the Local Government
Code which speaks of the situs of local business taxes under Section 143 of the
same law. Section 150 provides:
Section 150. Situs of the Tax. -

x x x x

(b) The following sales allocation shall apply to manufacturers, assemblers,

contractors, producers, and exporters with factories, project offices, plants, and
plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable
by the city or municipality where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be
taxable by the city or municipality where the factory, project office, plant, or
plantation is located.
(c) In case of a plantation located at a place other than the place where the
factory is located, said seventy percent (70%) mentioned in subparagraph (b)
of subsection (2) above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality where the factory is located;
and
(2) Forty percent (40%) to the city or municipality where the plantation is
located.
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has
two (2) or more factories, project offices, plants, or plantations located in different
localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b)
of subsection (2) above shall be prorated among the localities where the
factories, project offices, plants, and plantations are located in proportion to
their respective volumes of production during the period for which the tax is due.

(e) The foregoing sales allocation shall be applied irrespective of whether or

not sales are made in the locality where the factory, project office, plant, or
plantation is located. (Emphasis ours)
The foregoing provision illustrates the untenability of the Province of Palawan's
interpretation of "territorial jurisdiction" based on exercise of jurisdiction. To sustain
the province's construction would mean that the territorial jurisdiction of the
municipality or city where the factory, plant, project office or plantation is situated,
extends to the LGU where the principal office is located because said municipality or
city can exercise the authority to tax the sale transactions made or recorded in the
principal office. This could not have been the intent of the framers of the Local
Government Code.

The Provincial Government of Palawan argues that its territorial jurisdiction extends
to the Camago-Malampaya reservoir considering that its local police maintains
peace and order in the area; crimes committed within the waters surrounding the
province have been prosecuted and tried in the courts of Palawan; and the
provincial government enforces environmental laws over the same area. [242] The
province also cites Section 468 of the Local Government Code, which authorizes
the Sanggunian Panlalawigan to enact ordinances that protect the environment, as
well as Sections 26 and 27 of the law, which require consultation with the LGUs
concerned and the approval of their respective sanggunian before the National
Government may commence any project that will have an environmental impact.
[243]
 The province avers that the Contractor, in fact, obtained the necessary
endorsement from the Sangguniang Panlalawigan of Palawan before starting its
operations.[244]

The Court notes, however, that the province's claims of maintaining peace and order
in the Camago-Malampaya area and of enforcing environmental laws therein have
not been substantiated by credible proof. The province likewise failed to adduce
evidence of the crimes supposedly committed in the same area or their prosecution
in Palawan's courts.

The province cites illegal fishing, poaching and illegal entry as the cases tried before
the courts of Palawan. As conceded by the parties, however, the subject gas
reservoir is situated, not in the marine waters, but in the continental shelf. The
Province of Palawan has not established that it has, in fact, exercised jurisdiction
over this submerged land area.

The LGU's authority to adopt and implement measures to protect the

environment does not determine the extent of its territorial jurisdiction. The
deliberations of the Bicameral Conference Committee on the proposed Local
Government Code provides the proper context for the exercise of such authority:
HON. DE PEDRO. The Senate version does not have any specific provision on this.
The House's reads:
"The delegation to each local government unit of the responsibility in the
management and maintenance of environmental balance within its territorial
jurisdiction."
CHAIRMAN PIMENTEL. Well, this is a matter of delegating to the local government
units power to determine environmental concerns, which is good. However, we have
some reservations precisely because environment does not know of territorial
boundaries. That is our reservation there. And we have to speak of the totality of
the environment of the nation rather than the provincial or municipal in that
respect. x x x[245] (Emphasis ours)
Thus, the LGU's statutory obligation to maintain ecological balance is but part of the
nation's collective effort to preserve its environment as a whole. The extent to which
local legislation or enforcement protects the environment will not define the LGU's
territory.
Sections 26 and 27 of the Local Government Code provide:
Section 26. Duty of National Government Agencies in the Maintenance of
Ecological Balance. - It shall be the duty of every national agency or government-
owned or controlled corporation authorizing or involved in the planning and
implementation of any project or program that may cause pollution, climatic change,
depletion of non-renewable resources, loss of crop land, rangeland, or forest cover,
and extinction of animal or plant species, to consult with the local government units,
nongovernmental organizations, and other sectors concerned and explain the goals
and objectives of the project or program, its impact upon the people and the
community in terms of environmental or ecological balance, and the measures
that will be undertaken to prevent or minimize the adverse effects thereof.

Section 27. Prior Consultations Required. - No project or program shall be

implemented by government authorities unless the consultations mentioned in
Sections 2 (c) and 26 hereof are complied with, and prior approval of
the sanggunian concerned is obtained: Provided, That occupants in areas where
such projects are to be implemented shall not be evicted unless appropriate
relocation sites have been provided, m accordance with the provisions of the
Constitution. (Emphasis ours)
It is clear from Sections 26 and 27 that the consideration for the required
consultation and sanggunian approval is the environmental impact of the National
Government's project on the local community. A project, however, may have an
ecological impact on a locality without necessarily being situated therein. Thus, prior
consultation made pursuant to the foregoing provisions does not perforce establish
that the national wealth sought to be utilized is within the territory of the LGU
consulted.

In fine, an LGU cannot claim territorial jurisdiction over an area simply because its
government has exercised a certain degree of authority over it. Territorial jurisdiction
is defined, not by the local government, but by the law that creates it; it is delimited,
not by the extent of the LGU's exercise of authority, but by physical boundaries as
fixed in its charter.

Unless clearly expanded by Congress, the LGU's territorial jurisdiction refers

only to its land area.

Utilization of natural resources found within the land area as delimited by law
is subject to the 40% LGU share.
Since it refers to a demarcated area, the term "territorial jurisdiction" is evidently
synonymous with the term "territory." In fact, "territorial jurisdiction" is defined as the
limits or territory within which authority may be exercised. [246]

Under the Local Government Code, particularly the provisions on the creation of
municipalities, cities and provinces, and LGUs in general, territorial jurisdiction is
contextually synonymous with territory and the term "territory" is used to refer to the
land area comprising the LGU, thus:
Section 442. Requisites for Creation. -

(a) A municipality may be created if it has an average annual income, as certified by

the provincial treasurer, of at least Two million five hundred thousand pesos
(P2,500,000.00) for the last two (2) consecutive years based on the 1991 constant
prices; a population of at least twenty five thousand (25,000) inhabitants as certified
by the National Statistics Office; and a contiguous territory of at least fifty (50)
square kilometers as certified by the Lands Management Bureau: Provided,
That the creation thereof shall not reduce the land area, population or income of the
original municipality or municipalities at the time of said creation to less than the
minimum requirements prescribed herein.

(b) The territorial jurisdiction of a newly-created municipality shall be properly

identified by metes and bounds. The requirement on land area shall not apply
where the municipality proposed to be created is composed of one (1) or more
islands. The territory need not be contiguous if it comprises two (2) or more
islands.

(c) The average annual income shall include the income accruing to the general
fund of the municipality concerned, exclusive of special funds, transfers and non-
recurring income.

(d) Municipalities existing as of the date of the effectivity of this Code shall continue
to exist and operate as such. Existing municipal districts organized pursuant to
presidential issuances or executive orders and which have their respective set of
elective municipal officials holding office at the time of the effectivity of this Code
shall henceforth be considered as regular municipalities.

Section 450. Requisites for Creation.

(a) A municipality or a cluster of barangays may be converted into a component city

if it has an average annual income, as certified by the Department of Finance, of at
least Twenty million (P20,000,000.00) for the last two (2) consecutive years based
on 1991 constant prices, and if it has either of the following requisites:
(i) a contiguous territory of at least one hundred (100) square kilometers, as
certified by the Lands Management Bureau; or
(ii) a population of not less than one hundred fifty thousand (150,000) inhabitants, as
certified by the National Statistics Office:
Provided, That, the creation thereof shall not reduce the land area, population, and
income of the original unit or units at the time of said creation to less than the
minimum requirements prescribed herein.

(b) The territorial jurisdiction of a newly-created city shall be properly identified

by metes and bounds. The requirement on land area shall not apply where the city
proposed to be created is composed of one (1) or more islands. The territory need
not be contiguous if it comprises two (2) or more islands.

(c) The average annual income shall include the income accruing to the general
fund, exclusive of specific funds, transfers, and non-recurring income.

Section 461. Requisites for Creation.

(a) A province may be created if it has an average annual income, as certified by the
Department of Finance, of not less than Twenty million pesos (P20,000,000.00)
based on 1991 constant prices and either of the following requisites:
(i) a contiguous territory of at least two thousand (2,000) square kilometers, as
certified by the Lands Management Bureau; or
(ii) a population of not less than two hundred fifty thousand (250,000) inhabitants as
certified by the National Statistics Office:
Provided, That, the creation thereof shall not reduce the land area, population, and
income of the original unit or units at the time of said creation to less than the
minimum requirements prescribed herein.

(b) The territory need not be contiguous if it comprise two (2) or more islands or is
separated by a chartered city or cities which do not contribute to the income of the
province.

(c) The average annual income shall include the income accruing to the general
fund, exclusive of special funds, trust funds, transfers and non-recurring income.
Section 7. Creation and Conversion. - As a general rule, the creation of a local
government unit or its conversion from one level to another level shall be based on
verifiable indicators of viability and projected capacity to provide services, to wit:

(a) Income. - It must be sufficient, based on acceptable standards, to provide for all
essential government facilities and services and special functions commensurate
with the size of its population, as expected of the local government unit concerned;

(b) Population. - It shall be determined as the total number of inhabitants within the
territorial jurisdiction of the local government unit concerned; and

(c) Land Area. - It must be contiguous, unless it comprises two or more islands or

is separated by a local government unit independent of the others; properly
identified by metes and bounds with technical descriptions; and sufficient to
provide for such basic services and facilities to meet the requirements of its
populace.

Compliance with the foregoing indicators shall be attested to by the Department of

Finance (DOF), the National Statistics Office (NSO), and the Lands Management
Bureau (LMB) of the Department of Environment and Natural Resources (DENR).
(Emphasis ours)
That the LGUs' respective territories under the Local Government Code
pertain to the land area is clear from the fact that: (a) the law generally
requires the territory to be "contiguous"; (b) the minimum area of the contiguous
territory is measured in square kilometers; (c) such minimum area must be certified
by the Lands Management Bureau; and (d) the territory should be identified by
metes and bounds, with technical descriptions.

The word "contiguous" signifies two solid masses being in actual contact. Square
kilometers are units typically used to measure large areas of land. The Land
Management Bureau, a government agency that absorbed the functions of the
Bureau of Lands, recommends policies and programs for the efficient and effective
administration, management and disposition of alienable and disposable lands of the
public domain and other lands outside the responsibilities of other government
agencies.[247] Finally, "metes and bounds" are the boundaries or limits of a tract of
land especially as described by reference and distances between points on the land,
[248]
 while "technical descriptions" are used to describe these boundaries and are
commonly found in certificates of land title.

The following pronouncement in Tan v. Comelec[249] is particularly instructive:

It is of course claimed by the respondents in their Comment to the exhibits submitted
by the petitioners (Exhs. C and D, Rollo, pp. 19 and 91), that the new province has a
territory of 4,019.95 square kilometers, more or less. This assertion is made to
negate the proofs submitted, disclosing that the land area of the new province
cannot be more than 3,500 square kilometers because its land area would, at most,
be only about 2,856 square kilometers, taking into account government statistics
relative to the total area of the cities and municipalities constituting Negros del
Norte. Respondents insist that when Section 197 of the Local Government
Code speaks of the territory of the province to be created and requires that
such territory be at least 3,500 square kilometers, what is contemplated is not
only the land area but also the land and water over which the said province
has jurisdiction and control. It is even the submission of the respondents that
in this regard the marginal sea within the three mile limit should be considered
in determining the extent of the territory of the new province. Such an
interpretation is strained, incorrect, and fallacious.

The last sentence of the first paragraph of Section 197 is most revealing. As so
stated therein the "territory need not be contiguous if it comprises two or more
islands." The use of the word territory in this particular provision of the Local
Government Code and in the very last sentence thereof, clearly reflects
that "territory" as therein used, has reference only to the mass of land area
and excludes the waters over which the political unit exercises control.

Said sentence states that the "territory need not be contiguous." Contiguous

means (a) in physical contact; (b) touching along all or most of one side; (c)
near, text, or adjacent. "Contiguous", when employed as an adjective, as in
the above sentence, is only used when it describes physical contact, or a
touching of sides of two solid masses of matter. The meaning of particular terms
in a statute may be ascertained by reference to words associated with or related to
them in the statute. Therefore, in the context of the sentence above, what need
not be "contiguous" is the "territory" the physical mass of land area. There
would arise no need for the legislators to use the word contiguous if they had
intended that the term "territory" embrace not only land area but also
territorial waters. It can be safely concluded that the word territory in the first
paragraph of Section 197 is meant to be synonymous with "land area"
only. The words and phrases used in a statute should be given the meaning
intended by the legislature. The sense in which the words are used furnished the
rule of construction.

The distinction between "territory" and "land area" which respondents make
is an artificial or strained construction of the disputed provision whereby the
words of the statute are arrested from their plain and obvious meaning and
made to bear an entirely different meaning to justify an absurd or unjust
result. The plain meaning in the language in a statute is the safest guide to
follow in construing the statute. A construction based on a forced or artificial
meaning of its words and out of harmony of the statutory scheme is not to be
favored.[250] (Emphasis ours and citations omitted)
Though made in reference to the previous Local Government Code or Batas
Pambansa Blg. (BP) 337, the above-cited ruling remains relevant in determining an
LGU's territorial jurisdiction under the 1991 Local Government Code. Section 197 of
BP 337[251] cited the requisites for creating a province, among which was a "territory,"
with a specified minimum area, which did not need to be "contiguous" if it comprised
two or more islands. Tan, therefore, is clearly relevant since it explained the
significance of the word "contiguous," which is similarly used in the Local
Government Code, in the determination of the LGU's territory. More importantly, it
appears that the framers of the Local Government Code drew inspiration from
the Tan ruling such that in lieu of the word "territory," they specified that such
requisite in the creation of the LGU shall refer to the land area. Thus, in his book on
the Local Government Code, Senator Pimentel who, in former Chief Justice Reynato
S. Puno's words, "shepherded the Code through the labyrinthine process of
lawmaking," wrote:
When a law was passed in the Batasan Pambansa creating the new province of
Negros del Norte, the Supreme Court was asked to rule in Tan v. Commission on
Elections, whether or not the new province complied properly with the "territory"
requirement that it must have no less then [sic] 3,500 square kilometers.

The respondents claimed that "the new province has a territory of 4,019.95 square
kilometers" by including in that computation not only the land area, but also the
"water over which said province had jurisdiction and control," and "the marginal sea
within the three mile limit."

The Supreme Court ruled that such an interpretation is strained, incorrect and
fallacious. The Court added that the use of the word "territory" in the Local
Government Code clearly reflected that "territory" as therein used had reference
only to the mass of land area and excluded the waters over which the political unit
exercises control.

Inspired by this Supreme Court ruling, the Code now uses the words "land
area" in lieu of "territory" to emphasize that the area required of an LGU does
not include the sea for purposes of compliance with the requirements of the
Code for its creation.[252] (Emphasis ours)
Tan, in fact, establishes that an LGU may have control over the waters but may not
necessarily claim them as part of their territory. This supports the Court's finding that
the exercise of authority does not determine the LGU's territorial jurisdiction.

It is true that under Sections 442 and 450 of the Local Government Code, "(t)he
requirement on land area shall not apply" if the municipality or city proposed to be
created is composed of one or more islands. This does not mean, however, that the
territory automatically extends to the waters surrounding the islands or to the open
sea. Nowhere in said provisions is it even remotely suggested that marine waters, or
for that matter the continental shelf, are consequently to be included as part of the
territory. The provisions still speak of "islands" as constituting the LGU, and under
Article 121 of the UNCLOS, an island is defined as "a naturally formed area of land,
surrounded by water, which is above water at high tide." The inapplicability of the
requirement on land area only means that where the proposed municipality or city is
an island, or comprises two or more islands, it need not be identified by metes and
bounds or satisfy the required minimum area. In that case, the island mass
constitutes the area of the municipality or city and its limits are the island's natural
boundaries.

Significantly, during the Senate deliberations on the proposed Local Government

Code, then Senate President Jovito Salonga suggested an amendment that would
extend the territorial jurisdiction of municipalities abutting bodies of water to at least
two kms from the shoreline. The ensuing exchange is worth highlighting:
The President. Here is a proposed amendment: Line 17, to add the following: FOR
MUNICIPALITIES ABUTTING BODIES OF WATER THEIR TERRITORIAL
JURISDICTION SHALL EXTEND TO AT LEAST TWO KILOMETERS FROM THE
SHORELINE; PROVIDED, THAT IN CASE THERE ARE TWO OR MORE
MUNICIPALITIES ON EITHER SIDE OF SUCH A BODY OF WATER MAKING THE
TWO-KILOMETER JURISDICTION INADVISABLE THE JURISDICTION OF THE
AFFECTED MUNICIPALITIES SHALL BE DETERMINED BY DRAWING A LINE AT
THE MIDDLE OF SUCH BODY OF WATER. This is only for municipalities abutting
bodies of water.

Senator Pimentel. Mr. President, may we invite the attention of our Colleagues that
in Book IV, page 273, we define what constitutes municipal waters. And, the
measurement is not two kilometers but three nautical miles starting from the sea-line
boundary marks at low tide. Therefore, there may be some complications here. We
are not against the amendment per se. What we are trying to make of record is the
fact that we have to consider also the provision of Section 464 which defines
"MUNICIPAL WATERS". So, probably, we can increase the extension of the
territorial jurisdiction to three nautical miles instead of two kilometers as mentioned
in this proposed amendment.

In fact, Mr. President, it is also stated at the last sentence of Section 464:
Where two municipalities are so situated on the opposite shores that there is less
than six nautical miles of marine water between them, the third line shall be aligned
equally distant from the opposite shores of the respective municipalities.
So, there is an attempt here to delineate, really, the jurisdiction of the municipalities
which may have a common body of water, let us say, in between them.

The President. So, that is acceptable, provided that it is three nautical miles?

Senator Pimentel. Yes. Probably, Mr. President, what we can do is hold in

abeyance this proposed amendment and take it up when we reach Section 464. I
think, it will be more appropriate in that section, Mr. President.

The President. But, if it is a question of territorial jurisdiction, may not this be the

proper place for it?

Senator Pimentel. All right, Mr. President, what we can do is, we will accept the
proposed amendment, subject to the observations that we have placed on record.

The President. All right. Subject to the three-nautical-mile limit.

Senator Saguisag. Mr. President.

The President. Senator Saguisag is recognized.

Senator Saguisag. I just would like to find out, Mr. President, if we are codifying
something that may represent the present state of the law, or are we creating a new
concept here? Ang ibig po bang sabihin nita ay mayroong magmamay-ari ng Pasig
River? Kasi, I do not believe that we have ever talked about Manila owning a river or
Manila owning Manila Bay. Is that what we are introducing here? And what are its
implications? Taga-Maynila lamang ba ang maaaring gumamit niyan at sila lamang
ang magpapasiya kung ano ang dapat gawin 0 puwedeng pumasok ang coast
guard? What do we intend to achieve by now saying that...

The President. Inland waters lamang naman yata ang pinaguusapang ito.

Senator Saguisag. Opo. Pero, I am not sure whether there is an owner of the Pasig
River. I am not sure. Maybe, there is. Pero, my own recollection is that we have
never talked of that idea before. I do not know what it means. Does it mean now that
the municipality owning it can exclude the rest of the population from using it without
going through licensing processes? Ano po ang gusto nating gawin dito?

Ang alam ko ho riyan, they cannot be owned in the sense that they are really owned
by every Filipino. Iyon lamang po. Kasi, capitals po ang naririto sa page 273, baka
bago ito. Pero, ano po ba and ibig sabihin nito?

In my study of property before, hindi ko narinig...So, maybe, we should really

reserve this as suggested by the distinguished Chairman.

The President. All right. Why do we not defer this until we can determine which is
the better place?

Senator Pimentel. Yes, Mr. President.

The President. All right. So let us defer consideration of this plus the major question
that Senator Saguisag is posing, is this something new that we are laying down?

Senator Pimentel. No. Actually the definition of "municipal waters" came about,

really, because of several complaints that our Committee has received from
fisherpeople. They have complained that the municipality is not able to help them,
because the definition of "municipal waters" has not been clearly spelled out. That is
the reason why we attempted to introduce some definitions of "municipal waters"
here, basically, in answer to the demands of the fisherfolk who believe that their
rights are being intruded upon by other people coming from other places. Probably,
the definition of municipal waters will also delineate the criminal jurisdiction of, let us
say, the municipal police in certain acts, like dynamite fishing in a particular locality.
It can help, Mr. President.

The President. Sa palagay ba ninyo, iyong Marikina River that goes through several
municipalities we have the Municipality of Pasig, then the Municipality of Marikina,
then the Municipality of San Mateo, and then the Municipality of Montalban how will
that be apportioned?

Senator Pimentel. If a river passes through several municipalities, the boundary will
be an imaginary line drawn at the middle of this river, basically, Mr. President.

The President. Anyway, we will defer this until we reach Book IV. [253]
Based on the records of the Senate and the Bicameral Conference Committee on
Local Government, however, the Salonga amendment was not considered anew in
subsequent deliberations. Neither did the proposed amendment appear in the text of
the Local Government Code as approved. By Senator Pimentel's account, the Code
deferred to the Court's ruling in Tan which excluded the marginal sea from the
LGU's territory. It can, thus, be concluded that under the Local Government Code,
an LGU's territory does not extend to the municipal waters beyond the LGU's
shoreline.

The parties all agree that the Camago-Malampaya reservoir is located in the
continental shelf.[254] If the marginal sea is not included in the LGU's territory, with
more reason should the continental shelf, located miles further, be deemed excluded
therefrom.

To recapitulate, an LGU's territorial jurisdiction refers to its territorial boundaries or to

its territory. The territory of LGUs, in turn, refers to their land area, unless expanded
by law to include the maritime area. Accordingly, only the utilization of natural
resources found within the land area as delimited by law is subject to the LGU's
equitable share under Sections 290 and 291 of the Local Government Code. This
conclusion finds support in the deliberations of the 1986 Constitutional Commission
which cited, as examples of national wealth the proceeds from which the LGU may
share, the Tiwi Geothermal Plant in Albay, the geothermal plant in Macban,
Makiling-Banahaw area in Laguna, the Maria Cristina area in Central Mindanao, the
great rivers and sources of hydroelectric power in Iligan, in Central Mindanao, the
geothermal resources in the area of Palimpiñon, Municipality of Valencia and
mountainous areas, which are all situated inland. [255] In his 2011 treatise on the Local
Government Code, former Senator Pimentel cited as examples of such national
wealth, the geothermal fields of Tongonan, Leyte and Palinpinon, Negros Oriental
which are both found inland.[256]

Section 6 of the Local Government Code empowers Congress to create, divide,

merge and abolish LGUs, and to substantially alter their boundaries, subject to the
plebiscite requirement under Section 10 of the law which reads:
Section 10. Plebiscite Requirement. - No creation, division, merger, abolition or
substantial alteration of boundaries of local government units shall take effect unless
approved by a majority of the votes cast in a plebiscite called for the purpose in the
political unit or units directly affected. Said plebiscite shall be conducted by the
Commission on Elections (COMELEC) within one hundred twenty (120) days from
the date of effectivity of the law or ordinance effecting such action, unless said law
or ordinance fixes another date.
Accordingly, unless Congress, with the approval of the political units directly
affected, clearly extends an LGU's territorial boundaries beyond its land area, to
include marine waters, the seabed and the subsoil, it cannot rightfully share in the
proceeds of the utilization of national wealth found therein.

No law clearly granting the Province of Palawan territorial jurisdiction over the
Camago-Malampaya reservoir

The Republic has enumerated the laws defining the territory of Palawan. [257] The
following table has been culled from said enumeration:

Governing Law Territorial Limits

Act No. 422[258] The Province of Paragua shall consist of all that portion of
the Island of Paragua north of the tenth parallel of north latitude
and the small islands adjacent thereto, including Dumaran, and of
the islands forming the Calamianes Group and the Cuyos group.
(Section 2)
Act No. 567[259] The Province of Paragua shall consist of all that portion of
the Island of Paragua north of a line beginning in the middle of the
channel at the mouth of the Ulugan River in the Ulugan Bay,
thence following the main channel of the Ulugan River to the
village of Bahile, thence along the main trail leading from Bahile to
the Tapul River, thence following the course of the Tapul River to
its mouth in the Honda Bay; except at the towns of Bahile and
Tapul the west boundary line shall be the arc of a circle with one
mile radius, the center of the circle being the center of the said
towns of Bahile and Tapul. There shall be included in the Province
of Paragua the small islands adjacent thereto, including Dumaran
and the island forming the Calamianes group and the Cuyos
group. (Section 1)
Act No. 747[260] The Province of Paragua shall consist of the entire Island of
Paragua, the Islands of Dumaran and Balabac, the
Calamianes Islands, the Cuyos Islands, the Cagayanes Islands,
and all other islands adjacent thereto and not included within the
limits of any province. (Section 1)
Act No. 1363[261] Upon the recommendation of the Philippine Committee on
Geographical Names the name of the Province and Island of
Paragua is hereby changed to that of Palawan. (Section 1)
Act No. 1396[262] The Province of Palawan shall include the entire Island of
Palawan, the Islands of Dumaran and Balabac, the
Calamianes Islands, the Cuyos Islands, the Cagayanes Islands,
 and all other islands adjacent to these islands and not included
within the limits of any other province. (Section 26)
Act No. 2657[263] Article II (Situs and Major Subdivisions of Provinces Other than
such as are Contained in Department of Mindanao and Sulu)

Section 43. Situs of Provinces and Major Subdivisions. - The

general location of the provinces other than such as are contained
in the Department of Mindanao and Sulu, together with the
subprovinces, municipalities, and townshlps respectively contained
in them is as follows:

xxxx

The Province of Palawan consists of the Island of Palawan,

the islands of Dumaran and Balabac, the Calamian Islands, the
Cuyo Islands, the Cagayanes Islands, and all
other islands adjacent to any of them, not included in some other
province. It contains the townships of Cagayancillo, Coron, Cuyo,
Puerto Princesa (the capital of the province), and Taytay.
Act No. 2711[264] Chapter 2 (Political Grand Divisions and Subdivisions)   

Article I

Grand Divisions

Section 37. Grand divisions of (Philippines Islands) Philippines. -

The (Philippine Islands) Philippines compnses the forty-two
provinces named in the next succeeding paragraph hereof, the
seven provinces of the Department of Mindanao and Sulu, and the
territory of the City of Manila.

xxxx

The Province of Palawan consists of the Island of Palawan,

 the islands of Dumaran and Balabac, the Calamian Islands, the
Cuyo Islands, the Cagayanes Islands, and all
other islands adjacent to any of them, not included in some other
province, and comprises the following municipalities: Agutaya,
Bacuit, Cagayancillo, Coron, Cuyo, Dumaran, Puerto Princesa (the
capital of the province), and Taytay.

The province also contains the following municipal districts:

Aborlan, Balabac and Brooke's Point.
As defined in its organic law, the Province of Palawan is comprised merely of
islands. The continental shelf, where the Camago-Malampaya reservoir is located,
was clearly not included in its territory.

An island, as herein before-mentioned, is defined under Article 121 of the UNCLOS

as "a naturally formed area of land, surrounded by water, which is above water at
high tide." The continental shelf, on the other hand, is defined in Article 76 of the
same Convention as comprising "the seabed and subsoil of the submarine areas
that extend beyond (the coastal State's) territorial sea throughout the natural
prolongation of its land territory to the outer edge of the continental margin, or to a
distance of 200 nm from the baselines from which the breadth of the territorial sea is
measured where the outer edge of the continental margin does not extend up to that
distance." Where the continental shelf of the coastal state extends beyond 200 nm,
Article 76 allows the State to claim an extended continental shelf up to 350 nm from
the baselines.[265]

Under Palawan's charter, therefore, the Camago-Malampaya reservoir is not located

within its territorial boundaries.

P.D. No. 1596, which constituted Kalayaan as a separate municipality of the

Province of Palawan, cannot be the basis for holding that the Camago-Malampaya
reservoir forms part of Palawan's territory. Section 1 of P.D. No. 1596 provides:
SECTION 1. The area within the following boundaries:

KALAYAAN ISLAND GROUP

From a point [on the Philippine Treaty Limits] at latitude 7°40' North and longitude
116°00' East of Greenwich, thence due West along the parallel of 7°40' N to its
intersection with the meridian of longitude 112°10' E, thence due north along the
meridian of 112°10' E to its intersection with the parallel of 9°00' N, thence
northeastward to the inter section of the parallel of 12°00' N with the meridian
oflongitude 114°30' E, thence, due East along the parallel of 12°00' N to its
intersection with the meridian of 118°00' E, thence, due South along the meridian of
longitude 118°00' E to its intersection with the parallel of 10°00' N, thence
Southwestwards to the point of beginning at 7°40' N, latitude and 116°00' E
longitude; including the sea-bed, sub-soil, continental margin and air space shall
belong and be subject to the sovereignty of the Philippines. Such area is hereby
constituted as a distinct and separate municipality of the Province of Palawan
and shall be known as "Kalayaan." (Emphasis ours)
None of the parties assert that the Camago-Malampaya reservoir is within the
territory of Kalayaan as delimited in Section 1 of P.D. No. 1596 or as referred to in
R.A. No. 9522,[266] commonly known as the "2009 baselines law." The Province of
Palawan, however, invokes P.D. No. 1596 to argue that similar to Kalayaan, its
territory extends to the seabed, the subsoil and the continental margin. The Court is
not persuaded.

The delineation of territory in P.D. No. 1596 refers to Kalayaan alone. The inclusion
of the seabed, subsoil and continental margin in Kalayaan's territory cannot, by
simple analogy, be applied to the Province of Palawan. To hold otherwise is to
expand the province's territory, as presently defined by law, without the requisite
legislation and plebiscite.

The Court likewise finds no merit in the Province of Palawan's assertion that R.A.
No. 7611 establishes that the Camago-Malampaya area is within the territorial
jurisdiction of Palawan. It is true that R.A. No. 7611 contains a definition of
"Palawan" that states:
Section 3. Definition of Terms. - As used in this Act, the following terms are defined
as follows:

(1) "Palawan" refers to the Philippine province composed of islands and islets

located 7°47' and 12°'22' north latitude and 117°'00' and 119°'51' east longitude,
generally bounded by the South China Sea to the northwest and by the Sulu Sea to
the east.

xxxx
Both the Republic and the Province of Palawan agree that the above geographic
coordinates, when plotted, would show that the Camago-Malampaya reservoir is
within the area described. However, no less than the map [267] submitted by the
Province of Palawan showed that substantial portions of Palawan's territory were
excluded from the area so defined.
The Republic cites, without controversion from the province, that portions of
mainland Palawan and several islands, municipalities or portions thereof, namely,
the Municipalities of Balabac, Cagayancillo, Busuanga, Coron, Agutaya, Magsaysay,
Cuyo, Araceli, Linapacan and Dumaran were excluded. [268] Their exclusion
constitutes a substantial alteration of Palawan's territory which, under Section 10 of
the Local Government Code, cannot take effect without the approval of the majority
of the votes cast for the purpose in a plebiscite in the political units directly affected.

There is also no showing that the criteria for the alteration, as established in
Sections 7 and 461 of the Local Government Code, had been met. The definition,
therefore, does not have the effect of redefining Palawan's territory. In fact, R.A. No.
7611 was enacted not for such purpose but to adopt a comprehensive framework for
the sustainable development of Palawan compatible with protecting and enhancing
the natural resources and endangered environment of the province. [269]

The definitions under Section 1 of R.A. No. 7611 are also qualified by the phrase
"[A]s used in this Act." Thus, the definition of "Palawan" should be taken, not as a
statement of territorial limits for purposes of Section 7, Article X of the 1987
Constitution, but in the context of R.A. No. 7611 which is aimed at environmental
monitoring, research and education.[270]

It is true, as the Province of Palawan has pointed out, that R.A. No. 7611 includes
the coastal or marine area as one of the three components of the Environmentally
Critical Areas Network designated in said law, the other two being the terrestrial
component and the tribal ancestral lands. R.A. No. 7611 refers to the coastal or
marine area as the whole coastline up to the open sea, characterized by active
fisheries and tourism activities. By all the parties' accounts, however, the Camago-
Malampaya reservoir, is located not in such coastal or marine area but in the
continental shelf. Thus, even on the supposition that R.A. No. 7611 redefined
Palawan's territory, it clearly did not include the seabed and subsoil comprising the
continental shelf. In fact, what it expressly declares as composing the Province of
Palawan are the "islands and islets."

It is also clear that R.A. No. 7611 does not vest any additional jurisdiction on the
Province of Palawan. The PCSD, formed under said law, is composed of both
provincial officials and representatives from national government agencies. It was
also established under the Office of the President. The tasks outlined by R.A. No.
7611, which largely involve policy formulation and coordination, are carried out not
by the province, but by the council.

Thus, even if the Court were to apply the province's definition of "territorial
jurisdiction" as co-extensive with its exercise of authority, R.A. No. 7611 cannot be
considered as conferring territorial jurisdiction over the Camago-Malampaya
reservoir to Palawan since the law did not grant additional power to the province.

It must be pointed out, too, that the Province of Palawan never alleged in which of its
municipalities or component cities and barangays the Camago-Malampaya reservoir
is located. Under Section 292 of the Local Government Code, the local
government's share in the utilization of national wealth located in a province shall be
allocated in the following ratio:
(1) Province - Twenty percent (20%);
(2) Component City/Municipality - Forty-five percent (45%); and
(3) Barangay - Thirty-five percent (35%)
The allocation of the LGU share to the component city/municipality and the
barangay cannot but indicate that the natural resource is necessarily found . therein.
This is only logical since a province is composed of component cities and
municipalities, and municipalities are in turn composed of barangays. Senate
deliberations on the proposed Local Government Code also reflect that at bottom,
the natural resource is located in the municipality or component city:
Senator Rasul. Mr. President, may I continue. Also on the same page, same
section, "Share of Local Government in the Proceeds From the Exploration", I
propose that there should be a specific sharing in this section, because this section
does not speak of the sharing; how much goes to the barangay, municipality, city, or
province?

Senator Pimentel. Yes, in fact, we have Mr. President and I was about to read it
into the record, so that, there will be a new paragraph after the word Resources on
page 54, and it will read as follows:

THE SHARES OF THE LOCAL GOVERNMENT UNITS IN THE PROCEEDS FROM

THE EXPLANATION [sic], DEVELOPMENT AND UTILIZATION OF NATURAL
RESOURCES LOCATED WITHIN THEIR TERRITORIAL WRISDICTIONS SHALL
BE AS FOLLOWS:

1. IN THE CASE OF MUNICIPALITIES AND COMPONENT CITIES: (A) THE

BARANGAY UNIT WHERE THE NATURAL RESOURCES ARE SITUATED AN
EXTRACTED, FORTY PERCENT.

The President. Is there any objection? [Silence] Hearing none, the amendment is
approved.

Senator Pimentel. Then "(B)." "THE MUNICIPALITY OR COMPONENT CITY

WHERE THE BARANGAY WITH THE NATURAL RESOURCES ARE SITUATED,
THIRTY PERCENT.

The President. Is there any objection? [Silence] Hearing none, the amendment is
approved.

Senator Pimentel. Then we have a paragraph 2 on the same aspect of sharing; "IN

THE CASE OF HIGHLY URBANIZED CITIES, THE FOLLOWING RULES SHALL
APPLY;

A) BARANGAY WHERE THE NATURAL RESOURCES ARE SITUARED AND

EXTRACTED, SIXTY (60%) PERCENT;

B) FOR THE HIGHLY URBANIZED CITY WHERE THE BARANGAY WITH THE
NATURAL RESOURCES ARE LOCATED, FORTY (40%) PERCENT".

So it is a 60:40 sharing.

The President. Before we use the word SITUATED, probably, we should make it

uniform - SITUATED AND EXTRACTED.

Senator Pimentel. AND EXTRACTED. Yes, Mr. President.

The President. Is there any objection? [Silence] Hearing one [sic], the amendment
is approved. Any more?[271] (Emphasis ours.)
During the oral argument, Dean Pangalangan, as amicus curiae, stressed that the
Camago-Malampaya reservoir is. not part of any barangay:
JUSTICE CARPIO: Following your argument counsel Malampaya would form part of
one barangay in Palawan but yet it is outside of the Philippine territorial waters, how
do you reconcile that?

DEAN PANGALANGAN: Oh, no, Your Honor, Malampaya will lie within our
continental shelf and that is in fact the way by which we claim title over a resource
lying out there in the seas on the seabed. It will not be considered in itself a
barangay for instance.

JUSTICE CARPIO: So, it is not part of any barangay?

DEAN PANGALANGAN: Yes, Your Honor, it is not.[272]

The Province of Palawan's failure to specify the component city or municipality, or
the barangay for that matter, in which the Camago-Malampaya reservoir is situated
militates against its claim that the area forms part of its area or territory.

The Republic endeavored to enumerate the different LGUs composing the Province
of Palawan and their respective territorial limits under applicable organic laws.
[273]
 The following matrix has been culled from its enumeration:

Territorial Description/Component
LGU Governing Law
Barangays
Cagayancillo Act No. 2657 Section 43. Situs of Provinces and Major
Coron Subdivisions. - The general location of the
Cuyo provinces other than such as are contained in
Puerto the Department of Mindanao and Sulu,
Princesa[274] together with the subprovinces, municipalities,
Taytay and townships respectively contained in them
is as follows:

xxxx

The Province of Palawan consists of the

Island of Palawan, the islands of Dumaran
and Balabac, the Calamian Islands, the Cuyo
Islands, the Cagayanes Islands, and all other
islands adjacent to any of them, not included
in some other province. It contains the
townships of Cagayancillo, Coron,
Cuyo, Puerto Princesa (the capital of the
province), and Taytay.
Act No. 2711 Section 37. Grand divisions of (Philippines
Islands) Philippines. - The (Philippine Islands)
Philippines comprises the forty-two provinces
named in the next succeeding paragraph
hereof, the seven provmces of the
Department of Mindanao and Sulu, and the
territory of the City of Manila.
  
xxxx
 The Province of Palawan consists of the
Island of Palawan, the islands of Dumaran
and Balabac, the Calamian Islands, the Cuyo
Islands, the Cagayanes Islands, and all other
islands adjacent to any of them, not included
in some other provmce, and comprises the
following municipalities: Agutaya,
Bacuit, Cagayancillo, Coron, Cuyo,
Dumaran, Puerto Princesa (the capital of the
province), and Taytay.

xxxx
Roxas R.A. No. 615[275] Section 1. The barrios of Tinitian, Caramay,
Rizal, Del Pilar, Malcampo Tumarbong,
Taradufigan, Ilian, and Capayas in the
municipality of Puerto Princesa, Province of
Palawan, are hereby separated from said
municipality and constituted into a new
municipality to be known as the Municipality
of Roxas. The seat of the government of the
new municipality shall be at the sitio of
Barbacan in the barrio of Del Pilar, Puerto
Princesa.
Agutaya Act No. 2711 Section 37. Grand divisions (Philippines
Bacuit (now Islands) Philippines. - x x x x
El Nido)[276]
Dumaran The Province of Palawan consists of the
Aborlan Island of Palawan, the islands of Dumaran
Balabac and Balabac, the Calamian Islands, the Cuyo
Brooke's Islands, the Cagayanes Islands, and all other
Point islands adjacent to any of them, not included
in some other provmce, and comprises the
following municipalities: Agutaya, Bacuit,
Cagayancillo, Coron, Cuyo, Dumaran, Puerto
Princesa (the capital of the province), and
Taytay.

