EN BANC

G.R. No. 152774

May 27, 2004

THE PROVINCE OF BATANGAS, represented by its Governor,

HERMILANDO I. MANDANAS, petitioner,
vs.
HON. ALBERTO G. ROMULO, Executive Secretary and Chairman of
the Oversight Committee on Devolution; HON. EMILIA BONCODIN,
Secretary, Department of Budget and Management; HON. JOSE D.
LINA, JR., Secretary, Department of Interior and Local
Government, respondents.
DECISION
CALLEJO, SR., J.:
The Province of Batangas, represented by its Governor, Hermilando I.
Mandanas, filed the present petition for certiorari, prohibition and
mandamus under Rule 65 of the Rules of Court, as amended, to declare as
unconstitutional and void certain provisos contained in the General
Appropriations Acts (GAA) of 1999, 2000 and 2001, insofar as they
uniformly earmarked for each corresponding year the amount of five billion
pesos (P5,000,000,000.00) of the Internal Revenue Allotment (IRA) for the
Local Government Service Equalization Fund (LGSEF) and imposed
conditions for the release thereof.
Named as respondents are Executive Secretary Alberto G. Romulo, in his
capacity as Chairman of the Oversight Committee on Devolution, Secretary
Emilia Boncodin of the Department of Budget and Management (DBM) and
Secretary Jose Lina of the Department of Interior and Local Government
(DILG).
Background
On December 7, 1998, then President Joseph Ejercito Estrada issued
Executive Order (E.O.) No. 48 entitled "ESTABLISHING A PROGRAM FOR
DEVOLUTION ADJUSTMENT AND EQUALIZATION." The program was
established to "facilitate the process of enhancing the capacities of local
government units (LGUs) in the discharge of the functions and services
devolved to them by the National Government Agencies concerned
pursuant to the Local Government Code."1 The Oversight Committee
(referred to as the Devolution Committee in E.O. No. 48) constituted under
Section 533(b) of Republic Act No. 7160 (The Local Government Code of

1991) has been tasked to formulate and issue the appropriate rules and
regulations necessary for its effective implementation.2 Further, to address
the funding shortfalls of functions and services devolved to the LGUs and
other funding requirements of the program, the "Devolution Adjustment
and Equalization Fund" was created.3 For 1998, the DBM was directed to
set aside an amount to be determined by the Oversight Committee based
on the devolution status appraisal surveys undertaken by the DILG. 4 The
initial fund was to be sourced from the available savings of the national
government for CY 1998.5 For 1999 and the succeeding years, the
corresponding amount required to sustain the program was to be
incorporated in the annual GAA.6 The Oversight Committee has been
authorized to issue the implementing rules and regulations governing the
equitable allocation and distribution of said fund to the LGUs. 7
The LGSEF in the GAA of 1999
In Republic Act No. 8745, otherwise known as the GAA of 1999, the
program was renamed as the LOCAL GOVERNMENT SERVICE
EQUALIZATION FUND (LGSEF). Under said appropriations law, the amount
ofP96,780,000,000 was allotted as the share of the LGUs in the internal
revenue taxes. Item No. 1, Special Provisions, Title XXXVI A. Internal
Revenue Allotment of Rep. Act No. 8745 contained the following proviso:
... PROVIDED, That the amount of FIVE BILLION PESOS
(P5,000,000,000) shall be earmarked for the Local Government
Service Equalization Fund for the funding requirements of projects
and activities arising from the full and efficient implementation of
devolved functions and services of local government units
pursuant to R.A. No. 7160, otherwise known as the Local
Government Code of 1991: PROVIDED, FURTHER, That such
amount shall be released to the local government units subject to
the implementing rules and regulations, including such
mechanisms and guidelines for the equitable allocations and
distribution of said fund among local government units subject to
the guidelines that may be prescribed by the Oversight Committee
on Devolution as constituted pursuant to Book IV, Title III, Section
533(b) of R.A. No. 7160. The Internal Revenue Allotment shall be
released directly by the Department of Budget and Management to
the Local Government Units concerned.
On July 28, 1999, the Oversight Committee (with then Executive
Secretary Ronaldo B. Zamora as Chairman) passed Resolution Nos.
OCD-99-003, OCD-99-005 and OCD-99-006 entitled as follows:
OCD-99-005

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5

BILLION CY 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION
FUND (LGSEF) AND REQUESTING HIS EXCELLENCY PRESIDENT
JOSEPH EJERCITO ESTRADA TO APPROVE SAID ALLOCATION
SCHEME.

of devolution fund (CODEF) sharing scheme, as

recommended by the respective leagues of
provinces, cities and municipalities to the OCD. The
modified CODEF sharing formula is as follows:
Province : 40%

OCD-99-006
Cities : 20%
RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0
BILLION OF THE 1999 LOCAL GOVERNMENT SERVICE
EQUALIZATION FUND AND ITS CONCOMITANT GENERAL
FRAMEWORK, IMPLEMENTING GUIDELINES AND MECHANICS FOR
ITS IMPLEMENTATION AND RELEASE, AS PROMULGATED BY THE
OVERSIGHT COMMITTEE ON DEVOLUTION.
OCD-99-003
RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH
EJERCITO ESTRADA TO APPROVE THE REQUEST OF THE OVERSIGHT
COMMITTEE ON DEVOLUTION TO SET ASIDE TWENTY PERCENT
(20%) OF THE LOCAL GOVERNMENT SERVICE EQUALIZATION FUND
(LGSEF) FOR LOCAL AFFIRMATIVE ACTION PROJECTS AND OTHER
PRIORITY INITIATIVES FOR LGUs INSTITUTIONAL AND CAPABILITY
BUILDING IN ACCORDANCE WITH THE IMPLEMENTING GUIDELINES
AND MECHANICS AS PROMULGATED BY THE COMMITTEE.
These OCD resolutions were approved by then President Estrada on
October 6, 1999.
Under the allocation scheme adopted pursuant to Resolution No.
OCD-99-005, the five billion pesos LGSEF was to be allocated as
follows:
1. The PhP4 Billion of the LGSEF shall be allocated in
accordance with the allocation scheme and implementing
guidelines and mechanics promulgated and adopted by the
OCD. To wit:
a. The first PhP2 Billion of the LGSEF shall be
allocated in accordance with the codal formula
sharing scheme as prescribed under the 1991 Local
Government Code;
b. The second PhP2 Billion of the LGSEF shall be
allocated in accordance with a modified 1992 cost

Municipalities : 40%
This is applied to the P2 Billion after the approved amounts
granted to individual provinces, cities and municipalities as
assistance to cover decrease in 1999 IRA share due to
reduction in land area have been taken out.
2. The remaining PhP1 Billion of the LGSEF shall be earmarked to
support local affirmative action projects and other priority
initiatives submitted by LGUs to the Oversight Committee on
Devolution for approval in accordance with its prescribed
guidelines as promulgated and adopted by the OCD.
In Resolution No. OCD-99-003, the Oversight Committee set aside the one
billion pesos or 20% of the LGSEF to support Local Affirmative Action
Projects (LAAPs) of LGUs. This remaining amount was intended to "respond
to the urgent need for additional funds assistance, otherwise not available
within the parameters of other existing fund sources." For LGUs to be
eligible for funding under the one-billion-peso portion of the LGSEF, the
OCD promulgated the following:
III. CRITERIA FOR ELIGIBILITY:
1. LGUs (province, city, municipality, or barangay), individually or
by group or multi-LGUs or leagues of LGUs, especially those
belonging to the 5th and 6th class, may access the fund to support
any projects or activities that satisfy any of the aforecited
purposes. A barangay may also access this fund directly or through
their respective municipality or city.
2. The proposed project/activity should be need-based, a local
priority, with high development impact and are congruent with the
socio-cultural, economic and development agenda of the Estrada
Administration, such as food security, poverty alleviation,
electrification, and peace and order, among others.

3. Eligible for funding under this fund are projects arising from, but
not limited to, the following areas of concern:

a. acquisition/procurement of supplies and materials

critical to the full and effective implementation of devolved
programs, projects and activities;

a. delivery of local health and sanitation services, hospital

services and other tertiary services;

b. repair and/or improvement of facilities;

b. delivery of social welfare services;

c. repair and/or upgrading of equipment;

c. provision of socio-cultural services and facilities for

youth and community development;

d. acquisition of basic equipment;

e. construction of additional or new facilities;

d. provision of agricultural and on-site related research;

e. improvement of community-based forestry projects and
other local projects on environment and natural resources
protection and conservation;
f. improvement of tourism facilities and promotion of
tourism;
g. peace and order and public safety;
h. construction, repair and maintenance of public works
and infrastructure, including public buildings and facilities
for public use, especially those destroyed or damaged by
man-made or natural calamities and disaster as well as
facilities for water supply, flood control and river dikes;

f. counterpart contribution to joint arrangements or

collective projects among groups of municipalities, cities
and/or provinces related to devolution and delivery of basic
services.
5. To be eligible for funding, an LGU or group of LGU shall submit to
the Oversight Committee on Devolution through the Department of
Interior and Local Governments, within the prescribed schedule
and timeframe, a Letter Request for Funding Support from the
Affirmative Action Program under the LGSEF, duly signed by the
concerned LGU(s) and endorsed by cooperators and/or
beneficiaries, as well as the duly signed Resolution of Endorsement
by the respective Sanggunian(s) of the LGUs concerned. The LGUproponent shall also be required to submit the Project Request
(PR), using OCD Project Request Form No. 99-02, that details the
following:

i. provision of local electrification facilities;

(a) general description or brief of the project;

j. livelihood and food production services, facilities and

equipment;

(b) objectives and justifications for undertaking the project,

which should highlight the benefits to the locality and the
expected impact to the local program/project arising from
the full and efficient implementation of social services and
facilities, at the local levels;

k. other projects that may be authorized by the OCD

consistent with the aforementioned objectives and
guidelines;

(c) target outputs or key result areas;

4. Except on extremely meritorious cases, as may be determined
by the Oversight Committee on Devolution, this portion of the
LGSEF shall not be used in expenditures for personal costs or
benefits under existing laws applicable to governments. Generally,
this fund shall cover the following objects of expenditures for
programs, projects and activities arising from the implementation
of devolved and regular functions and services:

(d) schedule of activities and details of requirements;

(e) total cost requirement of the project;

(f) proponent's counterpart funding share, if any, and

identified source(s) of counterpart funds for the full
implementation of the project;
(g) requested amount of project cost to be covered by the
LGSEF.
Further, under the guidelines formulated by the Oversight Committee as
contained in Attachment - Resolution No. OCD-99-003, the LGUs were
required to identify the projects eligible for funding under the one-billionpeso portion of the LGSEF and submit the project proposals thereof and
other documentary requirements to the DILG for appraisal. The project
proposals that passed the DILG's appraisal would then be submitted to the
Oversight Committee for review, evaluation and approval. Upon its
approval, the Oversight Committee would then serve notice to the DBM for
the preparation of the Special Allotment Release Order (SARO) and Notice
of Cash Allocation (NCA) to effect the release of funds to the said LGUs.
The LGSEF in the GAA of 2000
Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount
of P111,778,000,000 was allotted as the share of the LGUs in the internal
revenue taxes. As in the GAA of 1999, the GAA of 2000 contained a proviso
earmarking five billion pesos of the IRA for the LGSEF. This proviso, found in
Item No. 1, Special Provisions, Title XXXVII A. Internal Revenue Allotment,
was similarly worded as that contained in the GAA of 1999.
The Oversight Committee, in its Resolution No. OCD-2000-023 dated June
22, 2000, adopted the following allocation scheme governing the five
billion pesos LGSEF for 2000:
1. The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to
and shared by the four levels of LGUs, i.e., provinces, cities,
municipalities, and barangays, using the following percentagesharing formula agreed upon and jointly endorsed by the various
Leagues of LGUs:
For Provinces 26% or P 910,000,000
For Cities 23% or 805,000,000
For Municipalities 35% or 1,225,000,000
For Barangays 16% or 560,000,000

Provided that the respective Leagues representing the provinces,

cities, municipalities and barangays shall draw up and adopt the
horizontal distribution/sharing schemes among the member LGUs
whereby the Leagues concerned may opt to adopt direct financial
assistance or project-based arrangement, such that the LGSEF
allocation for individual LGU shall be released directly to the LGU
concerned;
Provided further that the individual LGSEF shares to LGUs are used
in accordance with the general purposes and guidelines
promulgated by the OCD for the implementation of the LGSEF at
the local levels pursuant to Res. No. OCD-99-006 dated October 7,
1999 and pursuant to the Leagues' guidelines and mechanism as
approved by the OCD;
Provided further that each of the Leagues shall submit to the OCD
for its approval their respective allocation scheme, the list of LGUs
with the corresponding LGSEF shares and the corresponding
project categories if project-based;
Provided further that upon approval by the OCD, the lists of LGUs
shall be endorsed to the DBM as the basis for the preparation of
the corresponding NCAs, SAROs, and related budget/release
documents.
2. The remaining P1,500,000,000 of the CY 2000 LGSEF shall be
earmarked to support the following initiatives and local affirmative
action projects, to be endorsed to and approved by the Oversight
Committee on Devolution in accordance with the OCD agreements,
guidelines, procedures and documentary requirements:
On July 5, 2000, then President Estrada issued a Memorandum
authorizing then Executive Secretary Zamora and the DBM to
implement and release the 2.5 billion pesos LGSEF for 2000 in
accordance with Resolution No. OCD-2000-023.
Thereafter, the Oversight Committee, now under the
administration of President Gloria Macapagal-Arroyo, promulgated
Resolution No. OCD-2001-29 entitled "ADOPTING RESOLUTION NO.
OCD-2000-023 IN THE ALLOCATION, IMPLEMENTATION AND
RELEASE OF THE REMAINING P2.5 BILLION LGSEF FOR CY 2000."
Under this resolution, the amount of one billion pesos of the LGSEF
was to be released in accordance with paragraph 1 of Resolution
No. OCD-2000-23, to complete the 3.5 billion pesos allocated to the
LGUs, while the amount of 1.5 billion pesos was allocated for the
LAAP. However, out of the latter amount,P400,000,000 was to be

allocated and released as follows: P50,000,000 as financial

assistance to the LAAPs of LGUs; P275,360,227 as financial
assistance to cover the decrease in the IRA of LGUs concerned due
to reduction in land area; and P74,639,773 for the LGSEF
Capability-Building Fund.
The LGSEF in the GAA of 2001
In view of the failure of Congress to enact the general
appropriations law for 2001, the GAA of 2000 was deemed reenacted, together with the IRA of the LGUs therein and the proviso
earmarking five billion pesos thereof for the LGSEF.
On January 9, 2002, the Oversight Committee adopted Resolution
No. OCD-2002-001 allocating the five billion pesos LGSEF for 2001
as follows:

2.0 Projects in consonance with the President's State of the Nation

Address (SONA)/summit commitments.
RESOLVED FURTHER, that the remaining P100 million LGSEF capability
building fund shall be distributed in accordance with the recommendation
of the Leagues of Provinces, Cities, Municipalities and Barangays, and
approved by the OCD.
Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the
individual members of the Oversight Committee seeking the
reconsideration of Resolution No. OCD-2002-001. He also wrote to Pres.
Macapagal-Arroyo urging her to disapprove said resolution as it violates the
Constitution and the Local Government Code of 1991.
On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No.
OCD-2002-001.

Modified Codal Formula

P 3.000 billion

The Petitioner's Case

Priority Projects

1.900 billion

Capability Building Fund

.100 billion

The petitioner now comes to this Court assailing as unconstitutional and

void the provisos in the GAAs of 1999, 2000 and 2001, relating to the
LGSEF. Similarly assailed are the Oversight Committee's Resolutions Nos.
OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029
and OCD-2002-001 issued pursuant thereto. The petitioner submits that
the assailed provisos in the GAAs and the OCD resolutions, insofar as they
earmarked the amount of five billion pesos of the IRA of the LGUs for 1999,
2000 and 2001 for the LGSEF and imposed conditions for the release
thereof, violate the Constitution and the Local Government Code of 1991.

P 5.000 billion
RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be
allocated according to the modified codal formula shall be released to the
four levels of LGUs, i.e., provinces, cities, municipalities and barangays, as
follows:
LGUs

Percentage

Amount

Provinces

25

P 0.750 billion

Cities

25

0.750

Municipalities

35

1.050

Barangays

15

0.450

100

P 3.000 billion

RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall
be distributed according to the following criteria:
1.0 For projects of the 4th, 5th and 6th class LGUs; or

Section 6, Article X of the Constitution is invoked as it mandates that the

"just share" of the LGUs shall be automatically released to them. Sections
18 and 286 of the Local Government Code of 1991, which enjoin that the
"just share" of the LGUs shall be "automatically and directly" released to
them "without need of further action" are, likewise, cited.
The petitioner posits that to subject the distribution and release of the fivebillion-peso portion of the IRA, classified as the LGSEF, to compliance by
the LGUs with the implementing rules and regulations, including the
mechanisms and guidelines prescribed by the Oversight Committee,
contravenes the explicit directive of the Constitution that the LGUs' share
in the national taxes "shall be automatically released to them." The
petitioner maintains that the use of the word "shall" must be given a
compulsory meaning.
To further buttress this argument, the petitioner contends that to vest the
Oversight Committee with the authority to determine the distribution and

release of the LGSEF, which is a part of the IRA of the LGUs, is an

anathema to the principle of local autonomy as embodied in the
Constitution and the Local Government Code of 1991. The petitioner cites
as an example the experience in 2001 when the release of the LGSEF was
long delayed because the Oversight Committee was not able to convene
that year and no guidelines were issued therefor. Further, the possible
disapproval by the Oversight Committee of the project proposals of the
LGUs would result in the diminution of the latter's share in the IRA.
Another infringement alleged to be occasioned by the assailed OCD
resolutions is the improper amendment to Section 285 of the Local
Government Code of 1991 on the percentage sharing of the IRA among the
LGUs. Said provision allocates the IRA as follows: Provinces 23%; Cities
23%; Municipalities 34%; and Barangays 20%.8 This formula has been
improperly amended or modified, with respect to the five-billion-peso
portion of the IRA allotted for the LGSEF, by the assailed OCD resolutions
as they invariably provided for a different sharing scheme.
The modifications allegedly constitute an illegal amendment by the
executive branch of a substantive law. Moreover, the petitioner mentions
that in the Letter dated December 5, 2001 of respondent Executive
Secretary Romulo addressed to respondent Secretary Boncodin, the former
endorsed to the latter the release of funds to certain LGUs from the LGSEF
in accordance with the handwritten instructions of President Arroyo. Thus,
the LGUs are at a loss as to how a portion of the LGSEF is actually
allocated. Further, there are still portions of the LGSEF that, to date, have
not been received by the petitioner; hence, resulting in damage and injury
to the petitioner.
The petitioner prays that the Court declare as unconstitutional and void the
assailed provisos relating to the LGSEF in the GAAs of 1999, 2000 and
2001 and the assailed OCD resolutions (Resolutions Nos. OCD-99-003,
OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-2002001) issued by the Oversight Committee pursuant thereto. The petitioner,
likewise, prays that the Court direct the respondents to rectify the unlawful
and illegal distribution and releases of the LGSEF for the aforementioned
years and release the same in accordance with the sharing formula under
Section 285 of the Local Government Code of 1991. Finally, the petitioner
urges the Court to declare that the entire IRA should be released
automatically without further action by the LGUs as required by the
Constitution and the Local Government Code of 1991.
The Respondents' Arguments
The respondents, through the Office of the Solicitor General, urge the Court
to dismiss the petition on procedural and substantive grounds. On the
latter, the respondents contend that the assailed provisos in the GAAs of

