Public Corporation Cases

EN BANC

[G.R. No. 105746. December 2, 1996]

MUNICIPALITY OF JIMENEZ, through its MAYOR ELEUTERIO A. QUIMBO, VICE MAYOR ROBINSON B. LOMO, COUNCILORS TEOFILO GALORIO, CASIANO ADORABLE, MARIO APAO, ANTONIO BIENES, VEDE SULLANO, MARIETO TAN, SR., HERMINIO SERINO, BENJAMIN DANO, and CRISPULO MUNAR, and ELEUTERIO A. QUIMBO, ROBINSON B. LOMO, TEOFILI GALORIO, CASIANO ADORABLE, MARIO APAO, ANTONIO BIENES, VEDE SULLANO, MARIETO TAN SR., HERMINI SERINO, BENJAMIN DANO, and CRISPULO MUNAR, in their private capacities as taxpayer in the Province of Misamis Occidental and the Municipality of Jimenez, Misamis Occidental, and BENJAMIN C. GALINDO and BENHUR B. BAUTISTA, in their private capacities as taxpayers in the Province of Misamis Occidental and the Municipality of Jimenez, Misamis Occidental, petitioners, vs., HON. VICENTE T. BAZ, JR., Presiding Judge REGIONAL TRIAL COURT, BRANCH 14, 10th JUDICIAL REGION, OROQUIETA CITY, and MUNICIPALITY OF SINACABAN through its MAYOR EUFRACIO D. LOOD, VICE MAYOR BASILIO M. BANAAG, COUNCILORS CONCEPCION E. LAGA-AC, MIGUEL F. ABCEDE, JUANITO B. TIU, CLAUDIO T. REGIL, ANCIETO S. MEJARES NAZIANCINO B. MARIQUIT, and FEDERICO QUINIMON, and THE PROVINCE OF MISAMIS OCCIDENTAL through the PROVINCIAL BOARD OF MISAMIS OCCIDENTAL and its members, VICE-GOVERNOR FLORENCIO L. GARCIA, BOARD MEMBERS MARIVIC S. CHIONG, PACITA M. YAP, ALEGRIA V. CARINO, JULIO L. TIU, LEONARDO R. REGALADO II, CONSTACIO C. BALAIS and ERNESTO P. IRA, and THE COMMISSION ON AUDIT, through its Chairman, HON. EUFEMIO DOMINGO, and THE DEPARTMENT OF LOCAL GOVERNMENT through its Secretary, HON. LUIS SANTOS (now HON. CESAR SARINO), and THE DEPARTMENT OF BUDGET AND MANAGEMENT, through its Secretary, HON. GUILLERMO CARAGUE (now HON. SALVADOR ENRIQUEZ), and The Hon.

CATALINO MACARAOG (now HON. FRAKLIN DRILON), EXECUTIVE SECRETARY, OFFICE OF THE PRESIDENT, respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review of the decision dated March 4, 1992 of the Regional Trial Court, Branch 14 of Oroquieta City,[1] affirming the legal existence of the Municipality of Sinacaban in Misamis Occidental and ordering the relocation of its boundary for the purpose of determining whether certain areas claimed by it belong to it.

The antecedent facts are as follows:

The Municipality of Sinacaban was created by Executive Order No. 258 of then President Elpidio Quirino, pursuant to 68 of the Revised Administrative Code of 1917. The full text of the Order reads:

EXECUTIVE ORDER NO. 258

CREATING THE MUNICIPALITY OF SINACABAN,IN THE PROVINCE OF MISAMIS OCCIDENTAL

Upon the recommendation of the Secretary of the Interior, and pursuant to the provisions of Section 68 of the Revised Administrative Code, there is hereby created, in the Province of Misamis Occidental, a municipality to be known as the municipality of Sinacaban, which shall consist of the southern portion of the municipality of Jimenez, Misamis Occidental, more particularly described and bounded as follows:

On the north by a line starting from point 1, the center of the lighthouse on the Tabo-o point S. 840 30W., 7,250 meters to point 2 which is on the bank of Palilan River branch; thence following Palilan River branch 2,400 meters southwesterly 'to point 3, thence a straight line S 870 00 W, 22,550 meters to point 4, where this intersects the Misamis Occidental-Zamboanga boundary; on the west, by the present Misamis Occidental-Zamboanga boundary; and on the south by the present Jimenez-Tudela boundary; and on the east, by the limits of the municipal waters which the municipality of Sinacaban shall have pursuant to section 2321 of the Revised Administrative Code, (Description based on data shown in Enlarged Map of Poblacion of Jimenez, Scale 1:8:000).

The municipality of Sinacabn contains the barrios of Sinacaban, which shall be the seat of the municipal government, Sinonoc, Libertad, the southern portion of the

barrio of Macabayao, and the sitios of Tipan, Katipunan, Estrella, Flores, Senior, Adorable, San Isidro, Cagayanon, Kamanse, Kulupan and Libertad Alto.

The municipality of Jimenez shall have its present territory, minus the portion thereof included in the municipality of Sinacaban.

The municipality of Sinacaban shall begin to exist upon the appointment and qualification of the mayor, vice-mayor, and a majority of the councilors thereof. The new municipality shall, however, assume payment of a proportionate share of the loan of the municipality of Jimenez with the Rehabilitation Finance Corporation as may be outstanding on the date of its organization, the proportion of such payment to be determined by the Department of Finance.

Done in the City of Manila, this 30th day of August, in the year of Our Lord, nineteen hundred and forty-nine, and of the Independence of the Philippines, the fourth.

(SGD.) ELPIDIO QUIRINOPresident of the Philippines

By the President:

(SGD.) TEODORO EVANGELISTAExecutive Secretary

By virtue of Municipal Council Resolution No. 171, [2] dated November 22, 1988, Sinacaban laid claim to a portion of Barrio Tabo-o and to Barrios Macabayao, Adorable, Sinara Baja, and Sinara Alto,[3] based on the technical description in E.O. No. 258. The claim was filed with the Provincial Board of Misamis Occidental against the Municipality of Jimenez.

In its answer, the Municipality of Jimenez, while conceding that under E.O. No. 258 the disputed area is part of Sinacaban, nonetheless asserted jurisdiction onTHE BASIS OF  an agreement it had with the Municipality of Sinacaban. This agreement was approved by the Provincial Board of Misamis Occidental, in its Resolution No. 77, dated February 18, 1950, which fixed the common boundary of Sinacaban and Jimenez as follows:[4]

From a point at Cagayanon Beach follow Macabayao Road until it intersects Tabangag Creek at the back of the Macabayao Elementary school. Follow the Tabangag Creek until it intersect the Macabayao River at upper Adorable. Follow the Macabayao River such that the barrio of Macabayao, Sitio Adorable and site will be a part of the Jimenez down and the sitios of San Vicente, Donan, Estrella, Mapula will be a part of Sinacaban. (Emphasis added)

In its decision dated October 11, 1989, [5] the Provincial Board declared the disputed area to be part of Sinacaban. It held that the previous resolution approving the agreement between the municipalities was void because the Board had no power to alter the boundaries of Sinacaban as fixed in E.O. No. 258, that power being vested in Congress pursuant to the Constitution and the Local Government Code of 1983 (B.P. Blg. 337), 134.[6] The Provincial Board denied in its Resolution No. 13-90 dated January 30, 1990 the motion of Jimenez seeking reconsideration.[7]

On March 20, 1990, Jimenez filed a petition for certiorari, prohibition, and mandamus in the Regional Trial Court of Oroquieta City, Branch 14. The suit was filed against Sinacaban, the Province of Misamis Occidental and its Provincial Board, the Commission on Audit, the Departments of Local Government, Budget and Management, and the Executive Secretary. Jimenez alleged that, in accordance with the decision in Pelaez v. Auditor General,[8] the power to create municipalities is essentially legislative and consequently Sinacaban, which was created by an executive order, had no legal personality and no right to assert a territorial claim vis--vis Jimenez, of which it remains part. Jimenez prayed that Sinacaban be enjoined from assuming control and supervision over the disputed barrios; that the Provincial Board be enjoined from assuming jurisdiction over the claim of Sinacaban; that E.O. No. 258 be declared null and void; that the decision dated October 11, 1989 and Resolution No. 13-90 of the Provincial Board be set aside for having been rendered without jurisdiction; that the Commission on Audit be enjoined from passing in audit any expenditure of public funds by Sinacaban; that the Department of Budget and Management be enjoined from allotting public funds to Sinacaban; and that the Executive Secretary be enjoined from exercising control and supervision over said municipality.

During pre-trial, the parties agreed to limit the issues to the following:

A. Whether the Municipality of Sinacaban is a legal juridical entity, duly created in accordance with law;

B. If not, whether it is a de facto juridical entity;

C. Whether the validity of the existence of the Municipality can be properly questioned in this action on certiorari;

D. Whether the Municipality of Jimenez which had recognized the existence of the municipality for more than 40 years is estopped to question its existence;

E. Whether the existence of the municipality has been recognized by the laws of the land; and

F. Whether the decision of the Provincial Board had acquired finality.

On February 10, 1992, the RTC rendered its decision, the dispositive portion of which reads:

WHEREFORE, premises considered, it is the finding of this Court that the petition must be denied and judgment is hereby rendered declaring a STATUS QUO, that is, the municipality of Sinacaban shall continue to exist and operate as a regular municipality; declaring the decision dated October 11, 1989 rendered by the

Sangguniang Panlalawigan fixing the boundaries between Sinacaban and Jimenez, Missamis Occi. as null and void, the same not being in accordance with the boundaries provided for in Executive order No. 258 creating the municipality of Sinacaban; dismissing the petition for lack of merit, without pronouncement as to cost and damages. With respect to the counterclaim, the same is hereby ordered dismissed.

The Commissioners are hereby ordered to conduct the relocation survey of the boundary of Sinacaban within 60 days from the time the decision shall have become final and executory and another 60 days within which to submit their report from the completion of the said relocation survey.

SO ORDERED.

The RTC, inter alia, held that Sinacaban is a de facto corporation since it had completely organized itself even prior to the Pelaez case and exercised corporate powers for forty years before the existence was questioned; that Jimenez did not have the legal standing to question the existence of Sinacaban, the same being reserved to he State as represented by the Office of the Solicitor General in a quo warranto proceeding; that Jimenez was estopped from questioning the legal existence of Sinacaban by entering into an agreement with it concerning their common boundary; and that any question as to the legal existence of Sinacaban had been rendered moot by 442 (d) of the Local Government Code of 1991 (R.A. No. 7160), which provides:

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

On March 17, 1990, petitioner moved for a reconsideration of the decision but its motion was denied by the RTC. Hence this petition raising the following issues: (1) whether Sinacaban has legal personality to file a claim, and (2) if it has, whether it is the boundary provided for in E.O. No. 258 or in resolution No. 77 of the Provincial Board of Misamis Occidental which should be used as the basis for adjudicating Sinacabans territorial claim.

First. The preliminary issue concerns the legal existence of Sinacaban. If Sinacaban legally exist, then it has standing to bring a claim in the Provincial Board. Otherwise, it cannot.

The principal basis for the view that Sinacaban was not validly created as a municipal corporation is the ruling in Pelaez v. Auditor General that the creation of municipal corporations is essentially a legislative matter and therefore the President was without power to create by executive order the Municipality of Sinacaban. The

ruling in this case has been reiterated in a number of cases [9] later decided. However, we have since held that where a municipality created as such by executive order is later impliedly recognized and its acts are accorded legal validity, its creation can no longer be questioned. In Municipality of San Narciso, Quezon v. Mendez, Sr., [10] this Court considered the following factors as having validated the creation of a municipal corporation, which, like the Municipallity of Sinacaban, was created by executive order of the President before the ruling in Pelaez v. Auditor general: (1) the fact that for nearly 30 years the validity of the creation of the municipality had never been challenged; (2) the fact that following the ruling in Pelaez no quo warranto suit was filed to question the validity of the executive order creating such municipality; and (3) the fact that the municipality was later classified as a fifth class municipality, organized as part of a municipal circuit court and considered part of a legislative district in the Constitution apportioning the seats in the House of Representatives. Above all, it was held that whatever doubt there might be as to the de jure character of the municipality must be deemed to have been put to rest by the local Government Code of 1991 (R.A. no. 7160), 442 (d) of which provides that municipal districts organized pursuant to presidential issuances or executive orders and which have their respective sets of elective officials holding office at the time of the effectivity of this Code shall henceforth be considered as regular municipalities.

Here, the same factors are present so as to confer on Sinacaban the status of at least a de facto municipal corporation in the sense that its legal existence has been recognized and acquiesced publicly and officially. Sinacaban had been in existence for sixteen years when Pelaez v. Auditor General was decided on December 24, 1965. Yet the validity of E.O. No. 258 creating it had never been questioned. Created in 1949, it was only 40 years later that its existence was questioned and only because it had laid claim to an area that apparently is desired for its revenue. This fact must be underscored because under Rule 66, 16 of the Rules of Court, a quo warranto suit against a corporation for forfeiture of its charter must be commenced within five (5) years from the time the act complained of was done or committed. On the contrary, the State and even the municipality of Jimenez itself have recognized Sinacabans corporate existence. Under Administrative order no. 33 dated June 13, 1978 of this Court, as reiterated by 31 of the judiciary Reorganization Act of 1980 (B.P. Blg. 129), Sinacaban is constituted part of municipal circuit for purposes of the establishment of Municipal Circuit Trial Courts in the country. For its part, Jimenez had earlier recognized Sinacaban in 1950 by entering into an agreement with it regarding their common boundary. The agreement was embodied in Resolution no. 77 of the Provincial Board of Misamis Occidental.

Indeed Sinacaban has attained de jure status by virtue of the Ordinance appended to the 1987 Constitution, apportioning legislative districts throughout the country, which considered Sinacaban part of the Second District of Misamis Occidental. Moreover following the ruling in Municipality of san Narciso, Quezon v. Mendez, Sr., 442(d) of the Local Government Code of 1991 must be deemed to have cured any defect in the creation of Sinacaban. This provision states:

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

Second. Jimenez claims, however, that R.A. No. 7160, 442(d) is invalid, since it does not conform to the constitutional and statutory requirements for the holding of plebiscites in the creation of new municipalities.[11]

This contention will not bear analysis. Since, as previously explained, Sinacaban had attained de facto status at the time the 1987 Constitution took effect on February 2, 1987, it is not subject to the plebiscite requirement. This requirement applies only to new municipalities created for the first time under the Constitution. Actually, the requirement of plebiscite was originally contained in Art. XI, 3 of the previous Constitution which took effect on January 17, 1973. It cannot, therefore, be applied to municipal corporations created before, such as the municipality of Sinacaban in the case at bar.

Third. Finally Jimenez argues that the RTC erred in ordering a relocation survey of the boundary of Sinacaban because the barangays which Sinacaban are claiming are not enumerated in E.O. No. 258 and that in any event in 1950 the parties entered into an agreement whereby the barangays in question were considered part of the territory of Jimenez.

E.O. no. 258 does not say that Sinacaban comprises only the barrios (now called Barangays) therein mentioned. What it say is that Sinacaban contains those barrios, without saying they are the only ones comprising it. The reason for this is that the technical description, containing the metes and bounds of its territory, is controlling. The trial court correctly ordered a relocation and consequently the question to which the municipality the barangays in question belong.

Now, as already stated, in 1950 the two municipalities agreed that certain barrios bellonged to Jimenez, while certain other ones belonged to Sinacaban. This agreement was subsequently approved by the Provincial board of Misamis Occidental. Whether this agreement conforms to E.O. no. 258 will be determined by the result of the survey. Jimenez contends however, that regardless of its conformity to E.O. No, 258, the agreement as embodied in resolution No, 77 of the Provincial Board, is binding on Sinacaban. This raises the question whether the provincial board had authority to approve the agreement or, to put it in another way, whether it had the power to declare certain barrios part of the one or the other municipality.We hold it did not if effect would be to amend the area as described in E.O no. 258 creating the Municipality of Sinacaban.

At the time the Provincial Board passed Resolution No. 77 on February 18, 1950, the applicable law was 2167 of the Revised Administrative Code of 1917 which provided:

SEC. 2167. Municipal boundary disputes. How settled. Disputes as to jurisdiction of municipal governments over places or barrios shall be decided by the provincial boards of the provinces in which such municipalities are situated, after an investigation at which the municipalities concerned shall be duly heard. From the decision of the provincial board appeal may be taken by the municipality aggrieved to the Secretary of the Interior [now the Office of the Executive Secretary], whose decision shall be final. Where the places or barrios in dispute are claimed by municipalities situated in different provinces, the provincial boards of the provinces concerned shall come to an agreement if possible, but, in the event of their failing to agree, an appeal shall be had to the Secretary of Interior [Executive Secretary], whose decision shall be final.

As held in Pelaez v. Auditor General,[12] the power of provincial boards to settle boundary disputes is of an administrative nature involving as it does, the adoption of means and ways to carry into effect the law creating said municipalities. It is a power to fix common boundary, in order to avoid or settle conflicts of jurisdiction between adjoining municipalities. It is thus limited to implementing the law creating a municipality. It is obvious that any alteration of boundaries that is not in accordance with the law creating a municipality is not the carrying into effect of that law but its amendment.[13] If, therefore, Resolution No. 77 of the Provincial Board of Misamis Occidental is contrary to the technical description of the territory of Sinacaban, it cannot be used by Jimenez as basis for opposing the claim of Sinacaban.

Jimenez properly brought to the RTC for review the decision of October 11, 1989 and Resolution No. 13-90 of the Provincial Board. Its action is in accordance with the local Government Code of 1983, 79 of which provides that I case no settlement of boundary disputes is made the dispute should be elevated to the RTC of the province. In 1989, when the action was brought by Jimenez, this Code was the governing law. The governing law is now the Local Government Code of 1991 (R.A. No. 7160), 118-119.

Jimenezs contention that the RTC failed to decide the case within one year form the start of proceeding as required by 79 of the Local Government Code of 1983 and the 90-day period provided for in the Article VIII, 15 of the Constitution does not affect the validity of the decision rendered. For even granting that the court failed to decide within the period prescribed by law, its failure did not divest it of its jurisdiction to decide the case but only makes the judge thereof liable for possible administrative sanction.[14]

WHEREFORE, the petition is DENIED and the decision of the Regional Trial Court of Oroquieta City, Branch 14 is AFFIRMED.

SO ORDERED

Narvasa C.J., Padilla, Regalado, Davide Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Francisco, Hermosisima Jr., Panganiban, and Torres, Jr., JJ., concur.

What is a Public Corporation? Difference from Government Owned and Controlled Corporation?

EN BANC 

 BOY SCOUTS OF THE PHILIPPINES,Petitioner,         

- versus -         COMMISSION ON AUDIT,Respondent.

  G.R. No. 177131 Present: CORONA, C.J.,CARPIO,CARPIO MORALES,VELASCO, JR.,NACHURA,LEONARDO-DE CASTRO,BRION,PERALTA,BERSAMIN,DEL CASTILLO,ABAD,VILLARAMA, JR.,PEREZ,MENDOZA, andSERENO, JJ.  Promulgated: June 7, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  

D E C I S I O N  LEONARDO-DE CASTRO, J.:  

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the

Philippines (BSP) is the subject matter of this controversy that reached

us via petition for prohibition[1] filed by the BSP under Rule 65 of the 1997 Rules

of Court. In this petition, the BSP seeks that the COA be prohibited from

implementing its June 18, 2002Decision,[2] its February 21, 2007 Resolution,[3] as

well as all other issuances arising therefrom, and that all of the foregoing be

rendered null and void. [4]

 Antecedent Facts and Background of the Case

This case arose when the COA issued Resolution No. 99-011[5] on August

19, 1999 (the COA Resolution), with the subject Defining the Commissions policy

with respect to the audit of the Boy Scouts of the Philippines. In its whereas

clauses, the COA Resolution stated that the BSP was created as a public

corporation under Commonwealth Act No. 111, as amended by Presidential

Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines

v. National Labor Relations Commission,[6] the Supreme Court ruled that the BSP,

as constituted under its charter, was a government-controlled corporation within

the meaning of Article IX(B)(2)(1) of the Constitution; and that the BSP is

appropriately regarded as a government instrumentality under the 1987

Administrative Code.[7] The COA Resolution also cited its constitutional mandate

under Section 2(1), Article IX (D). Finally, the COA Resolution reads:

 NOW THEREFORE, in consideration of the foregoing premises,

the COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in accordance with generally accepted auditing standards, and express an opinion on whether the financial statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial position and results of operations.

 x x x x 

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team audit approach.[8] (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter[9] dated

November 26, 1999 signed by the BSP National President Jejomar C. Binay, who

is now the Vice President of the Republic, wherein he wrote:

 It is the position of the BSP, with all due respect, that it is not subject to the Commissions jurisdiction on the following grounds:

 1.    We reckon that the ruling in the case of Boy Scouts of the Philippines

vs. National Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored on the substantial Government participation in the National Executive Board of the BSP. It is to be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by Presidential Decree 460.

 However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs charter after the cited case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National Executive Board of the BSP. The said RA virtually eliminated the substantial government participation in the National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as Chief Scout, over the members of the said Board. The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the cases conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized

as stock or non-stock corporations which the BSP, under its present charter, is not.

 Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides is that the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to time donate and contribute funds to the BSP.

 x x x x

 Also the BSP respectfully believes that the BSP is not appropriately regarded as a government instrumentality under the 1987 Administrative Code as stated in the COA resolution. As defined by Section 2(10) of the said code, instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.

 The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x

 It may be argued also that the BSP is not an agency of the Government. The 1987 Administrative Code, merely referred the BSP as an attached agency of the DECS as distinguished from an actual line agency of departments that are included in the National Budget. The BSP believes that an attached agency is different from an agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct unit therein.

 Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal subdivision or unit of any department (Section 2[8], Administrative Code).[10]

Subsequently, requests for reconsideration of the COA Resolution were also

made separately by Robert P. Valdellon, Regional Scout Director, Western Visayas

Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog

City.[11]

In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate

Audit Officer (CAO) I of the COA, furnished the BSP with a copy of

the Memorandum[13]dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA

General Counsel. In said Memorandum, the COA General Counsel opined that

Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the

Philippines v. National Labor Relations Commission, even though said law

eliminated the substantial government participation in the selection of members of

the National Executive Board of the BSP. The Memorandum further provides:

 Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the BSPs purposes and functions which has a public aspect and the statutory designation of the BSP as a public corporation. These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A. No. 7278.

 On the argument that BSP is not appropriately regarded as a

government instrumentality and agency of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a government-controlled corporation with an original charter and as an instrumentality of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or

pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original charters.[14]

Based on the Memorandum of the COA General Counsel, Director Sunico

wrote:

 In view of the points clarified by said Memorandum upholding

COA Resolution No. 99-011, we have to comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.[15]

In a letter dated November 20, 2000 signed by Director Amorsonia B.

Escarda, CAO I, the COA informed the BSP that a preliminary survey of its

organizational structure, operations and accounting system/records shall be

conducted on November 21 to 22, 2000.[16]

Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP

then filed a Petition for Review with Prayer for Preliminary Injunction and/or

Temporary Restraining Order before the COA. This was denied by the COA in its

questioned Decision, which held that the BSP is under its audit jurisdiction. The

BSP moved for reconsideration but this was likewise denied under its questioned

Resolution.[17]

This led to the filing by the BSP of this petition for prohibition with

preliminary injunction and temporary restraining order against the COA.

The Issue

As stated earlier, the sole issue to be resolved in this case is whether the BSP

falls under the COAs audit jurisdiction.

The Parties Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor

Relations Commission is inapplicable for purposes of determining the audit

jurisdiction of the COA as the issue therein was the jurisdiction of the National

Labor Relations Commission over a case for illegal dismissal and unfair labor

practice filed by certain BSP employees.[18]

While the BSP concedes that its functions do relate to those that the

government might otherwise completely assume on its own, it avers that this alone

was not determinative of the COAs audit jurisdiction over it. The BSP further

avers that the Court in Boy Scouts of the Philippines v. National Labor Relations

Commission simply stated x x x that in respect of functions, the BSP is akin to a

public corporation but this was not synonymous to holding that the BSP is a

government corporation or entity subject to audit by the COA. [19]

The BSP contends that Republic Act No. 7278 introduced crucial

amendments to its charter; hence, the findings of the Court in Boy Scouts of the

Philippines v. National Labor Relations Commission are no longer valid as the

government has ceased to play a controlling influence in it. The BSP claims that

the pronouncements of the Court therein must be taken only within the context of

that case; that the Court had categorically found that its assets were acquired from

the Boy Scouts of America and not from the Philippine government, and that its

operations are financed chiefly from membership dues of the Boy Scouts

themselves as well as from property rentals; and that the BSP may correctly be

characterized as non-governmental, and hence, beyond the audit jurisdiction of the

COA. It further claims that the designation by the Court of the BSP as a

government agency or instrumentality is mere obiter dictum.[20]

The BSP maintains that the provisions of Republic Act No. 7278 suggest

that governance of BSP has come to be overwhelmingly a private affair or nature,

with government participation restricted to the seat of the Secretary of Education,

Culture and Sports.[21] It cites Philippine Airlines Inc. v. Commission on

Audit[22] wherein the Court declared that, PAL, having ceased to be a government-

owned or controlled corporation is no longer under the audit jurisdiction of the

COA.[23] Claiming that the amendments introduced by Republic Act No. 7278

constituted a supervening event that changed the BSPs corporate identity in the

same way that the governments privatization program changed PALs, the BSP

makes the case that the government no longer has control over it; thus, the COA

cannot use the Boy Scouts of the Philippines v. National Labor Relations

Commission as its basis for the exercise of its jurisdiction and the issuance of COA

Resolution No. 99-011.[24] The BSP further claims as follows:

 It is not far-fetched, in fact, to concede that BSPs funds and assets

are private in character. Unlike ordinary public corporations, such as provinces, cities, and municipalities, or government-owned and controlled corporations, such as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not derived from any government grant. For its operations, BSP is not dependent in any way on any government appropriation; as a matter of fact, it has not even been included in any appropriations for the government. To be sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or continues to receive assets and funds from any agency of the government. The foregoing simply point to the private nature of the funds and assets of petitioner BSP.

 x x x x As stated in petitioners third argument, BSPs assets and funds were

never acquired from the government. Its operations are not in any way financed by the government, as BSP has never been included in any appropriations act for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of government property or funds; nor have properties of the government been held in trust by BSP. This is precisely the reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x.[25]

To summarize its other arguments, the BSP contends that it is not a

government-owned or controlled corporation; neither is it an instrumentality,

agency, or subdivision of the government.

In its Comment,[26] the COA argues as follows:

 1.             The BSP is a public corporation created under Commonwealth Act

No. 111 dated October 31, 1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably prove that it is a government agency.

 2.             Being a government agency, the funds and property owned or held in

trust by the BSP are subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.

 3.             Republic Act No. 7278 did not change the character of the BSP as a

government-owned or controlled corporation and government instrumentality.[27]

The COA maintains that the functions of the BSP that include, among others,

the teaching to the youth of patriotism, courage, self-reliance, and kindred virtues,

are undeniably sovereign functions enshrined under the Constitution and discussed

by the Court in Boy Scouts of the Philippines v. National Labor Relations

Commission. The COA contends that any attempt to classify the BSP as a private

corporation would be incomprehensible since no less than the law which created it

had designated it as a public corporation and its statutory mandate embraces

performance of sovereign functions.[28]

The COA claims that the only reason why the BSP employees fell within the

scope of the Civil Service Commission even before the 1987 Constitution was the

fact that it was a government-owned or controlled corporation; that as an attached

agency of the Department of Education, Culture and Sports (DECS), the BSP is an

agency of the government; and that the BSP is a chartered institution under Section

1(12) of the Revised Administrative Code of 1987, embraced under the term

government instrumentality.[29]

The COA concludes that being a government agency, the funds and property

owned or held by the BSP are subject to the audit authority of the COA pursuant to

Section 2(1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation of the

Philippines (VFP) v. Reyes,[30] wherein the Court held that among the reasons why

the VFP is a public corporation is that its charter, Republic Act No. 2640,

designates it as one. Furthermore, the COA quotes the Court as saying in that case:

 In several cases, we have dealt with the issue of whether certain

specific activities can be classified as sovereign functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of country.

x x x x Petitioner claims that its funds are not public funds because no

budgetary appropriations or government funds have been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues and lease rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to

the VFP. The erroneous application of the law by public officers does not bar a subsequent correct application of the law.[31] (Citations omitted.)

The COA points out that the government is not precluded by law from

extending financial support to the BSP and adding to its funds, and that as a

government instrumentality which continues to perform a vital function imbued

with public interest and reflective of the governments policy to stimulate patriotic

sentiments and love of country, the BSPs funds from whatever source are public

funds, and can be used solely for public purpose in pursuance of the provisions of

Republic Act No. [7278].[32]

The COA claims that the fact that it has not yet audited the BSPs funds may

not bar the subsequent exercise of its audit jurisdiction.

The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory

designation as a public corporation and the public character of its purpose and

functions are not determinative of the COAs audit jurisdiction; reiterating its stand

that Boy Scouts of the Philippines v. National Labor Relations Commission is not

applicable anymore because the aspect of government ownership and control has

been removed by Republic Act No. 7278; and concluding that the funds and

property that it either owned or held in trust are not public funds and are not

subject to the COAs audit jurisdiction.

Thereafter, considering the BSPs claim that it is a private corporation, this

Court, in a Resolution[34] dated July 20, 2010, required the parties to file, within a

period of twenty (20) days from receipt of said Resolution, their respective

comments on the issue of whether Commonwealth Act No. 111, as amended by

Republic Act No. 7278, is constitutional.

In compliance with the Courts resolution, the parties filed their respective

Comments.

In its Comment[35] dated October 22, 2010, the COA argues that the

constitutionality of Commonwealth Act No. 111, as amended, is not determinative

of the resolution of the present controversy on the COAs audit jurisdiction over

petitioner, and in fact, the controversy may be resolved on other grounds; thus, the

requisites before a judicial inquiry may be made, as set forth in Commissioner of

Internal Revenue v. Court of Tax Appeals,[36] have not been fully met.[37] Moreover,

the COA maintains that behind every law lies the presumption of constitutionality.[38] The COA likewise argues that contrary to the BSPs position, repeal of a law by

implication is not favored.[39] Lastly, the COA claims that there was no violation of

Section 16, Article XII of the 1987 Constitution with the creation or declaration of

the BSP as a government corporation. CitingPhilippine Society for the Prevention

of Cruelty to Animals v. Commission on Audit,[40] the COA further alleges:

 The true criterion, therefore, to determine whether a corporation is

public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. x x x.[41]

For its part, in its Comment[42] filed on December 3, 2010, the BSP submits

that its charter, Commonwealth Act No. 111, as amended by Republic Act No.

7278, is constitutional as it does not violate Section 16, Article XII of the

Constitution. The BSP alleges that while [it] is not a public corporation within the

purview of COAs audit jurisdiction, neither is it a private corporation created by

special law falling within the ambit of the constitutional prohibition x x x. [43] The

BSP further alleges:

 Petitioners purpose is embodied in Section 3 of C.A. No. 111, as

amended by Section 1 of R.A. No. 7278, thus: x x x x A reading of the foregoing provision shows that petitioner was created

to advance the interest of the youth, specifically of young boys, and to mold

them into becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that petitioners purpose and functions are more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization without any distinction. It does not limit its membership to a particular class of boys. Petitioners members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to become model citizens and outstanding leaders of the country.[44]

The BSP reiterates its stand that the public character of its purpose and

functions do not place it within the ambit of the audit jurisdiction of the COA as it

lacks the government ownership or control that the Constitution requires before an

entity may be subject of said jurisdiction.[45] It avers that it merely stated in its

Reply that the withdrawal of government control is akin to privatization, but it

does not necessarily mean that petitioner is a private corporation.[46] The BSP

claims that it has a unique characteristic which neither classifies it as a purely

public nor a purely private corporation;[47] that it is not a quasi-public corporation;

and that it may belong to a different class altogether.[48]

The BSP claims that assuming arguendo that it is a private corporation, its

creation is not contrary to the purpose of Section 16, Article XII of the

Constitution; and that the evil sought to be avoided by said provision is inexistent

in the enactment of the BSPs charter,[49] as, (i) it was not created for any pecuniary

purpose; (ii) those who will primarily benefit from its creation are not its officers

but its entire membership consisting of boys being trained in scoutcraft all over the

country; (iii) it caters to all boys who wish to join the organization without any

distinction; and (iv) it does not limit its membership to a particular class or group

of boys. Thus, the enactment of its charter confers no special privilege to particular

individuals, families, or groups; nor does it bring about the danger of granting

undue favors to certain groups to the prejudice of others or of the interest of the

country, which are the evils sought to be prevented by the constitutional provision

involved.[50]

Finally, the BSP states that the presumption of constitutionality of a

legislative enactment prevails absent any clear showing of its repugnancy to the

Constitution.[51]

The Ruling of the Court

After looking at the legislative history of its amended charter and carefully

studying the applicable laws and the arguments of both parties, we find that the

BSP is a public corporation and its funds are subject to the COAs audit

jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31,

1936), entitled An Act to Create a Public Corporation to be Known as the Boy

Scouts of the Philippines, and to Define its Powers and Purposes created the BSP

as a public corporation to serve the following public interest or purpose:

 Sec. 3. The purpose of this corporation shall be to promote

through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended

Commonwealth Act No. 111 and provided substantial changes in the BSP

organizational structure. Pertinent provisions are quoted below:

 Section II. Section 5 of the said Act is also amended to read as

follows: The governing body of the said corporation shall consist of a

National Executive Board composed of (a) the President of the

Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number of individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their respective regions, all members of the National Executive Board shall be either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of members of the National Executive Board necessary to constitute a quorum of the board, which number may be less than a majority of the whole number of the board. The National Executive Board shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended

Commonwealth Act No. 111 by strengthening the volunteer and democratic

character of the BSP and reducing government representation in its governing

body, as follows:

 Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as

amended, is hereby amended to read as follows: "Sec. 2. The said corporation shall have the powers of perpetual

succession, to sue and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift,

devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and not for pecuniary profit of its members.

 "Sec. 3. The purpose of this corporation shall be to promote

through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts." 

 Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is

hereby repealed and in lieu thereof, Section 4 shall read as follows: "Sec. 4. The President of the Philippines shall be the Chief

Scout of the Boy Scouts of the Philippines." Sec.  3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as

amended, are hereby amended to read as follows: "Sec. 5. The governing body of the said corporation shall

consist of a National Executive Board, the members of which shall be Filipino citizens of good moral character. The Board shall be composed of the following:

 "(a) One (1) charter member of the Boy Scouts of the Philippines

who shall be elected by the members of the National Council at its meeting called for this purpose;

"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman need not be the chairman of a local scout council; 

 "(c) The Secretary of Education, Culture and Sports;  "(d) The National President of the Girl Scouts of the Philippines;  "(e) One (1) senior scout, each from Luzon, Visayas and

Mindanao areas, to be elected by the senior scout delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called for this purpose, to represent the boy scout membership; 

 "(f) Twelve (12) regular members to be elected by the members of

the National Council in its meeting called for this purpose; "(g) At least ten (10) but not more than fifteen (15) additional

members from the private sector who shall be elected by the members of the National Executive Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National Executive Board which shall be held immediately after the meeting of the National Council wherein the twelve (12) regular members and the one (1) charter member were elected. 

 x x x x "Sec. 8. Any donation or contribution which from time to time

may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code

There are three classes of juridical persons under Article 44 of the Civil

Code and the BSP, as presently constituted under Republic Act No. 7278, falls

under the second classification. Article 44 reads:

Art. 44. The following are juridical persons: (1) The State and its political subdivisions;(2) Other corporations, institutions and entities for public

interest or purpose created by law; their personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)

The BSP, which is a corporation created for a public interest or purpose, is

subject to the law creating it under Article 45 of the Civil Code, which provides:

 Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the

preceding article are governed by the laws creating or recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was

created in order to implement a State policy declared in Article II, Section 13 of

the Constitution, which reads:

 ARTICLE II - DECLARATION OF PRINCIPLES AND STATE

POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public

purpose in pursuit of a constitutional mandate, comes within the class of public

corporations defined by paragraph 2, Article 44 of the Civil Code and governed by

the law which creates it, pursuant to Article 45 of the same Code.

 The BSPs Classification Under the Administrative Code of 1987

The public, rather than private, character of the BSP is recognized by the

fact that, along with the Girl Scouts of the Philippines, it is classified as

an attached agency of the DECS under Executive Order No. 292, or

the Administrative Code of 1987, which states:

 TITLE VI EDUCATION, CULTURE AND SPORTS Chapter 8 Attached Agencies SEC. 20. Attached Agencies. The following agencies are hereby

attached to the Department: x x x x (12) Boy Scouts of the Philippines; (13) Girl Scouts of the Philippines.  

The administrative relationship of an attached agency to the department is

defined in the Administrative Code of 1987 as follows:

 BOOK IV

 THE EXECUTIVE BRANCH

 Chapter 7 ADMINISTRATIVE RELATIONSHIP

 SEC. 38. Definition of Administrative Relationship. Unless

otherwise expressly stated in the Code or in other laws defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as follows:

 x x x x (3) Attachment. (a) This refers to the lateral relationship between

the department or its equivalent and the attached agency or corporation for purposes of policy and program coordination. The coordination may be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency. (Emphasis ours.)

As an attached agency, the BSP enjoys operational autonomy, as long as policy

and program coordination is achieved by having at least one representative of

government in its governing board, which in the case of the BSP is the DECS

Secretary. In this sense, the BSP is not under government control or supervision

and control. Still this characteristic does not make the attached chartered agency a

private corporation covered by the constitutional proscription in question.

 Art. XII, Sec. 16 of the Constitution refers to private corporations created by government for proprietary or economic/business purposes  

At the outset, it should be noted that the provision of Section 16 in issue is

found in Article XII of the Constitution, entitled National Economy and

Patrimony. Section 1 of Article XII is quoted as follows:

 SECTION 1. The goals of the national economy are a more

equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

 The State shall promote industrialization and full employment

based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.

 In the pursuit of these goals, all sectors of the economy and all

regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be

seen from the aforementioned declaration of state policies and goals which pertains

tonational economy and patrimony and the interests of the people in economic

development.

Section 16, Article XII deals with the formation, organization, or

regulation of private corporations,[52] which should be done through a general

law enacted by Congress, provides for an exception, that is: if the corporation is

government owned or controlled; its creation is in the interest of the common

good; and it meets the test of economic viability. The rationale behind Article XII,

Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on

Audit,[53] in the following manner:

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.[54] (Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16

bans the creation of private corporations by special law. The said constitutional

provision should not be construed so as to prohibit the creation of public

corporations or a corporate agency or instrumentality of the government intended

to serve a public interest or purpose, which should not be measured onTHE BASIS

OF  economic viability, but according to the public interest or purpose it serves as

envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent

provisions of the Administrative Code of 1987.

 The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability

The BSP is a public corporation or a government agency or instrumentality

with juridical personality, which does not fall within the constitutional prohibition

in Article XII, Section 16, notwithstanding the amendments to its charter.  Not all

corporations, which are not government owned or controlled, are ipso facto to be

considered private corporations as there exists another distinct class of

corporations or chartered institutions which are otherwise known as public

corporations. These corporations are treated by law as agencies or instrumentalities

of the government which are not subject to the tests of ownership or control and

economic viability but to different criteria relating to their public purposes/interests

or constitutional policies and objectives and their administrative relationship to the

government or any of its Departments or Offices.

Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony  

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of

cases, insists that the Constitution recognizes only two classes of

corporations: private corporations under a general law, and government-owned or

controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be construed so as

to prohibit Congress from creating public corporations. In fact, Congress has

enacted numerous laws creating public corporations or government agencies or

instrumentalities vested with corporate powers. Moreover, Section 16, Article XII,

which relates to National Economy and Patrimony, could not have tied the hands

of Congress in creating public corporations to serve any of the constitutional

policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces a totally

different species of corporation, which is neither a private corporation nor a

government owned or controlled corporation and, in so doing, is missing the fact

that the BSP, which was created as a non-stock, non-profit corporation, can only be

either a private corporation or a government owned or controlled corporation.

Note that in Boy Scouts of the Philippines v. National Labor Relations

Commission, the BSP, under its former charter, was regarded as both a government

owned or controlled corporation with original charter and a public

corporation. The said case pertinently stated:

 While the BSP may be seen to be a mixed type of entity,

combining aspects of both public and private entities, we believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a public corporation" and the substantial participation of the Government in the selection of members of the National Executive Board of the BSP, the BSP, as presently constituted

under its charter, is a government-controlled corporation within the meaning of Article IX (B) (2) (1) of the Constitution.

 We are fortified in this conclusion when we note that the

Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein. "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner:

 Instrumentality - refers to any agency of the National

Government, not integrated within the department framework, vested with special functions or jurisdiction by law,endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. The same Code describes a "chartered institution" in the following

terms: 

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the State. We believe that the BSP is appropriately regarded as "a

government instrumentality" under the 1987 Administrative Code. It thus appears that the BSP may be regarded as both a

"government controlled corporation with an original charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases supplied.)

The existence of public or government corporate or juridical entities or

chartered institutions by legislative fiat distinct from private corporations and

government owned or controlled corporation is best exemplified by the 1987

Administrative Code cited above, which we quote in part:

 Sec. 2. General Terms Defined. Unless the specific words of the

text, or the context as a whole, or a particular statute, shall require a different meaning:

 x x x x (10) "Instrumentality" refers to any agency of the National

Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. 

 x x x x (12) "Chartered institution" refers to any agency organized or

operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges and the monetary authority of the State.

 (13) "Government-owned or controlled corporation" refers to

any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whethergovernmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or

controlled by the government because of reduction of the number of

representatives of the government in the BSP Board, it does not follow that it also

ceases to be a government instrumentality as it still retains all the characteristics of

the latter as an attached agency of the DECS under the Administrative

Code. Vesting corporate powers to an attached agency or instrumentality of the

government is not constitutionally prohibited and is allowed by the above-

mentioned provisions of the Civil Code and the 1987 Administrative Code.

 Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations 

As presently constituted, the BSP still remains an instrumentality of the

national government. It is a public corporation created by law for a public purpose,

attached to the DECS pursuant to its Charter and the Administrative Code of

1987. It is not a private corporation which is required to be owned or controlled by

the government and be economically viable to justify its existence under a special

law.  

The dissent of Justice Carpio also submits that by recognizing a new class of

public corporation(s) created by special charter that will not be subject to the test

of economic viability, the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention

reveals the intent of the framers of the highest law of our land to distinguish

between government corporations performing governmental functions and

corporations involved in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized. 

MR. FOZ. Madam President, I support the proposal to insert ECONOMIC VIABILITY as one of the grounds for organizing government corporations. x x x.

 MR. OPLE. Madam President, the reason for this concern is really

that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers money through new equity infusions from the government and what is always invoked is the common good. x x x

 Therefore, when we insert the phrase ECONOMIC VIABILITY

together with the common good, this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. x x x.

 x x x x THE PRESIDENT. Commissioner Quesada is recognized. MS. QUESADA. Madam President, may we be clarified by the

committee on what is meant by economic viability? THE PRESIDENT. Please proceed. MR. MONSOD. Economic viability normally is determined by

cost-benefit ratio that takes into consideration all benefits, including economic external as well as internal benefits. These are what they call externalities in economics, so that these are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of the country that are not quantifiable in financial terms. x x x.

 x x x x MS. QUESADA. So, would this particular formulation now really

limit the entry of government corporations into activities engaged in by corporations?

MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved that there should be minimum government participation and intervention in the economy.

 MS. QUESDA. Sometimes this Commission would just refer to

Congress to provide the particular requirements when the government would get into corporations. But this time around, we specifically mentioned economic viability. x x x.