The province also contains the following

 municipal districts: Aborlan, Balabac and
Brooke's Point.
R.A No. 1111[277] RA 1111 changed the name of
[278]
R.A. No. 3418 the Municipality of Dumaran to Araceli.
However, under RA 3418, a distinct and
independent municipality, to be known as
the Municipality of Dumaran, was
constituted from certain barrios of the
municipalities of Araceli, Roxas and Taytay.
Section 1 of RA 3418 provides "The barrios of
Dumaran, San Juan, Bacao, Calasag and
Bohol in the Municipality of Araceli; the
barrios of Ilian, Capayas, and Leguit in the
Municipality of Roxas; and the barrios of
Danleg and Pangolasian in the Municipality of
Taytay, all in the province of Palawan, are
separated from the said municipalities, and
are constituted into a distinct and independent
municipality, to be known as the Municipality
of Dumaran, with the seat of government at
the site of the barrio of Dumaran."
Busuanga R.A. No. 560[279] Section 1. The barrios of Concepcion,
Salvacion, Busuanga, New Busuanga,
Buluang, Quezon, Calawit, and Cheey in the
Municipality of Coron are separated from the
said municipality and constituted into a new
and regular municipality to be known as
the Municipality of Busuanga, with the
present site of the barrio of New Busuanga as
the seat of the government.
R.A No. 5943[280] RA 5943 amended Section 1 of RA 560 to
read as follows: "The barrios of Sagrada,
Maglalambay, Bogtong, San Isidro, Pallitan,
San Rafael, Concepcion, Salvacion,
Busuanga, Buluang, Quezon, Calawit, and
Cheey, in the Municipality of Coron, Province
of Palawan, are separated from said
municipality and constituted into a
new Municipality of Busuanga with the
present site of the barrio of Salvacion as the
 seat of the government."
Quezon R.A. No. 617[281] Section 1. The barrios of Berong and Alfonso
XII in the Municipality of Aborlan and the
barrios of Iraan, Candawaga and Canipaan m
the Municipality of Brook's Point are
separated from the said municipalities and
constituted into a new and regular
municipality to be known as the Municipality
of Quezon, with the present site of the barrio
of Alfonso XIII as the seat of the government.
Linapacan R.A. No. 1020[282] Section 1. The islands of Linapacari,
Cabunlaoan, Niangalao, Decabayotot,
Calibanbangan, Pical, and Barangonan are
hereby separated from the Municipality of
Coron, Province of Palawan. and constituted
into a municipality to be known as
the Municipality of Linapacan with the seat
of government in the barrio of San Miguel in
the island of Linapacan.
Araceli Act No. 2711 Comprises the original territorial jurisdiction of
R.A. No. 1111 the Municipality of Dumaran under Act No.
R.A. No. 3418 2711, excluding the barrios of Dumaran, San
Juan, Bacao, Calasag and Bohol which were
included in the newly created Municipality of
Dumaran under RA3418.
Batarasa R.A. No. 3425[283] Section 1. The barrios of Inogbong,
Marangas, Bonobono, Malihod, Bulalakaw,
Tarusan, Iwahig, Iganigang, Sarong, Akayan,
Rio Tuba, Sumbiling, Sapa, Malitub, Puring,
Buliluyan and Tahod in the Municipality of
Brooke's Point, Province of Palawan, are
separated from said municipality and
constituted into a distinct and independent
municipality, to be known as the Municipality
of Batarasa, same province. The seat of
government of the new municipality shall be
in the present site of the barrio of Marangas.
Magsaysay R.A. No. 3426[284] Section 1. The barrios of Los Angeles, Rizal,
Lucbuan, Igabas, Imilod, Balaguen,
 Danawan, Cocoro, Patonga, Tagawayan
Island, Siparay Island and Canipo in the
Municipality of Cuyo, Province of Palawan,
are separated from said municipality and
constituted into a distinct and independent
municipality, to be known as the Municipality
of Magsaysay. The seat of government of
the new municipality shall be the present site
of the barrio of Danawan.
San Vicente R.A. No. 5821[285] Section 1. The barrios of Binga, New Canipo,
Alimanguan and New Agutaya, now in the
Municipality of Taytay and all barrios from
Vicente to Caruray in the Municipality of
Puerto Princesa, Province of Palawan, are
separated from said municipalities, and
constituted into a distinct and independent
municipality, to be known as the Municipality
of San Vicente, same province. The seat of
government of the municipality shall be in the
present site of the barrio of San Vicente.
Narra R.A. No. 5642[286] Section 1. The barrios of Malatgao, Tinagong
dagat, Taritien, Antipoloan, Teresa, Panacan,
Narra, Caguisan, Batang-batang, Bato-bato,
Barirao, Malinao, Sandoval, Dumaguefia, El
Vita, Calategas, Arumay.uan, Tacras, Borirao
and that part of barrio Abo-abo now belonging
to the Municipality of Aborlan, Province of
Palawan, are separated from said
municipality and constituted into a distinct and
independent municipality, to be known as
the Municipality of Narra. The seat of the
new municipality shall be in the present site of
Barrio Narra.
Kalayaan P.D. No. 1596 Section 1. The area within the following
boundaries:

KALAYAAN ISLAND GROUP


Marcos (now BP Blg. 386[288]
Riza1)[287]
From a point [on the Philippine Treaty Limits]
at latitude 7°40' North and longitude 116°00'
East of Greenwich, thence due West along
the parallel of 7° 40' N to its intersection with
the meridian of longitude 112°10' E, thence
due north along the meridian of 112°10' E to
its intersection with the parallel of 9°00' N,
thence northeastward to the inter-section of
the parallel of 12°00' N with the meridian of
longitude 114° 30' thence, due East along the
parallel of 12°00' N to its intersection with the
meridian of 118°00' E, thence, due South
along the meridian of longitude 118° 00' E to
its intersection with the parallel of 10°00' N,
thence Southwestwards to the point of
beginning at 7°40' N, latitude and 116° 00' E
longitude; including the sea-bed, sub-soil,
continental margin and air space shall
belong to and be subject to the sovereignty of
the Philippines. Such area is hereby
constituted as a distinct and separate
municipality of the Province of Palawan
and shall be known as "Kalayaan."
Section 1. The barangays of Bunog, Iraan,
Punta Baja, Capung Ulay, Ramsang,
Candawag, Culasian, Panalingaan, Tahuin,
Latud, and Canipaan are hereby separated
from the Municipality of Quezon, Province of
Palawan, and constituted into a distinct and
independent municipality to be known as the
Municipality of Marcos. The seat of
government of the new municipality will be in
Barangay Punta Baja.
Section 2. The Municipality of Marcos shall
be bounded as follows:
"A parcel of land known as the proposed
Municipality of Marcos, in the Province of
 Palawan, Luzon Island, bounded in the north
along lines 11 and 1 in the Plan by the
municipal boundary of Quezon, on the south
along lines 2 and 3 by Sulu Sea, on the east
along lines 1 and 2 by the municipal boundary
of Brooke's Point, on the west along lines 3 to
11 by the shoreline of the South China Sea.
Beginning at the point marked 1 in the plan at
latitude go 59' 10" T north, longitude 117° 50'
32"; thence S 62-00W 80,750 meters to point
2; thence N 85-00W 5,800 meters to point 3;
thence N 31-29E 20,670.35 meters to point 4;
thence N 46-13E 8,298.46 meters to point 5;
thence N 52-21E 6,137.67 meters to point 6;
thence N 39-14E 9,594.37 meters to point 7;
thence N 37-45E 11,017.16 meters to point 8;
thence N 53-08E 10,364.93 meters to point 9;
thence N 41-12E 14,556.17 meters to point
10; thence N 76-02E 6,509.60 meters to point
11; thence S 48-10E 14,442.69 meters to
point 12, containing an area of nine hundred
seventy-seven million, two hundred sixty-one
thousand two hundred square meters
(977,261,200 square meters) or ninety-seven
thousand seven hundred twenty-six and
twelve hundredth hectares (97,726.12
hectares)."
Culion R.A. No. 7193[289] as Section 1. The Islands of Culion Leper
amended by R.A. No. Colony, Marily, Sand, Tampel, Lamud, Galoc,
9032[290] Lanka, Tambon, Dunaun, Alava, Chindonan
and a small island without a name situated
directly south of Chindonan Island in latitude
11°55'N, longitude 12°02'E, comprising the
national reservation for lepers in the Province
of Palawan as described under Executive
Order No. 35, Series of 1912, are hereby
constituted into a distinct and independent
municipality to be known as the Municipality
of Culion. The seat of government of the new
municipality shall be in Barangay Balala.
Section 1-A. The barangays of Balala, Baldat,
Binudac, Culango, Galoc, Jardin, Malaking
Patag, Osmeña and Tiza Libis, Luac, which
have been existing and functioning as regular
barangays before the creation of the
municipality in 1992 are hereby declared as
legally existent upon the creation of the
Municipality of Culion. These barangays shall
compnse the Municipality of Culion, subject to
the provisions of the succeeding paragraphs.
The territorial boundaries of these barangays
are specified in Annex "A" of this Act.

Subject to the provisions of Section 10,

Republic Act No. 7160, Burabod and Halsey
in the Municipality of Busuanga, Province of
Palawan, are hereby separated from said
municipality and are transferred as part of the
political jurisdiction of the Municipality of
Culion.

A barangay for the indigenous cultural

communities to be known as Barangay
Carabao is hereby created to be composed of
the following sitios, namely: Bacutao,
Baracuan, Binabaan, Cabungalen, Corong,
De Carabao (Lumber Camp), Igay, Layang-
layang, Marily Pula and Pinanganduyan.

Section 2. The Municipality of Culion shall

be bounded and described as follows:

The municipality shall be bounded on the

north by the Municipality of Busuanga-Coron
Island with Concepcion and Salvacion in the
Calamian Island Group; on the south by the
Municipality of Bacuit-Taytay and Linapacan
 area; on the east by the South China Sea; on
the west by the Cuyo West Pass.

The land contained in all the above named

islands in Section One is shown on C.G. Map
No. 4717 published in Washington D.C.,
September, 1908, and lies within the following
limits, i.e. between the parallels of 11°36'N
and 12°03'N, and the meridians  of 119°47'E
and 120°15'E.
Sofronio R.A. No. 7679[291] Section 1. Barangays Pulot Center, Pulot
Española Shore (Pulot I), Pulot Interior (Pulot II,) Iraray,
Punang, Labog, Panitian, Isumbo, and Abo-
Abo in the Municipality of Brooke's Point,
Province of Palawan, are hereby separated
from the Municipality and constituted into a
distinct and independent municipality of the
province, to be known as the Municipality of
Sofronio Española. The seat of government
of the new municipality shall be in Barangay
Pulot Center.

Section 2. The boundary of the Municipality

of Sofronio Española is described as
follows:

Corne
Latitude Longitude Location
r
on the
8 southern side
1 118°00'20.28"
°53'50.23" of Caramay
Bay
       
on the slopes
8 of
2 117°51'24.42"
°59'58.01" Mantalingahan
Range
       
on the slopes
9 of
3 117°54'03.69"
°01'01.84" Mantalingahan
Range
       
on the slopes
9 of
4 117°54'29.33"
°02'52.18" Mantalingahan
Range
       
on the slopes
9
5 117°55'15.71"of Mount
°04'18.78"
Corumi
       
on the slopes
9
6 117°55'18.00"of Pulot
°05'34.18"
Range
       
on the slopes
9
7 117°56'48.09"of Pulot
°07'49.27"
Range
       
on the slopes
9
8 117°59'50.82"of Malanut
°09'50.88"
Range
       
on the slopes
9
9 118°03'49.28"of Malanut
°11'26.26"
Range
       
on the slopes
9
10 118°03'49.28"of Malanut
°11'26.26"
Range
        
southern side,
9
11 118°07'35.58"mouth of Abo-
°08'58.93"
Abo River
Line Bearing Distance
     
1-2 N. 55° 23'W 19,886.37 m.
2-3 N. 68° 03'E 5,244.48 m.
3-4 N. 13° 00'E 3,478.91 m.
4-5 N. 28° 02'E 3,013.93 m.
5-6 N. 01° 44'E 2,317.35 m.
6-7 N. 33° 33'E 4.979.17 m.
7-8 N. 71° 16'E 5,892.79 m.
8-9 N. 16° 10'E 4,168.24 m.
9-10 N. 82° 50'E 6,170.26 m.
10-11 S. 56° 50'E 8,261.31 m.
SW, meandering mainland
11-1 coastline.

The new municipality shall include

the islands of Bintaugan, Inamukan, Arrecife,
Bessie, Gardiner, and Tagalinog.
Based on the foregoing territorial descriptions, the municipalities of Palawan do not
include the continental shelf where the Camago-Malampaya reservoir is concededly
located. In fact, with the exception of Kalayaan, which includes the seabed, the
subsoil and the continental margin as part of its demarcated area, the municipalities
are either located within an island or are comprised of islands. That only Kalayaan
(under P.D. No. 1596), among the municipalities of Palawan, had land submerged in
water as part of its area or territory, was confirmed by the amicus curiae, Atty.
Bensurto, during the oral argument as gleaned from the following exchange:
JUSTICE DE CASTRO: It is not a question of belonging to Palawan, it is a question
of Palawan having a share because it is within the area of Palawan, that is the
question before the Court now, it is not, the right to govern is not in question, that is
not the issue because we are very clear. The Philippines is not a Federal
Government x x x So, we are just defining the area of the Province of Palawan, if it
is not included in the polygon, what about in other islands of Palawan, is there
any continental shelf in the other areas, if there is none here in the polygon,
within the polygon and which will extend up to the Camago-Malampaya, is there
any other continental shelf in the other islands comprising Palawan where
there is such a continental shelf that will extend up to the Camago-
Malampaya.

ATTY. HENRY BENSURTO: x x x x

[W]ith all due respect, Your Honor, I do not think Federalism or Unitary is relevant in
the issue of maritime concepts or maritime jurisdiction the end would still be the
same, Your Honor. Thank you.

JUSTICE DE CASTRO: You see that is my point, we are just here trying to
analyze domestic law and if, only P.D. 1596 refers to areas submerged in
water, that is (interrupted)

ATTY. HENRY BENSURTO: Everything, Your Honor.

JUSTICE DE CASTRO: You find that only in 1596.

ATTY. HENRY BENSURTO: Yes, Your Honor.[292] (Emphasis ours)

The parties, however, agreed that the Camago-Malampaya reservoir lies outside the
geographic coordinates mentioned in P.D. No. 1596 which constituted Kalayaan as
a distinct municipality of Palawan. Atty. Bensurto also confirmed during the oral
argument that "the area of Malampaya is not within the polygon area described
under P.D. [No.] 1596."[293] The succeeding exchange between Atty. Bensurto and
Associate Justice Teresita Leonardo De Castro (Justice De Castro) illumines:
JUSTICE DE CASTRO: Now, the question is - if in the other islands even assuming
that there is a continental shelf which extends up to Camago there is now that legal
question of whether that belongs to Palawan, whether Palawan, that is within the
area of Palawan even if it is protruding from an island in Palawan because there is
no such law like P.D. 1596 pertaining to the other islands?

ATTY. HENRY BENSURTO: Yes, Your Honor.

JUSTICE DE CASTRO: So, if there is none and Camago is in the continental

shelf protruding from any other island in Palawan and then we cannot apply
1596?
ATTY. HENRY BENSURTO: No, Your Honor.

JUSTICE DE CASTRO: All right, so, there maybe some doubt as to whether or not
Palawan should have a bigger share in that Camago-Malampaya?

ATTY. HENRY BENSURTO: Yes, Your Honor.

JUSTICE DE CASTRO: Okay, that is clear now. Thank you.[294] (Emphasis ours)

Estoppel does not lie against the Republic

Fundamental is the rule that the State cannot be estopped by the omission, mistake
or error of its officials or agents. [295] Thus, neither the DoE's June 10, 1998 letter to
the Province of Palawan nor President Ramos' A.O. No. 381, which acknowledged
Palawan's share in the Camago-Malampaya project, will place the Republic in
estoppel as they had been based on a mistaken assumption of the LGU's
entitlement to said allocation.

Erroneous application and enforcement of the law by public officers do not preclude
subsequent corrective application of the statute. [296] As the Court explained in Adasa
v. Abalos:[297]
True indeed is the principle that a contemporaneous interpretation or construction by
the officers charged with the enforcement of the rules and regulations it promulgated
is entitled to great weight by the court in the latter's construction of such rules and
regulations. That does not, however, make such a construction necessarily
controlling or binding. For equally settled is the rule that courts may disregard
contemporaneous construction in instances where the law or rule construed
possesses no ambiguity, where the construction is clearly erroneous, where
strong reason to the contrary exists, and where the court has previously given the
statute a different interpretation.

If through misapprehension of law or a rule an executive or administrative

officer called upon to implement it has erroneously applied or executed it, the
error may be corrected when the true construction is ascertained. If a
contemporaneous construction is found to be erroneous, the same must be declared
null and void. Such principle should be as it is applied in the case at bar.
[298]
 (Emphasis ours)
Section 1, Article X of the 1987 Constitution did not apportion the entire
Philippine territory among the LGUs

Dean Pangalangan shares the Province of Palawan's claim that based on Section 1,
Article X of the 1987 Constitution, the entire Philippine territory is necessarily divided
into political and territorial subdivisions, such that at any one time, a body of water or
a piece of land should belong to some province or city. [299] The Court finds this
position untenable.

Section 1, Article X of the 1987 Constitution states:

Section 1. The territorial and political subdivisions of the Republic of the
Philippines are the provinces, cities, municipalities, and barangays. There shall
be autonomous regions in Muslim Mindanao and the Cordilleras as hereinafter
provided. (Emphasis ours)
By indicating that the LGUs comprise the territorial subdivisions of the State, the
Constitution did not ipso facto make every portion of the national territory a part of
an LGU's territory.

The above-quoted section is found under the General Provisions of Article X on

Local Government. Explaining this provision, the eminent author and member of the
1986 Constitutional Commission, Fr. Joaquin G. Bernas, S.J. wrote:
The existence of "provinces" and "municipalities" was already acknowledged in the
1935 Constitution. Section 1, however, when first enacted in 1973, went a step
further than mere acknowledgment of their existence and recognized them, together
with cities and barrios, as "(t)he territorial and political subdivisions of the
Philippines." Thus, the municipalities, and barrios (now barangays) have been
fixed as the standard territorial and political subdivisions of the
Philippines. To these the 1987 Constitution has added the "autonomous regions."
But the Constitution allows only two regions: one for the Cordilleras and one for
Muslim Mindanao. The creation of other autonomous regions whether by dividing
the Cordilleras or Muslim Mindanao into two or by creating others outside these two
regions, can be accomplished only by constitutional amendment.

x x x x

Neither Section 1, however, nor any part of the Constitution prescribed the actual
form and structure which individual local government units must take. These are left
by Sections 3, 18 and 20 to legislation. As constitutional precepts, therefore,
they are very general. x x x

x x x x

The designation by the 1973 Constitution of provinces, cities, municipalities and

barangays as the political and territorial subdivisions of the Philippines effected a
measure of institutional instability. To this extent, it was a move in the direction of
real local autonomy. The 1987 Constitution moved farther forward by authorizing the
creation of autonomous regions. These are the passive aspects of local
autonomy. The dynamic and more important aspect of local autonomy must be
measured in terms of the scope of the powers given to the local units. [300] (Emphasis
ours)
There is, thus, merit in the Republic's assertion that Section 1, Article X of the 1987
Constitution was intended merely to institutionalize the LGUs.

The Court is further inclined to agree with the Republic's argument that assuming
Section 1 of Article X was meant to divide the entire Philippine territory among the
LGUs, it cannot be deemed as self-executing and legislation will still be necessary to
implement it. LGUs are constituted by law and it is through legislation that their
respective territorial boundaries are delineated. Furthermore, in the creation,
division, merger and abolition of LGUs and in the substantial alteration of their
boundaries, Section 10 of Article X requires satisfying the criteria set by the Local
Government Code. It further requires the approval by the majority of the votes cast
in a plebiscite in the political units directly affected. Needless to say, apportionment
of the national territory by the LGUs, based solely on the general terms ·of Section 1
of Article X, may only sow conflict and dissension among these political
subdivisions.

As the Republic asserted, no law has been enacted dividing the Philippine territory,
including its continental margin and exclusive economic zones, among the LGUs.

The UNCLOS did not confer on LGUs their own continental shelf

Dean Pangalangan posited that since the Constitution has incorporated into
Philippine law the concepts of the UNCLOS, including the concept of the continental
shelf, Palawan's "area" could be construed as including its own continental shelf.
[301]
 The Province of Palawan and Arigo, et al. accordingly assert that Camago-
Malampaya reservoir forms part of Palawan's continental shelf. [302]

The Court is unconvinced. The Republic was correct in arguing that the concept of
continental shelf under the UNCLOS does not, by the doctrine of transformation,
automatically apply to the LGUs. We quote with approval its disquisition on this
issue:
The Batasang Pambansa ratified the UNCLOS through Resolution No. 121 adopted
on February 27, 1984. Through this process, the UNCLOS attained the force and
effect of municipal law. But even if the UNCLOS were to be considered to have been
transformed to be part of the municipal law, after its ratification by the Batasang
Pambansa, the UNCLOS did not automatically amend the Local Government Code
and the charters of the local government units. No such intent is manifest either in
the UNCLOS or in Resolution No. 121. Instead, the UNCLOS, transformed into our
municipal laws, should be applied as it is worded. Verba legis.

x x x x

It must be stressed that the provisions under the UNCLOS are specific in declaring
the rights and duties of a state, not a local government unit. The UNCLOS confirms
the sovereign rights of the States over the continental shelf and the maritime zones.
The UNCLOS did not confer any rights to the States' local government units. x x x x

At the risk of being repetitive, it is respectfully emphasized that the foregoing

indubitably established that under the express terms of the UNCLOS, the rights and
duties over the maritime zones and continental shelf pertain to the State. No
provision was set forth to even suggest any reference to a local government unit.
Simply put, the UNCLOS did not obligate the States to grant to, much less
automatically vest upon, their respective local government units territorial jurisdiction
over the different maritime zones and the continental shelf. Hence, contrary to the
submission of Dean Pangalangan, no such application can be made. [303]
Atty. Bensurto took a similar stand, declaring during the oral argument that:
ATTY. HENRY BENSURTO: x x x x [T]here was an assertion earlier, Your Honor,
that there was a reference in fact to the continental shelf, that there is an automatic
application of the continental shelf with respect to the municipal territories. I submit,
Your Honor that this should n9t be the case, why? Because the United Nation
Convention on the Law of the Sea which is the conventional law directly
applicable in this case is an International Law. International Law by definition
is a body of rules governing relations between sovereign States or other
entities which are capable of having rights and obligations under International
Law. Therefore, it is the State that is the subject oflntemational Law, the only
exception to this is with respect to individuals with respect to the issue of
Humanitarian and Human Rights Law. From there, it flows the principal [sic]
therefore that International Law affects only sovereign States. With respect to the
relationship between the State and its Local Government Units this is reserved to
the sovereign right of the sovereign State. It is a dangerous proposition for us to
make that there is an automatic application because to do that would mean a
violation of the sovereign right of a State and the State always reserves the right to
promulgate laws governing its domestic jurisdiction. Therefore, the United Nations
Convention of the Law of the Sea affects only the right of the Philippines vis a
vis another sovereign State. And so, when we talk of the different maritime
jurisdictions enumerated, illustrated and explained under the United Nations
Convention on the Law of the Sea we are actually referring to inter state
relations not intra state relations. x x x[304] (Emphasis ours)
In fact, Arigo, et al. acknowledged during the oral argument that the UNCLOS
applies to the coastal state and not to their provinces, and that Palawan, both under
constitutional and international, has no distinct and separate continental shelf, thus:
ASSOCIATE JUSTICE VELASCO: You admit that under UNCLOS it is onlv the
coastal states that are recognized not the provinces of the coastal state.

ATTY. BAGARES: That is true, Your Honor, and we do not dispute that, Your
Honor.

ASSOCIATE JUSTICE VELASCO: That's correct. And you cited that in your
petition ....

ATTY. BAGARES: Yes, Your Honor. That is true, Your Honor.

ASSOCIATE JUSTIUCE VELASCO: .... that under Article 76, it is the continental

shelf of the coastal state.

ATTY. BAGARES: Yes, Your Honor.

ASSOCIATE JUSTICE VELASCO: And in our case, the Republic of the

Philippines, right?

ATTY. BAGARES: Yes, Your Honor.

ASSOCIATE JUSTICE VELASCO: Okay. You also made the submission that under
Republic Act 7611 and Administrative Order 381, there is a provision there that
serves as basis for, what you call again the continental shelf of Palawan. What
provisions in 7611 and AO 381 are there that serves as basis, for you to say that
there is such a continental shelf of Palawan?

ATTY. BAGARES: Your Honor, I apologize that perhaps I've been like Atty. Roque
very academic in the language in which we make our presentations but our position,
Your Honor, exactly just to make·it clear, Your Honor, we're not saying that there's a
separate continental shelf·of the Province of Palawan outside the territorial bounds
of the sovereign State of the Republic of the Philippines. We are only saying, Your
Honor, that that continental shelf is reckoned, Your Honor, from the Province of
Palawan. We are not saying, Your Honor, that there is a distinct and separate
continental shelf that Palawan may lay acclaim [sic] to, under the
Constitutional Law and under International Law, Your Honor.

ASSOCIATE JUSTICE VELASCO: Alright. And that is only the continental shelf

of the coastal State, which is the Philippines.

ATTY. BAGARES. Yes, Your Honor. I hope that is clear, Your Honor.

[305]
 (Emphasis ours)
The Federal Paramountcy doctrine as well as the Regalian and Archipelagic
doctrines are inapplicable

Contrary to the Republic's submission, the LGU's share under Section 7, Article X of
the 1987 Constitution cannot be denied on the basis of the archipelagic and regalian
doctrines.

The archipelagic doctrine is embodied m Article I of the 1987 Constitution which

provides:
The national territory comprises the Philippine archipelago, with all the islands and
waters embraced therein, and all other territories over which the Philippines has
sovereignty or jurisdiction, consisting of its terrestrial, fluvial, and aerial domains,
including its territorial sea, the seabed, the subsoil, the insular shelves, and other
submarine areas. The waters around, between, and connecting the islands of the
archipelago, regardless of their breadth and dimensions, form part of the internal
waters of the Philippines.
The regalian doctrine, in turn, is found in Section 2, Article XII of the 1987
Constitution which states:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife,
flora and fauna, and other natural resources are owned by the State. x x x
It is at once evident that the foregoing doctrines find no application in this case
which involves neither a question of what comprises the Philippine territory or the
ownership of all natural resources found therein.

There is no debate that the natural resources in the Camago-Malampaya reservoir

belong to the State. Palawan's claim is anchored not on ownership of the reservoir
but on a revenue-sharing scheme, under Section 7, Article X of the 1987
Constitution and Section 290 of the Local Government Code, that allows LGUs to
share in the proceeds of the utilization of national wealth provided they are found
within their respective areas. To deny the LGU's share on the basis of the State's
ownership of all natural resources is to render Section 7 of Article X nugatory for in
such case, it will not be possible for any LGU to benefit from the utilization of
national wealth.

Accordingly, the Court cannot subscribe to Atty. Bensurto's opinion [306] that the
Province of Palawan cannot claim the 40% LGU share from the proceeds of the
Camago-Malampaya project because the National Government "remains to have
full dominium" (or ownership rights) over the gas reservoir.

Atty. Bensurto's theory is ostensibly drawn from several U.S. cases, namely U.S. v.
California,[307] U.S. v. Louisiana,[308] U.S. v. Texas[309] and U.S. v. Maine,[310] which the
Republic also cites in applying the federal paramountcy doctrine to the Province of
Palawan's claim. To explain this doctrine, the Republic turns to the case of Native
Village of Eyak v. Trawler Diane Marie, Inc.,[311] where the U.S. Court of Appeals for
the Ninth Circuit, in part, stated:
The "federal paramountcy doctrine" is derived, in essence, from four Supreme Court
cases in which the federal government and various coastal states
disputed ownership and control of the territorial sea and the adjacent portions of
the OCS.

The first of these cases was United States v. California, 332 U.S. 19, 67 S.Ct.
1658,91 L.Ed. 1889 (1947), in which the United States sued to enjoin the State of
California from executing leases authorizing the taking of petroleum, gas, and other
mineral deposits from the Pacific Ocean. x x x

x x x x

[T]hus, the Court declared, "California is not the owner of the three-mile marginal
belt along its coast." Instead, "the Federal Government rather than the state
has paramount rights in and power over that belt, an incident to which is full
dominion over the resources of the soil under that water area, including oil."

Bolstered by the favorable outcome in California, the United States brought similar
actions to confirm its title to the seabed adjacent to other coastal states. In United
States v. Louisiana, 339 U.S. 699, 70 S.Ct. 914, 94 L.Ed. 1216 (1950), the United
States brought suit against the State of Louisiana, which argued that it held title to
the seabed under the waters extending twenty-seven miles into the Gulf of Mexico. x
x x

x x x x
The Court found that the only difference between the argument raised by Louisiana
and the one raised by California was that Louisiana's claimed boundary extended
twenty-four miles beyond California's threemile claim. This difference did not weigh
in Louisiana's favor, however:
If the three-mile belt is in the domain of the Nation rather than that of the
separate States, it follows a fortiori that the ocean beyond that limit also is the
ocean seaward of the marginal belt is perhaps even more directly related to the
national defense, the conduct of foreign affairs, and world commerce than is the
marginal sea. Certainly it is not less so far as the issues presented here are
concerned, Louisiana's enlargement of her boundary emphasizes the strength of the
claim of the United States to this part of the ocean and the resources of the soil
under that area, including oil.
In the companion case to Louisiana, United States v. Texas, 339 U.S. 707, 70
S.Ct. 918, 94 L.Ed. 1221 (1950), the Supreme Court again reaffirmed its holding in
California. The State of Texas had, by statute, extended its boundary first to a line
twenty-four miles beyond the three mile limit, and thereafter to the outer edge of the
continental shelf. Texas raised a somewhat different argument than had either
California or Louisiana, one more analogous to that asserted by the Villages here.
Texas argued that, because it was a separate republic prior to its entry into the
United States, it had both dominium (ownership or proprietary rights) and imperium
(governmental powers of regulation and control) with respect to the lands, minerals,
and other products underlying the marginal sea. Upon entering the Union, Texas
transferred to the federal government its powers of sovereignty-its imperium-over
the marginal sea, but retained its dominium.

The Supreme Court was not persuaded. While the Republic of Texas may have had
complete sovereignty and ownership over the marginal sea and all things of value
derived therefrom, the State of Texas did not. x x x "When Texas came into the
Union, she ceased to be an independent nation. The United States then took her
place as respects foreign commerce, the waging of war, the making of treaties,
defense of the shores, and the like." As an incident to the transfer of that
sovereignty, any "claim that Texas may have had to the marginal sea was
relinquished to the United States." The Court recognized that "dominion and
imperium are normally separable and separate"; however, in this instance,
"property interests are so subordinated to the rights of sovereignty as to
follow sovereignty." x x x

x x x x
In the last of the paramountcy cases, United States v. Maine, 420 U.S. 515, 95
S.Ct. 1155, 43 L.Ed.2d 363 (1975), the United States brought an action against the
thirteen Atlantic Coastal States asserting that the federal government was entitled to
exercise sovereign rights over the seabed and subsoil underlying the Atlantic Ocean
to the exclusion of the coastal states for the purpose of exploring the area and
exploiting its natural resources. x x x

At the urging of the coastal states, the Supreme Court reexamined the decisions in
California, Louisiana, and Texas. To the states' dismay, the Court concluded that
these cases remained grounded on sound constitutional principles. Whatever
interest the states may have held in the sea prior to statehood, the Court held, as a
matter of "purely legal principle the Constitution allotted to the federal government
jurisdiction over foreign commerce, foreign affairs, and national defense and it
necessarily follows, as a matter of constitutional law, that as attributes of these
external sovereign powers the federal government has paramount rights in the
marginal sea." x x x. (Emphasis ours and citations omitted)
There are several reasons why the foregoing doctrine cannot be applied to this
case. First, the U.S. does not appear to have an equitable sharing provision similar
to Section 7, Article X of the 1987 Constitution. Second, the Philippines is not
composed of states that were previously independent nations. Third, the resolution
of these cases does not necessitate distinguishing
between dominium and imperium since neither determines the LGU's entitlement to
the equitable share under Section 7 of Article X. Fourth, the Court is not called upon
to determine who between the Province of Palawan and the National Government
has the paramount or dominant right to explore or exploit the natural resources in
the marginal sea or beyond. Fifth, adjudication of these cases does not entail
upholding the dominion of the National Government over a political subdivision since
ownership of the natural resources is concededly vested in the State. Sixth, it is
settled that dominion over national wealth belongs to the State under the regalian
doctrine. Ownership of the subject reservoir, therefore, is a nonissue and what
simply needs to be determined is whether said resource is located within the area or
territorial jurisdiction of the Province of Palawan.

Justice De Castro's observation during the oral argument is thus apropos:

JUSTICE DE CASTRO: It is not a question of belonging to Palawan, it is a
question of Palawan having a share because it is within the area of Palawan,
that is the question before the Court now, it is not, the right to govern is not in
question, that is not the issue because we are very clear. The Philippines is not a
Federal Government so as distinguished from a Federal Government where the
sovereign authority came from the member State and granted to the Federal
Government, here we have the reverse it is the central government giving to the
local government certain powers and defining the limits of these powers. So, in this
case there is no question about the right to govern, the local government have [sic]
have only such powers granted to it by the Local Government Code. Now, the
question is whether the Province of Palawan should have a share in the
proceeds in the development of the Camago-Malampaya because it is within
its area. So, we are just defining the area of the Province of Palawan x x x.
[312]
 (Emphasis ours)
LGU's share cannot be granted based on equity

Atty. Bensurto opined that under the existing law, the Province of Palawan is not
entitled to the statutory 40% LGU share. He posited that it is only on equitable
grounds that the Province of Palawan could participate in the proceeds of the
utilization of the Camago-Malampaya reservoir. He concluded that from the
perspective of the principle of equity, it may be appropriate for the Province of
Palawan to be given some share in the operation of the Camago-Malampaya gas
reservoir considering: (a) its proximity to the province which makes the latter
environmentally vulnerable to any major accidents in the gas reservoir; and (b) the
gas pipes that pass through the northern part of the province. [313]

The Court finds the submission untenable. Our courts are basically courts of law, not
courts of equity.[314] Furthermore, for all its conceded merits, equity is available only
in the absence of law and not as its replacement. [315] As explained in the old case
of Tupas v. Court of Appeals:[316]
Equity is described as justice outside legality, which simply means that it crumot
supplant although it may, as often happens, supplement the law. We said in an
earlier case, and we repeat it now, that all abstract arguments based only on equity
should yield to positive rules, which pre empt and prevail over such persuasions.
Emotional appeals for justice, while they may wring the heart of the Court, cannot
justify disregard of the mandate of the law as long as it remains in force. The
applicable maxim, which goes back to the ancient days of the Roman jurists - and is
now still reverently observed - is "aequetas nunquam contravenit legis."[317]
In this case, there are applicable laws found in Section 7, Article X of the 1987
Constitution and in Sections 289 and 290 of the Local Government Code. They limit
the LGUs' share to the utilization of national wealth located within their respective
areas or territorial jurisdiction. As herein before-discussed, however, existing laws
do not include the Camago-Malampaya reservoir within the area or territorial
jurisdiction of the Province of Palawan.

The pertinent positive rules being present here, they should preempt and prevail
over all abstract arguments based only on equity. [318]

The supposed presence of gas pipes through the northern part of Palawan cannot
justify granting the province the 40% LGU share because both the Constitution and
the Local Government Code refer to the LGU where the natural resource is situated.
The 1986 Constitutional Commission referred to this area as "the locality, where
God chose to locate his bounty," while the Senate deliberations on the proposed
Local Government Code cited it as the area where the natural resource is
"extracted." To hold otherwise, on the basis of equity, will run afoul of the letter and
spirit of both constitutional and statutory law. It is settled that equity cannot supplant,
overrule or transgress existing law.

Furthermore, as the Republic noted, any possible environmental damage to the

province is addressed by the contractor's undertakings, under the ECC, to ensure
minimal impact on the environment and to set up an Environmental Guarantee Fund
that would cover expenses for environmental monitoring, as well as a replenishable
fund that would compensate for any damage the project may cause. [319] The ECC, in
pertinent part, provides:
This Certificate is being issued subject to the following conditions:

1. This Certificate shall cover the construction of the shallow water platform (SWP)
in the Service Contract 38 (SC38) offshore northwest Palawan, a pipeline from the
Malampaya wells (well drilling site) to the SWP passing the offshore route from
Mindoro to a land terminal at Shell Tabangao's refinery plant in Batangas;

2. The proponent shall consider the offshore route of the pipeline to minimize its
environment socio-economic impacts particularly to the province of Mindoro;

3. Selection of the SWP site and the final offshore pipeline route should avoid
environmentally sensitive areas such as coral reefs, sea grass, mangroves,
fisheries, pearl farms, habitats of endangered wildlife, tourism areas and areas
declared as protected by the national, provincial and local government agencies. It
shall also be routed away from geologically high risk areas;

4. Proponent shall use the optimum amount of anti-corrosion anodes necessary in

order to maintain pipeline integrity and minimize impacts on water quality;

5. The design of the pipeline shall conform to the international standards that can
handle extreme conditions. The proponent shall ensure extensive monitoring
(internal and external inspections) to maintain the pipeline integrity;
x x x x

26. The proponent shall set up an Environmental Guarantee Fund (EGF) to cover
expenses for environmental monitoring and the establishment of a readily available
and replenishable fund to compensate for whatever damage may be caused by the
project, for the rehabilitation and/or restoration of affected-areas, the future
abandonment/decommissioning of project facilities and other activities related to the
prevention of possible negative impacts.

The amount and mechanics of the EGF shall be determined by the DENR and the
proponent taking into consideration the concerns of the affected areas stakeholders
and formalized through a MOA which shall be submitted within ninety (90) days prior
to project implementation. The absence of the EGF shall cause the cancellation of
this Certificate;

x x x x

29. In cases where pipe laying activities will adversely affect existing fishing
grounds, the proponent in coordination with the Bureau of Fisheries and Aquatic
Resources (BFAR) shall identify alternative fishing grounds and negotiate with
affected fisherfolks the reasonable compensation to be paid[.] [320]
There is logic in the Republic's contention that the National Government cannot be
compelled to compensate the province for damages it has not yet sustained.