1999, 2000 and 2001 and the assailed resolutions issued by the Oversight
Committee are not constitutionally infirm. The respondents advance the
view that Section 6, Article X of the Constitution does not specify that the
"just share" of the LGUs shall be determined solely by the Local
Government Code of 1991. Moreover, the phrase "as determined by law" in
the same constitutional provision means that there exists no limitation on
the power of Congress to determine what is the "just share" of the LGUs in
the national taxes. In other words, Congress is the arbiter of what should
be the "just share" of the LGUs in the national taxes.
The respondents further theorize that Section 285 of the Local Government
Code of 1991, which provides for the percentage sharing of the IRA among
the LGUs, was not intended to be a fixed determination of their "just share"
in the national taxes. Congress may enact other laws, including
appropriations laws such as the GAAs of 1999, 2000 and 2001, providing
for a different sharing formula. Section 285 of the Local Government Code
of 1991 was merely intended to be the "default share" of the LGUs to do
away with the need to determine annually by law their "just share."
However, the LGUs have no vested right in a permanent or fixed
percentage as Congress may increase or decrease the "just share" of the
LGUs in accordance with what it believes is appropriate for their operation.
There is nothing in the Constitution which prohibits Congress from making
such determination through the appropriations laws. If the provisions of a
particular statute, the GAA in this case, are within the constitutional power
of the legislature to enact, they should be sustained whether the courts
agree or not in the wisdom of their enactment.
On procedural grounds, the respondents urge the Court to dismiss the
petition outright as the same is defective. The petition allegedly raises
factual issues which should be properly threshed out in the lower courts,
not this Court, not being a trier of facts. Specifically, the petitioner's
allegation that there are portions of the LGSEF that it has not, to date,
received, thereby causing it (the petitioner) injury and damage, is subject
to proof and must be substantiated in the proper venue, i.e., the lower
courts.
Further, according to the respondents, the petition has already been
rendered moot and academic as it no longer presents a justiciable
controversy. The IRAs for the years 1999, 2000 and 2001, have already
been released and the government is now operating under the 2003
budget. In support of this, the respondents submitted certifications issued
by officers of the DBM attesting to the release of the allocation or shares of
the petitioner in the LGSEF for 1999, 2000 and 2001. There is, therefore,
nothing more to prohibit.
Finally, the petitioner allegedly has no legal standing to bring the suit
because it has not suffered any injury. In fact, the petitioner's "just share"

has even increased. Pursuant to Section 285 of the Local Government Code
of 1991, the share of the provinces is 23%. OCD Nos. 99-005, 99-006 and
99-003 gave the provinces 40% of P2 billion of the LGSEF. OCD Nos. 2000023 and 2001-029 apportioned 26% of P3.5 billion to the provinces. On the
other hand, OCD No. 2001-001 allocated 25% of P3 billion to the provinces.
Thus, the petitioner has not suffered any injury in the implementation of
the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions.
The Ruling of the Court Procedural Issues
Before resolving the petition on its merits, the Court shall first rule on the
following procedural issues raised by the respondents: (1) whether the
petitioner has legal standing or locus standi to file the present suit; (2)
whether the petition involves factual questions that are properly
cognizable by the lower courts; and (3) whether the issue had been
rendered moot and academic.
The petitioner has locus standi to maintain the present suit
The gist of the question of standing is whether a party has "alleged such a
personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon
which the court so largely depends for illumination of difficult constitutional
questions."9 Accordingly, it has been held that the interest of a party
assailing the constitutionality of a statute must be direct and personal.
Such party must be able to show, not only that the law or any government
act is invalid, but also that he has sustained or is in imminent danger of
sustaining some direct injury as a result of its enforcement, and not merely
that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or
privilege to which he is lawfully entitled or that he is about to be subjected
to some burdens or penalties by reason of the statute or act complained
of.10
The Court holds that the petitioner possesses the requisite standing to
maintain the present suit. The petitioner, a local government unit, seeks
relief in order to protect or vindicate an interest of its own, and of the other
LGUs. This interest pertains to the LGUs' share in the national taxes or the
IRA. The petitioner's constitutional claim is, in substance, that the assailed
provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions
contravene Section 6, Article X of the Constitution, mandating the
"automatic release" to the LGUs of their share in the national taxes.
Further, the injury that the petitioner claims to suffer is the diminution of
its share in the IRA, as provided under Section 285 of the Local
Government Code of 1991, occasioned by the implementation of the
assailed measures. These allegations are sufficient to grant the petitioner

standing to question the validity of the assailed provisos in the GAAs of

1999, 2000 and 2001, and the OCD resolutions as the petitioner clearly has
"a plain, direct and adequate interest" in the manner and distribution of
the IRA among the LGUs.
The petition involves a significant legal issue
The crux of the instant controversy is whether the assailed provisos
contained in the GAAs of 1999, 2000 and 2001, and the OCD resolutions
infringe the Constitution and the Local Government Code of 1991. This is
undoubtedly a legal question. On the other hand, the following facts are
not disputed:
1. The earmarking of five billion pesos of the IRA for the LGSEF in
the assailed provisos in the GAAs of 1999, 2000 and re-enacted
budget for 2001;
2. The promulgation of the assailed OCD resolutions providing for
the allocation schemes covering the said five billion pesos and the
implementing rules and regulations therefor; and
3. The release of the LGSEF to the LGUs only upon their compliance
with the implementing rules and regulations, including the
guidelines and mechanisms, prescribed by the Oversight
Committee.
Considering that these facts, which are necessary to resolve the legal
question now before this Court, are no longer in issue, the same need not
be determined by a trial court.11 In any case, the rule on hierarchy of courts
will not prevent this Court from assuming jurisdiction over the petition. The
said rule may be relaxed when 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 this
Court's primary jurisdiction.12
The crucial legal issue submitted for resolution of this Court entails the
proper legal interpretation of constitutional and statutory provisions.
Moreover, the "transcendental importance" of the case, as it necessarily
involves the application of the constitutional principle on local autonomy,
cannot be gainsaid. The nature of the present controversy, therefore,
warrants the relaxation by this Court of procedural rules in order to resolve
the case forthwith.
The substantive issue needs to be resolved notwithstanding the
supervening events

Granting arguendo that, as contended by the respondents, the resolution

of the case had already been overtaken by supervening events as the IRA,
including the LGSEF, for 1999, 2000 and 2001, had already been released
and the government is now operating under a new appropriations law, still,
there is compelling reason for this Court to resolve the substantive issue
raised by the instant petition. Supervening events, whether intended or
accidental, cannot prevent the Court from rendering a decision if there is a
grave violation of the Constitution.13 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 public.14
Another reason justifying the resolution by this Court of the substantive
issue now before it is the rule that courts will decide a question otherwise
moot and academic if it is "capable of repetition, yet evading review."15 For
the GAAs in the coming years may contain provisos similar to those now
being sought to be invalidated, and yet, the question may not be decided
before another GAA is enacted. It, thus, behooves this Court to make a
categorical ruling on the substantive issue now.

nor does he have the discretion to modify or replace them. If the rules are
not observed, he may order the work done or re-done but only to conform
to the prescribed rules. He may not prescribe his own manner for doing the
act. He has no judgment on this matter except to see to it that the rules
are followed.19
The Local Government Code of 199120 was enacted to flesh out the
mandate of the Constitution.21 The State policy on local autonomy is
amplified in Section 2 thereof:
Sec. 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.

Substantive Issue
As earlier intimated, the resolution of the substantive legal issue in this
case calls for the application of a most important constitutional policy and
principle, that of local autonomy.16 In Article II of the Constitution, the State
has expressly adopted as a policy that:
Section 25. The State shall ensure the autonomy of local governments.
An entire article (Article X) of the Constitution has been devoted to
guaranteeing and promoting the autonomy of LGUs. Section 2 thereof
reiterates the State policy in this wise:
Section 2. The territorial and political subdivisions shall enjoy local
autonomy.
Consistent with the principle of local autonomy, the Constitution confines
the President's power over the LGUs to one of general supervision. 17 This
provision has been interpreted to exclude the power of control. The
distinction between the two powers was enunciated in Drilon v. Lim: 18
An officer in control lays down the rules in the doing of an act. If they are
not followed, he may, in his discretion, order the act undone or re-done by
his subordinate or he may even decide to do it himself. Supervision does
not cover such authority. The supervisor or superintendent merely sees to
it that the rules are followed, but he himself does not lay down such rules,

Guided by these precepts, the Court shall now determine whether the
assailed provisos in the GAAs of 1999, 2000 and 2001, earmarking for each
corresponding year the amount of five billion pesos of the IRA for the
LGSEF and the OCD resolutions promulgated pursuant thereto, transgress
the Constitution and the Local Government Code of 1991.
The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions violate the constitutional precept on local autonomy
Section 6, Article X of the Constitution reads:
Sec. 6. Local government units shall have a just share, as determined by
law, in the national taxes which shall be automatically released to them.
When parsed, it would be readily seen that this provision mandates that (1)
the LGUs shall have a "just share" in the national taxes; (2) the "just share"
shall be determined by law; and (3) the "just share" shall be automatically
released to the LGUs.
The Local Government Code of 1991, among its salient provisions,
underscores the automatic release of the LGUs' "just share" in this wise:
Sec. 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 revenue 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 further action;
...
Sec. 286. Automatic Release of Shares. (a) The share of each local
government unit shall be released, without need of any further action,
directly to the provincial, city, municipal or barangay treasurer, as the case
may be, on a quarterly basis within five (5) days after the end of each
quarter, and which shall not be subject to any lien or holdback that may be
imposed by the national government for whatever purpose.
(b) Nothing in this Chapter shall be understood to diminish the share of
local government units under existing laws.
Webster's Third New International Dictionary defines "automatic" as
"involuntary either wholly or to a major extent so that any activity of the
will is largely negligible; of a reflex nature; without volition; mechanical;
like or suggestive of an automaton." Further, the word "automatically" is
defined as "in an automatic manner: without thought or conscious
intention." Being "automatic," thus, connotes something mechanical,
spontaneous and perfunctory. As such, the LGUs are not required to
perform any act to receive the "just share" accruing to them from the
national coffers. As emphasized by the Local Government Code of 1991,
the "just share" of the LGUs shall be released to them "without need of
further action." Construing Section 286 of the LGC, we held in Pimentel, Jr.
v. Aguirre,22 viz:

contravenes the Constitution and the law. Although temporary, it is

equivalent to a holdback, which means "something held back or withheld,
often temporarily." Hence, the "temporary" nature of the retention by the
national government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in
times of national crisis, Section 4 thereof has no color of validity at all. The
latter provision effectively encroaches on the fiscal autonomy of local
governments. Concededly, the President was well-intentioned in issuing his
Order to withhold the LGUs' IRA, but the rule of law requires that even the
best intentions must be carried out within the parameters of the
Constitution and the law. Verily, laudable purposes must be carried out by
legal methods.23
The "just share" of the LGUs is incorporated as the IRA in the
appropriations law or GAA enacted by Congress annually. Under the
assailed provisos in the GAAs of 1999, 2000 and 2001, a portion of the IRA
in the amount of five billion pesos was earmarked for the LGSEF, and these
provisos imposed the condition that "such amount shall be released to the
local government units subject to the implementing rules and regulations,
including such mechanisms and guidelines for the equitable allocations
and distribution of said fund among local government units subject to the
guidelines that may be prescribed by the Oversight Committee on
Devolution." Pursuant thereto, the Oversight Committee, through the
assailed OCD resolutions, apportioned the five billion pesos LGSEF such
that:
For 1999
P2 billion - allocated according to Sec. 285 LGC
P2 billion - Modified Sharing Formula (Provinces 40%;

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local

fiscal autonomy is the automatic release of the shares of LGUs in the
National internal revenue. This is mandated by no less than the
Constitution. The Local Government Code specifies further that the release
shall be made directly to the LGU concerned within five (5) days after
every quarter of the year and "shall not be subject to any lien or holdback
that may be imposed by the national government for whatever purpose."
As a rule, the term "SHALL" is a word of command that must be given a
compulsory meaning. The provision is, therefore, IMPERATIVE.
Section 4 of AO 372, however, orders the withholding, effective January 1,
1998, of 10 percent of the LGUs' IRA "pending the assessment and
evaluation by the Development Budget Coordinating Committee of the
emerging fiscal situation" in the country. Such withholding clearly

Cities 20%; Municipalities 40%)

P1 billion projects (LAAP) approved by OCD.24
For 2000
P3.5 billion Modified Sharing Formula (Provinces 26%;
Cities 23%; Municipalities 35%; Barangays 16%);
P1.5 billion projects (LAAP) approved by the OCD.25

For 2001
P3 billion Modified Sharing Formula (Provinces 25%;
Cities 25%; Municipalities 35%; Barangays 15%)
P1.9 billion priority projects
P100 million capability building fund.26
Significantly, the LGSEF could not be released to the LGUs without the
Oversight Committee's prior approval. Further, with respect to the portion
of the LGSEF allocated for various projects of the LGUs (P1 billion for
1999; P1.5 billion for 2000 and P2 billion for 2001), the Oversight
Committee, through the assailed OCD resolutions, laid down guidelines and
mechanisms that the LGUs had to comply with before they could avail of
funds from this portion of the LGSEF. The guidelines required (a) the LGUs
to identify the projects eligible for funding based on the criteria laid down
by the Oversight Committee; (b) the LGUs to submit their project proposals
to the DILG for appraisal; (c) the project proposals that passed the
appraisal of the DILG to be submitted to the Oversight Committee for
review, evaluation and approval. It was only upon approval thereof that the
Oversight Committee would direct the DBM to release the funds for the
projects.
To the Court's mind, the entire process involving the distribution and
release of the LGSEF is constitutionally impermissible. The LGSEF is part of
the IRA or "just share" of the LGUs in the national taxes. To subject its
distribution and release to the vagaries of the implementing rules and
regulations, including the guidelines and mechanisms unilaterally
prescribed by the Oversight Committee from time to time, as sanctioned
by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions, makes the release not automatic, a flagrant violation of the
constitutional and statutory mandate that the "just share" of the LGUs
"shall be automatically released to them." The LGUs are, thus, placed at
the mercy of the Oversight Committee.
Where the law, the Constitution in this case, is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice but
to see to it that the mandate is obeyed. 27 Moreover, as correctly posited by
the petitioner, the use of the word "shall" connotes a mandatory order. Its
use in a statute denotes an imperative obligation and is inconsistent with
the idea of discretion.28
Indeed, the Oversight Committee exercising discretion, even control, over
the distribution and release of a portion of the IRA, the LGSEF, is an

anathema to and subversive of the principle of local autonomy as

embodied in the Constitution. Moreover, it finds no statutory basis at all as
the Oversight Committee was created merely to formulate the rules and
regulations for the efficient and effective implementation of the Local
Government Code of 1991 to ensure "compliance with the principles of
local autonomy as defined under the Constitution."29 In fact, its creation
was placed under the title of "Transitory Provisions," signifying its ad hoc
character. According to Senator Aquilino Q. Pimentel, the principal author
and sponsor of the bill that eventually became Rep. Act No. 7160, the
Committee's work was supposed to be done a year from the approval of
the Code, or on October 10, 1992. 30 The Oversight Committee's authority is
undoubtedly limited to the implementation of the Local Government Code
of 1991, not to supplant or subvert the same. Neither can it exercise
control over the IRA, or even a portion thereof, of the LGUs.
That the automatic release of the IRA was precisely intended to guarantee
and promote local autonomy can be gleaned from the discussion below
between Messrs. Jose N. Nolledo and Regalado M. Maambong, then
members of the 1986 Constitutional Commission, to wit:
MR. MAAMBONG. Unfortunately, under Section 198 of the Local
Government Code, the existence of subprovinces is still acknowledged by
the law, but the statement of the Gentleman on this point will have to be
taken up probably by the Committee on Legislation. A second point, Mr.
Presiding Officer, is that under Article 2, Section 10 of the 1973
Constitution, we have a provision which states:
The State shall guarantee and promote the autonomy of local government
units, especially the barrio, to insure their fullest development as selfreliant communities.
This provision no longer appears in the present configuration; does this
mean that the concept of giving local autonomy to local governments is no
longer adopted as far as this Article is concerned?
MR. NOLLEDO. No. In the report of the Committee on Preamble, National
Territory, and Declaration of Principles, that concept is included and
widened upon the initiative of Commissioner Bennagen.
MR. MAAMBONG. Thank you for that.
With regard to Section 6, sources of revenue, the creation of sources as
provided by previous law was "subject to limitations as may be provided by
law," but now, we are using the term "subject to such guidelines as may be
fixed by law." In Section 7, mention is made about the "unique, distinct and
exclusive charges and contributions," and in Section 8, we talk about

10

"exclusivity of local taxes and the share in the national wealth."

Incidentally, I was one of the authors of this provision, and I am very
thankful. Does this indicate local autonomy, or was the wording of the law
changed to give more autonomy to the local government units? 31
MR. NOLLEDO. Yes. In effect, those words indicate also "decentralization"
because local political units can collect taxes, fees and charges subject
merely to guidelines, as recommended by the league of governors and city
mayors, with whom I had a dialogue for almost two hours. They told me
that limitations may be questionable in the sense that Congress may limit
and in effect deny the right later on.
MR. MAAMBONG. Also, this provision on "automatic release of national tax
share" points to more local autonomy. Is this the intention?
MR. NOLLEDO. Yes, the Commissioner is perfectly right. 32
The concept of local autonomy was explained in Ganzon v. Court of
Appeals33 in this wise:
As the Constitution itself declares, local autonomy 'means a more
responsive and accountable local government structure instituted through
a system of decentralization.' The Constitution, as we observed, does
nothing more than to break up the monopoly of the national government
over the affairs of local governments and as put by political adherents, to
"liberate the local governments from the imperialism of Manila."
Autonomy, however, is not meant to end the relation of partnership and
interdependence between the central administration and local government
units, or otherwise, to usher in a regime of federalism. The Charter has not
taken such a radical step. Local governments, under the Constitution, are
subject to regulation, however limited, and for no other purpose than
precisely, albeit paradoxically, to enhance self-government.
As we observed in one case, decentralization means devolution of national
administration but not power to the local levels. Thus:
Now, autonomy is either decentralization of administration or
decentralization of power. There is decentralization of administration when
the central government delegates administrative powers to political
subdivisions in order to broaden the base of government power and in the
process to make local governments 'more responsive and accountable' and
'ensure their fullest development as self-reliant communities and make
them more effective partners in the pursuit of national development and
social progress.' At the same time, it relieves the central government of the
burden of managing local affairs and enables it to concentrate on national
concerns. The President exercises 'general supervision' over them, but only

to 'ensure that local affairs are administered according to law.' He has no

control over their acts in the sense that he can substitute their judgments
with his own.
Decentralization of power, on the other hand, involves an abdication of
political power in the [sic] favor of local governments [sic] units declared to
be autonomous. In that case, the autonomous government is free to chart
its own destiny and shape its future with minimum intervention from
central authorities. According to a constitutional author, decentralization of
power amounts to 'self-immolation,' since in that event, the autonomous
government becomes accountable not to the central authorities but to its
constituency.34
Local autonomy includes both administrative and fiscal autonomy. The
fairly recent case of Pimentel v. Aguirre35 is particularly instructive. The
Court declared therein that local fiscal autonomy includes the power of the
LGUs to, inter alia, allocate their resources in accordance with their own
priorities:
Under existing law, local government units, in addition to having
administrative autonomy in the exercise of their functions, enjoy fiscal
autonomy as well. Fiscal autonomy means that local governments have 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. It extends to the preparation of their budgets, and local officials
in turn have to work within the constraints thereof. They are not formulated
at the national level and imposed on local governments, whether they are
relevant to local needs and resources or not ...36
Further, a basic feature of local fiscal autonomy is the constitutionally
mandated automatic release of the shares of LGUs in the national internal
revenue.37
Following this ratiocination, the Court in Pimentel struck down as
unconstitutional Section 4 of Administrative Order (A.O.) No. 372 which
ordered the withholding, effective January 1, 1998, of ten percent of the
LGUs' IRA "pending the assessment and evaluation by the Development
Budget Coordinating Committee of the emerging fiscal situation."
In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001,
and the OCD resolutions constitute a "withholding" of a portion of the IRA.
They put on hold the distribution and release of the five billion pesos
LGSEF and subject the same to the implementing rules and regulations,
including the guidelines and mechanisms prescribed by the Oversight
Committee from time to time. Like Section 4 of A.O. 372, the assailed

11

provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions
effectively encroach on the fiscal autonomy enjoyed by the LGUs and must
be struck down. They cannot, therefore, be upheld.
The assailed provisos in the GAAs of 1999, 2000

Section 285 then specifies how the IRA shall be allocated among the LGUs:
Sec. 285. Allocation to Local Government Units. The share of local
government units in the internal revenue allotment shall be allocated in
the following manner:

and 2001 and the OCD resolutions cannot amend

(a) Provinces Twenty-three (23%)

Section 285 of the Local Government Code of 1991

(b) Cities Twenty-three percent (23%);

Section 28438 of the Local Government Code provides that, beginning the
third year of its effectivity, the LGUs' share in the national internal revenue
taxes shall be 40%. This percentage is fixed and may not be reduced
except "in the event the national government incurs an unmanageable
public sector deficit" and only upon compliance with stringent
requirements set forth in the same section:

(c) Municipalities Thirty-four (34%); and

Sec. 284. ...