 MR. VILLEGAS. Commissioner Ople will restate the reason for

his introducing that amendment. MR. OPLE. I am obliged to repeat what I said earlier in moving

for this particular amendment jointly with Commissioner Foz. During the past three decades, there had been a proliferation of government corporations, very few of which have succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for liquidation because they failed the economic test. x x x.

 x x x x MS. QUESADA. But would not the Commissioner say that the

reason why many of the government-owned or controlled corporations failed to come up with the economic test is due to the management of these corporations, and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of management of these corporations which could be remedied, not by eliminating government corporations or the idea of getting into state-owned corporations, but improving management which our technocrats should be able to do, given the training and the experience.

 MR. OPLE. That is part of the economic viability, Madam

President. MS. QUESADA. So, is the Commissioner saying then that the

Filipinos will benefit more if these government-controlled corporations were given to private hands, and that there will be more goods and services that will be affordable and within the reach of the ordinary citizens?

MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation in accordance with a special charter given by Congress. However, we are raising the standard a little bit so that, in the future, corporations established by the government will meet the test of the common good but within that framework we should also build a certain standard of economic viability.

 x x x x THE PRESIDENT. Commissioner Padilla is recognized. MR. PADILLA. This is an inquiry to the committee. With regard

to corporations created by a special charter for government-owned or controlled corporations, will these be in the pioneer fields or in places where the private enterprise does not or cannot enter? Or is this so general that these government corporations can compete with private corporations organized under a general law?

 MR. MONSOD. Madam President, x x x. There are two types of

government corporations those that are involved in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed for corporations that want to go into business. First is for government corporations to first prove that they can be efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the private sector can do better.

 MR. PADILLA. There is no question about corporations

performing governmental functions or functions that are impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively, by private enterprise. It seems that under this provision the only qualification is economic viability and common good, but shall government, through government-controlled corporations, compete with private enterprise?

MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private enterprise is engaged in and can do better. x x x.[56] (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations

dealing with governmental functions, to which category the BSP belongs. The

discussion above conveys the constitutional intent not to apply this constitutional

ban on the creation of public corporations where the economic viability test would

be irrelevant. The said test would only apply if the corporation is engaged in some

economic activity or business function for the government.

It is undisputed that the BSP performs functions that are impressed with public

interest. In fact, during the consideration of the Senate Bill that eventually became

Republic Act No. 7278, which amended the BSP Charter, one of the bills sponsors,

Senator Joey Lina, described the BSP as follows:

 Senator Lina. Yes, I can only think of two organizations

involving the masses of our youth, Mr. President, that should be given this kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these two groups, I do not think there are other groups similarly situated.

 The Boy Scouts of the Philippines has a long history of

providing value formation to our young, and considering how huge the population of the young people is, at this point in time, and also considering the importance of having an organization such as this that will inculcate moral uprightness among the young people, and further considering that the development of these young people at that tender age of seven to sixteen is vital in the development of the country producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines from this general prohibition against providing tax exemption and privileges.[57]

Furthermore, this Court cannot agree with the dissenting opinion which equates the

changes introduced by Republic Act No. 7278 to the BSP Charter as clear

manifestation of the intent of Congress to return the BSP to the private sector. It

was not the intent of Congress in enacting Republic Act No. 7278 to give up all

interests in this basic youth organization, which has been its partner in forming

responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually

resulted to Republic Act No. 7278, Congress worked closely with the BSP to

rejuvenate the organization, to bring it back to its former glory reached under its

original charter, Commonwealth Act No. 111, and to correct the perceived ills

introduced by the amendments to its Charter under Presidential Decree No.

460. The BSP suffered from low morale and decrease in number because the

Secretaries of the different departments in government who were too busy to attend

the meetings of the BSPs National Executive Board (the Board) sent

representatives who, as it turned out, changed from meeting to meeting. Thus, the

Scouting Councils established in the provinces and cities were not in touch with

what was happening on the national level, but they were left to implement what

was decided by the Board.[58]

A portion of the legislators discussion is quoted below to clearly show their intent:

 HON. DEL MAR. x x x I need not mention to you the value

and the tremendous good that the Boy Scout Movement has done not only for the youth in particular but for the country in general. And that is why, if we look around, our past and present national leaders, prominent men in the various fields of endeavor, public servants in government offices, and civic leaders in the communities all over the land, and not only in our country but all over the world many if not most of them have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have the early approval of this measure if only to pay back what we owe much to the Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just the Scouting Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest scouting organization in the world x x

x. And to our mind, Mr. Chairman, this erratic growth and this decrease in membership [number] is because of the bad policy measures that were enunciated with the enactment or promulgation by the President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of the National Council in the election of the national board. x x x. And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working together, the Boy Scout of the Philippines officers working together with the House of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the Boy Scout Movement. x x x.[59] (Emphasis ours.)

The following is another excerpt from the discussion on the House version

of the bill, in the Committee on Government Enterprises:

 HON. AQUINO: x x x Well, obviously, the two bills as well as

the previous laws that have created the Boy Scouts of the Philippines did not provide for any direct government support by way of appropriation from the national budget to support the activities of this organization. The point here is, and at the same time they have been subjected to a governmental intervention, which to their mind has been inimical to the objectives and to the institution per se, that is why they are seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act 111. Such having been the experience in the hands of government, meaning, there has been negative interference on their part and inasmuch as their mandate is coming from a legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be better for this organization to seek a mandate from, lets say, the government the Corporation Code of the Philippines and register with the SEC as non-profit non-stock corporation so that government intervention could be very very minimal. Maybe thats a rhetorical question, they may or they may not answer, ano. I dont know what would be the benefit of a charter or a mandate being provided for by way of legislation versus a registration with the SEC under the Corporation Code of the Philippines inasmuch as they dont get anything

from the government anyway insofar as direct funding. In fact, the only thing that they got from government was intervention in their affairs. Maybe we can solicit some commentary comments from the resource persons. Incidentally, dont take that as an objection, Im not objecting. Im all for the objectives of these two bills. It just occurred to me that since you have had very bad experience in the hands of government and you will always be open to such possible intervention even in the future as long as you have a legislative mandate or your mandate or your charter coming from legislative action. 

x x x x 

MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of scout organization. Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the organization will lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze the assets of the organization and hamper the operation of the organization. I dont know, Mr. Chairman, how you look at it but there could be a danger for anybody filing a complaint against the organization in the SEC and the SEC might suspend the registration permit of the organization and we will not be able to operate. 

HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC because even if you are government corporation, court action may be taken against you in other judicial bodies because the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first point that you raised. In effect, what you are saying is that with the legislative mandate creating your charter, in effect, you have been given some sort of a franchise with this movement. MR. ESCUDERO: Yes.HON. AQUINO: Exclusive franchise of that movement?MR. ESCUDERO: Yes.HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr. Chairman. x x x.[60] (Emphases added.) 

Therefore, even though the amended BSP charter did away with most of the

governmental presence in the BSP Board, this was done to more strongly promote

the BSPs objectives, which were not supported under Presidential Decree No.

460. The BSP objectives, as pointed out earlier, are consistent with the public

purpose of the promotion of the well-being of the youth, the future leaders of the

country. The amendments were not done with the view of changing the character

of the BSP into a privatized corporation.The BSP remains an agency attached to a

department of the government, the DECS, and it was not at all stripped of its public

character.

The ownership and control test is likewise irrelevant for a public corporation like

the BSP. To reiterate, the relationship of the BSP, an attached agency, to the

government, through the DECS, is defined in the Revised Administrative Code of

1987. The BSP meets the minimum statutory requirement of an attached

government agency as the DECS Secretary sits at the BSP Board ex officio, thus

facilitating the policy and program coordination between the BSP and the DECS.Requisites for Declaration of Unconstitutionality Not Met in this Case

The dissenting opinion of Justice Carpio improperly raised the issue of

unconstitutionality of certain provisions of the BSP Charter. Even if the parties

were asked to Comment on the validity of the BSP charter by the Court, this alone

does not comply with the requisites for judicial review, which were clearly set

forth in a recent case:

 When questions of constitutional significance are raised, the Court

can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.[61] (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the

constitutional issue should be the very lis mota, or threshold issue, of the case, and

that it should be raised by either of the parties. These requirements would be

ignored under the dissents rather overreaching view of how this case should have

been decided. True, it was the Court that asked the parties to comment, but the

Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to

once more exhibit restraint in the exercise of its power to pass upon the validity of

a law.

Re: the COAs Jurisdiction

Regarding the COAs jurisdiction over the BSP, Section 8 of its amended

charter allows the BSP to receive contributions or donations from the

government. Section 8 reads:Section 8. Any donation or contribution which from time to

time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the Executive Board in pursuance of this Act.

The sources of funds to maintain the BSP were identified before the House

Committee on Government Enterprises while the bill was being deliberated, and

the pertinent portion of the discussion is quoted below:

 MR. ESCUDERO. Yes, Mr. Chairman. The question is the

sources of funds of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time, Mr. Chairman, when we have special activities we request for assistance or financial assistance from government agencies, from private business and corporations, but this is only during special activities that the Boy Scouts

of the Philippines would conduct during the year. Otherwise, we have to raise our own funds to support the organization.[62]

The nature of the funds of the BSP and the COAs audit jurisdiction were

likewise brought up in said congressional deliberations, to wit:

 HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government corporation classified as such, are your funds or your finances subjected to the COA audit? MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall under the jurisdiction of the COA.HON. AQUINO: All right, but before were you?MR. ESCUDERO: No, Mr. Chairman.MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was and the Boy Scouts then because of this funding partly from government was being subjected to audit in the contributions being made in the part of the Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding from government, but then in the case of the local councils and this legislative charter, so to speak, enables the local councils even the national headquarters in view of the provisions in the existing law to receive donations from the government or any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private corporation with the Securities and Exchange Commission. Government bodies would be estopped from making donations to the Boy Scouts, which at present is not the case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463. x x x x

HON. AMATONG: Mr. Chairman, in connection with that. THE CHAIRMAN: Yeah, Gentleman from Zamboanga. 

HON. AMATONG: There is no auditing being made because theres no money put in the organization, but how about donated funds to this organization? What are the remedies of the donors of how will they know how their money are being spent?

 MR. ESCUDERO: May I answer, Mr. Chairman? THE CHAIRMAN: Yes, gentleman. MR. ESCUDERO: The Boy Scouts of the Philippines has an external

auditor and by the charter we are required to submit a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise is accounted for at the end of the year by our external auditor. In this case the SGV.[63]

Historically, therefore, the BSP had been subjected to government audit in

so far as public funds had been infused thereto. However, this practice should not

preclude the exercise of the audit jurisdiction of COA, clearly set forth under the

Constitution, which pertinently provides:

 Section 2. (1) The Commission on Audit shall have the power,

authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations with original charters and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law of the granting institution to submit to such audit as a condition of subsidy or equity. x x x. [64]

Since the BSP, under its amended charter, continues to be a public

corporation or a government instrumentality, we come to the inevitable conclusion

that it is subject to the exercise by the COA of its audit jurisdiction in the manner

consistent with the provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition

is DISMISSED.

 SO ORDERED.   

EN BANC

[G.R. No. 147402. January 14, 2004]

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD), Tacloban City, petitioner, vs. COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and Regional Director of COA Region VIII, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for certiorari[1] to annul the Commission on Audits (COA) Resolution dated 3 January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all audit services, and to stop charging

auditing fees, to Leyte Metropolitan Water District (LMWD). The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD.

Antecedent Facts

A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees.Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 (PD 198)[2], as well as Section 18 of Republic Act No. 6758 (RA 6758). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.

On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA.

On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.

On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.

The Ruling of the Commission on Audit

The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water District v. Civil Service Commission and Commission on Audit,[3] as follows:

The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners contention that they are private corporations. It is clear therefrom that the power to appoint the members who will comprise the members of the Board of Directors belong to the local executives of the local subdivision unit where such districts are located. In contrast, the members of the Board of Directors or the trustees

of a private corporation are elected from among members or stockholders thereof. It would not be amiss at this point to emphasize that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to choose who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are not private corporations.

The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all auditing fees already paid.

The Issues

Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises the following issues for resolution:

1. Whether a Local Water District (LWD) created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA;

2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts; and

3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.

The Ruling of the Court

The petition lacks merit.

The Constitution and existing laws[4] mandate COA to audit all government agencies, including government-owned and controlled corporations (GOCCs) with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution provides for COAs audit jurisdiction, as follows:

SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to,

the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)

The COAs audit jurisdiction extends not only to government agencies or instrumentalities, but also to government-owned and controlled corporations with original charters as well as other government-owned or controlled corporations without original charters.

Whether LWDs are Private or Government-Ownedand Controlled Corporations with Original Charters

Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating in Davao City Water District v. Civil Service Commission[5] and just recently reiterated in De Jesus v. Commission on Audit.[6] Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which would give a new perspective to the issue of the true character of water districts.[7]

Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration (LWUA) and not the LWDs. Petitioner claims that LWDs are created pursuant to and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an original charter that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only provides for their formation on an optional or voluntary basis. [8] Petitioner adds

that the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198.

Petitioners contention deserves scant consideration.

We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. [9] The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.[10]

In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations.Under existing laws, that general law is the Corporation Code,[11] except that the Cooperative Code governs the incorporation of cooperatives.[12]

The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled.

Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with the Securities and Exchange Commission.Section 14 of the Corporation Code states that [A]ll corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x. LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members to elect the board directors

of LWDs as in the case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus:

From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created pursuant to a special law and are governed primarily by its provision.[13] (Emphasis supplied)

LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.

Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 198[14] provide:

Section 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act.

(a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words Water District.

(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.

(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district.

(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above.

(e) The names of the initial directors of the district with the date of expiration of term of office for each.

(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title.

(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.

Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act.

If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province.

x x x

Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration.(Emphasis supplied)

Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers. Section 6 of PD 198 provides that LWDs shall exercise the powers, rights and privileges given to private corporations under existing laws. Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter.

The phrase government-owned and controlled corporations with original charters means GOCCs created under special laws and not under the general incorporation law. There is no difference between the term original charters and special charters. The Court clarified this in National Service Corporation v. NLRC[15] by citing the deliberations in the Constitutional Commission, as follows:

THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.

Commissioner Romulo is recognized.

MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: including government-owned or controlled corporations WITH ORIGINAL CHARTERS. The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines,MANILA HOTEL  and Hyatt are excluded from the coverage of the civil service.

THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?

MR. FOZ. Just one question, Mr. Presiding Officer. By the term original charters, what exactly do we mean?

MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.

MR. FOZ. And not under the general corporation law.

MR. ROMULO. That is correct. Mr. Presiding Officer.

MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.

MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.

MR. ROMULO. That is correct. (Emphasis supplied)

Again, in Davao City Water District v. Civil Service Commission,[16] the Court reiterated the meaning of the phrase government-owned and controlled corporations with original charters in this wise:

By government-owned or controlled corporation with original charter, We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:

The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively from the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning of the new phrase with original charter, in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the Corporation Code. In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service. (Emphasis supplied)

Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to create corporations. This is a patently baseless assumption. The Local Government Code[17] does not vest in the Sangguniang Bayan the power to create corporations.[18] What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system subject to existing laws. Thus, Section 447(5)(vii) of the Local Government Code provides:

SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall:

x x x

(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to supply water for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in connection with the water service; and regulate the consumption, use or wastage of water;

x x x. (Emphasis supplied)

The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations subject to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the LWD a government-owned and controlled corporation with an original charter.In any event, the Court has already ruled in Baguio Water District v. Trajano[19] that the Sangguniang Bayan resolution is not the special charter of LWDs, thus:

While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree.

Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution mandates that Congress shall not, except by general law,[20] provide for the creation of private corporations. Thus, the Constitution prohibits one special law to create one private corporation, requiring instead a general law to create private corporations. In contrast, the same Section 16 states that Government-owned or controlled corporations may be created or established by special charters. Thus, the Constitution permits Congress to create a GOCC with a special charter. There is, however, no prohibition on Congress to create several GOCCs of the same class under one special enabling charter.

The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger of creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such danger will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may create GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs.

Petitioner also contends that LWDs are private corporations because Section 6 of PD 198[21] declares that LWDs shall be considered quasi-public in nature. Petitioners rationale is that only private corporations may be deemed quasi-public and not public corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed quasi-public because such corporation is already public. Petitioner concludes that the term quasi-public can only apply to private corporations. Petitioners argument is inconsequential.

Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.

The Constitution vests in the COA audit jurisdiction over government-owned and controlled corporations with original charters, as well as government-owned or controlled corporations without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.

The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,[22] the Court even ruled that the criterion of ownership and control is more important than the issue of original charter, thus:

This point is important because the Constitution provides in its Article IX-B, Section 2(1) that the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters. As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R.A. No. 3518,[23] it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is that the relations of the Bank with its employees should be governed by the labor laws, under which in fact they have already been paid some of their claims. (Emphasis supplied)

Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six years.[24] The board directors of LWDs are not co-owners of the LWDs.LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government employees subject to civil service laws[25] and anti-graft laws.[26]

While Section 8 of PD 198 states that [N]o public official shall serve as director of an LWD, it only means that the appointees to the board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors, they become public officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes government-owned or controlled corporations with original charters.

If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term agencies or instrumentalities of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the government owns LWDs. Section 45[27] of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of directors may dissolve an LWD only on the condition that another public entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto. The implication is clear that an LWD is a public and not a private entity.

Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the theory that the Water Districts owner is the District itself.[28] Assuming for the sake of argument that an LWD is self-owned,[29] as petitioner describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the approval of the Local Water Utilities Administration, and directors can receive no other compensation for their services to the LWD.[30] Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their facilities or operations. [31] This element of government control subjects LWDs to COAs audit jurisdiction.

Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water facilities from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets transferred under Section 6 (c) of PD 198 is no other than the LWD itself.[32] The transfer of assets mandated by PD 198 is a transfer of the water systems facilities managed, operated by or under the control of such city, municipality or province to such (water) district.[33] In short, the transfer is from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize the operation and control of water systems.

Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198 prevents COA from auditing LWDs. [34] Section 20 of PD 198 provides:

Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a system of business administration and accounting for the district, which shall be patterned upon and conform to the standards established by the Administration. Auditing shall be performed by a certified public accountant not in the government service. The Administration may, however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration.[35] (Emphasis supplied)

Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that [A]uditing shall be performed by a certified public accountant not in the government service.[36]

PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:

Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit.(Emphasis supplied)

The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional Commission elucidates this intent of the framers:

MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.

May I explain my reasons on record.

We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shell under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the coverage of the Commission on Audit.

Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think,THE BASIS OF  the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private organization.

So these are the fetuses of future abuse that we are slaying right here with this additional section.

May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.

THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner Ople?

MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.

MR. OPLE: Gladly, Madam President. Thank you.

MR. DE CASTRO: Madam President, point of inquiry on the new amendment.

THE PRESIDENT: Commissioner de Castro is recognized.

MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.

Is that not included in Section 2 (1) where it states: (c) government-owned or controlled corporations and their subsidiaries? So that if these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting certain government corporations or subsidiaries will be already unconstitutional.

So I believe, Madam President, that the proposed amendment is unnecessary.

MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.

THE PRESIDENT: Commissioner Monsod will please proceed.

MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the future.[37]

There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.

On the Legality of COAsPractice of Charging Auditing Fees

Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,[38] which states:

Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, government-owned or controlled corporations, and government financial institutions, except those compensation paid directly by COA out of its appropriations and contributions.

Government entities, including government-owned or controlled corporations including financial institutions and local government units are hereby prohibited from assessing or billing other government entities, including government-owned or controlled corporations including financial institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. (Emphasis supplied)

Claiming that Section 18 is absolute and leaves no doubt, [39] petitioner asks COA to discontinue its practice of charging auditing fees to LWDs since such practice allegedly violates the law.

Petitioners claim has no basis.

Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except compensation paid directly by COA out of its appropriations and contributions. Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v. Domingo,[40]the Court declared:

There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, GOCCs and government financial institutions,except such compensation paid directly by the COA out of its appropriations and contributions, and (2) government entities, including GOCCs, government financial

institutions and local government units from assessing or billing other government entities, GOCCs, government financial institutions or local government units for services rendered by the latters officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees.

x x x

The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and government financial institutions. Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions can receive only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions.The contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)

In Tejada, the Court explained the meaning of the word contributions in Section 18 of RA 6758, which allows COA to charge GOCCs the cost of its audit services:

x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services, maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the formers auditing units, the same shall be directly defrayed by COA from its own appropriations x x x. [41]

COA may charge GOCCs actual audit cost but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs actual audit cost. Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.

WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section

20 of Presidential Decree No. 198 is declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.

SO ORDERED.

Classes of Public Corporations

-Quasi Corporations

PHILIPPINE SOCIETY FOR

THE PREVENTION OF

CRUELTY TO ANIMALS,

  G.R. No. 169752

Petitioners,   Members:

    PUNO, C.J.

    QUISUMBING,

  YNARES-SANTIAGO,

  SANDOVAL-GUTIERREZ,

    CARPIO,

    AUSTRIA-MARTINEZ,

    CORONA,

- versus -   CARPIO-MORALES,

    AZCUNA,

    TINGA,

    CHICO-NAZARIO,

    GARCIA,

VELASCO, JR.,

NACHURA, and

REYES, JJ.

COMMISSION ON AUDIT,

DIR. RODULFO J. ARIESGA

(in his official capacity as Director

of the Commission on Audit), MS.

MERLE M. VALENTIN and MS.

SUSAN GUARDIAN (in their official

capacities as Team Leader and Team

Member, respectively, of the audit

Team of the Commission on Audit),

Promulgated:

Respondents.   September 25, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court, in relation to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-021[1] dated September 14, 2005 issued by the respondents which constituted the audit team, as well as its September 23, 2005

Letter[2] informing the petitioner that respondents audit team shall conduct an audit survey on the petitioner for a detailed audit of its accounts, operations, and financial transactions. No temporary restraining order was issued.