The foregoing considered, the Court finds that the Province of Palawan's remedy is
not judicial adjudication based on equity but legislation that clearly entitles it to share
in the proceeds of the utilization of the Camago-Malampaya
reservoir. Mariano instructs that the territorial boundaries must be clearly defined
"with precise strokes." Defining those boundaries is a legislative, not a judicial
function.[321] The Court cannot, on the basis of equity, engage in judicial legislation
and alter the boundaries of the Province of Palawan to include the continental shelf
where the subject natural resource lies. As conceded by Dean Pangalangan,
"territorial jurisdiction is fixed by a law, by a charter and that defines the territory of
Palawan very strictly," and it is "something that can be altered only in accordance
with [the] proper procedure ending with a plebiscite." [322]

It is true that the Local Government Code envisioned a genuine and meaningful
autonomy to enable local government units to attain their fullest development as
self-reliant communities and make them effective partners in the attainment of
national goals.[323] This objective, however, must be enforced within the extent
permitted by law. As the Court held in Hon. Lina, Jr. v. Hon. Paño:[324]
Nothing in the present constitutional provision enhancing local autonomy dictates a
different conclusion.
The basic relationship between the national legislature and the local
government units has not been enfeebled by the new provisions in the
Constitution strengthening the policy of local autonomy. Without meaning to
detract from that policy, we here confirm that Congress retains control of the local
government units although in significantly reduced degree now than under our
previous Constitutions. The power to create still includes the power to destroy. The
power to grant still includes the power to withhold or recall. True, there are certain
notable innovations in the Constitution, like the direct conferment on the local
government units of the power to tax (citing Art. X, Sec. Constitution), which cannot
now be withdrawn by mere statute. By and large, however, the national legislature is
still the principal of the local government units, which cannot defy its will or modify or
violate it.
Ours is still a unitary form of government, not a federal state. Being so, any form of
autonomy granted to local governments will necessarily be limited and
confined within the extent allowed by the central authority. Besides, the
principle of local autonomy under the 1987 Constitution simply means
"decentralization." It does not make local governments sovereign within the state or
an "imperium in imperio."[325] (Emphasis ours)
Constitutional challenge to E.O. No. 683

The challenge to the constitutionality of E.O. No. 683, brought by Arigo, et al., is
premised on the alleged violation of Section 7, Article X of the 1987 Constitution and
Sections 289 and 290 of the Local Government Code, which is the basic issue
submitted for resolution by the Republic and the Province of Palawan in G.R. No.
170867. Considering its ruling in G.R. No. 170867, the Court resolves to deny the
Arigo petition, without need of passing upon the procedural issues therein raised.
The same ruling also renders it unnecessary to rule upon the propriety of the
Amended Order dated January 16, 2006, which the Republic raised ad cautelam in
G.R. No. 170867.

WHEREFORE, the Petition in G.R. No. 170867 is GRANTED. The Decision dated
December 16, 2005 of the Regional Trial Court of the Province of Palawan, Branch
95 in Civil Case No. 3779 is REVERSED and SET ASIDE. The Court declares that
under existing law, the Province of Palawan is not entitled to share in the proceeds
of the Camago-Malampaya natural gas project. The Petition in G.R. No. 185941
is DENIED.

SO ORDERED.
Bersamin, C. J., Carpio, Peralta, Del Castillo, Perlas-Bernabe, Caguioa, A. Reyes,
Jr., Gesmundo, J. Reyes, Jr., and Hernando, JJ., concur.
Leonen, J., see separate opinion.
Jardeleza, J., no part.
Carandang, J., on leave.

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on December 4, 2018 a Decision, copy attached herewith,
was rendered by the Supreme Court in the above-entitled cases, the original of
which was received by this Office on January 22, 2019 at 9:10 a.m.

Very truly yours,

(SGD)
EDGAR O.
ARICHETA
  Clerk of Court

[1]
 Rollo (G.R. No. 170867), pp. 9-81.

[2]
 Penned by Judge Bienvenido C. Blancaflor; id. at 83-112.

[3]
 Id. at 113-116.

[4]
 Rollo (G.R. No. 185941), pp. 13-58.

[5]
 Penned by Associate Justice Rebecca De Guia-Salvador, concurred in by
Associate Justices Vicente S.E. Ve1oso and Apolinario D. Bruselas, Jr.; id. at 218-
224.

[6]
 AUTHORIZING THE USE OF FEES, REVENUES AND RECEIPTS FROM
SERVICE CONTRACT NO. 38 FOR THE IMPLEMENTATION OF DEVELOPMENT
PROJECTS FOR THE PEOPLE OF PALAWAN. Issued on December 1,
2007. Rollo, (G.R. No. 170867), pp. 392-J-392-L.

[7]
 Rollo (G.R. No. 185941), pp. 250-252.

[8]
 Rollo (G.R. No. 170867), pp. 14, 556, 891, 1464-1465; rollo (G.R. No. 185941), p.
17. TSN, November 24, 2009, p. 15.

[9]
 Rollo (G.R. No. 170867), p. 1465.

[10]
 Id. at 1466.

[11]
 "Net proceeds" is defined under Section VII, paragraph 7.3 (c) of Service Contract
No. 38 as the difference between the gross income and the sum of the Operating
Expenses as defined in Section II, paragraph 2.19 of the contract. Rollo (G.R. No.
185941), pp. 165 and 182.

[12]
 Third Whereas Clause, Administrative Order No. 381; rollo (G.R. No. 170867),
pp. 549 and 556.

[13]
 First Whereas Clause, Executive Order No. 683 issued on December 1, 2007; id.
at 392-J.

[14]
 PROVIDING FOR THE FULFILLMENT BY THE NATiONAL POWER
CORPORATION OF ITS OBLIGATIONS UNDER THE AGREEMENT FOR THE
SALE AND PURCHASE OF NATURAL GAS DATED DECEMBER 30, 1997 WITH
SHELL PHILIPPINE EXPLORATION B.V./OCCIDENTAL PHILIPPINES, INC. AND
THE COMPLIANCE OF THE NATIONAL GOVERNMENT, THROUGH THE
DEPARTMENT OF FINANCE AND THE DEPARTMENT OF ENERGY WITH ITS
PERFORMANCE UNDERTAKING THEREFOR AND OTHER PURPOSES. Issued
on February 17, 1998. Id. at 549-550-A.

[15]
 Fifteenth Whereas Clause, Administrative Order No. 381, paragraph 2; id. at 549-
A and 892.

[16]
 Id. at 551-552, 892-893.

[17]
 Id. at 892.

[18]
 Sec. 290. Amount of Share of Local Government Units. - Local government units
shall, in addition to the internal revenue allotment, have a share of forty percent
(40%) of the gross collection derived by the national government from the preceding
fiscal year from mining taxes, royalties, forestry and fishery charges, and such other
taxes, fees, or charges, including related surcharges, interests, or fines, and from its
share in any co-production, joint venture or production sharing agreement in the
utilization and development of the national wealth within their territorial jurisdiction.

[19]
 Rollo (G.R. No. 170867), pp. 14, 894-895.

[20]
 Id. at 128-129.

[21]
 Id. at 15-16, 127-129, 895-896.

[22]
 Id. at 130-158.

[23]
 AN ACT ADOPTING THE STRATEGIC ENVIRONMENT PLAN FOR PALAWAN,
CREATING THE ADMINISTRATIVE MACHINERY TO ITS IMPLEMENTATION,
CONVERTING THE PALAWAN INTEGRATED AREA DEVELOPMENT PROJECT
OFFICE TO ITS SUPPORT STAFF, PROVIDING FUNDS THEREFOR, AND FOR
OTHER PURPOSES. Approved on June 19, 1992.

[24]
 AN ACT PROVIDING FOR A LOCAL GOVERNMENT CODE OF 1991.

[25]
 An Ordinance Delineating the Territorial Jurisdiction of the Province of
Palawan. Rollo (G.R. No. 170867), pp. 149 and 972.

[26]
 Id. at 16-17, 130-158.

[27]
 Id. at 89, 92.

[28]
 Id. at 555-561.

[29]
 Id. at 557-559, 896-897.

[30]
 Id. at 897.

[31]
 Id. at 112.

[32]
 Id. at 109.

[33]
 Id. at 109-110.

[34]
 226 Phil. 624 (1986).
[35]
 321 Phil. 395 (1995).

[36]
 86 Phil. 629 (1950).

[37]
 Rollo (G.R. 170867), p. 111.

[38]
 Id.

[39]
 Id. at 112.

[40]
 Id. at 17, 113-114.

[41]
 Id. at 17-18.

[42]
 Id. at 113.

[43]
 Id. at 435.

[44]
 Id. at 113-116.

[45]
 Id. at 115-116.

[46]
 Id. at 114.

[47]
 473 Phil. 806 (2004).

[48]
 Rollo (G.R. No. 170867), p. 115.

[49]
 Id. at 417-432.

[50]
 Id. at 18 and 437.

[51]
 Id. at 9-81.

[52]
 Id. at 18, 21, 437.

[53]
 Id. at 622-625.

[54]
 Id. at 625.

[55]
 Id.
[56]
 Id. at 438.

[57]
 Sixth Whereas Clause, Executive Order No. 683 issued on December 1, 2007; id.
at 392-J; <https://www.dbm.gov.ph/wp-content/uploads/Issuances/2008/Joint
%20Circular/JC_No3/jc_no3.pdf>

[58]
 Rollo (G.R. No. 185941), pp. 62-96.

[59]
 Id. at 20 and 219.

[60]
 Id. at 20-21, 219.

[61]
 Id. at 21, 219-220.

[62]
 Id. at 218-224.

[63]
 Id. at 220-223.

[64]
 Id. at 249.

[65]
 Id. at 22.

[66]
 Id. at 250-252.

[67]
 Id. at 13-58.

[68]
 Id. at 25.

[69]
 Id. at 14.

[70]
 Id. at 327.

[71]
 Rollo (G.R. No. 170867), pp. 1210-1214.

[72]
 Id. at 1260-1261.

[73]
 Id. at 1466-1467.

[74]
 Id. at 1467.

[75]
 From 2002 to 2007, there were no or minimal remittance because of the Take-or-
Pay Quantity (TOPQ) obligation of the National Power Corporation as implemented
through Administrative Order No. 381 issued on February 17, 1998. Id.

[76]
 Id. at 22.

[77]
 Id.

[78]
 Id. at 23.

[79]
 Id.

[80]
 Supra note 34.

[81]
 Id. at 24.

[82]
 Id. at 23-25.

[83]
 Id. at 1473-1474.

[84]
 Id. at 1475-1476.

[85]
 Id. at 1481 and 1483.

[86]
 Id. at 1487-1488.

[87]
 Section 4. Definition of Terms. - x x x

x x x x

58. Municipal waters - include not only streams, lakes, inland bodies of water and
tidal waters within the municipality which are not included within the protected areas
as defmed under Republic Act No. 7586 (The NIPAS Law), public forest, timber
lands, forest reserves or fishery reserves, but also marine waters included between
two (2. lines drawn perpendicular to the general coastline from points where the
boundary lines of the municipality touch the sea at low tide and a third line parallel
with the general coastline including offshore islands and fifteen (15. kilometers from
such coastline. Where two (2. municipalities are so situated on opposite shores that
there is less than thirty (30. kilometers of marine waters between them, the third line
shall be equally distant from opposite shore of the respective municipalities.

[88]
 AN ACT PROVIDING FOR THE DEVELOPMENT, MANAGEMENT AND
CONSERVATION OF THE FISHERIES AND AQUATIC RESOURCES,
INTEGRATING ALL LAWS PERTINENT THERETO, AND FOR OTHER
PURPOSES. Approved on February 25, 1998.

[89]
 Rollo (G.R. No. 170867), p. 26.

[90]
 Id. at 26-28.

[91]
 Id. at 28-29, 1559, 1562-1563.

[92]
 Id. at 29-30, 1564.

[93]
 Id. at 30, 1564-1565.

[94]
 Supra note 36.

[95]
 Rollo (G.R. No. 170867), pp. 30-31, 1566.

[96]
 Id. at 32-33.

[97]
 Id. at 1501-1502.

[98]
 Id. at 1503.

[99]
 Id. at 1556-1557.

[100]
 Id. at 1557.

[101]
 Id. at 34-35.

[102]
 Id. at 36.

[103]
 Id. at 1499-1501.

[104]
 Id. at 37-38.

[105]
 Id. at 38-40, 1530, 1532-1533.

[106]
 Id. at 40-46.

[107]
 DECLARING CERTAIN AREA PART OF THE PHILIPPINE TERRITORY AND
PROVIDING FOR THEIR GOVERNMENT AND ADMINISTRATION. Issued on June
11, 1978.
[108]
 Rollo (G.R. 170867), pp. 46 and 1498.

[109]
 Id. at 47-49 and 1492.

[110]
 Id. at 1499.

[111]
 Id. at 1504-1508.

[112]
 Id. at 1487-1488 and 1511.

[113]
 Id. at 1511-1513.

[114]
 Id. at 1518.

[115]
 Id. at 1519-1520.

[116]
 Id. at 49.

[117]
 Id. at 49-50.

[118]
 Id. at 1576-1577 and 1579.

[119]
 Id. at 1580.

[120]
 Id. at 51 and 1580-1581.

[121]
 Id. at 52.

[122]
 Id. at 52 and 1579-1580.

[123]
 Id. at 52.

[124]
 Id. at 1552.

[125]
 Id. at 54-56, 1548-1551.

[126]
 Id. at 56-57.

[127]
 Id. at 60 and 1533-1534.

[128]
 Id. at 1535.
[129]
 Id. at 62 and 1535.

[130]
 Id. at 1535.

[131]
 Id. at 60-61 and 1535.

[132]
 Id. at 62 and 1535-1536.

[133]
 Id.

[134]
 Id. at 1567-1570.

[135]
 Id. at 1536-1538.

[136]
 Id. at 1572-1574.

[137]
 Id. at 1473.

[138]
 Id. at 1582-1583.

[139]
 Id. at 1584.

[140]
 Id. at 1588-1590.

[141]
 Id. at 1590.

[142]
 Id. at 63-65.

[143]
 Id. at 66 and 72, citing Westminster High School v. Bernardo, 51 O.G. 6245.

[144]
 Rollo (G.R. No. 185941), pp. 299-300.

[145]
 Id. at 303-305.

[146]
 Id. at 26 and 589.

[147]
 Id. at 29 and 591.

[148]
 Id. at 29-30 and 592.

[149]
 Id. at 30 and 592.
[150]
 391 Phil. 84 (2000).

[151]
 Rollo (G.R. No. 185941), pp. 30-31, 592-593.

[152]
 Id. at 30 and 593.

[153]
 Id. at 31 and 593.

[154]
 Id. at 33 and 595.

[155]
 SECTION 29.

(1) No money shall be paid out of the Treasury except in pursuance of an

appropriation made by law.

x x x x

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government

[156]
 Rollo (G.R. No. 185941), p. 601.

[157]
 Id. at 37-38, 42-43, 581, 586-587.

[158]
 Id. at 599-600.

[159]
 Id. at 602.

[160]
 Id. at 34 and 596.

[161]
 Id. at 603-604.

[162]
 Id. at 36-37, 597-598.

[163]
 Id. at 49-50 and 605.

[164]
 Rollo (G.R. No. 170867), p. 907.

[165]
 Id. at 908.
[166]
 Id. at 908-908-A.

[167]
 Id. at 909-910.

[168]
 Id. at 910-911.

[169]
 Id. at 912-914, 1380-1381.

[170]
 Id. at 1381-1382.

[171]
 Id. at 915-916 and 1382.

[172]
 Id. at 916-918, 1383-1385.

[173]
 Id. at 919.

[174]
 Id. at 919-920 and 1386.

[175]
 Id. at 921.

[176]
 Id. at 922 and 1389.

[177]
 Id. at 922-926 and 1389.

[178]
 Id. at 924-925, 1389-1390, 1392.

[179]
 Id. at 922-923.

[180]
 Id. at 926, 1393-1394.

[181]
 Id. at 927.

[182]
 Id. at 927 and 1394.

[183]
 Id. at 972, 1397-1398.

[184]
 Id. at 973-974, 1397, 1400.

[185]
 Id. at 1397.

[186]
 Id. at 1399.
[187]
 Id. at 974.

[188]
 Id. at 958 and 1400.

[189]
 Id. at 928.

[190]
 Id. at 928 and 1394.

[191]
 Id. at 950-951.

[192]
 Id. at 929-930.

[193]
 Id. at 937-938.

[194]
 Id. at 940-944 and 1373.

[195]
 Id. at 1377.

[196]
 Id. at 1377-1379.

[197]
 160 Phil. 343 (1975).

[198]
 Rollo (G.R. No. 170867), p. 941.

[199]
 Id. at 942-943.

[200]
 Id. at 943-944.

[201]
 343 Phil. 670 (1997).

[202]
 Rollo (G.R. No. 170867), pp. 955-958.

[203]
 Id. at 939.

[204]
 Id. at 945-948.

[205]
 Id. at 1403-1404.

[206]
 Id. at 959.

[207]
 Id. at 962, 967-968.
[208]
 Id. at 968-969.

[209]
 Id. at 1402-1403.

[210]
 Id. at 969-971.

[211]
 Id. at 977-978.

[212]
 Id. at 978-979.

[213]
 Id. at 981-985.

[214]
 Id. at 1410.

[215]
 Id. at 1410-1411.

[216]
 Id. at 1411.

[217]
 Id.

[218]
 Id. at 1412.

[219]
 Id.

[220]
 Id. at 1412-1413.

[221]
 Id. at 1413-1414.

[222]
 Id. at 1409-1410.

[223]
 Record of the 1986 Constitution Commission, Volume III, pp. 178, 216 and 482.

[224]
 Record of the Senate, May 8, 1990, p. 16.

[225]
 Record of the Bicameral Conference Committee on Local Government, February
12, 1991, pp. 8-9.

[226]
 Record of the Bicameral Conference Committee on Local Government,
September 4, 1991, pp. 12-13.

[227]
 Section 459.
[228]
 Section 440.

[229]
 Section 448.

[230]
 Record of the 1986 Constitution Commission, Volume III, pp. 178 and 194.

[231]
 <http://www.merriam-webster.com/dictionary/area> (last updated November 28,
2018).

[232]
 322 Phil. 774 (1996).

[233]
 Id. at 783.

[234]
 Id.

[235]
 321 Phil. 259, 265-266 (1995).

[236]
 607 Phil. 104 (2009).

[237]
 Id. at 121.

[238]
 Rollo (G.R. No. 170867), p. 1574.

[239]
 Id. at 1575.

[240]
 Under Section 17 of the Local Government Code, municipalities and provinces
are authorized to exercise such powers as are "necessary, appropriate or incidental
to efficient provisions of the basic services and facilities enumerated (therein),"
including:

x x x x

(2) For a Municipality:

x x x x

(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;
x x x x

(3) For a Province:

x x x x

(iii) Pursuant to national policies and subject to supervision, control and review of the
DENR, enforcement of forestry laws limited to community-based forestry projects,
pollution control law, small-scale mining law, and other laws on the protection of the
environment; and mini-hydroelectric projects for local purposes;

x x x x (Emphasis ours)

[241]
 Rollo (G.R. No. 170867), p. 1485.

[242]
 Id. at 478.

[243]
 Id. at 474.

[244]
 Id. at 478.

[245]
 Records of the Bicameral Conference Committee on Local Government,
February 12, 1991, p.39.

[246]
<https://www.merriam-webster.com/dictionary/jurisdiction#legalDictionary> (last
updated November 27, 2018).

[247]
 Section 14, Executive Order No. 192 (1987).

[248]
 <https://www.merriam-webster.com/legal/metes%20and%20bounds>.

[249]
 Supra note 34.

[250]
 Id. at 645- 647.

[251]
 AN ACT ENACTING A LOCAL GOVERNMENT CODE. Approved on February
10, 1983.

[252]
 Aquilino Q. Pimentel, Jr., The Local Government Code, 2011 Edition, p. 44.

[253]
 Record of the Senate, September 10, 1990, pp. 959-960.
[254]
 TSN, November 24, 2009, p. 7.

[255]
 Record of the 1986 Constitutional Commission, Volume III, pp. 178, 194 and
221.

[256]
 Aquilino Q. Pimentel, Jr., The Local Government Code, 2011 Edition, p. 434.

[257]
 Rollo (G.R. No. 170867), pp. 1595-1602.

[258]
 AN ACT PROVIDING FOR THE ORGANIZATION OF A PROVINCIAL
GOVERNMENT IN THE PROVINCE OF PARAGUA, AND DEFINING THE LIMITS
OF THAT PROVINCE. Approved on June 23, 1902.

[259]
 AN ACT AMENDING ACT NUMBERED FOUR AND TWENTY-TWO,
PROVIDING FOR THE ORGANIZATION OF A PROVINCIAL GOVERNMENT IN
THE PROVINCE OF PARAGUAAND DEFINING THE LIMITS OF THAT
PROVINCE, BY FIXING NEW BOUNDARIES FOR THE PROVINCE OF
PARAGUA. Approved on December 22, 1902.

[260]
 AN ACT TO AMEND ACT NUMBERED FOUR HUNDRED AND TWENTY-TWO,
AS AMENDED, BY DEFINING NEW LIMITS FOR THE PROVINCE OF PARAGUA
AND FOR OTHER PURPOSES. Approved on May 14, 1903.

[261]
 AN ACT CHANGING THE NAME OF THE PROVINCE AND ISLAND OF
PARAGUA TO THAT OF PALAWAN. Approved on June 28, 1905.

[262]
 AN ACT PROVIDING FOR THE ORGANIZATION OF PROVINCIAL
GOVERNMENTS OF THE PHILIPPINE ISLANDS, OTHER THAN THE MORO
PROVINCE, WHICH ARE NOT ORGANIZED UNDER THE PROVISIONS OF THE
PROVINCIAL GOVERNMENT ACT NUMBERED EIGHTY-THREE, AND
REPEALING ACTS NUMBERED FORTY-NINE, THREE HUNDRED AND THIRTY-
SEVEN, FOUR HUNDRED AND TEN, FOUR HUNDRED AND TWENTY-TWO,
FOUR HUNDRED AND FORTY-ONE, FIVE HUNDRED, FIVE HUNDRED AND
SIXTY-SIX, AND FIVE HUNDRED AND SIXTY-SEVEN, AND SECTIONS ONE
AND TWO OF ACT NUMBERED SEVEN HUNDRED AND FORTY-SEVEN.
Approved on September 14, 1905.

[263]
 AN ACT CONSISTING AN ADMINISTRATIVE CODE. Approved on December
31, 1916.

[264]
 AN ACT AMENDING THE ADMINISTRATIVE CODE. Approved on March 10,
1917.

[265]
 Rollo (G.R. No. 170867), p. 1339.

[266]
 AN ACT TO AMEND CERTAIN PROVISIONS OF REPUBLIC ACT NO. 3046,
AS AMENDED BY REPUBLIC ACT NO. 5446, TO DEFINE THE ARCHIPELAGIC
BASELINE OF THE PHILIPPINES AND FOR OTHER PURPOSES. Approved on
March 10, 2009.

[267]
 Rollo (G.R. No. 170867), p. 1395.

[268]
 Id. at 1535.

[269]
 Section 4.

[270]
 Sections 13, 14 and 15.

[271]
 Record of the Senate, November 17, 1990, pp. 1580-1581.

[272]
 TSN, November 24, 2009, pp. 235-236.

[273]
 Rollo (G.R. No. 170867), pp. 1596-1602.

[274]
 Subsequent Act No. 2711, or the Administrative Code of 1917, also designated
Puerto Princesa as the capital of the Province of Palawan. RA 5906 created the City
of Puerto Princesa; Section 2 thereof states that the City shall comprise the present
territorial jurisdiction of the Municipality of Puerto Princesa. On March 26, 2007,
President Gloria Manacapaga-Arroyo issued Proclamation No. 1264 entitled
"Conversion of the City of Puerto Princesa into a Highly Urbanized City,"
reclassifying Puerto Princesa City as a "highly urbanized city."

[275]
 AN ACT CREATING THE MUNICIPALITY OF ROXAS, PROVINCE OF
PALAWAN. Approved on May 15, 1951.

[276]
 R.A. No. 1140, entitled AN ACT CHANGING THE NAME OF THE
MUNICIPALITY OF BACUIT IN THE PROVINCE OF PALAWAN TO EL NIDO,
approved on June 17, 1954, changed the name of Bacuit to El Nido.

[277]
 AN ACT CHANGING THE NAME OF THE MUNICPALITY OF DUMARAN,
PROVINCE OF PALAWAN, TO ARACELL. Approved on June 15, 1954.

[278]
 AN ACT CREATING THE MUNICIPALITY OF DUMARAN IN THE PROVINCE
OF PALAWAN. Enacted on June 18, 1961.

[279]
 AN ACT TO CREATE THE MUNICIPALITY OF BUSUANGA IN THE PROVINCE
OF PALAWAN. Approved on June 17, 1950.

[280]
 AN ACT AMENDING SECTION ONE OF REPUBLIC ACT NUMBERED FIVE
HUNDRED SIXTY, ENTITLED "AN ACT CREATING THE MUNICIPALITY OF
BUSUANGA IN THE PROVINCE OF PALAWAN." Approved on June 21, 1969.

[281]
 AN ACT TO CREATE THE MUNICIPALITY OF QUEZON IN THE PROVINCE
OF PALAWAN. Approved on May 15, 1951.

[282]
 AN ACT TO CREATE THE MUNICIPALITY OF LINAPACAN IN THE
PROVINCE OF PALAWAN. Approved on June 12, 1954.

[283]
 AN ACT CREATING THE MUNICIPALITY OF BATARASA IN THE PROVINCE
OF PALAWAN. Enacted without Executive approval on June 18, 1961.

[284]
 AN ACT CREATING THE MUNICIPALITY OF MAGSAYSAY IN THE
PROVINCE OF PALAWAN. Approved on June 18, 1961.

[285]
 AN ACT CREATING THE MUNICIPALITY OF SAN VICENTE IN THE
PROVINCE OF PALAWAN. Approved on June 21, 1969.

[286]
 AN ACT CREATING THE MUNICIPALITY OF NARRA, PROVINCE OF
PALAWAN. Approved June 21, 1969.

[287]
 AN ACT CHANGING THE NAME OF THE MUNICIPALITY OF MARCOS,
PROVINCE OF PALAWAN, TO MUNICIPALITY OF DR. JOSE P. RIZAL. Enacted
without executive approval on April 17, 1988.

[288]
 AN ACT CREATING THE MUNICIPALITY OF MARCOS IN THE PROVINCE OF
PALAWAN. Approved on April 14, 1983.

[289]
 AN ACT CREATING THE MUNICIPALITY OF CULTON TN THE PROVINCE OF
PALAWAN. Approved on February 19, 1992.

[290]
 AN ACT EXPANDING THE AREA OF JURISDICTION OF THE MUNICIPALITY
OF CULTON, PROVINCE OF PALAWAN, AMENDING FOR THE PURPOSE
REPUBLIC ACT NO. 7193. Approved on March 12, 2001.

[291]
 AN ACT CREATING THE MUNICIPALITY OF SOFRONIO ESPAÑOLA IN THE
PROVINCE OF PALAWAN. Lapsed into law on February 24, 1994 without the
President's signature.

[292]
 TSN, November 24, 2009, pp. 196-200.

[293]
 TSN, November 24, 2009, p. 166.

[294]
 TSN, November 24, 2009, pp. 201-202.

[295]
 Rep. of the Phils v. Roxas, et al., 723 Phil. 279, 311 (2013) citing Republic of the
Phils. v. Hon. Mangotara, et al., 638 Phil. 353 (2010).

[296]
 National Amnesty Commission v. COA, 481 Phil. 279 (2004).

[297]
 545 Phil. 168 (2007).

[298]
 Id. at 186.

[299]
 TSN, November 24, 2009, p. 232.

[300]
 The 1987 Constitution of the Republic of the Philippines, A Commentary, 1996
Edition, pp. 960-961.

[301]
 TSN, November 24, 2009, pp. 217-218 and 224.

[302]
 Rollo (G.R. No. 170867), pp. 37-38.

[303]
 Id. at 1514 and 1518.

[304]
 TSN, November 24, 2009, pp. 156-158.

[305]
 TSN, November 24, 2009, pp. 78-81.

[306]
 Rollo (G.R. No. 170867), pp. 1355-1356.

[307]
 332 U.S. 19 (1947).

[308]
 339 U.S. 699 (1950).

[309]
 339 U.S. 707 (1950).

[310]
 420 U.S. 515 (1975).
[311]
 U.S. 9th Circuit, No. 97-35944, September 9, 1998.

[312]
 TSN, November 24, 2009, pp. 196-197.

[313]
 Rollo (G.R. No. 170867), pp. 1344, 1355-1356.

[314]
 GF Equity, Inc. v. Valenzona, 501 Phil. 153, 166 (2005).

[315]
 Tupas v. Court of Appeals, 271 Phil. 628 (1991).

[316]
 Id.

[317]
 Id. at 632-633.

[318]
 Development Bank of the Philippines v. Carpio, G.R. No. 195450, February 1,
2017, 816 SCRA 473, 487.

[319]
 Rollo (G.R. No. 170867), p. 1584.

[320]
 Id. at 1584-1586.

[321]
 Supra note 235.

[322]
 TSN, November 24, 2009, pp. 233 and 235.

[323]
 Phil. Rural Electric Coop. Assoc, Inc. v. DILG Secretary, 451 Phil. 683, 698
(2003) citing MCIAA v. Marcos, 330 Phil. 392, 417 (1996).

[324]
 416 Phil. 438 (200 ).

[325]
 Id. at 448.

SEPARATE CONCURRING OPINION

LEONEN, J.:
I concur, but only in the result.

The Province of Palawan should be entitled to an equitable share in the utilization

and development of resources within its territorial jurisdiction. Due to Palawan's
unique position and archipelagic shape, its territorial jurisdiction should not only
encompass land mass. It should also include its coastline, subsoil, and seabed.

However, the maps submitted to this Court failed to substantially prove that the
Camago-Malampaya Natural Gas Project was within the area of responsibility of the
Province of Palawan.

The factual antecedents of this case are undisputed. On December 11, 1990, the
Republic, through the Department of Energy, entered into a service contract
(Service Contract No. 38) with Shell Philippines Exploration B.V. (Shell) and
Occidental Philippines, Inc. (Occidental) for the drilling of a natural gas reservoir in
the Camago-Malampaya area, located about 80 kilometers from the main island of
Palawan.[1]

Specifically, Camago-Malampaya is located:   

 

93.264 kilometers or 50.3585 nautical

From Kalayaan Island Group
miles
Mainland Palawan (Nacpan Point, south 55.476 kilometers or 29.9546 nautical
of Patuyo Cove, Municipality of El Nido) miles
48.843 kilometers or 26.[3731] nautical
Tapiutan Island, Municipality of El Nido
miles[2]

Service Contract No. 38 provides for a production sharing scheme, where the
National Government would receive 60% of the net proceeds from the sale of
petroleum while Shell and Occidental, as service contractors, would receive 40% of
the net proceeds. Subsequently, Shell and Occidental were replaced by a
consortium of Shell, Occidental, Shell Philippines LLC, Chevron Malampaya LLC,
and Philippine National Oil Company Explorations Corporation (Shell Consortium). [3]

On February 17, 1998, then President Fidel V. Ramos (President Ramos) issued
Administrative Order No. 381,[4] which provided that the National Government's
share from the net proceeds of the Camago-Malampaya Natural Gas Project would
"be reduced ... by the share of the concerned local government units pursuant to the
Local Government Code[.]"[5] It further provided that "the Province of Palawan [was]
expected to receive about US$2.1 billion from the total Government share of US$8.1
billion"[6] throughout the 20-year contract period. For reference, Section 290 of the
Local Government Code provides:
Section 290. Amount of Share of Local Government Units. - Local government units
shall, in addition to the internal revenue allotment, have a share of forty percent
(40%) of the gross collection derived by the national government from the preceding
fiscal year from mining taxes, royalties, forestry and fishery charges, and such other
taxes, fees, or charges, including related surcharges, interests, or fines, and from its
share in any co-production, joint venture or production sharing agreement in the
utilization and development of the national wealth within their territorial jurisdiction.
On June 10, 1998, then Secretary of Energy Francisco L. Viray (Viray) wrote to then
Palawan Governor Salvador P. Socrates (Socrates), requesting that the payment of
50% of Palawan's share in the Camago-Malampaya Natural Gas Project be "spread
over in the initial seven years of operations ..  to pay [for] the [National Power
Corporation]'s obligations" in its Gas Sales and Purchase Agreements with Shell
Consortium.[7]

On July 30, 2001, then Secretary of Finance Jose Isidro N. Camacho wrote to then
Secretary of Justice Hernando B. Perez, seeking legal opinion on whether the
Province of Palawan had a share in the national wealth from the proceeds of the
Camago-Malampaya Natural Gas Project. It was the position of the Department of
Finance that a local government unit's territorial jurisdiction was only within its land
area and excludes marine waters more than 15 kilometers from its coastline. [8]

On October 16, 2001, the Camago-Malampaya Natural Gas Project was formally
inaugurated.[9]

Negotiations were held between the Province of Palawan, the Department of

Energy, the Department of Finance, and the Department of Budget and
Management to determine the Province of Palawan's share in the net proceeds of
the Camago-Malampaya Natural Gas Project. [10] However, on February 11, 2003,
the Sangguniang Panlalawigan of Palawan resolved to call off further negotiations
since the National Government would not grant its expected share in the net
proceeds amounting to approximately over US$2 billion. [11]

On March 14, 2003, then Palawan Governor Mario Joel T. Reyes wrote to the
Department of Energy, and the Department of Budget and Management reiterating
the Province's claim of its 40% share citing "long historical precedent and the
statutory definition of Palawan under Republic Act No. 7611." [12]
On May 7, 2003, the Province of Palawan filed a Petition for Declaratory Relief,
[13]
 docketed as Civil Case No. 3779, before the Regional Trial Court to seek a
judicial determination of its rights under Administrative Order No. 381, series of
1998; Republic Act No. 7611; Section 290 of the Local Government Code; and
Palawan Provincial Ordinance No. 474, series of 2000. In particular, it sought a
judicial declaration that the Camago-Malampaya reservoir was part of its territorial
jurisdiction, and hence, it was entitled to an equitable share in its utilization and
development.[14]

During the pendency of the case before the Regional Trial Court, or on February 9,
2005, then Secretary of Energy Vincent S. Perez, Jr. (Perez), then Secretary of
Budget and Management Mario L. Relampagos (Relampagos), and then Secretary
of Finance Juanita D. Amatong (Amatong) executed an Interim Agreement [15] with
the Province of Palawan. This Interim Agreement provided for equal sharing of the
40% being claimed by the Province of Palawan, to be called the "Palawan Share,"
for its development and infrastructure projects, environment protection and
conservation, electrification of 431 barangays, and establishment of facilities for the
security enhancements of the exclusive economic zone. [16]

The Interim Agreement likewise stated that the release of funds would be without
prejudice to the outcome of the legal dispute between the parties. Once Civil Case
No. 3779 was decided with finality in favor of either party, the shares already
received would be treated as financial assistance. To this end, the parties further
agreed that the amount of P600,000,000.00 already released to the Province of
Palawan would be deducted from the initial release of its 50% share in the 40% of
the remitted funds.[17]

On December 16, 2005, the Regional Trial Court rendered a Decision [18] holding that
the Province of Palawan was entitled to a 40% share of the revenues generated
from the Camago-Malampaya Natural Gas Project from October 16, 2001, in view of
Article X, Section 7 of the Constitution and the provisions of the Local Government
Code.

Subsequently, the Province of Palawan filed a Motion to require the Secretary of

Energy, the Secretary of Budget and Management, and the Secretary of Finance to
render a full accounting of the actual payments made by the Shell Consortium to the
Bureau of Treasury from October 1, 2001 to December 2005, [19] and to freeze and/or
place Palawan's 40% share in an escrow account. [20]

In its January 16, 2006 Amended Order, [21] the Regional Trial Court issued a Freeze
Order directing a full accounting of actual payments made by Shell Consortium and
ordering the Secretary of Finance to deposit 40% of the Province of Palawan's share
in escrow until the finality of its December 16, 2005 Decision.

On February 16, 2006,[22] the Republic filed a Petition for Review before this Court,
docketed as G.R. No. 170867, assailing the Regional Trial Court's December 16,
2005 Decision and its January 16, 2006 Amended Order. [23]

On June 6, 2006, the Regional Trial Court lifted its January 16, 2006 Amended
Order in view of the pending Petition before this Court. The Republic subsequently
manifested that its arguments relating to the January 6, 2006 Amended Order no
longer needed to be resolved unless the Province of Palawan raises them as issues
before this Court.[24]

While the Petition was pending before this Court, or on July 25, 2007, the National
Government and the Province of Palawan, in conformity with the representatives of
the legislative districts of Palawan, executed a Provisional Implementation
Agreement[25] which allowed for the release of 50% of the disputed 40% share of
Palawan to be utilized for its development projects.

On December 1, 2007, then President Gloria Macapagal Arroyo (President Arroyo)

issued Executive Order No. 683, authorizing the release of funds pursuant to the
Provisional Implementation Agreement, or 50% of the disputed 40% share, without
prejudice to this Court's final resolution of Palawan's claim in G.R. No. 170867. [26]

On February 7, 2008, Bishop Pedro Dulay Arigo (Bishop Arigo), Cesar N. Sarino
(Sarino), Dr. Jose Antonio N. Socrates (Dr. Socrates), and H. Harry L. Roque, Jr.
(Roque), as citizens and taxpayers, filed a Petition for Certiorari against the
Executive Secretary, the Secretary of Energy, the Secretary of Finance, the
Secretary of Budget and Management, the Palawan Governor, the Representative
of the First District of Palawan, the Philippine National Oil Company Explorations
Corporation President and Chief Executive Officer before the Court of Appeals. The
Petition assailed Executive Order No. 683, series of 2007, and the Provisional
Implementation Agreement for being contrary to the Constitution and the Local
Government Code. It also sought the release of the Province of Palawan's full40%
share in the Camago-Malampaya Natural Gas Project. [27]

In its May 29, 2008 Resolution, [28] the Court of Appeals dismissed the Petition on
procedural grounds, finding that Bishop Arigo, Sarino, Dr. Socrates, and Roque
failed to submit the required documents substantiating their allegations. It likewise
noted that the Petition was prematurely filed since the implementation of the
Provisional Implementation Agreement was contingent on the final adjudication of
G.R. No. 170867. The Court of Appeals also took judicial notice of the "on-going
efforts"[29] by the Executive and Legislative branches to arrive at a common position
on the country's baselines under the United Nations Convention on the Law of the
Sea. Thus, any judicial ruling may be tantamount to a "collateral adjudication" [30] of a
policy issue.

Bishop Arigo, Sarino, Dr. Socrates, and Roque filed a Motion for Reconsideration,
which was denied by the Court of Appeals in its December 16, 2008 Resolution.
Hence, they filed a Petition for Review on Certiorari before this Court, docketed as
G.R. No. 185941, insisting that Executive Order No. 683, series of 2007, and the
Provisional Implementation Agreement were invalid for being unconstitutional and
for violating the provisions of the Local Government Code. [31]

G.R. Nos. 170867 and 185941 were consolidated by this Court on June 23, 2009.
Oral arguments were heard on September 1, 2009 and November 24, 2009. [32]

As of August 31, 2009, P61,190,210,012.25 has been remitted to the Department of

Energy. The amount claimed by the Province of Palawan as its 40% share was
P35,521,789,184.63 as of August 31, 2009. [33]

It is the position of the ponencia that the interpretation of the phrase "within their
respective areas" in Article X, Section 7 of the Constitution [34] refers to only to areas
where a local government unit exercises territorial jurisdiction. The ponencia further
opines that the territorial jurisdiction of a local government unit is limited only to its
land area and will not extend to its marine waters, seabed, and subsoil. Thus, the
equitable share of a local government unit in the proceeds of the utilization and
development of national wealth within its respective area refers only to national
wealth that can be found within its land mass.

I disagree.