Provided, That in the event that the national government incurs an
unmanageable public sector deficit, the President of the Philippines is
hereby authorized, upon recommendation of Secretary of Finance,
Secretary of Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of
both Houses of Congress and the presidents of the liga, to make the
necessary adjustments in the internal revenue allotment of local
government units but in no case shall the allotment be less than thirty
percent (30%) of the collection of the national internal revenue taxes of the
third fiscal year preceding the current fiscal year; Provided, further That in
the first year of the effectivity of this Code, the local government units
shall, in addition to the thirty percent (30%) internal revenue allotment
which shall include the cost of devolved functions for essential public
services, be entitled to receive the amount equivalent to the cost of
devolved personnel services.
Thus, from the above provision, the only possible exception to the
mandatory automatic release of the LGUs' IRA is if the national internal
revenue collections for the current fiscal year is less than 40 percent of the
collections of the preceding third fiscal year, in which case what should be
automatically released shall be a proportionate amount of the collections
for the current fiscal year. The adjustment may even be made on a
quarterly basis depending on the actual collections of national internal
revenue taxes for the quarter of the current fiscal year. In the instant case,
however, there is no allegation that the national internal revenue tax
collections for the fiscal years 1999, 2000 and 2001 have fallen compared
to the preceding three fiscal years.

(d) Barangays Twenty percent (20%).

However, this percentage sharing is not followed with respect to the five
billion pesos LGSEF as the assailed OCD resolutions, implementing the
assailed provisos in the GAAs of 1999, 2000 and 2001, provided for a
different sharing scheme. For example, for 1999, P2 billion of the LGSEF
was allocated as follows: Provinces 40%; Cities 20%; Municipalities
40%.39 For 2000, P3.5 billion of the LGSEF was allocated in this manner:
Provinces 26%; Cities 23%; Municipalities 35%; Barangays
26%.40 For 2001, P3 billion of the LGSEF was allocated, thus: Provinces
25%; Cities 25%; Municipalities 35%; Barangays 15%. 41
The respondents argue that this modification is allowed since the
Constitution does not specify that the "just share" of the LGUs shall only be
determined by the Local Government Code of 1991. That it is within the
power of Congress to enact other laws, including the GAAs, to increase or
decrease the "just share" of the LGUs. This contention is untenable. The
Local Government Code of 1991 is a substantive law. And while it is
conceded that Congress may amend any of the provisions therein, it may
not do so through appropriations laws or GAAs. Any amendment to the
Local Government Code of 1991 should be done in a separate law, not in
the appropriations law, because Congress cannot include in a general
appropriation bill matters that should be more properly enacted in a
separate legislation.42
A general appropriations bill is a special type of legislation, whose content
is limited to specified sums of money dedicated to a specific purpose or a
separate fiscal unit.43 Any provision therein which is intended to amend
another law is considered an "inappropriate provision." The category of
"inappropriate provisions" includes unconstitutional provisions and
provisions which are intended to amend other laws, because clearly these
kinds of laws have no place in an appropriations bill. 44

12

Increasing or decreasing the IRA of the LGUs or modifying their percentage

sharing therein, which are fixed in the Local Government Code of 1991, are
matters of general and substantive law. To permit Congress to undertake
these amendments through the GAAs, as the respondents contend, would
be to give Congress the unbridled authority to unduly infringe the fiscal
autonomy of the LGUs, and thus put the same in jeopardy every year. This,
the Court cannot sanction.
It is relevant to point out at this juncture that, unlike those of 1999, 2000
and 2001, the GAAs of 2002 and 2003 do not contain provisos similar to
the herein assailed provisos. In other words, the GAAs of 2002 and 2003
have not earmarked any amount of the IRA for the LGSEF. Congress had
perhaps seen fit to discontinue the practice as it recognizes its infirmity.
Nonetheless, as earlier mentioned, this Court has deemed it necessary to
make a definitive ruling on the matter in order to prevent its recurrence in
future appropriations laws and that the principles enunciated herein would
serve to guide the bench, bar and public.

M. De Tocqueville, a distinguished French political writer, "[l]ocal

assemblies of citizens constitute the strength of free nations. Township
meetings are to liberty what primary schools are to science; they bring it
within the people's reach; they teach men how to use and enjoy it. A nation
may establish a system of free governments but without the spirit of
municipal institutions, it cannot have the spirit of liberty."49
Our national officials should not only comply with the constitutional
provisions on local autonomy but should also appreciate the spirit and
liberty upon which these provisions are based.50
WHEREFORE, the petition is GRANTED. The assailed provisos in the General
Appropriations Acts of 1999, 2000 and 2001, and the assailed OCD
Resolutions, are declared UNCONSTITUTIONAL.
SO ORDERED.

Conclusion
In closing, it is well to note that the principle of local autonomy, while
concededly expounded in greater detail in the present Constitution, dates
back to the turn of the century when President William McKinley, in his
Instructions to the Second Philippine Commission dated April 7, 1900,
ordered the new Government "to devote their attention in the first instance
to the establishment of municipal governments in which the natives of the
Islands, both in the cities and in the rural communities, shall be afforded
the opportunity to manage their own affairs to the fullest extent of which
they are capable, and subject to the least degree of supervision and
control in which a careful study of their capacities and observation of the
workings of native control show to be consistent with the maintenance of
law, order and loyalty."45 While the 1935 Constitution had no specific article
on local autonomy, nonetheless, it limited the executive power over local
governments to "general supervision ... as may be provided by
law."46 Subsequently, the 1973 Constitution explicitly stated that "[t]he
State shall guarantee and promote the autonomy of local government
units, especially the barangay to ensure their fullest development as selfreliant communities."47 An entire article on Local Government was
incorporated therein. The present Constitution, as earlier opined, has
broadened the principle of local autonomy. The 14 sections in Article X
thereof markedly increased the powers of the local governments in order to
accomplish the goal of a more meaningful local autonomy.
Indeed, the value of local governments as institutions of democracy is
measured by the degree of autonomy that they enjoy.48 As eloquently put
by

13

(MAKALAYA); NAGA CITY PEOPLE'S COUNCIL (NCPC); NGO-PO

COUNCIL OF CAMARINES SUR FOR COMMUNITY PARTICIPATION
AND EMPOWERMENT, INC. (NPCCS); PAILIG DEVELOPMENT
FOUNDATION INC. (PDFI); PHILIPPINE ECUMENICAL ACTION FOR
COMMUNITY EMPOWERMENT FOUNDATION, INC. (PEACE
FOUNDATION, INC.); PHILIPPINE PARTNERSHIP FOR THE
DEVELOPMENT OF HUMAN RESOURCES IN RURAL AREAS
(PHILDHRRA); PILIPINA, INC. (ANG KILUSAN NG KABABAIHANG
PILIPINO); SENTRO NG ALTERNATIBONG LINGAP PANLIGAL
(SALIGAN); URBAN LAND REFORM TASK FORCE (ULR-TF); ADELINO
C. LAVADOR; PUNONG BARANGAY ISABEL MENDEZ; PUNONG
BARANGAY CAROLINA ROMANOS, petitioners,
vs.
HON. RONALDO ZAMORA, in his capacity as Executive Secretary,
HON. BENJAMIN DIOKNO, in his capacity as Secretary, Department
of Budget and Management, HON. LEONOR MAGTOLIS-BRIONES, in
her capacity as National Treasurer, and the COMMISSION ON
AUDIT, respondents.
DECISION
CARPIO MORALES, J.:
Pursuant to Section 22, Article VII of the Constitution 1 mandating the
President to submit to Congress a budget of expenditures within thirty days
before the opening of every regular session, then President Joseph Ejercito
Estrada submitted the National Expenditures Program for Fiscal Year 2000.
In the said Program, the President proposed an Internal Revenue Allotment
(IRA) in the amount of P121,778,000,000 following the formula provided
for in Section 284 of the Local Government Code of 1992, viz:
EN BANC
G.R. No. 144256

June 8, 2005

ALTERNATIVE CENTER FOR ORGANIZATIONAL REFORMS AND

DEVELOPMENT, INC. (ACORD), BALAY MINDANAW FOUNDATION,
INC. (BMFI); BARRIOS, INC.; CAMARINES SUR NGO-PO
DEVELOPMENT NETWORK, INC. (CADENET); CENTER FOR
PARTICIPATORY GOVERNANCE (CPAG); ENVIRONMENTAL LEGAL
ASSISTANCE CENTER, INC. (ELAC); FELLOWSHIP FOR ORGANIZING
ENDEAVORS (FORGE); FOUNDATION FOR LOCAL AUTONOMY AND
GOOD GOVERNNANCE, INC. (FLAGG); INSTITUTE OF POLITICS AND
GOVERNANCE (IPG); KAISAHAN PARA SA KAUNLARAN NG
KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN);
MANGGAGAGAWANG KABABAIHANG MITHI AY PAGLAYA

SECTION 284. Allotment of Internal Revenue Taxes. - Local government

units shall have a share in the national internal revenue taxes based on the
collection of the third fiscal year preceding the current fiscal year as
follows:
(a) On the first year of the effectivity of this Code, thirty percent
(30%);
(b) On the second year, thirty-five percent (35%); and
(c) On the third year and thereafter, forty percent (40%).
x x x (Emphasis supplied)

14

On February 16, 2000, the President approved House Bill No. 8374 - a bill
sponsored in the Senate by then Senator John H. Osmea who was the
Chairman of the Committee on Finance. This bill became Republic Act No.
8760, "AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE
GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES FROM JANUARY ONE
TO DECEMBER THIRTY-ONE, TWO THOUSAND, AND FOR OTHER
PURPOSES".

which amount shall be released only when the original revenue targets
submitted by the President to Congress can be realized based on a
quarterly assessment to be conducted by certain committees which the
GAA specifies, namely, the Development Budget Coordinating Committee,
the Committee on Finance of the Senate, and the Committee on
Appropriations of the House of Representatives.
LIV. UNPROGRAMMED FUND

The act, otherwise known as the General Appropriations Act (GAA) for the
Year 2000, provides under the heading "ALLOCATIONS TO LOCAL
GOVERNMENT UNITS" that the IRA for local government units shall amount
toP111,778,000,000:1avvphi1.zw+

For fund requirements in accordance with the purposes indicated

hereunder P48,681,831,000
A. PURPOSE(S)

XXXVII. ALLOCATIONS TO LOCAL

xxxx

GOVERNMENT UNITS
A. INTERNAL REVENUE ALLOTMENT
6. Additional
Operational
Requirements
and Projects of
Agencies

For apportionment of the shares of local government units in the internal

revenue taxes in accordance with the purpose indicated hereunder
... P111,778,000,000

P14,788,764,000

New Appropriations, by Purpose

xxxx
Current Operating Expenditures
Special Provisions
Maintenance
and Other

Personal
Services

Operati
ng
Expens
es

Capit
al
Outla
ys

A. PURPOSE(S)
a. Internal
Revenue
Allotment

P111,778,000 P111,778,000,
,000
000

xxx
TOTAL NEW
APPROPRIATIO

NS

P111,778,000
,000

In another part of the GAA, under the heading "UNPROGRAMMED FUND," it

is provided that an amount ofP10,000,000,000 (P10 Billion), apart from
the P111,778,000,000 mentioned above, shall be used to fund the IRA,

Tota
l

1. Release of the Fund. The amounts herein appropriated shall be released

only when the revenue collections exceed the original revenue targets
submitted by the President of the Philippines to Congress pursuant to
Section 22, Article VII of the Constitution or when the corresponding
funding or receipts for the purpose have been realized except in the
special cases covered by specific procedures in Special Provision Nos. 2, 3,
4, 5, 7, 8, 9, 13 and 14 herein: PROVIDED, That in cases of foreign-assisted
projects, the existence of a perfected loan agreement shall be sufficient
compliance for the issuance of a Special Allotment Release Order covering
the loan proceeds: PROVIDED, FURTHER, That no amount of the
Unprogrammed Fund shall be funded out of the savings generated from
programmed items in this Act.
xxxx
4. Additional Operational Requirements and Projects of Agencies. The
appropriations for Purpose 6 - Additional Operational Requirements and
Projects of Agencies herein indicated shall be released only when the

15

original revenue targets submitted by the President of the Philippines to

Congress pursuant to Section 22, Article VII of the Constitution can be
realized based on a quarterly assessment of the Development Budget
Coordinating Committee, the Committee on Finance of the Senate and the
Committee on Appropriations of the House of Representatives and shall be
used to fund the following:
xxxx
Internal Revenue Allotments
Maintenance and
Other Operating
Expenses

P10,000,000,000
-------------------P10,000,000,000

total IRA

xxxx
Total P14,788,764,000
x x x x (Emphasis supplied)
Thus, while the GAA appropriates P111,778,000,000 of IRA
as Programmed Fund, it appropriates a separate amount of P10 Billion of
IRA under the classification of Unprogrammed Fund, the latter amount to
be released only upon the occurrence of the condition stated in the GAA.
On August 22, 2000, a number of non-governmental organizations (NGOs)
and people's organizations, along with three barangay officials filed with
this Court the petition at bar, for Certiorari, Prohibition and Mandamus With
Application for Temporary Restraining Order, against respondents then
Executive Secretary Ronaldo Zamora, then Secretary of the Department of
Budget and Management Benjamin Diokno, then National Treasurer Leonor
Magtolis-Briones, and the Commission on Audit, challenging the
constitutionality of above-quoted provision of XXXVII (ALLOCATIONS TO
LOCAL GOVERNMENT UNITS) referred to by petitioners as Section 1, XXXVII
(A), and LIV (UNPROGRAMMED FUND) Special Provisions 1 and 4 of the GAA
(the GAA provisions).
Petitioners contend that:

THEY VIOLATE THE AUTONOMY OF LOCAL GOVERNMENTS BY UNLAWFULLY

REDUCING BY TEN BILLION PESOS (P10 BILLION) THE INTERNAL REVENUE
ALLOTMENTS DUE TO THE LOCAL GOVERNMENTS AND WITHHOLDING THE
RELEASE OF SUCH AMOUNT BY PLACING THE SAME UNDER
"UNPROGRAMMED FUNDS." THIS VIOLATES THE CONSTITUTIONAL
MANDATE IN ART. X, SEC. 6, THAT THE LOCAL GOVERNMENT UNITS' JUST
SHARE IN THE NATIONAL TAXES SHALL BE AUTOMATICALLY RELEASED TO
THEM. IT ALSO VIOLATES THE LOCAL GOVERNMENT CODE, SPECIFICALLY,
SECS. 18, 284, AND 286.
2. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE
YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS
THEY VIOLATE THE AUTONOMY OF LOCAL GOVERNMENTS BY PLACING TEN
BILLION PESOS (P10 BILLION) OF THE INTERNAL REVENUE ALLOTMENTS
DUE TO THE LOCAL GOVERNMENTS, EFFECTIVELY AND PRACTICALLY,
WITHIN THE CONTROL OF THE CENTRAL AUTHORITIES.
3. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE
YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL
AS THE PLACING OF P10 BILLION PESOS OF THE IRA UNDER
"UNPROGRAMMED FUNDS" CONSTITUTES AN UNDUE DELEGATION OF
LEGISLATIVE POWER TO THE RESPONDENTS.
4. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE
YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL
AS THE PLACING OF P10 BILLION PESOS OF THE IRA UNDER
"UNPROGRAMMED FUNDS" CONSTITUTES AN AMENDMENT OF THE LOCAL
GOVERNMENT CODE OF 1991, WHICH CANNOT BE DONE IN A GENERAL
APPROPRIATIONS ACT AND WHICH PURPOSE WAS NOT REFLECTED IN THE
TITLE OF THE YEAR 2000 GAA.
5. THE YEAR 2000 GAA'S REDUCTION OF THE IRA UNDERMINES THE
FOUNDATION OF OUR LOCAL GOVERNANCE SYSTEM WHICH IS ESSENTIAL
TO THE EFFICIENT OPERATION OF THE GOVERNMENT AND THE
DEVELOPMENT OF THE NATION.
6. THE CONGRESS AND THE EXECUTIVE, IN PASSING AND APPROVING,
RESPECTIVELY, THE YEAR 2000 GAA, AND THE RESPONDENTS, IN
IMPLEMENTING THE SAID YEAR 2000 GAA, INSOFAR AS SECTION 1, XXXVII
(A) AND LIV, SPECIAL PROVISIONS 1 AND 4, ARE CONCERNED, ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION AS THEY TRANSGRESSED THE CONSTITUTION AND THE
LOCAL GOVERNMENT CODE'S PROHIBITION ON ANY INVALID REDUCTION
AND WITHHOLDING OF THE LOCAL GOVERNMENTS' IRA. (Underscoring
supplied)

1. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE

YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS

16

After the parties had filed their respective memoranda, a "MOTION FOR
INTERVENTION/MOTION TO ADMIT ATTACHED PETITION FOR
INTERVENTION" was filed on October 22, 2001 by the Province of Batangas,
represented by then Governor Hermilando I. Mandanas.

constitutional injunction that the just share of local governments in the

national taxes or the IRA shall be automatically released.

On November 6, 2001, the Province of Nueva Ecija, represented by

Governor Tomas N. Joson III, likewise filed a "MOTION FOR LEAVE OF COURT
TO INTERVENE AND FILE PETITION-IN-INTERVENTION".