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of animal aficionados and animal propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote their welfare.[3]

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence. Act No. 1285 antedated both the Corporation Law and the constitution of the Securities and Exchange Commission. Important to note is that the nature of the petitioner as a corporate entity is distinguished from the sociedad anonimasunder the Spanish Code of Commerce.

For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals, the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2) of the fines imposed and collected through its efforts for violations of the laws related thereto. As originally worded, Sections 4 and 5 of Act No. 1285 provide:

SEC. 4. The said society is authorized  to  appoint not to exceed five agents in the City of Manila, and not to exceed two in each of the

provinces of the Philippine Islands who shall  have all   the power and authority   of   a   police   officer   to   make   arrests   for   violation   of   the laws enacted for the prevention of cruelty to animals and the protection of animals, and to serve any process in connection with the execution of such laws; and in addition thereto, all the police force of the Philippine Islands, wherever organized, shall, as occasion requires, assist said society, its members or agents, in the enforcement of all such laws.

SEC. 5. One-half  of all  the fines  imposed and collected through the efforts of said society, its members or its agents, for violations of the laws enacted for the prevention of cruelty to animals and for their protection, shall belong to said society and shall be used to promote its objects.

(emphasis supplied)

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No. 148,[4] which reads, in its entirety, thus:

Be it enacted by the National Assembly of the Philippines:

Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act Numbered Thirty five hundred and forty-eight, is hereby further amended so as to read as follows:

Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and not to exceed one in each municipality of the Philippines who shall have the   authority   to   denounce   to   regular   peace   officers any violation of the laws enacted for the prevention of cruelty to animals and the protection of animals and to cooperate with said peace officers in the prosecution of transgressors of such laws.

Sec. 2. The full  amount of the fines collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to   the   general   fund   of   the   Municipality where the offense was committed.

Sec. 3. This Act shall take effect upon its approval.

Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated November 12, 1936, portions of which provide:

Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered One Hundred Forty Eight was enacted depriving   the  agents  of   the   Society   for   the  Prevention  of  Cruelty   to Animals of their  power to arrest persons who have violated the laws prohibiting cruelty to animals thereby correcting a serious defect in one of the laws existing in our statute books.

x x x x

Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes, which the Government is duty bound to enforce;

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred upon me by the Constitution, hereby decree, order, and direct the Commissioner of Public Safety, the Provost Marshal General as head of the Constabulary Division of the Philippine Army, every Mayor of a chartered city, and every municipal president to detail  and organize special  members of  the police force, local, national, and the Constabulary to watch, capture, and prosecute offenders against the laws enacted to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of the petitioner to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November 18, 2003[5] addressed to the petitioner. The petitioner demurred on the ground that it was a private entity not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which specifies the general jurisdiction of the COA, viz:

Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and duty to examine,  audit,  and settle all  accounts pertaining to the revenue and receipts of, and expenditures or uses of funds  and  property,  owned  or  held   in   trust  by,  or  pertaining   to   the Government, or any of  its subdivisions, agencies, or  instrumentalities, including government-owned and controlled corporations with original 

charters, and on a post-audit basis: (a) constitutional bodies, commissions and officers that have been granted fiscal autonomy under the Constitution; (b) autonomous state colleges and universities; (c) other   government-owned   or   controlled   corporations   and   their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition   of   subsidy   or   equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government, and for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.(Emphasis supplied)

Petitioner explained thus:

a. Although the petitioner was created by special legislation, this necessarily came about because in January 1905 there was as yet neither a Corporation Law or any other general law under which it may be organized and incorporated, nor a Securities and Exchange Commission which would have passed upon its organization and incorporation.

b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the petitioner of its power to make arrests, and that the petitioner lost its operational funding, underscore the fact that it exercises no governmental function. In fine, the government itself, by its overt acts, confirmed petitioners status as a private juridical entity.

The COA General Counsel issued a Memorandum[6] dated May 6, 2004, asserting that the petitioner was subject to its audit authority. In a letter dated May 17, 2004,[7]respondent COA informed the petitioner of the result of the evaluation, furnishing it with a copy of said Memorandum dated May 6, 2004 of the General Counsel.

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004,[8] insisting that it was a private domestic corporation.

Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13, 2004,[9] affirmed her earlier opinion that the petitioner was a government entity that was subject to the audit jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA informed the petitioner of the result of the re-evaluation, maintaining its position that the petitioner was subject to its audit jurisdiction, and requested an initial conference with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant Commissioner Juanito Espino, Corporate Government Sector, that the audit survey was not conducted due to the refusal of the petitioner because the latter maintained that it was a private corporation.

Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14, 2005 and the COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds:

A.

RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT PETITIONER IS SUBJECT TO ITS AUDIT AUTHORITY.

B.

PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO IT.[10]

The essential question before this Court is whether the petitioner qualifies as a government agency that may be subject to audit by respondent COA.

Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general law then existing under which it may be organized or incorporated, it exercises no governmental functions because these have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of the Philippines, defined its powers and purposes, and specifically stated that it was An Act to Create a Public Corporation in which, even as amended by Presidential Decree No. 460, the law still adverted to the Boy Scouts of the Philippines as a public corporation, all of which are not obtaining in the charter of the petitioner; third, if it were a government body, there would

have been no need for the State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so exempted strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered and covered by the Social Security System at the latters initiative and not through the Government Service Insurance System, which should have been the case had the employees been considered government employees; fifth, the petitioner does not receive any form of financial assistance from the government, since C.A. No. 148, amending Section 5 of Act No. 1285, states that the full amount of the fines, collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the general fund of the Municipality where the offense was committed; sixth, C.A. No. 148 effectively deprived the petitioner of its powers to make arrests and serve processes as these functions were placed in the hands of the police force; seventh, no government appointee or representative sits on the board of trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that any act or decision of the petitioner is subject to the approval of or control by any government agency, except to the extent that it is governed by the law on private corporations in general; and finally, ninth, the Committee on Animal Welfare, under the Animal Welfare Act of 1998, includes members from both the private and the public sectors.

The respondents contend that since the petitioner is a body politic created by virtue of a special legislation and endowed with a governmental purpose, then, indubitably, the COA may audit the financial activities of the latter. Respondents in effect divide their contentions into six strains: first, the test to determine whether an entity is a government corporation lies in the manner of its creation, and, since the petitioner was created by virtue of a special charter, it is thus a government corporation subject to respondents auditing power; second, the petitioner exercises sovereign powers, that is, it is tasked to enforce the laws for the protection and welfare of animals which ultimately redound to the public good and welfare, and, therefore, it is deemed to be a government instrumentality as defined under the Administrative Code of 1987, the purpose of

which is connected with the administration of government, as purportedly affirmed by American jurisprudence; third, by virtue of Section 23,[11] Title II, Book III of the same Code, the Office of the President exercises supervision or control over the petitioner; fourth, under the same Code, the requirement under its special charter for the petitioner to render a report to the Civil Governor, whose functions have been inherited by the Office of the President, clearly reflects the nature of the petitioner as a government instrumentality; fifth, despite the passage of the Corporation Code, the law creating the petitioner had not been abolished, nor had it been re-incorporated under any general corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the Animal Welfare Act of 1998, designates the petitioner as a member of its Committee on Animal Welfare which is attached to the Department of Agriculture.

In view of the phrase One-half of all the fines imposed and collected through the efforts of said society, the Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor General (OSG) and the parties to comment on: a) petitioner's authority to impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act No. 148 considering that there are no standard measures provided for in the aforecited laws as to the manner of implementation, the specific violations of the law, the person/s authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987 Constitutions on whether petitioner continues to exist or should organize as a private corporation under the Corporation Code, B.P. Blg. 68 as amended.

Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that since they were being represented by the OSG which filed its Comment, they opted to dispense with the filing of a separate one and adopt for the purpose that of the OSG.

The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws; it only enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the enforcement of animal welfare laws; such privilege, however, was subsequently abolished by C.A. No. 148; that it continues to exist as a private corporation since it was created by the Philippine Commission before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.

The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to impose fines for violation of laws [12] relating to the prevention of cruelty to animals and the protection of animals; that even prior to the amendment of Act No. 1285, petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that privilege to share in the fines collected; that petitioner is a public corporation and has continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and 1987 Constitutions which contain transitory provisions maintaining all laws issued not inconsistent therewith until amended, modified or repealed.

The petition is impressed with merit.

The arguments of the parties, interlaced as they are, can be disposed of in five points.

First, the Court agrees with the petitioner that the charter test cannot be applied.

Essentially, the charter test as it stands today provides:

[T]he test to determine whether a corporation is government owned or controlled, or private in nature is simple. Is it created by its own charter for   the   exercise   of   a   public   function,   or   by   incorporation   under   the general corporation law? Those with special charters are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the Government Service Insurance System. xxx (Emphasis supplied)[13]

The petitioner is correct in stating that the charter test is predicated, at best, on the

legal regime established by the 1935 Constitution, Section 7, Article XIII, which

states:

Sec. 7. The National Assembly shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.[14]

The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of Article XII of the present Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4 of Article XIV of the 1973 Constitution.

During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing proscription to prevent the pressure of special interests upon the lawmaking body in the creation of corporations or in the regulation of the same. To permit the lawmaking body by special law to provide for the organization, formation, or regulation of private corporations would be in effect to offer to it the temptation in many cases to favor certain groups, to the prejudice of others or to the prejudice of the interests of the country.[15]

And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the rule that laws in general have no retroactive effect, unless the contrary is provided.[16] All statutes are to be construed as having only a prospective operation, unless the purpose and intention of the legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language used. In case of doubt, the doubt must be resolved against the retrospective effect.[17]

There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the law itself so expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in case of laws interpreting others; and (5) in case of laws creating new rights. [18] None of the exceptions is present in the instant case.

The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the Corporation Law, which had been enacted by virtue of the plenary powers of the Philippine Commission on March 1, 1906, a little over a year after January 19, 1905, the time the petitioner emerged as a juridical

entity. Even the Corporation Law respects the rights and powers of juridical entities organized beforehand, viz:

SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of the Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the passage of this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall  be entitled at      its      option    either   to continue business as such corporation or to reform and organize under and by virtue of   the  provisions of   this  Act, transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to issue its shares of stock at par to the stockholders or members of the old corporation according to their interests. (Emphasis supplied).

As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws issued not inconsistent therewith until amended, modified or repealed.[19]

In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been created by virtue of a special law does not necessarily qualify it as a public corporation.

What then is the nature of the petitioner as a corporate entity? What legal regime

governs its rights, powers, and duties?

As stated, at the time the petitioner was formed, the applicable law was the

Philippine Bill of 1902, and, emphatically, as also stated above, no proscription

similar to the charter test can be found therein.

The textual foundation of the charter test, which placed a limitation on the power of the legislature, first appeared in the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No. 1258, a law antedating the Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a general law on the formation and organization of private corporations nor a restriction on the legislature to create private corporations by direct legislation, the Philippine Commission at that moment in history was well within its powers in 1905 to constitute the petitioner as a private juridical entity.

Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on the danger of imposing legal concepts of a later date on facts of an earlier date.[20]

The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation and not an agency of the government. This was evident in Executive Order No. 63, issued by then President of the Philippines Manuel L. Quezon, declaring that the revocation of the powers of the petitioner to appoint agents with powers of arrest corrected a serious defect in one of the laws existing in the statute books.

As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given retroactive effect, thereby freeing all doubt as to which class of corporations the petitioner belongs, that is, it is a quasi-public corporation, a kind of private domestic corporation, which the Court will further elaborate on under the fourth point.

Second, a reading of petitioners charter shows that it is not subject to control or supervision by any agency of the State, unlike government-owned and -controlled corporations.No government representative sits on the board of trustees of the petitioner. Like all private corporations, the successors of its members are determined voluntarily and solely by the petitioner in accordance with its by-laws, and may exercise those powers generally accorded to private corporations, such as the powers to hold property, to sue and be sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner shall be managed or operated by its officers in accordance with its by-laws in force. The pertinent provisions of the charter provide:

Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be associated with them in conformity with this act, and their successors, are hereby constituted and created a body politic and corporate at law, under the name and style of The Philippines Society for the Prevention of Cruelty to Animals.

As incorporated by this Act, said society shall have the power to add to its organization such and as many members as it desires, to provide for and choose such officers as it may deem advisable, and in such manner as it may wish, and to remove members as it shall provide.

It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations, to conduct social enterprises for the purpose of obtaining funds, to levy dues upon itsmembers and provide for

their collection to hold real and personal estate such as may be necessary for the accomplishment of the purposes of the society, and to adopt such by-laws for its government as may not be inconsistent with law or this charter.

x x x x

Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its by-laws in force, and this charter.

x x x x

Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall have full power to locate and establish branch offices of the society wherever it may deem advisable in the Philippine Islands, such branch offices to be under the supervision and control of the principal office.

Third. The employees of the petitioner are registered and covered by the Social Security System at the latters initiative, and not through the Government Service Insurance System, which should be the case if the employees are considered government employees. This is another indication of petitioners nature as a private entity. Section 1 of Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise known as the Social Security Act of 1997, defines the employer:

Employer Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade, business, industry, undertaking or activity of any kind and uses the services of another person who is under his orders as regards the employment, except the Government   and   any   of   its   political   subdivisions,   branches   or instrumentalities,   including   corporations   owned   or   controlled   by   the Government: Provided, That a self-employed person shall be both employee and employer at the same time. (Emphasis supplied)

Fourth. The respondents contend that the petitioner is a body politic because its primary purpose is to secure the protection and welfare of animals which, in turn, redounds to the public good.

This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest does not, by that circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although its charter contains provisions of a public character, incorporated solely for the public good. This class of corporations may be considered quasi-public corporations, which are private corporations that render public service, supply public wants,[21] or pursue other eleemosynary objectives. While purposely organized for the gain or benefit of its members, they are required by law to discharge functions for the public benefit. Examples of these corporations are utility,[22] railroad, warehouse, telegraph, telephone, water supply corporations and transportation companies.[23] It must be stressed that a quasi-public corporation is a species of private corporations, but the qualifying factor is the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public corporation.[24]

Authorities are of the view that the purpose alone of the corporation cannot be

taken as a safe guide, for the fact is that almost all corporations are nowadays

created to promote the interest, good, or convenience of the public. A bank, for

example, is a private corporation; yet, it is created for a public benefit.  Private

schools and universities are likewise private corporations; and yet, they are

rendering public service. Private hospitals and wards are charged with heavy social

responsibilities. More so with all common carriers. On the other hand, there may

exist a public corporation even if it is endowed with gifts or donations from private

individuals.

The true criterion, therefore, to determine whether a corporation is public or

private is found in the totality of the relation of the corporation to the State.  If the

corporation is created by the State as the latters own agency or instrumentality to

help it in carrying out its governmental functions, then that corporation is

considered public; otherwise, it is private. Applying the above test, provinces,

chartered cities, and barangays can best exemplify public corporations. They are

created by the State as its own device and agency for the accomplishment of parts

of its own public works.[25]

It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to arrest offenders of animal welfare laws and the power to serve processes in connection therewith.

Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic reports to the Civil Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government instrumentality.

This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public, quasi-public, or private corporationsas creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to determine whether it acted within its powers. In other words, the reportorial requirement is the principal means by which the State may see to it that its creature acted according to the powers and functions conferred upon it. These principles were extensively discussed in Bataan Shipyard & Engineering Co.,  Inc. v. Presidential Commission on Good Government.[26] Here, the Court, in holding that the subject corporation could not invoke the right against self-incrimination whenever the State demanded the production of its corporate books and papers, extensively discussed the purpose of reportorial requirements, viz:

x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity   statute,   it   does  not   follow   that  a   corporation  vested  with 

special  privileges  and   franchises  may   refuse   to   show  its  hand  when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)[27]

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation subject to the jurisdiction of the Securities and Exchange Commission. The respondents are ENJOINED from investigating, examining and auditing the petitioner's fiscal and financial affairs.

SO ORDERED

Municipal Corporations

Elements of a Municipal Corporation- Nature and Function

G.R. No. L-23825      December 24, 1965

EMMANUEL PELAEZ, petitioner, vs.THE AUDITOR GENERAL, respondent.

Zulueta, Gonzales, Paculdo and Associates for petitioner.Office of the Solicitor General for respondent.

CONCEPCION, J.:

During the period from September 4 to October 29, 1964 the President of the Philippines, purporting to act pursuant to Section 68 of the Revised Administrative Code, issued Executive Orders Nos. 93 to 121, 124 and 126 to 129; creating thirty-three (33) municipalities enumerated in the margin.1 Soon after the date last mentioned, or on November 10, 1964 petitioner Emmanuel Pelaez, as Vice President of the Philippines and as taxpayer, instituted the present special civil action, for a writ of prohibition with preliminary injunction, against the Auditor General, to restrain him, as well as his representatives and agents, from passing in audit any expenditure of public funds in implementation of said executive orders and/or any disbursement by said municipalities.

Petitioner alleges that said executive orders are null and void, upon the ground that said Section 68 has been impliedly repealed by Republic Act No. 2370 and constitutes an undue delegation of legislative power. Respondent maintains the contrary view and avers that the present action is premature and that not all proper parties — referring to the officials of the

new political subdivisions in question — have been impleaded. Subsequently, the mayors of several municipalities adversely affected by the aforementioned executive orders — because the latter have taken away from the former the barrios composing the new political subdivisions — intervened in the case. Moreover, Attorneys Enrique M. Fernando and Emma Quisumbing-Fernando were allowed to and did appear as amici curiae.

The third paragraph of Section 3 of Republic Act No. 2370, reads:

Barrios shall not be created or their boundaries altered nor their names changed except under the provisions of this Act or by Act of Congress.

Pursuant to the first two (2) paragraphs of the same Section 3:

All barrios existing at the time of the passage of this Act shall come under the provisions hereof.

Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the name of an existing one may be changed by the provincial board of the province, upon recommendation of the council of the municipality or municipalities in which the proposed barrio is stipulated. The recommendation of the municipal council shall be embodied in a resolution approved by at least two-thirds of the entire membership of the said council: Provided, however, That no new barrio may be created if its population is less than five hundred persons.

Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may "not be created or their boundaries altered nor their names changed" except by Act of Congress or of the corresponding provincial board "upon petition of a majority of the voters in the areas affected" and the "recommendation of the council of the municipality or municipalities in which the proposed barrio is situated." Petitioner argues, accordingly: "If the President, under this new law, cannot even create a barrio, can he create a municipality which is composed of several barrios, since barrios are units of municipalities?"

Respondent answers in the affirmative, upon the theory that a new municipality can be created without creating new barrios, such as, by placing old barrios under the jurisdiction of the new municipality. This theory overlooks, however, the main import of the petitioner's argument, which is that the statutory denial of the presidential authority to create a new barrio implies a negation of the bigger power to create municipalities, each of which consists of several barrios. The cogency and force of this argument is too obvious to be denied or even questioned. Founded upon logic and experience, it cannot be offset except by a clear manifestation of the intent of Congress to the contrary, and no such manifestation, subsequent to the passage of Republic Act No. 2379, has been brought to our attention.

Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive orders are based, provides:

The (Governor-General) President of the Philippines may by executive order define the boundary, or boundaries, of any province, subprovince, municipality, [township]

municipal district, or other political subdivision, and increase or diminish the territory comprised therein, may divide any province into one or more subprovinces, separate any political division other than a province, into such portions as may be required, merge any of such subdivisions or portions with another, name any new subdivision so created, and may change the seat of government within any subdivision to such place therein as the public welfare may require: Provided, That the authorization of the (Philippine Legislature) Congress of the Philippines shall first be obtained whenever the boundary of any province or subprovince is to be defined or any province is to be divided into one or more subprovinces. When action by the (Governor-General) President of the Philippines in accordance herewith makes necessary a change of the territory under the jurisdiction of any administrative officer or any judicial officer, the (Governor-General) President of the Philippines, with the recommendation and advice of the head of the Department having executive control of such officer, shall redistrict the territory of the several officers affected and assign such officers to the new districts so formed.

Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an equitable distribution of the funds and obligations of the divisions thereby affected shall be made in such manner as may be recommended by the (Insular Auditor) Auditor General and approved by the (Governor-General) President of the Philippines.

Respondent alleges that the power of the President to create municipalities under this section does not amount to an undue delegation of legislative power, relying upon Municipality of Cardona vs. Municipality of Binañgonan (36 Phil. 547), which, he claims, has settled it. Such claim is untenable, for said case involved, not the creation of a new municipality, but a mere transfer of territory — from an already existing municipality (Cardona) to another municipality (Binañgonan), likewise, existing at the time of and prior to said transfer (See Gov't of the P.I. ex rel. Municipality of Cardona vs. Municipality, of Binañgonan [34 Phil. 518, 519-5201) — in consequence of the fixing and definition, pursuant to Act No. 1748, of the common boundaries of two municipalities.

It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid or settle conflicts of jurisdiction between adjoining municipalities, may partake of an administrative nature — involving, as it does, the adoption of means and ways to carry into effect the law creating said municipalities — the authority to create municipal corporations is essentially legislative in nature. In the language of other courts, it is "strictly a legislative function" (State ex rel. Higgins vs. Aicklen, 119 S. 425, January 2, 1959) or "solely and exclusively the exercise oflegislative power" (Udall vs. Severn, May 29, 1938, 79 P. 2d 347-349). As the Supreme Court of Washington has put it (Territory ex rel. Kelly vs. Stewart, February 13, 1890, 23 Pac. 405, 409), "municipal corporations are purely the creatures of statutes."

Although1a Congress may delegate to another branch of the Government the power to fill in the details in the execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle of separation of powers, that said law: (a) be complete in itself — it must set forth therein the policy to be executed, carried out or implemented by the delegate2 — and (b) fix a standard — the limits of which are sufficiently determinate or

determinable — to which the delegate must conform in the performance of his functions.2aIndeed, without a statutory declaration of policy, the delegate would in effect, make or formulate such policy, which is the essence of every law; and, without the aforementioned standard, there would be no means to determine, with reasonable certainty, whether the delegate has acted within or beyond the scope of his authority.2b Hence, he could thereby arrogate upon himself the power, not only to make the law, but, also — and this is worse — to unmake it, by adopting measures inconsistent with the end sought to be attained by the Act of Congress, thus nullifying the principle of separation of powers and the system of checks and balances, and, consequently, undermining the very foundation of our Republican system.