The Constitution declares it a policy of the State to ensure the autonomy of local
governments.[35]

The entirety of Article X of the Constitution is devoted to local governments. Under

this article, local autonomy means "a more responsive and accountable local
government structure instituted through a system of decentralization." [36] To this end,
the Local Government Code reiterates the declared policy of the State to ensure
local autonomy, providing:
Section 2. Declaration of Policy. - (a) It is hereby declared the policy of the State that
the territorial and political subdivisions of the State shall enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-
reliant communities and make them more effective partners in the attainment of
national goals. Toward this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers,
authority, responsibilities, and resources. The process of decentralization shall
proceed from the national government to the local government units.
Under this concept of autonomy, administration over local affairs is delegated by the
national government to the local government units to be more responsive and
effective at the local level.[37] Thus, Section 17 of the Local Government Code tasks
local government units to provide basic services and facilities to their local
constituents:
Section 17. Basic Services and Facilities. - (a) Local government units shall
endeavor to be self-reliant and shall continue exercising the powers and discharging
the duties and functions currently vested upon them. They shall also discharge the
functions and responsibilities of national agencies and offices devolved to them
pursuant to this Code. Local government units shall likewise exercise such other
powers and discharge such other functions and responsibilities as are necessary,
appropriate, or incidental to efficient and effective provision of the basic services and
facilities enumerated herein.
In addition to administrative autonomy, local governments are likewise granted fiscal
autonomy, or "the power to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as
the power to allocate their resources in accordance with their own
priorities."[38] Section 18 of the Local Government Code provides:
Section 18. Power to Generate and Apply Resources. - Local government units shall
have the power and authority to establish an organization that shall be responsible
for the efficient and effective implementation of their development plans, program
objectives and priorities; to create their own sources of revenues and to levy taxes,
fees, and charges which shall accrue exclusively for their use and disposition and
which shall be retained by them; to have a just share in national taxes which shall be
automatically and directly released to them withoutneed of any further action; to
have an equitable share in the proceeds from the utilization and development of the
national wealth and resources within their respective territorial jurisdictions including
sharing the same with the inhabitants by way of direct benefits; to acquire, develop,
lease, encumber, alienate, or otherwise dispose of real or personal property held by
them in their proprietary capacity and to apply their resources and assets for
productive, developmental, or welfare purposes, in the exercise or furtherance of
their governmental or proprietary powers and functions and thereby ensure their
development into self-reliant communities and active participants in the attainment of
national goals.
The Local Government Code mandates that local government units shall have "an
equitable share in the proceeds from the utilization and development of the national
wealth and resources within their respective territorial jurisdictions." This provision
implements Article X, Section 7 of the Constitution, which reads:
ARTICLE X
Local Government
General Provisions

Section 7. Local governments shall be entitled to an equitable share in the proceeds

of the utilization and development of the national wealth within their respective
areas, in the manner provided by law, including sharing the same with the
inhabitants by way of direct benefits.
Thus, Section 290 of the Local Government Code provides:
Section 290. Amount of Share of Local Government Units. - Local government units
shall, in addition to the internal revenue allotment, have a share of forty percent
(40%) of the gross collection derived by the national government from the preceding
fiscal year from mining taxes, royalties, forestry and fishery charges, and such other
taxes, fees, or charges, including related surcharges, interests, or fines, and from its
share in any co-production, joint venture or production sharing agreement in the
utilization and development of the national wealth within their territorial jurisdiction.
The controversy in this case revolves around the proper interpretation of "within their
respective areas" and "within their territorial jurisdiction."

II

The Constitution itself provides for the natural boundaries of the State's political
units. Article X, Section 1 of the Constitution allocates them as either "territorial and
political subdivisions" or "autonomous regions," thus:
ARTICLE X
Local Government
General Provisions

Section 1. The territorial and political subdivisions of the Republic of the Philippines
are the provinces, cities, municipalities, and barangays. There shall be autonomous
regions in Muslim Mindanao and the Cordilleras as hereinafter provided.
Territorial and political subdivisions are the provinces, cities, municipalities, and
barangays. Article X, Section 2 of the Constitution further provides:
Section 2. The territorial and political subdivisions shall enjoy local autonomy.
Autonomous regions are covered by a different set of provisions in the Constitution.
[39]
 Thus, the territorial jurisdiction of an autonomous region is not defined in the
same manner as that of a territorial and political subdivision.

A local government unit can only be created by an act of Congress. [40] Its creation is
based on "verifiable indicators of viability and projected capacity to provide
services,"[41] one of which is land area, thus:
(c) Land Area. - It must be contiguous, unless it comprises two (2) or more islands or
is separated by a local government unit independent of the others; properly
identified by metes and bounds with technical descriptions; and sufficient to provide
for such basic services and facilities to meet the requirements of its populace.
Compliance with the foregoing indicators shall be attested to by the Department of
Finance (DOF), the National Statistics Office (NSO), and the Lands Management
Bureau (LMB) of the Department of Environment and Natural Resources (DENR). [42]
The Local Government Code requires that the land area be contiguous unless it
comprises of two (2) or more islands. The same provision is repeated throughout the
Code, thus:
Section 386. Requisites for Creation. - ...

(b) The territorial jurisdiction of the new Barangay shall be properly identified by
metes and bounds or by more or less permanent natural boundaries. The territory
need not be contiguous if it comprises two (2) or more islands.

....

Section 442. Requisites for Creation. - ...

(b) The territorial jurisdiction of a newly-created municipality shall be properly

identified by metes and bounds. The requirement on land area shall not apply where
the municipality proposed to be created is composed of one (1) or more islands. The
territory need not be contiguous if it comprises two (2) or more islands.

....

Section 450. Requisites for Creation. - ...

(b) The territorial jurisdiction of a newly-created city shall be properly identified by
metes and bounds. The requirement on land area shall not apply where the city
proposed to be created is composed of one (1) or more islands. The territory need
not be contiguous if it comprises two (2) or more islands.

....
The requirement of contiguity does not apply if the territory is comprised of islands.
All that is required is that it is properly identified by its metes and bounds.

The Province of Palawan, previously known as Paragua, was organized under Act
No. 422.[43] Section 2 of the Act, as amended, provided:
Section 2. The Province of Paragua shall consist of all that portion of the Island of
Paragua north of a line beginning in the middle of the channel at the mouth of the
Ulugan River in the Ulugan Bay, thence following the main channel of the Ulugan
River to the village of Bahile, thence along the main trail leading from Bahile to the
Tapul River, thence following the course of the Tapul River to its mouth in the Honda
Bay; except that the towns of Bahile and Tapul the west boundary line shall be the
arc of a circle with one mile radius, the center of the circle being the center of the
said towns of Bahile and Tapul. There shall be included in the Province of Paragua
the small islands adjacent thereto, including Dumaran and the islands forming the
Calamianes group and the Cuyos Group.[44]
The law that created the Province of Palawan had no technical description. Instead,
it anchored the province's borders on the bodies of water surrounding it. Since, the
province's metes and bounds are not technically described, reference must be made
to other laws interpreting the province's borders.

Palawan comprises 1,780 islands. To determine its metes and bounds would be to
go beyond the contiguity of its land mass.

The ponencia places too much reliance on Tan v. Commission on Election,[45] a case
that was decided long before the passage of the present Local Government Code.
In Tan, a petition was filed before this Court to halt the conduct of a plebiscite to
pass a law creating the province ofNegros. A question was raised on whether the
marginal sea within the three (3)-mile limit should be considered in determining a
province's extent. This Court, in finding the argument unmeritorious, held:
As so stated therein the "territory need not be contiguous if it comprises two or more
islands." The use of the word territory in this particular provision of the Local
Government Code and in the very last sentence thereof, clearly, reflects that
"territory" as therein used, has reference only to the mass of land area and excludes
the waters over which the political unit exercises control. [46] (Emphasis omitted)
This Court's wording is peculiar. It speaks of territory as a mass of land area, not
waters, over which the political unit exercises control. In the same breath, Tan also
establishes that political units may have control over the waters in their territory.

It can be presumed that when Tan discussed the metes and bounds of a local

government unit's territory, it only meant to refer to its physical land area. It did not
include a discussion on what may encompass a local government unit's territorial
jurisdiction.

In any case, the creation of a local government unit is not solely dependent on land
mass. Article 9(2) of the Implementing Rules and Regulations of the Local
Government Code provides:
Article 9. Provinces. - (a) Requisites for creation-A province shall not be created
unless the following requisites on income and either population or land area are
present:

....

(2) Population or land area - Population which shall not be less than two hundred
fifty thousand (250,000) inhabitants, as certified by NSO; or land area which must be
contiguous with an area of at least two thousand (2,000) square kilometers, as
certified by LMB. The territory need not be contiguous if it comprises two (2) or more
islands or is separated by a chartered city or cities which do not contribute to the
income of the province. The land area requirement shall not apply where the
proposed province is composed of one (1) or more islands. The territorial jurisdiction
of a province sought to be created shall be properly identified by metes and bounds.
(Emphasis supplied)
In Navarro v. Ermita,[47] a controversy arose on the creation of the Province of
Dinagat Islands considering that its total land mass was only 802.12 square
kilometers, or below the 2,000 square kilometers required by law. Petitioners in that
case, who were the former Vice Governor and members of the Provincial Board of
the Province of Surigao del Norte, questioned the constitutionality of Article 9(2),
arguing that the exemption to land area requirement was not explicitly provided for in
the Local Government Code.

The majority initially declared Article 9(2) unconstitutional for being an extraneous
provision not intended by the Local Government Code.
On reconsideration, however, the majority reversed its prior decision and upheld the
constitutionality of the assailed provision.[48] In particular, Navarro found:
... [W]hen the local government unit to be created consists of one (1) or more
islands, it is exempt from the land area requirement as expressly provided in Section
442 and Section 450 of the LGC if the local government unit to be created is a
municipality or a component city, respectively. This exemption is absent in the
enumeration of the requisites for the creation of a province under Section 461 of the
LGC, although it is expressly stated under Article 9 (2) of the LGC-IRR.

There appears neither rhyme nor reason why this exemption should apply to cities
and municipalities, but not to provinces. In fact, considering the physical
configuration of the Philippine archipelago, there is a greater likelihood that islands
or group of islands would form part of the land area of a newly-created province than
in most cities or municipalities. It is, therefore, logical to infer that the genuine
legislative policy decision was expressed in Section 442 (for municipalities) and
Section 450 (for component cities) of the LGC, but was inadvertently omitted in
Section 461 (for provinces). Thus, when the exemption was expressly provided in
Article 9 (2) of the LGC-IRR, the inclusion was intended to correct the congressional
oversight in Section 461 of the LGC - and to reflect the true legislative intent. It
would, then, be in order for the Court to uphold the validity of Article 9 (2) of the
LGC-IRR.

This interpretation finds merit when we consider the basic policy considerations
underpinning the principle of local autonomy.

....

Consistent with the declared policy to provide local government units genuine and
meaningful local autonomy, contiguity and minimum land area requirements for
prospective local government units should be liberally construed in order to achieve
the desired results. The strict interpretation adopted by the February 10, 2010
Decision could prove to be counter-productive, if not outright absurd, awkward, and
impractical. Picture an intended province that consists of several municipalities and
component cities which, in themselves, also consist of islands. The component cities
and municipalities which consist of islands are exempt from the minimum land area
requirement, pursuant to Sections 450 and 442, respectively, of the LGC. Yet, the
province would be made to comply with the minimum land area criterion of 2,000
square kilometers, even if it consists of several islands. This would mean that
Congress has opted to assign a distinctive preference to create a province with
contiguous land area over one composed of islands - and negate the greater
imperative of development of self-reliant communities, rural progress, and the
delivery of basic services to the constituency. This preferential option would prove
more difficult and burdensome if the 2,000-square-kilometer territory of a province is
scattered because the islands are separated by bodies of water, as compared to
one with a contiguous land mass.

Moreover, such a very restrictive construction could trench on the equal protection
clause, as it actually defeats the purpose of local autonomy and decentralization as
enshrined in the Constitution. Hence, the land area requirement should be read
together with territorial contiguity.[49]
Neither can it be said that a local government unit's territorial jurisdiction can only be
exercised over its municipal waters.

The Local Government Code provides:

(r) "Municipal Waters" 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. Where two (2) municipalities are so situated on the opposite
shores that there is less than fifteen (15) kilometers of marine waters between them,
the third line shall be equally distant from opposite shores of their respective
municipalities.[50]
Under this provision, Palawan can only exercise jurisdiction over waters that are
within 15 kilometers from its general coastline.

This narrow interpretation, however, disregards other laws that have defined and
specified portions of Palawan's territory and the extent of its territorial jurisdiction.

Presidential Decree No. 1596[51] established the Kalayaan Island Group, delineated

as follows:
Section 1. The area within the following boundaries:
KALAYAAN ISLAND GROUP

From a point [on the Philippine Treaty Limits] at latitude 7°40' North and longitude
116°00' East of Greenwich, thence due West along the parallel of 7°40' N to its
intersection with the meridian of longitude 112°10' E, thence due north along the
meridian of 112°10' E to its intersection with the parallel of 9°00' N, thence
northeastward to the intersection of parallel of 12°00' N with the meridian of
longitude 114°30' E, thence, due East along the parallel of 12°00' N to its
intersection with the meridian of 118°00' E, thence, due South along the meridian of
longitude 118°00' E to its intersection with the parallel of 10°00' N, thence
Southwestwards to the point of beginning at 7°40' N, latitude and 116°00' E
longitude;
including the sea-bed, sub-soil, continental margin and air space shall belong and
be subject to the sovereignty of the Philippines. Such area is hereby constituted as a
distinct and separate municipality of the Province of Palawan and shall be known as
"Kalayaan."[52]
The law categorically states that the area includes the seabed, subsoil, and the
continental margin, and that the island shall be a municipality in the Province of
Palawan.

Republic Act No. 7611, or the Strategic Environmental Plan for Palawan, includes in
its Environmentally Critical Areas Network:
Section 8. Main Components. - ...

(1) Terrestrial - The terrestrial component shall consist of the mountainous as well
as ecologically important low hills and lowland areas of the whole province. It may
be further subdivided into smaller management components.

(2) Coastal/marine area - This area includes the whole coastline up to the open
sea. This is characterized by active fisheries and tourism activities; and

(3) Tribal Ancestral lands - These are the areas traditionally occupied by the cultural
communities. (Emphasis supplied)
Under this law, local chief executives, together with representatives of national
government, are tasked with the protection and preservation of environmentally
critical areas in Palawan. This includes the exercise of jurisdiction beyond the
province's land mass.

Under Article 76(1) of the United Nations Convention on the Law of the Sea:
1. The continental shelf of a coastal State comprises the seabed and subsoil of the
submarine areas that extend beyond its territorial sea throughout the natural
prolongation of its land territory to the outer edge of the continental margin, or to a
distance of 200 nautical miles from the baselines from which the breadth of the
territorial sea is measured where the outer edge of the continental margin does not
extend up to that distance.
In the recent arbitral case between the Republic and China, the Permanent Court of
Arbitration, in ruling favorably for the Republic, made the following factual findings:
285 Cuarteron Reef is known as "Huayang Jiao" ( 华阳 焦 ) in China and "Calderon
. Reef" in the Philippines. It is a coral reef located at 08° 51' 4' ' N, 112° 50' 08' ' E
and is the easternmost of four maritime features known collectively as the
London Reefs that are located on the western edge of the Spratly Islands.
Cuarteron Reef is 245.3 nautical miles from the archipelagic baseline of the
Philippine island of Palawan and 585.3 nautical miles from China's baseline
point 39 (Dongzhou (2)) adjacent to the island of Hainan. The general location
of Cuarteron Reef, along with the other maritime features in the Spratly Islands,
is depicted in Map 3 on page 125 below.

286 Fiery Cross Reef is known as "Yongshu Jiao" (永暑礁) in China and "Kagitingan
. Reef" in the Philippines. It is a coral reef located at 09° 33' 00' ' N, 112° 53' 25' '
E, to the north of Cuarteron Reef and along the westem edge of the Spratly
Islands, adjacent to the main shipping routes through the South China Sea.
Fiery Cross Reef is 254.2 nautical miles from the archipelagic baseline of the
Philippine island of Palawan and 547.7 nautical miles from the China's baseline
point 39 (Dongzhou (2)) adjacent to the island of Hainan.

287 Johnson Reef, McKennan Reef, and Hughes Reef are all coral reefs that form
. part of the larger reef formation in the centre of the Spratly Islands known as
Union Bank. Union Bank also includes the high tide feature of Sin Cowe Island.
Johnson Reef (also known as Johnson South Reef) is known as "Chigua Jiao"
(赤瓜礁) in China and "Mabini Reef" in the Philippines. It is located at 9° 43' 00' '
N, 114° 16' 55' ' E and is 184.7 nautical miles from the archipelagic baseline of
the Philippine island of Palawan and 570.8 nautical miles from China's baseline
point 39 (Dongzhou (2)) adjacent to Hainan. Although the Philippines has
referred to "McKennan Reef (including Hughes Reef)" in its Submissions, the
Tribunal notes that McKennan Reef and Hughes Reef are distinct features,
albeit adjacent to one another, and considers it preferable, for the sake of
clarity, to address them separately. McKennan Reef is known as "Ximen Jiao"
(西门礁) in China and, with Hughe Reef, is known collectively as "Chigua Reef"
in the Philippines. It is located at 09° 54' 13' ' N, 114° 27' 53' ' E and is 181.3
nautical miles from the archipelagic baseline of the Philippine island of Palawan
and 566.8 nautical miles from China' s baseline point 39 (Dongzhou (2))
adjacent to Hainan. Hughes Reef is known as "Dongmen Jiao" ( 东 门 礁 ) in
China and, with McKennan Reef, is known collectively as "Chigua Reef" in the
Philippines. It is located at 09° 54' 48' ' N 114° 29' 48' ' E and is 180.3 nautical
 miles from the archipelagic baseline of the Philippine island of Palawan and
567.2 nautical miles from China's baseline point 39 (Dongzhou (2)) adjacent to
Hainan.

288 The Gaven Reefs are known as "Nanxun Jiao" (南熏礁) in China and "Burgos"
. in the Philippines. They constitute a pair of coral reefs that forms part of the
larger reef formation known as Tizard Bank, located directly to the north of
Union Bank. Tizard Bank also includes the high-tide features of Itu Aba Island,
Namyit Island, and Sand Cay. Gaven Reef (North) is located at 10° 12' 27' ' N,
114° 13' 21' ' E and is 203.0 nautical miles from the archipelagic baseline of the
Philippine island of Palawan and 544.1 nautical miles from China' s baseline
point 39 (Dongzhou (2)) adjacent to Hainan. Gaven Reef (South) is located at
10° 09' 42' ' N 114° 15' 09' ' E and is 200.5 nautical miles from the archipelagic
baseline of the Philippine island of Palawan and 547.4 nautical miles from
China's baseline point 39 (Dongzhou (2)) adjacent to Hainan.

289 Subi Reef is known as "Zhubi Jiao" (渚碧礁) in China and "Zamora Reef" in the
. Philippines. It is a coral reef located to the north of Tizard Bank and a short
distance to the south-west of the high-tide feature of Thitu Island and its
surrounding Thitu Reefs. Subi Reef is located at 10° 55' 22' ' N, 114 o 05' 04' ' E
and lies on the north-western edge of the Spratly Islands. Subi Reef is 231.9
nautical miles from the archipelagic baseline of the Philippine island of Palawan
and 502.2 nautical miles from China's baseline point 39 (Dongzhou (2))
adjacent to Hainan.

290 Mischief Reef and Second Thomas Shoal are both coral reefs located in the
. centre of the Spratly Islands, to the east of Union Bank and to the south-east of
Tizard Bank. Mischief Reef is known as "Meiji Jiao" ( 美 济 礁 ) in China and
"Panganiban" in the Philippines. It is located at 09° 54' 17' ' N, 115° 31' 59' ' E
and is 125.4 nautical miles from the archipelagic baseline of the Philippine
island of Palawan and 598.1 nautical miles from China' s baseline point 39
(Dongzhou (2)) adjacent to Hainan. Second Thomas Shoal is known as "Ren' ai
Jiao" (仁爱礁) in China and "Ayungin Shoal" in the Philippines. It is located at
09° 54' 17' ' N, 115° 51' 49' ' E and is 104.0 nautical miles from the archipelagic
baseline of the Philippine island of Palawan and 616.2 nautical miles from
China's baseline point 39 (Dongzhou (2)) adjacent to Hainan. [53]
The Permanent Court of Arbitration used the Province of Palawan as its baseline
point to determine the reefs' proximity to the Philippines. The Republic likewise
made argument with regard to Reed Bank in asserting its sovereignty over the
Kalayaan Island Group:
FIRST, the Republic of the Philippines has sovereignty and jurisdiction over the
Kalayaan Island Group (KIG);

SECOND, even while the Republic of the Philippines has sovereignty and
jurisdiction over the KIG, the Reed Bank where GSEC 101 is situated does not form
part of the "adjacent waters," specifically the 12 M territorial waters of any relevant
geological feature in the KIG either under customary international law or the United
Nations Convention on the Law of the Sea (UNCLOS);

THIRD, Reed Bank is not an island, a rock, or a low tide elevation. Rather, Reed
Bank is a completely submerged bank that is part of the continental margin of
Palawan. Accordingly, Reed Bank, which is about 85 M from the nearest coast of
Palawan and about 595 M from the coast of Hainan, forms part of the 200 M
continental shelf of the Philippine archipelago under UNCLOS[.] [54]
The Republic has manifested before an international audience that it exercises
sovereignty over territories without a definitive land mass on the ground that they
form part and parcel of the Province of Palawan. Thus, it recognized that jurisdiction
can be established even over areas which are not susceptible of land mass or
defined by contiguity.

In any case, the grant of an equitable share in the utilization and development of
resources within a local government unit's territorial jurisdiction has practical basis.

When resources are being utilized and developed in a certain area, there will be a
need for the surrounding areas to be secured. The environmental impacts to the
nearby community will have to be addressed. While amicus curiae Secretary
General Bensurto eventually concluded that the Camago-Malampaya reservoir was
not within Palawan's territorial jurisdiction, he nonetheless made the following
observations:
1. The proximity of the Camago-Malampaya gas reservoir to the Province of
Palawan makes the latter environmentally vulnerable to any major accidents in
the gas reservoir;

2. The gas pipes of the Camago-Malampaya pass through the Northern part of
the Palawan Province.[55]
The local government unit's equitable share is meant to address the possible effects
that the project may have on the local population. It can also assist in strengthening
the economic development of the local government unit and uplift the lives of its
constituents.
III

The ponencia submits that there was no estoppel on the part of the Executive
Branch when it promulgated issuances recognizing the Province of Palawan's share
in the Camago-Malampaya Project, as they were merely "based on a mistaken
assumption."[56]

The doctrine of contemporaneous construction is settled. In Tamayo v. Manila Hotel

Company:[57]
It is a rule of statutory construction that "courts will and should respect the
contemporaneous construction placed upon a statute by the executive officers,
whose duty it is to enforce it and unless such interpretation is clearly erroneous will
ordinarily be controlled thereby."[58]
Another variation of the doctrine states:
... [An] order, constituting executive or contemporaneous construction of a statute by
an administrative agency charged with the task of interpreting and applying the
same, is entitled to full respect and should be accorded great weight by the courts,
unless such construction is clearly shown to be in sharp conflict with the
Constitution, the governing statute, or other laws. [59] (Citation omitted)
The National Government has repeatedly recognized that the Province of Palawan
was entitled to an equitable share in the proceeds of its utilization and development.

Administrative Order No. 381, issued by then President Ramos, expressly

recognized that the National Government would share in the net proceeds of the
Camago-Malampaya Natural Gas Project.[60] In particular, it provided:
WHEREAS, under SC 38, as clarified, a production sharing scheme has been
provided whereby the Government is entitled to receive an amount equal to sixty
percent (60%) of the net proceeds from the sale of Petroleum (including Natural
Gas) produced from Petroleum Operations (all as defined in SC 38) while Shell/Oxy,
as Service Contractor is entitled to receive an amount equal to forty percent (40%)
of the net proceeds;

....

WHEREAS, the Government has determined that it can derive the following
economic and social benefits from the Natural Gas Project:

....
2. based on the estimated production level and Natural Gas pricing formula between
the Sellers and the Buyers of such Natural Gas, the estimated Government
revenues for the 20-year contract period will be around US$8.1 billion; this includes
estimated revenues to be generated from the available oil and condensate reserves
of the Camago-Malampaya Reservoir; the province of Palawan is expected to
receive about US$2.1 billion from the total Government share of US$8.1 billion;

....

WHEREAS, the Government's share in Petroleum (including Natural Gas) produced

under SC 38, as clarified, will be reduced (i) by the share of concerned local
government units pursuant to the Local Government Code and (ii) by amounts of
income taxes due from and paid on behalf of the Service Contractor (the resulting
amounts hereinafter called the "Net Government Share")[.] [61]
On June 10, 1998, then Secretary of Energy Viray wrote a letter to then Palawan
Governor Socrates, requesting for a deferred payment of 50% of Palawan's share in
the Camago-Malampaya Natural Gas Project, [62] which likewise shows an effort by
the Executive Branch to fulfill its commitments to the Province of Palawan.

After the formal launch of the Camago-Malampaya Natural Gas Project, negotiations
occurred between agents of the National Government and the Province of Palawan,
to determine the Province of Palawan's share in the net proceeds, until it was called
off by the Province of Palawan. [63]

This is yet another instance of the Executive Branch's acceptance of the Province of
Palawan's territorial jurisdiction over the area. Otherwise, there would have been no
need to negotiate.

Even when the case before the Regional Trial Court was pending, then Secretary of
Energy Perez, then Secretary of Budget and Management Relampagos, and then
Secretary of Finance Amatong executed an Interim Agreement [64] with the Province
of Palawan, providing for equal sharing of the 40% being claimed by the Province of
Palawan, to be called the "Palawan Share," for its development and infrastructure
projects, environment protection and conservation, electrification of 431 barangays,
and establishment of facilities for the security enhancements of the exclusive
economic zone.[65]

Representatives of the National Government, with authority from then President

Arroyo, and the Province of Palawan, in conformity with the representatives of the
legislative districts of Palawan, likewise executed a Provisional Implementation
Agreement which allowed for the release of 50% of the disputed 40% share to be
utilized for development projects in Palawan.

Then President Arroyo issued Executive Order No. 683 dated December 1, 2007,
pertinent portions of which state:
WHEREAS, on 11 December, 1990, the Republic of the Philippines, represented by
the Department of Energy (DOE), entered into Service Contract No. 38 (SC 38) and
engaged the services of a consortium composed today of Shell B.V., Shell
Philippines LLC, Chevron Malampaya LLC and PNOC-Exploration Corporation (EC),
as Contractor for the exploration, development and production of petroleum
resources in an identified offshore area, known as the Camago-Malampaya
Reservoir, to the West Philippines Sea;

....

WHEREAS, President as Chief Executive has a broad perspective of the

requirements to develop Palawan as a major tourism destination from the point of
view of the National Government, which has identified the Central Philippines
Superregion, of which Palawan is a part, for tourism infrastructure investments;

WHEREAS, there is a pending court dispute between the National Government and
the Province of Palawan on the issue of whether Camago-Malampaya Reservoir is
within the territorial boundaries of the Province of Palawan thus entitling the said
province to 40% of the Net Government Share in the proceeds of SC 38 pursuant to
Sec. 290 of Republic Act No. (RA) 7160, otherwise known as the "Local Government
Code";

WHEREAS, Sec. 25 of RA 7160 provides that the President may, upon request of
the local government unit (LGU) concerned, direct the appropriate national
government agency to provide financial, technical or other forms of assistance to the
LGU;

WHEREAS, the duly-authorized representatives of the National Government and the

Province of Palawan, with the conformity of the Representatives of the
Congressional District of Palawan, have agreed on a Provisional Implementation
Agreement (PIA) that would allow 50% of the disputed 40% of the Net Government
Share in the proceeds of SC 38 to be utilized for the immediate and effective
implementation of development projects for the people of Palawan;

NOW, THEREFORE, I, GLORIA M. ARROYO, President of the Philippines, by virtue

of the power vested in me by law, do hereby order:
SECTION 1. Subject to existing laws, and the usual government accounting and
auditing rules and regulations, the Department of Budget and Management (DBM) is
hereby authorized to release funds to the implementing agencies (IA) pursuant to
the PIA, upon the endorsement and submission by the DOE and/or the PNOC
Exploration Corporation of the following documents:

1.1. Directive by the Office of the President or written request of the Province of
Palawan, the Palawan Congressional Districts or the Highly Urbanized City of
Puerto Princesa, for the funding of designated projects;

1.2. A certification that the designated projects fall under the investment program of
the Province of Palawan, City of Puerto Princesa, and/or the development
projects identified in the development program of the National Government or its
agencies; and

1.3. Bureau of Treasury certification on the availability of funds from the 50% of the
40% share being claimed by the Province of Palawan from the Net Government
Share under SC 38;

Provided, that the DBM shall be subject to the actual collections deposited with the
National Treasury, and shall be in accordance with the Annual Fiscal Program of the
National Government.

....

SECTION 3. The National government, with due regard to the pending judicial
dispute, shall allow the Province of Palawan, the Congressional Districts of Palawan
and the City of Puerto Princesa to securitize their respective shares in the 50% of
the disputed 40% of the Net Government Share in the proceeds of SC 38 pursuant
to the PIA. For the purpose, the DOE shall, in consultation with the Department of
Finance, be responsible for preparing the Net Government Revenues for the period
of to June 30, 1010.

SECTION 4. The amounts released pursuant to this EO shall be without prejudice to

any on-going discussions or final judicial resolution of the legal dispute regarding the
National Government's territorial jurisdiction over the areas covered by SC 38 in
relation to the claim of the Province of Palawan under Sec. 290 of RA 7160.
These enactments show the Executive Branch's contemporaneous construction of
Section 290 of the Local Government Code in relation to Service Contract No. 38.
Contemporaneous construction is resorted to when there is an ambiguity in the law
and its provisions cannot be discerned through plain meaning. The interpretation of
those called upon to implement the law is given great respect. [66]

Given the ambiguity of the phrase "within their respective areas" under Article X,
Section 7 of the Constitution, it was necessary to resort to the examination of prior
and subsequent acts of those required to implement the law.

Considering that the Executive Branch has consistently recognized the Province of
Palawan's entitlement to its equitable share in the net proceeds of the Camago-
Malampaya Natural Gas Project, its interpretation must be given its due weight.

The ponencia, in confining territorial jurisdiction to only that of land mass, does a
disservice to the entirety of Article X, Section 7, which reads:
ARTICLE X
Local Government
General Provisions

Section 7. Local governments shall be entitled to an equitable share in the proceeds

of the utilization and development of the national wealth within their respective
areas, in the manner provided by law, including sharing the same with the
inhabitants by way of direct benefits.
Under this provision, local governments are entitled to an equitable share in the
proceeds of the utilization and development of the national wealth within their
respective areas, in the manner provided by law. This means that law may define
what could be included within a local government's respective area.

Thus, the extent of a local government unit's territorial jurisdiction cannot be limited
only to its land mass, as defined by the Local Government Code. Reference must
also be made to other statutes.

In this instance, Presidential Decree No. 1596 and Republic Act No. 7611 grants the
Province of Palawan territorial jurisdiction over areas that are beyond its coastline.
Presidential Decree No. 1596 even explicitly declares that the Province of Palawan
may have territorial jurisdiction over the continental shelf of the Kalayaan Island
Group. Thus, I cannot agree with the ponencia's recommendation that territorial
jurisdiction is exercised solely over a local government's land mass.

Unfortunately, the Province of Palawan failed to provide sufficient evidence to show

that the Camago-Malampaya Natural Gas Project was within its area of
responsibility. The maps submitted to this Court were inadequate to prove that the
Province of Palawan's claims. Thus, I am constrained to vote with the majority.

Accordingly, I vote to GRANT the Petition in G.R. No. 170867 and DENY the

Petition in G.R. No. 189514.

[1]
 Rollo (G.R. No. 170867), p. 89.

[2]
 Id. at 1465. The rolla indicated that Camago-Malampaya is located 26.9546
nautical miles northwest of Tapiutan Island.

[3]
 Id. at 1305. Exec. Order No. 683 (2007), whereas clause.

[4]
 Id. at 549-550-A.

[5]
 Id. at 550.

[6]
 Id. at 549-A.

[7]
 Id. at 551-552.

[8]
 Id. at 554. It is unclear from the records whether a legal opinion was issued by the
Department of Justice.

[9]
 Ponencia, p. 4.

[10]
 Rollo (G.R. No. 170867), pp. 127-128.

[11]
 Id. at 129.

[12]
 Id. at 127. Rep. Act No. 7611 (1992), Strategic Environmental Plan (SEP) for
Palawan Act.

[13]
 Id. at 130-159.

[14]
 Id. at 85-86.

[15]
 Id. at 555-561.

[16]
 Id. at 557.
[17]
 Id. at 557-558.

[18]
 Id. at 83-112. The Decision was penned by Judge Bienvenido C. Blancaflor of
Branch 95, Regional Trial Court, Puerto Princesa City.

[19]
 Id. at 115.

[20]
 Id. at 114.

[21]
 Id. at 113-116. The original Order was erroneously dated December 16, 2006
instead of January 16, 2006. The Order was amended to conform to the correct
date.

[22]
 Id. at 9.

[23]
 Ponencia, p. 2.

[24]
 Id. at 8-9.

[25]
 Rollo (GR. No. 185941), pp. 498-503.

[26]
 Id. at 489-491.

[27]
 Ponencia, p. 11.

[28]
 Rollo (G.R. No. 185941), pp. 218-224. The Resolution, docketed as CA-G.R. SP
No. 102247, was penned by Associate Justice Rebecca De Guia-Salvador (Chair)
and concurred in by Associate Justices Vicente S.E. Veloso and Apolinario D.
Bruselas, Jr. of the Eleventh Division, Court of Appeals, Manila.

[29]
 Id. at 223.

[30]
 Id.

[31]
 Ponencia, pp. 12-13.

[32]
 Id. at 13. Dean Raul Pangalangan and Secretary General Henry Bensurto, Jr.
were made amici curiae for the oral arguments. Only Secretary General Bensurto
submitted an amicus brief.

[33]
 Id. at 13-14.
[34]
 CONST., art. X, sec. 7. Local governments shall be entitled to an equitable share
in the proceeds of the utilization and development of the national wealth within their
respective areas, in the manner provided by law, including sharing the same with the
inhabitants by way of direct benefits.

[35]
 CONST., art. II,sec. 25.

[36]
 CONST., art. X, sec. 3. See also Ganzon v. Court of Appeals, 277 Phil. 311
(1991) [Per J. Sarmiento, En Banc].

[37]
 Pimentel v. Aguirre, 391 Phil. 84 (2000) [Per J. Panganiban, En Banc].

[38]
 Id. at 103.

[39]
 CONST., art. X, secs. 15 to 21.

[40]
 LOCAL GOVT. CODE, sec. 6.

[41]
 LOCAL GOVT. CODE, sec. 7.

[42]
 LOCAL GOVT. CODE, sec. 7(c).

[43]
 Act No. 422 (1902), An Act Providing for the Organization of a Provincial
Government in the Province of Paragua, and Defining the Limits of that Province.

[44]
 Act No. 567 (1902).

[45]
 226 Phil. 624 (1986) [Per J. Alampay, En Banc].

[46]
 Id. at 646.

[47]
 626 Phil. 23 (2010) [Per J. Peralta, En Banc].

[48]
 Navarro v. Ermita, 663 Phil. 546 (2011) [Per J. Nachura, En Banc].

[49]
 Id. at 584, 586.

[50]
 LOCAL GOVT. CODE, sec. 131(r).

[51]
 Pres. Decree No. 1596 (1978), Declaring Certain Area Part of the Philippine
Territory and Providing for their Government and Administration.
[52] 
Pres. Decree No. 1596 (1978), sec. 1

[53]
 In the Matter of the South Sea China Arbitration, PCA Case No. 2013-19, July 12,
2016, <https://pcacpa.org/wp-content/uploads/sites/175/2016/07/PH-CN-20160712-
Award.pdf> 121-122.

[54]
 Id. at 266.

[55]
 Rollo (GR. No. 170867), p. 1356.

[56]
 Id. at 75.

[57]
 101 Phil. 810 (1957) [Per J. Reyes, A., En Banc).

[58]
 Id. at 815, citing Molina v. Rafferty, 37 Phil. 545 (1918) [Per J. Malcom, First
Division.]; In re Allen, 2 Phil. 630 (1903) [Per J. McDonough, En Banc]; and Everett
v. Bautista, 69 Phil. 137 (1939) [Per J. Diaz, En Banc).

[59]
 Alvarez v. Guingona, Jr., 322 Phil. 774, 786 (1996) [Per J. Hermosisima, Jr., En
Banc].

[60]
 Rollo (G.R. No. 170867), pp. 549-550-A.

[61]
 Adm. Order No. 381 (1998), whereas clauses.

[62]
 Rollo (G.R. No. 170867), pp. 551-552.

[63]
 Id. at 127-128.

[64]
 Id. at 555-561.

[65]
 Id. at 557.

[66]
 See Lim Hoa Ting v. Central Bank of the Philippines, 104 Phil. 573 (1958) [Per J.
Monte
Case No. 5

[ G.R. NO. 155650, July 20, 2006 ]

MANILA INTERNATIONAL AIRPORT AUTHORITY, PETITIONER, VS. COURT OF
APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, AND CITY TREASURER OF PARAÑAQUE, RESPONDENTS.

DECISION
CARPIO, J.:
The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909[1] and 298[2] amended the MIAA Charter.

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

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

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

TAX TAX DUE PENALTY TOTAL

TAXABL
DECLARATI
E YEAR
ON

1992-
E-016-01370 19,558,160.00 11,201,083.20 30,789,243.20
2001
1992- 111,689,424.9 179,838,904.4
E-016-01374 68,149,479.59
2001 0 9
1992-
E-016-01375 20,276,058.00 12,371,832.00 32,647,890.00
2001
1992-
E-016-01376 58,144,028.00 35,477,712.00 93,621,740.00
2001
1992-
E-016-01377 18,134,614.65 11,065,188.59 29,199,803.24
2001
1992- 111,107,950.4 178,902,631.9
E-016-01378 67,794,681.59
2001 0 9
1992-
E-016-01379 4,322,340.00 2,637,360.00 6,959,700.00
2001
1992-
E-016-01380 7,776,436.00 4,744,944.00 12,521,380.00
2001
1998-
*E-016-013-85 6,444,810.00 2,900,164.50 9,344,974.50
2001
 1998-
*E-016-01387 34,876,800.00 5,694,560.00 50,571,360.00
2001
1998-
*E-016-01396 75,240.00 33,858.00 109,098.00
2001
GRAND P392,435,861. P232,070,863. P624,506,725.
TOTAL 95 47 42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00[6]

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the
Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands
and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC
Opinion No. 061.

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

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

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

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

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

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

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

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective
Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public
use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are
thus inalienable and are not subject to real estate tax by local governments.

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

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

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos[8] where we held that the
Local Government Code has withdrawn the exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

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

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate
tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its
charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-
owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. - x x x x

(13)  Government-owned or controlled corporation refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is
not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter[9] provides:
SECTION 10. Capital. - The capital of the Authority to be contributed by the National Government shall be increased
from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable
and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies,
the valuation of which shall be determined jointly with the Department of Budget and Management and the
Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and
other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the
assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided
for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the
Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code[10] defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury.[11] This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate
powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. - x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain,[12] police authority[13] and the levying of fees and charges.[14] At the same
time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."[15]

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and autonomous body"[16] will make its operation
more "financially viable."[17]

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-owned or controlled corporations in the strict
sense as understood under the Administrative Code, which is the governing law defining the legal relationship and
status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:

xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and
local government units. (Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."[18]

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig,
Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies.[19]
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended
to tax government instrumentalities for the delivery of essential public services for sound and compelling
policy considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in  Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of theState can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez,
340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield
it. [20]
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

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

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form
part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.