Respondents assail as improperly executed petitioners' verifications and

certifications against forum-shopping as they merely state that the
allegations of the Petition are "true of our knowledge and belief" instead of
"true and correct of our personal knowledge or based on authentic records"
as required under Rule 7, Section 4 of the Rules of Court. 7

The motions for intervention, both of which adopted the arguments of the
main petition,2 were granted by this Court.3

Sufficiency of Verification and Certification Against Forum-Shopping

Jurisprudence is on petitioners' side. In Decano v. Edu,8 this Court held:

Although the effectivity of the Year 2000 GAA has ceased, this Court shall
nonetheless proceed to resolve the issues raised in the present case, it
being impressed with public interest. The ruling of this Court in the case
of The Province of Batangas v. Romulo,4 wherein GAA provisions relating to
the IRA were likewise challenged, is in point, to wit:
Granting arguendo that, as contended by the respondents, the resolution
of the case had already been overtaken by supervening events as the IRA,
including the LGSEF, for 1999, 2000 and 2001, had already been released
and the government is now operating under a new appropriations law, still,
there is compelling reason for this Court to resolve the substantive issue
raised by the instant petition. Supervening events, whether intended or
accidental, cannot prevent the Court from rendering a decision if there is a
grave violation of the Constitution. 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 public.
Another reason justifying the resolution by this Court of the substantive
issue now before it is the rule that courts will decide a question otherwise
moot and academic if it is "capable of repetition, yet evading review." For
the GAAs in the coming years may contain provisos similar to those now
being sought to be invalidated, and yet, the question may not be decided
before another GAA is enacted. It, thus, behooves this Court to make a
categorical ruling on the substantive issue now.5
Passing on the arguments of all parties, bearing in mind the dictum that
"the court should not form a rule of constitutional law broader than is
required by the precise facts to which it is applied,"6 this Court finds that
only the following issues need to be resolved in the present petition: (1)
whether the petition contains proper verifications and certifications against
forum-shopping, (2) whether petitioners have the requisite standing to file
this suit, and (3) whether the questioned provisions violate the

Respondents finally raise a technical point referring to the allegedly

defective verification of the petition filed in the trial court, contending that
the clause in the verification statement "that I have read the contents of
the said petition; and that [to] the best of my knowledge are true and
correct" is insufficient since under section 6 of Rule 7, it is required that the
person verifying must have read the pleading and that the allegations
thereof are true of his own knowledge. We do not see any reason for
rendering the said verification void. The statement "to the best of my
knowledge are true and correct" referring to the allegations in the petition
does not mean mere "knowledge, information and belief." It
constitutes substantial compliance with the requirement of section 6 of
Rule 7, as held in Madrigal vs. Rodas (80 Phil. 252.). At any rate, this petty
technicality deserves scant consideration where the question at issue is
one purely of law and there is no need of delving into the veracity of the
allegations in the petition, which are not disputed at all by respondents.
As we have held time and again, imperfections of form and technicalities of
procedure are to be disregarded except where substantial rights would
otherwise be prejudiced. (Emphasis and underscoring supplied)
Respondents go on to claim that the same verifications were signed by
persons who were not authorized by the incorporated cause-oriented
groups which they claim to represent, hence, the Petition should be treated
as an unsigned pleading.
Indeed, only duly authorized natural persons may execute verifications in
behalf of juridical entities such as petitioners NGOs and people's
organizations. As this Court held in Santos v. CA, "In fact, physical actions,
e.g., signing and delivery of documents, may be performed on behalf of
the corporate entity only by specifically authorized individuals."9
Nonetheless, the present petition cannot be treated as an unsigned
pleading. For even if the rule that representatives of corporate entities
must present the requisite authorization were to be strictly applied, there

17

would remain among the multi-group-petitioners the individuals who

validly executed verifications in their own names, namely, petitioners
Adelino C. Lavador, Punong Barangay Isabel Mendez, and Punong
Barangay Carolina Romanos.
At all events, in light of the following ruling of this Court in Shipside Inc. v.
CA:10
. . . in Loyola, Roadway, and Uy, the Court excused non-compliance with
the requirement as to the certificate of non-forum shopping. With more
reason should we allow the instant petition since petitioner herein did
submit a certification on non-forum shopping, failing only to show proof
that the signatory was authorized to do so. Thatpetitioner subsequently
submitted a secretary's certificate attesting that Balbin was authorized to
file an action on behalf of petitioner likewise mitigates this oversight.
It must also be kept in mind that while the requirement of the certificate of
non-forum shopping is mandatory, nonetheless the requirements must not
be interpreted too literally and thus defeat the objective of preventing the
undesirable practice of forum-shopping (Bernardo v. NLRC, 255 SCRA 108
[1996]). Lastly, technical rules of procedure should be used to promote, not
frustrate justice. While the swift unclogging of court dockets is a laudable
objective, the granting of substantial justice is an even more urgent ideal.
(Underscoring supplied),
a too literal interpretation must be avoided if it defeats the objective of
preventing the practice of forum shopping.
Standing
Respondents assail petitioners' standing in this controversy, proffering that
it is the local government units - each having a separate juridical entity which stand to be injured.
The subsequent intervention of the provinces of Batangas and Nueva Ecija
which have adopted the arguments of petitioners has, however, made the
question of standing academic.11
Respondents, contending that petitioners have no cause of action against
them as they claim to have no responsibility with respect to the mandate
of the GAA provisions, proffer that the committees mentioned in the GAA
provisions, namely, the Development Budget Coordinating Committee,
Committee on Finance of the Senate, and Committee on Appropriations of
the House of Representatives, should instead have been impleaded.

Respondents' position does not lie.

The GAA provisions being challenged were not to be implemented solely by
the committees specifically mentioned therein, for they being in the nature
of appropriations provisions, they were also to be implemented by the
executive branch, particularly the Department of Budget and Management
(DBM) and the National Treasurer. The task of the committees related
merely to the conduct of the quarterly assessment required in the
provisions, and not in the actual release of the IRA which is the duty of the
executive. Since the present controversy centers on the proper manner
of releasing the IRA, the impleaded respondents are the proper parties to
this suit.
In fact in earlier petitions likewise involving the constitutionality of
provisions of previous general appropriations acts which this Court
granted, the therein respondent officials were the same as those in the
present case, e.g.,Guingona v. Carague12 and PHILCONSA v. Enriquez.13
Constitutionality of the GAA Provisions
Article X, Section 6 of the Constitution provides:
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.
Petitioners argue that the GAA violated this constitutional mandate when it
made the release of IRA contingent on whether revenue collections could
meet the revenue targets originally submitted by the President, rather than
making the release automatic.
Respondents counterargue that the above constitutional provision
is addressed not to the legislature but to the executive, hence, the
same does not prevent the legislature from imposing conditions upon the
release of the IRA. They cite the exchange between Commissioner (now
Chief Justice) Davide and Commissioner Nolledo in the deliberations of the
Constitutional Commission on the above-quoted Sec. 6, Art. X of the
Constitution, to wit:
THE PRESIDENT. How about the second sentence?
MR. DAVIDE. The second sentence would be a new section that would be
Section 13. As modified it will read as follows: "LOCAL GOVERNMENT UNITS
SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, in the national taxes
WHICH SHALL BE automatically PERIODICALLY released to them."

18

MR. NOLLEDO. That will be Section 12, subsection (1) in the amendment.
MR. DAVIDE. No, we will just delete that because the second would be
another section so Section 12 would only be this: "LOCAL GOVERNMENT
UNITS SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, in the national
taxes WHICH SHALL BE automatically PERIODICALLY released to them."
MR. NOLLEDO. But the word "PERIODICALLY" may mean possibly
withholding the automatic release to them by adopting certain periods of
automatic release. If we use the word "automatically" without
"PERIODICALLY," the latter may be already contemplated by
"automatically." So, the Committee objects to the word "PERIODICALLY."
MR. DAVIDE. If we do not say PERIODICALLY, it might be very, very difficult
to comply with it because these are taxes collected and actually released
by the national government every quarter. It is not that upon collection
a portion should immediately be released. It is quarterly. Otherwise,
the national government will have to remit everyday and that would be
very expensive.
MR. NOLLEDO. That is not hindered by the word "automatically." But if we
put "automatically" and "PERIODICALLY" at the same time, that means
certain periods have to be observed as will be set forth by theBudget
Officer thereby negating the meaning of "automatically."
MR. DAVIDE. On the other hand, if we do not state PERIODICALLY, it may be
done every semester; it may be done at the end of the year. It is still
automatic release.
MR. NOLLEDO. As far as the Committee is concerned, we vigorously object
to the word "PERIODICALLY."
MR. DAVIDE. Only the word PERIODICALLY?
MR. NOLLEDO. If the Commissioner is amenable to deleting that, we will
accept the amendment.
MR. DAVIDE. I will agree to the deletion of the word PERIODICALLY.

In the above exchange of statements, it is clear that although

Commissioners Davide and Nolledo held different views with regard to the
proper wording of the constitutional provision, they shared a common
assumption that the entity which would execute the automatic release of
internal revenue was the executive department.
Commissioner Davide referred to the national government as the entity
that collects and remits internal revenue. Similarly, Commissioner Nolledo
alluded to the Budget Officer, who is clearly under the executive branch.
Respondents thus infer that the subject constitutional provision merely
prevents the executive branch of the government from "unilaterally"
withholding the IRA, but not the legislature from authorizing the executive
branch to withhold the same. In the words of respondents, "This essentially
means that the President or any member of the Executive Department
cannot unilaterally, i.e., without the backing of statute, withhold the
release of the IRA."15
Respondents' position does not lie.
As the Constitution lays upon the executive the duty to automatically
release the just share of local governments in the national taxes, so it
enjoins the legislature not to pass laws that might prevent the executive
from performing this duty. To hold that the executive branch may disregard
constitutional provisions which define its duties, provided it has the
backing of statute, is virtually to make the Constitution amendable by
statute - a proposition which is patently absurd.
Moreover, there is merit in the argument of the intervenor Province of
Batangas that, if indeed the framers intended to allow the enactment of
statutes making the release of IRA conditional instead of automatic, then
Article X, Section 6 of the Constitution would have been worded differently.
Instead of reading "Local government units shall have a just share, as
determined by law, in the national taxes which shall be automatically
released to them" (italics supplied), it would have read as follows, so the
Province of Batangas posits:
"Local government units shall have a just share, as determined by law, in
the national taxes which shall be [automatically] released to them as
provided by law," or,

MR. NOLLEDO. Thank you.

The Committee accepts the amendment. (Emphasis supplied)

14

"Local government units shall have a just share in the national taxes which
shall be [automatically] released to themas provided by law," or

19

"Local government units shall have a just share, as determined by law, in

the national taxes which shall be automatically released to them subject to
exceptions Congress may provide."16 (Italics supplied)
Since, under Article X, Section 6 of the Constitution, only the just share of
local governments is qualified by the words "as determined by law," and
not the release thereof, the plain implication is that Congress is not
authorized by the Constitution to hinder or impede the automatic release
of the IRA.
Indeed, that Article X, Section 6 of the Constitution did bind the legislative
just as much as the executive branch was presumed in the ruling of this
Court in the case of The Province of Batangas v. Romulo17 which is
analogous in many respects to the one at bar.
In Batangas, the petitioner therein challenged the constitutionality of
certain provisos of the GAAs for FY 1999, 2000, and 2001 which set up the
Local Government Service Equalization Fund (LGSEF). The LGSEF was a
portion of the IRA which was to be released only upon a finding of the
Oversight Committee on Devolution that the LGU concerned had complied
with the guidelines issued by said committee. This Court measured the
challenged legislative acts against Article X, Section 6 and declared them
unconstitutional - a ruling which presupposes that the legislature, like the
executive, is mandated by said constitutional provision to ensure that the
just share of local governments in the national taxes are automatically
released.
Respondents, in further support of their claim that the automatic release
requirement in the Constitution constrains only the executive branch and
not the legislature, cite three statutory provisions whereby the legislature
authorized the executive branch to withhold the IRA in certain
circumstances, namely, Section 70 of the Philippine National Police Reform
and Reorganization Act of 1998,18 Section 531(e) of the Local Government
Code,19 and Section 10 of Republic Act 7924 (1995).20 Towards the same
end, respondents also cite Rule XXXII, Article 383(c) of the Rules and
Regulations Implementing the Local Government Code.21
While statutes and implementing rules are entitled to great weight in
constitutional construction as indicators of contemporaneous
interpretation, such interpretation is not necessarily binding or conclusive
on the courts. InTaada v. Cuenco, the Court held:
As a consequence, "where the meaning of a constitutional provision is
clear, a contemporaneous or practical . . . executive interpretation thereof
is entitled to no weight and will not be allowed to distort or in any way
change its natural meaning." The reason is that "the application of the

doctrine of contemporaneous construction is more restricted as applied

to the interpretation of constitutional provisions than when applied to
statutory provisions," and that "except as to matters committed by the
constitution itself to the discretion of some other
department,contemporaneous or practical construction is not necessarily
binding upon the courts, even in a doubtful case." Hence, "if in the
judgment of the court, such construction is erroneous and its further
application is not made imperative by any paramount considerations of
public policy, it may be rejected." (Emphasis and underscoring supplied,
citations omitted)22
The validity of the legislative acts assailed in the present case should,
therefore, be assessed in light of Article X, Section 6 of the Constitution.
Again, in Batangas,23 this Court interpreted the subject constitutional
provision as follows:
When parsed, it would be readily seen that this provision mandates that
(1) the LGUs shall have a "just share" in the national taxes; (2) the "just
share" shall be determined by law; and (3) the "just share" shall be
automatically released to the LGUs.
xxx
Webster's Third New International Dictionary defines "automatic" as
"involuntary either wholly or to a major extent so that any activity of the
will is largely negligible; of a reflex nature; without volition; mechanical;
like or suggestive of an automaton." Further, the word "automatically" is
defined as "in an automatic manner: without thought or conscious
intention." Being "automatic," thus, connotes something mechanical,
spontaneous and perfunctory. x x x" (Emphasis and underscoring
supplied)24
Further on, the Court held:
To the Court's mind, the entire process involving the distribution and
release of the LGSEF is constitutionally impermissible. The LGSEF is part of
the IRA or "just share" of the LGUs in the national taxes. To subject its
distribution and release to the vagaries of the implementing rules and
regulations, including the guidelines and mechanisms unilaterally
prescribed by the Oversight Committee from time to time, as sanctioned
by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions, makes the release not automatic, a flagrant violation of the
constitutional and statutory mandate that the "just share" of the LGUs
"shall be automatically released to them." The LGUs are, thus, placed at
the mercy of the Oversight Committee.

20

Where the law, the Constitution in this case, is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice but
to see to it that the mandate is obeyed. Moreover, as correctly posited by
the petitioner, the use of the word "shall" connotes a mandatory order. Its
use in a statute denotes an imperative obligation and is inconsistent with
the idea of discretion. x x x (Emphasis and underscoring supplied) 25
While "automatic release" implies that the just share of the local
governments determined by law should be released to them as a matter of
course, the GAA provisions, on the other hand, withhold its release pending
an event which is not even certain of occurring. To rule that the term
"automatic release" contemplates such conditional release would be to
strip the term "automatic" of all meaning.
Additionally, to interpret the term automatic release in such a broad
manner would be inconsistent with the ruling inPimentel v. Aguirre.26 In the
said case, the executive withheld the release of the IRA pending an
assessment very similar to the one provided in the GAA. This Court ruled
that such withholding contravened the constitutional mandate of an
automatic release, viz:
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local
fiscal autonomy is the automatic release of the shares of LGUs in the
national internal revenue. This is mandated by no less than the
Constitution. The Local Government Code specifies further that the release
shall be made directly to the LGU concerned within five (5) days after
every quarter of the year and "shall not be subject to any lien or holdback
that may be imposed by the national government for whatever purpose."
As a rule, the term "shall" is a word of command that must be given a
compulsory meaning. The provision is, therefore, imperative.
Section 4 of AO 372, however, orders the withholding, effective January 1,
1998, of 10 percent of the LGUs' IRA "pending the assessment and
evaluation by the Development Budget Coordinating Committee of the
emerging fiscal situation" in the country. Such withholding clearly
contravenes the Constitution and the law. x x x27 (Italics in the original;
underscoring supplied)
There is no substantial difference between the withholding of IRA involved
in Pimentel and that in the present case, except that here it is the
legislature, not the executive, which has authorized the withholding of the
IRA. The distinction notwithstanding, the ruling in Pimentel remains
applicable. As explained above, Article X, Section 6 of the Constitution - the
same provision relied upon in Pimentel - enjoins both the legislative and
executive branches of government. Hence, as in Pimentel, under the same
constitutional provision, the legislative is barred from withholding the
release of the IRA.

It bears stressing, however, that in light of the proviso in Section 284 of the
Local Government Code which reads:
Provided, That in the event that the national government incurs an
unmanageable public sector deficit, the President of the Philippines is
hereby authorized, upon the recommendation of Secretary of Finance,
Secretary of Interior and Local Government and Secretary of Budget and
Management, and subject to consultation with the presiding officers of
both Houses of Congress and the presidents of the "liga," to make the
necessary adjustments in the internal revenue allotment of local
government units but in no case shall the allotment be less than thirty
percent (30%) of the collection of national internal revenue taxes of the
third fiscal year preceding the current fiscal year: Provided, further, That in
the first year of the effectivity of this Code, the local government units
shall, in addition to the thirty percent (30%) internal revenue allotment
which shall include the cost of devolved functions for essential public
services, be entitled to receive the amount equivalent to the cost of
devolved personal services. (Underscoring supplied),
the only possible exception to mandatory automatic release of the IRA is,
as held in Batangas:
if the national internal revenue collections for the current fiscal year is
less than 40 percent of the collections of the preceding third fiscal year, in
which case what should be automatically released shall be a proportionate
amount of the collections for the current fiscal year. The adjustment may
even be made on a quarterly basis depending on the actual collections of
national internal revenue taxes for the quarter of the current fiscal year. x x
x28
A final word. This Court recognizes that the passage of the GAA provisions
by Congress was motivated by the laudable intent to "lower the budget
deficit in line with prudent fiscal management." 29 The pronouncement
inPimentel, however, must be echoed: "[T]he rule of law requires that even
the best intentions must be carried out within the parameters of the
Constitution and the law. Verily, laudable purposes must be carried out by
legal methods."30
WHEREFORE, the petition is GRANTED. XXXVII and LIV Special Provisions
1 and 4 of the Year 2000 GAA are hereby declared unconstitutional insofar
as they set apart a portion of the IRA, in the amount of P10 Billion, as part
of the UNPROGRAMMED FUND.
SO ORDERED.

21

Davide, Jr., C.J., Panganiban, Quisumbing, Ynares-Santiago, SandovalGutierrez, Carpio, Austria-Martinez, Corona, Callejo, Sr., Azcuna, Tinga,
Chico-Nazario, and Garcia, JJ., concur.
Puno, J., on official leave.

This Courts review powers over resolutions and orders of the Office of the
Ombudsman is restricted only to determining whether grave abuse of
discretion, that is, capricious or whimsical exercise of judgment, has been
committed. The Court is not authorized to correct every error or mistake
allegedly

committed

by

that constitutionally independent government agency. Thus, absent any

THIRD DIVISION
CESAR T. VILLANUEVA, G.R. No. 165125
PEDRO S. SANTOS, and
ROY C. SORIANO, Present:
Petitioners,
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,*
- versus - Corona,
Carpio Morales, and
Garcia, JJ
MAYOR FELIX V. OPLE and
VICE-MAYOR JOSEFINA R. Promulgated:
CONTRERAS,
Respondents. November 18, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:

showing of grave abuse of discretion, we have consistently sustained its

determination of the existence or the nonexistence of probable cause.

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of
Court, assailing the April 21, 2004 Resolution [2] and the August 27, 2004
Order[3] of the deputy ombudsman for Luzon in OMB-L-C-03-1550-L. The
challenged Resolution disposed as follows:
WHEREFORE, in view of the foregoing, it is
respectfully recommended that the present case lodged
against respondents Felix V. Ople and Josefina R. Contreras,
Mayor and Vice Mayor, respectively of the Municipality of
Hagonoy, Bulacan, be DISMISSED for lack of probable
cause.[4]

22

The

assailed

Resolution

denied

petitioners

Motion

for

Reconsideration.

On the theory that no enabling resolution had been enacted

The Facts

authorizing expenditures of the municipality to be based on the annual

On December 8, 2003, Petitioners Cesar T. Villanueva, Pedro S.

budget for the preceding year, petitioners claimed that the disbursement

Santos, and Roy C. Soriano filed a Joint Affidavit-Complaint [5] before the

of public funds during the period January 1, 2003 to July 11, 2003 [12] and/or

Office of the Ombudsman. They charged incumbent Mayor Felix V. Ople

August

and Vice-Mayor Josefina R. Contreras of Hagonoy, Bulacan, of violation of

respondents be held liable for the illegal disbursements done in the

Section 3(e)[6] of RA No. 3019 or the Anti-Graft and Corrupt Practices Act,

discharge of official functions, through evident bad faith and/or gross

[7]

in

relation

to

Sections

305-(a), [8] 318[9] and

351[10] of

the

Local

Government Code (LGC).

27,

2003[13] had

been

illegal.