Section 68 of the Revised Administrative Code does not meet these well settled requirements for a valid delegation of the power to fix the details in the enforcement of a law. It does not enunciate any policy to be carried out or implemented by the President. Neither does it give a standard sufficiently precise to avoid the evil effects above referred to. In this connection, we do not overlook the fact that, under the last clause of the first sentence of Section 68, the President:

... may change the seat of the government within any subdivision to such place therein as the public welfare may require.

It is apparent, however, from the language of this clause, that the phrase "as the public welfare may require" qualified, not the clauses preceding the one just quoted, but only the place to which the seat of the government may be transferred. This fact becomes more apparent when we consider that said Section 68 was originally Section 1 of Act No. 1748,3 which provided that, "whenever in the judgment of the Governor-General the public welfare requires, he may, by executive order," effect the changes enumerated therein (as in said section 68), including the change of the seat of the government "to such place ... as the public interest requires." The opening statement of said Section 1 of Act No. 1748 — which was not included in Section 68 of the Revised Administrative Code — governed the time at which, or the conditions under which, the powers therein conferred could be exercised; whereas the last part of the first sentence of said section referred exclusively to the place to which the seat of the government was to be transferred.

At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we assumed that the phrase "as the public welfare may require," in said Section 68, qualifies all other clauses thereof. It is true that in Calalang vs. Williams (70 Phil. 726) and People vs. Rosenthal (68 Phil. 328), this Court had upheld "public welfare" and "public interest," respectively, as sufficient standards for a valid delegation of the authority to execute the law. But, the doctrine laid down in these cases — as all judicial pronouncements — must be construed in relation to the specific facts and issues involved therein, outside of which they do not constitute precedents and have no binding effect.4 The law construed in the Calalang case conferred upon the Director of Public Works, with the approval of the Secretary of Public Works and Communications, the power to issue rules and regulations topromote safe transit upon national roads and streets. Upon the other hand, the Rosenthal case referred to the authority of the Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the sale ofspeculative securities. Both

cases involved grants to administrative officers of powers related to the exercise of their administrative functions, calling for the determination of questions of fact.

Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of municipalities, is not an administrative function, but one which is essentially and eminently legislative in character. The question of whether or not "public interest" demands the exercise of such power is not one of fact. it is "purely a legislativequestion "(Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310-313, 315-318), or apolitical question (Udall vs. Severn, 79 P. 2d. 347-349). As the Supreme Court of Wisconsin has aptly characterized it, "the question as to whether incorporation is for the best interest of the community in any case is emphatically a question of public policy and statecraft" (In re Village of North Milwaukee, 67 N.W. 1033, 1035-1037).

For this reason, courts of justice have annulled, as constituting undue delegation of legislative powers, state laws granting the judicial department, the power to determine whether certain territories should be annexed to a particular municipality (Udall vs. Severn, supra, 258-359); or vesting in a Commission the right to determine the plan and frame of government of proposed villages and what functions shall be exercised by the same, although the powers and functions of the village are specifically limited by statute (In re Municipal Charters, 86 Atl. 307-308); or conferring upon courts the authority to declare a given town or village incorporated, and designate its metes and bounds, upon petition of a majority of the taxable inhabitants thereof, setting forth the area desired to be included in such village (Territory ex rel Kelly vs. Stewart, 23 Pac. 405-409); or authorizing the territory of a town, containing a given area and population, to be incorporated as a town, on certain steps being taken by the inhabitants thereof and on certain determination by a court and subsequent vote of the inhabitants in favor thereof, insofar as the court is allowed to determine whether the lands embraced in the petition "ought justly" to be included in the village, and whether the interest of the inhabitants will be promoted by such incorporation, and to enlarge and diminish the boundaries of the proposed village "as justice may require" (In re Villages of North Milwaukee, 67 N.W. 1035-1037); or creating a Municipal Board of Control which shall determine whether or not the laying out, construction or operation of a toll road is in the "public interest" and whether the requirements of the law had been complied with, in which case the board shall enter an order creating a municipal corporation and fixing the name of the same (Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310).

Insofar as the validity of a delegation of power by Congress to the President is concerned, the case of Schechter Poultry Corporation vs. U.S. (79 L. Ed. 1570) is quite relevant to the one at bar. The Schechter case involved the constitutionality of Section 3 of the National Industrial Recovery Act authorizing the President of the United States to approve "codes of fair competition" submitted to him by one or more trade or industrial associations or corporations which "impose no inequitable restrictions on admission to membership therein and are truly representative," provided that such codes are not designed "to promote monopolies or to eliminate or oppress small enterprises and will not operate to discriminate against them, and will tend to effectuate the policy" of said Act. The Federal Supreme Court held:

To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without precedent. It supplies no standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be applied to particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative undertaking, Sec. 3 sets up no standards, aside from the statement of the general aims of rehabilitation, correction and expansion described in Sec. 1. In view of the scope of that broad declaration, and of the nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered. We think that the code making authority thus conferred is an unconstitutional delegation of legislative power.

If the term "unfair competition" is so broad as to vest in the President a discretion that is "virtually unfettered." and, consequently, tantamount to a delegation of legislative power, it is obvious that "public welfare," which has even a broader connotation, leads to the same result. In fact, if the validity of the delegation of powers made in Section 68 were upheld, there would no longer be any legal impediment to a statutory grant of authority to the President to do anything which, in his opinion, may be required by public welfare or public interest. Such grant of authority would be a virtual abdication of the powers of Congress in favor of the Executive, and would bring about a total collapse of the democratic system established by our Constitution, which it is the special duty and privilege of this Court to uphold.

It may not be amiss to note that the executive orders in question were issued after the legislative bills for the creation of the municipalities involved in this case had failed to pass Congress. A better proof of the fact that the issuance of said executive orders entails the exercise of purely legislative functions can hardly be given.

Again, Section 10 (1) of Article VII of our fundamental law ordains:

The President shall have control of all the executive departments, bureaus, or offices, exercise general supervision over all local governments as may be provided by law, and take care that the laws be faithfully executed.

The power of control under this provision implies the right of the President to interfere in the exercise of such discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of the national government, as well as to act in lieu of such officers. This power is denied by the Constitution to the Executive, insofar as local governments are concerned. With respect to the latter, the fundamental law permits him to wield no more authority than that of checking whether said local governments or the officers thereof perform their duties as provided by statutory enactments. Hence, the President cannot interfere with local governments, so long as the same or its officers act Within the scope of their authority. He may not enact an ordinance which the municipal council has failed or refused to pass, even if it had thereby violated a duty imposed thereto by law, although he may see to it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may he vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no matter how patently unwise it may be. He

may not even suspend an elective official of a regular municipality or take any disciplinary action against him, except on appeal from a decision of the corresponding provincial board.5

Upon the other hand if the President could create a municipality, he could, in effect, remove any of its officials, by creating a new municipality and including therein the barrio in which the official concerned resides, for his office would thereby become vacant.6 Thus, by merely brandishing the power to create a new municipality (if he had it), without actually creating it, he could compel local officials to submit to his dictation, thereby, in effect, exercising over them the power of control denied to him by the Constitution.

Then, also, the power of control of the President over executive departments, bureaus or offices implies no morethan the authority to assume directly the functions thereof or to interfere in the exercise of discretion by its officials. Manifestly, such control does not include the authority either to abolish an executive department or bureau, or to create a new one. As a consequence, the alleged power of the President to create municipal corporations would necessarily connote the exercise by him of an authority even greater than that of control which he has over the executive departments, bureaus or offices. In other words, Section 68 of the Revised Administrative Code does not merely fail to comply with the constitutional mandate above quoted. Instead of giving the President less power over local governments than that vested in him over the executive departments, bureaus or offices, it reverses the process and does the exact opposite, by conferring upon him more power over municipal corporations than that which he has over said executive departments, bureaus or offices.

In short, even if it did entail an undue delegation of legislative powers, as it certainly does, said Section 68, as part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with said statutory enactment.7

There are only two (2) other points left for consideration, namely, respondent's claim (a) that "not all the proper parties" — referring to the officers of the newly created municipalities — "have been impleaded in this case," and (b) that "the present petition is premature."

As regards the first point, suffice it to say that the records do not show, and the parties do not claim, that the officers of any of said municipalities have been appointed or elected and assumed office. At any rate, the Solicitor General, who has appeared on behalf of respondent Auditor General, is the officer authorized by law "to act and represent the Government of the Philippines, its offices and agents, in any official investigation, proceeding or matter requiring the services of a lawyer" (Section 1661, Revised Administrative Code), and, in connection with the creation of the aforementioned municipalities, which involves a political, not proprietary, function, said local officials, if any, are mere agents or representatives of the national government. Their interest in the case at bar has, accordingly, been, in effect, duly represented.8

With respect to the second point, respondent alleges that he has not as yet acted on any of the executive order & in question and has not intimated how he would act in connection therewith. It is, however, a matter of common, public knowledge, subject to judicial cognizance, that the President has, for many years, issued executive orders creating

municipal corporations and that the same have been organized and in actual operation, thus indicating, without peradventure of doubt, that the expenditures incidental thereto have been sanctioned, approved or passed in audit by the General Auditing Office and its officials. There is no reason to believe, therefore, that respondent would adopt a different policy as regards the new municipalities involved in this case, in the absence of an allegation to such effect, and none has been made by him.

WHEREFORE, the Executive Orders in question are hereby declared null and void ab initio and the respondent permanently restrained from passing in audit any expenditure of public funds in implementation of said Executive Orders or any disbursement by the municipalities above referred to. It is so ordered.

Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Barrera and Dizon, JJ., concur.

Zaldivar, J., took no part.

Separate Opinions

BENGZON, J.P., J., concurring and dissenting:

A sign of progress in a developing nation is the rise of new municipalities. Fostering their rapid growth has long been the aim pursued by all three branches of our Government.

So it was that the Governor-General during the time of the Jones Law was given authority by the Legislature (Act No. 1748) to act upon certain details with respect to said local governments, such as fixing of boundaries, subdivisions and mergers. And the Supreme Court, within the framework of the Jones Law, ruled in 1917 that the execution or implementation of such details, did not entail abdication of legislative power (Government vs. Municipality of Binañgonan, 34 Phil. 518; Municipality of Cardona vs. Municipality of Binañgonan, 36 Phil. 547). Subsequently, Act No. 1748's aforesaid statutory authorization was embodied in Section 68 of the Revised Administrative Code. And Chief Executives since then up to the present continued to avail of said provision, time and again invoking it to issue executive orders providing for the creation of municipalities.

From September 4, 1964 to October 29, 1964 the President of the Philippines issued executive orders to create thirty-three municipalities pursuant to Section 68 of the Revised Administrative Code. Public funds thereby stood to be disbursed in implementation of said executive orders.

Suing as private citizen and taxpayer, Vice President Emmanuel Pelaez filed in this Court a petition for prohibition with preliminary injunction against the Auditor General. It seeks to restrain the respondent or any person acting in his behalf, from passing in audit any expenditure of public funds in implementation of the executive orders aforementioned.

Petitioner contends that the President has no power to create a municipality by executive order. It is argued that Section 68 of the Revised Administrative Code of 1917, so far as it purports to grant any such power, is invalid or, at the least, already repealed, in light of the Philippine Constitution and Republic Act 2370 (The Barrio Charter).

Section 68 is again reproduced hereunder for convenience:

SEC. 68. General authority of [Governor-General) President of the Philippines to fix boundaries and make new subdivisions. — The [Governor-General] President of the Philippines may by executive order define the boundary, or boundaries, of any province, subprovince, municipality, [township] municipal district, or other political subdivision, and increase or diminish the territory comprised therein, may divide any province into one or more subprovinces, separate any political division other than a province, into such portions as may be required, merge any of such subdivisions or portions with another, name any new subdivision so created, and may change the seat of government within any subdivision to such place therein as the public welfare may require: Provided, That the authorization of the [Philippine Legislature] Congress of the Philippines shall first be obtained whenever the boundary of any province or subprovince is to be defined or any province is to be divided into one or more subprovinces. When action by the [Governor-General] President of the Philippines in accordance herewith makes necessary a change of the territory under the jurisdiction of any administrative officer or any judicial officer, the [Governor-General] President of the Philippines, with the recommendation and advice of the head of the Department having executive control of such officer, shall redistrict the territory of the several officers to the new districts so formed.

Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an equitable distribution of the funds and obligations of the divisions thereby affected shall be made in such manner as may be recommended by the [Insular Auditor] Auditor General and approved by the [Governor-General] President of the Philippines.

From such working I believe that power to create a municipality is included: to "separate any political division other than a province, into such portions as may be required, merge any such subdivisions or portions with another, name any new subdivision so created." The issue, however, is whether the legislature can validly delegate to the Executive such power.

The power to create a municipality is legislative in character. American authorities have therefore favored the view that it cannot be delegated; that what is delegable is not the power to create municipalities but only the power to determine the existence of facts under which creation of a municipality will result (37 Am. Jur. 628).

The test is said to lie in whether the statute allows any discretion on the delegate as to whether the municipal corporation should be created. If so, there is an attempted delegation of legislative power and the statute is invalid (Ibid.). Now Section 68 no doubt gives the President such discretion, since it says that the President "may by executive order" exercise the powers therein granted. Furthermore, Section 5 of the same Code states:

SEC. 5. Exercise of administrative discretion — The exercise of the permissive powers of all executive or administrative officers and bodies is based upon discretion, and when such officer or body is given authority to do any act but not required to do such act, the doing of the same shall be dependent on a sound discretion to be exercised for the good of the service and benefit of the public, whether so expressed in the statute giving the authority or not.

Under the prevailing rule in the United States — and Section 68 is of American origin — the provision in question would be an invalid attempt to delegate purely legislative powers, contrary to the principle of separation of powers.

It is very pertinent that Section 68 should be considered with the stream of history in mind. A proper knowledge of the past is the only adequate background for the present. Section 68 was adopted half a century ago. Political change, two world wars, the recognition of our independence and rightful place in the family of nations, have since taken place. In 1917 the Philippines had for its Organic Act the Jones Law. And under the setup ordained therein no strict separation of powers was adhered to. Consequently, Section 68 was not constitutionally objectionable at the time of its enactment.

The advent of the Philippine Constitution in 1935 however altered the situation. For not only was separation of powers strictly ordained, except only in specific instances therein provided, but the power of the Chief Executive over local governments suffered an explicit reduction.

Formerly, Section 21 of the Jones Law provided that the Governor-General "shall have general supervision and control of all the departments and bureaus of the government in the Philippine Islands." Now Section 10 (1), Article VII of the Philippine Constitution provides: "The President shall have control of all the executive departments, bureaus, or offices, exercise general supervision over all local governments as may be provided by law, and take care that the laws be faithfully executed.

In short, the power of control over local governments had now been taken away from the Chief Executive. Again, to fully understand the significance of this provision, one must trace its development and growth.

As early as April 7, 1900 President McKinley of the United States, in his Instructions to the Second Philippine Commission, laid down the policy that our municipal governments should be "subject to the least degree of supervision and control" on the part of the national government. Said supervision and control was to be confined within the "narrowest limits" or so much only as "may be necessary to secure and enforce faithful and efficient administration by local officers." And the national government "shall have no direct administration except of matters of purely general concern." (See Hebron v. Reyes, L-9158, July 28, 1958.)

All this had one aim, to enable the Filipinos to acquire experience in the art of self-government, with the end in view of later allowing them to assume complete management and control of the administration of their local affairs. Such aim is the policy now embodied in Section 10 (1), Article VII of the Constitution (Rodriguez v. Montinola, 50 O.G. 4820).

It is the evident decree of the Constitution, therefore, that the President shall have no power of control over local governments. Accordingly, Congress cannot by law grant him such power (Hebron v. Reyes, supra). And any such power formerly granted under the Jones Law thereby became unavoidably inconsistent with the Philippine Constitution.

It remains to examine the relation of the power to create and the power to control local governments. Said relationship has already been passed upon by this Court in Hebron v. Reyes, supra. In said case, it was ruled that the power to control is an incident of the power to create or abolish municipalities. Respondent's view, therefore, that creating municipalities and controlling their local governments are "two worlds apart," is untenable. And since as stated, the power to control local governments can no longer be conferred on or exercised by the President, it follows a fortiori that the power to create them, all the more cannot be so conferred or exercised.

I am compelled to conclude, therefore, that Section 10 (1), Article VII of the Constitution has repealed Section 68 of the Revised Administrative Code as far as the latter empowers the President to create local governments. Repeal by the Constitution of prior statutes inconsistent with it has already been sustained in De los Santos v. MaIlare, 87 Phil. 289. And it was there held that such repeal differs from a declaration of unconstitutionality of a posterior legislation, so much so that only a majority vote of the Court is needed to sustain a finding of repeal.

Since the Constitution repealed Section 68 as far back as 1935, it is academic to ask whether Republic Act 2370 likewise has provisions in conflict with Section 68 so as to repeal it. Suffice it to state, at any rate, that statutory prohibition on the President from creating a barrio does not, in my opinion, warrant the inference of statutory prohibition for creating a municipality. For although municipalities consist of barrios, there is nothing in the statute that would preclude creation of new municipalities out of pre-existing barrios.

It is not contrary to the logic of local autonomy to be able to create larger political units and unable to create smaller ones. For as long ago observed in President McKinley's Instructions to the Second Philippine Commission, greater autonomy is to be imparted to the smaller of the two political units. The smaller the unit of local government, the lesser is the need for the national government's intervention in its political affairs. Furthermore, for practical reasons, local autonomy cannot be given from the top downwards. The national government, in such a case, could still exercise power over the supposedly autonomous unit, e.g., municipalities, by exercising it over the smaller units that comprise them, e.g., the barrios. A realistic program of decentralization therefore calls for autonomy from the bottom upwards, so that it is not surprising for Congress to deny the national government some power over barrios without denying it over municipalities. For this reason, I disagree with the majority view that because the President could not create a barrio under Republic Act 2370, a fortiori he cannot create a municipality.

It is my view, therefore, that the Constitution, and not Republic Act 2370, repealed Section 68 of the Revised Administrative Code's provision giving the President authority to create local governments. And for this reason I agree with the ruling in the majority opinion that the executive orders in question are null and void.

In thus ruling, the Court is but sustaining the fulfillment of our historic desire to be free and independent under a republican form of government, and exercising a function derived from the very sovereignty that it upholds. Executive orders declared null and void.

Makalintal and Regala, JJ., concur

EN BANC

G.R. No. 103702 December 6, 1994

MUNICIPALITY OF SAN NARCISO, QUEZON; MAYOR JUAN K. UY; COUNCILORS: DEOGRACIAS R. ARGOSINO III, BENITO T. CAPIO, EMMANUEL R. CORTEZ, NORMANDO MONTILLA, LEONARDO C. UY, FIDEL C. AURELLANA, PEDRO C. CARABIT, LEONARDO D. AURELLANA, FABIAN M. MEDENILLA, TRINIDAD F. CORTEZ, SALVADOR M. MEDENILLA, CERELITO B. AUREADA and FRANCISCA A. BAMBA,petitioners, vs.HON. ANTONIO V. MENDEZ, SR., Presiding Judge, Regional Trial Court, Branch 62, 4th Judicial Region, Gumaca, Quezon; MUNICIPALITY OF SAN ANDRES, QUEZON; MAYOR FRANCISCO DE LEON; COUNCILORS: FE LUPINAC, TOMAS AVERIA, MANUEL O. OSAS, WILFREDO O. FONTANIL, ENRICO U. NADRES, RODELITO LUZOIR, LENAC, JOSE L. CARABOT, DOMING AUSA, VIDAL BANQUELES and CORAZON M. MAXIMO, respondents.

Manuel Laserna, Jr. for petitioners.

Florante Pamfilo for private respondents.

VITUG, J.:

On 20 August 1959, President Carlos P. Garcia, issued, pursuant to the then Sections 68 and 2630 of the Revised Administrative Code, as amended, Executive Order No. 353 creating the municipal district of San Andres, Quezon, by segregating from the municipality of San Narciso of the same province, the barrios of San Andres, Mangero, Alibijaban, Pansoy, Camflora and Tala along with their respective sitios.

Executive Order No. 353 was issued upon the request, addressed to the President and coursed through the Provincial Board of Quezon, of the municipal council of San Narciso, Quezon, in its Resolution No. 8 of 24 May 1959. 1

By virtue of Executive Order No. 174, dated 05 October 1965, issued by President Diosdado Macapagal, the municipal district of San Andres was later officially recognized to have gained the status of a fifth class municipality beginning 01 July 1963 by operation of

Section 2 of Republic Act No. 1515. 2 The executive order added that "(t)he conversion of this municipal district into (a) municipality as proposed in House Bill No. 4864 was approved by the House of Representatives."

On 05 June 1989, the Municipality of San Narciso filed a petition for quo warranto with the Regional Trial Court, Branch 62, in Gumaca, Quezon, against the officials of the Municipality of San Andres. Docketed Special Civil Action No. 2014-G, the petition sought the declaration of nullity of Executive Order No. 353 and prayed that the respondent local officials of the Municipality of San Andres be permanently ordered to refrain from performing the duties and functions of their respective offices. 3 Invoking the ruling of this Court in Pelaez v. Auditor General, 4 the petitioning municipality contended that Executive Order No. 353, a presidential act, was a clear usurpation of the inherent powers of the legislature and in violation of the constitutional principle of separation of powers. Hence, petitioner municipality argued, the officials of the Municipality or Municipal District of San Andres had no right to exercise the duties and functions of their respective offices that righfully belonged to the corresponding officials of the Municipality of San Narciso.