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

The charging of fees to the public does not determine the character of the property whether it is of public dominion or
not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use
the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the
road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the
public who actually use a public facility instead of taxing all the public including those who never use the particular
public facility. A user's tax is more equitable " a principle of taxation mandated in the 1987 Constitution.[21]

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic,"[22] are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this
Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial
and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general
service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw
or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In
leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its
authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it
empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object
of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain
in its decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by
their very nature outside of commerce are those for public use, such as the plazas, streets, common lands,
rivers, fountains, etc." (Emphasis supplied) [23]
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the
public in general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions.[24] (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject
of an auction sale.[25]

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the
auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber[26] the Airport Lands and Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law governing the classification and disposition of lands of the public
domain other than timber and mineral lands,"[27] provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic
of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for
this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for
highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas
communales, public parks, public quarries, public fishponds, working men's village and other improvements for the
public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-
alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring
supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of
the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter
remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book
I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. - Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive
head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such
deed of conveyance.[28]

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of
Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. - x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately six
hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and
the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. - All existing public airport facilities, runways,
lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers,
rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air
operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and
Transitory Provisions. - The Manila International Airport including the Manila Domestic Airport as a division under the
Bureau of Air Transportation is hereby abolished.

x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and
domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best
airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the
current and future air traffic and other demands of aviation in Metro Manila;

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

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the
Philippines is given continuing authority to reorganize the National Government, which authority includes the
creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of
the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can
authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the
Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property
tax:

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

x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments
from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies
and instrumentalities x x x." The real properties owned by the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

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

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable
person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon
City,  the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by
the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real
property taxes.[29]
3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government
Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the
Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax.
Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from
realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that
the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether
MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status - whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in
isolation from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local
Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any
kind of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:

xxxx

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

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax
by local governments. The minority insists that the juridical persons exempt from local taxation are limited to
the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would
be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This
theory will result in gross absurdities. It will make the national government, which itself is a juridical person,
subject to tax by local governments since the national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real
estate tax, on the national government.

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

Development Authority,[32] Fisheries Development Authority,[33] Bases Conversion Development Authority,[34] Philippine

Ports Authority,[35] Cagayan de Oro Port Authority,[36] San Fernando Port Authority,[37] Cebu Port Authority,[38] and
Philippine National Railways.[39]

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the
law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local
taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this
Code." This means that unless the Local Government Code grants an express authorization, local governments have
no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local
governments may tax the national government, its agencies and instrumentalities only if the Local Government Code
expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax when it gives the beneficial use of its real properties to
a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax - The following are exempted from payment of the real property
tax:

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

x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its
agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption
is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to
the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the
later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o)
of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193
and 234 on the other. No one has urged that there is such a conflict, much less has any one presented a persuasive
argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this
Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that
limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee
of the power simply cannot exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units."
Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated
power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any
kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing
power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and
purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing
power. If the taxing power of local governments in Section 193 prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind of tax on the national government, its agencies and
instrumentalities - a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless
otherwise provided in this Code." This exception " which is an exception to the exemption of the Republic from real
estate tax imposed by local governments - refers to Section 234(a) of the Code. The exception to the exemption in
Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government,
its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. - Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean
that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a
different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently
from the definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned
or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation."
The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the
major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code
is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government
unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by
special charters. The minority sees no reason why government corporations with special charters should have a
capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to
those corporations owned by the government or its instrumentalities which are created not by legislative enactment,
but formed and organized under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or
alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It
will also result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines.
The special charter[40] of the Land Bank of the Philippines provides:
SECTION 81. Capital. - The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed
by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which
shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis
supplied)
Likewise, the special charter[41] of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock " Par value. " The capital stock of the Bank shall be Five Billion Pesos to
be divided into Fifty Million common shares with par value of P100 per share. These shares are available for
subscription by the National Government. Upon the effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the Philippine
Crop Insurance Corporation,[42] Philippine International Trading Corporation,[43] and the Philippine National
Bank[44] before it was reorganized as a stock corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are subject to real estate tax on real properties
owned by them. To rule that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the
Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or
controlled corporation must be established for the common good. The second condition is that the government-
owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled
corporations with special charters unless they are made to comply with the two conditions of common good
and economic viability. The test of economic viability applies only to government-owned or controlled corporations
that perform economic or commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good " meaning for economic development purposes " these government-
owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are not
the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such entities " known as "government-owned or
controlled corporations" " must meet the test of economic viability because they compete in the market place.

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

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers" money through
new equity infusions from the government and what is always invoked is the common good. That is the reason why
this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity
infusions to support a few government financial institutions. And this is all taxpayers" money which could have been
relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am
glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY
OR THE ECONOMIC TEST," together with the common good.[45]
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes
the ideas that they must show capacity to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not quantifiable in financial terms.[46] (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the Corporation Code, that
fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the
market place. MIAA does not compete in the market place because there is no competing international airport
operated by the private sector. MIAA performs an essential public service as the primary domestic and international
airport of the Philippines. The operation of an international airport requires the presence of personnel from the
following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening
out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of
infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into
the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter
or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises - such as runway and buildings - for the government personnel,
passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal
fees that MIAA charges every passenger are regulatory or administrative fees[47] and not income from commercial
transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of
the Administrative Code, which provides:
SEC. 2. General Terms Defined. - x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section
2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential
public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit
conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what
constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is
grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with
corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception
applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code
provides:
Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or
public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.

4. Conclusion

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

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

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

No costs.

SO ORDERED.
Case No. 6

G.R. No. 193462               February 4, 2014

DENNIS A.B. FUNA,

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

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
and Cultural Office (MECO), and

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

The antecedents:

Prelude

The aftermath of the Chinese civil war 2 left the country of China with two (2) governments in a
espousing competing assertions of sovereignty. 3 On one hand is the communist People’s Republi
(PROC) which controls the mainland territories, and on the other hand is the nationalist Republi
(ROC) which controls the island of Taiwan. For a better part of the past century, both the PROC
adhered to a policy of "One China" i.e., the view that there is only one legitimate government in
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,
question as to which of the two is deserving of recognition as that country’s legitimate governm
after its relocation to Taiwan, the ROC used to enjoy diplomatic recognition from a majority of t
states, partly due to being a founding member of the United Nations (UN). 5 The number of state
the PROC’s version of the One China policy, however, gradually increased in the 1960s and
notably after the UN General Assembly adopted the monumental Resolution 2758 in 1971. 6 S
almost all of the states that had erstwhile recognized the ROC as the legitimate government
terminated their official relations with the said government, in favor of establishing diplomatic rela
the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations with the government in Taiwan
1975, when the country and the PROC expressed mutual recognition thru the Joint Communiq
Government of the Republic of the Philippines and the Government of the People’s Republic of C
Communiqué).8

Under the Joint Communiqué, the Philippines categorically stated its adherence to the One Chin
the PROC. The pertinent portion of the Joint Communiqué reads: 9

The Philippine Government recognizes the Government of the People’s Republic of China as the
government of China, fully understands and respects the position of the Chinese Government th
but one China and that Taiwan is an integral part of Chinese territory, and decides to remove all
representations from Taiwan within one month from the date of signature of this communiqué.
supplied)

The Philippines’ commitment to the One China policy of the PROC, however, did not preclude th
from keeping unofficial relations with Taiwan on a "people-to-people" basis. 10 Maintaining ties w
that is permissible by the terms of the Joint Communiqué, however, necessarily required the P
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 main
unofficial relationship facilitated by the offices of the Taipei Economic and Cultural Office, for the fo
the MECO, for the latter.11

The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation un

Pambansa Blg. 68 or the Corporation Code. 13 The purposes underlying the incorporation of M
stated in its articles of incorporation,14 are as follows:

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

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

3. To acquire by purchase, lease or by any gratuitous title real and personal properti
be necessary for the use and need of the corporation, and to dispose of the sa
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 ca
purposes. (Emphasis supplied)

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

At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers
Taiwan; promotes the Philippines as a tourist and investment destination for the Taiwanese; and
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 letter 18 to the COA requesting for a "copy of the latest fin
audit report" of the MECO invoking, for that purpose, his "constitutional right to information on
public concern." The petitioner made the request on the belief that the MECO, being under the "o
supervision" of the Department of Trade and Industry (DTI), is a government owned and
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 da

On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum 20 referring the p

request to COA Assistant Commissioner Emma M. Espina for "further disposition." In this mem
however, Assistant Commissioner Naranjo revealed that the MECO was "not among the agenci
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
the accounts of the MECO, the petitioner filed the instant petition for mandamus on 8 Septem
Petitioner filed the suit in his capacities as "taxpayer, concerned citizen, a member of the Philippin
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 d
Section 2(1), Article IX-D of the Constitution to audit the accounts of an otherwise bona fide
government instrumentality. It is the adamant claim of the petitioner that the MECO is a GOCC
original charter or, at least, a government instrumentality, the funds of which partake the nature
funds.23

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

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

2. The MECO is controlled by the government. It is the President of the Philippines th

appoints the directors of the MECO, albeit indirectly, by way of "desire letters" addres
MECO’s board of directors.27 An illustration of this exercise is the assumption by M
Basilio as chairman of the board of directors of the MECO in 2001, which was acc
when former President Gloria Macapagal-Arroyo, through a memorandum 28 dated 20
2001, expressed her "desire" to the board of directors of the MECO for the elect
Basilio as chairman.29

3. The MECO is under the operational and policy supervision of the DTI. The M
placed under the operational supervision of the DTI by EO No. 328, s. of 2004,
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
calls attention to the practice, allegedly prevailing in the United States of America, wherein the
Institute in Taiwan (AIT)—the counterpart entity of the MECO in the United States—is supposedly
that country’s Comptroller General. 31 Petitioner claims that this practice had been confirmed in a d
the United States Court of Appeals for the District of Columbia Circuit, in the case of Wood, J
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 ground

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 minis
required by law only ripens once there has been a refusal by the tribunal, board or officer con
perform such a duty.34 The MECO claims that there was, in this case, no such refusal either on its
the COA’s because the petitioner never made any demand for it to submit to an audit by the COA
COA to perform such an audit, prior to filing the instant mandamus petition. 35 The MECO further
that the only "demand" that the petitioner made was his request to the COA for a copy of the MEC
financial and audit report— which request was not even finally disposed of by the time the insta
was filed.36

On the petition’s merits, the MECO denies the petitioner’s claim that it is a GOCC or a go
instrumentality.37 While performing public functions, the MECO maintains that it is not owned or co
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

the President of the Philippines does not appoint its board of directors. 39 The "desire
the President transmits is merely recommendatory and not binding on the corporat
corporation organized under the Corporation Code, matters relating to the elec
directors and officers, as well as its membership, are governed by the appropriate pr
the said code, its articles of incorporation and its by-laws. 41 Thus, it is the directors
the corporation’s officers; the members who elect the directors; and the directors who
members by way of a unanimous resolution. All of its officers, directors, and me
private individuals and are not government officials. 42

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

The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can

violate the country’s commitment to the One China policy of the PROC. 45 Thus, the MECO cautio
applying to the present mandamus petition the pronouncement in the Wood decision regarding t
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
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 petition
shown, at least in a concrete manner, that he had been aggrieved or prejudiced by it
audit the accounts of the MECO.47

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

At any rate, the COA argues that the instant petition already became moot when COA Chairper
Gracia M. Pulido-Tan (Pulido-Tan) issued Office Order No. 2011-698 50 on 6 October 2011.51 The C
that under Office Order No. 2011-698, Chairperson Pulido-Tan already directed a team of a
proceed to Taiwan, specifically for the purpose of auditing the accounts of, among other g
agencies based therein, the MECO.52

In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA clar
does not consider the former as a GOCC or a government instrumentality. On the contrary,
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 w
to the "verification fees" for overseas employment documents that it collects from Taiwanese em
behalf of the DOLE.54 The COA claims that, under Joint Circular No. 3-99, 55 the MECO is mandate
to the Department of Labor and Employment (DOLE) a portion of such "verification fees." 56 
therefore, classifies the MECO as a non-governmental entity "required to pay xxx government sha
to a partial audit of its accounts under Section 26 of the Presidential Decree No. 1445 or the S
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. Howe
existing laws, the accounts of the MECO pertaining to the "verification fees" it collects on behalf of
as well as the fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are sub
audit jurisdiction of the COA. Such fees pertain to the government and should be audited by the CO

We begin with the preliminary issues.

Mootness of Petition

The first preliminary issue relates to the alleged mootness of the instant mandamus petition, occa
the COA’s issuance of Office Order No. 2011-698. The COA claims that by issuing Office Order
698, it had already conceded its jurisdiction over the accounts of the MECO and so fulfilled the o
the instant petition.58 The COA thus urges that the instant petition be dismissed for being
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
to present any justiciable controversy.60 Since they lack an actual controversy otherwise cog
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
v. Macapagal-Arroyo,62 this Court comprehensively captured these exceptions scattered throu
jurisprudence:

The "moot and academic" principle is not a magical formula that can automatically dissuade the
resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there is a grav
of the Constitution;63 second, the exceptional character of the situation and the paramount public
involved;64 third, when constitutional issue raised requires formulation of controlling principles to
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 qua
supervening event that effectively renders moot and academic the main prayer of the instant m
petition. A writ of mandamus to compel the COA to audit the accounts of the MECO would cert
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 m
petition was able to craft substantial issues presupposing the commission of a grave violat
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
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 t
audit the accounts of the MECO. The propriety or impropriety of such a refusal is determinative o
the COA was able to faithfully fulfill its constitutional role as the guardian of the public treasury, in
citizen has an interest.

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

An allegation as serious as a violation of a constitutional or legal duty, coupled with the press
interest in the resolution of all related issues, prompts this Court to pursue a definitive ruling ther
for the proper guidance of the government or agency concerned, then for the formulation of
principles for the education of the bench, bar and the public in general. 68 For this purpose, the Cou
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
not offer the strongest certainty that they would not be replicated in the future. In the first place, Of
No. 2011-698 did not state any legal justification as to why, after decades of not auditing the acco
MECO, the COA suddenly decided to do so. Neither does it state any determination regardin
status of the MECO. The justifications provided by the COA, in fact, only appears in the memor
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 dependen
judgment of the incumbent chairperson of the COA; susceptible of being undone, with or without
her or even her successor. Hence, the case now before this Court is dangerously capable of being
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 m
petition. The COA claims that petitioner has none, for the latter was not able to concretely establi
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 o
file the instant mandamus petition. The MECO faults petitioner for not making any demand for it 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-defi
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
Court.1a\^/phi1 Taxpayers, voters, concerned citizens, and legislators may be accorded standi
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 th
measure is unconstitutional;

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

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

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

We rule that the instant petition raises issues of transcendental importance, involved as they ar
performance of a constitutional duty, allegedly neglected, by the COA. Hence, We hold that the pe
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 i
maintain the instant petition. The duty of the COA sought to be compelled by mandamus, emanate
Constitution and law, which explicitly require, or "demand," that it perform the said duty. To the m
Court, petitioner already established his cause of action against the COA when he alleged that the
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 hi
courts. The COA assails the filing of the instant mandamus petition directly with this Court, w
petition could have very well been presented, at the first instance, before the Court of Appea
Regional Trial Court.74 The COA claims that the petitioner was not able to provide compelling r
justify a direct resort to the Supreme Court. 75

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

II

To the merits of this petition, then.

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

Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction of the

Under Section 2(1) of Article IX-D of the Constitution, 77 the COA was vested with the "power, au
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
under the Constitution; and

5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from

the government, which are required by law or the granting institution to submit to th
audit as a condition of subsidy or equity.78

The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue,"
"expenditures" and "uses of funds and property" of the foregoing entities. 79
Complementing the constitutional power of the COA to audit accounts of "non-government
receiving subsidy or equity xxx from or through the government" is Section 29(1) 80 of the Audit Co
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 governm

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 entit
"funds xxx coming from or through the government." 81 This section of the Audit Code is, in turn, su
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
books, records and accounts" of public utilities "in connection with the fixing of rates of every na
relation to the proceedings of the proper regulatory agencies, for purposes of determining franchise

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

We examine both contentions.

The MECO Is Not a GOCC

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 f
GOCC or government instrumentality. Petitioner points out that the MECO is a non-stock c
"vested with governmental functions relating to public needs"; it is "controlled by the governm
board of directors appointed by the President of the Philippines"; and it operates "outsi
departmental framework," subject only to the "operational and policy supervision of the DTI." 86 T
thus possesses, petitioner argues, the essential characteristics of a bona fide GOCC and g
instrumentality.87

We take exception to petitioner’s characterization of the MECO as a GOCC or government instru

The MECO is not a GOCC or government instrumentality.

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

1. regulatory agencies,

2. chartered institutions,

3. government corporate entities or government instrumentalities with corpora

(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

corporation, vested with functions relating to public needs whether governmental or proprietary
and owned by the Government directly or through its instrumentalities either wholly, or, where app
in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock:

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

(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as

non-stock corporation, vested with functions relating to public needs whether governmental or pro
nature, and owned by the Government of the Republic of the Philippines directly or th
instrumentalities either wholly or, where applicable as in the case of stock corporations, to the e
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 n
are "owned by the Government directly or through its instrumentalities." 93 By definition, three attri
make an entity a GOCC: first, its organization as stock or non-stock corporation; 94 second,
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 attribute
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 disclo
MECO was incorporated as a non-stock corporation under the Corporation Code on 16
1977.95 The incorporators of the MECO were Simeon R. Roxas, Florencio C. Guzon, Manuel K.
K. Luz and Eduardo B. Ledesma, who also served as the corporation’s original members and direc

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 natio
and abroad and assist on all measures designed to promote and maintain the trade r
the country with the citizens of other foreign countries;

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

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

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

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

Finally, it is not disputed that none of the income derived by the MECO is distributable as dividend
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
degree, the functions of the MECO can even be said to partake of the nature of governmental fun
earlier intimated, it is the MECO that, on behalf of the people of the Philippines, currently facilitates
relations with the people in Taiwan.

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

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

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

Taiwan to Philippine industries and businesses, especially in manufacturing
construction and other preferred areas of investments;

2. Promotion of the export of Philippine products and Filipino manpower

including Philippine management services, to Taiwan;

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

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

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

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

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

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

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

of trade statistics and commercial reports for use of Philippine industries and b
and

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

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
hereof, MECO, through its branch offices in Taiwan, is hereby authorized to perform the following f

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

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

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

3. Certification or affirmation of the authenticity of documents subm

authentication;
 4. Providing translation services;

5. Assistance and protection to Filipino nationals and other legal/juridica

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

6. Collection of reasonable fees on the first four (4) functions enumerated

defray the cost of its operations.

A perusal of the above functions of the MECO reveals its uncanny similarity to some of the
typically performed by the DFA itself, through the latter’s diplomatic and consular missions. 100 The
of the MECO, in other words, are of the kind that would otherwise be performed by the Philipp
diplomatic and consular organs, if not only for the government’s acquiescence that they i
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 corporatio
mere performance of functions with a public aspect, however, are not by themselves sufficient to
the MECO as a GOCC. In order to qualify as a GOCC, a corporation must also, if not more impo
owned by the government.

The government owns a stock or non-stock corporation if it has controlling interest in the corpor
stock corporation, the controlling interest of the government is assured by its ownership of at lea
percent (51%) of the corporate capital stock. 101 In a non-stock corporation, like the MECO, juri
teaches that the controlling interest of the government is affirmed when "at least majority of the me
government officials holding such membership by appointment or designation" 102 or there is
"substantial participation of the government in the selection" of the corporation’s governing board. 1

In this case, the petitioner argues that the government has controlling interest in the MECO becau
President of the Philippines that indirectly appoints the directors of the corporation. 104 The petitio
that the President appoints directors of the MECO thru "desire letters" addressed to the co
board.105 As evidence, the petitioner cites the assumption of one Mr. Antonio Basilio as chairm
board of directors of the MECO in 2001, which was allegedly accomplished when former
Macapagal-Arroyo, through a memorandum dated 20 February 2001, expressed her "desire" to th
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 a
recommendatory and not binding on it.107 The MECO maintains that, as a corporation organized
Corporation Code, matters relating to the election of its directors and officers, as well as its memb
ultimately governed by the appropriate provisions of the said code, its articles of incorporation a
laws.108
As between the contrasting arguments, We find the contention of the MECO to be the one more
with the law.

The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was
postulating that, as a corporation organized under the Corporation Code, it is governed by the a
provisions of the said code, its articles of incorporation and its by-laws. In this case, it is the by-law
MECO that stipulates that its directors are elected by its members; its officers are elected by its
and its members, other than the original incorporators, are admitted by way of a unanimo
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 mem
upon application for membership, are unanimously admitted by the Board of Directors

(b) Honorary member – A person of distinction in business who as sympathiz

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 themse
Board composed of five (5) members, including its Chairman, each of whom as to serve until su
his own successor shall have been elected by the regular members in an election called for the
The number of members of the Board shall be increased to seven (7) when circumstances so w
by means of a majority vote of the Board members and appropriate application to and appro
Securities and Exchange Commission. Unless otherwise provided herein or by law, a majority
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 designat
principal officer who shall be the Chairman. In line with this, the Chairman shall also carry the
Executive Officer. The officer who shall head the branch or office for the agency that may be e
abroad shall have the title of Director and Resident Representative. He will also be the Vice-Cha
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) memb
Board. The members of the Executive Committee shall be elected by the members of the Boa
themselves.
xxxx

SECTION VI. OFFICERS: DUTIES, COMPENSATION

Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-Chairm
Finance Officer, and a Secretary. Except for the Secretary, who is appointed by the Chairman of
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 a
appointed solely by the Vice Chairman and Resident Representative concerned. All such app
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 g
officials at the time of the corporation’s organization. Indeed, none of the members, officers o
directors of the MECO, from its incorporation up to the present day, were established as go
appointees or public officers designated by reason of their office. There is, in fact, no law or execu
that authorizes such an appointment or designation. Hence, from a strictly legal perspective, it ap
the presidential "desire letters" pointed out by petitioner—if such letters even exist outside of the c
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
class of government instrumentality. The other government instrumentalities i.e., the regulatory
chartered institutions and GCE/GICP are all, by explicit or implicit definition, creatures of the l
MECO cannot be any other instrumentality because it was, as mentioned earlier, merely incorpora
the Corporation Code.

Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is
under the policy supervision of the DTI is no longer a relevant issue to be reckoned with for purpo
case.

For whatever it is worth, however, and without justifying anything, it is easy enough for this
understand the rationale, or necessity even, of the executive branch placing the MECO under
supervision of one of its agencies.

It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was no
to operate as any other ordinary corporation. And it is not. Despite its private origins, and
deliberately so, the MECO was "entrusted" 111 by the government with the "deli
precarious"112 responsibility of pursuing "unofficial" 113 relations with the people of a foreign la
government the Philippines is bound not to recognize. The intricacy involved in such undertak
possibility that, at any given time in fulfilling the purposes for which it was incorporated, the MECO
itself engaged in dealings or activities that can directly contradict the Philippines’ commitment t
China policy of the PROC. Such a scenario can only truly be avoided if the executive department
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 oth
corporations. From its over-reaching corporate objectives, its special duty and authority to exerc
consular functions, up to the oversight by the executive department over its operations—all
maintaining its legal status as a non-governmental entity—the MECO is, for all intents and pur
generis.

Certain Accounts of the MECO

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 w
to the "verification fees" for overseas employment documents that the latter collects from T
employers on behalf of the DOLE.114 The COA claims that, under Joint Circular No. 3-99, the
mandated to remit to the national government a portion of such "verification fees." 115 The COA,
classifies the MECO as a non-governmental entity "required to pay xxx government share" per
Code.116

We agree that the accounts of the MECO pertaining to its collection of "verification fees" is sub
audit jurisdiction of the COA. However, We digress from the view that such accounts are the only
ought to be audited by the COA. Upon careful evaluation of the information made available by th
vis-à-vis the spirit and the letter of the laws and executive issuances applicable, We find that the a
the MECO pertaining to the fees it was authorized to collect under Section 2(6) of EO No. 15, s.
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 sh
"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 em
contracts, recruitment agreement or special powers of attorney" that the DOLE was authorized
under Section 7 of EO No. 1022, 118 which was issued by President Ferdinand E. Marcos on 1 M
These fees are supposed to be collected by the DOLE from the foreign employers of OFW
intended to be used for "the promotion of overseas employment and for welfare services to Filipin
within the area of jurisdiction of [concerned] foreign missions under the administration of the [DOLE

Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the D
of Finance and the COA in an effort to implement Section 7 of Executive Order No. 1022. 120 Th
Joint Circular 3-99, the following officials have been tasked to be the "Verification Fee Collecting O
behalf of the DOLE:121
 1. The labor attaché or duly authorized overseas labor officer at a given foreign po
designated by the DOLE Secretary;

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

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

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

Evidently, the entire "verification fees" being collected by the MECO are receivables of the DOL
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
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 auth
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
services as may be authorized by the DFA;

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

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

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

4. Providing translation services.

Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no consula
the collection of the "consular fees." Thus, the authority for the MECO to collect the "reasona
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, a
question, derived from the exercise by the MECO of consular functions—functions it performs by
through special authority from the government. There was never any doubt that the visas, pass
other documents that the MECO issues pursuant to its authorized functions still emanate from the
government itself.

Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under E
s. 2001. They must be reasonable as the authorization requires. It is the government that ha
control over the disposition of the "consular fees," which control the government did exercis
provided in Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by the MECO "to defra
of its operations."

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

Section 14(1), Book V of the Administrative Code authorizes the COA to audit account
governmental entities "required to pay xxx or have government share" but only with respect to
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
government agency. Out of its collections, the MECO is required, by agreement, to remit a portion
the DOLE. Hence, the MECO is accountable to the government for its collections of such "verifica
and, for that purpose, may be audited by the COA.

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

Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the M
Section 2(6) of EO No. 15, s. 2001, vis-à-vis, respectively, the "verification fees" and the "cons
grant and at the same time limit the authority of the MECO to collect such fees. That grant and lim
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
entrusted by the government with the facilitation of unofficial relations with the people in Taiwa
jeopardizing the country’s faithful commitment to the One China policy of the PROC. However,
non-governmental character, the MECO handles government funds in the form of the "verificati
collects on behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No. 15
Hence, under existing laws, the accounts of the MECO pertaining to its collection of such "verifica
and "consular fees" should be audited by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila Econ
Cultural Office is hereby declared a non-governmental entity. However, the accounts of t
Economic and Cultural Office pertaining to: the verification fees contemplated by Section 7 of
Order No. 1022 issued 1 May 1985, that the former collects on behalf of the Department of
Employment, and the fees it was authorized to collect under Section 2(6) of Executive Order No.
16 May 2001, are subject to the audit jurisdiction of the COA.

No costs.

SO ORDERED.

JOSE PORTUGAL
Associate Justice

WE CONCUR:

MARIA LOURDES P. A.
Chief Justice

PRESBITERO J.
ANTONIO T. CARPIO
VELASCO, JR.
Associate Justice
Associate Justice

TERESITA J. LEONARDO-
ARTURO D. BRION
DE CASTRO
Associate Justice
Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIANO C. DEL
ROBERTO A. ABAD
CASTILLO
Associate Justice
Associate Justice

MARTIN S. VILLARAMA,
JOSE CATRAL MENDOZA
JR.
Associate Justice
Associate Justice

ESTELA M. PERLAS-
BIENVENIDO L. REYES
BERNABE
Associate Justice
Associate Justice
MARVIC MARIO VICTOR F.
Associate Justice
 Case No. 7 G.R. No. 71159 November 15, 1989

CITY OF MANILA, and EVANGELINE SUVA, petitioners,

vs.
HON. INTERMEDIATE APPELLATE COURT, IRENE STO. DOMINGO and for
and in behalf of her minor children, VIVENCIO, JR., IRIS, VERGEL and
IMELDA, all surnamed STO. DOMINGO, respondents.

The City Legal Officer for petitioners.

Jose M. Castillo for respondents.

PARAS, J.:

This is a petition for review on certiorari seeking to reverse and set aside: (a) the
Decision of the Intermediate Appellate Court now Court of Appeals 1 promulgated on
May 31, 1984 in AC-G.R. CV No. 00613-R entitled Irene Sto. Domingo et al., v. City
Court of Manila et al., modifying the decision of the then Court of First Instance of
Manila, Branch VIII 2 in Civil Case No. 121921 ordering the defendants (herein
petitioners,) to give plaintiffs (herein private respondents) the right to use a burial lot
in the North Cemetery corresponding to the unexpired term of the fully paid lease
sued upon, to search the remains of the late Vivencio Sto. Domingo, Sr. and to bury
the same in a substitute lot to be chosen by the plaintiffs; and (b) the Resolution of
the Court of Appeals dated May 28, 1985 denying petitioner's motion for
reconsideration.

As found by the Court of Appeals and the trial court, the undisputed facts of the
case are as follows:

Brought on February 22, 1979 by the widow and children of the late Vivencio
Sto. Domingo, Sr. was this action for damages against the City of Manila; Evangeline
Suva of the City Health Office; Sergio Mallari, officer-in-charge of the North Cemetery;
and Joseph Helmuth, the latter's predecessor as officer-in-charge of the said burial
grounds owned and operated by the City Government of Manila.

Vivencio Sto. Domingo, Sr. deceased husband of plaintiff Irene Sto. Domingo
and father of the litigating minors, died on June 4,1971 and buried on June 6,1971 in
Lot No. 159, Block No. 194 of the North Cemetery which lot was leased by the city to
Irene Sto. Domingo for the period from June 6, 1971 to June 6, 2021 per Official
Receipt No. 61307 dated June 6, 1971 (see Exh. A) with an expiry date of June 6,
2021 (see Exh. A-1). Full payment of the rental therefor of P50.00 is evidenced by the
said receipt which appears to be regular on its face. Apart from the aforementioned
receipt, no other document was executed to embody such lease over the burial lot in
question. In fact, the burial record for Block No. 194 of Manila North Cemetery (see
Exh. 2) in which subject Lot No. 159 is situated does not reflect the term of duration of
the lease thereover in favor of the Sto. Domingos.

Believing in good faith that, in accordance with Administrative Order No. 5,

Series of 1975, dated March 6, 1975, of the City Mayor of Manila (See Exh. 1)
prescribing uniform procedure and guidelines in the processing of documents
pertaining to and for the use and disposition of burial lots and plots within the North
Cemetery, etc., subject Lot No. 159 of Block 194 in which the mortal remains of the
late Vivencio Sto. Domingo were laid to rest, was leased to the bereaved family for
five (5) years only, subject lot was certified on January 25, 1978 as ready for
exhumation.

On the basis of such certification, the authorities of the North Cemetery then
headed by defendant Joseph Helmuth authorized the exhumation and removal from
subject burial lot the remains of the late Vivencio Sto. Domingo, Sr., placed the bones
and skull in a bag or sack and kept the same in the depository or bodega of the
cemetery y Subsequently, the same lot in question was rented out to another lessee
so that when the plaintiffs herein went to said lot on All Souls Day in their shock,
consternation and dismay, that the resting place of their dear departed did not
anymore bear the stone marker which they lovingly placed on the tomb. Indignant and
disgusted over such a sorrowful finding, Irene Sto. Domingo lost no time in inquiring
from the officer-in-charge of the North Cemetery, defendant Sergio Mallari, and was
told that the remains of her late husband had been taken from the burial lot in
question which was given to another lessee.

Irene Sto. Domingo was also informed that she can look for the bones of her
deceased husband in the warehouse of the cemetery where the exhumed remains
from the different burial lots of the North Cemetery are being kept until they are
retrieved by interested parties. But to the bereaved widow, what she was advised to
do was simply unacceptable. According to her, it was just impossible to locate the
remains of her late husband in a depository containing thousands upon thousands of
sacks of human bones. She did not want to run the risk of claiming for the wrong set
of bones. She was even offered another lot but was never appeased. She was too
aggrieved that she came to court for relief even before she could formally present her
claims and demands to the city government and to the other defendants named in the
present complaint. (Decision, Court of Appeals, pp. 2-3; Rollo, pp. 34-55)

The trial court, on August 4, 1981, rendered its Decision, the dispositive portion of
which states:

WHEREFORE, judgment is hereby rendered, ordering the defendants

to give plaintiffs the right to make use of another single lot within the
North Cemetery for a period of forty-three (43) years four (4) months
and eleven (11) days, corresponding to the unexpired term of the fully
 paid lease sued upon; and to search without let up and with the use of
all means humanly possible, for the remains of the late Vivencio Sto.
Domingo, Sr. and thereafter, to bury the same in the substitute lot to be
chosen by the plaintiffs pursuant to this decision.

For want of merit, defendant's counterclaim is DISMISSED.

No pronouncement as to costs.

SO ORDERED. (Rollo, p. 31)

The decision was appealed to the Court of Appeals which on May 31, 1984
rendered a decision (Rollo, pp. 33-40) modifying the decision appealed from, the
dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, the decision appealed

from is hereby REVERSED (is hereby modified) and another one is
hereby entered:

1. Requiring in full force the defendants to look in earnest for the bones
and skull of the late Vivencio Sto. Domingo, Sr., and to bury the same
in the substitute lot adjudged in favor of plaintiffs hereunder;

2. Ordering defendants to pay plaintiffs-appellants jointly and severally

P10,000.00 for breach of contract;

3. Ordering defendants to pay plaintiffs-appellants, jointly and severally,

P20,000.00 for moral damages;

4. Ordering defendants to pay plaintiffs-appellants jointly and severally,

P20,000.00 for exemplary damages;

5. Ordering defendants to pay plaintiffs-appellants, jointly and severally,

P10,000.00 as and for attorney's fees;

6. Ordering defendants, to pay plaintiffs-appellants, jointly and

severally, on the foregoing amounts legal rate of interest computed
from filing hereof until fully paid; and

7. Ordering defendants, to pay plaintiffs-appellants, jointly and

severally, the cost of suit.

SO ORDERED. (Rollo, p. 40)

The petitioners' motion for reconsideration was likewise denied.

Hence, this instant petition (Rollo, pp. 7-27) filed on July 27, 1985.

The pivotal issue of this case is whether or not the operations and functions of
a public cemetery are a governmental, or a corporate or proprietary function
of the City of Manila. The resolution of this issue is essential to the determination of
the liability for damages of the petitioner city.

Petitioners alleged in their petition that the North Cemetery is exclusively devoted for
public use or purpose as stated in Sec. 316 of the Compilation of the Ordinances of
the City of Manila. They conclude that since the City is a political subdivision in the
performance of its governmental function, it is immune from tort liability which may
be caused by its public officers and subordinate employees. Further Section 4,
Article I of the Revised Charter of Manila exempts the city from liability for damages
or injuries to persons or property arising from the failure of the Mayor, the Municipal
Board, or any other city officer, to enforce the provision of its charter or any other
laws, or ordinance, or from negligence of said Mayor, Municipal Board or any other
officers while enforcing or attempting to enforce said provisions. They allege that the
Revised Charter of Manila being a special law cannot be defeated by the Human
Relations provisions of the Civil Code being a general law.

Private respondents on the other hand maintain that the City of Manila entered into a
contract of lease which involve the exercise of proprietary functions with private
respondent Irene Sto. Domingo. The city and its officers therefore can be sued for
any-violation of the contract of lease.

Private respondents' contention is well-taken.

Under Philippine laws, the City of Manila is a political body corporate and as such
endowed with the faculties of municipal corporations to be exercised by and through
its city government in conformity with law, and in its proper corporate name. It may
sue and be sued, and contract and be contracted with. Its powers are twofold in
character-public, governmental or political on the one hand, and corporate, private
and proprietary on the other. Governmental powers are those exercised in
administering the powers of the state and promoting the public welfare and they
include the legislative, judicial, public and political. Municipal powers on the one
hand are exercised for the special benefit and advantage of the community and
include those which are ministerial, private and corporate. In McQuillin on Municipal
Corporation, the rule is stated thus: "A municipal corporation proper has ... a public
character as regards the state at large insofar as it is its agent in government, and
private (so called) insofar as it is to promote local necessities and conveniences for
its own community (Torio v. Fontanilla, 85 SCRA 599 [1978]). In connection with the
powers of a municipal corporation, it may acquire property in its public or
governmental capacity, and private or proprietary capacity. The New Civil Code
divides such properties into property for public use and patrimonial properties
(Article 423), and further enumerates the properties for public use as provincial
roads, city streets, municipal streets, the squares, fountains, public waters,
promenades, and public works for public service paid for by said provisions, cities or
municipalities, all other property is patrimonial without prejudice to the provisions of
special laws (Article 424; Province of Zamboanga del Norte v. City of Zamboanga, et
al., 22 SCRA 1334 [1968]).

Thus in Torio v. Fontanilla, supra, the Court declared that with respect to proprietary

functions the settled rule is that a municipal corporation can be held liable to third
persons ex contractu (Municipality of Moncada v. Cajuigan, et al., 21 Phil. 184
(1912) or ex delicto (Mendoza v. de Leon, 33 Phil. 508 (1916).

The Court further stressed:

Municipal corporations are subject to be sued upon contracts and in

tort....

xxx xxx xxx

The rule of law is a general one, that the superior or employer must
answer civilly for the negligence or want of skill of its agent or servant
in the course or line of his employment, by which another who is free
from contributory fault, is injured. Municipal corporations under the
conditions herein stated, fall within tile operation of this rule of law, and
are liable accordingly, to civil actions for damages when the requisite
elements of liability co-exist. ... (Emphasis supplied)

The Court added:

... while the following are corporate or proprietary in character, viz:

municipal waterworks, slaughter houses, markets, stables, bathing
establishments, wharves, ferries and fisheries. Maintenance of parks,
golf courses, cemeteries and airports among others, are also
recognized as municipal or city activities of a proprietary
character. (Dept. of Treasury v. City of Evansvulle, Sup. Ct. of Indiana,
60 N.E. 2nd 952, 954 cited in Torio v. Fontanilla, supra) (Emphasis
supplied)

Under the foregoing considerations and in the absence of a special law, the North
Cemetery is a patrimonial property of the City of Manila which was created by
resolution of the Municipal Board of August 27, 1903 and January 7, 1904 (Petition,
Rollo pp. 20-21 Compilation of the Ordinances of the City of Manila). The
administration and government of the cemetery are under the City Health Officer
(Ibid., Sec. 3189), the order and police of the cemetery (Ibid., See. 319), the opening
of graves, niches, or tombs, the exhuming of remains, and the purification of the
same (Ibid., Sec. 327) are under the charge and responsibility of the superintendent
of the cemetery. The City of Manila furthermore prescribes the procedure and
guidelines for the use and dispositions of burial lots and plots within the North
Cemetery through Administrative Order No. 5, s. 1975 (Rollo, p. 44). With the acts
of dominion, there is, therefore no doubt that the North Cemetery is within the
class of property which the City of Manila owns in its proprietary or private
character. Furthermore, there is no dispute that the burial lot was leased in favor of
the private respondents. Hence, obligations arising from contracts have the force of
law between the contracting parties. Thus a lease contract executed by the lessor
and lessee remains as the law between them. (Henson v. Intermediate Appellate
Court, 148 SCRA 11 [1 987]). Therefore, a breach of contractual provision entitles
the other party to damages even if no penalty for such breach is prescribed in the
contract. (Boysaw v. Interphil Promotions, Inc., 148 SCRA 635 [1987]).