They

therefore

prayed

that

negligence that had caused undue injury to the Municipality of Hagonoy,

Bulacan.[14]

Petitioners alleged that the annual budget for Fiscal Year (FY) 2003

Respondents filed their respective Counter-Affidavits, both dated

of the Municipality of Hagonoy had been submitted by Mayor Ople --

February 27, 2004, and practically identical in form and substance. [15] They

through Vice-Mayor Contreras -- to the Sangguniang Bayan of Hagonoy,

stated that the proposed budget had actually been submitted on June 26,

only on June 11, 2003, instead of on October 16 of the preceding year, as

2003, and not June 11, 2003. It was submitted only on that date, because

mandated by Section 318, paragraph 2 of Book II, Title V, Chapter III of the

Commission on Audit (COA) Circular No. 2002-2003, otherwise known as

LGC. They added that Vice-Mayor Contreras had failed to refer the budget

the New Government Accounting System, had mandated the revision of

to the chief legal counsel of the municipality; and that, together with the

accounting procedures.[16] In compliance with that Circular, the municipality

other incumbent members of the Sangguniang Bayan, she had instead

had to review and modify almost all of its financial transactions beginning

sought the approval of the alleged Illegal Annual Budget for 2003. [11]

January 1, 2002. In order to prepare a feasible budget, they allegedly had

23

to know the localitys financial position for the prior year, data on which had

to the government. Yet, petitioners failed to specify which disbursements

to come from the accounting department.[17]

had been made illegally. Besides, there was no proof that the expenditures
unduly benefited certain individuals or were made pursuant to the regular

According to respondents, the Sangguniang Bayan of Hagonoy and

operations of the municipality.[24]

the Sangguniang Panlalawigan of Bulacan eventually passed and approved

the proposed budget, whose effectivity date was January 1, 2003. [18] They

The OMB-Luzon also held that Section 323 of the LGC had

averred that the Local Government Code had not required the vice-mayor

authorized the reenactment of the budget for the preceding year to allow

to submit the budget to the legal officer of the municipality for review. [19]

the municipal government to function and carry out its mandate. [25] Hence,

Finally, respondents claimed that the disbursements of public funds

during the absence of an approved budget were legal under Section

the disbursements made during the questioned period when the new
budget had not yet been approved could not have been illegal. [26]

323[20] of RA 7160 or the LGC.[21]

In their Reply and Supplemental Reply, petitioners reiterated their

In denying petitioners Motion for Reconsideration, the OMB-Luzon pointed

allegations in their Joint Affidavit-Complaint, in which they stressed that

out that the alleged undue injury should have been specified, quantified,

Section 323 of the LGC had required the mayor to submit the budget for

and proven to the point of moral certainty. [27] It found no reason to set the

the coming fiscal year not later than October 16 of the current FY. [22]

case for clarificatory hearings or to issue subpoenas. [28]

Ruling of the Deputy Ombudsman

The Office of the Deputy Ombudsman for Luzon (OMB-Luzon) found no

Hence, this Petition.[29]

The Issues

probable cause against respondents. [23] It noted that the charge was
premised on allegedly illegal disbursements that had caused undue injury

Petitioners state the issues in this wise:

24

(A) Whether or not the admitted flagrant violation of

Respondent Mayor Felix V. Ople of Section 318,
LGC, aided and abetted by co-respondent Vice
Mayor Josefina R. Contreras, has been and can be
validated by Section 323 of the LGC.
(B) Whether or not there is any specific LGC [provision]
which could be claimed as the legal remedy in
validating Respondent Mayor Felix V. Oples
admitted flagrant violation of Section 318, LGC.
(C) Whether or not at the National Government level there
are
comparable
constitutional
mandatory
provisions (a) that no money shall be paid out of
the treasury except in pursuance of an
appropriation made by law; (b) when the preceding
years budget is deemed reenacted; and (c)
deadline of Presidents constitutional duty to submit
proposed budget.
(D) Whether or not disbursements of municipal money out
of the municipal treasury even in the absence of
legally adopted annual budget cannot be
characterized as undue injury because:
It is illogical, if not absurd, to assume that
a municipal government no longer has the
capacity to function and carry out its
mandate only because its annual budget
has not been approved.
(E)

Whether or not when [petitioners], in seeking

preliminary investigation in OMB-L-C-03-1550-L,
are precluded at the same time from seeking OMBs
broad fact-finding investigatory power, function
and duty to find the truth of the exact amount of
illegal disbursements of municipal funds during the
fiscal year 2003 when there was no legally enacted
2003 annual budget pursuant to:

(E.3) Rule II, Sections 1, 2, 3, 4-(f) and Rule

III, ADO-7, Rules of Procedure of the
OMB, April 10, 1990.
(F) Whether or not clear and serious legal error is
committed by the OMB in denying clarificatory
hearing to ascertain material facts to find the true
and exact amount of illegal disbursements of
municipal money during the fiscal year 2003 when
there was no legally enacted 2003 annual budget
pursuant to OMBs broad investigative power,
function and duty.
(G) Whether or not it is clear and serious legal error for
OMB-Luzon in denying issuance of subpoena to the
2 municipal officials, listed by the [petitioners] in
their Joint Complaint-Affidavit as witnesses to be
subpoenaed in the investigation, to certify or affirm
the exact amount of disbursements during the
fiscal year 2003 when there was no legally enacted
annual budget, on the ground that issuance of the
subpoena would make OMB-Luzon engage in
fishing expedition.[30]

The Courts Ruling

The Petition is bereft of merit.

Preliminary Matter:
Wrong Remedy Instituted

The proper remedies in questioning decisions and resolutions of the Office

of the Ombudsman (OMB) have already been settled in a catena of cases.

(E.1) Sections 12 and 13, Article XI of the

1987 Constitution;
(E.2) Section 13, 15, 23, 26 and 31 of the
OMB Act of 1989; and

Fabian v. Desierto[31] held that appeals from the orders, directives,

or decisions of the OMB in administrative disciplinary cases were

25

cognizable by the Court of Appeals. Tirol v. Del Rosario[32] clarified that, in

in the ordinary course of law. [35] But even assuming that the present

non-administrative cases in which the OMB had acted with grave abuse of

Petition may be treated as one for certiorari, the case must nevertheless

discretion amounting to lack or excess of jurisdiction, a petition for

be dismissed.

certiorari

under

Rule

65

may

be

filed

directly

with

this

Court.

Accordingly, Kuizon v. Desierto[33] held that this Court had jurisdiction over

Grave abuse of discretion implies a capricious and whimsical

petitions for certiorari questioning the resolutions or orders of the

exercise of judgment tantamount to lack or excess of jurisdiction. [36] The

ombudsman in criminal cases.

exercise of power must have been done in an arbitrary or a despotic

manner by reason of passion or personal hostility. It must have been so

Thus, petitioners committed a procedural error in resorting to a Petition for

patent and gross as to amount to an evasion of positive duty or a virtual

Review under Rule 45 of the Rules of Court. To challenge the dismissal of

refusal to perform the duty enjoined or to act at all in contemplation of law.

their Complaint and to require the OMB to file an information, petitioners

[37]

should have resorted to a petition for certiorari under Rule 65 of the Rules
of Court. The only ground upon which this Court may entertain a review of
the OMBs resolution is grave abuse of discretion,[34] not reversible errors.

In the present case, petitioners do not even allege that the OMB
gravely abused its discretion in issuing its questioned Resolution. A perusal
of the issues they submitted reveals that the crux of the controversy

Main Issue:
revolves around the finding of the deputy ombudsman that there was no
No Grave Abuse of Discretion
probable

cause

against

respondents.

A special civil action for certiorari is the proper remedy when a government
They allege that he committed legal errors in arriving at his findings and
officer has acted with grave abuse of discretion amounting to lack or
conclusions and had in fact no basis for dismissing their Complaint. The
excess of jurisdiction; and there is no plain, speedy, and adequate remedy

26

OMBs judgment may or may not have been erroneous, but it has not been

operating expenses are deemed reenacted. Petitioner failed to identify

shown to be tainted with arbitrariness, despotism or capriciousness

disbursements that had gone beyond this coverage.

amounting to lack or excess of jurisdiction.

Third, petitioners failed to substantiate their allegations that the
Sufficient Basis

government had suffered undue injury. They concluded that there had
been undue injury simply on the basis of their unsubstantiated claims of

In any event, the Court finds no grave abuse in the manner in

which the deputy ombudsman exercised his discretion. Evidently, he had

illegal disbursements. Having failed to prove any unlawful expenditure, the

claim of undue injury must necessarily fail.

sufficient bases for his finding that there was no probable cause.
Fourth, petitioners relied solely on Section 318 of the LGC, which
First, the mere failure of the local government to enact a budget
did not make all its disbursements illegal. Section 323 of the LGC provides
for the automatic reenactment of the budget of the preceding year, in case
the Sanggunian fails to enact one within the first 90 days of the fiscal year.
Hence, the contention in the present case that money was paid out of the
local treasury without any valid appropriation must necessarily fail.

Second, Section 323 states that only the annual appropriations for
salaries and wages, statutory and contractual obligations, and essential

allegedly exposed the mayor to criminal liability for delay in submitting a

budget proposal. The pertinent provision reads:
Sec. 318. Preparation of the Budget by the Local Chief
Executive. Upon receipt of the statements of income and
expenditures from the treasurer, the budget proposals of
the heads of departments and offices, and the estimates of
income and budgetary ceilings from the local finance
committee, the local chief executive shall prepare the
executive budget for the ensuing fiscal year in accordance
with the provisions of this Title.
The local chief executive shall submit the said
executive budget to the sanggunian concerned not later
than the sixteenth (16th) of October of the current fiscal
year. Failure to submit such budget on the date prescribed
herein shall subject the local chief executive to such
criminal and administrative penalties as provided for under
this Code and other applicable laws.

27

Under the above LGC provision, criminal liability for delay in

submitting the budget is qualified by various circumstances. For instance,
the mayor must first receive the necessary financial documents from other
city officials in order to be able to prepare the budget. In addition, criminal
liability must conform to the provisions of the LGC and other applicable
laws. Noteworthy is the fact that petitioners failed to present evidence that
would fulfill these qualifications stated in the law.

Probable cause is a reasonable ground of

presumption that a matter is, or may be, well founded,
such a state of facts in the mind of the prosecutor as would
lead a person of ordinary caution and prudence to believe,
or entertain an honest or strong suspicion, that a thing is
so. (Words and Phrases, Probable Cause, v. 34, p. 12) The
term does not mean actual and positive cause nor does it
import absolute certainty. It is merely based on opinion and
reasonable belief. Thus a finding of probable cause does
not require an inquiry into whether there is sufficient
evidence to procure a conviction. It is enough that it is
believed that the act or omission complained of constitutes
the offense charged. Precisely, there is a trial for the
reception of evidence of the prosecution in support of the
charge.[42]
Function of the
Government Prosecutor

We stress that the present case proceeds from an accusation that a

crime was committed. A criminal case requires the filing of an information
that will be the basis for the trial of the accused. [38] A preliminary
investigation should then be conducted to determine whether a probable
cause exists to warrant the filing of the information against the accused. [39]

The determination of probable cause during a preliminary investigation is a

function of

the government prosecutor,

who in this

case is

the

ombudsman.[43] As a rule, the Court does not interfere in the ombudsmans

exercise of discretion in determining probable cause, unless there are
compelling reasons.[44]

Probable Cause
Probable

cause is

defined

as

the

existence

of

facts

and

circumstances that engender a well-founded belief that a crime has been

committed, and that the respondent is probably guilty of that crime and
should

be

held

for

trial.[40] This

Sandiganbayan,[41] as follows:

term

was

explained

in Pilapil

v.

This policy is based on constitutional, statutory and practical

considerations.[45] To insulate the OMB from outside pressure and improper
influence, the Constitution and RA 6770[46] (the Ombudsman Act of 1989)
grant it a wide latitude of investigatory and prosecutorial powers virtually
free from executive, legislative or judicial intervention.[47] Such initiative and

28

independence must be inherent in the ombudsman who, beholden to no

and request the conduct of a new examination as required by law; (3) to

one, acts as champion of the people and preserver of the integrity of public

institute administrative charges against the erring prosecutor, a criminal

service.[48]

complaint under Article 208 of the Revised Penal Code, or a civil action for
damages under Article 27 of the Civil Code; (4) to secure the appointment of

Otherwise,

the

courts

would

be

grievously

hampered

by

innumerable petitions assailing the dismissal of investigatory proceedings

conducted by the OMB with regard to complaints filed before it. [49] This
effect would be the same as the further clogging of already clogged
dockets of courts, should they be compelled to review the exercise of
discretion on the part of prosecuting attorneys each time an information is
filed or a complaint dismissed.[50]

government prosecutor unreasonably refuses to file an information even if

clearly warranted by the evidence. This certiorari power was recognized
in Socrates v. Sandiganbayan,[51] which enumerated the remedies of the
offended party or complainant, as follows: (1) to file an action for
in

case

of

jeopardy is involved.[53]
No Prima Facie Evidence
Under the present factual milieu, petitioners clearly failed to
establish the following elements of a violation of Section 3(e) of the AntiGraft and Corrupt Practices Act:
1. The accused is a public officer or a private person
charged in conspiracy with former;

Nonetheless, the Court may exercise its certiorari power when the

mandamus

another prosecutor; or (5) to institute another criminal action if no double

grave

abuse

of

discretion; [52]

(2) to lodge a new complaint against the offenders before the ombudsman

2. That he or she causes undue injury to any party,

whether the government or a private party;
3. That said public officer commits the prohibited acts
during the performance of his or her official duties or in
relation to his or her public positions;
4. Such undue injury is caused by giving unwarranted
benefits, advantage or preference to such parties; and
5. That the public officer has acted with manifest partiality,
evident bad faith, or gross inexcusable negligence.[54]
A preliminary investigation constitutes a realistic judicial appraisal
of the merits of a case. The complainant must adduce sufficient proof of
guilt as basis for a criminal charge in court. As discussed earlier, the

29

present petitioners did not submit any proof in support of their accusations

tantamount to a fishing expedition, which was not appropriate in a

against respondents.

preliminary investigation.[58]

Hence, the Court is bound to respect the deputy ombudsmans

Without having to go through a preliminary investigation, the OMB

professional judgment in finding the case dismissible, absent a showing of

has the power to dismiss a complaint outright for being completely without

grave abuse of discretion.[55] Government resources and the time and effort

merit.[59]It necessarily follows that conducting a preliminary investigation

of public officials would be needlessly wasted if the courts allow

and determining if any of the modes of discovery should be used are within

unmeritorious cases to be filed and given due course. It would be better to

the ambit of its discretion. The Court cannot compel the testimonies of

dismiss a case, like the present one in which the circumstances blatantly

witnesses and the production of documents if, in the ombudsmans sound

show that the act complained of does not constitute the offense charged.

judgment, these pieces of evidence are not necessary to establish

probable cause.[60]

Other Issue:
Prayer for Subpoenas

This

Petition

includes

prayer

WHEREFORE, the Petition is hereby DENIED, and the assailed

for subpoena

ad

Resolution and Order are AFFIRMED. Costs against petitioners.

testificandum and subpoena duces tecum. This prayer, including a request

for a clarificatory hearing, was initially made before the OMB in petitioners

SO ORDERED.
SECOND DIVISION

Reply to respondents Opposition to the Motion for Reconsideration of the

assailed Resolution.[56] Petitioners sought the testimonies of the municipal
accountant

and

treasurer,

who

could

purportedly

identify

the

ANIANO A. ALBON, G.R. No. 148357

Petitioner,
- v e r s u s - Present:

disbursements for FY 2003.[57] The deputy ombudsman found this request

PUNO, J., Chairperson,*

30

BAYANI F. FERNANDO, City SANDOVAL-GUTIERREZ,**

this petition for review on certiorari [1] which assails the December 22, 2000

Mayor of Marikina, ENGR. CORONA,

ALFONSO ESPIRITO, City AZCUNA and

decision[2] and May 30, 2001 resolution of the Court of Appeals in CA-G.R.

Engineer of Marikina, ENGR. GARCIA, JJ.

SP No. 56767.

ANAKI MADERAL, Assistant

City Engineer of Marikina, and
In May 1999, the City of Marikina undertook a public works project

NATIVIDAD CABALQUINTO,
to

City Treasurer of Marikina,

Respondents. Promulgated:

widen,

clear

and

repair

of MarikinaGreenheights Subdivision.
June 30, 2006

government

pursuant

to

It

Ordinance

the
was
No.

existing

undertaken
59,

s.

sidewalks
by

the

1993 [3] like

city
other

infrastructure projects relating to roads, streets and sidewalks previously

x-------------------------------------------x
undertaken by the city.

RESOLUTION
On June 14, 1999, petitioner Aniano A. Albon filed with the Regional

CORONA, J.:

Trial Court of Marikina, Branch 73, a taxpayers suit for certiorari,

prohibition and injunction with damages against respondents (who were at
that time officials of Marikina), namely, City Mayor Bayani F. Fernando, City
May a local government unit (LGU) validly use public funds to

Engineer Alfonso Espirito, Assistant City Engineer Anaki Maderal and City

undertake the widening, repair and improvement of the sidewalks of a

Treasurer Natividad Cabalquinto. It was docketed as SCA Case No. 99-331-

privately-owned subdivision?

MK.

This is the issue presented for the Courts resolution in

31

Petitioner claimed that it was unconstitutional and unlawful for

On

November

15,

1999,

the

trial

court

rendered

its

respondents to use government equipment and property, and to disburse

decision[6] dismissing the petition. It ruled that the City of Marikina was

public funds, of the City of Marikina for the grading, widening, clearing,

authorized to carry out the contested undertaking pursuant to its inherent

repair

police

and

maintenance

of

the

existing

sidewalks

power.

Invoking

this

v.Legaspi,[7] the

Courts

1991

roads

decision

and

in White

of MarikinaGreenheights Subdivision. He alleged that the sidewalks were

Association

sidewalks

private property because Marikina Greenheights Subdivision was owned by

the Marikina Greenheights Subdivision were deemed public property.

Plains
inside

V.V.Soliven, Inc. Hence, the city government could not use public resources
on them. In undertaking the project, therefore, respondents allegedly
violated the constitutional proscription against the use of public funds for
private purposes

[4]

as well as Sections 335 and 336 of RA 7160

[5]

Petitioner sought a reconsideration of the trial courts decision but it

was denied.

and the

Anti-Graft and Corrupt Practices Act. Petitioner further alleged that there
Thereafter, petitioner elevated the case to the Court of Appeals via
was no appropriation for the project.
a petition for certiorari, prohibition, injunction and damages. On December
On June 22, 1999, the trial court denied petitioners application for

22, 2000, the appellate court sustained the ruling of the trial court and

a temporary restraining order (TRO) and writ of preliminary injunction. The

held that Ordinance No. 59, s. 1993, was a valid enactment. The sidewalks

trial court reasoned that the questioned undertaking was covered by PD

of Marikina Greenheights Subdivision were public in nature and ownership

1818 and Supreme Court Circular No. 68-94 which prohibited courts from

thereof belonged to the City of Marikina or the Republic of the Philippines

issuing a TRO or injunction in any case, dispute or controversy involving an

following

infrastructure project of the government.

improvement and widening of the sidewalks pursuant to Ordinance No. 59,

the

1991 White

Plains

Association decision.

Thus,

the

s. 1993 was well within the LGUs powers. On these grounds, the petition
was dismissed.

32

Petitioner moved for reconsideration of the appellate courts

decision but it was denied. Undaunted, he instituted this petition.

There is no question about the public nature and use of the

sidewalks in the Marikina Greenheights Subdivision. One of the whereas
clauses of PD 1216[12] (which amended PD 957[13]) declares that open

Like all LGUs, the City of Marikina is empowered to enact ordinances for
the purposes set forth in the Local Government Code (RA 7160). It is
expressly vested with police powers delegated to LGUs under the general
welfare

clause

of

RA

7160. [8] With

this

power, LGUs may

prescribe

reasonable regulations to protect the lives, health, and property of their

spaces,[14] roads, alleys and sidewalks in a residential subdivision are for

public use and beyond the commerce of man. In conjunction herewith, PD
957, as amended by PD 1216, mandates subdivision owners to set aside
open spaces which shall be devoted exclusively for the use of the general
public.

constituents and maintain peace and order within their respective

territorial jurisdictions.[9]

Thus, the trial and appellate courts were correct in upholding the
validity of Ordinance No. 59, s. 1993. It was enacted in the exercise of the
City of Marikinas police powers to regulate the use of sidewalks. However,

Cities and municipalities also have the power to exercise such powers and

both the trial and appellate courts erred when they invoked our 1991

discharge such functions and responsibilities as may be necessary,

decision in White Plains Association and automatically applied it in this

appropriate or incidental to efficient and effective provisions of the basic

case.

services and facilities, including infrastructure facilities intended primarily

to service the needs of their residents and which are financed by their own

This Court has already resolved three interrelated White Plains

funds.[10] These infrastructure facilities include municipal or city roads and

Association cases:[15] (1) G.R. No. 55685[16] resolved in 1985; (2) G.R. No.

bridges and similar facilities.[11]

95522[17] decided in 1991 and (3) G.R. No. 128131 [18] decided in 1998.

33

The ruling in the 1991 White Plains Association decision relied on

Section 335 of RA 7160 is clear and specific that no public money

by both the trial and appellate courts was modified by this Court in 1998

or property shall be appropriated or applied for private purposes. This is in

in White Plains Association v. Court of Appeals.[19] Citing Young v. City of

consonance with the fundamental principle in local fiscal administration

Manila,[20] this Court held in its 1998 decision that subdivision streets

that local government funds and monies shall be spent solely for public

belonged to the owner until donated to the government or until

purposes.[25]

expropriated upon payment of just compensation.

In Pascual v. Secretary of Public Works,[26] the Court laid down the
The word street, in its correct and ordinary usage, includes not only

test of validity of a public expenditure: it is the essential character of the

the roadway used for carriages and vehicular traffic generally but also the

direct object of the expenditure which must determine its validity and not

portion used for pedestrian travel. [21] The part of the street set aside for the

the magnitude of the interests to be affected nor the degree to which the

use of pedestrians is known as a sidewalk.[22]

general advantage of the community, and thus the public welfare, may be
ultimately benefited by their promotion. [27] Incidental advantage to the

Moreover, under subdivision laws,[23] lots allotted by subdivision

developers as road lots include roads, sidewalks, alleys and planting strips.
[24]

Thus, what is true for subdivision roads or streets applies to subdivision

public or to the State resulting from the promotion of private interests and
the prosperity of private enterprises or business does not justify their aid
by the use of public money.[28]

sidewalks as well. Ownership of the sidewalks in a private subdivision

belongs to the subdivision owner/developer until it is either transferred to

In Pascual, the validity of RA 920 (An Act Appropriating Funds for

the government by way of donation or acquired by the government

Public Works) which appropriated P85,000 for the construction, repair,

through expropriation.

extension and improvement of feeder roads within a privately-owned

subdivision was questioned. The Court held that where the land on which

34

the projected feeder roads were to be constructed belonged to a private

335 of RA 7160. This conclusion finds further support from the language of

person, an appropriation made by Congress for that purpose was null and

Section 17 of RA 7160 which mandates LGUs to efficiently and effectively

void.[29]

provide basic services and facilities. The law speaks of infrastructure

facilities intended primarily to service the needs of the residents of the LGU
In Young v. City of Manila,[30] the City of Manila undertook the filling

of

low-lying

streets

of

the Antipolo Subdivision,

privately-owned

and which are funded out of municipal funds.[32] It particularly refers

to municipal roads and bridges and similar facilities.[33]

subdivision. The Court ruled that as long as the private owner retained title
and ownership of the subdivision, he was under the obligation to reimburse
to the city government the expenses incurred in land-filling the streets.

Applying the rules of ejusdem generis, the phrase similar facilities

refers to or includes infrastructure facilities like sidewalks owned by the
LGU.

Moreover, the implementing rules of PD 957, as amended by PD

1216, provide that it is the registered owner or developer of a subdivision

Thus,

RA

7160

contemplates

that

only

the

construction,

improvement, repair and maintenance of infrastructure facilities owned by

the LGU may be bankrolled with local government funds.

who has the responsibility for the maintenance, repair and improvement of
road lots and open spaces of the subdivision prior to their donation to the

Clearly, the question of ownership of the open spaces (including

concerned LGU. The owner or developer shall be deemed relieved of the

the sidewalks) in Marikina Greenheights Subdivision is material to the

responsibility of maintaining the road lots and open space only upon

determination of

securing a certificate of completion and executing a deed of donation of

disbursement made by the City of Marikina. Similarly significant is the

these road lots and open spaces to the LGU.[31]

character of the direct object of the expenditure, that is, the sidewalks.

the validity of the

challenged appropriation and

Therefore, the use of LGU funds for the widening and improvement
of privately-owned sidewalks is unlawful as it directly contravenes Section

35

Whether V.V. Soliven, Inc. has retained ownership of the open

spaces and sidewalks or has already donated them to the City of Marikina,
and whether the public has full and unimpeded access to the roads and
sidewalks of Marikina Greenheights Subdivision, are factual matters. There
EN BANC

is a need for the prior resolution of these issues before the validity of the
challenged appropriation and expenditure can be determined.

WHEREFORE, this case is hereby ordered REMANDED to the

Regional Trial Court of Marikina City for the reception of evidence to
determine (1) whether V.V. Soliven, Inc. has retained ownership of the open
spaces and sidewalks of Marikina Greenheights Subdivision or has donated
them to the City of Marikina and (2) whether the public has full and
unimpeded access to, and use of, the roads and sidewalks of the
subdivision. The Marikina City Regional Trial Court is directed to decide the
case with dispatch.

SO ORDERED.

NORBERTO ALTRES, EVITA BULINGAN,

EVANGELINE
SASTINE,
FELIPE
SASA,
LILIBETH SILLAR, RAMONITO JAYSON, JELO
TUCALO, JUAN BUCA, JR., JUE CHRISTINE
CALAMBA, ROMEO PACQUINGAN, JR., CLEO
JEAN ANGARA, LOVENA OYAO, RODOLFO
TRINIDAD,
LEONILA
SARA,
SORINA
BELDAD, MA. LINDA NINAL, LILIA PONCE,
JOSEFINA ONGCOY, ADELYN BUCTUAN,
ALMA ORBE, MYLENE SOLIVA, NAZARENE
LLOREN,
ELIZABETH
MANSERAS,
DIAMOND
MOHAMAD,
MARYDELL
CADAVOS, ELENA DADIOS, ALVIN CASTRO,
LILIBETH RAZO, NORMA CEPRIA, PINIDO
BELEY,
JULIUS
HAGANAS,
ARTHUR
CABIGON, CERILA BALABA, LIEZEL SIMAN,
JUSTINA YUMOL, NERLITA CALI, JANETH
BICOY,
HENRY
LACIDA,
CESARIO
ADVINCULA, JR., MERLYN RAMOS, VIRGIE
TABADA, BERNARDITA CANGKE, LYNIE
GUMALO,
ISABEL
ADANZA,
ERNESTO
LOBATON, RENE ARIMAS, FE SALVACION
ORBE, JULIE QUIJANO, JUDITHO LANIT,
GILBERTO ELIMIA, MANUEL PADAYOGDOG,
HENRY
BESIN,
ROMULO
PASILANG,
BARTOLOME
TAPOYAO,
JR.,
RUWENA
GORRES, MARIBETH RONDEZ, FERDINAND
CAORONG,
TEODOMERO
CORONEL,
ELIZABETH
SAGPANG,
and
JUANITA
ALVIOLA,
Petitioners,

G.R. No. 180986

Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA,
REYES,
LEONARDO-DE CASTRO, &
BRION, JJ.

Promulgated:
December 10, 2008

- versus CAMILO G. EMPLEO,FRANKLIN MAATA,

LIVEY VILLAREN, RAIDES CAGA, FRANCO

36

BADELLES,
ERNESTO
SAQUILABON, MARINA
GEORGE DACUP,

BALAT,
GRACE
JUMALON and

positions in the plantilla of the city government as of March 19, 2004 until
the enactment of a new budget.

Respondents.
The Sangguniang Panglungsod subsequently issued Resolution No.

x--------------------------------------------------x
DECISION

04-266[4] which, in view of its stated policy against midnight appointments,

directed the officers of the City Human Resource Management Office to

CARPIO MORALES, J.:

hold in abeyance the transmission of all appointments signed or to be

Assailed via petition for review on certiorari are the Decision dated

signed by the incumbent mayor in order to ascertain whether these had

February 2, 2007[1] and Order dated October 22, 2007 [2] of Branch 3 of the

been hurriedly prepared or carefully considered and whether the matters

Regional Trial Court (RTC) of Iligan City, which denied petitioners petition

of promotion and/or qualifications had been properly addressed. The same

for mandamus praying for a writ commanding the city accountant of Iligan,

Resolution enjoined all officers of the said Office to put off the transmission

Camilo G. Empleo (Empleo), or his successor in office, to issue a

of all appointments to the CSC, therein making it clear that non-compliance

certification of availability of funds in connection with their appointments,

therewith would be met with administrative action.

issued by then Iligan City Mayor Franklin M. Quijano (Mayor Quijano), which
Respondent

were pending approval by the Civil Service Commission (CSC).

city

accountant

Empleo

did

not

thus

issue

certification as to availability of funds for the payment of salaries and

Sometime in July 2003, Mayor Quijano sent notices of numerous vacant
career positions in the city government to the CSC. The city government

wages of petitioners, as required by Section 1(e)(ii), Rule V of CSC

Memorandum Circular No. 40, Series of 1998 reading:

and the CSC thereupon proceeded to publicly announce the existence of

e.

the vacant positions. Petitioners and other applicants submitted their

applications for the different positions where they felt qualified.

xxxx
LGU Appointment. Appointment in local government units
for submission to the Commission shall be accompanied, in
addition to the common requirements, by the following:

xxxx
ii. Certification
by
the
Municipal/City
Provincial
Accountant/Budget
Officer
that
funds
are
available. (Emphasis and underscoring supplied)

Toward the end of his term or on May 27, June 1, and June 24, 2004, Mayor
Quijano issued appointments to petitioners.

In the meantime, the Sangguniang Panglungsod issued Resolution

No. 04-242[3] addressed to the CSC Iligan City Field Office requesting a

And the other respondents did not sign petitioners position description

suspension of action on the processing of appointments to all vacant

forms.

37

344 of the Local Government Code of 1991 the pertinent portion of which
The

CSC

Field

and Iligan City disapproved

Office
the

for

appointments

Lanao
issued

del
to

Norte

provides:

petitioners

invariably due to lack of certification of availability of funds.

On appeal by Mayor Quijano, CSC Regional Office No. XII

in Cotabato City, by Decision of July 30, 2004,[5] dismissed the appeal, it

Sec.
344. Certification
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. x x x x (Underscoring supplied)

explaining that its function in approving appointments is only ministerial,

hence, if an appointment lacks a requirement prescribed by the civil
service law, rules and regulations, it would disapprove it without delving
into the reasons why the requirement was not complied with.

Petitioners filed a motion for reconsideration [7] in which they

maintained only their prayer for a writ of mandamus for respondent
Empleo or his successor in office to issue a certification of availability of

Petitioners thus filed with the RTC of Iligan City the above-stated
petition for mandamus against respondent Empleo or his successor in

funds for the payment of their salaries and wages. The trial court denied
the motion by Order of October 22, 2007,[8] hence, the present petition.

office for him to issue a certification of availability of funds for the payment
of the salaries and wages of petitioners, and for his co-respondents or their
successors in office to sign the position description forms.

By Resolution of January 22, 2008, [9] this Court, without giving due
course to the petition, required respondents to comment thereon within
ten (10) days from notice, and at the same time required petitioners to

As stated early on, Branch 3 of the Iligan RTC denied petitioners

petition for mandamus. It held that, among other things, while it is the

comply, within the same period, with the relevant provisions of the 1997
Rules of Civil Procedure.

ministerial duty of the city accountant to certify as to the availability of

budgetary allotment to which expenses and obligations may properly be
charged under Section 474(b)(4) of Republic Act No. 7160, [6] otherwise
known as the Local Government Code of 1991, the city accountant cannot
be compelled to issue a certification as to availability of funds for the
payment of salaries and wages of petitioners as this ministerial function

Petitioners filed a Compliance Report dated February 18, 2008[10] to

which they attached 18 copies of (a) a verification and certification, (b) an
affidavit of service, and (c) photocopies of counsels Integrated Bar of the
Philippines (IBP) official receipt for the year 2008 and his privilege tax
receipt for the same year.

pertains to the city treasurer. In so holding, the trial court relied on Section

38

Respondents duly filed their Comment,[11] alleging technical flaws

Petitioners, on the other hand, argue that they have a justifiable

in petitioners petition, to which Comment petitioners filed their Reply [12] in

cause for their inability to obtain the signatures of the other petitioners as

compliance with the Courts Resolution dated April 1, 2008.[13]

they could no longer be contacted or are no longer interested in pursuing

the case.[18] Petitioners plead substantial compliance, citing Huntington

The lone issue in the present petition is whether it is Section 474(b)

Steel Products, Inc., et al. v. NLRC[19] which held, among other things, that

(4) or Section 344 of the Local Government Code of 1991 which applies to

while the rule is mandatory in nature, substantial compliance under

the requirement of certification of availability of funds under Section 1(e)

justifiable circumstances is enough.

(ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998. As

earlier stated, the trial court ruled that it is Section 344. Petitioners posit,
however, that it is Section 474(b)(4) under which it is the ministerial duty

Petitioners position is more in accord with recent decisions of this

Court.

of the city accountant to issue the certification, and not Section 344 which
pertains to the ministerial function of the city treasurer to issue the therein

In Iglesia ni Cristo v. Ponferrada,[20] the Court held:

stated certification.

discussion

first

of

the

technical

matters

questioned

by

respondents is in order.

Respondents assail as defective the verification and certification

against forum shopping attached to the petition as it bears the signature of
only 11 out of the 59 petitioners, and no competent evidence of identity
was presented by the signing petitioners. They thus move for the dismissal
of the petition, citing Section 5, Rule 7 [14] vis a vis Section 5, Rule 45[15] of
the 1997 Rules of Civil Procedure and Docena v. Lapesura[16] which held
that the certification against forum shopping should be signed by all the

The substantial compliance rule has been applied

by this Court in a number of cases: Cavile v. Heirs of Cavile,
where the Court sustained the validity of the certification
signed by only one of petitioners because he is a relative of
the other petitioners and co-owner of the properties in
dispute; Heirs of Agapito T. Olarte v. Office of the President
of the Philippines, where the Court allowed a certification
signed by only two petitioners because the case involved a
family home in which all the petitioners shared a common
interest; Gudoy v. Guadalquiver, where the Court
considered as valid the certification signed by only four of
the nine petitioners because all petitioners filed as coowners pro indiviso a complaint against respondents for
quieting of title and damages, as such, they all have joint
interest in the undivided whole; and DAR v. Alonzo-Legasto,
where the Court sustained the certification signed by only
one of the spouses as they were sued jointly
involving a property in which they had a common interest.
[21]
(Italics in the original, underscoring supplied)

petitioners or plaintiffs in a case and that the signing by only one of them
is insufficient as the attestation requires personal knowledge by the party
executing the same.[17]

Very recently, in Tan, et al. v. Ballena, et al.,[22] the verification and

certification against forum shopping attached to the original petition for

39

certiorari filed with the Court of Appeals was signed by only two out of over
100 petitioners and the same was filed one day beyond the period allowed
by the Rules. The appellate court initially resolved to dismiss the original
petition precisely for these reasons, but on the therein petitioners motion
for reconsideration, the appellate court ordered the filing of an amended
petition in order to include all the original complainants numbering about

the petition for review and the verification. In that case, we

held that the two signatories were unquestionably real
parties-in-interest, who undoubtedly had sufficient
knowledge and belief to swear to the truth of the
allegations in the Petition.
In Ateneo de Naga University v. Manalo, we
ruled that there was substantial compliance with
requirement of verification when only one of
petitioners, the President of the University, signed for
on behalf of the institution and its officers.

also
the
the
and

240. An amended petition was then filed in compliance with the said order,
but only 180 of the 240 original complainants signed the verification and
certification against forum shopping. The Court of Appeals granted the
motion for reconsideration and resolved to reinstate the petition.

In sustaining the Court of Appeals in Tan, the Court held that it is a

far better and more prudent course of action to excuse a technical lapse

Similarly, in Bases Conversion and Development

Authority v. Uy, we allowed the signature of only one of the
principal parties in the case despite the absence of a Board
Resolution which conferred upon him the authority to
represent the petitioner BCDA.
In the present case, the circumstances squarely
involve a verification that was not signed by all the
petitioners therein. Thus, we see no reason why we should
not uphold the ruling of the Court of Appeals in reinstating
the petition despite the said formal defect.

and afford the parties a review of the case to attain the ends of justice,
rather than dispose of the case on technicality and cause grave injustice to
the parties, giving a false impression of speedy disposal of cases while
actually resulting in more delay, if not a miscarriage of justice.

The Court further discoursed in Tan:

Under justifiable circumstances, we have already
allowed the relaxation of the requirements of verification
and certification so that the ends of justice may be better
served. Verification is simply intended to secure an
assurance that the allegations in the pleading are true and
correct and not the product of the imagination or a matter
of speculation, and that the pleading is filed in good faith;
while the purpose of the aforesaid certification is to
prohibit and penalize the evils of forum shopping.
In Torres v. Specialized Packaging Development
Corporation, we ruled that the verification requirement had
been substantially complied with despite the fact that only
two (2) out of the twenty-five (25) petitioners have signed

On the requirement of a certification of non-forum

shopping, the well-settled rule is that all the petitioners
must sign the certification of non-forum shopping. The
reason for this is that the persons who have signed the
certification cannot be presumed to have the personal
knowledge of the other non-signing petitioners with respect
to the filing or non-filing of any action or claim the same as
or similar to the current petition. The rule, however, admits
of an exception and that is when the petitioners
show reasonable cause for failure to personally sign the
certification. The petitioners must be able to convince the
court that the outright dismissal of the petition
would defeat the administration of justice.
In the case at bar, counsel for the respondents
disclosed that most of the respondents who were the
original complainants have since sought employment in
the
neighboring
towns
of
Bulacan,
Pampanga
and Angeles City. Only the one hundred eighty (180)
signatories were then available to sign the amended
Petition for Certiorari and the accompanying verification
and certification of non-forum shopping.[23]

40

In the present case, the signing of the verification by only 11 out

2008[27] wherein they submitted a notarized verification and certification

of the 59 petitioners already sufficiently assures the Court that the

bearing the details of their community tax certificates. This, too, is

allegations in the pleading are true and correct and not the product of the

substantial compliance. The Court need not belabor its discretion to

imagination or a matter of speculation; that the pleading is filed in good

authorize subsequent compliance with the Rules.

faith; and that the signatories are unquestionably real parties-in-interest

who undoubtedly have sufficient knowledge and belief to swear to the
truth of the allegations in the petition.

For the guidance of the bench and bar, the Court restates in
capsule form the jurisprudential pronouncements already reflected above
respecting non-compliance with the requirements on, or submission of

With respect to petitioners certification against forum shopping,

defective, verification and certification against forum shopping:

the failure of the other petitioners to sign as they could no longer be

contacted or are no longer interested in pursuing the case need not merit

1) A distinction must be made between non-compliance with the

the outright dismissal of the petition without defeating the administration

requirement on or submission of defective verification, and non-compliance

of justice. The non-signing petitioners are, however, dropped as

with the requirement on or submission of defective certification against

parties to the case.

forum shopping.

In fact, even Docena[24] cited by respondents sustains petitioners

position. In that case, the certification against forum shopping was signed
by only one of the petitioning spouses. The Court held that the
certification against forum shopping should be deemed to constitute
substantial compliance with the Rules considering, among other things,

2) As to verification, non-compliance therewith or a defect therein

does not necessarily render the pleading fatally defective. The court may
order its submission or correction or act on the pleading if the attending
circumstances are such that strict compliance with the Rule may be
dispensed with in order that the ends of justice may be served thereby. [28]

that the petitioners were husband and wife, and that the subject property
was their residence which was alleged in their verified petition to be
conjugal.[25]

3) Verification is deemed substantially complied with when one

who has ample knowledge to swear to the truth of the allegations in the
complaint or petition signs the verification, and when matters alleged in

With respect to petitioners non-presentation of any identification

the petition have been made in good faith or are true and correct. [29]

before the notary public at the time they swore to their verification and
certification attached to the petition, suffice it to state that this was cured
by petitioners compliance[26] with the Courts Resolution of January 22,

4) As to certification against forum shopping, non-compliance

therewith or a defect therein, unlike in verification, is generally not curable

41

by its subsequent submission or correction thereof, unless there is a need

to relax the Rule on the ground of substantial compliance or presence of
special circumstances or compelling reasons.[30]

The Court had repeatedly clarified the distinction between a

question of law and a question of fact. A question of law exists when the
doubt

or

controversy

concerns

the

correct

application

of

law

or

5) The certification against forum shopping must be signed

jurisprudence to a certain set of facts; or when the issue does not call for

by all the plaintiffs or petitioners in a case; [31] otherwise, those who did not

an examination of the probative value of the evidence presented, the truth

sign will be dropped as parties to the case. Under reasonable or justifiable

or falsehood of facts being admitted.[36] A question of fact, on the other

circumstances, however, as when all the plaintiffs or petitioners share a

hand, exists when the doubt or difference arises as to the truth or

common interest and invoke a common cause of action or defense, the

falsehood of facts or when the query invites calibration of the whole

signature of only one of them in the certification against forum shopping

evidence considering mainly the credibility of the witnesses, the existence

substantially complies with the Rule. [32]

and relevance of specific surrounding circumstances, as well as their

relation to each other and to the whole, and the probability of the situation.

6) Finally, the certification against forum shopping must be

executed by the party-pleader, not by his counsel. [33] If, however, for

[37]

When there is no dispute as to fact, the question of whether the

conclusion drawn therefrom is correct is a question of law. [38]

reasonable or justifiable reasons, the party-pleader is unable to sign, he

must execute a Special Power of Attorney[34] designating his counsel of
record to sign on his behalf.

In the case at bar, the issue posed for resolution does not call for
the reevaluation of the probative value of the evidence presented, but
rather the determination of which of the provisions of the Local

And now, on respondents argument that petitioners raise questions

Government Code of 1991 applies to the Civil Service Memorandum

of fact which are not proper in a petition for review on certiorari as the

Circular requiring a certificate of availability of funds relative to the

same must raise only questions of law. They entertain doubt on whether

approval of petitioners appointments.

petitioners seek the payment of their salaries, and assert that the question
of whether the city accountant can be compelled to issue a certification of

AT ALL EVENTS, respondents contend that the case has become

availability of funds under the circumstances herein obtaining is a factual

moot and academic as the appointments of petitioners had already been

issue.[35]

disapproved by the CSC.Petitioners maintain otherwise, arguing that the

act of respondent Empleo in not issuing the required certification of

The Court holds that indeed petitioners are raising a question of

law.

availability of funds unduly interfered with the power of appointment of

then Mayor Quijano; that the Sangguniang Panglungsod Resolutions relied

42

upon by respondent Empleo constituted legislative intervention in the

mayors power to appoint; and that the prohibition against midnight

obligated said appropriation, and the local treasurer

certifies to the availability of funds for the purpose. x x
x (Emphasis and underscoring supplied)

appointments applies only to presidential appointments as affirmed in De

Rama v. Court of Appeals.[39]

Petitioners propound the following distinctions between Sections

474(b)(4) and 344 of the Local Government Code of 1991:

The

Court

finds

that,

indeed,

the

case

had

been
of

(1) Section 474(b)(4) speaks of certification of

availability of budgetary allotment, while Section 344
speaks of certification of availability of funds for
disbursement;

The mootness of the case notwithstanding, the Court

(2) Under Section 474(b)(4), before a certification

is issued, there must be an appropriation, while under
Section 344, before a certification is issued, two requisites
must concur: (a) there must be an appropriation legally
made for the purpose, and (b) the local accountant has
obligated said appropriation;

rendered moot and academic by

the

final

disapproval

petitioners appointments by the CSC.

resolved to rule on its merits in order to settle the issue once and
for all, given that the contested action is one capable of
repetition[40] or susceptible of recurrence.

The pertinent portions of Sections 474(b)(4) and 344 of the Local

Government Code of 1991 provide:
Section 474. Qualifications, Powers and Duties.
xxxx
(b) The accountant shall take charge of both the
accounting and internal audit services of the local
government unit concerned and shall:

(3) Under Section 474(b)(4), there is no actual

payment involved because the certification is for the
purpose of obligating a portion of the appropriation; while
under Section 344, the certification is for the purpose of
payment after the local accountant had obligated a portion
of the appropriation;
(4) Under Section 474(b)(4), the certification is
issued if there is an appropriation, let us say, for the
salaries of appointees; while under Section 344, the
certification is issued if there is an appropriation and the
same is obligated, let us say, for the payment of salaries of
employees.[41]

xxxx
(4) certify to the availability of budgetary allotment
to which expenditures and obligations may be properly
charged. (Emphasis and underscoring supplied)
xxxx
Sec. 344. Certification 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

Respondents do not squarely address the issue in their Comment.

Section 344 speaks of actual disbursements of money from the

local treasury in payment of due and demandable obligations of the local
government unit. The disbursements are to be made through the issuance,

43

certification, and approval of vouchers. The full text of Section 344

provides:

Section 344 of the Local Government Code of 1991 thus applies

only when there is already an obligation to pay on the part of the local
government unit, precisely because vouchers are issued only when

Sec.
344. Certification
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 GSIS, SSS, LDP, 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.

services have been performed or expenses incurred.

The requirement of certification of availability of funds from the
city treasurer under Section 344 of the Local Government Code of 1991 is
for the purpose of facilitating the approval of vouchers issued for
the payment of services already rendered to, and expenses incurred by,
the local government unit.

The trial court thus erred in relying on Section 344 of the Local
Government Code of 1991 in ruling that the ministerial function to issue a
certification as to availability of funds for the payment of the wages and
salaries of petitioners pertains to the city treasurer. For at the time

In cases of special or trust funds, disbursements

shall be approved by the administrator of the fund.

material to the required issuance of the certification, the appointments

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. (Italics and underscoring
supplied)

yet no services performed to speak of. In other words, there was yet no

issued to petitioners were not yet approved by the CSC, hence, there were

due and demandable obligation of the local government to petitioners.

Section 474, subparagraph (b)(4) of the Local Government Code of

1991, on the other hand, requires the city accountant to certify to the
Voucher, in its ordinary meaning, is a document which shows that
services have been performed or expenses incurred.

availability

of

budgetary

allotment

to

which

expenditures

and

When used in

obligations may be properly charged.[44] By necessary implication, it

connection with disbursement of money, it implies the existence of an

includes the duty to certify to the availability of funds for the payment of

instrument that shows on what account or by what authority a particular

salaries and wages of appointees to positions in the plantilla of the local

payment has been made, or that services have been performed which

government unit, as required under Section 1(e)(ii), Rule V of CSC

entitle the party to whom it is issued to payment.

Memorandum Circular Number 40, Series of 1998, a requirement before

[43]

[42]

the CSC considers the approval of the appointments.

44

In fine, whenever a certification as to availability of funds is

required for purposes other than actual payment of an obligation which
requires disbursement

of

money,

Section

474(b)(4)

of

the

Local

Government Code of 1991 applies, and it is the ministerial duty of the

city accountant to issue the certification.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiffappellant,

vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:

WHEREFORE, the Court declares that it is Section 474(b)(4), not

Section 344, of the Local Government Code of 1991, which applies to the
requirement of certification of availability of funds under Section 1(e)(ii),
Rule V of Civil Service Commission Memorandum Circular Number 40,
Series of 1998.

SO ORDERED.

Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic
corporation with offices and principal place of business in Quezon City. The
defendants are the City of Butuan, its City Mayor, the members of its
municipal board and its City Treasurer. Plaintiff seeks to recover the
sums paid by it to the City of Butuan hereinafter referred to as the City
and collected by the latter, pursuant to its Municipal Ordinance No. 110, as
amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof.
Both parties submitted the case for decision in the lower court upon a
stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a
storage for its products the "Pepsi-Cola" soft drinks for sale to
customers in the City of Butuan and all the municipalities in the
Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled
in Cebu City and shipped to the Butuan City warehouse of plaintiff
for distribution and sale in the City of Butuan and all municipalities
of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance
No. 110 which was subsequently amended by Ordinance No. 122
and effective November 28, 1960. A copy of Ordinance No. 110,
Series of 1960 and Ordinance No. 122 are incorporated herein as
Exhibits "A" and "B", respectively.

EN BANC
G.R. No. L-22814

August 28, 1968

3. That Ordinance No. 110 as amended, imposes a tax on any

person, association, etc., of P0.10 per case of 24 bottles of PepsiCola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.

45

4. That the plaintiff filed the foregoing complaint for the recovery
of the total amount of P14,177.03 paid under protest and those
that if may later on pay until the termination of this case on the
ground that Ordinance No. 110 as amended of the City of Butuan is
illegal, that the tax imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City
Treasurer of Butuan City, has prepared a form to be accomplished
by the plaintiff for the computation of the tax. A copy of the form is
enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period
from January 1, 1961 to July 30, 1961 of its warehouse in Butuan
City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this
Profit and Loss Statement, the defendants claim that the plaintiff is
not entitled to a depreciation of P3,052.63 but only P1,202.55 in
which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation
which the company claims to be P3,052.62. This is in accordance
with the findings of the representative of the undersigned City
Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per
case of 24 bottles was increased to P1.92 which price is uniform
throughout the Philippines. Said increase was made due to the
increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the
constitutionality and illegality of Ordinance No. 110, as amended of
the City of Butuan in their respective memoranda.
xxx

xxx

x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are
"liquors", within the purview thereof. Section 2 provides for the payment by
"any agent and/or consignee" of any dealer "engaged in selling liquors,
imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and
carbonated beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the term
"consignee or agent" for purposes of the ordinance. Section 4 provides that
said taxes "shall be paid at the end of every calendar month." Pursuant to
Section 5, the taxes "shall be based and computed from the cargo manifest
or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within

the month." Sections 6, 7 and 8 specify the surcharge to be added for

failure to pay the taxes within the period prescribed and the penalties
imposable for "deliberate and willful refusal to pay the tax mentioned in
Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a
copy of the bill of lading or cargo manifest or record of soft drinks, liquors
or carbonated drinks for sale in the City." Section 9 makes the ordinance
applicable to soft drinks, liquors or carbonated drinks "received outside"
but "sold within" the City. Section 10 of the ordinance provides that the
revenue derived therefrom "shall be alloted as follows: 40% for Roads and
Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1)
it partakes of the nature of an import tax; (2) it amounts to double
taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly
unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon
the authority of which it was enacted, is an unconstitutional delegation of
legislative powers.
The second and last objections are manifestly devoid of merit. Indeed
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double
taxation, in general, is not forbidden by our fundamental law. We have not
adopted, as part thereof, the injunction against double taxation found in
the Constitution of the United States and of some States of the
Union.1 Then, again, the general principle against delegation of legislative
powers, in consequence of the theory of separation of powers 2 is subject to
one well-established exception, namely: legislative powers may be
delegated to local governments to which said theory does not apply 3
in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks in the production and sale of
which plaintiff is engaged or less than P0.0042 per bottle, is manifestly
too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In
this connection, it is noteworthy that the tax prescribed in section 3 of
Ordinance No. 110, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said merchandise.
As amended by Ordinance No. 122, the tax is, however, imposed only upon
"any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said
Ordinance No. 122:

46

... Definition of the Term Consignee or Agent. For purposes of

this Ordinance, a consignee of agent shall mean any person,
association, partnership, company or corporation who acts in the
place of another by authority from him or one entrusted with the
business of another or to whom is consigned or shipped no less
than 1,000 cases of hard liquors or soft drinks every month
for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or
carbonated drinks, are not subject to the tax,unless they are agents and/or
consignees of another dealer, who, in the very nature of things, must be
one engaged in business outside the City. Besides, the tax would not be
applicable to such agent and/or consignee, if less than 1,000 cases of soft
drinks are consigned or shipped to him every month. When we consider,
also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but
"received" by the taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into the City from
outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's
authority to impose by express provision of law.4

These conditions are not fully met by the ordinance in question. 8 Indeed, if
its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another
one shall be entered annulling Ordinance No. 110, as amended by
Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff
herein the amounts collected from and paid under protest by the latter,
with interest thereon at the legal rate from the date of the promulgation of
this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said
Ordinance, as amended. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur. 1wph
SECOND DIVISION
G.R. No. 90776

Even however, if the burden in question were regarded as a tax on the sale
of said beverages, it would still be invalid, as discriminatory, and hence,
violative of the uniformity required by the Constitution and the law
therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation. 5 The classification
made in the exercise of this authority, to be valid, must, however, be
reasonable6 and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these
are germane to the purpose of the legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class. 7

June 3, 1991

PHILIPPINE PETROLEUM CORPORATION, petitioner,

vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR
NICOMEDES F. PATENIA, respondent.
Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.

PARAS, J.:
This is a petition for certiorari seeking to annul and set aside: (a) the March
17, 1989 decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in
Civil Case No. 057-T entitled, "Municipality of Pililla, Rizal, represented by
Mayor Nicomedes F. Patenia vs. Philippine Petroleum Corporation", (PPC for
short) upholding the legality of the taxes, fees and charges being imposed
in Pililla under Municipal Tax Ordinance No. 1 and directing the herein
petitioner to pay the amount of said taxes, fees and charges due the
respondent: and (b) the November 2, 1989 resolution of the same court
denying petitioner's motion for reconsideration of the said decision.
The undisputed facts of the case are:

47

Petitioner, Philippine Petroleum Corporation (PPC for short) is a business

enterprise engaged in the manufacture of lubricated oil basestock which is
a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal,
conducting its business activities within the territorial jurisdiction of the
Municipality of Pililla, Rizal and is in continuous operation up to the present
(Rollo p. 60). PPC owns and maintains an oil refinery including forty-nine
storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p.
12).

Local Tax Code, as well as mayor's permit, sanitary inspection fee and
storage permit fee for flammable, combustible or explosive substances
(Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed
surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193).

Under Section 142 of the National Internal Revenue Code of 1939,

manufactured oils and other fuels are subject to specific tax.

On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on
lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar
petroleum products levied under Sections 142, 144 and 145 of the National
Internal Revenue Code, as amended, and granting provinces, cities and
municipalities certain shares in the specific tax on such products in lieu of
local taxes imposed on petroleum products.

On June 28, 1973, Presidential Decree No. 231, otherwise known as the
Local Tax Code was issued by former President Ferdinand E. Marcos
governing the exercise by provinces, cities, municipalities and barrios of
their taxing and other revenue-raising powers. Sections 19 and 19 (a)
thereof, provide among others, that the municipality may impose taxes on
business, except on those for which fixed taxes are provided
on manufacturers, importers or producers of any article of commerce of
whatever kind or nature, including brewers, distillers, rectifiers, repackers,
and compounders of liquors, distilled spirits and/or wines in accordance
with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated
December 27, 1973, directed to all provincial, city and municipal treasurers
to refrain from collecting any local tax imposed in old or new tax
ordinances in the business of manufacturing, wholesaling, retailing, or
dealing in petroleum products subject to the specific tax under the National
Internal Revenue Code (Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued
by the Secretary of Finance instructing all City Treasurers to refrain from
collecting any local tax imposed in tax ordinances enacted before or after
the effectivity of the Local Tax Code on July 1, 1973, on the businesses of
manufacturing, wholesaling, retailing, or dealing in, petroleum products
subject to the specific tax under the National Internal Revenue Code (Rollo,
p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council
Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974
otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which
took effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the
said ordinance imposed a tax on business, except for those for which fixed
taxes are provided in the Local Tax Code on manufacturers, importers, or
producers of any article of commerce of whatever kind or nature, including
brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule found in the

On March 30, 1974, Presidential Decree No. 426 was issued amending
certain provisions of P.D. 231 but retaining Sections 19 and 19 (a) with
adjusted rates and 22(b).

The questioned Municipal Tax Ordinance No. 1 was reviewed and approved
by the Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but
was not implemented and/or enforced by the Municipality of Pililla because
of its having been suspended up to now in view of Provincial Circular Nos.
26-73 and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing
all city and municipal treasurers to refrain from collecting the so-called
storage fee on flammable or combustible materials imposed under the
local tax ordinance of their respective locality, said fee partaking of the
nature of a strictly revenue measure or service charge.
On June 3, 1977, P.D. 1158 otherwise known as the National Internal
Revenue Code of 1977 was enacted, Section 153 of which specifically
imposes specific tax on refined and manufactured mineral oils and motor
fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent
filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against
PPC for the collection of the business tax from 1979 to 1986; storage
permit fees from 1975 to 1986; mayor's permit and sanitary inspection
fees from 1975 to 1984. PPC, however, have already paid the last-named
fees starting 1985 (Rollo, p. 74).
After PPC filed its answer, a pre-trial conference was held on August 24,
1988 where the parties thru their respective counsel, after coming up with
certain admissions and stipulations agreed to the submission of the case
for decision based on documentary evidence offered with their respective
comments (Rollo, p. 41).

48

On March 17, 1987, the trial court rendered a decision against the
petitioner, the dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court hereby renders
judgment in favor of the plaintiffs as against the defendants
thereby directing the defendants to 1) pay the plaintiffs the
amount of P5,301,385.00 representing the Tax on Business due
from the defendants under Sec. 9 (A) of the Municipal Tax
Ordinance of the plaintiffs for the period from 1979 to 1983
inclusive plus such amount of tax that may accrue until final
determination of case; 2) to pay storage permit fee in the amount
of P3,321,730.00 due from the defendants under Sec. 10, par. z
(13) (b) (1 C) of the Municipal Tax Ordinance of the plaintiffs for the
period from 1975 to 1986 inclusive plus such amount of fee that
may accrue until final determination of case; 3) to pay Mayor's
Permit Fee due from the defendants under Sec. 10, par. (P) (2) of
the Municipal Tax Ordinance of the plaintiffs from 1975 to 1984
inclusive in the amount of P12,120.00 plus such amount of fee that
may accrue until final determination of the case; and 4) to pay
sanitary inspection fee in the amount of P1,010.00 for the period
from 1975 to 1984 plus such amount that may accrue until final
determination of case and 5) to pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)
PPC moved for reconsideration of the decision, but this was denied by the
lower court in a resolution of November 2, 1989, hence, the instant
petition.
The Court resolved to give due course to the petition and required both
parties to submit simultaneous memoranda (June 21, 1990
Resolution; Rollo, p. 305).

4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT

AND SANITARY INSPECTION FEES CONSIDERING THAT THE SAME
HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND
DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE FIVE (5)
YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4, 1986
HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil
products are subject to specific tax under the NIRC, is still liable to pay (a)
tax on business and (b) storage fees, considering Provincial Circular No. 677; and mayor's permit and sanitary inspection fee unto the respondent
Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as
contrary to national economic policy the imposition of local taxes on the
manufacture of petroleum products as they are already subject to specific
tax under the National Internal Revenue Code; (b) the above declaration
covers not only old tax ordinances but new ones, as well as those which
may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and
26 A-73 are still effective, hence, unless and until revoked, any effort on
the part of the respondent to collect the suspended tax on business from
the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D.
436 prohibits the imposition of local taxes on petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax
ordinances imposing a tax on business under Section 19 (a) of the Local
Tax Code (P.D. No. 231), with regard to manufacturers, retailers,
wholesalers or dealers in petroleum products subject to the specific tax
under the National Internal Revenue Code NIRC, in view of Section 22 (b) of
the Code regarding non-imposition by municipalities of taxes on articles,
subject to specific tax under the provisions of the NIRC.

PPC assigns the following alleged errors:

1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS
TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN THE LIGHT
OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR
THE PAYMENT OF STORAGE PERMIT FEE UNDER SECTION 10 Z (13)
(b) (1-c) OF THE TAX ORDINANCE CONSIDERING THE ISSUANCE OF
PROVINCIAL CIRCULAR NO. 6-77;
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS
COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;

There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing

the assailed taxes, fees and charges is valid especially Section 9 (A) which
according to the trial court "was lifted in toto and/or is a literal
reproduction of Section 19 (a) of the Local Tax Code as amended by P.D.
No. 426." It conforms with the mandate of said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed
Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of
Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426
and no exemptions were given to manufacturers, wholesalers, retailers, or
dealers in petroleum products.

49

Well-settled is the rule that administrative regulations must be in harmony

with the provisions of the law. In case of discrepancy between the basic law
and an implementing rule or regulation, the former prevails (Shell
Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]).
As aptly held by the court a quo:
Necessarily, there could not be any other logical conclusion than
that the framers of P.D. No. 426 really and actually intended to
terminate the effectivity and/or enforceability of Provincial Circulars
Nos. 26-73 and 26 A-73 inasmuch as clearly these circulars are in
contravention with Sec. 19 (a) of P.D. 426-the amendatory law to
P.D. No. 231. That intention to terminate is very apparent and in
fact it is expressed in clear and unequivocal terms in the effectivity
and repealing clause of P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local
taxes on petroleum products, said decree did not amend Sections 19 and
19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is
granted the right to levy taxes on business of manufacturers, importers,
producers of any article of commerce of whatever kind or nature. A tax on
business is distinct from a tax on the article itself. Thus, if the imposition of
tax on business of manufacturers, etc. in petroleum products contravenes
a declared national policy, it should have been expressly stated in P.D. No.
436.
The exercise by local governments of the power to tax is ordained by the
present Constitution.1wphi1 To allow the continuous effectivity of the
prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting
their power to tax by mere administrative issuances. Under Section 5,
Article X of the 1987 Constitution, only guidelines and limitations that may
be established by Congress can define and limit such power of local
governments. Thus:
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 . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to
refrain from collecting the so-called storage fee on flammable or
combustible materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the payment of storage permit
fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for
the installation and keeping in storage of any flammable, combustible or

explosive substances. Inasmuch as said storage makes use of tanks owned

not by the municipality of Pililla, but by petitioner PPC, same is obviously
not a charge for any service rendered by the municipality as what is
envisioned in Section 37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a
permit fee is a permit fee allowed under Section 36 of the amended Code.
As to the authority of the mayor to waive payment of the mayor's permit
and sanitary inspection fees, the trial court did not err in holding that
"since the power to tax includes the power to exempt thereof which is
essentially a legislative prerogative, it follows that a municipal mayor who
is an executive officer may not unilaterally withdraw such an expression of
a policy thru the enactment of a tax." The waiver partakes of the nature of
an exemption. It is an ancient rule that exemptions from taxation are
construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of
Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with
disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124
SCRA 121 [1983]). Thus, in the absence of a clear and express exemption
from the payment of said fees, the waiver cannot be recognized. As
already stated, it is the law-making body, and not an executive like the
mayor, who can make an exemption. Under Section 36 of the Code, a
permit fee like the mayor's permit, shall be required before any individual
or juridical entity shall engage in any business or occupation under the
provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period
for collection of local taxes, Article 1143 of the Civil Code applies. Said law
provides that an action upon an obligation created by law prescribes within
ten (10) years from the time the right of action accrues. The Municipality of
Pililla can therefore enforce the collection of the tax on business of
petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued
prior to 1976.
PREMISES CONSIDERED, with the MODIFICATION that business taxes
accruing PRIOR to 1976 are not to be paid by PPC (because the same have
prescribed) and that storage fees are not also to be paid by PPC (for the
storage tanks are owned by PPC and not by the municipality, and therefore
cannot be a charge for service by the municipality), the assailed DECISION
is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Regalado, JJ., concur.
Sarmiento, J., is on leave.

50

EN BANC

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.

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 new PAGCOR responding through responsible gaming."

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.

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

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

PARAS, J.:
A TV ad proudly announces:

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;

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)

51

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. 2nd534, 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

52

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:

53

(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

54

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.

55

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.1wphi1 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 selfexecuting, 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

56

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, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

THIRD DIVISION
G.R. No. 149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
finding petitioner National Power Corporation (NPC) liable to pay franchise
tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under
Commonwealth Act No. 120, as amended.4 It is tasked to undertake the
"development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis." 5 Concomitant to its
mandated duty, petitioner has, among others, the power to construct,
operate and maintain power plants, auxiliary plants, power stations and

57

substations for the purpose of developing hydraulic power and supplying

such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in
1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the preceding
year.9
Petitioner, whose capital stock was subscribed and paid wholly by the
Philippine Government,10 refused to pay the tax assessment. It argued that
the respondent has no authority to impose tax on government entities.
Petitioner also contended that as a non-profit organization, it is exempted
from the payment of all forms of taxes, charges, duties or fees 11 in
accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from
all Taxes, Duties, Fees, Imposts and Other Charges by Government
and Governmental Instrumentalities.- The Corporation shall be nonprofit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To
enable the Corporation to pay its indebtedness and obligations and
in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges,
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities, on all petroleum products used by the

Corporation in the generation, transmission, utilization, and sale of

electric power."12
The respondent filed a collection suit in the Regional Trial Court of
Cabanatuan City, demanding that petitioner pay the assessed tax due, plus
a surcharge equivalent to 25% of the amount of tax, and 2% monthly
interest.13Respondent alleged that petitioner's exemption from local taxes
has been repealed by section 193 of Rep. Act No. 7160, 14 which reads as
follows:
"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 the effectivity of this
Code."
On January 25, 1996, the trial court issued an Order 15 dismissing the case.
It ruled that the tax exemption privileges granted to petitioner subsist
despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep.
Act No. 6395 is a particular law and it may not be repealed by Rep. Act No.
7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the
nature of an implied repeal which is not favored; and (3) local governments
have no power to tax instrumentalities of the national government.
Pertinent portion of the Order reads:
"The question of whether a particular law has been repealed or not
by a subsequent law is a matter of legislative intent. The
lawmakers may expressly repeal a law by incorporating therein
repealing provisions which expressly and specifically cite(s) the
particular law or laws, and portions thereof, that are intended to be
repealed. A declaration in a statute, usually in its repealing clause,
that a particular and specific law, identified by its number or title is
repealed is an express repeal; all others are implied repeal. Sec.
193 of R.A. No. 7160 is an implied repealing clause because it fails
to identify the act or acts that are intended to be repealed. It is a
well-settled rule of statutory construction that repeals of statutes
by implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed to
know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule
that, generally, general law does not repeal a special law unless it
clearly appears that the legislative has intended by the latter
general act to modify or repeal the earlier special law. Thus,
despite the passage of R.A. No. 7160 from which the questioned

58

Ordinance No. 165-92 was based, the tax exemption privileges of

defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and
Gaming Corporation, 197 SCRA 52, where it was held that:
'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. xxx 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 mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled
corporation with an original charter and its shares of stocks owned
by the National Government, is beyond the taxing power of the
Local Government. Corollary to this, it should be noted here that in
the NPC Charter's declaration of Policy, Congress declared that:
'xxx (2) the total electrification of the Philippines through the
development of power from all services to meet the needs of
industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to
its tax-ordinance would be to impede the avowed goal of this
government instrumentality.
Unlike the State, a city or municipality has no inherent power of
taxation. Its taxing power is limited to that which is provided for in
its charter or other statute. Any grant of taxing power is to be
construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it
is very clear that the plaintiff could not impose the subject tax on
the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on the
ground that section 193, in relation to sections 137 and 151 of the LGC,
expressly withdrew the exemptions granted to the petitioner. 18 It ordered
the petitioner to pay the respondent city government the following: (a) the
sum of P808,606.41 representing the franchise tax due based on gross

receipts for the year 1992, (b) the tax due every year thereafter based in
the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of
25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation
expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the
Court of Appeal's Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its
arguments reiterated therein that the taxing power of the province
under Art. 137 (sic) of the Local Government Code refers merely to
private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not
impliedly repeal the NPC Charter which is a special lawfinds the
answer in Section 193 of the LGC to the effect that '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 xxx are hereby
withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby
DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A
FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF
THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131
APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING
A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
NPC'S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN
REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE
AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A
GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING
THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION
SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21

59

It is beyond dispute that the respondent city government has the authority
to issue Ordinance No. 165-92 and impose an annual tax on "businesses
enjoying a franchise," pursuant to section 151 in relation to section 137 of
the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment.
In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for
the preceding calendar year, or any fraction thereof, as provided
herein." (emphasis supplied)
x

submits that it should refer specifically to franchises granted to private

natural persons and to private corporations.23 Ergo, its charter should not
be considered a "franchise" for the purpose of imposing the franchise tax
in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade
or commercial activity regularly engaged in as means of livelihood or with
a view to profit." Petitioner claims that it is not engaged in an activity for
profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit
is merely incidental to its operation; all these profits are required by law to
be channeled for expansion and improvement of its facilities and
services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation26where this Court held that local governments have no
power to tax instrumentalities of the National Government, viz:

Sec. 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.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not
more than fifty percent (50%) except the rates of professional and
amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise
tax to the respondent city government. It contends that sections 137 and
151 of the LGC in relation to section 131, limit the taxing power of the
respondent city government to private entities that are engaged in trade or
occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege,
affected with public interest which is conferred upon private persons or
corporations, under such terms and conditions as the government and its
political subdivisions may impose in the interest of the public welfare,
security and safety." From the phraseology of this provision, the petitioner
claims that the word "private" modifies the terms "persons" and
"corporations." Hence, when the LGC uses the term "franchise," petitioner

"Local governments have no power to tax instrumentalities of the

National Government.
PAGCOR has a dual role, to operate and 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. 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

60

subdivision can regulate a federal instrumentality in such a

way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics 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 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."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the
tax privileges of government-owned or controlled corporations, is in the
nature of an implied repeal. A special law, its charter cannot be amended
or modified impliedly by the local government code which is a general law.
Consequently, petitioner claims that its exemption from all taxes, fees or
charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of
statutes by implication are not favored and as much as possible,
effect must be given to all enactments of the legislature. Moreover,
it has to be conceded that the charter of the NPC constitutes a
special law. Republic Act No. 7160, is a general law. It is a basic
rule in statutory construction that the enactment of a later
legislation which is a general law cannot be construed to have
repealed a special law. Where there is a conflict between a general
law and a special statute, the special statute should prevail since it
evinces the legislative intent more clearly than the general
statute."28
Finally, petitioner submits that the charter of the NPC, being a valid
exercise of police power, should prevail over the LGC. It alleges that the
power of the local government to impose franchise tax is subordinate to
petitioner's exemption from taxation; "police power being the most
pervasive, the least limitable and most demanding of all powers, including
the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the
government can neither exist nor endure. A principal attribute of

sovereignty,31 the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity;32 without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being
of the people.
In recent years, the increasing social challenges of the times expanded the
scope of state activity, and taxation has become a tool to realize social
justice and the equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power to tax is no
longer vested exclusively on Congress; local legislative bodies are now
given direct authority to levy taxes, fees and other charges 34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to
create its own sources of revenue, 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."
This paradigm shift results from the realization that genuine development
can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the country's highly
centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in
matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the
LGUs a wider role in the delivery of basic services, and confer them
sufficient powers to generate their own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987 Constitution mandates
Congress to enact a local government code that will, consistent with the
basic policy of local autonomy, set the guidelines and limitations to this
grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code
which shall provide for a more responsive and accountable local
government structure instituted through a system of
decentralization with effective mechanisms 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 other

61

matters relating to the organization and operation of the local

units."
To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as
the Local Government Code of 1991 (LGC), various measures have been
enacted to promote local autonomy. These include the Barrio Charter of
1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives,
however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base, (b) lack of
fiscal control over external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over
personnel of national line agencies.41
Considered as the most revolutionary piece of legislation on local
autonomy,42 the LGC effectively deals with the fiscal constraints faced by
LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations, and
the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax
rates and leaves the determination of the actual rates to the
respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a general
rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize the
LGUs to impose taxes, fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the
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:
x

(o) Taxes, fees, or charges of any kind on the National Government,

its agencies and instrumentalities, and local government units."
(emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation 44 relied upon by the
petitioner to support its claim no longer applies. To emphasize,
the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the
National Government was in effect. However, as this Court ruled in the
case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental
functions may be subject to tax.46 In enacting the LGC, Congress exercised
its prerogative to tax instrumentalities and agencies of government as it
sees fit. Thus, after reviewing the specific provisions of the LGC, this Court
held that MCIAA, although an instrumentality of the national government,
was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in section 133, the
taxing power of local governments cannot extend to the levy
of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local
government units'; however, pursuant to section 232, provinces,
cities and municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, '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 as
provided in the item (a) of the first paragraph of section 12.'" 47
In the case at bar, section 151 in relation to section 137 of the LGC clearly
authorizes the respondent city government to impose on the petitioner the
franchise tax in question.
In its general signification, a franchise is a privilege conferred by
government authority, which does not belong to citizens of the country
generally as a matter of common right.48 In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to a
special law creating the corporation.49 The right under a primary or general
franchise is vested in the individuals who compose the corporation and not
in the corporation itself.50 On the other hand, the latter refers to the right or
privileges conferred upon an existing corporation such as the right to use
the streets of a municipality to lay pipes of tracks, erect poles or string
wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general
power granted to a corporation to dispose of its property, except such
special or secondary franchises as are charged with a public use. 52

62

In section 131 (m) of the LGC, Congress unmistakably defined a franchise

in the sense of a secondary or special franchise. This is to avoid any
confusion when the word franchise is used in the context of taxation. As
commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the
state."53 It is not levied on the corporation simply for existing as a
corporation, upon its property54 or its income,55 but on its exercise of the
rights or privileges granted to it by the government. Hence, a corporation
need not pay franchise tax from the time it ceased to do business and
exercise its franchise.56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as
amended by Rep. Act No. 7395, constitutes petitioner's primary and
secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of its
corporate officers, and its corporate life span.57 As its secondary franchise,
Commonwealth Act No. 120, as amended, vests the petitioner the following
powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of
water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring
or waterfall in the Philippines, for the purposes specified in this Act;
to intercept and divert the flow of waters from lands of riparian
owners and from persons owning or interested in waters which are
or may be necessary for said purposes, upon payment of just
compensation therefor; to alter, straighten, obstruct or increase
the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof:
Provided, That just compensation shall be paid to any person or
persons whose property is, directly or indirectly, adversely affected
or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary
plants, dams, reservoirs, pipes, mains, transmission lines, power
stations and substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the

inhabitants thereof; to acquire, construct, install, maintain,

operate, and improve gas, oil, or steam engines, and/or other
prime movers, generators and machinery in plants and/or auxiliary
plants for the production of electric power; to establish, develop,
operate, maintain and administer power and lighting systems for
the transmission and utilization of its power generation; to sell
electric power in bulk to (1) industrial enterprises, (2) city,
municipal or provincial systems and other government institutions,
(3) electric cooperatives, (4) franchise holders, and (5) real estate
subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,
encumber and otherwise dispose of property incident to, or
necessary, convenient or proper to carry out the purposes for
which the Corporation was created: Provided, That in case a right
of way is necessary for its transmission lines, easement of right of
way shall only be sought: Provided, however, That in case the
property itself shall be acquired by purchase, the cost thereof shall
be the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream,
watercourse, canal, ditch, flume, street, avenue, highway or
railway of private and public ownership, as the location of said
works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this
Act in the manner provided by law for instituting condemnation
proceedings by the national, provincial and municipal
governments;
x

(m) To cooperate with, and to coordinate its operations with those

of the National Electrification Administration and public service
entities;
(n) To exercise complete jurisdiction and control over watersheds
surrounding the reservoirs of plants and/or projects constructed or
proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for
watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction
to the Corporation of all areas embraced within the watersheds,
subject to existing private rights, the needs of waterworks
systems, and the requirements of domestic water supply;

63

(o) In the prosecution and maintenance of its projects, the

Corporation shall adopt measures to prevent environmental
pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. This monopoly was strengthened
with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power
industry. Although Exec. Order No. 21560 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity
remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the
respondent city government's territorial jurisdiction pursuant to the powers
granted to it by Commonwealth Act No. 120, as amended. From its
operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought
to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the
franchise tax simply because its stocks are wholly owned by the National
Government, and its charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity
is the corporation which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was created as a separate
and distinct entity from the National Government. It can sue and be sued
under its own name,61 and can exercise all the powers of a corporation
under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is not engaged in business.
Section 2 of Pres. Decree No. 202963 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental
functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a nonstock corporation, whether performing governmental or
proprietary functions, which is directly chartered by special law or
if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a
parent corporation or subsidiary corporation, to the extent of at
least a majority of its outstanding voting capital stock x x x."
(emphases supplied)
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the part of
the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and
are merely optional on the government.64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the
National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service
Insurance System (GSIS), and the National Water Sewerage Authority
(NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric power
on a nationwide basis."66 Pursuant to this mandate, petitioner generates
power and sells electricity in bulk. Certainly, these activities do not partake
of the sovereign functions of the government. They are purely private and
commercial undertakings, albeit imbued with public interest. The public
interest involved in its activities, however, does not distract from the true
nature of the petitioner as a commercial enterprise, in the same league
with similar public utilities like telephone and telegraph companies,
railroad companies, water supply and irrigation companies, gas, coal or
light companies, power plants, ice plant among others; all of which are
declared by this Court as ministrant or proprietary functions of government
aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the
character of the petitioner's enterprise as a "business," although it limits
petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate
affairs or necessary for the proper transaction of its business or to
carry out the purposes for which it was organized, to contract
indebtedness and issue bonds subject to approval of the President
upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be
reasonably necessary to carry out the business and purposes for

64

which it was organized, or which, from time to time, may be

declared by the Board to be necessary, useful, incidental or
auxiliary to accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at
least sixty percent (60%) of its electricity requirement from the petitioner
are likewise imposed the cap of twelve percent (12%) on profits. 69 The
main difference is that the petitioner is mandated to devote "all its returns
from its capital investment, as well as excess revenues from its operation,
for expansion"70 while other franchise holders have the option to distribute
their profits to its stockholders by declaring dividends. We do not see why
this fact can be a source of difference in tax treatment. In both instances,
the taxable entity is the corporation, which exercises the franchise, and not
the individual stockholders.
We also do not find merit in the petitioner's contention that its tax
exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions.71 In the case at bar, the petitioner's
sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of the
LGC withdrew, subject to limited exceptions, the sweeping tax privileges
previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit
general, repeal of all statutes granting tax exemptions from local taxes. 72 It
reads:
"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 the
effectivity of this Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of

one person, thing, act, or consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio alterius.73 Not being a local
water district, a cooperative registered under R.A. No. 6938, or a non-stock
and non-profit hospital or educational institution, petitioner clearly does
not belong to the exception. It is therefore incumbent upon the petitioner
to point to some provisions of the LGC that expressly grant it exemption
from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City Government of
San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of
franchise taxes was brought as an issue before this Court. The same issue
was involved in the subsequent case of Manila Electric Company v.
Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite
any exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of
Sections 137 and 193 of the LGC to support their position that
MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose
franchise tax 'notwithstanding any exemption granted by any law
or other special law' is all-encompassing and clear. The franchise
tax is imposable despite any exemption enjoyed under special
laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that 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 (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and
non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the
exemptions to the three enumerated entities. It is a basic precept
of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we find
no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.

65

Reading together sections 137 and 193 of the LGC, we conclude

that under the LGC the local government unit may now impose a
local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is
clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs,
through ordinances duly approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes
an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend
to exempt the petitioner from the coverage thereof.

government units for the delivery of basic services essential to the

promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. As this Court observed in theMactan case,
"the original reasons for the withdrawal of tax exemption privileges
granted to government-owned or controlled corporations and all other
units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due
from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision
and Resolution of the Court of Appeals dated March 12, 2001 and July 10,
2001, respectively, are hereby AFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Doubtless, the power to tax is the most effective instrument to raise

needed revenues to finance and support myriad activities of the local

66