In their answer, respondents asked for the dismissal of the petition, averring, by way of affirmative and special defenses, that since it was at the instance of petitioner municipality that the Municipality of San Andres was given life with the issuance of Executive Order No. 353, it (petitioner municipality) should be deemed estopped from questioning the creation of the new municipality; 5 that because the Municipality of San Andred had been in existence since 1959, its corporate personality could no longer be assailed; and that, considering the petition to be one for quo warranto, petitioner municipality was not the proper party to bring the action, that prerogative being reserved to the State acting through the Solicitor General. 6

On 18 July 1991, after the parties had submitted their respective pre-trial briefs, the trial court resolved to defer action on the motion to dismiss and to deny a judgment on the pleadings.

On 27 November 1991, the Municipality of San Andres filed anew a motion to dismiss alleging that the case had become moot and academic with the enactment of Republic Act No. 7160, otherwise known as the Local Government Code of 1991, which took effect on 01 January 1991. The movant municipality cited Section 442(d) of the law, reading thusly:

Sec. 442. Requisites for Creation. — . . .

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

The motion was opposed by petitioner municipality, contending that the above provision of law was inapplicable to the Municipality of San Andres since the enactment referred to legally existing municipalities and not to those whose mode of creation had been void ab initio. 7

In its Order of 02 December 1991, the lower court 8 finally dismissed the petition 9 for lack of cause of action on what it felt was a matter that belonged to the State, adding that "whatever defects (were) present in the creation of municipal districts by the President pursuant to presidential issuances and executive orders, (were) cured by the enactment of R.A. 7160, otherwise known as Local Government Code of 1991." In an order, dated 17 January 1992, the same court denied petitioner municipality's motion for reconsideration.

Hence, this petition "for review on certiorari." Petitioners 10 argue that in issuing the orders of 02 December 1991 and 17 January 1992, the lower court has "acted with grave abuse of discretion amounting to lack of or in excess of jurisdiction." Petitioners assert that the existence of a municipality created by a null and void presidential order may be attacked either directly or even collaterally by anyone whose interests or rights are affected, and that an unconstitutional act is not a law, creates no office and is inoperative such as though its has never been passed. 11

Petitioners consider the instant petition to be one for "review on certiorari" under Rules 42 and 45 of the Rules of Court; at the same time, however, they question the orders of the lower court for having been issued with "grave abuse of discretion amounting to lack of or in excess of jurisdiction, and that there is no other plain, speedy and adequate remedy in the ordinary course of law available to petitioners to correct said Orders, to protect their rights and to secure a final and definitive interpretation of the legal issues involved." 12 Evidently, then, the petitioners intend to submit their case in this instance under Rule 65. We shall disregard the procedural incongruence.

The special civil action of quo warranto is a "prerogative writ by which the Government can call upon any person to show by what warrant he holds a public office or exercises a public franchise." 13 When the inquiry is focused on the legal existence of a body politic, the action is reserved to the State in a proceeding for quo warranto or any other credit proceeding. 14 It must be brought "in the name of the Republic of the Philippines" 15 and commenced by the Solicitor General or the fiscal "when directed by the President of the Philippines . . . ." 16 Such officers may, under certain circumstances, bring such an action "at the request and upon the relation of another person" with the permission of the court. 17 The Rules of Court also allows an individual to commence an action for quo warranto in his own name but this initiative can be done when he claims to be "entitled to a public office or position usurped or unlawfully held or exercised by another." 18 While the quo warranto proceedings filed below by petitioner municipality has so named only the officials of the Municipality of San Andres as respondents, it is virtually, however, a denunciation of the authority of the Municipality or Municipal District of San Andres to exist and to act in that capacity.

At any rate, in the interest of resolving any further doubt on the legal status of the Municipality of San Andres, the Court shall delve into the merits of the petition.

While petitioners would grant that the enactment of Republic ActNo. 7160 may have converted the Municipality of San Andres into a de facto municipality, they, however, contend that since the petition for quo warranto had been filed prior to the passage of said law, petitioner municipality had acquired a vested right to seek the nullification of Executive Order No. 353, and any attempt to apply Section 442 of Republic Act 7160 to the petition would perforce be violative of due process and the equal protection clause of the Constitution.

Petitioners' theory might perhaps be a point to consider had the case been seasonably brought. Executive Order No. 353 creating the municipal district of San Andres was issued on 20 August 1959 but it was only after almost thirty (30) years, or on 05 June 1989, that

the municipality of San Narciso finally decided to challenge the legality of the executive order. In the meantime, the Municipal District, and later the Municipality, of San Andres, began and continued to exercise the powers and authority of a duly created local government unit. In the same manner that the failure of a public officer to question his ouster or the right of another to hold a position within a one-year period can abrogate an action belatedly filed, 19 so also, if not indeed with greatest imperativeness, must a quo warranto proceeding assailing the lawful authority of a political subdivision be timely raised. 20 Public interestdemands it.

Granting the Executive Order No. 353 was a complete nullity for being the result of an unconstitutional delegation of legislative power, the peculiar circumstances obtaining in this case hardly could offer a choice other than to consider the Municipality of San Andres to have at least attained a status uniquely of its own closely approximating, if not in fact attaining, that of a de facto municipal corporation. Conventional wisdom cannot allow it to be otherwise. Created in 1959 by virtue of Executive Order No. 353, the Municipality of San Andres had been in existence for more than six years when, on 24 December 1965, Pelaez v. Auditor General was promulgated. The ruling could have sounded the call for a similar declaration of the unconstitutionality of Executive Order No. 353 but it was not to be the case. On the contrary, certain governmental acts all pointed to the State's recognition of the continued existence of the Municipality of San Andres. Thus, after more than five years as a municipal district, Executive Order No. 174 classified the Municipality of San Andres as a fifth class municipality after having surpassed the income requirement laid out in Republic Act No. 1515. Section 31 of Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980, constituted as municipal circuits, in the establishment of Municipal Circuit Trial Courts in the country, certain municipalities that comprised the municipal circuits organized under Administrative Order No. 33, dated 13 June 1978, issued by this Court pursuant to Presidential Decree No. 537. Under this administrative order, the Municipality of San Andres had been covered by the 10th Municipal Circuit Court of San Francisco-San Andres for the province of Quezon.

At the present time, all doubts on the de jure standing of the municipality must be dispelled. Under the Ordinance (adopted on 15 October 1986) apportioning the seats of the House of Representatives, appended to the 1987 Constitution, the Municipality of San Andres has been considered to be one of the twelve (12) municipalities composing the Third District of the province of Quezon. Equally significant is Section 442(d) of the Local Government Code to the effect that municipal districts "organized pursuant to presidential issuances or executive orders and which have their respective sets of elective municipal officials holding office at the time of the effectivity of (the) Code shall henceforth be considered as regular municipalities." No pretension of unconstitutionality per seof Section 442(d) of the Local Government Code is proferred. It is doubtful whether such a pretext, even if made, would succeed. The power to create political subdivisions is a function of the legislature. Congress did just that when it has incorporated Section 442(d) in the Code. Curative laws, which in essence are retrospective, 21 and aimed at giving "validity to acts done that would have been invalid under existing laws, as if existing laws have been complied with," are validly accepted in this jurisdiction, subject to the usual qualification against impairment of vested rights.22

All considered, the de jure status of the Municipality of San Andres in the province of Quezon must now be conceded.

WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Costs against petitioners.

SO ORDERED.

EN BANC

[G.R. No. 161414. January 17, 2005]

SULTAN OSOP B. CAMID, petitioner, vs. THE OFFICE OF THE PRESIDENT, DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT, AUTONOMOUS REGION IN MUSLIM MINDANAO, DEPARTMENT of FINANCE, DEPARTMENT of BUDGET AND MANAGEMENT, COMMISSION ON AUDIT, and the CONGRESS OF THE PHILIPPINES (HOUSE of REPRESENTATIVES AND SENATE), respondents.

D E C I S I O N

TINGA, J.:

This Petition for Certiorari presents this Court with the prospect of our own Brigadoon[1]the municipality of Andong, Lanao del Sur―which like its counterpart in filmdom, is a town that is not supposed to exist yet is anyway insisted by some as actually alive and thriving. Yet unlike in the movies, there is nothing mystical, ghostly or anything even remotely charming about the purported existence of Andong. The creation of the putative municipality was declared void ab initio by this Court four decades ago, but the present petition insists that in spite of this insurmountable obstacle Andong thrives on, and hence, its legal personality should be given judicial affirmation. We disagree.

The factual antecedents derive from the promulgation of our ruling in Pelaez v. Auditor General[2] in 1965. As discussed therein, then President Diosdado Macapagal issued several Executive Orders[3] creating thirty-three (33) municipalities in Mindanao. Among them was Andong in Lanao del Sur which was created by virtue of Executive Order No. 107.[4]

These executive orders were issued after legislative bills for the creation of municipalities involved in that case had failed to pass Congress. [5] President Diosdado Macapagal justified the creation of these municipalities citing his powers under Section 68 of the Revised Administrative Code. Then Vice-

President Emmanuel Pelaez filed a special civil action for a writ of prohibition, alleging in main that the Executive Orders were null and void, Section 68 having been repealed by Republic Act No. 2370, [6] and said orders constituting an undue delegation of legislative power.[7]

After due deliberation, the Court unanimously held that the challenged Executive Orders were null and void. A majority of five justices, led by the ponente, Justice (later Chief Justice) Roberto Concepcion, ruled that Section 68 of the Revised Administrative Code did not meet the well-settled requirements for a valid delegation of legislative power to the executive branch,[8] while three justices opined that the nullity of the issuances was the consequence of the enactment of the 1935 Constitution, which reduced the power of the Chief Executive over local governments. [9] Pelaez was disposed in this wise:

WHEREFORE, the Executive Orders in question are declared null and void ab initio and the respondent permanently restrained from passing in audit any expenditure of public funds in implementation of said Executive Orders or any disbursement by the municipalities above referred to. It is so ordered.[10]

Among the Executive Orders annulled was Executive Order No. 107 which created the Municipality of Andong. Nevertheless, the core issue presented in the present petition is the continued efficacy of the judicial annulment of the Municipality of Andong.

Petitioner Sultan Osop B. Camid (Camid) represents himself as a current resident of Andong,[11] suing as a private citizen and taxpayer whose locus standi is of public and paramount interest especially to the people of the Municipality of Andong, Province of Lanao del Sur. [12] He alleges that Andong has metamorphosed into a full-blown municipality with a complete set of officials appointed to handle essential services for the municipality and its constituents,[13] even though he concedes that since 1968, no person has been appointed, elected or qualified to serve any of the elective local government positions of Andong.[14] Nonetheless, the municipality of Andong has its own high school, Bureau of Posts, a Department of Education, Culture and Sports office, and at least seventeen (17) barangay units with their own respective chairmen.[15] From 1964 until 1972, according to Camid, the public officials of Andong have been serving their constituents through the minimal means and resources with least (sic) honorarium and recognition from the Office of the then former President Diosdado Macapagal. Since the time of Martial Law in 1972, Andong has allegedly been getting by despite the absence of public

funds, with the Interim Officials serving their constituents in their own little ways and means.[16]

In support of his claim that Andong remains in existence, Camid presents to this Court a Certification issued by the Office of the Community Environment and Natural Resources (CENRO) of the Department of Environment and Natural Resources (DENR) certifying the total land area of the Municipality of Andong, created under Executive Order No. 107 issued [last] October 1, 1964.[17] He also submits a Certification issued by the Provincial Statistics Office of Marawi City concerning the population of Andong, which is pegged at fourteen thousand fifty nine (14,059) strong. Camid also enumerates a list of governmental agencies and private groups that allegedly recognize Andong, and notes that other municipalities have recommended to the Speaker of the Regional Legislative Assembly for the immediate implementation of the revival or re-establishment of Andong.[18]

The petition assails a Certification dated 21 November 2003, issued by the Bureau of Local Government Supervision of the Department of Interior and Local Government (DILG).[19] TheCertification enumerates eighteen (18) municipalities certified as existing, per DILG records. Notably, these eighteen (18) municipalities are among the thirty-three (33), along with Andong, whose creations were voided by this Court in Pelaez. These municipalities are Midaslip, Pitogo, Naga, and Bayog in Zamboanga del Sur; Siayan and Pres. Manuel A. Roxas in Zamboanga del Norte; Magsaysay, Sta. Maria and New Corella in Davao; Badiangan and Mina in Iloilo; Maguing in Lanao del Sur; Gloria in Oriental Mindoro; Maasim in Sarangani; Kalilangan and Lantapan in Bukidnon; and Maco in Compostela Valley.[20]

Camid imputes grave abuse of discretion on the part of the DILG in not classifying [Andong] as a regular existing municipality and in not including said municipality in its records and official database as [an] existing regular municipality.[21] He characterizes such non-classification as unequal treatment to the detriment of Andong, especially in light of the current recognition given to the eighteen (18) municipalities similarly annulled by reason of Pelaez. As appropriate relief, Camid prays that the Court annul the DILG Certification dated 21 November 2003; direct the DILG to classify Andong as a regular existing municipality; all public respondents, to extend full recognition and support to Andong; the Department of Finance and the Department of Budget and Management, to immediately release the internal revenue allotments of Andong; and the public respondents, particularly the DILG, to recognize the Interim Local Officials of Andong.[22]

Moreover, Camid insists on the continuing validity of Executive Order No. 107. He argues that Pelaez has already been modified by supervening events consisting of subsequent laws and jurisprudence. Particularly cited is our Decision in Municipality of San Narciso v. Hon. Mendez,[23] wherein the Court affirmed the unique status of the municipality of San Andres in Quezon as a de facto municipal corporation.[24] Similar to Andong, the municipality of San Andres was created by way of executive order, precisely the manner which the Court in Pelaez had declared as unconstitutional. Moreover, San Narciso cited, as Camid does, Section 442(d) of the Local Government Code of 1991 as basis for the current recognition of the impugned municipality. The provision reads:

Section 442. Requisites for Creation. - xxx

(d) Municipalities existing as of the date of the effectivity of this Code shall continue to exist and operate as such. Existing municipal districts organized pursuant to presidential issuances or executive orders and which have their respective sets of elective municipal officials holding office at the time of the effectivity of (the) Code shall henceforth be considered as regular municipalities.[25]

There are several reasons why the petition must be dismissed. These can be better discerned upon examination of the proper scope and application of Section 442(d), which does not sanction the recognition of just any municipality. This point shall be further explained further on.

Notably, as pointed out by the public respondents, through the Office of the Solicitor General (OSG), the case is not a fit subject for the special civil actions of certiorari and mandamus, as it pertains to the de novo appreciation of factual questions. There is indeed no way to confirm several of Camids astonishing factual allegations pertaining to the purported continuing operation of Andong in the decades since it was annulled by this Court. No trial court has had the opportunity to ascertain the validity of these factual claims, the appreciation of which is beyond the function of this Court since it is not a trier of facts.

The importance of proper factual ascertainment cannot be gainsaid, especially in light of the legal principles governing the recognition of de facto municipal corporations. It has been opined that municipal corporations may exist by prescription where it is shown that the community has claimed and exercised corporate functions, with the knowledge and acquiescence of the legislature, and without interruption or objection for period long enough to afford title by prescription. [26] These municipal corporations have exercised their powers for a long period without objection on the part of

the government that although no charter is in existence, it is presumed that they were duly incorporated in the first place and that their charters had been lost.[27] They are especially common in England, which, as well-worth noting, has existed as a state for over a thousand years. The reason for the development of that rule in England is understandable, since that country was settled long before the Roman conquest by nomadic Celtic tribes, which could have hardly been expected to obtain a municipal charter in the absence of a national legal authority.

In the United States, municipal corporations by prescription are less common, but it has been held that when no charter or act of incorporation of a town can be found, it may be shown to have claimed and exercised the powers of a town with the knowledge and assent of the legislature, and without objection or interruption for so long a period as to furnish evidence of a prescriptive right.[28]

What is clearly essential is a factual demonstration of the continuous exercise by the municipal corporation of its corporate powers, as well as the acquiescence thereto by the other instrumentalities of the state. Camid does not have the opportunity to make an initial factual demonstration of those circumstances before this Court. Indeed, the factual deficiencies aside, Camids plaint should have undergone the usual administrative gauntlet and, once that was done, should have been filed first with the Court of Appeals, which at least would have had the power to make the necessary factual determinations. Camids seeming ignorance of the principles of exhaustion of administrative remedies and hierarchy of courts, as well as the concomitant prematurity of the present petition, cannot be countenanced.

It is also difficult to capture the sense and viability of Camids present action. The assailed issuance is the Certification issued by the DILG. But such Certification does not pretend to bear the authority to create or revalidate a municipality. Certainly, the annulment of the Certification will really do nothing to serve Camids ultimate cause the recognition of Andong. Neither does the Certification even expressly refute the claim that Andong still exists, as there is nothing in the document that comments on the present status of Andong. Perhaps theCertification is assailed before this Court if only to present an actual issuance, rather than a long-standing habit or pattern of action that can be annulled through the special civil action of certiorari. Still, the relation of the Certification to Camids central argument is forlornly strained.

These disquisitions aside, the central issue remains whether a municipality whose creation by executive fiat was previously voided by this Court may

attain recognition in the absence of any curative or reimplementing statute. Apparently, the question has never been decided before, San Narciso and its kindred cases pertaining as they did to municipalities whose bases of creation were dubious yet were never judicially nullified. The effect of Section 442(d) of the Local Government Code on municipalities such as Andong warrants explanation. Besides, the residents of Andong who belabor under the impression that their town still exists, much less those who may comport themselves as the municipalitys Interim Government, would be well served by a rude awakening.

The Court can employ a simplistic approach in resolving the substantive aspect of the petition, merely by pointing out that the Municipality of Andong never existed.[29] Executive Order No. 107, which established Andong, was declared null and void ab initio in 1965 by this Court in Pelaez, along with thirty-three (33) other executive orders. The phrase ab initio means from the beginning,[30] at first,[31] from the inception.[32] Pelaez was never reversed by this Court but rather it was expressly affirmed in the cases of Municipality of San Joaquin v. Siva,[33]Municipality of Malabang v. Benito,[34] and Municipality of Kapalong v. Moya.[35] No subsequent ruling by this Court declared Pelaez as overturned or inoperative. No subsequent legislation has been passed since 1965 creating a Municipality of Andong. Given these facts, there is hardly any reason to elaborate why Andong does not exist as a duly constituted municipality.

This ratiocination does not admit to patent legal errors and has the additional virtue of blessed austerity. Still, its sweeping adoption may not be advisedly appropriate in light of Section 442(d) of the Local Government Code and our ruling in Municipality of San Narciso, both of which admit to the possibility of de facto municipal corporations.

To understand the applicability of Municipality of San Narciso and Section 442(b) of the Local Government Code to the situation of Andong, it is necessary again to consider the ramifications of our decision in Pelaez.

The eminent legal doctrine enunciated in Pelaez was that the President was then, and still is, not empowered to create municipalities through executive issuances. The Court therein recognized that the President has, for many years, issued executive orders creating municipal corporations, and that the same have been organized and in actual operation . . . . [36]However, the Court ultimately nullified only those thirty-three (33) municipalities, including Andong, created during the period from 4 September to 29 October 1964 whose existence petitioner Vice-President Pelaez had specifically assailed before this Court. No pronouncement was made as to the other municipalities

which had been previously created by the President in the exercise of power the Court deemed unlawful.

Two years after Pelaez was decided, the issue again came to fore in Municipality of San Joaquin v. Siva.[37] The Municipality of Lawigan was created by virtue of Executive Order No. 436 in 1961. Lawigan was not one of the municipalities ordered annulled in Pelaez. A petition for prohibition was filed contesting the legality of the executive order, again on the ground that Section 68 of the Revised Administrative Code was unconstitutional. The trial court dismissed the petition, but the Supreme Court reversed the ruling and entered a new decision declaring Executive Order No. 436 void ab initio. The Court reasoned without elaboration that the issue had already been squarely taken up and settled in Pelaez which agreed with the argument posed by the challengers to Lawigans validity.[38]

In the 1969 case of Municipality of Malabang v. Benito,[39] what was challenged is the validity of the constitution of the Municipality of Balabagan in Lanao del Sur, also created by an executive order, [40] and which, similar to Lawigan, was not one of the municipalities annulled in Pelaez. This time, the officials of Balabagan invoked de facto status as a municipal corporation in order to dissuade the Court from nullifying action. They alleged that its status as a de facto corporation cannot be collaterally attacked but should be inquired into directly in an action for quo warranto at the instance of the State, and not by a private individual as it was in that case. In response, the Court conceded that an inquiry into the legal existence of a municipality is reserved to the State in a proceeding for quo warranto, but only if the municipal corporation is a de facto corporation.[41]

Ultimately, the Court refused to acknowledge Balabagan as a de facto corporation, even though it had been organized prior to the Courts decision in Pelaez. The Court declared void the executive order creating Balabagan and restrained its municipal officials from performing their official duties and functions.[42] It cited conflicting American authorities on whether a de facto corporation can exist where the statute or charter creating it is unconstitutional.[43] But the Courts final conclusion was unequivocal that Balabagan was not a de facto corporation.

In the cases where a de facto municipal corporation was recognized as such despite the fact that the statute creating it was later invalidated, the decisions could fairly be made to rest on the consideration that there was some other valid law giving corporate vitality to the organization. Hence, in the case at bar, the mere fact that Balabagan was organized at a time when the statute had not been invalidated cannot conceivably

make it a de facto corporation, as, independently of the Administrative Code provision in question, there is no other valid statute to give color of authority to its creation.[44]

The Court did clarify in Malabang that the previous acts done by the municipality in the exercise of its corporate powers were not necessarily a nullity.[45] Camid devotes several pages of his petition in citing this point, [46] yet the relevance of the citation is unclear considering that Camid does not assert the validity of any corporate act of Andong prior to its judicial dissolution. Notwithstanding, the Court in Malabang retained an emphatic attitude as to the unconstitutionality of the power of the President to create municipal corporations by way of presidential promulgations, as authorized under Section 68 of the Revised Administrative Code.

This principle was most recently affirmed in 1988, in Municipality of Kapalong v. Moya.[47] The municipality of Santo Tomas, created by President Carlos P. Garcia, filed a complaint against another municipality, who challenged Santo Tomass legal personality to institute suit. Again, Santo Tomas had not been expressly nullified by prior judicial action, yet the Court refused to recognize its legal existence. The blunt but simple ruling: Now then, as ruled in the Pelaez case supra, the President has no power to create a municipality. Since [Santo Tomas] has no legal personality, it can not be a party to any civil action.[48]

Nevertheless, when the Court decided Municipality of San Narciso[49] in 1995, it indicated a shift in the jurisprudential treatment of municipalities created through presidential issuances. The questioned municipality of San Andres, Quezon was created on 20 August 1959 by Executive Order No. 353 issued by President Carlos P. Garcia. Executive Order No. 353 was not one of the thirty-three issuances annulled by Pelaez in 1965. The legal status of the Municipality of San Andres was first challenged only in 1989, through a petition for quo warranto filed with the Regional Trial Court of Gumaca, Quezon, which did cite Pelaez as authority.[50] The RTC dismissed the petition for lack of cause of action, and the petitioners therein elevated the matter to this Court.

In dismissing the petition, the Court delved in the merits of the petition, if only to resolve further doubt on the legal status of San Andres. It noted a circumstance which is not present in the case at barthat San Andres was in existence for nearly thirty (30) years before its legality was challenged. The Court did not declare the executive order creating San Andres null and void. Still, acting on the premise that the said executive order was a complete nullity, the Court noted peculiar circumstances that led to the conclusion that San Andres had attained the unique status of a de facto municipal

corporation.[51] It noted that Pelaez limited its nullificatory effect only to those executive orders specifically challenged therein, despite the fact that the Court then could have very well extended the decision to invalidate San Andres as well.[52] This statement squarely contradicts Camids reading of San Narciso that the creation of San Andres, just like Andong, had been declared a complete nullity on the same ground of unconstitutional delegation of legislative power found in Pelaez.[53]

The Court also considered the applicability of Section 442(d) [54] of the Local Government Code of 1991. It clarified the implication of the provision as follows:

Equally significant is Section 442(d) of the Local Government Code to the effect that municipal districts "organized pursuant to presidential issuances or executive orders and which have their respective sets of elective municipal officials holding office at the time of the effectivity of (the) Code shall henceforth be considered as regular municipalities." No pretension of unconstitutionality per se of Section 442(d) of the Local Government Code is preferred. It is doubtful whether such a pretext, even if made, would succeed. The power to create political subdivisions is a function of the legislature. Congress did just that when it has incorporated Section 442(d) in the Code. Curative laws, which in essence are retrospective, and aimed at giving "validity to acts done that would have been invalid under existing laws, as if existing laws have been complied with," are validly accepted in this jurisdiction, subject to the usual qualification against impairment of vested rights. (Emphasis supplied)[55]

The holding in San Narciso was subsequently affirmed in Municipality of Candijay v. Court of Appeals[56] and Municipality of Jimenez v. Baz[57] In Candijay, the juridical personality of the Municipality of Alicia, created in a 1949 executive order, was attacked only beginning in 1984. Pelaez was again invoked in support of the challenge, but the Court refused to invalidate the municipality, citing San Narciso at length. The Court noted that the situation of the Municipality of Alicia was strikingly similar to that in San Narciso; hence, the town should likewise benefit from the effects of Section 442(d) of the Local Government Code, and should [be] considered as a regular, de jure municipality. [58]

The valid existence of Municipality of Sinacaban, created in a 1949 executive order, was among the issues raised in Jimenez. The Court, through Justice Mendoza, provided an expert summation of the evolution of the rule.

The principal basis for the view that Sinacaban was not validly created as a municipal corporation is the ruling in Pelaez v. Auditor General that the creation of municipal corporations is essentially a legislative matter and therefore the President was without

power to create by executive order the Municipality of Sinacaban. The ruling in this case has been reiterated in a number of cases later decided. However, we have since held that where a municipality created as such by executive order is later impliedly recognized and its acts are accorded legal validity, its creation can no longer be questioned. InMunicipality of San Narciso, Quezon v. Mendez, Sr., this Court considered the following factors as having validated the creation of a municipal corporation, which, like the Municipality of Sinacaban, was created by executive order of the President before the ruling in Pelaez v. Auditor General: (1) the fact that for nearly 30 years the validity of the creation of the municipality had never been challenged; (2) the fact that following the ruling in Pelaez no quo warranto suit was filed to question the validity of the executive order creating such municipality; and (3) the fact that the municipality was later classified as a fifth class municipality, organized as part of a municipal circuit court and considered part of a legislative district in the Constitution apportioning the seats in the House of Representatives. Above all, it was held that whatever doubt there might be as to the de jure character of the municipality must be deemed to have been put to rest by the Local Government Code of 1991 (R. A. No. 7160), 442(d) of which provides that "municipal districts organized pursuant to presidential issuances or executive orders and which have their respective sets of elective officials holding office at the time of the effectivity of this Code shall henceforth be considered as regular municipalities."

Here, the same factors are present so as to confer on Sinacaban the status of at least a de facto municipal corporation in the sense that its legal existence has been recognized and acquiesced publicly and officially. Sinacaban had been in existence for sixteen years when Pelaez v. Auditor General was decided on December 24, 1965. Yet the validity of E.O. No. 258 creating it had never been questioned. Created in 1949, it was only 40 years later that its existence was questioned and only because it had laid claim to an area that apparently is desired for its revenue. This fact must be underscored because under Rule 66, 16 of the Rules of Court, a quo warranto suit against a corporation for forfeiture of its charter must be commenced within five (5) years from the time the act complained of was done or committed. On the contrary, the State and even the Municipality of Jimenez itself have recognized Sinacaban's corporate existence. Under Administrative Order No. 33 dated June 13, 1978 of this Court, as reiterated by 31 of the Judiciary Reorganization Act of 1980 (B. P. Blg. 129), Sinacaban is constituted part of a municipal circuit for purposes of the establishment of Municipal Circuit Trial Courts in the country. For its part, Jimenez had earlier recognized Sinacaban in 1950 by entering into an agreement with it regarding their common boundary. The agreement was embodied in Resolution No. 77 of the Provincial Board of Misamis Occidental.

Indeed Sinacaban has attained de jure status by virtue of the Ordinance appended to the 1987 Constitution, apportioning legislative districts throughout the country, which considered Sinacaban part of the Second District of Misamis Occidental. Moreover, following the ruling in Municipality of San Narciso, Quezon v. Mendez, Sr., 442(d) of the Local Government Code of 1991 must be deemed to have cured any defect in the creation of Sinacaban.[59]

From this survey of relevant jurisprudence, we can gather the applicable rules. Pelaez and its offspring cases ruled that the President has no power to create municipalities, yet limited its nullificatory effects to the particular municipalities challenged in actual cases before this Court. However, with the promulgation of the Local Government Code in 1991, the legal cloud was lifted over the municipalities similarly created by executive order but not judicially annulled. The de facto status of such municipalities as San Andres, Alicia and Sinacaban was recognized by this Court, and Section 442(b) of the Local Government Code deemed curative whatever legal defects to title these municipalities had labored under.

Is Andong similarly entitled to recognition as a de facto municipal corporation? It is not. There are eminent differences between Andong and municipalities such as San Andres, Alicia and Sinacaban. Most prominent is the fact that the executive order creating Andong was expressly annulled by order of this Court in 1965. If we were to affirm Andongs de facto status by reason of its alleged continued existence despite its nullification, we would in effect be condoning defiance of a valid order of this Court. Court decisions cannot obviously lose their efficacy due to the sheer defiance by the parties aggrieved.

It bears noting that based on Camids own admissions, Andong does not meet the requisites set forth by Section 442(d) of the Local Government Code. Section 442(d) requires that in order that the municipality created by executive order may receive recognition, they must have their respective set of elective municipal officials holding office at the time of the effectivity of [the Local Government] Code. Camid admits that Andong has never elected its municipal officers at all.[60] This incapacity ties in with the fact that Andong was judicially annulled in 1965. Out of obeisance to our ruling in Pelaez, the national government ceased to recognize the existence of Andong, depriving it of its share of the public funds, and refusing to conduct municipal elections for the void municipality.

The failure to appropriate funds for Andong and the absence of elections in the municipality in the last four decades are eloquent indicia of the non-recognition by the State of the existence of the town. The certifications relied

upon by Camid, issued by the DENR-CENRO and the National Statistics Office, can hardly serve the purpose of attesting to Andongs legal efficacy. In fact, both these certifications qualify that they were issued upon the request of Camid, to support the restoration or re-operation of the Municipality of Andong, Lanao del Sur,[61]thus obviously conceding that the municipality is at present inoperative.

We may likewise pay attention to the Ordinance appended to the 1987 Constitution, which had also been relied upon in Jimenez and San Narciso. This Ordinance, which apportioned the seats of the House of Representatives to the different legislative districts in the Philippines, enumerates the various municipalities that are encompassed by the various legislative districts. Andong is not listed therein as among the municipalities of Lanao del Sur, or of any other province for that matter. [62] On the other hand, the municipalities of San Andres, Alicia and Sinacaban are mentioned in the Ordinance as part of Quezon,[63] Bohol,[64] and Misamis Occidental[65] respectively.

How about the eighteen (18) municipalities similarly nullified in Pelaez but certified as existing in the DILG Certification presented by Camid? The petition fails to mention that subsequent to the ruling in Pelaez, legislation was enacted to reconstitute these municipalities.[66] It is thus not surprising that the DILG certified the existence of these eighteen (18) municipalities, or that these towns are among the municipalities enumerated in the Ordinance appended to the Constitution. Andong has not been similarly reestablished through statute. Clearly then, the fact that there are valid organic statutes passed by legislation recreating these eighteen (18) municipalities is sufficient legal basis to accord a different legal treatment to Andong as against these eighteen (18) other municipalities.

We thus assert the proper purview to Section 442(d) of the Local Government Codethat it does not serve to affirm or reconstitute the judicially dissolved municipalities such as Andong, which had been previously created by presidential issuances or executive orders. The provision affirms the legal personalities only of those municipalities such as San Narciso, Alicia, and Sinacaban, which may have been created using the same infirm legal basis, yet were fortunate enough not to have been judicially annulled. On the other hand, the municipalities judicially dissolved in cases such as Pelaez, San Joaquin, and Malabang, remain inexistent, unless recreated through specific legislative enactments, as done with the eighteen (18) municipalities certified by the DILG. Those municipalities derive their legal personality not from the presidential issuances or executive orders which originally created them or from Section 442(d), but from the respective legislative statutes which were enacted to revive them.

And what now of Andong and its residents? Certainly, neither Pelaez or this decision has obliterated Andong into a hole on the ground. The legal effect of the nullification of Andong inPelaez was to revert the constituent barrios of the voided town back into their original municipalities, namely the municipalities of Lumbatan, Butig and Tubaran.[67] These three municipalities subsist to this day as part of Lanao del Sur,[68] and presumably continue to exercise corporate powers over the barrios which once belonged to Andong.

If there is truly a strong impulse calling for the reconstitution of Andong, the solution is through the legislature and not judicial confirmation of void title. If indeed the residents of Andong have, all these years, been governed not by their proper municipal governments but by a ragtag Interim Government, then an expedient political and legislative solution is perhaps necessary. Yet we can hardly sanction the retention of Andongs legal personality solely onTHE BASIS OF  collective amnesia that may have allowed Andong to somehow pretend itself into existence despite its judicial dissolution. Maybe those who insist Andong still exists prefer to remain unperturbed in their blissful ignorance, like the inhabitants of the cave in Platos famed allegory. But the time has come for the light to seep in, and for the petitioner and like-minded persons to awaken to legal reality.

WHEREFORE, the Petition is DISMISSED for lack of merit. Costs against petitioner.

SO ORDERED

Requisites for creation, conversion, division, merger or dissolution,

Republic of the PhilippinesSUPREME COURTBaguio City

EN BANC

G.R. No. 176951               April 12, 2011

LEAGUE OF CITIES OF THE PHILIPPINES (LCP), represented by LCP National President Jerry P. Treñas; City of Calbayog, represented by Mayor Mel Senen S. Sarmiento; and Jerry P. Treñas, in his personal capacity as Taxpayer, Petitioners, vs.COMMISSION ON ELECTIONS; Municipality of Baybay, Province of Leyte; Municipality of Bogo, Province of Cebu; Municipality of Catbalogan, Province of Western Samar; Municipality of Tandag, Province of Surigao del Sur; Municipality of Borongan, Province of Eastern Samar; and Municipality of Tayabas, Province of Quezon, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 177499

LEAGUE OF CITIES OF THE PHILIPPINES (LCP), represented by LCP National President Jerry P. Treñas; City of Calbayog, represented by Mayor Mel Senen S. Sarmiento; and Jerry P. Treñas, in his personal capacity as Taxpayer, Petitioners, vs.COMMISSION ON ELECTIONS; Municipality of Lamitan, Province of Basilan; Municipality of Tabuk, Province of Kalinga; Municipality of Bayugan, Province of Agusan del Sur; Municipality of Batac, Province of Ilocos Norte; Municipality of Mati, Province of Davao Oriental; and Municipality of Guihulngan, Province of Negros Oriental, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 178056

LEAGUE OF CITIES OF THE PHILIPPINES (LCP), represented by LCP National President Jerry P. Treñas; City of Calbayog, represented by Mayor Mel Senen S. Sarmiento; and Jerry P. Treñas, in his personal capacity as Taxpayer, Petitioners, vs.COMMISSION ON ELECTIONS; Municipality of Cabadbaran, Province of Agusan del Norte; Municipality of Carcar, Province of Cebu; Municipality of El Salvador, Province of Misamis Oriental; Municipality of Naga, Cebu; and Department of Budget and Management, Respondents.

R E S O L U T I O N

BERSAMIN, J.:

We consider and resolve the Ad Cautelam Motion for Reconsideration filed by the petitioners vis-à-vis the Resolution promulgated on February 15, 2011.

To recall, the Resolution promulgated on February 15, 2011 granted the Motion for Reconsideration of the respondents presented against the Resolution dated August 24, 2010, reversed the Resolution dated August 24, 2010, and declared the 16 Cityhood Laws — Republic Acts Nos. 9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408, 9409, 9434, 9435, 9436, and 9491 — constitutional.

Now, the petitioners anchor their Ad Cautelam Motion for Reconsideration upon the primordial ground that the Court could no longer modify, alter, or amend its judgment declaring the Cityhood Laws unconstitutional due to such judgment having long become final and executory. They submit that the Cityhood Laws violated Section 6 and Section 10 of Article X of the Constitution, as well as the Equal Protection Clause.

The petitioners specifically ascribe to the Court the following errors in its promulgation of the assailed February 15, 2011 Resolution, to wit:

I. THE HONORABLE COURT HAS NO JURISDICTION TO PROMULGATE THE RESOLUTION OF 15 FEBRUARY 2011 BECAUSE THERE IS NO LONGER ANY ACTUAL CASE OR CONTROVERSY TO SETTLE.

II. THE RESOLUTION CONTRAVENES THE 1997 RULES OF CIVIL PROCEDURE AND RELEVANT SUPREME COURT ISSUANCES.

III. THE RESOLUTION UNDERMINES THE JUDICIAL SYSTEM IN ITS DISREGARD OF THE PRINCIPLES OF RES JUDICATA AND THE DOCTRINE OF IMMUTABILITY OF FINAL JUDGMENTS.

IV. THE RESOLUTION ERRONEOUSLY RULED THAT THE SIXTEEN (16) CITYHOOD BILLS DO NOT VIOLATE ARTICLE X, SECTIONS 6 AND 10 OF THE 1987 CONSTITUTION.

V. THE SIXTEEN (16) CITYHOOD LAWS VIOLATE THE EQUAL PROTECTION CLAUSE OF THE CONSTITUTION AND THE RIGHT OF LOCAL GOVERNMENTS TO A JUST SHARE IN THE NATIONAL TAXES.

Ruling

Upon thorough consideration, we deny the Ad Cautelam Motion for Reconsideration for its lack of merit.

I.Procedural Issues

With respect to the first, second, and third assignments of errors, supra, it appears that the petitioners assail the jurisdiction of the Court in promulgating the February 15, 2011 Resolution, claiming that the decision herein had long become final and executory. They state that the Court thereby violated rules of procedure, and the principles of res judicata and immutability of final judgments.

The petitioners posit that the controversy on the Cityhood Laws ended with the April 28, 2009 Resolution denying the respondents’ second motion for reconsideration vis-à-vis the November 18, 2008 Decision for being a prohibited pleading, and in view of the issuance of the entry of judgment on May 21, 2009.

The Court disagrees with the petitioners.

In the April 28, 2009 Resolution, the Court ruled:

By a vote of 6-6, the Motion for Reconsideration of the Resolution of 31 March 2009 is DENIED for lack of merit. The motion is denied since there is no majority that voted to overturn the Resolution of 31 March 2009.

The Second Motion for Reconsideration of the Decision of 18 November 2008 is DENIED for being a prohibited pleading, and the Motion for Leave to Admit Attached Petition in

Intervention dated 20 April 2009 and the Petition in Intervention dated 20 April 2009 filed by counsel for Ludivina T. Mas, et al. are also DENIED in view of the denial of the second motion for reconsideration. No further pleadings shall be entertained. Let entry of judgment be made in due course.

Justice Presbitero J. Velasco, Jr. wrote a Dissenting Opinion, joined by Justices Consuelo Ynares-Santiago, Renato C. Corona, Minita Chico-Nazario, Teresita Leonardo-De Castro, and Lucas P. Bersamin. Chief Justice Reynato S. Puno and Justice Antonio Eduardo B. Nachura took no part. Justice Leonardo A. Quisumbing is on leave.1

Within 15 days from receipt of the April 28, 2009 Resolution, the respondents filed a Motion To Amend Resolution Of April 28, 2009 By Declaring Instead That Respondents’ "Motion for Reconsideration Of the Resolution Of March 31, 2009" And "Motion For Leave To File, And To Admit Attached ‘Second Motion For Reconsideration Of The Decision Dated November 18, 2008’ Remain Unresolved And To Conduct Further Proceedings Thereon, arguing therein that a determination of the issue of constitutionality of the 16 Cityhood Laws upon a motion for reconsideration by an equally divided vote was not binding on the Court as a valid precedent, citing the separate opinion of then Chief Justice Reynato S. Puno in Lambino v. Commission on Elections.2

Thus, in its June 2, 2009 Resolution, the Court issued the following clarification of the April 28, 2009 Resolution, viz:

As a rule, a second motion for reconsideration is a prohibited pleading pursuant to Section 2, Rule 52 of the Rules of Civil Procedure which provides that: "No second motion for reconsideration of a judgment or final resolution by the same party shall be entertained." Thus, a decision becomes final and executory after 15 days from receipt of the denial of the first motion for reconsideration.

However, when a motion for leave to file and admit a second motion for reconsideration is granted by the Court, the Court therefore allows the filing of the second motion for reconsideration. In such a case, the second motion for reconsideration is no longer a prohibited pleading.

In the present case, the Court voted on the second motion for reconsideration filed by respondent cities. In effect, the Court allowed the filing of the second motion for reconsideration. Thus, the second motion for reconsideration was no longer a prohibited pleading. However, for lack of the required number of votes to overturn the 18 November 2008 Decision and 31 March 2009 Resolution, the Court denied the second motion for reconsideration in its 28 April 2009 Resolution.3

As the result of the aforecited clarification, the Court resolved to expunge from the records several pleadings and documents, including respondents’ Motion To Amend Resolution Of April 28, 2009 etc.

The respondents thus filed their Motion for Reconsideration of the Resolution of June 2, 2009, asseverating that their Motion To Amend Resolution Of April 28, 2009 etc. was not another motion for reconsideration of the November 18, 2008 Decision, because it assailed

the April 28, 2009 Resolution with respect to the tie-vote on the respondents’ Second Motion For Reconsideration. They pointed out that the Motion To Amend Resolution Of April 28, 2009 etc. was filed on May 14, 2009, which was within the 15-day period from their receipt of the April 28, 2009 Resolution; thus, the entry of judgment had been prematurely made. They reiterated their arguments with respect to a tie-vote upon an issue of constitutionality.

In the September 29, 2009 Resolution,4 the Court required the petitioners to comment on the Motion for Reconsideration of the Resolution of June 2, 2009 within 10 days from receipt.

As directed, the petitioners filed their Comment Ad Cautelam With Motion to Expunge.

The respondents filed their Motion for Leave to File and to Admit Attached "Reply to Petitioners’ ‘Comment Ad Cautelam With Motion to Expunge’", together with the Reply.

On November 17, 2009, the Court resolved to note the petitioners’ Comment Ad Cautelam With Motion to Expunge, to grant the respondents’ Motion for Leave to File and Admit Reply to Petitioners’ Comment Ad Cautelam with Motion to Expunge, and to note the respondents’ Reply to Petitioners’ Comment Ad Cautelam with Motion to Expunge.

On December 21, 2009, the Court, resolving the Motion To Amend Resolution Of April 28, 2009 etc. and voting anew on the Second Motion For Reconsideration in order to reach a concurrence of a majority, promulgated its Decision granting the motion and declaring the Cityhood Laws as constitutional,5 disposing thus:

WHEREFORE, respondent LGUs’ Motion for Reconsideration dated June 2, 2009, their "Motion to Amend the Resolution of April 28, 2009 by Declaring Instead that Respondents’ ‘Motion for Reconsideration of the Resolution of March 31, 2009’ and ‘Motion for Leave to File and to Admit Attached Second Motion for Reconsideration of the Decision Dated November 18, 2008’ Remain Unresolved and to Conduct Further Proceedings," dated May 14, 2009, and their second Motion for Reconsideration of the Decision dated November 18, 2008 are GRANTED. The June 2, 2009, the March 31, 2009, and April 31, 2009 Resolutions are REVERSED and SET ASIDE. The entry of judgment made on May 21, 2009 must accordingly be RECALLED.

The instant consolidated petitions and petitions-in-intervention are DISMISSED. The cityhood laws, namely Republic Act Nos. 9389, 9390, 9391, 9392, 9393, 9394, 9398, 9404, 9405, 9407, 9408, 9409, 9434, 9435, 9436, and 9491 are declared VALID and CONSTITUTIONAL.

SO ORDERED.

On January 5, 2010, the petitioners filed an Ad Cautelam Motion for Reconsideration against the December 21, 2009 Decision.6 On the same date, the petitioners also filed a Motion to Annul Decision of 21 December 2009.7

On January 12, 2010, the Court directed the respondents to comment on the motions of the petitioners.8

On February 4, 2010, petitioner-intervenors City of Santiago, City of Legazpi, and City of Iriga filed their separate Manifestations with Supplemental Ad Cautelam Motions for Reconsideration.9 Similar manifestations with supplemental motions for reconsideration were filed by other petitioner-intervenors, specifically: City of Cadiz on February 15, 2010;10 City of Batangas on February 17, 2010;11 and City of Oroquieta on February 24, 2010.12The Court required the adverse parties to comment on the motions.13 As directed, the respondents complied.

On August 24, 2010, the Court issued its Resolution reinstating the November 18, 2008 Decision.14

On September 14, 2010, the respondents timely filed a Motion for Reconsideration of the "Resolution" Dated August 24, 2010.15 They followed this by filing on September 20, 2010 a Motion to Set "Motion for Reconsideration of the ‘Resolution’ dated August 24, 2010" for Hearing.16 On November 19, 2010, the petitioners sent in their Opposition [To the "Motion for Reconsideration of ‘Resolution’ dated August 24, 2010"].17 On November 30, 2010,18 the Court noted, among others, the petitioners’ Opposition.

On January 18, 2011,19 the Court denied the respondents’ Motion to Set "Motion for Reconsideration of the ‘Resolution’ dated August 24, 2010" for Hearing.

Thereafter, on February 15, 2011, the Court issued the Resolution being now challenged.

It can be gleaned from the foregoing that, as the June 2, 2009 Resolution clarified, the respondents’ Second Motion For Reconsideration was not a prohibited pleading in view of the Court’s voting and acting on it having the effect of allowing the Second Motion For Reconsideration; and that when the respondents filed their Motion for Reconsideration of the Resolution of June 2, 2009 questioning the expunging of their Motion To Amend Resolution Of April 28, 2009 etc. (which had been filed within the 15-day period from receipt of the April 28, 2009 Resolution), the Court opted to act on the Motion for Reconsideration of the Resolution of June 2, 2009 by directing the adverse parties through its September 29, 2009 Resolution to comment. The same permitting effect occurred when the Court, by its November 17, 2009 Resolution, granted the respondents’ Motion for Leave to File and Admit Reply to Petitioners’ Comment Ad Cautelam with Motion to Expunge, and noted the attached Reply.

Moreover, by issuing the Resolutions dated September 29, 2009 and November 17, 2009, the Court: (a) rendered ineffective the tie-vote under the Resolution of April 28, 2009 and the ensuing denial of the Motion for Reconsideration of the Resolution of March 31, 2009 for lack of a majority to overturn; (b), re-opened the Decision of November 18, 2008 for a second look under reconsideration; and (c) lifted the directive that no further pleadings would be entertained. The Court in fact entertained and acted on the respondents’ Motion for Reconsideration of the Resolution of June 2, 2009. Thereafter, the Court proceeded to deliberate anew on the respondents’ Second Motion for Reconsideration and ended up with

the promulgation of the December 21, 2009 Decision (declaring the Cityhood Laws valid and constitutional).

It is also inaccurate for the petitioners to insist that the December 21, 2009 Decision overturned the November 18, 2008 Decision on the basis of the mere Reflections of the Members of the Court. To be sure, the Reflections were the legal opinions of the Members and formed part of the deliberations of the Court. The reference in the December 21, 2009 Decision to the Reflections pointed out that there was still a pending incident after the April 28, 2009 Resolution that had been timely filed within 15 days from its receipt,20 pursuant to Section 10, Rule 51,21 in relation to Section 1, Rule 52,22 of the Rules of Court. Again, the Court did act and deliberate upon this pending incident, leading to the issuance of the December 21, 2009 Decision (declaring the Cityhood Laws free from constitutional infirmity). It was thereafter that the Court rendered its August 24, 2010 Resolution (reinstating the November 18, 2008 Decision), to correct which the respondents’ Motion for Reconsideration of the "Resolution" Dated August 24, 2010 was filed. And, finally, the Court issued its February 15, 2011 Resolution, reversing and setting aside the August 24, 2010 Resolution.

It is worth repeating that the actions taken herein were made by the Court en banc strictly in accordance with the Rules of Court and its internal procedures. There has been no irregularity attending or tainting the proceedings.

It also relevant to state that the Court has frequently disencumbered itself under extraordinary circumstances from the shackles of technicality in order to render just and equitable relief.23

On whether the principle of immutability of judgments and bar by res judicata apply herein, suffice it to state that the succession of the events recounted herein indicates that the controversy about the 16 Cityhood Laws has not yet been resolved with finality. As such, the operation of the principle of immutability of judgments did not yet come into play. For the same reason is an adherence to the doctrine of res judicata not yet warranted, especially considering that the precedential ruling for this case needed to be revisited and set with certainty and finality.

II.Substantive Issues

The petitioners reiterate their position that the Cityhood Laws violate Section 6 and Section 10 of Article X of the Constitution, the Equal Protection Clause, and the right of local governments to a just share in the national taxes.

The Court differs.

Congress clearly intended that the local government units covered by the Cityhood Laws be exempted from the coverage of R.A. No. 9009. The apprehensions of the then Senate President with respect to the considerable disparity between the income requirement of P20 million under the Local Government Code (LGC) prior to its amendment, and the P100 million under the amendment introduced by R.A. No. 9009 were definitively articulated in his

interpellation of Senator Pimentel during the deliberations on Senate Bill No. 2157. The then Senate President was cognizant of the fact that there were municipalities that then had pending conversion bills

during the 11th Congress prior to the adoption of Senate Bill No. 2157 as R.A. No. 9009,24 including the municipalities covered by the Cityhood Laws. It is worthy of mention that the pertinent deliberations on Senate Bill No. 2157 occurred on October 5, 2000 while the 11th Congress was in session, and the conversion bills were then pending in the Senate. Thus, the responses of Senator Pimentel made it obvious that R.A. No. 9009 would not apply to the conversion bills then pending deliberation in the Senate during the 11th Congress.

R.A. No. 9009 took effect on June 30, 2001, when the 12th Congress was incipient. By reason of the clear legislative intent to exempt the municipalities covered by the conversion bills pending during the 11th

Congress, the House of Representatives adopted Joint Resolution No. 29, entitled Joint Resolution to Exempt Certain Municipalities Embodied in Bills Filed in Congress before June 30, 2001 from the coverage of Republic Act No. 9009. However, the Senate failed to act on Joint Resolution No. 29. Even so, the House of Representatives readopted Joint Resolution No. 29 as

Joint Resolution No. 1 during the 12th Congress,25 and forwarded Joint Resolution No. 1 to the Senate for approval. Again, the Senate failed to approve Joint Resolution No. 1.

At this juncture, it is worthwhile to consider the manifestation of Senator Pimentel with respect to Joint Resolution No. 1, to wit:

MANIFESTATION OF SENATOR PIMENTEL

House Joint Resolution No. 1 seeks to exempt certain municipalities seeking conversion into cities from the requirement that they must have at least P100 million in income of locally generated revenue, exclusive of the internal revenue share that they received from the central government as required under Republic Act No. 9009.

The procedure followed by the House is questionable, to say the least. The House wants the Senate to do away with the income requirement of P100 million so that, en masse, the municipalities they want exempted could now file bills specifically converting them into cities. The reason they want the Senate to do it first is that Cong. Dodo Macias, chair of the House Committee on Local Governments, I am told, will not entertain any bill for the conversion of municipalities into cities unless the issue of income requirement is first hurdled. The House leadership therefore wants to shift the burden of exempting certain municipalities from the income requirement to the Senate rather than do it itself.

That is most unusual because, in effect, the House wants the Senate to pass a blanket resolution that would qualify the municipalities concerned for conversion into cities on the matter of income alone. Then, at a later date, the House would pass specific bills converting

the municipalities into cities. However, income is not only the requirement for municipalities to become cities. There are also the requirements on population and land area.

In effect, the House wants the Senate to tackle the qualification of the municipalities they want converted into cities piecemeal and separately, first is the income under the joint resolution, then the other requirements when the bills are file to convert specific municipalities into cities. To repeat, this is a most unusual manner of creating cities.

My respectful suggestion is for the Senate to request the House to do what they want to do regarding the applications of certain municipalities to become cities pursuant to the requirements of the Local Government Code. If the House wants to exempt certain municipalities from the requirements of the Local Government Code to become cities, by all means, let them do their thing. Specifically, they should act on specific bills to create cities and cite the reasons why the municipalities concerned are qualified to become cities. Only after the House shall have completed what they are expected to do under the law would it be proper for the Senate to act on specific bills creating cities.

In other words, the House should be requested to finish everything that needs to be done in the matter of converting municipalities into cities and not do it piecemeal as they are now trying to do under the joint resolution.

In my long years in the Senate, this is the first time that a resort to this subterfuge is being undertaken to favor the creation of certain cities. I am not saying that they are not qualified. All I am saying is, if the House wants to pass and create cities out of certain municipalities, by all means let them do that. But they should do it following the requirements of the Local Government Code and, if they want to make certain exceptions, they can also do that too. But they should not use the Senate as a ploy to get things done which they themselves should do.

Incidentally, I have recommended this mode of action verbally to some leaders of the House. Had they followed the recommendation, for all I know, the municipalities they had envisioned to be covered by House Joint Resolution No. 1 would, by now – if not all, at least some – have been converted into cities. House Joint Resolution No. 1, the House, in effect, caused the delay in the approval in the applications for cityhood of the municipalities concerned.

Lastly, I do not have an amendment to House Joint Resolution No. 1. What I am suggesting is for the Senate to request the House to follow the procedure outlined in the Local Government Code which has been respected all through the years. By doing so, we uphold the rule of law

and minimize the possibilities of power play in the approval of bills converting municipalities into cities.26

Thereafter, the conversion bills of the respondents were individually filed in the House of Representatives, and were all unanimously and

favorably voted upon by the Members of the House of Representatives.27 The bills, when forwarded to the Senate, were likewise unanimously approved by the Senate.28 The acts of both Chambers of Congress show that the exemption clauses ultimately incorporated in the Cityhood Laws are but the express articulations of the clear legislative intent to exempt the respondents, without exception, from the coverage of R.A. No. 9009. Thereby, R.A. No. 9009, and, by necessity, the LGC, were amended, not by repeal but by way of the express exemptions being embodied in the exemption clauses.

The petitioners further contend that the new income requirement of P100 million from locally generated sources is not arbitrary because it is not difficult to comply with; that there are several municipalities that have already complied with the requirement and have, in fact, been converted into cities, such as Sta. Rosa in Laguna (R.A. No 9264), Navotas (R.A. No. 9387) and San Juan (R.A. No. 9388) in Metro Manila, Dasmariñas in Cavite (R.A. No. 9723), and Biñan in Laguna (R.A. No. 9740); and that several other municipalities have supposedly reached the income of P100 million from locally generated sources, such as Bauan in Batangas, Mabalacat in Pampanga, and Bacoor in Cavite.

The contention of the petitioners does not persuade.

As indicated in the Resolution of February 15, 2011, fifty-nine (59) existing cities had failed as of 2006 to post an average annual income of P100 million based on the figures contained in the certification dated December 5, 2008 by the Bureau of Local Government. The large number of existing cities, virtually 50% of them, still unable to comply with the P100 million threshold income five years after R.A. No. 9009 took effect renders it fallacious and probably unwarranted for the petitioners to claim that the P100 million income requirement is not difficult to comply with.

In this regard, the deliberations on Senate Bill No. 2157 may prove enlightening, thus:

Senator Osmeña III. And could the gentleman help clarify why a municipality would want to be converted into a city?

Senator Pimentel. There is only one reason, Mr. President, and it is not hidden. It is the fact that once converted into a city, the municipality will have roughly more than three times the share that it would be receiving over the internal revenue allotment than it would have if it were to remain a municipality. So more or less three times or more.

Senator Osmeña III. Is it the additional funding that they will be able to enjoy from a larger share from the internal revenue allocations?

Senator Pimentel. Yes, Mr. President.

Senator Osmeña III. Now, could the gentleman clarify, Mr. President, why in the original Republic Act No. 7160, known as the Local Government Code of 1991, such a wide gap was made between a municipality—what a municipality would earn—and a city? Because essentially, to a person’s mind, even with this new requirement, if approved by Congress, if a municipality is earning P100 million and has a population of more than 150,000 inhabitants but has less than 100 square kilometers, it would not qualify as a city.

Senator Pimentel. Yes.

Senator Osmeña III. Now would that not be quite arbitrary on the part of the municipality?

Senator Pimentel. In fact, Mr. President, the House version restores the "or". So, this is a matter that we can very well take up as a policy issue. The chair of the committee does not say that we should, as we know, not listen to arguments for the restoration of the word "or" in the population or territorial requirement.

Senator Osmeña III. Mr. President, my point is that, I agree with the gentleman’s "and", but perhaps we should bring down the area. There are certainly very crowded places in this country that are less than 10,000 hectares—100 square kilometers is 10,000 hectares. There might only be 9,000 hectares or 8,000 hectares. And it would be unfair if these municipalities already earning P100,000,000 in locally generated funds and have a population of over 150,000 would not be qualified because of the simple fact that the physical area does not cover 10,000 hectares.

Senator Pimentel. Mr. President, in fact, in Metro Manila there are any number of municipalities. San Juan is a specific example which, if we apply the present requirements, would not qualify: 100 square kilometers and a population of not less than 150,000.

But my reply to that, Mr. President, is that they do not have to become a city?

Senator Osmeña III. Because of the income.

Senator Pimentel. But they are already earning a lot, as the gentleman said. Otherwise, the danger here, if we become lax in the requirements, is the metropolis-located local governments would have more priority in terms of funding because they would have more qualifications to become a city compared to far-flung areas in Mindanao or in the Cordilleras, or whatever.

Therefore, I think we should not probably ease up on the requirements. Maybe we can restore the word "or" so that if they do not have the 100 square kilometers of territory, then if they qualify in terms of population and income, that would be all right, Mr. President.

Senator Osmeña III. Mr. President, I will not belabor the point at this time. I know that the distinguished gentleman is considering several amendments to the Local Government Code. Perhaps this is something that could be further refined at a later time, with his permission.

So I would like to thank the gentleman for his graciousness in answering our questions.

Senator Pimentel. I also thank the gentleman, Mr. President.29

The Court takes note of the fact that the municipalities cited by the petitioners as having generated the threshold income of P100 million from local sources, including those already converted into cities, are either in Metro Manila or in provinces close to Metro Manila. In comparison, the municipalities covered by the Cityhood Laws are spread out in the different

provinces of the Philippines, including the Cordillera and Mindanao regions, and are considerably very distant from Metro Manila. This reality underscores the danger the enactment of R.A. No. 9009 sought to prevent, i.e., that "the metropolis-located local governments would have more priority in terms of funding because they would have more qualifications to become a city compared to the far-flung areas in Mindanao or in the Cordilleras, or whatever," actually resulting from the abrupt increase in the income requirement. Verily, this result is antithetical to what the Constitution and LGC have nobly envisioned in favor of countryside development and national growth. Besides, this result should be arrested early, to avoid the unwanted divisive effect on the entire country due to the local government units closer to the National Capital Region being afforded easier access to the bigger share in the national coffers than other local government units.

There should also be no question that the local government units covered by the Cityhood Laws belong to a class of their own. They have proven themselves viable and capable to become component cities of their respective provinces. They are and have been centers of trade and commerce, points of convergence of transportation, rich havens of agricultural, mineral, and other natural resources, and flourishing tourism spots. In his speech delivered on the floor of the Senate to sponsor House Joint Resolution No. 1, Senator Lim recognized such unique traits,30viz:

It must be noted that except for Tandag and Lamitan, which are both second-class municipalities in terms of income, all the rest are categorized by the Department of Finance as first-class municipalities with gross income of at least P70 million as per Commission of Audit Report for 2005. Moreover, Tandag and Lamitan, together with Borongan, Catbalogan, and Tabuk, are all provincial capitals.

The more recent income figures of the 12 municipalities, which would have increased further by this time, indicate their readiness to take on the responsibilities of cityhood.

Moreover, the municipalities under consideration are leading localities in their respective provinces. Borongan, Catbalogan, Tandag, Batac and Tabuk are ranked number one in terms of income among all the municipalities in their respective provinces; Baybay and Bayugan are number two; Bogo and Lamitan are number three; Carcar, number four; and Tayabas, number seven. Not only are they pacesetters in their respective provinces, they are also among the frontrunners in their regions – Baybay, Bayugan and Tabuk are number two income-earners in Regions VIII, XIII, and CAR, respectively; Catbalogan and Batac are number three in Regions VIII and I, respectively; Bogo, number five in Region VII; Borongan and Carcar are both number six in Regions VIII and VII, respectively. This simply shows that these municipalities are viable.

Petitioner League of Cities argues that there exists no issue with respect to the cityhood of its member cities, considering that they became cities in full compliance with the criteria for conversion at the time of their creation.

The Court considers the argument too sweeping. What we pointed out was that the previous income requirement of P20 million was definitely not insufficient to provide the essential government facilities, services, and special functions vis-à-vis the population of a component city. We also stressed that the increased income requirement ofP100 million

was not the only conclusive indicator for any municipality to survive and remain viable as a component city. These observations were unerringly reflected in the respective incomes of the fifty-nine (59) members of the League of Cities that have still failed, remarkably enough, to be compliant with the new requirement of the P100 million threshold income five years after R.A. No. 9009 became law.

Undoubtedly, the imposition of the income requirement of P100 million from local sources under R.A. No. 9009 was arbitrary. When the sponsor of the law chose the specific figure of P100 million, no research or empirical data buttressed the figure. Nor was there proof that the proposal took into account the after-effects that were likely to arise. As already mentioned, even the danger the passage of R.A. No. 9009 sought to prevent might soon become a reality. While the Constitution mandates that the creation of local government units must comply with the criteria laid down in the LGC, it cannot be justified to insist that the Constitution must have to yield to every amendment to the LGC despite such amendment imminently producing effects contrary to the original thrusts of the LGC to promote autonomy, decentralization, countryside development, and the concomitant national growth.

Moreover, if we were now to adopt the stringent interpretation of the Constitution the petitioners are espousing, we may have to apply the same restrictive yardstick against the recently converted cities cited by the petitioners, and find two of them whose conversion laws have also to be struck down for being unconstitutional. The two laws are R.A. No. 938731 and R.A. No. 9388,32 respectively converting the municipalities of San Juan and Navotas into highly urbanized cities. A cursory reading of the laws indicates that there is no indication of compliance with the requirements imposed by the LGC, for, although the two local government units concerned presumably complied with the income requirement of P50 million under Section 452 of the LGC and the income requirement of P100 million under the amended Section 450 of the LGC, they obviously did not meet the requirements set forth under Section 453 of the LGC, to wit:

Section 453. Duty to Declare Highly Urbanized Status.—It shall be the duty of the President to declare a city as highly urbanized within thirty (30) days after it shall have met the minimum requirements prescribed in the immediately preceding Section, upon proper application therefor and ratification in a plebiscite by the qualified voters therein.

Indeed, R.A. No. 9387 and R.A. No. 9388 evidently show that the President had not classified San Juan and Navotas as highly urbanized cities upon proper application and ratification in a plebiscite by the qualified voters therein. A further perusal of R.A. No. 9387 reveals that San Juan did not qualify as a highly urbanized city because it had a population of only 125,558, contravening the required minimum population of 200,000 under Section 452 of the LGC. Such non-qualification as a component city was conceded even by Senator Pimentel during the deliberations on Senate Bill No. 2157.

The petitioners’ contention that the Cityhood Laws violated their right to a just share in the national taxes is not acceptable.

In this regard, it suffices to state that the share of local government units is a matter of percentage under Section 285 of the LGC, not a specific amount. Specifically, the share of

the cities is 23%, determined on the basis of population (50%), land area (25%), and equal sharing (25%). This share is also dependent on the number of existing cities, such that when the number of cities increases, then more will divide and share the allocation for cities. However, we have to note that the allocation by the National Government is not a constant, and can either increase or decrease. With every newly converted city becoming entitled to share the allocation for cities, the percentage of internal revenue allotment (IRA) entitlement of each city will decrease, although the actual amount received may be more than that received in the preceding year. That is a necessary consequence of Section 285 and Section 286 of the LGC.

As elaborated here and in the assailed February 15, 2011 Resolution, the Cityhood Laws were not violative of the Constitution and the LGC. The respondents are thus also entitled to their just share in the IRA allocation for cities. They have demonstrated their viability as component cities of their respective provinces and are developing continuously, albeit slowly, because they had previously to share the IRA with about 1,500 municipalities. With their conversion into component cities, they will have to share with only around 120 cities.

Local government units do not subsist only on locally generated income, but also depend on the IRA to support their development. They can spur their own developments and thereby realize their great potential of encouraging trade and commerce in the far-flung regions of the country. Yet their potential will effectively be stunted if those already earning more will still receive a bigger share from the national coffers, and if commercial activity will be more or less concentrated only in and near Metro Manila.

III.Conclusion

We should not ever lose sight of the fact that the 16 cities covered by the Cityhood Laws not only had conversion bills pending during the 11th Congress, but have also complied with the requirements of the LGC prescribed prior to its amendment by R.A. No. 9009. Congress undeniably gave these cities all the considerations that justice and fair play demanded. Hence, this Court should do no less by stamping its imprimatur to the clear and unmistakable legislative intent and by duly recognizing the certain collective wisdom of Congress.

WHEREFORE, the Ad Cautelam Motion for Reconsideration (of the Decision dated 15 February 2011) is denied with finality.

SO ORDERED.

LUCAS P. BERSAMINAssociate Justice