Noteworthy are the findings of the Court of Appeals as to the harrowing experience
of private respondents and their wounded feelings upon discovery that the remains
of their loved one were exhumed without their knowledge and consent, as said Court
declared:

It has been fully established that the appellants, in spite or perhaps

because, of their lowly station in life have found great consolation in
their bereavement from the loss of their family head, by visiting his
grave on special or even ordinary occasions, but particularly on All
Saints Day, in keeping with the deep, beautiful and Catholic Filipino
tradition of revering the memory of their dead. It would have been but
fair and equitable that they were notified of the intention of the city
government to transfer the skeletal remains of the late Vivencio Sto.
Domingo to give them an opportunity to demand the faithful fulfillment
of their contract, or at least to prepare and make provisions for said
transfer in order that they would not lose track of the remains of their
beloved dead, as what has actually happened on this case. We
understand fully what the family of the deceased must have felt when
on All Saints Day of 1978, they found a new marker on the grave they
were to visit, only to be told to locate their beloved dead among
thousands of skeletal remains which to them was desecration and an
impossible task. Even the lower court recognized this when it stated in
its decision thus:

All things considered, even as the Court commiserates

with plaintiffs for the unfortunate happening complained of
and untimely desecration of the resting place and remains
of their deceased dearly beloved, it finds the reliefs prayed
for by them lacking in legal and factual basis. Under the
aforementioned facts and circumstances, the most that
plaintiffs ran ask for is the replacement of subject lot with
another lot of equal size and similar location in the North
 Cemetery which substitute lot plaintiffs can make use of
without paying any rental to the city government for a
period of forty-three (43) years, four (4) months and
eleven (11) days corresponding to the unexpired portion of
the term of the lease sued upon as of January 25, 1978
when the remains of the late Vivencio Sto. Domingo, Sr.
were prematurely removed from the disputed lot; and to
require the defendants to look in earnest for the bones
and skull of the late Vivencio Sto. Domingo Sr. and to bury
the same in the substitute lot adjudged in favor of plaintiffs
hereunder. (Decision, Intermediate Appellate Court, p. 7,
Rollo, p. 39)

As regards the issue of the validity of the contract of lease of grave lot No. 159,
Block No. 195 of the North Cemetery for 50 years beginning from June 6, 1971 to
June 6, 2021 as clearly stated in the receipt duly signed by the deputy treasurer of
the City of Manila and sealed by the city government, there is nothing in the record
that justifies the reversal of the conclusion of both the trial court and the Intermediate
Appellate Court to the effect that the receipt is in itself a contract of lease. (Decision,
Intermediate Appellate Court, p. 3, Rollo, pp. 5-6).

Under the doctrine of respondent superior, (Torio v. Fontanilla, supra), petitioner City
of Manila is liable for the tortious act committed by its agents who failed to verify and
check the duration of the contract of lease. The contention of the petitioner-city that
the lease is covered by Administrative Order No. 5, series of 1975 dated March 6,
1975 of the City of Manila for five (5) years only beginning from June 6, 1971 is not
meritorious for the said administrative order covers new leases. When subject lot
was certified on January 25, 1978 as ready for exhumation, the lease contract for
fifty (50) years was still in full force and effect.

PREMISES CONSIDERED, the Decision of the Intermediate Appellate Court is

hereby AFFIRMED.

SO ORDERED.

Case No. 8 G.R. No. L-52179             April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIÑA, IAUREANO
BANIÑA, JR., SOR MARIETA BANIÑA, MONTANO BANIÑA, ORJA BANIÑA,
AND LYDIA R. BANIÑA, 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
Baniña, 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-Baniña, Laureano Baniña, Jr.,
Sor Marietta Baniña, Montano Baniña, Orja Baniña and Lydia R. Baniña are heirs of
the deceased Laureano Baniña 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 Baniña Sr. died as a result of the injuries they sustained
and four (4) others suffered varying degrees of physical injuries.

On December 11, 1966, the private respondents instituted a complaint 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-Baniña, Mrs. Priscilla B. Surell, Laureano Baniña Jr., Sor Marietta
Baniña, Mrs. Fe B. Soriano, Montano Baniña, Orja Baniña and Lydia B.
 Baniña the sums of P1,500.00 as funeral expenses and P24,744.24 as the
lost expected earnings of the late Laureano Baniña 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.

Case No. 9 G.R. No. 129093            August 30, 2001

HON. JOSE D. LINA, JR., SANGGUNIANG PANLALAWIGAN OF LAGUNA, and

HON. CALIXTO CATAQUIZ, petitioners,
vs.
HON. FRANCISCO DIZON PAÑO and TONY CALVENTO, respondents.

QUISUMBING, J.:

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

On December 29, 1995, respondent Tony Calvento was appointed agent by the
Philippine Charity Sweepstakes Office (PCSO) to install Terminal OM 20 for the
operation of lotto. He asked Mayor Calixto Cataquiz, Mayor of San Pedro, Laguna,
for a mayor's permit to open the lotto outlet. This was denied by Mayor Cataquiz in a
letter dated February 19, 1996. The ground for said denial was an ordinance passed
by the Sangguniang Panlalawigan of Laguna entitled Kapasiyahan Blg. 508, T.
1995 which was issued on September 18, 1995. The ordinance reads:

ISANG KAPASIYAHAN TINUTUTULAN ANG MGA "ILLEGAL GAMBLING"

LALO NA ANG LOTTO SA LALAWIGAN NG LAGUNA

SAPAGKA'T, ang sugal dito sa lalawigan ng Laguna ay talamak na;

SAPAGKA'T, ang sugal ay nagdudulot ng masasamang impluwensiya lalo't

higit sa mga kabataan;
 KUNG KAYA'T DAHIL DITO, at sa mungkahi nina Kgg. Kgd. Juan M. Unico at
Kgg. Kgd. Gat-Ala A. Alatiit, pinangalawahan ni Kgg. Kgd. Meliton C. Larano
at buong pagkakaisang sinangayunan ng lahat ng dumalo sa pulong;

IPINASIYA, na tutulan gaya ng dito ay mahigpit na TINUTUTULAN ang ano

mang uri ng sugal dito sa lalawigan ng Laguna lalo't higit ang Lotto;

IPINASIYA PA RIN na hilingin tulad ng dito ay hinihiling sa Panlalawigang

pinuno ng Philippine National Police (PNP) Col. [illegible] na mahigpit na pag-
ibayuhin ang pagsugpo sa lahat ng uri ng illegal na sugal sa buong lalawigan
ng Laguna lalo na ang "Jueteng".3

As a result of this resolution of denial, respondent Calvento filed a complaint for

declaratory relief with prayer for preliminary injunction and temporary restraining
order. In the said complaint, respondent Calvento asked the Regional Trial Court of
San Pedro Laguna, Branch 93, for the following reliefs: (1) a preliminary injunction or
temporary restraining order, ordering the defendants to refrain from implementing or
enforcing Kapasiyahan Blg. 508, T. 1995; (2) an order requiring Hon. Municipal
Mayor Calixto R Cataquiz to issue a business permit for the operation of a lotto
outlet; and (3) an order annulling or declaring as invalid Kapasiyahan Blg. 508, T.
1995.

On February 10, 1997, the respondent judge, Francisco Dizon Paño, promulgated
his decision enjoining the petitioners from implementing or enforcing resolution
or Kapasiyahan Blg. 508, T. 1995. The dispositive portion of said decision reads:

WHEREFORE, premises considered, defendants, their agents and

representatives are hereby enjoined from implementing or enforcing
resolution or kapasiyahan blg. 508, T. 1995 of the Sangguniang Panlalawigan
ng Laguna prohibiting the operation of the lotto in the province of Laguna.

SO ORDERED.4

Petitioners filed a motion for reconsideration which was subsequently denied in an

Order dated April 21, 1997, which reads:

Acting on the Motion for Reconsideration filed by defendants Jose D. Lina, Jr.
and the Sangguniang Panlalawigan of Laguna, thru counsel, with the
opposition filed by plaintiff's counsel and the comment thereto filed by counsel
for the defendants which were duly noted, the Court hereby denies the motion
for lack of merit.

SO ORDERED.5
On May 23, 1997, petitioners filed this petition alleging that the following errors were
committed by the respondent trial court:

I THE TRIAL COURT ERRED IN ENJOINING THE PETITIONERS FROM

IMPLEMENTING KAPASIYAHAN BLG. 508, T. 1995 OF THE SANGGUNIANG
PANLALAWIGAN OF LAGUNA PROHIBITING THE OPERATION OF THE LOTTO
IN THE PROVINCE OF LAGUNA.

II THE TRIAL COURT FAILED TO APPRECIATE THE ARGUMENT POSITED BY

THE PETITIONERS THAT BEFORE ANY GOVERNMENT PROJECT OR
PROGRAM MAY BE IMPLEMENTED BY THE NATIONAL AGENCIES OR
OFFICES, PRIOR CONSULTATION AND APPROVAL BY THE LOCAL
GOVERNMENT UNITS CONCERNED AND OTHER CONCERNED SECTORS IS
REQUIRED.

Petitioners contend that the assailed resolution is a valid policy declaration of the
Provincial Government of Laguna of its vehement objection to the operation of lotto
and all forms of gambling. It is likewise a valid exercise of the provincial
government's police power under the General Welfare Clause of Republic Act 7160,
otherwise known as the Local Government Code of 1991. 6 They also maintain that
respondent's lotto operation is illegal because no prior consultations and approval by
the local government were sought before it was implemented contrary to the express
provisions of Sections 2 (c) and 27 of R.A. 7160. 7

For his part, respondent Calvento argues that the questioned resolution is, in effect,
a curtailment of the power of the state since in this case the national legislature itself
had already declared lotto as legal and permitted its operations around the
country.8 As for the allegation that no prior consultations and approval were sought
from the sangguniang panlalawigan of Laguna, respondent Calvento contends this
is not mandatory since such a requirement is merely stated as a declaration of policy
and not a self-executing provision of the Local Government Code of 1991. 9 He also
states that his operation of the lotto system is legal because of the authority given to
him by the PCSO, which in turn had been granted a franchise to operate the lotto by
Congress.10

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

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

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

5.7. The terms of the Resolution and the validity thereof are express and
clear. The Resolution is a policy declaration of the Provincial Government of
Laguna of its vehement opposition and/or objection to the operation of and/or
all forms of gambling including the Lotto operation in the Province of
Laguna.12

As a policy statement expressing the local government's objection to the lotto, such
resolution is valid. This is part of the local government's autonomy to air its views
which may be contrary to that of the national government's. However, this freedom
to exercise contrary views does not mean that local governments may actually enact
ordinances that go against laws duly enacted by Congress. Given this premise, the
assailed resolution in this case could not and should not be interpreted as a
measure or ordinance prohibiting the operation of lotto.

The game of lotto is a game of chance duly authorized by the national government
through an Act of Congress. Republic Act 1169, as amended by Batas Pambansa
Blg. 42, is the law which grants a franchise to the PCSO and allows it to operate the
lotteries. The pertinent provision reads:

SECTION 1. The Philippine Charity Sweepstakes Office. — The Philippine

Charity Sweepstakes Office, hereinafter designated the Office, shall be the
principal government agency for raising and providing for funds for health
programs, medical assistance and services and charities of national
character, and as such shall have the general powers conferred in section
thirteen of Act Numbered One thousand four hundred fifty-nine, as amended,
and shall have the authority:
 A. To hold and conduct charity sweepstakes races, lotteries, and other similar
activities, in such frequency and manner, as shall be determined, and subject
to such rules and regulations as shall be promulgated by the Board of
Directors.

This statute remains valid today. While lotto is clearly a game of chance, the national
government deems it wise and proper to permit it. Hence, the Sangguniang
Panlalawigan of Laguna, a local government unit, cannot issue a resolution or an
ordinance that would seek to prohibit permits. Stated otherwise, what the national
legislature expressly allows by law, such as lotto, a provincial board may not
disallow by ordinance or resolution.

In our system of government, the power of local government units to legislate and
enact ordinances and resolutions is merely a delegated power coming from
Congress. As held in Tatel vs. Virac,13 ordinances should not contravene an
existing statute enacted by Congress. The reasons for this is obvious, as
elucidated in Magtajas v. Pryce Properties Corp.14

Municipal governments are only agents of the national government. Local

councils exercise only delegated legislative powers conferred upon them by
Congress as the national lawmaking body. The delegate cannot be superior
to the principal or exercise powers higher than those of the latter. It is a
heresy to suggest that the local government units can undo the acts of
Congress, from which they have derived their power in the first place, and
negate by mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights
wholly from the legislature. It breathes into them the breath of life, without
which they cannot exist. As it creates, so it may destroy. As it may destroy, it
may abridge and control. Unless there is some constitutional limitation on the
right, the legislature might, by a single act, and if we can suppose it capable
of so great a folly and so great a wrong, sweep from existence all of the
municipal corporations in the state, and the corporation could not prevent it.
We know of no limitation on the right so far as the corporation themselves are
concerned. They are, so to phrase it, the mere tenants at will of the legislature
(citing Clinton vs. Ceder Rapids, etc. Railroad Co., 24 Iowa 455).

Nothing in the present constitutional provision enhancing local autonomy dictates a

different conclusion.

The basic relationship between the national legislature and the local
government units has not been enfeebled by the new provisions in the
Constitution strengthening the policy of local autonomy. Without meaning to
detract from that policy, we here confirm that Congress retains control of the
local government units although in significantly reduced degree now than
 under our previous Constitutions. The power to create still includes the power
to destroy. The power to grant still includes the power to withhold or recall.
True, there are certain notable innovations in the Constitution, like the direct
conferment on the local government units of the power to tax (citing Art. X,
Sec. 5, Constitution), which cannot now be withdrawn by mere statute. By and
large, however, the national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it. 15

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

To conclude our resolution of the first issue, respondent mayor of San Pedro,
cannot avail of Kapasiyahan Bilang 508, Taon 1995, of the Provincial Board of
Laguna as justification to prohibit lotto in his municipality. For said resolution is
nothing but an expression of the local legislative unit concerned. The Board's
enactment, like spring water, could not rise above its source of power, the national
legislature.

As for the second issue, we hold that petitioners erred in declaring that
Sections 2 (c) and 27 of Republic Act 7160, otherwise known as the Local
Government Code of 1991, apply mandatorily in the setting up of lotto outlets
around the country. These provisions state:

SECTION 2. Declaration of Policy. — . . .

(c) It is likewise the policy of the State to require all national agencies and
offices to conduct periodic consultations with appropriate local government
units, non-governmental and people's organizations, and other concerned
sectors of the community before any project or program is implemented in
their respective jurisdictions.

SECTION 27. Prior Consultations Required. — No project or program shall be

implemented by government authorities unless the consultations mentioned in
Section 2 (c) and 26 hereof are complied with, and prior approval of the
sanggunian concerned is obtained; Provided, that occupants in areas where
such projects are to be implemented shall not be evicted unless, appropriate
relocation sites have been provided, in accordance with the provisions of the
Constitution.

From a careful reading of said provisions, we find that these apply only to national
programs and/or projects which are to be implemented in a particular local
community. Lotto is neither a program nor a project of the national government, but
of a charitable institution, the PCSO. Though sanctioned by the national
government, it is far fetched to say that lotto falls within the contemplation of
Sections 2 (c) and 27 of the Local Government Code.

Section 27 of the Code should be read in conjunction with Section 26

thereof.17 Section 26 reads:

SECTION 26. Duty of National Government Agencies in the Maintenance of

Ecological Balance. - It shall be the duty of every national agency or
government-owned or controlled corporation authorizing or involved in the
planning and implementation of any project or program that may cause
pollution, climatic change, depletion of non-renewable resources, loss of crop
land, range-land, or forest cover, and extinction of animal or plant species, to
consult with the local government units, nongovernmental organizations, and
other sectors concerned and explain the goals and objectives of the project or
program, its impact upon the people and the community in terms of
environmental or ecological balance, and the measures that will be
undertaken to prevent or minimize the adverse effects thereof.

Thus, the projects and programs mentioned in Section 27 should be interpreted to

mean projects and programs whose effects are among those enumerated in Section
26 and 27, to wit, those that: (1) may cause pollution; (2) may bring about climatic
change; (3) may cause the depletion of non-renewable resources; (4) may result in
loss of crop land, range-land, or forest cover; (5) may eradicate certain animal or
plant species from the face of the planet; and (6) other projects or programs that
may call for the eviction of a particular group of people residing in the locality where
these will be implemented. Obviously, none of these effects will be produced by the
introduction of lotto in the province of Laguna.

Moreover, the argument regarding lack of consultation raised by petitioners is clearly

an afterthought on their part. There is no indication in the letter of Mayor Cataquiz
that this was one of the reasons for his refusal to issue a permit. That refusal was
predicated solely but erroneously on the provisions of Kapasiyahan Blg. 508, Taon
1995, of the Sangguniang Panlalawigan of Laguna.

In sum, we find no reversible error in the RTC decision enjoining Mayor Cataquiz
from enforcing or implementing the Kapasiyahan Blg. 508, T. 1995, of
the Sangguniang Panlalawigan of Laguna. That resolution expresses merely a
policy statement of the Laguna provincial board. It possesses no binding legal force
nor requires any act of implementation. It provides no sufficient legal basis for
respondent mayor's refusal to issue the permit sought by private respondent in
connection with a legitimate business activity authorized by a law passed by
Congress.
WHEREFORE, the petition is DENIED for lack of merit. The Order of the Regional
Trial Court of San Pedro, Laguna enjoining the petitioners from implementing or
enforcing Resolution or Kapasiyahan Blg. 508, T. 1995, of the Provincial Board of
Laguna is hereby AFFIRMED. No costs.

SO ORDERED.

Case No. 10 G.R. No. 111097 July 20, 1994

MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners,

vs.
PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND
GAMING CORPORATION, respondents.

Aquilino G. Pimentel, Jr. and Associates for petitioners.

R.R. Torralba & Associates for private respondent.

CRUZ, J.:

There was instant opposition when PAGCOR announced the opening of a casino in
Cagayan de Oro City. Civic organizations angrily denounced the project. The
religious elements echoed the objection and so did the women's groups and the
youth. Demonstrations were led by the mayor and the city legislators. The media
trumpeted the protest, describing the casino as an affront to the welfare of the city.

The trouble arose when in 1992, flush with its tremendous success in several cities,
PAGCOR decided to expand its operations to Cagayan de Oro City. To this end, it
leased a portion of a building belonging to Pryce Properties Corporation, Inc., one of
the herein private respondents, renovated and equipped the same, and prepared to
inaugurate its casino there during the Christmas season.

The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and
hostile. On December 7, 1992, it enacted Ordinance No. 3353 reading as follows:

ORDINANCE NO. 3353

AN ORDINANCE PROHIBITING THE ISSUANCE OF BUSINESS

PERMIT AND CANCELLING EXISTING BUSINESS PERMIT TO ANY
ESTABLISHMENT FOR THE USING AND ALLOWING TO BE USED
ITS PREMISES OR PORTION THEREOF FOR THE OPERATION OF
CASINO.
 BE IT ORDAINED by the Sangguniang Panlungsod of the City of
Cagayan de Oro, in session assembled that:

Sec. 1. — That pursuant to the policy of the city banning the operation
of casino within its territorial jurisdiction, no business permit shall be
issued to any person, partnership or corporation for the operation of
casino within the city limits.

Sec. 2. — That it shall be a violation of existing business permit by any

persons, partnership or corporation to use its business establishment
or portion thereof, or allow the use thereof by others for casino
operation and other gambling activities.

Sec. 3. — PENALTIES. — Any violation of such existing business

permit as defined in the preceding section shall suffer the following
penalties, to wit:

a) Suspension of the business permit for

sixty (60) days for the first offense and a fine
of P1,000.00/day

b) Suspension of the business permit for Six

(6) months for the second offense, and a fine
of P3,000.00/day

c) Permanent revocation of the business

permit and imprisonment of One (1) year, for
the third and subsequent offenses.

Sec. 4. — This Ordinance shall take effect ten (10) days from
publication thereof.

Nor was this all. On January 4, 1993, it adopted a sterner Ordinance No. 3375-93
reading as follows:

ORDINANCE NO. 3375-93

AN ORDINANCE PROHIBITING THE OPERATION OF CASINO AND

PROVIDING PENALTY FOR VIOLATION THEREFOR.

WHEREAS, the City Council established a policy as early as 1990

against CASINO under its Resolution No. 2295;
 WHEREAS, on October 14, 1992, the City Council passed another
Resolution No. 2673, reiterating its policy against the establishment of
CASINO;

WHEREAS, subsequently, thereafter, it likewise passed Ordinance No.

3353, prohibiting the issuance of Business Permit and to cancel
existing Business Permit to any establishment for the using and
allowing to be used its premises or portion thereof for the operation of
CASINO;

WHEREAS, under Art. 3, section 458, No. (4), sub paragraph VI of the
Local Government Code of 1991 (Rep. Act 7160) and under Art. 99,
No. (4), Paragraph VI of the implementing rules of the Local
Government Code, the City Council as the Legislative Body shall enact
measure to suppress any activity inimical to public morals and general
welfare of the people and/or regulate or prohibit such activity pertaining
to amusement or entertainment in order to protect social and moral
welfare of the community;

NOW THEREFORE,

BE IT ORDAINED by the City Council in session duly assembled that:

Sec. 1. — The operation of gambling CASINO in the City of Cagayan

de Oro is hereby prohibited.

Sec. 2. — Any violation of this Ordinance shall be subject to the

following penalties:

a) Administrative fine of P5,000.00 shall be imposed against the

proprietor, partnership or corporation undertaking the operation,
conduct, maintenance of gambling CASINO in the City and closure
thereof;

b) Imprisonment of not less than six (6) months nor more than one (1)
year or a fine in the amount of P5,000.00 or both at the discretion of the
court against the manager, supervisor, and/or any person responsible
in the establishment, conduct and maintenance of gambling CASINO.

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

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

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

1. Under existing laws, the Sangguniang Panlungsod of the City of

Cagayan de Oro does not have the power and authority to prohibit the
establishment and operation of a PAGCOR gambling casino within the
City's territorial limits.

2. The phrase "gambling and other prohibited games of chance" found

in Sec. 458, par. (a), sub-par. (1) — (v) of R.A. 7160 could only mean
"illegal gambling."

3. The questioned Ordinances in effect annul P.D. 1869 and are

therefore invalid on that point.

4. The questioned Ordinances are discriminatory to casino and partial

to cockfighting and are therefore invalid on that point.

5. The questioned Ordinances are not reasonable, not consonant with

the general powers and purposes of the instrumentality concerned and
inconsistent with the laws or policy of the State.

6. It had no option but to follow the ruling in the case of Basco, et al. v.
PAGCOR, G.R. No. 91649, May 14, 1991, 197 SCRA 53 in disposing
of the issues presented in this present case.

PAGCOR is a corporation created directly by P.D. 1869 to help centralize and

regulate all games of chance, including casinos on land and sea within the territorial
jurisdiction of the Philippines. In Basco v. Philippine Amusements and Gaming
Corporation, 4 this Court sustained the constitutionality of the decree and even cited
the benefits of the entity to the national economy as the third highest revenue-earner
in the government, next only to the BIR and the Bureau of Customs.

Cagayan de Oro City, like other local political subdivisions, is empowered to enact
ordinances for the purposes indicated in the Local Government Code. It is expressly
vested with the police power under what is known as the General Welfare Clause
now embodied in Section 16 as follows:

Sec. 16. — General Welfare. — Every local government unit shall

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

In addition, Section 458 of the said Code specifically declares that:

Sec. 458. — Powers, Duties, Functions and Compensation. — (a) The

Sangguniang Panlungsod, as the legislative body of the city, shall
enact ordinances, approve resolutions and appropriate funds for the
general welfare of the city and its inhabitants pursuant to Section 16 of
this Code and in the proper exercise of the corporate powers of the city
as provided for under Section 22 of this Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient

and effective city government, and in this connection, shall:

x x x           x x x          x x x

(v) Enact ordinances intended to prevent, suppress and impose

appropriate penalties for habitual drunkenness in public places,
vagrancy, mendicancy, prostitution, establishment and
maintenance of houses of ill repute, gambling and other prohibited
games of chance, fraudulent devices and ways to obtain money or
property, drug addiction, maintenance of drug dens, drug pushing,
juvenile delinquency, the printing, distribution or exhibition of
obscene or pornographic materials or publications, and such other
activities inimical to the welfare and morals of the inhabitants of the
city;

This section also authorizes the local government units to regulate properties and
businesses within their territorial limits in the interest of the general welfare. 5

The petitioners argue that by virtue of these provisions, the Sangguniang

Panlungsod may prohibit the operation of casinos because they involve games of
chance, which are detrimental to the people. Gambling is not allowed by general law
and even by the Constitution itself. The legislative power conferred upon local
government units may be exercised over all kinds of gambling and not only over
"illegal gambling" as the respondents erroneously argue. Even if the operation of
casinos may have been permitted under P.D. 1869, the government of Cagayan de
Oro City has the authority to prohibit them within its territory pursuant to the authority
entrusted to it by the Local Government Code.

It is submitted that this interpretation is consonant with the policy of local autonomy
as mandated in Article II, Section 25, and Article X of the Constitution, as well as
various other provisions therein seeking to strengthen the character of the nation. In
giving the local government units the power to prevent or suppress gambling and
other social problems, the Local Government Code has recognized the competence
of such communities to determine and adopt the measures best expected to
promote the general welfare of their inhabitants in line with the policies of the State.

The petitioners also stress that when the Code expressly authorized the local
government units to prevent and suppress gambling and other prohibited games of
chance, like craps, baccarat, blackjack and roulette, it meant all forms of gambling
without distinction. Ubi lex non distinguit, nec nos distinguere debemos. 6 Otherwise,
it would have expressly excluded from the scope of their power casinos and other
forms of gambling authorized by special law, as it could have easily done. The fact
that it did not do so simply means that the local government units are permitted to
prohibit all kinds of gambling within their territories, including the operation of
casinos.

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

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

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

Sec. 5. Rules of Interpretation. — In the interpretation of the provisions

of this Code, the following rules shall apply:

(a) Any provision on a power of a local government unit shall be

liberally interpreted in its favor, and in case of doubt, any question
 thereon shall be resolved in favor of devolution of powers and of the
lower local government unit. Any fair and reasonable doubt as to the
existence of the power shall be interpreted in favor of the local
government unit concerned;

xxx xxx xxx

(c) The general welfare provisions in this Code shall be liberally

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

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

This is the opportune time to stress an important point.

The morality of gambling is not a justiciable issue. Gambling is not illegal per se.
While it is generally considered inimical to the interests of the people, there is
nothing in the Constitution categorically proscribing or penalizing gambling or, for
that matter, even mentioning it at all. It is left to Congress to deal with the activity as
it sees fit. In the exercise of its own discretion, the legislature may prohibit gambling
altogether or allow it without limitation or it may prohibit some forms of gambling and
allow others for whatever reasons it may consider sufficient. Thus, it has
prohibited jueteng and monte but permits lotteries, cockfighting and horse-racing. In
making such choices, Congress has consulted its own wisdom, which this Court has
no authority to review, much less reverse. Well has it been said that courts do not sit
to resolve the merits of conflicting theories. 8 That is the prerogative of the political
departments. It is settled that questions regarding the wisdom, morality, or
practicibility of statutes are not addressed to the judiciary but may be resolved only
by the legislative and executive departments, to which the function belongs in our
scheme of government. That function is exclusive. Whichever way these branches
decide, they are answerable only to their own conscience and the constituents who
will ultimately judge their acts, and not to the courts of justice.

The only question we can and shall resolve in this petition is the validity of
Ordinance No. 3355 and Ordinance No. 3375-93 as enacted by the
Sangguniang Panlungsod of Cagayan de Oro City. And we shall do so only by
the criteria laid down by law and not by our own convictions on the propriety of
gambling.

The tests of a valid ordinance are well established. A long line of decisions 9 has
held that to be valid, an ordinance must conform to the following substantive
requirements:

1) It must not contravene the constitution or any statute.

2) It must not be unfair or oppressive.

3) It must not be partial or discriminatory.

4) It must not prohibit but may regulate trade.

5) It must be general and consistent with public policy.

6) It must not be unreasonable.

We begin by observing that under Sec. 458 of the Local Government Code, local
government units are authorized to prevent or suppress, among others, "gambling
and other prohibited games of chance." Obviously, this provision excludes games of
chance which are not prohibited but are in fact permitted by law. The petitioners are
less than accurate in claiming that the Code could have excluded such games of
chance but did not. In fact it does. The language of the section is clear and
unmistakable. Under the rule of noscitur a sociis, a word or phrase should be
interpreted in relation to, or given the same meaning of, words with which it is
associated. Accordingly, we conclude that since the word "gambling" is associated
with "and other prohibited games of chance," the word should be read as referring to
only illegal gambling which, like the other prohibited games of chance, must be
prevented or suppressed.

We could stop here as this interpretation should settle the problem quite
conclusively. But we will not. The vigorous efforts of the petitioners on behalf of the
inhabitants of Cagayan de Oro City, and the earnestness of their advocacy, deserve
more than short shrift from this Court.

The apparent flaw in the ordinances in question is that they contravene P.D. 1869
and the public policy embodied therein insofar as they prevent PAGCOR from
exercising the power conferred on it to operate a casino in Cagayan de Oro City.
The petitioners have an ingenious answer to this misgiving. They deny that it is the
ordinances that have changed P.D. 1869 for an ordinance admittedly cannot prevail
against a statute. Their theory is that the change has been made by the Local
Government Code itself, which was also enacted by the national lawmaking
authority. In their view, the decree has been, not really repealed by the Code, but
merely "modified pro tanto" in the sense that PAGCOR cannot now operate a casino
over the objection of the local government unit concerned. This modification of P.D.
1869 by the Local Government Code is permissible because one law can change or
repeal another law.

It seems to us that the petitioners are playing with words. While insisting that the
decree has only been "modified pro tanto," they are actually arguing that it is already
dead, repealed and useless for all intents and purposes because the Code has
shorn PAGCOR of all power to centralize and regulate casinos. Strictly speaking, its
operations may now be not only prohibited by the local government unit; in fact, the
prohibition is not only discretionary but mandated by Section 458 of the Code if the
word "shall" as used therein is to be given its accepted meaning. Local government
units have now no choice but to prevent and suppress gambling, which in the
petitioners' view includes both legal and illegal gambling. Under this construction,
PAGCOR will have no more games of chance to regulate or centralize as they must
all be prohibited by the local government units pursuant to the mandatory duty
imposed upon them by the Code. In this situation, PAGCOR cannot continue to exist
except only as a toothless tiger or a white elephant and will no longer be able to
exercise its powers as a prime source of government revenue through the operation
of casinos.

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

Sec. 534. Repealing Clause. — (a) Batas Pambansa Blg. 337,

otherwise known as the "Local Government Code," Executive Order
No. 112 (1987), and Executive Order No. 319 (1988) are hereby
repealed.

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

(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939

regarding hospital fund; Section 3, a (3) and b (2) of Republic Act. No.
5447 regarding the Special Education Fund; Presidential Decree No.
144 as amended by Presidential Decree Nos. 559 and 1741;
Presidential Decree No. 231 as amended; Presidential Decree No. 436
as amended by Presidential Decree No. 558; and Presidential Decree
Nos. 381, 436, 464, 477, 526, 632, 752, and 1136 are hereby repealed
and rendered of no force and effect.
 (d) Presidential Decree No. 1594 is hereby repealed insofar as it
governs locally-funded projects.

(e) The following provisions are hereby repealed or amended insofar as

they are inconsistent with the provisions of this Code: Sections 2, 16,
and 29 of Presidential Decree No. 704; Sections 12 of Presidential
Decree No. 87, as amended; Sections 52, 53, 66, 67, 68, 69, 70, 71,
72, 73, and 74 of Presidential Decree No. 463, as amended; and
Section 16 of Presidential Decree No. 972, as amended, and

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

Furthermore, it is a familiar rule that implied repeals are not lightly presumed in the
absence of a clear and unmistakable showing of such intention. In Lichauco & Co. v.
Apostol, 10 this Court explained:

The cases relating to the subject of repeal by implication all proceed on

the assumption that if the act of later date clearly reveals an intention
on the part of the lawmaking power to abrogate the prior law, this
intention must be given effect; but there must always be a sufficient
revelation of this intention, and it has become an unbending rule of
statutory construction that the intention to repeal a former law will not
be imputed to the Legislature when it appears that the two statutes, or
provisions, with reference to which the question arises bear to each
other the relation of general to special.

There is no sufficient indication of an implied repeal of P.D. 1869. On the contrary,

as the private respondent points out, PAGCOR is mentioned as the source of
funding in two later enactments of Congress, to wit, R.A. 7309, creating a Board of
Claims under the Department of Justice for the benefit of victims of unjust
punishment or detention or of violent crimes, and R.A. 7648, providing for measures
for the solution of the power crisis. PAGCOR revenues are tapped by these two
statutes. This would show that the PAGCOR charter has not been repealed by the
Local Government Code but has in fact been improved as it were to make the entity
more responsive to the fiscal problems of the government.

It is a canon of legal hermeneutics that instead of pitting one statute against another
in an inevitably destructive confrontation, courts must exert every effort to reconcile
them, remembering that both laws deserve a becoming respect as the handiwork of
a coordinate branch of the government. On the assumption of a conflict between
P.D. 1869 and the Code, the proper action is not to uphold one and annul the other
but to give effect to both by harmonizing them if possible. This is possible in the
case before us. The proper resolution of the problem at hand is to hold that
under the Local Government Code, local government units may (and indeed
must) prevent and suppress all kinds of gambling within their territories
except only those allowed by statutes like P.D. 1869. The exception reserved in
such laws must be read into the Code, to make both the Code and such laws
equally effective and mutually complementary.

This approach would also affirm that there are indeed two kinds of gambling, to wit,
the illegal and those authorized by law. Legalized gambling is not a modern concept;
it is probably as old as illegal gambling, if not indeed more so. The petitioners'
suggestion that the Code authorizes them to prohibit all kinds of gambling would
erase the distinction between these two forms of gambling without a clear indication
that this is the will of the legislature. Plausibly, following this theory, the City of
Manila could, by mere ordinance, prohibit the Philippine Charity Sweepstakes Office
from conducting a lottery as authorized by R.A. 1169 and B.P. 42 or stop the races
at the San Lazaro Hippodrome as authorized by R.A. 309 and R.A. 983.

In light of all the above considerations, we see no way of arriving at the conclusion
urged on us by the petitioners that the ordinances in question are valid. On the
contrary, we find that the ordinances violate P.D. 1869, which has the character and
force of a statute, as well as the public policy expressed in the decree allowing the
playing of certain games of chance despite the prohibition of gambling in general.

The rationale of the requirement that the ordinances should not contravene a statute
is obvious. Municipal governments are only agents of the national government.
Local councils exercise only delegated legislative powers conferred on them by
Congress as the national lawmaking body. The delegate cannot be superior to
the principal or exercise powers higher than those of the latter. It is a heresy to
suggest that the local government units can undo the acts of Congress, from which
they have derived their power in the first place, and negate by mere ordinance the
mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and
rights wholly from the legislature. It breathes into them the breath of
life, without which they cannot exist. As it creates, so it may destroy. As
it may destroy, it may abridge and control. Unless there is some
constitutional limitation on the right, the legislature might, by a single
act, and if we can suppose it capable of so great a folly and so great a
wrong, sweep from existence all of the municipal corporations in the
State, and the corporation could not prevent it. We know of no limitation
on the right so far as to the corporation themselves are concerned.
They are, so to phrase it, the mere tenants at will of the legislature. 11

This basic relationship between the national legislature and the local government
units has not been enfeebled by the new provisions in the Constitution strengthening
the policy of local autonomy. Without meaning to detract from that policy, we here
confirm that Congress retains control of the local government units although in
significantly reduced degree now than under our previous Constitutions. The power
to create still includes the power to destroy. The power to grant still includes the
power to withhold or recall. True, there are certain notable innovations in the
Constitution, like the direct conferment on the local government units of the power to
tax, 12 which cannot now be withdrawn by mere statute. By and large, however, the
national legislature is still the principal of the local government units, which
cannot defy its will or modify or violate it.

The Court understands and admires the concern of the petitioners for the welfare of
their constituents and their apprehensions that the welfare of Cagayan de Oro City
will be endangered by the opening of the casino. We share the view that "the hope
of large or easy gain, obtained without special effort, turns the head of the
workman" 13 and that "habitual gambling is a cause of laziness and
ruin." 14 In People v. Gorostiza, 15 we declared: "The social scourge of gambling must
be stamped out. The laws against gambling must be enforced to the limit." George
Washington called gambling "the child of avarice, the brother of iniquity and the
father of mischief." Nevertheless, we must recognize the power of the legislature to
decide, in its own wisdom, to legalize certain forms of gambling, as was done in P.D.
1869 and impliedly affirmed in the Local Government Code. That decision can be
revoked by this Court only if it contravenes the Constitution as the touchstone of all
official acts. We do not find such contravention here.

We hold that the power of PAGCOR to centralize and regulate all games of chance,
including casinos on land and sea within the territorial jurisdiction of the Philippines,
remains unimpaired. P.D. 1869 has not been modified by the Local Government
Code, which empowers the local government units to prevent or suppress only those
forms of gambling prohibited by law.

Casino gambling is authorized by P.D. 1869. This decree has the status of a
statute that cannot be amended or nullified by a mere ordinance. Hence, it was
not competent for the Sangguniang Panlungsod of Cagayan de Oro City to enact
Ordinance No. 3353 prohibiting the use of buildings for the operation of a casino and
Ordinance No. 3375-93 prohibiting the operation of casinos. For all their
praiseworthy motives, these ordinances are contrary to P.D. 1869 and the public
policy announced therein and are therefore ultra vires and void.

WHEREFORE, the petition is DENIED and the challenged decision of the

respondent Court of Appeals is AFFIRMED, with costs against the petitioners. It is
so ordered.

Narvasa, C.J., Feliciano, Bidin, Regalado, Romero, Bellosillo, Melo, Quiason,

Puno, Vitug, Kapunan and Mendoza, JJ., concur.
  Separate Opinions

PADILLA, J., concurring:

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

In Basco v. Philippine Amusement and Gaming Corporation (PAGCOR), 197 SCRA

52, I stated in a separate opinion that:

. . . I agree with the decision insofar as it holds that the prohibition,

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

However, despite the legality of the opening and operation of a casino in Cagayan

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

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

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

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

As in Basco, I can easily visualize prostitution at par with gambling. And yet,

legalization of the former will not render it any less reprehensible even if substantial
revenue for the government can be realized from it. The same is true of gambling.

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

DAVIDE, JR., J., concurring:

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

I.

It must at once be noted that private respondent Pryce Properties Corporation

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

A last word. This court's original jurisdiction to issue writs

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

And in Vasquez, this Court said:

One final observation. We discern in the proceedings in this case a

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

II.

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

The challenged ordinances were enacted pursuant to the Sangguniang

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

Sec. 16. General Welfare. — Every local government unit shall

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

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

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

The nullification by the Court of Appeals of the challenged ordinances

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

IV.

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

 
# Separate Opinions

PADILLA, J., concurring:

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

In Basco v. Philippine Amusement and Gaming Corporation (PAGCOR), 197 SCRA

52, I stated in a separate opinion that:

. . . I agree with the decision insofar as it holds that the prohibition,

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

However, despite the legality of the opening and operation of a casino in Cagayan

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

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

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

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

As in Basco, I can easily visualize prostitution at par with gambling. And yet,

legalization of the former will not render it any less reprehensible even if substantial
revenue for the government can be realized from it. The same is true of gambling.

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

DAVIDE, JR., J., concurring:

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

I.

It must at once be noted that private respondent Pryce Properties Corporation

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

A last word. This court's original jurisdiction to issue writs

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

And in Vasquez, this Court said:

One final observation. We discern in the proceedings in this case a

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

II.

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

The challenged ordinances were enacted pursuant to the Sangguniang

Panglungsod's express powers conferred by Section 458, paragraph (a),
subparagraphs (1)-(v), (3)-(ii), and (4)-(i), (iv), and (vii), Local Government Code,
and pursuant to its implied power under Section 16 thereof (the general welfare
clause) which reads:
 Sec. 16. General Welfare. — Every local government unit shall
exercise the powers expressly granted, those necessarily implied
therefrom, as well as powers necessary, appropriate, or incidental for
its efficient and effective governance, and those which are essential to
the promotion of the general welfare. Within their respective territorial
jurisdictions, local government units shall ensure and support, among
other things, the preservation and enrichment of culture, promote
health and safety, enhance the right of the people to a balanced
ecology, encourage and support the development of appropriate and
self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full
employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants.

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

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

III.

The nullification by the Court of Appeals of the challenged ordinances

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

IV.

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

Case No. 11 G.R. No. 91649             May 14, 1991

ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES

MARANAN AND LORENZO SANCHEZ, petitioners,
vs.
PHILIPPINE AMUSEMENTS AND GAMING CORPORATION
(PAGCOR), respondent.

H.B. Basco & Associates for petitioners.

Valmonte Law Offices collaborating counsel for petitioners.
Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:

A TV ad proudly announces:

"The new PAGCOR — responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking
to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter —
PD 1869, because it is allegedly contrary to morals, public policy and order, and
because —

A. It constitutes a waiver of a right prejudicial to a third person with a right

recognized by law. It waived the Manila City government's right to impose
taxes and license fees, which is recognized by law;

B. For the same reason stated in the immediately preceding paragraph, the
law has intruded into the local government's right to impose local taxes and
license fees. This, in contravention of the constitutionally enshrined principle
of local autonomy;

C. It violates the equal protection clause of the constitution in that it legalizes

PAGCOR — conducted gambling, while most other forms of gambling are
outlawed, together with prostitution, drug trafficking and other vices;

D. It violates the avowed trend of the Cory government away from

monopolistic and crony economy, and toward free enterprise and
privatization. (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to
the declared national policy of the "new restored democracy" and the people's will as
expressed in the 1987 Constitution. The decree is said to have a "gambling
objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of
Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second
Amended Petition; p. 21, Rollo).

The procedural issue is whether petitioners, as taxpayers and practicing

lawyers (petitioner Basco being also the Chairman of the Committee on Laws
of the City Council of Manila), can question and seek the annulment of PD
1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by

virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D.
1067-B also dated January 1, 1977 "to establish, operate and maintain gambling
casinos on land or water within the territorial jurisdiction of the Philippines." Its
operation was originally conducted in the well known floating casino "Philippine
Tourist." The operation was considered a success for it proved to be a potential
source of revenue to fund infrastructure and socio-economic projects, thus, P.D.
1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable
the Government to regulate and centralize all games of chance authorized by
existing franchise or permitted by law, under the following declared policy —

Sec. 1. Declaration of Policy. — It is hereby declared to be the policy of the

State to centralize and integrate all games of chance not heretofore
authorized by existing franchises or permitted by law in order to attain the
following objectives:

(a) To centralize and integrate the right and authority to operate and conduct
games of chance into one corporate entity to be controlled, administered and
supervised by the Government.

(b) To establish and operate clubs and casinos, for amusement and
recreation, including sports gaming pools, (basketball, football, lotteries, etc.)
and such other forms of amusement and recreation including games of
chance, which may be allowed by law within the territorial jurisdiction of the
Philippines and which will: (1) generate sources of additional revenue to fund
infrastructure and socio-civic projects, such as flood control programs,
beautification, sewerage and sewage projects, Tulungan ng Bayan Centers,
Nutritional Programs, Population Control and such other essential public
services; (2) create recreation and integrated facilities which will expand and
improve the country's existing tourist attractions; and (3) minimize, if not
totally eradicate, all the evils, malpractices and corruptions that are normally
prevalent on the conduct and operation of gambling clubs and casinos without
direct government involvement. (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the
Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders,
rules and regulations, inconsistent therewith, are accordingly repealed, amended or
modified.
It is reported that PAGCOR is the third largest source of government revenue, next
to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone,
PAGCOR earned P3.43 Billion, and directly remitted to the National Government a
total of P2.5 Billion in form of franchise tax, government's income share, the
President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored
other socio-cultural and charitable projects on its own or in cooperation with various
governmental agencies, and other private associations and organizations. In its 3
1/2 years of operation under the present administration, PAGCOR remitted to the
government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was
employing 4,494 employees in its nine (9) casinos nationwide, directly supporting
the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.

But the petitioners, are questioning the validity of P.D. No. 1869. They allege
that the same is "null and void" for being "contrary to morals, public policy
and public order," monopolistic and tends toward "crony economy", and is
violative of the equal protection clause and local autonomy as well as for
running counter to the state policies enunciated in Sections 11 (Personal
Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II,
Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of
Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the
most deliberate consideration by the Court, involving as it does the exercise of what
has been described as "the highest and most delicate function which belongs to the
judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v.
Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and
coordinate branch of the government We need not be reminded of the time-honored
principle, deeply ingrained in our jurisprudence, that a statute is presumed to be
valid. Every presumption must be indulged in favor of its constitutionality. This is not
to say that We approach Our task with diffidence or timidity. Where it is clear that the
legislature or the executive for that matter, has over-stepped the limits of its authority
under the constitution, We should not hesitate to wield the axe and let it fall heavily,
as fall it must, on the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr.
Justice Zaldivar underscored the —

. . . thoroughly established principle which must be followed in all cases where

questions of constitutionality as obtain in the instant cases are involved. All
presumptions are indulged in favor of constitutionality; one who attacks a
statute alleging unconstitutionality must prove its invalidity beyond a
reasonable doubt; that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which
 supports the statute, it will be upheld and the challenger must negate all
possible basis; that the courts are not concerned with the wisdom, justice,
policy or expediency of a statute and that a liberal interpretation of the
constitution in favor of the constitutionality of legislation should be adopted.
(Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA
734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978];
and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in
Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162
SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning
the legal personality of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping
with the Court's duty, under the 1987 Constitution, to determine whether or not the
other branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given to
them, the Court has brushed aside technicalities of procedure and has taken
cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas Inc. v. Tan, 163 SCRA 371)

With particular regard to the requirement of proper party as applied in the

cases before us, We hold that the same is satisfied by the petitioners and
intervenors because each of them has sustained or is in danger of sustaining
an immediate injury as a result of the acts or measures complained of. And
even if, strictly speaking they are not covered by the definition, it is still within
the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional
questions raised.

In the first Emergency Powers Cases, ordinary citizens and taxpayers were
allowed to question the constitutionality of several executive orders issued by
President Quirino although they were involving only an indirect and general
interest shared in common with the public. The Court dismissed the objection
that they were not proper parties and ruled that "the transcendental
importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must technicalities of
procedure." We have since then applied the exception in many other cases.
(Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian
Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues
raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the
prohibition of gambling does not mean that the Government cannot regulate it in the
exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been

defined as the "state authority to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA
481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or
property, (2) in order to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms to underscore its all-
comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon,
163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the
future where it could be done, provides enough room for an efficient and flexible
response to conditions and circumstances thus assuming the greatest benefits. (Edu
v. Ericta, supra)

It finds no specific Constitutional grant for the plain reason that it does not owe its
origin to the charter. Along with the taxing power and eminent domain, it is inborn in
the very fact of statehood and sovereignty. It is a fundamental attribute of
government that has enabled it to perform the most vital functions of governance.
Marshall, to whom the expression has been credited, refers to it succinctly as the
plenary power of the state "to govern its citizens". (Tribe, American Constitutional
Law, 323, 1978). The police power of the State is a power co-extensive with self-
protection and is most aptly termed the "law of overwhelming necessity." (Rubi v.
Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent,
and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic
force that enables the state to meet the agencies of the winds of change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and
centralize thru an appropriate institution all games of chance authorized by existing
franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently
proved, regulating and centralizing gambling operations in one corporate entity —
the PAGCOR, was beneficial not just to the Government but to society in general. It
is a reliable source of much needed revenue for the cash strapped Government. It
provided funds for social impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government" (4th Whereas Clause, PD
1869). With the creation of PAGCOR and the direct intervention of the Government,
the evil practices and corruptions that go with gambling will be minimized if not
totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD
1896.
Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of
Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is
violative of the principle of local autonomy. They must be referring to Section 13 par.
(2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any
"tax of any kind or form, income or otherwise, as well as fees, charges or levies of
whatever nature, whether National or Local."

(2) Income and other taxes. — a) Franchise Holder: No tax of any kind or

form, income or otherwise as well as fees, charges or levies of whatever
nature, whether National or Local, shall be assessed and collected under this
franchise from the Corporation; nor shall any form or tax or charge attach in
any way to the earnings of the Corporation, except a franchise tax of five (5%)
percent of the gross revenues or earnings derived by the Corporation from its
operations under this franchise. Such tax shall be due and payable quarterly
to the National Government and shall be in lieu of all kinds of taxes, levies,
fees or assessments of any kind, nature or description, levied, established or
collected by any municipal, provincial or national government authority
(Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent
right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v.
Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus,
"the Charter or statute must plainly show an intent to confer that power or the
municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to
tax" therefore must always yield to a legislative act which is superior having been
passed upon by the state itself which has the "inherent power to tax" (Bernas, the
Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It

should be stressed that "municipal corporations are mere creatures of
Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the
power to "create and abolish municipal corporations" due to its "general legislative
powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541).
Congress, therefore, has the power of control over Local governments (Hebron
v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of
Manila the power to tax certain matters, it can also provide for exemptions or
even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long
been revoked. As early as 1975, the power of local governments to regulate
gambling thru the grant of "franchise, licenses or permits" was withdrawn by
P.D. No. 771 and was vested exclusively on the National Government, thus:
 Sec. 1. Any provision of law to the contrary notwithstanding, the authority of
chartered cities and other local governments to issue license, permit or other
form of franchise to operate, maintain and establish horse and dog race
tracks, jai-alai and other forms of gambling is hereby revoked.

Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish,

horse and dog race tracks, jai-alai and other forms of gambling shall be
issued by the national government upon proper application and verification of
the qualification of the applicant . . .

Therefore, only the National Government has the power to issue "licenses or
permits" for the operation of gambling. Necessarily, the power to demand or
collect license fees which is a consequence of the issuance of "licenses or permits"
is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also
exercises regulatory powers thus:

Sec. 9. Regulatory Power. — The Corporation shall maintain a Registry of the

affiliated entities, and shall exercise all the powers, authority and the
responsibilities vested in the Securities and Exchange Commission over such
affiliating entities mentioned under the preceding section, including, but not
limited to amendments of Articles of Incorporation and By-Laws, changes in
corporate term, structure, capitalization and other matters concerning the
operation of the affiliated entities, the provisions of the Corporation Code of
the Philippines to the contrary notwithstanding, except only with respect to
original incorporation.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter
role is governmental, which places it in the category of an agency or instrumentality
of the Government. Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden

or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local
governments.
 Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to prevent
it from consummating its federal responsibilities, or even to seriously burden it
in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2,
p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US
42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be
violated by P.D. 1869. This is a pointless argument. Article X of the 1987
Constitution (on Local Autonomy) provides:

Sec. 5. Each local government unit shall have the power to create its own
source of revenue and to levy taxes, fees, and other charges subject to such
guidelines and limitation as the congress may provide, consistent with the
basic policy on local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local government. (emphasis supplied)

The power of local government to "impose taxes and fees" is always subject to
"limitations" which Congress may provide by law. Since PD 1869 remains an
"operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987
Constitution), its "exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees. It cannot therefore be
violative but rather is consistent with the principle of local autonomy.

Besides, the principle of local autonomy under the 1987 Constitution simply means
"decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436,
as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First
Ed., 1988, p. 374). It does not make local governments sovereign within the state or
an "imperium in imperio."

Local Government has been described as a political subdivision of a nation or

state which is constituted by law and has substantial control of local affairs. In
a unitary system of government, such as the government under the Philippine
Constitution, local governments can only be an intra sovereign subdivision of
 one sovereign nation, it cannot be an imperium in imperio. Local government
in such a system can only mean a measure of decentralization of the function
of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to

local government units remains a matter of policy, which concerns wisdom. It is
therefore a political question. (Citizens Alliance for Consumer Protection v. Energy
Regulatory Board, 162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing

with gambling is a State concern and hence, it is the sole prerogative of the
State to retain it or delegate it to local governments.

As gambling is usually an offense against the State, legislative grant or

express charter power is generally necessary to empower the local
corporation to deal with the subject. . . . In the absence of express grant of
power to enact, ordinance provisions on this subject which are inconsistent
with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-
Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99,
25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol.
3 Ibid, p. 548, emphasis supplied)

Petitioners next contend that P.D. 1869 violates the equal protection clause of the
Constitution, because "it legalized PAGCOR — conducted gambling, while most
gambling are outlawed together with prostitution, drug trafficking and other vices" (p.
82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture
ignores the well-accepted meaning of the clause "equal protection of the laws." The
clause does not preclude classification of individuals who may be accorded different
treatment under the law as long as the classification is not unreasonable or arbitrary
(Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal
force on all persons or things to be conformable to Article III, Section 1 of the
Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing
classes of individuals or objects upon which different rules shall operate (Laurel v.
Misa, 43 O.G. 2847). The Constitution does not require situations which are different
in fact or opinion to be treated in law as though they were the same (Gomez v.
Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the
equal protection is not clearly explained in the petition. The mere fact that some
gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended
by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are
legalized under certain conditions, while others are prohibited, does not render the
applicable laws, P.D. 1869 for one, unconstitutional.

If the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been
applied. (Gomez v. Palomar, 25 SCRA 827)

The equal protection clause of the 14th Amendment does not mean that all
occupations called by the same name must be treated the same way; the
state may do what it can to prevent which is deemed as evil and stop short of
those cases in which harm to the few concerned is not less than the harm to
the public that would insure if the rule laid down were made mathematically
exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory
Government away from monopolies and crony economy and toward free enterprise
and privatization" suffice it to state that this is not a ground for this Court to nullify
P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is
for the Executive Department to recommend to Congress its repeal or amendment.

The judiciary does not settle policy issues. The Court can only declare what
the law is and not what the law should be.1âwphi1 Under our system of
government, policy issues are within the domain of the political branches of
government and of the people themselves as the repository of all state power.
(Valmonte v. Belmonte, Jr., 170 SCRA 256).

On the issue of "monopoly," however, the Constitution provides that:

Sec. 19. The State shall regulate or prohibit monopolies when public interest
so requires. No combinations in restraint of trade or unfair competition shall
be allowed. (Art. XII, National Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily
prohibited by the Constitution. The state must still decide whether public interest
demands that monopolies be regulated or prohibited. Again, this is a matter of policy
for the Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12

(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII
and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it
to state also that these are merely statements of principles and, policies. As such,
they are basically not self-executing, meaning a law should be passed by Congress
to clearly define and effectuate such principles.
 In general, therefore, the 1935 provisions were not intended to be self-
executing principles ready for enforcement through the courts. They were
rather directives addressed to the executive and the legislature. If the
executive and the legislature failed to heed the directives of the articles the
available remedy was not judicial or political. The electorate could express
their displeasure with the failure of the executive and the legislature through
the language of the ballot. (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v.
Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82
SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be
nullified, it must be shown that there is a clear and unequivocal breach of the
Constitution, not merely a doubtful and equivocal one. In other words, the grounds
for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra)
Those who petition this Court to declare a law, or parts thereof, unconstitutional
must clearly establish the basis for such a declaration. Otherwise, their petition must
fail. Based on the grounds raised by petitioners to challenge the constitutionality of
P.D. 1869, the Court finds that petitioners have failed to overcome the presumption.
The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869
remains a wise legislation considering the issues of "morality, monopoly, trend to
free enterprise, privatization as well as the state principles on social justice, role of
youth and educational values" being raised, is up for Congress to determine.

As this Court held in Citizens' Alliance for Consumer Protection v. Energy

Regulatory Board, 162 SCRA 521 —

Presidential Decree No. 1956, as amended by Executive Order No. 137 has,
in any case, in its favor the presumption of validity and constitutionality which
petitioners Valmonte and the KMU have not overturned. Petitioners have not
undertaken to identify the provisions in the Constitution which they claim to
have been violated by that statute. This Court, however, is not compelled to
speculate and to imagine how the assailed legislation may possibly offend
some provision of the Constitution. The Court notes, further, in this respect
that petitioners have in the main put in question the wisdom, justice and
expediency of the establishment of the OPSF, issues which are not properly
addressed to this Court and which this Court may not constitutionally pass
upon. Those issues should be addressed rather to the political departments of
government: the President and the Congress.

Parenthetically, We wish to state that gambling is generally immoral, and this is

precisely so when the gambling resorted to is excessive. This excessiveness
necessarily depends not only on the financial resources of the gambler and his
family but also on his mental, social, and spiritual outlook on life. However, the mere
fact that some persons may have lost their material fortunes, mental control,
physical health, or even their lives does not necessarily mean that the same are
directly attributable to gambling. Gambling may have been the antecedent, but
certainly not necessarily the cause. For the same consequences could have been
preceded by an overdose of food, drink, exercise, work, and even sex.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

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

Separate Opinions

PADILLA, J., concurring:

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

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

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

Gambling is reprehensible whether maintained by government or privatized. The

revenues realized by the government out of "legalized" gambling will, in the long run,
be more than offset and negated by the irreparable damage to the people's moral
values.

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

Melencio-Herrera, J., concur.

Case No. 12
[G.R. No. 157860. December 1, 2003.]

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, v. THE

PROVINCE OF TARLAC, Respondent.

DECISION

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, 2002 1 and Resolution
dated April 8, 2003. 2

The facts are undisputed.cralaw : red

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:chanrob1es virtual 1aw library

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.
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:chanrob1es virtual 1aw library

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:chanrob1es virtual 1aw library

ART. 1409. The following contracts are inexistent and void from the
beginning:chanrob1es
virtual 1aw library

(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.cralawlibrary : red

Case No. 13 G.R. No. 161081             May 10, 2005

RAMON M. ATIENZA, in his capacity as Vice-Governor of the Province of

Occidental Mindoro, petitioner,
vs.
JOSE T. VILLAROSA, in his capacity as Governor of the Province of
Occidental Mindoro, respondent.

DECISION

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by Ramon M. Atienza, in
his capacity as Vice-Governor of the Province of Occidental Mindoro, seeking to
reverse and set aside the Decision1 dated November 28, 2003 of the Court of
Appeals in CA-G.R. SP No. 72069. The assailed decision dismissed the petition for
prohibition under Rule 65 of the Rules of Court filed by petitioner Atienza which had
sought to enjoin the implementation of the Memoranda dated June 25, 2002 and
July 1, 2002 issued by Jose T. Villarosa, Governor of the same province.

The present case arose from the following undisputed facts:

Petitioner Atienza and respondent Villarosa were the Vice-Governor and Governor,
respectively, of the Province of Occidental Mindoro. On June 26, 2002, the petitioner
Vice-Governor received the Memorandum dated June 25, 2002 issued by the
respondent Governor concerning the "AUTHORITY TO SIGN PURCHASE
ORDERS OF SUPPLIES, MATERIALS, EQUIPMENT[S], INCLUDING FUEL,
REPAIRS AND MAINTENANCE OF THE SANGGUNIANG PANLALAWIGAN." The
said memorandum reads:

For proper coordination and to ensure efficient and effective local government
administration particularly on matters pertaining to supply and property
management, effective immediately, all Purchase Orders issued in connection
with the procurement of supplies, materials and equipment[s] including fuel,
repairs and maintenance needed in the transaction of public business or in
the pursuit of any undertaking, project or activity of the Sangguniang
 Panlalawigan, this province, shall be approved by the undersigned in his
capacity as the local chief executive of the province.

The provision of DILG Opinion No. 148-1993 which states that the authority to
sign Purchase Orders of supplies, materials and equipment[s] of the
Sanggunian belongs to the local chief executive, serves as basis of this
memorandum.

For strict compliance.2

In reply to the above memorandum, the petitioner Vice-Governor wrote the

respondent Governor stating that:

We are of the opinion that … purchase orders for supplies, materials and
equipment are included under those as authorized for signature by the Vice-
chief executive of the Sanggunian on the basis of the DILG Opinion No. 96-
1995 as affirmed by the COA Opinions on June 28, April 11 and February 9,
1994 and coursing it to the Governor for his approval is no longer necessary,
the fact that [Secs.] 466 and 468, RA 7160 already provides for the separation
of powers between the executive and legislative. Such authority even include
everything necessary for the legislative research program of the Sanggunian. 3

Unimpressed, the respondent Governor issued the Memorandum dated July 1, 2002
relating to the "TERMINATION OF CONTRACT OF SERVICES OF CASUAL/JOB
ORDER EMPLOYEES AND REAPPOINTMENT OF THE RESPECTIVE
RECOMMENDEES." The said memorandum reads:

For faithful and appropriate enforcement and execution of laws and issuances
and to promote efficiency in the government service, effective immediately, all
existing contract of employment – casual/job order basis and reappointment
of the recommendees – entered into by Vice-Governor Ramon M. Atienza are
hereby terminated for being unauthorized.

Aside from being signed by the unauthorized signatory, the following facts
regarding the appointments were considered:

1. The appointment of 28 clerks – on top of existing permanent employees –

is a clear manifestation of an excessive and bloated bureaucracy;

2. The appointment of an X-ray Technician detailed at the Provincial Health

Office and some clerks detailed at various offices in the province were not
proper to be assigned by the Vice-Governor;
 3. The appointment of 30 messengers, utility workers and drivers ran counter
to COA Opinion as cited in the letter of the undersigned dated 28 June 2002,
addressed to the Vice-Governor.

However, in order to accommodate the Vice-Governor and the members of

the Sangguniang Panlalawigan, the undersigned, in his capacity as the local
chief executive of the province, will allow four (4) casual/job order employees
to be assigned to the Vice-Governor and one (1) casual/job order employee to
be assigned to each member of the Sangguniang Panlalawigan.

The Vice-Governor and all the Sanggunian Members are hereby directed to
submit immediately the names of their recommendees to the undersigned for
immediate approval of their respective appointments.

Please be guided accordingly.4

On July 3, 2002, the respondent Governor issued another Memorandum regarding

the "ENFORCIBILITY (sic) OF PREVIOUS MEMORANDA ISSUED ON JUNE 20,
26 AND JULY 1, 2002." It provides that:

Please be properly advised that the Memoranda dated June 20, 26 and July
1, 2002 issued by the undersigned regarding the issuance of permit to travel
and authority to sign Purchase Orders of supplies, materials, equipment,
including fuel, repairs and maintenance of the Sangguniang Panlalawigan, is
to be strictly adhered to for compliance.

Likewise for strict compliance is the Memorandum dated July 1, 2002 with
reference to the Cancellation of the Appointment of Casual/Job Order
Employees of the Sangguniang Panlalawigan Members/Office of the Vice-
Governor previously signed by Vice-Governor Ramon M. Atienza.

Please be guided accordingly.5

In his Letter dated July 9, 2002, the petitioner Vice-Governor invoked the principle of
separation of powers as applied to the local government units, i.e., the respondent,
as the Governor, the head of the executive branch, and the petitioner, as the Vice-
Governor, the head of the legislative branch, which is the Sangguniang
Panlalawigan. The petitioner Vice-Governor reiterated his request for the respondent
to make a "deeper study" on the matter before implementing his memoranda. The
request, however, went unheeded as the respondent Governor insisted on obliging
the department heads of the provincial government to comply with the memoranda.

The petitioner Vice-Governor thus filed with the Court of Appeals the petition for
prohibition assailing as having been issued with grave abuse of discretion the
respondent Governor's Memoranda dated June 25, 2002 and July 1, 2002. The
petitioner Vice-Governor claimed that these memoranda excluded him from the use
and enjoyment of his office in violation of the pertinent provisions of Republic Act
No. 7160, or the Local Government Code of 1991, and its implementing rules and
regulations. It was prayed that the respondent Governor be enjoined from
implementing the assailed memoranda.

The appellate court, in its Decision dated November 28, 2003, dismissed the petition
for prohibition. Citing Section 3446 of Rep. Act No. 7160, the CA upheld the authority
of the respondent Governor to issue the Memorandum dated June 25, 2002 as it
recognized his authority to approve the purchase orders. The said provision
provides in part that "approval of the disbursement voucher by the local chief
executive himself shall be required whenever local funds are disbursed."

The CA explained that Section 466(a)(1)7 of the same Code, relied upon by the
petitioner Vice-Governor, speaks of the authority of the Vice-Governor to sign
"all warrants drawn on the public treasury for all expenditures appropriated for the
operation of the sangguniang panlalawigan." In declaring this provision inapplicable,
the CA reasoned that the approval of purchase orders is different from the power of
the Vice-Governor to sign warrants drawn against the public treasury.

Section 3618 was, likewise, held to be inapplicable ratiocinating, thus:

[R]equisitioning, which is provided under Section 361 of RA 7160, is the act of

requiring that something be furnished. In the procurement function, it is the
submission of written requests for supplies and materials and the like. It could
be inferred that, in the scheme of things, approval of purchase requests is
different from approval of purchase orders. Thus, the inapplicability of Section
361.

Anent the Memorandum dated July 1, 2002, the CA ruled that the issue on whether
it could be enjoined had already been rendered moot and academic. The CA pointed
out that the subject of the said memorandum could no longer be enjoined or
restrained as the termination of the employees had already been effected. It opined
that where the act sought to be enjoined in the prohibition proceedings had already
been performed and there is nothing more to restrain, the case is already moot and
academic.

The petitioner Vice-Governor now seeks recourse to this Court alleging that the
appellate court committed reversible error in ruling that it is the Governor, and not
the Vice-Governor, who has the authority to sign purchase orders of supplies,
materials, equipment, including fuel, repairs and maintenance of the Sangguniang
Panlalawigan. The petitioner Vice-Governor, likewise, takes exception to the holding
of the CA that the issue relating to the July 1, 2002 Memorandum had been
rendered moot and academic. He points out that the appointment of casual/job order
employees is exercised by the appointing authority every six months in the case of
casual employees and per job order as to job order employees. Thus, while the July
1, 2002 Memorandum had already been implemented, what is being sought to be
enjoined is the respondent Governor's continued usurpation of the petitioner Vice-
Governor's authority to appoint the employees of the Sangguniang
Panlalawigan under the pertinent provisions of Rep. Act No. 7160.

For his part, the respondent Governor maintains that his Memoranda dated June 25,
2002 and July 1, 2002 are valid. He asserts that the approval of purchase orders is
different from the power of the Vice-Governor to sign warrants drawn against the
provincial treasury under Section 466(a)(1) of Rep. Act No. 7160. Rather, he insists
on the application of the last clause in Section 344 which states that the approval of
the disbursement by the local chief executive is required whenever local funds are
disbursed.

The respondent Governor likewise defends the validity of the Memorandum dated
July 1, 2002 stating that it was issued upon finding that the petitioner Vice-Governor
appointed, among others, 28 clerks on top of the existing permanent employees
resulting in an excessive and bloated bureaucracy. He concedes the appointing
power of the Vice-Governor but submits that this is limited to the employees of
the Sangguniang Panlalawigan and that he is not authorized to appoint officials and
employees of the Office of the Vice-Governor.

As correctly presented by the appellate court, the issues for resolution in this case
are:

A. Who between the petitioner and the respondent is authorized to approve

purchase orders issued in connection with the procurement of supplies,
materials, equipment, including fuel, repairs and maintenance of the
Sangguniang Panlalawigan?

B. Does respondent Villarosa, as local chief executive, have the authority to

terminate or cancel the appointments of casual/job order employees of the
Sangguniang Panlalawigan Members and the Office of the Vice-Governor? 9

Before resolving the foregoing issues, it is noted that petitioner Atienza and
respondent Villarosa had ceased to be the Vice-Governor and Governor,
respectively, of the Province of Occidental Mindoro effective June 30, 2004 when
the newly-elected officials of the province took their oaths of offices. The petitioner
Vice-Governor did not run for re-election during the May 2004 elections while the
respondent Governor did not succeed in his re-election bid. The expiration of their
terms of offices has effectively rendered the case moot. However, even in cases
where supervening events had made the cases moot, the Court did not hesitate to
resolve the legal or constitutional issues raised to formulate controlling principles to
guide the bench, bar and the public. 10 In this case, there is compelling reason for the
Court to resolve the issues presented in order to clarify the scope of the respective
powers of the Governor and Vice-Governor under the pertinent provisions of the
Local Government Code of 1991.

To resolve the substantive issues presented in the instant case, it is well to recall
that Rep. Act No. 7160 was enacted to give flesh to the constitutional mandate to
"provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanism of recall,
initiative and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local
officials, and all matters relating to the organization and operation of the local
units."11

In this connection, the provisions of Rep. Act No. 7160 are anchored on principles
that give effect to decentralization. Among these principles are: [t]here shall be an
effective allocation among the different local government units of their respective
powers, functions, responsibilities, and resources; [t]here shall be established in
every local government unit an accountable, efficient, and dynamic organizational
structure and operating mechanism that will meet the priority needs and service
requirements of its communities; [p]rovinces with respect to component cities and
municipalities, and cities and municipalities with respect to component barangays,
shall ensure that the acts of their component units are within the scope of their
prescribed powers and functions; and [e]ffective mechanisms for ensuring the
accountability of local government units to their respective constituents shall be
strengthened in order to upgrade continually the quality of local leadership. 12

With these guideposts, the Court shall now address the issue on who between the
Governor and Vice-Governor is authorized to approve purchase orders issued in
connection with the procurement of supplies, materials, equipment, including fuel,
repairs and maintenance of the Sangguniang Panlalawigan.

We hold that it is the Vice-Governor who has such authority.

Under Rep. Act No. 7160, local legislative power for the province is exercised by
the Sangguniang Panlalawigan13 and the Vice-Governor is its presiding
officer.14 Being vested with legislative powers, the Sangguniang
Panlalawigan enacts ordinances, resolutions and appropriates funds for the general
welfare of the province in accordance with the provisions of Rep. Act No.
7160.15 The same statute vests upon the Vice-Governor the power to:

(1) Be the presiding officer of the sangguniang panlalawigan and sign all
warrants drawn on the provincial treasury for all expenditures appropriated for
the operation of the sangguniang panlalawigan. 16

Further, Section 344 provides:

 Sec. 344. Certification on, and Approval of, Vouchers. – No money shall be
disbursed unless the local budget officer certifies to the existence of
appropriation that has been legally made for the purpose, the local accountant
has obligated said appropriation, and the local treasurer certifies to the
availability of funds for the purpose. Vouchers and payrolls shall be certified to
and approved by the head of the department or office who has administrative
control of the fund concerned, as to validity, propriety and legality of the claim
involved. Except in cases of disbursements involving regularly recurring
administrative expenses such as payrolls for regular or permanent
employees, expenses for light, water, telephone and telegraph services,
remittances to government creditor agencies such as the GSIS, SSS, LBP,
DBP, National Printing Office, Procurement Service of the DBM and others,
approval of the disbursement voucher by the local chief executive himself
shall be required whenever local funds are disbursed.

In cases of special or trust funds, disbursements shall be approved by the

administrator of the fund.

In case of temporary absence or incapacity of the department head or chief of

office, the officer next-in-rank shall automatically perform his function and he
shall be fully responsible therefor.

Reliance by the CA on the clause "approval of the disbursement voucher by the

local chief executive himself shall be required whenever local funds are disbursed"
of the above section (Section 344) to rule that it is the Governor who has the
authority to approve purchase orders for the supplies, materials or equipment for the
operation of the Sangguniang Panlalawigan is misplaced. This clause cannot prevail
over the more specific clause of the same provision which provides that "vouchers
and payrolls shall be certified to and approved by the head of the department or
office who has administrative control of the fund concerned." The Vice-Governor, as
the presiding officer of the Sangguniang Panlalawigan, has administrative control of
the funds of the said body. Accordingly, it is the Vice-Governor who has the authority
to approve disbursement vouchers for expenditures appropriated for the operation of
the Sangguniang Panlalawigan.

On this point, Section 39 of the Manual on the New Government Accounting System
for Local Government Units, prepared by the Commission on Audit (COA), is
instructive:

Sec. 39. Approval of Disbursements. – Approval of disbursements by the

Local Chief Executive (LCE) himself shall be required whenever local funds
are disbursed, except for regularly recurring administrative expenses such as:
payrolls for regular or permanent employees, expenses for light, water,
telephone and telegraph services, remittances to government creditor
agencies such as GSIS, BIR, PHILHEALTH, LBP, DBP, NPO, PS of the DBM
 and others, where the authority to approve may be delegated. Disbursement
vouchers for expenditures appropriated for the operation of the Sanggunian
shall be approved by the provincial Vice Governor, the city Vice-Mayor or the
municipal Vice-Mayor, as the case may be.17

While Rep. Act No. 7160 is silent as to the matter, the authority granted to the Vice-
Governor to sign all warrants drawn on the provincial treasury for all expenditures
appropriated for the operation of the Sangguniang Panlalawigan as well as to
approve disbursement vouchers relating thereto necessarily includes the authority to
approve purchase orders covering the same applying the doctrine of necessary
implication. This doctrine is explained, thus:

No statute can be enacted that can provide all the details involved in its
application. There is always an omission that may not meet a particular
situation. What is thought, at the time of enactment, to be an all-embracing
legislation may be inadequate to provide for the unfolding of events of the
future. So-called gaps in the law develop as the law is enforced. One of the
rules of statutory construction used to fill in the gap is the doctrine of
necessary implication. The doctrine states that what is implied in a statute is
as much a part thereof as that which is expressed. Every statute is
understood, by implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make effective rights,
powers, privileges or jurisdiction which it grants, including all such collateral
and subsidiary consequences as may be fairly and logically inferred from its
terms. Ex necessitate legis. And every statutory grant of power, right or
privilege is deemed to include all incidental power, right or privilege. This is so
because the greater includes the lesser, expressed in the maxim, in eo plus
sit, simper inest et minus.18

Warrants are "order[s] directing the treasurer of the municipality to pay money out of
funds in city treasury which are or may become available for purpose specified to
designated person[s]."19 Warrants of a municipal corporation are generally orders
payable when funds are found. They are issued for the payment of general
municipal debts and expenses subject to the rule that they shall be paid in the order
of presentation.20

The ordinary meaning of "voucher" is a document which shows that services have
been performed or expenses incurred. It covers any acquittance or receipt
discharging the person or evidencing payment by him. When used in connection
with disbursement of money, it implies some instrument that shows on what account
or by what authority a particular payment has been made, or that services have
been performed which entitle the party to whom it is issued to payment. 21

Purchase order, on the other hand, is "an authorization by the issuing party for the
recipient to provide materials or services for which issuing party agrees to pay; it is
an offer to buy which becomes binding when those things ordered have been
provided."22

When an authorized person approves a disbursement voucher, he certifies to the

correctness of the entries therein, among others: that the expenses incurred were
necessary and lawful, the supporting documents are complete and the availability of
cash therefor. Further, the person who performed the services or delivered the
supplies, materials or equipment is entitled to payment. 23 On the other hand, the
terms and conditions for the procurement of supplies, materials or equipment, in
particular, are contained in a purchase order. The tenor of a purchase order
basically directs the supplier to deliver the articles enumerated and subject to the
terms and conditions specified therein. 24 Hence, the express authority to approve
disbursement vouchers and, in effect, authorize the payment of money claims for
supplies, materials or equipment, necessarily includes the authority to approve
purchase orders to cause the delivery of the said supplies, materials or equipment.

Since it is the Vice-Governor who approves disbursement vouchers and approves

the payment for the procurement of the supplies, materials and equipment needed
for the operation of the Sangguniang Panlalawigan, then he also has the authority to
approve the purchase orders to cause the delivery of the said supplies, materials or
equipment.

Indeed, the authority granted to the Vice-Governor to sign all warrants drawn on the
provincial treasury for all expenditures appropriated for the operation of
the Sangguniang Panlalawigan as well as to approve disbursement vouchers
relating thereto is greater and includes the authority to approve purchase orders for
the procurement of the supplies, materials and equipment necessary for the
operation of the Sangguniang Panlalawigan.

Anent the second issue, the appellate court likewise committed reversible error in
holding that the implementation of the Memorandum dated July 1, 2002 had
rendered the petition moot and academic. It is recognized that courts will decide a
question otherwise moot and academic if it is "capable of repetition yet evading
review."25 Even if the employees whose contractual or job order employment had
been terminated by the implementation of the July 1, 2002 Memorandum may no
longer be reinstated, still, similar memoranda may be issued by other local chief
executives. Hence, it behooves the Court to resolve whether the Governor has the
authority to terminate or cancel the appointments of casual/job order employees of
the Sangguniang Panlalawigan and the Office of the Vice-Governor.

We hold that the Governor, with respect to the appointment of the officials and
employees of the Sangguniang Panlalawigan, has no such authority.

Among the powers granted to the Governor under Section 465 of Rep. Act No. 7160
are:
 Sec. 465. The Chief Executive: Powers, Duties, Functions and
Compensation.– (a) The provincial governor, as the chief executive of the
provincial government, shall exercise such powers and perform such duties
and functions as provided by this Code and other laws.

(b) For efficient, effective and economical governance the purpose of which is
the general welfare of the province and its inhabitants pursuant to Section 16
of this Code, the provincial governor shall:

(v) Appoint all officials and employees whose salaries and wages are
wholly or mainly paid out of provincial funds and whose appointments
are not otherwise provided for in this Code, as well as those he may be
authorized by law to appoint.

On the other hand, Section 466 vests on the Vice-Governor the power to, among
others:

(2) Subject to civil service law, rules and regulations, appoint all officials and
employees of the sangguniang panlalawigan, except those whose manner of
appointment is specifically provided in this Code.

Thus, while the Governor has the authority to appoint officials and employees whose
salaries are paid out of the provincial funds, this does not extend to the officials and
employees of the Sangguniang Panlalawigan because such authority is lodged with
the Vice-Governor. In the same manner, the authority to appoint casual and job
order employees of the Sangguniang Panlalawigan belongs to the Vice-Governor.

The authority of the Vice-Governor to appoint the officials and employees of

the Sangguniang Panlalawigan is anchored on the fact that the salaries of these
employees are derived from the appropriation specifically for the said local
legislative body. Indeed, the budget source of their salaries is what sets the
employees and officials of the Sangguniang Panlalawigan apart from the other
employees and officials of the province. Accordingly, the appointing power of the
Vice-Governor is limited to those employees of the Sangguniang Panlalawigan, as
well as those of the Office of the Vice-Governor, whose salaries are paid out of the
funds appropriated for the Sangguniang Panlalawigan. As a corollary, if the salary of
an employee or official is charged against the provincial funds, even if this employee
reports to the Vice-Governor or is assigned to his office, the Governor retains the
authority to appoint the said employee pursuant to Section 465(b)(v) of Rep. Act No.
7160.

However, in this case, it does not appear whether the contractual/job order
employees, whose appointments were terminated or cancelled by the Memorandum
dated July 1, 2002 issued by the respondent Governor, were paid out of the
provincial funds or the funds of the Sangguniang Panlalawigan. Nonetheless, the
validity of the said memorandum cannot be upheld because it absolutely prohibited
the respondent Vice-Governor from exercising his authority to appoint the
employees, whether regular or contractual/job order, of the Sangguniang
Panlalawigan and restricted such authority to one of recommendatory nature
only.26 This clearly constituted an encroachment on the appointment power of the
respondent Vice- Governor under Section 466(a)(2) of Rep. Act No. 7160.

At this juncture, it is well to note that under Batas Pambansa Blg. 337, the Local
Government Code prior to Rep. Act No. 7160, the Governor was the presiding
officer of the Sangguniang Panlalawigan:

Sec. 205. Composition. (1) Each provincial government shall have a

provincial legislature hereinafter known as the sangguniang panlalawigan,
upon which shall be vested the provincial legislative power.

(2) The sangguniang panlalawigan shall be composed of the governor, vice-

governor, elective members of the said sanggunian, and the presidents of
the katipunang panlalawigan and the kabataang barangay provincial
federation who shall be appointed by the President of the Philippines.

Sec. 206. Sessions. –

(3) The governor, who shall be the presiding officer of the sangguniang

panlalawigan, shall not be entitled to vote except in case of a tie.

With Rep. Act No. 7160, the union of legislative and executive powers in the office of
the local chief executive under the BP Blg. 337 has been disbanded, so that either
department now comprises different and non-intermingling official personalities with
the end in view of ensuring a better delivery of public service and provide a system
of check and balance between the two.27

Senator Aquilino Pimentel, the principal author of Rep. Act No. 7160, explained that
"the Vice-Governor is now the presiding officer of the Sangguniang Panlalawigan.
The City Vice-Mayor presides at meetings of the Sangguniang Panlungsod and the
Municipal Vice-Mayor at the sessions of the Sangguniang Bayan. The idea is to
distribute powers among elective local officials so that the legislative, which is the
Sanggunian, can properly check the executive, which is the Governor or the Mayor
and vice versa and exercise their functions without any undue interference from one
by the other."28
The avowed intent of Rep. Act. No. 7160, therefore, is to vest on the Sangguniang
Panlalawigan independence in the exercise of its legislative functions vis-a-vis the
discharge by the Governor of the executive functions. The Memoranda dated June
25, 2002 and July 1, 2002 of the respondent Governor, which effectively excluded
the petitioner Vice-Governor, the presiding officer of the Sangguniang Panlalawigan,
from signing the purchase orders for the procurement of supplies, materials or
equipment needed for the operation of the Sangguniang Panlalawigan as well as
from appointing its casual and job order employees, constituted undue interference
with the latter's functions. The assailed memoranda are clearly not in keeping with
the intent of Rep. Act No. 7160 and their implementation should thus be
permanently enjoined.

WHEREFORE, the petition is GRANTED. The Memoranda dated June 25, 2002 and
July 1, 2002 issued by respondent Governor Jose T. Villarosa are NULL AND VOID.

SO ORDERED.

Case No. 14 G.R. No. 203974               April 22, 2014

AURELIO M. UMALI, Petitioner,
vs.
COMMISSION ON ELECTIONS, JULIUS CESAR V. VERGARA, and THE CITY
GOVERNMENT OF CABANATUAN, Respondents.

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

G.R. No. 204371

J.V. BAUTISTA, Petitioner,
vs.
COMMISSION ON ELECTIONS, Respondent.

DECISION

VELASCO, JR., J.:

Before the Court is the consolidated case for Petition for Certiorari and Prohibition
with prayer for injunctive relief, docket as G.R. No. 203974, assailing Minute
Resolution No. 12-07971 and Minute Resolution No. 12-0925 2 dated September 11,
2012 and October 16, 2012, respectively, both promulgated by public respondent
Commission on Elections (COMELEC), and Petition for Mandamus, docketed G.R.
No. 204371, seeking to compel public respondent to implement the same.

The Facts
On July 11, 2011, the Sangguniang Panglungsod of Cabanatuan City passed
Resolution No. 183-2011, requesting the President to declare the conversion of
Cabanatuan City from a component city of the province of Nueva Ecija into a highly
urbanized city (HUC). Acceding to the request, the President issued Presidential
Proclamation No. 418, Series of 2012, proclaiming the City of Cabanatuan as an
HUC subject to "ratification in a plebiscite by the qualified voters therein, as provided
for in Section 453 of the Local Government Code of 1991."

Respondent COMELEC, acting on the proclamation, issued the assailed Minute

Resolution No. 12-0797 which reads:

WHEREFORE, the Commission RESOLVED, as it hereby RESOLVES, that for

purposes of the plebiscite for the conversion of Cabanatuan City from component
city to highly-urbanized city, only those registered residents of Cabanatuan City
should participate in the said plebiscite.

The COMELEC based this resolution on Sec. 453 of the Local Government Code of
1991 (LGC), citing conversion cases involving Puerto Princesa City in Palawan,
Tacloban City in Southern Leyte, and Lapu-Lapu City in Cebu, where only the
residents of the city proposed to be converted were allowed to vote in the
corresponding plebiscite.

In due time, petitioner Aurelio M. Umali, Governor of Nueva Ecija, filed a Verified
Motion for Reconsideration, maintaining that the proposed conversion in question
will necessarily and directly affect the mother province of Nueva Ecija. His main
argument is that Section 453 of the LGC should be interpreted in conjunction with
Sec. 10, Art. X of the Constitution. He argues that while the conversion in question
does not involve the creation of a new or the dissolution of an existing city, the spirit
of the Constitutional provision calls for the people of the local government unit (LGU)
directly affected to vote in a plebiscite whenever there is a material change in their
rights and responsibilities. The phrase "qualified voters therein" used in Sec. 453 of
the LGC should then be interpreted to refer to the qualified voters of the units
directly affected by the conversion and not just those in the component city
proposed to be upgraded. Petitioner Umali justified his position by enumerating the
various adverse effects of the Cabanatuan City’s conversion and how it will cause
material change not only in the political and economic rights of the city and its
residents but also of the province as a whole.

To the Verified Motion for Reconsideration, private respondent Julius Cesar

Vergara, city mayor of Cabanatuan, interposed an opposition on the ground that
Sec. 10, Art. X does not apply to conversions, which is the meat of the matter. He
likewise argues that a specific provision of the LGC, Sec. 453, as couched, allows
only the qualified voters of Cabanatuan City to vote in the plebiscite. Lastly, private
respondent pointed out that when Santiago City was converted in 1994 from a
municipality to an independent component city pursuant to Republic Act No. (RA)
7720, the plebiscite held was limited to the registered voters of the then municipality
of Santiago.

Following a hearing conducted on October 4, 2012, 3 the COMELEC En Banc on

October 16, 2012, in E.M No. 12-045 (PLEB), by a vote of 5-2 4 ruled in favor of
respondent Vergara through the assailed Minute Resolution 12-0925. The
dispositive portion reads:

The Commission, taking into consideration the arguments of counsels including the
Reply-memorandum of Oppositor, after due deliberation, RESOLVED, as it hereby
RESOLVES, as follows:

1) To DENY the Motion for Reconsideration of oppositor Governor Aurelio M.

Umali; and

2) To SCHEDULE the conduct of Plebiscite for the conversion of Cabanatuan

City from component city into highly-urbanized city with registered residents
only of Cabanatuan City to participate in said plebiscite.

Let the Deputy Executive Director for Operations implement this resolution.

SO ORDERED.

Hence, the Petition for Certiorari with prayer for injunctive relief, docketed as G.R.
No. 203974, on substantially the same arguments earlier taken by petitioner Umali
before the poll body. On the other hand, public respondent COMELEC, through the
Office of the Solicitor General, maintained in its Comment that Cabanatuan City is
merely being converted from a component city into an HUC and that the political unit
directly affected by the conversion will only be the city itself. It argues that in this
instance, no political unit will be created, merged with another, or will be removed
from another LGU, and that no boundaries will be altered. The conversion would
merely reinforce the powers and prerogatives already being exercised by the city,
with the political unit’s probable elevation to that of an HUC as demanded by its
compliance with the criteria established under the LGC. Thus, the participation of the
voters of the entire province in the plebiscite will not be necessary.

Private respondent will later manifest that it is adopting the Comment of the
COMELEC.

Meanwhile, on October 25, 2012, respondent COMELEC promulgated Resolution

No. 9543, which adopted a calendar of activities and periods of prohibited acts in
connection with the conversion of Cabanatuan City into an HUC. The Resolution set
the conduct of the plebiscite on December 1, 2012. Thereafter, a certain Dr. Rodolfo
B. Punzalan filed a Petition for Declaratory Relief which was raffled to the Regional
Trial Court (RTC), Branch 40 in Palayan City. In the said case, Punzalan prayed that
Minute Resolution No. 12-0797 be declared unconstitutional, that the trial court
decree that all qualified voters of the province of Nueva Ecija be included in the
plebiscite, and that a Temporary Restraining Order (TRO) be issued enjoining public
respondent from implementing the questioned resolution. On October 19, 2012, the
RTC granted the prayer for a TRO.

On November 6, 2012, public respondent through Minute Resolution No. 12-0989

suspended the preparations for the event in view of the TRO issued by the RTC. On
November 27, 2012, the plebiscite was once again rescheduled to give way to the
May 13, 2013 national, local and ARMM regional elections as per Resolution No.
9563.

After this development, petitioner J.V. Bautista, on December 3, 2012, filed a case
before this Court for Mandamus, docketed as G.R. No. 204371, praying that public
respondent be ordered to schedule the plebiscite either on December 15 or 22,
2012. Petitioner Bautista argued that since the TRO issued by the RTC has already
expired, the duty of the public respondent to hold the plebiscite has become
mandatory and ministerial. Petitioner Bautista also alleged that the delay in holding
the plebiscite is inexcusable given the requirement that it should be held within a
period of 120 days form the date of the President’s declaration.

In its Comment to the Bautista petition, public respondent justified its position by
arguing that mandamus will not issue to enforce a right which is in substantial
dispute. With all the legal conflicts surrounding the case, it cannot be said that there
is a clear showing of petitioner Bautista’s entitlement to the relief sought.
Respondent COMELEC likewise relied on Sec. 5 of the Omnibus Election Code to
justify the postponements, citing incidents of violence that ensued in the locality
during the plebiscite period.

After the conclusion of the 2013 elections, public respondent issued Resolution No.
1353 scheduling the plebiscite to January 25, 2014. However, a TRO was issued by
this Court on January 15, 2014 in G.R. No. 203974 to suspend the conduct of the
plebiscite for Cabanatuan City’s conversion. Given the intertwining factual milieu of
the two petitions before the Court, both cases were consolidated on March 18, 2014.

The Issue

The bone of contention in the present controversy boils down to whether the
qualified registered voters of the entire province of Nueva Ecija or only those in
Cabanatuan City can participate in the plebiscite called for the conversion of
Cabanatuan City from a component city into an HUC.

Resolving the Petition for Certiorari either way will necessarily render the Petition for
Mandamus moot and academic for ultimately, the public respondent will be ordered
to hold the plebiscite. The only variation will be as regards its participants.
The Court’s Ruling

The Petition for Certiorari is meritorious.

Sec. 453 of the LGC should be interpreted in accordance with Sec. 10, Art. X of the
Constitution

Petitioner Umali asseverates that Sec. 10, Art. X of the Constitution should be the
basis for determining the qualified voters who will participate in the plebiscite to
resolve the issue. Sec. 10, Art. X reads:

Section 10, Article X. – No province, city, municipality, or barangay may be created,

divided, merged, abolished, or its boundary substantially altered, except in
accordance with the criteria established in the local government code and subject to
approval by a majority of the votes cast in a plebiscite in the political units directly
affected. (emphasis supplied)

Petitioner Umali elucidates that the phrase "political units directly affected"
necessarily encompasses not only Cabanatuan City but the entire province of Nueva
Ecija. Hence, all the registered voters in the province are qualified to cast their votes
in resolving the proposed conversion of Cabanatuan City.

On the other hand, respondents invoke Sec. 453 of the LGC to support their claim
that only the City of Cabanatuan should be allowed to take part in the voting. Sec.
453 states:

Section 453. Duty to Declare Highly Urbanized Status. – It shall be the duty of the
President to declare a city as highly urbanized within thirty (30) days after it shall
have met the minimum requirements prescribed in the immediately preceding
Section, upon proper application therefor and ratification in a plebiscite by the
qualified voters therein. (emphasis supplied)

Respondents take the phrase "registered voters therein" in Sec. 453 as referring
only to the registered voters in the city being converted, excluding in the process the
voters in the remaining towns and cities of Nueva Ecija.

Before proceeding to unravel the seeming conflict between the two provisions, it is
but proper that we ascertain first the relationship between Sec. 10, Art. X of the
Constitution and Sec. 453 of the LGC.

First of all, we have to restate the general principle that legislative power cannot be
delegated. Nonetheless, the general rule barring delegation is subject to certain
exceptions allowed in the Constitution, namely:
 (1) Delegation by Congress to the President of the power to fix "tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government" under Section 28(2) of Article VI of the Constitution; and

(2) Delegation of emergency powers by Congress to the President "to

exercise powers necessary and proper to carry out a declared national policy"
in times of war and other national emergency under Section 23(2) of Article VI
of the Constitution.

The power to create, divide, merge, abolish or substantially alter boundaries of

provinces, cities, municipalities or barangays, which is pertinent in the case at bar, is
essentially legislative in nature.5 The framers of the Constitution have, however,
allowed for the delegation of such power in Sec. 10, Art. X of the Constitution as
long as (1) the criteria prescribed in the LGC is met and (2) the creation, division,
merger, abolition or the substantial alteration of the boundaries is subject to the
approval by a majority vote in a plebiscite.

True enough, Congress delegated such power to the Sangguniang Panlalawigan or

Sangguniang Panlungsod to create barangays pursuant to Sec. 6 of the LGC, which
provides:

Section 6. Authority to Create Local Government Units. - A local government unit

may be created, divided, merged, abolished, or its boundaries substantially altered
either by law enacted by Congress in the case of a province, city, municipality, or
any other political subdivision, or by ordinance passed by the sangguniang
panlalawigan or sangguniang panlungsod concerned in the case of a barangay
located within its territorial jurisdiction, subject to such limitations and requirements
prescribed in this Code." (emphasis supplied)

The guidelines for the exercise of this authority have sufficiently been outlined by the
various LGC provisions detailing the requirements for the creation of barangays 6,
municipalities7, cities8, and provinces9. Moreover, compliance with the plebiscite
requirement under the Constitution has also been directed by the LGC under its
Sec. 10, which reads:

Section 10. Plebiscite Requirement. – No creation, division, merger, abolition, or

substantial alteration of boundaries of local government units shall take effect unless
approved by a majority of the votes cast in a plebiscite called for the purpose in the
political unit or units directly affected." (emphasis supplied)

With the twin criteria of standard and plebiscite satisfied, the delegation to LGUs of
the power to create, divide, merge, abolish or substantially alter boundaries has
become a recognized exception to the doctrine of non-delegation of legislative
powers.
Likewise, legislative power was delegated to the President under Sec. 453 of the
LGC quoted earlier, which states:

Section 453. Duty to Declare Highly Urbanized Status. – It shall be the duty of the
President to declare a city as highly urbanized within thirty (30) days after it shall
have met the minimum requirements prescribed in the immediately preceding
Section, upon proper application therefor and ratification in a plebiscite by the
qualified voters therein.

In this case, the provision merely authorized the President to make a determination
on whether or not the requirements under Sec. 452 10 of the LGC are complied with.
The provision makes it ministerial for the President, upon proper application, to
declare a component city as highly urbanized once the minimum requirements,
which are based on certifiable and measurable indices under Sec. 452, are satisfied.
The mandatory language "shall" used in the provision leaves the President with no
room for discretion.

In so doing, Sec. 453, in effect, automatically calls for the conduct of a plebiscite for
purposes of conversions once the requirements are met. No further legislation is
necessary before the city proposed to be converted becomes eligible to become an
HUC through ratification, as the basis for the delegation of the legislative authority is
the very LGC.

In view of the foregoing considerations, the Court concludes that the source of the
delegation of power to the LGUs under Sec. 6 of the LGC and to the President
under Sec. 453 of the same code is none other than Sec. 10, Art. X of the
Constitution.

Respondents, however, posit that Sec. 453 of the LGC is actually outside the ambit
of Sec. 10, Art. X of the Constitution, considering that the conversion of a
component city to an HUC is not "creation, division, merge, abolition or substantial
alternation of boundaries" encompassed by the said constitutional provision.

This proposition is bereft of merit.

First, the Court’s pronouncement in Miranda vs. Aguirre 11 is apropos and may be
applied by analogy. While Miranda involves the downgrading, instead of upgrading,
as here, of an independent component city into a component city, its application to
the case at bar is nonetheless material in ascertaining the proper treatment of
conversions. In that seminal case, the Court held that the downgrading of an
independent component city into a component city comes within the purview of Sec.
10, Art. X of the Constitution.

In Miranda, the rationale behind the afore-quoted constitutional provision and its
application to cases of conversion were discussed thusly:
A close analysis of the said constitutional provision will reveal that the creation,
division, merger, abolition or substantial alteration of boundaries of local government
units involve a common denominator - - - material change in the political and
economic rights of the local government units directly affected as well as the people
therein. It is precisely for this reason that the Constitution requires the approval of
the people "in the political units directly affected." It is not difficult to appreciate the
rationale of this constitutional requirement. The 1987 Constitution, more than any of
our previous Constitutions, gave more reality to the sovereignty of our people for it
was borne out of the people power in the 1986 EDSA revolution. Its Section 10,
Article X addressed the undesirable practice in the past whereby local government
units were created, abolished, merged or divided on the basis of the vagaries of
politics and not of the welfare of the people. Thus, the consent of the people of the
local government unit directly affected was required to serve as a checking
mechanism to any exercise of legislative power creating, dividing, abolishing,
merging or altering the boundaries of local government units. It is one instance
where the people in their sovereign capacity decide on a matter that affects them - -
- direct democracy of the people as opposed to democracy thru people’s
representatives. This plebiscite requirement is also in accord with the philosophy of
the Constitution granting more autonomy to local government units. 12

It was determined in the case that the changes that will result from the conversion
are too substantial that there is a necessity for the plurality of those that will be
affected to approve it. Similar to the enumerated acts in the constitutional provision,
conversions were found to result in material changes in the economic and political
rights of the people and LGUs affected. Given the far-reaching ramifications of
converting the status of a city, we held that the plebiscite requirement under the
constitutional provision should equally apply to conversions as well. Thus, RA
852813 was declared unconstitutional in Miranda on the ground that the law
downgraded Santiago City in Isabela without submitting it for ratification in a
plebiscite, in contravention of Sec. 10, Art. X of the Constitution.

Second, while conversion to an HUC is not explicitly provided in Sec. 10, Art. X of
the Constitution we nevertheless observe that the conversion of a component city
into an HUC is substantial alteration of boundaries.

As the phrase implies, "substantial alteration of boundaries" involves and

necessarily entails a change in the geographical configuration of a local government
unit or units. However, the phrase "boundaries" should not be limited to the mere
physical one, referring to the metes and bounds of the LGU, but also to its political
boundaries. It also connotes a modification of the demarcation lines between
political subdivisions, where the LGU’s exercise of corporate power ends and that of
the other begins. And as a qualifier, the alteration must be "substantial" for it to be
within the ambit of the constitutional provision.
Pertinent is Art. 12(c) of the LGC’s Implementing Rules and Regulations, which
reads:

Art. 12. Conversion of a Component City into a Highly Urbanized City. –

xxxx

(c) Effect of Conversion – The conversion of a component city into a highly-

urbanized city shall make it independent of the province where it is geographically
located. (emphasis added)

Verily, the upward conversion of a component city, in this case Cabanatuan City,
into an HUC will come at a steep price. It can be gleaned from the above-cited rule
that the province will inevitably suffer a corresponding decrease in territory brought
about by Cabanatuan City’s gain of independence. With the city’s newfound
autonomy, it will be free from the oversight powers of the province, which, in effect,
reduces the territorial jurisdiction of the latter. What once formed part of Nueva Ecija
will no longer be subject to supervision by the province. In more concrete terms,
Nueva Ecija stands to lose 282.75 sq. km. of its territorial jurisdiction with
Cabanatuan City’s severance from its mother province. This is equivalent to carving
out almost 5% of Nueva Ecija’s 5,751.3 sq. km. area. This sufficiently satisfies the
requirement that the alteration be "substantial."

Needless to stress, the alteration of boundaries would necessarily follow

Cabanatuan City’s conversion in the same way that creations, divisions, mergers,
and abolitions generally cannot take place without entailing the alteration. The
enumerated acts, after all, are not mutually exclusive, and more often than not, a
combination of these acts attends the reconfiguration of LGUs.

In light of the foregoing disquisitions, the Court rules that conversion to an HUC is
substantial alternation of boundaries governed by Sec. 10, Art. X and resultantly,
said provision applies, governs and prevails over Sec. 453 of the LGC.

Moreover, the rules of statutory construction dictate that a particular provision should
be interpreted with the other relevant provisions in the law The Court finds that it is
actually Sec. 10 of the LGC which is undeniably the applicable provision on the
conduct of plebiscites. The title of the provision itself, "Plebiscite Requirement",
makes this obvious. It requires a majority of the votes cast in a plebiscite called for
the purpose in the political unit or units directly affected. On the other hand, Sec.
453 of the LGC, entitled "Duty to Declare Highly Urbanized Status", is only on the
duty to declare a city as highly urbanized. It mandates the Office of the President to
make the declaration after the city has met the requirements under Sec. 452, and
upon proper application and ratification in a plebiscite. The conduct of a plebiscite is
then a requirement before a declaration can be made. Thus, the Court finds that
Sec. 10 of the LGC prevails over Sec. 453 of the LGC on the plebiscite requirement.
We now take the bull by the horns and resolve the issue whether Sec. 453 of the
LGC trenches on Sec. 10, Art. X of the Constitution.

Hornbook doctrine is that neither the legislative, the executive, nor the judiciary has
the power to act beyond the Constitution’s mandate. The Constitution is supreme;
any exercise of power beyond what is circumscribed by the Constitution is ultra vires
and a nullity. As elucidated by former Chief Justice Enrique Fernando in Fernandez
v. Cuerva:14

Where the assailed legislative or executive act is found by the judiciary to be

contrary to the Constitution, it is null and void. As the new Civil Code puts it: "When
the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern." Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or the
Constitution. The above provision of the civil Code reflects the orthodox view that an
unconstitutional act, whether legislative or executive, is not a law, confers no rights,
imposes no duties, and affords no protection. x x x

Applying this orthodox view, a law should be construed in harmony with and not in
violation of the Constitution. 15 In a long line of cases, the cardinal principle of
construction established is that a statute should be interpreted to assure its being in
consonance with, rather than repugnant to, any constitutional command or
prescription.16 If there is doubt or uncertainty as to the meaning of the legislative, if
the words or provisions are obscure or if the enactment is fairly susceptible of two or
more constitution, that interpretation which will avoid the effect of unconstitutionality
will be adopted, even though it may be necessary, for this purpose, to disregard the
more usual or apparent import of the language used. 17

Pursuant to established jurisprudence, the phrase "by the qualified voters therein" in
Sec. 453 should be construed in a manner that will avoid conflict with the
Constitution. If one takes the plain meaning of the phrase in relation to the
declaration by the President that a city is an HUC, then, Sec. 453 of the LGC will
clash with the explicit provision under Sec. 10, Art. X that the voters in the "political
units directly affected" shall participate in the plebiscite. Such construction should be
avoided in view of the supremacy of the Constitution. Thus, the Court treats the
phrase "by the qualified voters therein" in Sec. 453 to mean the qualified voters not
only in the city proposed to be converted to an HUC but also the voters of the
political units directly affected by such conversion in order to harmonize Sec. 453
with Sec. 10, Art. X of the Constitution.

The Court finds that respondents are mistaken in construing Sec. 453 in a vacuum.
Their interpretation of Sec. 453 of the LGC runs afoul of Sec. 10, Art. X of the
Constitution which explicitly requires that all residents in the "political units directly
affected" should be made to vote.
Respondents make much of the plebiscites conducted in connection with the
conversion of Puerto Princesa City, Tacloban City and Lapu-Lapu City where the
ratification was made by the registered voters in said cities alone. It is clear,
however, that the issue of who are entitled to vote in said plebiscites was not
properly raised or brought up in an actual controversy. The issue on who will vote in
a plebiscite involving a conversion into an HUC is a novel issue, and this is the first
time that the Court is asked to resolve the question. As such, the past plebiscites in
the aforementioned cities have no materiality or relevance to the instant petition.
Suffice it to say that conversion of said cities prior to this judicial declaration will not
be affected or prejudiced in any manner following the operative fact doctrine―that
“the actual existence of a statute prior to such a determination is an operative fact
and may have consequences which cannot always be erased by a new judicial
declaration.”18

The entire province of Nueva Ecija will be directly

affected by Cabanatuan City’s conversion

After the Court has resolved the seeming irreconcilability of Sec. 10, Art. X of the
Constitution and Sec. 453 of the LGC, it is now time to elucidate the meaning of the
phrase "political units directly affected" under Sec. 10, Art. X.

a. "Political units directly affected" defined

In identifying the LGU or LGUs that should be allowed to take part in the plebiscite,
what should primarily be determined is whether or not the unit or units that desire to
participate will be "directly affected" by the change. To interpret the phrase, Tan v.
COMELEC19 and Padilla v. COMELEC20 are worth revisiting.

We have ruled in Tan, involving the division of Negros Occidental for the creation of
the new province of Negros del Norte, that the LGUs whose boundaries are to be
altered and whose economy would be affected are entitled to participate in the
plebiscite. As held:

It can be plainly seen that the aforecited constitutional provision makes it imperative
that there be first obtained "the approval of a majority of votes in the plebiscite in the
unit or units affected" whenever a province is created, divided or merged and there
is substantial alteration of the boundaries. It is thus inescapable to conclude that the
boundaries of the existing province of Negros Occidental would necessarily be
substantially altered by the division of its existing boundaries in order that there can
be created the proposed new province of Negros del Norte. Plain and simple logic
will demonstrate than that two political units would be affected.

The first would be the parent province of Negros Occidental because its boundaries
would be substantially altered. The other affected entity would be composed of
those in the area subtracted from the mother province to constitute the proposed
province of Negros del Norte.21

xxxx

To form the new province of Negros del Norte no less than three cities and eight
municipalities will be subtracted from the parent province of Negros Occidental. This
will result in the removal of approximately 2,768.4 square kilometers from the land
area of an existing province whose boundaries will be consequently substantially
altered. It becomes easy to realize that the consequent effects of the division of the
parent province necessarily will affect all the people living in the separate areas of
Negros Occidental and the proposed province of Negros del Norte. The economy of
the parent province as well as that of the new province will be inevitably affected,
either for the better or for the worse. Whatever be the case, either or both of these
political groups will be affected and they are, therefore, the unit or units referred to in
Section 3 of Article XI of the Constitution which must be included in the plebiscite
contemplated therein.22 (emphasis added)

Sec. 3, Art. XI of the 1973 Constitution, as invoked in Tan, states:

SEC. 3. No province, city, municipality or barrio may be created, divided, merged

abolished, or its boundary substantially altered, except in accordance with the
criteria established in the local government code, and subject to the approval by a
majority of the votes in a plebiscite in the unit or units affected. (emphasis added)

Despite the change in phraseology compared to what is now Sec. 10, Art. X, we
affirmed our ruling in Tan in the latter case of Padilla. As held, the removal of the
phrase "unit or" only served to sustain the earlier finding that what is contemplated
by the phase "political units directly affected" is the plurality of political units which
would participate in the plebiscite. As reflected in the journal of the Constitutional
Commission:23

Mr. Maambong: While we have already approved the deletion of "unit or," I would
like to inform the Committee that under the formulation in the present Local
Government Code, the words used are actually "political unit or units." However, I do
not know the implication of the use of these words. Maybe there will be no
substantial difference, but I just want to inform the Committee about this.

Mr. Nolledo: Can we not adhere to the original "unit or units"? Will there be no
objection on the part of the two Gentlemen from the floor?

Mr. Davide: I would object. I precisely asked for the deletion of the words "unit or"
because in the plebiscite to be conducted, it must involve all the units affected. If it is
the creation of a barangay plebiscite because it is affected. It would mean a loss of a
territory. (emphasis added)
The same sentiment was shared by the Senate during its deliberations on Senate
Bill No. 155––the predecessor of the LGC––thus:

Senator Guingona. Can we make that clearer by example? Let us assume that a
province has municipalities and there is a merger of two municipalities. Would this
therefore mean that the plebiscite will be conducted within the two merged
municipalities and not in the eight other municipalities?

Senator Pimentel. The whole province, Mr. President, will be affected, and that is the
reason we probably have to involve the entire province.

Senator Guingona. So the plebiscite will not be held only in the two municipalities
which are being merged, but the entire province will now have to undergo.

Senator Pimentel. I suppose that was the ruling in the Negros del Norte case.

Senator Guingona. Supposing it refers to barangays, will the entire municipality have
to vote? There are two barangays being merged, say, out of 100 barangays. Would
the entire municipality have to participate in the plebiscite?

Senator Pimentel. Yes, Mr. President, because the municipality is affected directly
by the merger of two of its barangay.

Senator Guingona. And, if, out of 100 barangay, 51 are being merged, abolished,
whatever, would the rest of the municipality not participate in the plebiscite?

Senator Pimentel. Do all the 51 barangay that the Gentleman mentioned, Mr.
President, belong to one municipality?

Senator Guingona. Yes.

Senator Pimentel. Then it will only involve the municipality where the 51 barangays
belong.

Senator Guingona. Yes. So, the entire municipality will now have to undergo a
plebiscite.

Senator Pimentel. That is correct, Mr. President.

Senator Guingona. In the earlier example, if it is only a merger of two municipalities,

let us say, in a province with 10 municipalities – the entire province – will the other
municipalities although not affected also have to participate in the plebiscite?
Senator Pimentel. Yes. The reason is that the municipalities are within the territorial
boundaries of the province itself, it will have to be altered as a result of the two
municipalities that the Gentleman mentioned.24

In the more recent case of Miranda, the interpretation in Tan and Padilla was
modified to include not only changes in economic but also political rights in the
criteria for determining whether or not an LGU shall be considered "directly
affected." Nevertheless, the requirement that the plebiscite be participated in by the
plurality of political units directly affected remained.

b. Impact on Economic Rights

To recall, it was held in Miranda that the changes that will result in the downgrading
of an LGU from an independent component city to a component city cannot be
categorized as insubstantial, thereby necessitating the conduct of a plebiscite for its
ratification. In a similar fashion, herein petitioner Umali itemized the adverse effects
of Cabanatuan City’s conversion to the province of Nueva Ecija to justify the
province’s participation in the plebiscite to be conducted.

Often raised is that Cabanatuan City’s conversion into an HUC and its severance
from Nueva Ecija will result in the reduction of the Internal Revenue Allotment (IRA)
to the province based on Sec. 285 of the LGC. The law states:

Section 285. Allocation to Local Government Units. - The share of local government
units in the internal revenue allotment shall be collected in the following manner:

(a) Provinces - Twenty-three percent (23%);

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

(c) Municipalities - Thirty-four percent (34%); and

(d) Barangays - Twenty percent (20%)

Provided, however, That the share of each province, city, and municipality shall be
determined on the basis of the following formula:

(a) Population - Fifty percent (50%);

(b) Land Area - Twenty-five percent (25%); and

(c) Equal sharing - Twenty-five percent (25%)

In our earlier disquisitions, we have explained that the conversion into an HUC
carries the accessory of substantial alteration of boundaries and that the province of
Nueva Ecija will, without a doubt, suffer a reduction in territory because of the
severance of Cabanatuan City. The residents of the city will cease to be political
constituencies of the province, effectively reducing the latter’s population. Taking
this decrease in territory and population in connection with the above formula, it is
conceded that Nueva Ecija will indeed suffer a reduction in IRA given the decrease
of its multipliers’ values. As assessed by the Regional Director of the Department of
Budget and Management (DBM) for Region III:25

Basis for IRA Province of Cabanatuan Province of

Computation Nueva Ecija City Nueva Ecija Net
of Cabanatuan
City
No. of Population 1,843,853 259,267 259,267
CY 2007 Census
Land Area 5,751.33 282.75 5,468.58
(sq. km.)

IRA Share of Actual IRA Estimated IRA Reduction

Nueva Ecija Share share excluding
Cabanatuan
City
Based on ₱800,772,618.45 ₱688,174,751.66 ₱112,597,866.79
Population
Based on Land ₱263,470,472.62 ₱250,517,594.56 P 12,952,878.06
Area
Total ₱125,550,744.85

Clear as crystal is that the province of Nueva Ecija will suffer a substantial reduction
of its share in IRA once Cabanatuan City attains autonomy. In view of the economic
impact of Cabanatuan City’s conversion, petitioner Umali’s contention, that its effect
on the province is not only direct but also adverse, deserves merit.

Moreover, his claim that the province will lose shares in provincial taxes imposed in
Cabanatuan City is well-founded. This is based on Sec. 151 of the LGC, which
states:

SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this

Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall
accrue to them and distributed in accordance with the provisions of this Code.
(emphasis added)

Once converted, the taxes imposed by the HUC will accrue to itself. Prior to this, the
province enjoys the prerogative to impose and collect taxes such as those on sand,
gravel and other quarry resources,26 professional taxes,27 and amusement
taxes28 over the component city. While, it may be argued that this is not a derogation
of the province’s taxing power because it is in no way deprived of its right to collect
the mentioned taxes from the rest of its territory, the conversion will still reduce the
province’s taxing jurisdiction, and corollary to this, it will experience a corresponding
decrease in shares in local tax collections. This reduction in both taxing jurisdiction
and shares poses a material and substantial change to the province’s economic
rights, warranting its participation in the plebiscite.

To further exemplify the impact of these changes, a perusal of Secs. 452(a) and
461(a) of the LGC is in order, viz:

Section 452. Highly Urbanized Cities.

(a) Cities with a minimum population of two hundred thousand (200,000)

inhabitants as certified by the National Statistics Office, and within the latest
annual income of at least Fifty Million Pesos (₱50,000,000.00) based on 1991
constant prices, as certified by the city treasurer, shall be classified as highly
urbanized cities.

Section 461. Requisites for Creation.

(a) A province may be created if it has an average annual income, as certified by the
Department of Finance, of not less than Twenty million pesos (₱20,000,000.00)
based on 1991 constant prices and either of the following requisites:

(i) a contiguous territory of at least two thousand (2,000) square kilometers,

as certified by the Lands Management Bureau; or

(ii) a population of not less than two hundred fifty thousand (250,000)
inhabitants as certified by the National Statistics Office:

Provided, That, the creation thereof shall not reduce the land area, population, and
income of the original unit or units at the time of said creation to less than the
minimum requirements prescribed herein.

A component city’s conversion into an HUC and its resultant autonomy from the
province is a threat to the latter’s economic viability. Noteworthy is that the income
criterion for a component city to be converted into an HUC is higher than the income
requirement for the creation of a province. The ensuing reduction in income upon
separation would clearly leave a crippling effect on the province’s operations as
there would be less funding to finance infrastructure projects and to defray overhead
costs. Moreover, the quality of services being offered by the province may suffer
because of looming austerity measures. These are but a few of the social costs of
the decline in the province’s economic performance, which Nueva Ecija is bound to
experience once its most progressive city of Cabanatuan attains independence.

c. Impact on Political Rights

Aside from the alteration of economic rights, the political rights of Nueva Ecija and
those of its residents will also be affected by Cabanatuan’s conversion into an HUC.
Notably, the administrative supervision of the province over the city will effectively be
revoked upon conversion. Secs. 4 and 12, Art. X of the Constitution read:

Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and
cities and municipalities with respect to component barangays shall ensure that the
acts of their component units are within the scope of their prescribed powers and
functions.

Sec 12. Cities that are highly urbanized, as determined by law, and component cities
whose charters prohibit their voters from voting for provincial elective officials, shall
be independent of the province. The voters of component cities within a province,
whose charters contain no such prohibition, shall not be deprived of their right to
vote for elective provincial officials.

Duties, privileges and obligations appertaining to HUCs will attach to Cabanatuan

City if it is converted into an HUC. This includes the right to be outside the general
supervision of the province and be under the direct supervision of the President. An
HUC is not subject to provincial oversight because the complex and varied problems
in an HUC due to a bigger population and greater economic activity require greater
autonomy.29 The provincial government stands to lose the power to ensure that the
local government officials of Cabanatuan City act within the scope of its prescribed
powers and functions,30 to review executive orders issued by the city mayor, and to
approve resolutions and ordinances enacted by the city council. 31 The province will
also be divested of jurisdiction over disciplinary cases concerning the elected city
officials of the new HUC, and the appeal process for administrative case decisions
against barangay officials of the city will also be modified accordingly. 32 Likewise, the
registered voters of the city will no longer be entitled to vote for and be voted upon
as provincial officials.33

In cutting the umbilical cord between Cabanatuan City and the province of Nueva
Ecija, the city will be separated from the territorial jurisdiction of the province, as
earlier explained. The provincial government will no longer be responsible for
delivering basic services for the city residents’ benefit. Ordinances and resolutions
passed by the provincial council will no longer cover the city. Projects queued by the
provincial government to be executed in the city will also be suspended if not
scrapped to prevent the LGU from performing functions outside the bounds of its
territorial jurisdiction, and from expending its limited resources for ventures that do
not cater to its constituents.1âwphi1

In view of these changes in the economic and political rights of the province of
Nueva Ecija and its residents, the entire province certainly stands to be directly
affected by the conversion of Cabanatuan City into an HUC. Following the doctrines
in Tan and Padilla, all the qualified registered voters of Nueva Ecija should then be
allowed to participate in the plebiscite called for that purpose.

Respondents’ apprehension that requiring the entire province to participate in the

plebiscite will set a dangerous precedent leading to the failure of cities to convert is
unfounded. Their fear that provinces will always be expected to oppose the
conversion in order to retain the city’s dependence is speculative at best. In any
event, any vote of disapproval cast by those directly affected by the conversion is a
valid exercise of their right to suffrage, and our democratic processes are designed
to uphold the decision of the majority, regardless of the motive behind the vote. It is
unfathomable how the province can be deprived of the opportunity to exercise the
right of suffrage in a matter that is potentially deleterious to its economic viability and
could diminish the rights of its constituents. To limit the plebiscite to only the voters
of the areas to be partitioned and seceded from the province is as absurd and
illogical as allowing only the secessionists to vote for the secession that they
demanded against the wishes of the majority and to nullify the basic principle of
majority rule.34

WHEREFORE, premises considered, the Petition for Certiorari, docketed as G.R.

No. 203974, is hereby GRANTED. COMELEC Minute Resolution No. 12-0797 dated
September 11, 2012 and Minute Resolution No. 12-0925 dated October 16, 2012
are hereby declared NULL and VOID. Public respondent COMELEC is hereby
enjoined from implementing the said Resolutions. Additionally, COMELEC is hereby
ordered to conduct a plebiscite for the purpose of converting Cabanatuan City into a
Highly Urbanized City to be participated in by the qualified registered voters of
Nueva Ecij a within 120 days from the finality of this Decision. The Petition for
Mandamus, docketed as G.R. No. 204371, is hereby DISMISSED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice