THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I. In Republic Act No.
In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was renamed as
MANDANAS, petitioner, vs. HON. ALBERTO G. ROMULO, Executive Secretary and
Chairman of the Oversight Committee on Devolution; HON. EMILIA BONCODIN,
Secretary, Department of Budget and Management; HON. JOSE D. LINA, JR.,
Secretary, Department of Interior and Local Government, respondents.
[G.R. No. 152774. May 27, 2004]
DECISION
CALLEJO, SR., J.:
The Province of Batangas, represented by its Governor, Hermilando I. Mandanas, filed the
present petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court, as
amended, to declare as unconstitutional and void certain provisos contained in the General
Appropriations Acts (GAA) of 1999, 2000 and 2001, insofar as they uniformly earmarked for each
corresponding year the amount of five billion pesos (P5,000,000,000.00) of the Internal Revenue
Allotment (IRA) for the Local Government Service Equalization Fund (LGSEF) and imposed
conditions for the release thereof.
Named as respondents are Executive Secretary Alberto G. Romulo, in his capacity as Chairman
of the Oversight Committee on Devolution, Secretary Emilia Boncodin of the Department of Budget
and Management (DBM) and Secretary Jose Lina of the Department of Interior and Local Government
(DILG).
Background
On December 7, 1998, then President Joseph Ejercito Estrada issued Executive Order (E.O.) No.
48 entitled ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND
EQUALIZATION. The program was established to facilitate the process of enhancing the capacities of
local government units (LGUs) in the discharge of the functions and services devolved to them by the
National Government Agencies concerned pursuant to the Local Government Code. [1] The Oversight
Committee (referred to as the Devolution Committee in E.O. No. 48) constituted under Section 533(b)
of Republic Act No. 7160 (The Local Government Code of 1991) has been tasked to formulate and
issue the appropriate rules and regulations necessary for its effective implementation. [2] Further, to
address the funding shortfalls of functions and services devolved to the LGUs and other funding
requirements of the program, the Devolution Adjustment and Equalization Fund was created. [3] For
1998, the DBM was directed to set aside an amount to be determined by the Oversight Committee
based on the devolution status appraisal surveys undertaken by the DILG. [4] The initial fund was to be
sourced from the available savings of the national government for CY 1998. [5] For 1999 and the
succeeding years, the corresponding amount required to sustain the program was to be incorporated in
the annual GAA.[6] The Oversight Committee has been authorized to issue the implementing rules and
regulations governing the equitable allocation and distribution of said fund to the LGUs. [7]
The LGSEF in the GAA of 1999
the LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said
appropriations law, the amount of P96,780,000,000 was allotted as the share of the LGUs in the
internal revenue taxes. Item No. 1, Special Provisions, Title XXXVI A. Internal Revenue Allotment of
Rep. Act No. 8745 contained the following proviso:
... PROVIDED, That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be earmarked for
the Local Government Service Equalization Fund for the funding requirements of projects and
activities arising from the full and efficient implementation of devolved functions and services of local
government units pursuant to R.A. No. 7160, otherwise known as the Local Government Code of
1991: PROVIDED, FURTHER, That such amount shall be released to the local government units
subject to the implementing rules and regulations, including such mechanisms and guidelines for the
equitable allocations and distribution of said fund among local government units subject to the
guidelines that may be prescribed by the Oversight Committee on Devolution as constituted pursuant
to Book IV, Title III, Section 533(b) of R.A. No. 7160. The Internal Revenue Allotment shall be
released directly by the Department of Budget and Management to the Local Government Units
concerned.
On July 28, 1999, the Oversight Committee (with then Executive Secretary Ronaldo B. Zamora
as Chairman) passed Resolution Nos. OCD-99-003, OCD-99-005 and OCD-99-006 entitled as follows:
OCD-99-005
RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5 BILLION
CY 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) AND
REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO
APPROVE SAID ALLOCATION SCHEME.
OCD-99-006
RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0
BILLION OF THE 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND
AND ITS CONCOMITANT GENERAL FRAMEWORK, IMPLEMENTING
GUIDELINES AND MECHANICS FOR ITS IMPLEMENTATION AND RELEASE,
AS PROMULGATED BY THE OVERSIGHT COMMITTEE ON DEVOLUTION.
OCD-99-003
RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH
EJERCITO ESTRADA TO APPROVE THE REQUEST OF THE OVERSIGHT
COMMITTEE ON DEVOLUTION TO SET ASIDE TWENTY PERCENT (20%) OF
THE LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) FOR
LOCAL AFFIRMATIVE ACTION PROJECTS AND OTHER PRIORITY
INITIATIVES FOR LGUs INSTITUTIONAL AND CAPABILITY BUILDING IN
ACCORDANCE WITH THE IMPLEMENTING GUIDELINES AND MECHANICS
AS PROMULGATED BY THE COMMITTEE.
 These OCD resolutions were approved by then President Estrada on October 6, 1999.
Under the allocation scheme adopted pursuant to Resolution No. OCD-99-005, the five billion
pesos LGSEF was to be allocated as follows:
1. The PhP4 Billion of the LGSEF shall be allocated in accordance with the allocation
scheme and implementing guidelines and mechanics promulgated and adopted by the
OCD. To wit:
a. The first PhP2 Billion of the LGSEF shall be allocated in accordance with the codal
formula sharing scheme as prescribed under the 1991 Local Government Code;
b. The second PhP2 Billion of the LGSEF shall be allocated in accordance with a modified
1992 cost of devolution fund (CODEF) sharing scheme, as recommended by the
respective leagues of provinces, cities and municipalities to the OCD. The modified
CODEF sharing formula is as follows:
Province : 40%
Cities : 20%
Municipalities : 40%
This is applied to the P2 Billion after the approved amounts granted to individual
provinces, cities and municipalities as assistance to cover decrease in 1999 IRA share
due to reduction in land area have been taken out.
2. The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative
action projects and other priority initiatives submitted by LGUs to the Oversight
Committee on Devolution for approval in accordance with its prescribed guidelines as
promulgated and adopted by the OCD.
In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos or 20%
of the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This remaining amount
was intended to respond to the urgent need for additional funds assistance, otherwise not available
within the parameters of other existing fund sources. For LGUs to be eligible for funding under the
one-billion-peso portion of the LGSEF, the OCD promulgated the following:
III. CRITERIA FOR ELIGIBILITY:
1. LGUs (province, city, municipality, or barangay), individually or by group or multi-LGUs
or leagues of LGUs, especially those belonging to the 5th and 6th class, may access
the fund to support any projects or activities that satisfy any of the aforecited
purposes. A barangay may also access this fund directly or through their respective
municipality or city.
2. The proposed project/activity should be need-based, a local priority, with high
development impact and are congruent with the socio-cultural, economic and
development agenda of the Estrada Administration, such as food security, poverty
alleviation, electrification, and peace and order, among others.
3. Eligible for funding under this fund are projects arising from, but not limited to, the
following areas of concern:
a. delivery of local health and sanitation services, hospital services and other tertiary
services;
b. delivery of social welfare services;
c. provision of socio-cultural services and facilities for youth and community
development;
d. provision of agricultural and on-site related research;
e. improvement of community-based forestry projects and other local projects on
environment and natural resources protection and conservation;
f. improvement of tourism facilities and promotion of tourism;
g. peace and order and public safety;
h. construction, repair and maintenance of public works and infrastructure, including
public buildings and facilities for public use, especially those destroyed or
damaged by man-made or natural calamities and disaster as well as facilities
for water supply, flood control and river dikes;
i. provision of local electrification facilities;
j. livelihood and food production services, facilities and equipment;
k. other projects that may be authorized by the OCD consistent with the
aforementioned objectives and guidelines;
4. Except on extremely meritorious cases, as may be determined by the Oversight
Committee on Devolution, this portion of the LGSEF shall not be used in
expenditures for personal costs or benefits under existing laws applicable to
governments. Generally, this fund shall cover the following objects of expenditures
for programs, projects and activities arising from the implementation of devolved
and regular functions and services:
a. acquisition/procurement of supplies and materials critical to the full and effective
implementation of devolved programs, projects and activities;
b. repair and/or improvement of facilities;
c. repair and/or upgrading of equipment;
d. acquisition of basic equipment;
e. construction of additional or new facilities;
f. counterpart contribution to joint arrangements or collective projects among groups
of municipalities, cities and/or provinces related to devolution and delivery
of basic services.
5. To be eligible for funding, an LGU or group of LGU shall submit to the Oversight
Committee on Devolution through the Department of Interior and Local
Governments, within the prescribed schedule and timeframe, a Letter Request for
Funding Support from the Affirmative Action Program under the LGSEF, duly
signed by the concerned LGU(s) and endorsed by cooperators and/or beneficiaries,
as well as the duly signed Resolution of Endorsement by the respective
Sanggunian(s) of the LGUs concerned. The LGU-proponent shall also be required to
submit the Project Request (PR), using OCD Project Request Form No. 99-02, that
details the following:
 (a) general description or brief of the project;
(b) objectives and justifications for undertaking the project, which should highlight
the benefits to the locality and the expected impact to the local
program/project arising from the full and efficient implementation of social
services and facilities, at the local levels;
(c) target outputs or key result areas;
(d) schedule of activities and details of requirements;
(e) total cost requirement of the project;
(f) proponents counterpart funding share, if any, and identified source(s) of
counterpart funds for the full implementation of the project;
(g) requested amount of project cost to be covered by the LGSEF.
Further, under the guidelines formulated by the Oversight Committee as contained in Attachment
- Resolution No. OCD-99-003, the LGUs were required to identify the projects eligible for funding
under the one-billion-peso portion of the LGSEF and submit the project proposals thereof and other
documentary requirements to the DILG for appraisal. The project proposals that passed the DILGs
appraisal would then be submitted to the Oversight Committee for review, evaluation and
approval. Upon its approval, the Oversight Committee would then serve notice to the DBM for the
preparation of the Special Allotment Release Order (SARO) and Notice of Cash Allocation (NCA) to
effect the release of funds to the said LGUs.
The LGSEF in the GAA of 2000
Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount
of P111,778,000,000 was allotted as the share of the LGUs in the internal revenue taxes. As in the
GAA of 1999, the GAA of 2000 contained a proviso earmarking five billion pesos of the IRA for the
LGSEF. This proviso, found in Item No. 1, Special Provisions, Title XXXVII A. Internal Revenue
Allotment, was similarly worded as that contained in the GAA of 1999.
The Oversight Committee, in its Resolution No. OCD-2000-023 dated June 22, 2000, adopted the
following allocation scheme governing the five billion pesos LGSEF for 2000:
1. The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the four
levels of LGUs, i.e., provinces, cities, municipalities, and barangays, using the
following percentage-sharing formula agreed upon and jointly endorsed by the
various Leagues of LGUs:
For Provinces 26% or P 910,000,000
For Cities 23% or 805,000,000
For Municipalities 35% or 1,225,000,000
For Barangays 16% or 560,000,000
Provided that the respective Leagues representing the provinces, cities,
municipalities and barangays shall draw up and adopt the horizontal
distribution/sharing schemes among the member LGUs whereby the Leagues
concerned may opt to adopt direct financial assistance or project-based arrangement,
such that the LGSEF allocation for individual LGU shall be released directly to the
LGU concerned;
Provided further that the individual LGSEF shares to LGUs are used in accordance
with the general purposes and guidelines promulgated by the OCD for the
implementation of the LGSEF at the local levels pursuant to Res. No. OCD-99-006
dated October 7, 1999 and pursuant to the Leagues guidelines and mechanism as
approved by the OCD;
Provided further that each of the Leagues shall submit to the OCD for its approval
their respective allocation scheme, the list of LGUs with the corresponding LGSEF
shares and the corresponding project categories if project-based;
Provided further that upon approval by the OCD, the lists of LGUs shall be endorsed
to the DBM as the basis for the preparation of the corresponding NCAs, SAROs, and
related budget/release documents.
2. The remaining P1,500,000,000 of the CY 2000 LGSEF shall be earmarked to support the
following initiatives and local affirmative action projects, to be endorsed to and
approved by the Oversight Committee on Devolution in accordance with the OCD
agreements, guidelines, procedures and documentary requirements:
On July 5, 2000, then President Estrada issued a Memorandum authorizing then Executive
Secretary Zamora and the DBM to implement and release the 2.5 billion pesos LGSEF for 2000 in
accordance with Resolution No. OCD-2000-023.
Thereafter, the Oversight Committee, now under the administration of President Gloria
Macapagal-Arroyo, promulgated Resolution No. OCD-2001-29 entitled ADOPTING RESOLUTION
NO. OCD-2000-023 IN THE ALLOCATION, IMPLEMENTATION AND RELEASE OF THE
REMAINING P2.5 BILLION LGSEF FOR CY 2000. Under this resolution, the amount of one billion
pesos of the LGSEF was to be released in accordance with paragraph 1 of Resolution No. OCD-2000-
23, to complete the 3.5 billion pesos allocated to the LGUs, while the amount of 1.5 billion pesos was
allocated for the LAAP. However, out of the latter amount, P400,000,000 was to be allocated and
released as follows: P50,000,000 as financial assistance to the LAAPs of LGUs; P275,360,227 as
financial assistance to cover the decrease in the IRA of LGUs concerned due to reduction in land area;
and P74,639,773 for the LGSEF Capability-Building Fund.
The LGSEF in the GAA of 2001
In view of the failure of Congress to enact the general appropriations law for 2001, the GAA of
2000 was deemed re-enacted, together with the IRA of the LGUs therein and the proviso earmarking
five billion pesos thereof for the LGSEF.
On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001 allocating
the five billion pesos LGSEF for 2001 as follows:
Modified Codal Formula P 3.000 billion
Priority Projects 1.900 billion
Capability Building Fund .100 billion
P 5.000 billion
RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be allocated according to
the modified codal formula shall be released to the four levels of LGUs, i.e., provinces, cities,
municipalities and barangays, as follows:
LGUs Percentage Amount
Provinces 25 P 0.750 billion
Cities 25 0.750
Municipalities 35 1.050
Barangays 15 0.450
100 P 3.000 billion
RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed according
to the following criteria:
1.0 For projects of the 4th, 5th and 6th class LGUs; or
2.0 Projects in consonance with the Presidents State of the Nation Address (SONA)/summit
commitments.
RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall be
distributed in accordance with the recommendation of the Leagues of Provinces, Cities, Municipalities
and Barangays, and approved by the OCD.
Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the individual members
of the Oversight Committee seeking the reconsideration of Resolution No. OCD-2002-001. He also
wrote to Pres. Macapagal-Arroyo urging her to disapprove said resolution as it violates the
Constitution and the Local Government Code of 1991.
On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No. OCD-2002-001.
The Petitioners Case
The petitioner now comes to this Court assailing as unconstitutional and void the provisos in the
GAAs of 1999, 2000 and 2001, relating to the LGSEF. Similarly assailed are the Oversight
Committees Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-
029 and OCD-2002-001 issued pursuant thereto. The petitioner submits that the assailed provisos in
the GAAs and the OCD resolutions, insofar as they earmarked the amount of five billion pesos of the
IRA of the LGUs for 1999, 2000 and 2001 for the LGSEF and imposed conditions for the release
thereof, violate the Constitution and the Local Government Code of 1991.
Section 6, Article X of the Constitution is invoked as it mandates that the just share of the LGUs
shall be automatically released to them. Sections 18 and 286 of the Local Government Code of 1991,
which enjoin that the just share of the LGUs shall be automatically and directly released to them
without need of further action are, likewise, cited.
The petitioner posits that to subject the distribution and release of the five-billion-peso portion of
the IRA, classified as the LGSEF, to compliance by the LGUs with the implementing rules and
regulations, including the mechanisms and guidelines prescribed by the Oversight Committee,
contravenes the explicit directive of the Constitution that the LGUs share in the national taxes shall be
automatically released to them. The petitioner maintains that the use of the word shall must be given a
compulsory meaning.
To further buttress this argument, the petitioner contends that to vest the Oversight Committee
with the authority to determine the distribution and release of the LGSEF, which is a part of the IRA of
the LGUs, is an anathema to the principle of local autonomy as embodied in the Constitution and the
Local Government Code of 1991. The petitioner cites as an example the experience in 2001 when the
release of the LGSEF was long delayed because the Oversight Committee was not able to convene that
year and no guidelines were issued therefor. Further, the possible disapproval by the Oversight
Committee of the project proposals of the LGUs would result in the diminution of the latters share in
the IRA.
Another infringement alleged to be occasioned by the assailed OCD resolutions is the improper
amendment to Section 285 of the Local Government Code of 1991 on the percentage sharing of the
IRA among the LGUs. Said provision allocates the IRA as follows: Provinces 23%; Cities 23%;
Municipalities 34%; and Barangays 20%.[8] This formula has been improperly amended or modified,
with respect to the five-billion-peso portion of the IRA allotted for the LGSEF, by the assailed OCD
resolutions as they invariably provided for a different sharing scheme.
The modifications allegedly constitute an illegal amendment by the executive branch of a
substantive law. Moreover, the petitioner mentions that in the Letter dated December 5, 2001 of
respondent Executive Secretary Romulo addressed to respondent Secretary Boncodin, the former
endorsed to the latter the release of funds to certain LGUs from the LGSEF in accordance with the
handwritten instructions of President Arroyo. Thus, the LGUs are at a loss as to how a portion of the
LGSEF is actually allocated. Further, there are still portions of the LGSEF that, to date, have not been
received by the petitioner; hence, resulting in damage and injury to the petitioner.
The petitioner prays that the Court declare as unconstitutional and void the assailed provisos
relating to the LGSEF in the GAAs of 1999, 2000 and 2001 and the assailed OCD resolutions
(Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and
OCD-2002-001) issued by the Oversight Committee pursuant thereto. The petitioner, likewise, prays
that the Court direct the respondents to rectify the unlawful and illegal distribution and releases of the
LGSEF for the aforementioned years and release the same in accordance with the sharing formula
under Section 285 of the Local Government Code of 1991. Finally, the petitioner urges the Court to
declare that the entire IRA should be released automatically without further action by the LGUs as
required by the Constitution and the Local Government Code of 1991.
The Respondents Arguments
The respondents, through the Office of the Solicitor General, urge the Court to dismiss the
petition on procedural and substantive grounds. On the latter, the respondents contend that the assailed
provisos in the GAAs of 1999, 2000 and 2001 and the assailed resolutions issued by the Oversight
Committee are not constitutionally infirm. The respondents advance the view that Section 6, Article X
of the Constitution does not specify that the just share of the LGUs shall be determined solely by the
Local Government Code of 1991. Moreover, the phrase as determined by law in the same
constitutional provision means that there exists no limitation on the power of Congress to determine
what is the just share of the LGUs in the national taxes.In other words, Congress is the arbiter of what
should be the just share of the LGUs in the national taxes.
The respondents further theorize that Section 285 of the Local Government Code of 1991, which
provides for the percentage sharing of the IRA among the LGUs, was not intended to be a fixed
determination of their just share in the national taxes. Congress may enact other laws, including
appropriations laws such as the GAAs of 1999, 2000 and 2001, providing for a different sharing
formula. Section 285 of the Local Government Code of 1991 was merely intended to be the default
share of the LGUs to do away with the need to determine annually by law their just share. However,
the LGUs have no vested right in a permanent or fixed percentage as Congress may increase or
decrease the just share of the LGUs in accordance with what it believes is appropriate for their
operation. There is nothing in the Constitution which prohibits Congress from making such
determination through the appropriations laws. If the provisions of a particular statute, the GAA in this
case, are within the constitutional power of the legislature to enact, they should be sustained whether
the courts agree or not in the wisdom of their enactment.
On procedural grounds, the respondents urge the Court to dismiss the petition outright as the
same is defective. The petition allegedly raises factual issues which should be properly threshed out in
the lower courts, not this Court, not being a trier of facts. Specifically, the petitioners allegation that
there are portions of the LGSEF that it has not, to date, received, thereby causing it (the petitioner)
injury and damage, is subject to proof and must be substantiated in the proper venue, i.e., the lower
courts.
Further, according to the respondents, the petition has already been rendered moot and academic
as it no longer presents a justiciable controversy. The IRAs for the years 1999, 2000 and 2001, have
already been released and the government is now operating under the 2003 budget. In support of this,
the respondents submitted certifications issued by officers of the DBM attesting to the release of the
allocation or shares of the petitioner in the LGSEF for 1999, 2000 and 2001. There is, therefore,
nothing more to prohibit.
Finally, the petitioner allegedly has no legal standing to bring the suit because it has not suffered
any injury. In fact, the petitioners just share has even increased. Pursuant to Section 285 of the Local
Government Code of 1991, the share of the provinces is 23%. OCD Nos. 99-005, 99-006 and 99-003
gave the provinces 40% of P2 billion of the LGSEF. OCD Nos. 2000-023 and 2001-029 apportioned
26% of P3.5 billion to the provinces. On the other hand, OCD No. 2001-001 allocated 25% of P3
billion to the provinces. Thus, the petitioner has not suffered any injury in the implementation of the
assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions.
The Ruling of the Court
Procedural Issues
Before resolving the petition on its merits, the Court shall first rule on the following procedural
issues raised by the respondents: (1) whether the petitioner has legal standing or locus standi to file the
present suit; (2) whether the petition involves factual questions that are properly cognizable by the
lower courts; and (3) whether the issue had been rendered moot and academic.
The petitioner has locus standi
to maintain the present suit
The gist of the question of standing is whether a party has alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional questions.
[9]
Accordingly, it has been held that the interest of a party assailing the constitutionality of a statute
must be direct and personal. Such party must be able to show, not only that the law or any government
act is invalid, but also that he has sustained or is in imminent danger of sustaining some direct injury as
a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about to be denied some right or privilege to which
he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the
statute or act complained of.[10]
The Court holds that the petitioner possesses the requisite standing to maintain the present
suit. The petitioner, a local government unit, seeks relief in order to protect or vindicate an interest of
its own, and of the other LGUs. This interest pertains to the LGUs share in the national taxes or the
IRA. The petitioners constitutional claim is, in substance, that the assailed provisos in the GAAs of
1999, 2000 and 2001, and the OCD resolutions contravene Section 6, Article X of the Constitution,
mandating the automatic release to the LGUs of their share in the national taxes. Further, the injury
that the petitioner claims to suffer is the diminution of its share in the IRA, as provided under Section
285 of the Local Government Code of 1991, occasioned by the implementation of the assailed
measures. These allegations are sufficient to grant the petitioner standing to question the validity of the
assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions as the petitioner
clearly has a plain, direct and adequate interest in the manner and distribution of the IRA among the
LGUs.
The petition involves a significant
legal issue
The crux of the instant controversy is whether the assailed provisos contained in the GAAs of
1999, 2000 and 2001, and the OCD resolutions infringe the Constitution and the Local Government
Code of 1991. This is undoubtedly a legal question. On the other hand, the following facts are not
disputed:
1. The earmarking of five billion pesos of the IRA for the LGSEF in the assailed provisos in
the GAAs of 1999, 2000 and re-enacted budget for 2001;
2. The promulgation of the assailed OCD resolutions providing for the allocation schemes
covering the said five billion pesos and the implementing rules and regulations therefor;
and
 3. The release of the LGSEF to the LGUs only upon their compliance with the
implementing rules and regulations, including the guidelines and mechanisms,
prescribed by the Oversight Committee.
Considering that these facts, which are necessary to resolve the legal question now before this
Court, are no longer in issue, the same need not be determined by a trial court. [11] In any case, the rule
on hierarchy of courts will not prevent this Court from assuming jurisdiction over the petition. The said
rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where
exceptional and compelling circumstances justify availment of a remedy within and calling for the
exercise of this Courts primary jurisdiction.[12]
The crucial legal issue submitted for resolution of this Court entails the proper legal interpretation
of constitutional and statutory provisions. Moreover, the transcendental importance of the case, as it
necessarily involves the application of the constitutional principle on local autonomy, cannot be
gainsaid. The nature of the present controversy, therefore, warrants the relaxation by this Court of
procedural rules in order to resolve the case forthwith.
The substantive issue needs to be resolved
notwithstanding the supervening events
Granting arguendo that, as contended by the respondents, the resolution of the case had already
been overtaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had
already been released and the government is now operating under a new appropriations law, still, there
is compelling reason for this Court to resolve the substantive issue raised by the instant
petition. Supervening events, whether intended or accidental, cannot prevent the Court from rendering
a decision if there is a grave violation of the Constitution. [13] Even in cases where supervening events
had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised
to formulate controlling principles to guide the bench, bar and public.[14]
Another reason justifying the resolution by this Court of the substantive issue now before it is the
rule that courts will decide a question otherwise moot and academic if it is capable of repetition, yet
evading review.[15] For the GAAs in the coming years may contain provisos similar to those now being
sought to be invalidated, and yet, the question may not be decided before another GAA is enacted. It,
thus, behooves this Court to make a categorical ruling on the substantive issue now.
Substantive Issue
As earlier intimated, the resolution of the substantive legal issue in this case calls for the
application of a most important constitutional policy and principle, that of local autonomy. [16] In Article
II of the Constitution, the State has expressly adopted as a policy that:
Section 25. The State shall ensure the autonomy of local governments.
An entire article (Article X) of the Constitution has been devoted to guaranteeing and promoting
the autonomy of LGUs. Section 2 thereof reiterates the State policy in this wise:
Section 2. The territorial and political subdivisions shall enjoy local autonomy.
Consistent with the principle of local autonomy, the Constitution confines the Presidents power
over the LGUs to one of general supervision. [17] This provision has been interpreted to exclude the
power of control. The distinction between the two powers was enunciated in Drilon v. Lim:[18]
An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his
discretion, order the act undone or re-done by his subordinate or he may even decide to do it
himself.Supervision does not cover such authority. The supervisor or superintendent merely sees to it
that the rules are followed, but he himself does not lay down such rules, nor does he have the
discretion to modify or replace them. If the rules are not observed, he may order the work done or re-
done but only to conform to the prescribed rules. He may not prescribe his own manner for doing the
act. He has no judgment on this matter except to see to it that the rules are followed.[19]
The Local Government Code of 1991[20] was enacted to flesh out the mandate of the Constitution.
[21]
The State policy on local autonomy is amplified in Section 2 thereof:
Sec. 2. Declaration of Policy. (a) It is hereby declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make them more effective partners
in the attainment of national goals. Toward this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization whereby local
government units shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the National Government to the local government units.
Guided by these precepts, the Court shall now determine whether the assailed provisos in the
GAAs of 1999, 2000 and 2001, earmarking for each corresponding year the amount of five billion
pesos of the IRA for the LGSEF and the OCD resolutions promulgated pursuant thereto, transgress the
Constitution and the Local Government Code of 1991.
The assailed provisos in the GAAs of 1999, 2000
and 2001 and the OCD resolutions violate the
constitutional precept on local autonomy
Section 6, Article X of the Constitution reads:
Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes
which shall be automatically released to them.
When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a
just share in the national taxes; (2) the just share shall be determined by law; and (3) the just share shall
be automatically released to the LGUs.
The Local Government Code of 1991, among its salient provisions, underscores the automatic
release of the LGUs just share in this wise:
Sec. 18. Power to Generate and Apply Resources. Local government units shall have the power and
authority to establish an organization that shall be responsible for the efficient and effective
implementation of their development plans, program objectives and priorities; to create their own
sources of revenue and to levy taxes, fees, and charges which shall accrue exclusively for their use and
disposition and which shall be retained by them; to have a just share in national taxes which shall be
automatically and directly released to them without need of further action;
...
Sec. 286. Automatic Release of Shares. (a) The share of each local government unit shall be released,
without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as
the case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall
not be subject to any lien or holdback that may be imposed by the national government for whatever
purpose.
(b) Nothing in this Chapter shall be understood to diminish the share of local government units under
existing laws.
Websters Third New International Dictionary defines automatic as involuntary either wholly or to
a major extent so that any activity of the will is largely negligible; of a reflex nature; without volition;
mechanical; like or suggestive of an automaton. Further, the word automatically is defined as in an
automatic manner: without thought or conscious intention. Being automatic, thus, connotes something
mechanical, spontaneous and perfunctory. As such, the LGUs are not required to perform any act to
receive the just share accruing to them from the national coffers. As emphasized by the Local
Government Code of 1991, the just share of the LGUs shall be released to them without need of further
action. Construing Section 286 of the LGC, we held in Pimentel, Jr. v. Aguirre,[22] viz:
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the National internal revenue. This is mandated by no
less than the Constitution. The Local Government Code specifies further that the release shall be made
directly to the LGU concerned within five (5) days after every quarter of the year and shall not be
subject to any lien or holdback that may be imposed by the national government for whatever
purpose. As a rule, the term SHALL is a word of command that must be given a compulsory
meaning. The provision is, therefore, IMPERATIVE.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the
LGUs IRA pending the assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation in the country. Such withholding clearly contravenes the
Constitution and the law. Although temporary, it is equivalent to a holdback, which means something
held back or withheld, often temporarily. Hence, the temporary nature of the retention by the national
government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis,
Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal
autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to
withhold the LGUs IRA, but the rule of law requires that even the best intentions must be carried out
within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by
legal methods.[23]
The just share of the LGUs is incorporated as the IRA in the appropriations law or GAA enacted
by Congress annually. Under the assailed provisos in the GAAs of 1999, 2000 and 2001, a portion of
the IRA in the amount of five billion pesos was earmarked for the LGSEF, and these provisos imposed
the condition that such amount shall be released to the local government units subject to the
implementing rules and regulations, including such mechanisms and guidelines for the equitable
allocations and distribution of said fund among local government units subject to the guidelines that
may be prescribed by the Oversight Committee on Devolution. Pursuant thereto, the Oversight
Committee, through the assailed OCD resolutions, apportioned the five billion pesos LGSEF such that:
For 1999
P2 billion - allocated according to Sec. 285 LGC
P2 billion - Modified Sharing Formula (Provinces 40%;
Cities 20%; Municipalities 40%)
P1 billion projects (LAAP) approved by OCD.[24]
For 2000
P3.5 billion Modified Sharing Formula (Provinces 26%;
Cities 23%; Municipalities 35%; Barangays 16%);
P1.5 billion projects (LAAP) approved by the OCD.[25]
For 2001
P3 billion Modified Sharing Formula (Provinces 25%;
Cities 25%; Municipalities 35%; Barangays 15%)
P1.9 billion priority projects
P100 million capability building fund.[26]
Significantly, the LGSEF could not be released to the LGUs without the Oversight Committees
prior approval. Further, with respect to the portion of the LGSEF allocated for various projects of the
LGUs (P1 billion for 1999; P1.5 billion for 2000 and P2 billion for 2001), the Oversight Committee,
through the assailed OCD resolutions, laid down guidelines and mechanisms that the LGUs had to
comply with before they could avail of funds from this portion of the LGSEF. The guidelines required
(a) the LGUs to identify the projects eligible for funding based on the criteria laid down by the
Oversight Committee; (b) the LGUs to submit their project proposals to the DILG for appraisal; (c) the
project proposals that passed the appraisal of the DILG to be submitted to the Oversight Committee for
review, evaluation and approval. It was only upon approval thereof that the Oversight Committee
would direct the DBM to release the funds for the projects.
To the Courts mind, the entire process involving the distribution and release of the LGSEF is
constitutionally impermissible. The LGSEF is part of the IRA or just share of the LGUs in the national
taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations,
including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from
time to time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD
resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory
mandate that the just share of the LGUs shall be automatically released to them. The LGUs are, thus,
placed at the mercy of the Oversight Committee.
Where the law, the Constitution in this case, is clear and unambiguous, it must be taken to mean
exactly what it says, and courts have no choice but to see to it that the mandate is obeyed. [27] Moreover,
as correctly posited by the petitioner, the use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion. [28]
Indeed, the Oversight Committee exercising discretion, even control, over the distribution and
release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local
autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the Oversight
Committee was created merely to formulate the rules and regulations for the efficient and effective
implementation of the Local Government Code of 1991 to ensure compliance with the principles of
local autonomy as defined under the Constitution. [29] In fact, its creation was placed under the title of
Transitory Provisions, signifying its ad hoc character. According to Senator Aquilino Q. Pimentel, the
principal author and sponsor of the bill that eventually became Rep. Act No. 7160, the Committees
work was supposed to be done a year from the approval of the Code, or on October 10, 1992. [30] The
Oversight Committees authority is undoubtedly limited to the implementation of the Local
Government Code of 1991, not to supplant or subvert the same. Neither can it exercise control over the
IRA, or even a portion thereof, of the LGUs.
That the automatic release of the IRA was precisely intended to guarantee and promote local
autonomy can be gleaned from the discussion below between Messrs. Jose N. Nolledo and Regalado
M. Maambong, then members of the 1986 Constitutional Commission, to wit:
MR. MAAMBONG. Unfortunately, under Section 198 of the Local Government Code, the existence
of subprovinces is still acknowledged by the law, but the statement of the Gentleman on this point will
have to be taken up probably by the Committee on Legislation. A second point, Mr. Presiding Officer,
is that under Article 2, Section 10 of the 1973 Constitution, we have a provision which states:
The State shall guarantee and promote the autonomy of local government units, especially
the barrio, to insure their fullest development as self-reliant communities.
This provision no longer appears in the present configuration; does this mean that the
concept of giving local autonomy to local governments is no longer adopted as far as this
Article is concerned?
MR. NOLLEDO. No. In the report of the Committee on Preamble, National Territory, and Declaration
of Principles, that concept is included and widened upon the initiative of Commissioner Bennagen.
MR. MAAMBONG. Thank you for that.
With regard to Section 6, sources of revenue, the creation of sources as provided by previous law was
subject to limitations as may be provided by law, but now, we are using the term subject to such
guidelines as may be fixed by law. In Section 7, mention is made about the unique, distinct and
exclusive charges and contributions, and in Section 8, we talk about exclusivity of local taxes and the
share in the national wealth. Incidentally, I was one of the authors of this provision, and I am very
thankful. Does this indicate local autonomy, or was the wording of the law changed to give more
autonomy to the local government units?[31]
MR. NOLLEDO. Yes. In effect, those words indicate also decentralization because local political units
can collect taxes, fees and charges subject merely to guidelines, as recommended by the league of
governors and city mayors, with whom I had a dialogue for almost two hours. They told me that
limitations may be questionable in the sense that Congress may limit and in effect deny the right later
on.
MR. MAAMBONG. Also, this provision on automatic release of national tax share points to more
local autonomy. Is this the intention?
MR. NOLLEDO. Yes, the Commissioner is perfectly right.[32]
The concept of local autonomy was explained in Ganzon v. Court of Appeals[33] in this wise:
As the Constitution itself declares, local autonomy means a more responsive and accountable local
government structure instituted through a system of decentralization. The Constitution, as we observed,
does nothing more than to break up the monopoly of the national government over the affairs of local
governments and as put by political adherents, to liberate the local governments from the imperialism
of Manila. Autonomy, however, is not meant to end the relation of partnership and interdependence
between the central administration and local government units, or otherwise, to usher in a regime of
federalism. The Charter has not taken such a radical step. Local governments, under the Constitution,
are subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically,
to enhance self-government.
As we observed in one case, decentralization means devolution of national administration but not
power to the local levels. Thus:
Now, autonomy is either decentralization of administration or decentralization of power. There is
decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make
local governments more responsive and accountable and ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national development and social
progress. At the same time, it relieves the central government of the burden of managing local affairs
and enables it to concentrate on national concerns. The President exercises general supervision over
them, but only to ensure that local affairs are administered according to law. He has no control over
their acts in the sense that he can substitute their judgments with his own.
Decentralization of power, on the other hand, involves an abdication of political power in the [sic]
favor of local governments [sic] units declared to be autonomous. In that case, the autonomous
government is free to chart its own destiny and shape its future with minimum intervention from
central authorities. According to a constitutional author, decentralization of power amounts to self-
immolation, since in that event, the autonomous government becomes accountable not to the central
authorities but to its constituency.[34]
 Local autonomy includes both administrative and fiscal autonomy. The fairly recent case
of Pimentel v. Aguirre[35] is particularly instructive. The Court declared therein that local fiscal
autonomy includes the power of the LGUs to, inter alia, allocate their resources in accordance with
their own priorities:
Under existing law, local government units, in addition to having administrative autonomy in the
exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local
governments have the power to create their own sources of revenue in addition to their equitable share
in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof. They are not formulated at the
national level and imposed on local governments, whether they are relevant to local needs and
resources or not ...[36]
Further, a basic feature of local fiscal autonomy is the constitutionally
mandated automatic release of the shares of LGUs in the national internal revenue.[37]
Following this ratiocination, the Court in Pimentel struck down as unconstitutional Section 4 of
Administrative Order (A.O.) No. 372 which ordered the withholding, effective January 1, 1998, of ten
percent of the LGUs IRA pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation.
In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD
resolutions constitute a withholding of a portion of the IRA. They put on hold the distribution and
release of the five billion pesos LGSEF and subject the same to the implementing rules and
regulations, including the guidelines and mechanisms prescribed by the Oversight Committee from
time to time. Like Section 4 of A.O. 372, the assailed provisos in the GAAs of 1999, 2000 and 2001
and the OCD resolutions effectively encroach on the fiscal autonomy enjoyed by the LGUs and must
be struck down. They cannot, therefore, be upheld.
The assailed provisos in the GAAs of 1999, 2000
and 2001 and the OCD resolutions cannot amend
Section 285 of the Local Government Code of 1991
Section 284[38] of the Local Government Code provides that, beginning the third year of its
effectivity, the LGUs share in the national internal revenue taxes shall be 40%. This percentage is fixed
and may not be reduced except in the event the national government incurs an unmanageable public
sector deficit" and only upon compliance with stringent requirements set forth in the same section:
Sec. 284. ...
Provided, That in the event that the national government incurs an unmanageable public sector deficit,
the President of the Philippines is hereby authorized, upon recommendation of Secretary of Finance,
Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to
consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to
make the necessary adjustments in the internal revenue allotment of local government units but in no
case shall the allotment be less than thirty percent (30%) of the collection of the national internal
revenue taxes of the third fiscal year preceding the current fiscal year; Provided, further That in the
first year of the effectivity of this Code, the local government units shall, in addition to the thirty
percent (30%) internal revenue allotment which shall include the cost of devolved functions for
essential public services, be entitled to receive the amount equivalent to the cost of devolved personnel
services.
Thus, from the above provision, the only possible exception to the mandatory automatic release
of the LGUs IRA is if the national internal revenue collections for the current fiscal year is less than 40
percent of the collections of the preceding third fiscal year, in which case what should be automatically
released shall be a proportionate amount of the collections for the current fiscal year. The adjustment
may even be made on a quarterly basis depending on the actual collections of national internal revenue
taxes for the quarter of the current fiscal year. In the instant case, however, there is no allegation that
the national internal revenue tax collections for the fiscal years 1999, 2000 and 2001 have fallen
compared to the preceding three fiscal years.
Section 285 then specifies how the IRA shall be allocated among the LGUs:
Sec. 285. Allocation to Local Government Units. The share of local government units in the internal
revenue allotment shall be allocated in the following manner:
(a) Provinces Twenty-three (23%)
(b) Cities Twenty-three percent (23%);
(c) Municipalities Thirty-four (34%); and
(d) Barangays Twenty percent (20%).
However, this percentage sharing is not followed with respect to the five billion pesos LGSEF as
the assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999, 2000 and
2001, provided for a different sharing scheme. For example, for 1999, P2 billion of the LGSEF was
allocated as follows: Provinces 40%; Cities 20%; Municipalities 40%. [39] For 2000, P3.5 billion of the
LGSEF was allocated in this manner: Provinces 26%; Cities 23%; Municipalities 35%; Barangays
26%.[40] For 2001, P3 billion of the LGSEF was allocated, thus: Provinces 25%; Cities 25%;
Municipalities 35%; Barangays 15%.[41]
The respondents argue that this modification is allowed since the Constitution does not specify
that the just share of the LGUs shall only be determined by the Local Government Code of 1991. That
it is within the power of Congress to enact other laws, including the GAAs, to increase or decrease the
just share of the LGUs. This contention is untenable. The Local Government Code of 1991 is a
substantive law. And while it is conceded that Congress may amend any of the provisions therein, it
may not do so through appropriations laws or GAAs. Any amendment to the Local Government Code
of 1991 should be done in a separate law, not in the appropriations law, because Congress cannot
include in a general appropriation bill matters that should be more properly enacted in a separate
legislation.[42]
 A general appropriations bill is a special type of legislation, whose content is limited to specified Our national officials should not only comply with the constitutional provisions on local
sums of money dedicated to a specific purpose or a separate fiscal unit. [43] Any provision therein which autonomy but should also appreciate the spirit and liberty upon which these provisions are based. [50]
is intended to amend another law is considered an inappropriate provision. The category of
inappropriate provisions includes unconstitutional provisions and provisions which are intended to WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations
amend other laws, because clearly these kinds of laws have no place in an appropriations bill.[44] Acts of 1999, 2000 and 2001, and the assailed OCD Resolutions, are declared
UNCONSTITUTIONAL.
Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein,
which are fixed in the Local Government Code of 1991, are matters of general and substantive law. To SO ORDERED.
permit Congress to undertake these amendments through the GAAs, as the respondents contend, would
be to give Congress the unbridled authority to unduly infringe the fiscal autonomy of the LGUs, and
thus put the same in jeopardy every year. This, the Court cannot sanction.
It is relevant to point out at this juncture that, unlike those of 1999, 2000 and 2001, the GAAs of
2002 and 2003 do not contain provisos similar to the herein assailed provisos. In other words, the
GAAs of 2002 and 2003 have not earmarked any amount of the IRA for the LGSEF. Congress had
perhaps seen fit to discontinue the practice as it recognizes its infirmity.Nonetheless, as earlier
mentioned, this Court has deemed it necessary to make a definitive ruling on the matter in order to
prevent its recurrence in future appropriations laws and that the principles enunciated herein would
serve to guide the bench, bar and public.
Conclusion

In closing, it is well to note that the principle of local autonomy, while concededly expounded in
greater detail in the present Constitution, dates back to the turn of the century when President William
McKinley, in his Instructions to the Second Philippine Commission dated April 7, 1900, ordered the
new Government to devote their attention in the first instance to the establishment of municipal
governments in which the natives of the Islands, both in the cities and in the rural communities, shall
be afforded the opportunity to manage their own affairs to the fullest extent of which they are capable,
and subject to the least degree of supervision and control in which a careful study of their capacities
and observation of the workings of native control show to be consistent with the maintenance of law,
order and loyalty.[45] While the 1935 Constitution had no specific article on local autonomy,
nonetheless, it limited the executive power over local governments to general supervision ... as may be
provided by law.[46] Subsequently, the 1973 Constitution explicitly stated that [t]he State shall
guarantee and promote the autonomy of local government units, especially the barangay to ensure their
fullest development as self-reliant communities. [47] An entire article on Local Government was
incorporated therein. The present Constitution, as earlier opined, has broadened the principle of local
autonomy. The 14 sections in Article X thereof markedly increased the powers of the local
governments in order to accomplish the goal of a more meaningful local autonomy.
Indeed, the value of local governments as institutions of democracy is measured by the degree of
autonomy that they enjoy.[48] As eloquently put by M. De Tocqueville, a distinguished French political
writer, [l]ocal assemblies of citizens constitute the strength of free nations. Township meetings are to
liberty what primary schools are to science; they bring it within the peoples reach; they teach men how
to use and enjoy it. A nation may establish a system of free governments but without the spirit of
municipal institutions, it cannot have the spirit of liberty.[49]
 [G.R. No. 132988. July 19, 2000]
AQUILINO Q. PIMENTEL JR., petitioner, vs. Hon. ALEXANDER AGUIRRE in his capacity as
Executive Secretary, Hon. EMILIA BONCODIN in her capacity as Secretary of the
Department of Budget and Management, respondents.
ROBERTO PAGDANGANAN, intervenor.
DECISION
PANGANIBAN, J.:
The Constitution vests the President with the power of supervision, not control, over local
government units (LGUs). Such power enables him to see to it that LGUs and their officials execute
their tasks in accordance with law. While he may issue advisories and seek their cooperation in solving
economic difficulties, he cannot prevent them from performing their tasks and using available
resources to achieve their goals. He may not withhold or alter any authority or power given them by
the law. Thus, the withholding of a portion of internal revenue allotments legally due them cannot be
directed by administrative fiat.
The Case
Before us is an original Petition for Certiorari and Prohibition seeking (1) to annul Section 1 of
Administrative Order (AO) No. 372, insofar as it requires local government units to reduce their
expenditures by 25 percent of their authorized regular appropriations for non-personal services; and (2)
to enjoin respondents from implementing Section 4 of the Order, which withholds a portion of their
internal revenue allotments.
On November 17, 1998, Roberto Pagdanganan, through Counsel Alberto C. Agra, filed a Motion
for Intervention/Motion to Admit Petition for Intervention, [1] attaching thereto his Petition in
Intervention[2] joining petitioner in the reliefs sought. At the time, intervenor was the provincial
governor of Bulacan, national president of the League of Provinces of the Philippines and chairman of
the League of Leagues of Local Governments. In a Resolution dated December 15, 1998, the Court
noted said Motion and Petition.
The Facts and the Arguments
On December 27, 1997, the President of the Philippines issued AO 372. Its full text, with
emphasis on the assailed provisions, is as follows:
"ADMINISTRATIVE ORDER NO. 372
ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998
WHEREAS, the current economic difficulties brought about by the peso depreciation requires
continued prudence in government fiscal management to maintain economic stability and sustain the
country's growth momentum;
WHEREAS, it is imperative that all government agencies adopt cash management measures to match
expenditures with available resources;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of
the powers vested in me by the Constitution, do hereby order and direct:
SECTION 1. All government departments and agencies, including state universities and colleges,
government-owned and controlled corporations and local governments units will identify and
implement measures in FY 1998 that will reduce total expenditures for the year by at least 25%
of authorized regular appropriations for non-personal services items, along the following
suggested areas:
1. Continued implementation of the streamlining policy on organization and staffing by
deferring action on the following:
a. Operationalization of new agencies;
b. Expansion of organizational units and/or creation of positions;
c. Filling of positions; and
d. Hiring of additional/new consultants, contractual and casual personnel, regardless of funding source.
2. Suspension of the following activities:
a. Implementation of new capital/infrastructure projects, except those which have already
been contracted out;
b. Acquisition of new equipment and motor vehicles;
c. All foreign travels of government personnel, except those associated with scholarships
and trainings funded by grants;
d. Attendance in conferences abroad where the cost is charged to the government except
those clearly essential to Philippine commitments in the international field as may be
determined by the Cabinet;
e. Conduct of trainings/workshops/seminars, except those conducted by government training
institutions and agencies in the performance of their regular functions and those that
are funded by grants;
f. Conduct of cultural and social celebrations and sports activities, except those associated
with the Philippine Centennial celebration and those involving regular
competitions/events;
 g. Grant of honoraria, except in cases where it constitutes the only source of compensation
from government received by the person concerned;
h. Publications, media advertisements and related items, except those required by law or
those already being undertaken on a regular basis;
i. Grant of new/additional benefits to employees, except those expressly and specifically
authorized by law; and
j. Donations, contributions, grants and gifts, except those given by institutions to victims of
calamities.
3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs
4. Reduction in the volume of consumption of fuel, water, office supplies, electricity and
other utilities
5. Deferment of projects that are encountering significant implementation problems
6. Suspension of all realignment of funds and the use of savings and reserves
SECTION 2. Agencies are given the flexibility to identify the specific sources of cost-savings,
provided the 25% minimum savings under Section 1 is complied with.
SECTION 3. A report on the estimated savings generated from these measures shall be submitted to
the Office of the President, through the Department of Budget and Management, on a quarterly basis
using the attached format.
SECTION 4. Pending the assessment and evaluation by the Development Budget
Coordinating Committee of the emerging fiscal situation, the amount equivalent to
10% of the internal revenue allotment to local government units shall be withheld.
SECTION 5. The Development Budget Coordination Committee shall conduct a monthly
review of the fiscal position of the National Government and if necessary, shall
recommend to the President the imposition of additional reserves or the lifting of
previously imposed reserves.
SECTION 6. This Administrative Order shall take effect January 1, 1998 and shall remain
valid for the entire year unless otherwise lifted.
DONE in the City of Manila, this 27th day of December, in the year of our Lord, nineteen hundred and
ninety-seven."
Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO 43, amending
Section 4 of AO 372, by reducing to five percent (5%) the amount of internal revenue allotment (IRA)
to be withheld from the LGUs.
Petitioner contends that the President, in issuing AO 372, was in effect exercising the power
of control over LGUs. The Constitution vests in the President, however, only the power of
general supervision over LGUs, consistent with the principle of local autonomy. Petitioner further
argues that the directive to withhold ten percent (10%) of their IRA is in contravention of Section 286
of the Local Government Code and of Section 6, Article X of the Constitution, providing for
the automatic release to each of these units its share in the national internal revenue.
The solicitor general, on behalf of the respondents, claims on the other hand that AO 372 was
issued to alleviate the "economic difficulties brought about by the peso devaluation" and constituted
merely an exercise of the President's power of supervision over LGUs. It allegedly does not violate
local fiscal autonomy, because it merely directs local governments to identify measures that will
reduce their total expenditures for non-personal services by at least 25 percent. Likewise, the
withholding of 10 percent of the LGUs IRA does not violate the statutory prohibition on the imposition
of any lien or holdback on their revenue shares, because such withholding is "temporary in nature
pending the assessment and evaluation by the Development Coordination Committee of the emerging
fiscal situation."
The Issues
The Petition[3] submits the following issues for the Court's resolution:
"A. Whether or not the president committed grave abuse of discretion [in] ordering all LGUS to adopt
a 25% cost reduction program in violation of the LGU[']S fiscal autonomy
"B. Whether or not the president committed grave abuse of discretion in ordering the withholding of
10% of the LGU[']S IRA"
In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it "directs" LGUs to reduce
their expenditures by 25 percent; and (b) Section 4 of the same issuance, which withholds 10 percent
of their internal revenue allotments, are valid exercises of the President's power of general supervision
over local governments.
Additionally, the Court deliberated on the question whether petitioner had the locus standi to
bring this suit, despite respondents' failure to raise the issue. [4] However, the intervention of Roberto
Pagdanganan has rendered academic any further discussion on this matter.
The Court's Ruling
The Petition is partly meritorious.
Main Issue:
Validity of AO 372
Insofar as LGUs Are Concerned
Before resolving the main issue, we deem it important and appropriate to define certain crucial
concepts: (1) the scope of the President's power of general supervision over local governments and (2)
the extent of the local governments' autonomy.
Scope of President's Power of Supervision Over LGUs
Section 4 of Article X of the Constitution confines the President's power over local governments
to one of general supervision. It reads as follows:
"Sec. 4. The President of the Philippines shall exercise general supervision over local governments. x x
x"
This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa,[5] the
Court contrasted the President's power of supervision over local government officials with that of his
power of control over executive officials of the national government. It was emphasized that the two
terms -- supervision and control -- differed in meaning and extent. The Court distinguished them as
follows:
"x x x In administrative law, supervision means overseeing or the power or authority of an officer to
see that subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former
may take such action or step as prescribed by law to make them perform their duties. Control, on the
other hand, means the power of an officer to alter or modify or nullify or set aside what a subordinate
officer ha[s] done in the performance of his duties and to substitute the judgment of the former for that
of the latter."[6]
In Taule v. Santos,[7] we further stated that the Chief Executive wielded no more authority than
that of checking whether local governments or their officials were performing their duties as provided
by the fundamental law and by statutes. He cannot interfere with local governments, so long as they act
within the scope of their authority. "Supervisory power, when contrasted with control, is the power of
mere oversight over an inferior body; it does not include any restraining authority over such
body,"[8] we said.
[9]
In a more recent case, Drilon v. Lim, the difference between control and supervision was further
delineated. Officers in control lay down the rules in the performance or accomplishment of an act. If
these rules are not followed, they may, in their discretion, order the act undone or redone by their
subordinates or even decide to do it themselves. On the other hand, supervision does not cover such
authority. Supervising officials merely see to it that the rules are followed, but they themselves do not
lay down such rules, nor do they have the discretion to modify or replace them. If the rules are not
observed, they may order the work done or redone, but only to conform to such rules. They may not
prescribe their own manner of execution of the act. They have no discretion on this matter except to
see to it that the rules are followed.
Under our present system of government, executive power is vested in the President. [10] The
members of the Cabinet and other executive officials are merely alter egos. As such, they are subject to
the power of control of the President, at whose will and behest they can be removed from office; or
their actions and decisions changed, suspended or reversed. [11] In contrast, the heads of political
subdivisions are elected by the people. Their sovereign powers emanate from the electorate, to whom
they are directly accountable. By constitutional fiat, they are subject to the Presidents supervision only,
not control, so long as their acts are exercised within the sphere of their legitimate powers. By the same
token, the President may not withhold or alter any authority or power given them by the Constitution
and the law.
Extent of Local Autonomy
Hand in hand with the constitutional restraint on the President's power over local governments is
the state policy of ensuring local autonomy.[12]
In Ganzon v. Court of Appeals,[13] we said that local autonomy signified "a more responsive and
accountable local government structure instituted through a system of decentralization."The grant of
autonomy is intended to "break up the monopoly of the national government over the affairs of local
governments, x x x not x x x to end the relation of partnership and interdependence between the central
administration and local government units x x x." Paradoxically, local governments are still subject to
regulation, however limited, for the purpose of enhancing self-government. [14]
Decentralization simply means the devolution of national administration, not power, to local
governments. Local officials remain accountable to the central government as the law may provide.
[15]
The difference between decentralization of administration and that of power was explained in detail
in Limbona v. Mangelin[16] as follows:
"Now, autonomy is either decentralization of administration or decentralization of power. There is
decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make
local governments 'more responsive and accountable,'[17] and 'ensure their fullest development as self-
reliant communities and make them more effective partners in the pursuit of national development and
social progress.'[18] At the same time, it relieves the central government of the burden of managing local
affairs and enables it to concentrate on national concerns. The President exercises 'general
supervision'[19] over them, but only to 'ensure that local affairs are administered according to law.'[20] He
has no control over their acts in the sense that he can substitute their judgments with his own. [21]
Decentralization of power, on the other hand, involves an abdication of political power in the favor of
local government units declared to be autonomous. In that case, the autonomous government is free to
chart its own destiny and shape its future with minimum intervention from central
authorities. According to a constitutional author, decentralization of power amounts to 'self-
immolation,' since in that event, the autonomous government becomes accountable not to the central
authorities but to its constituency."[22]
Under the Philippine concept of local autonomy, the national government has not completely
relinquished all its powers over local governments, including autonomous regions. Only administrative
powers over local affairs are delegated to political subdivisions. The purpose of the delegation is to
make governance more directly responsive and effective at the local levels. In turn, economic, political
and social development at the smaller political units are expected to propel social and economic
growth and development. But to enable the country to develop as a whole, the programs and policies
effected locally must be integrated and coordinated towards a common national goal. Thus, policy-
setting for the entire country still lies in the President and Congress. As we stated in Magtajas v. Pryce
Properties Corp., Inc., municipal governments are still agents of the national government.[23]
The Nature of AO 372
 Consistent with the foregoing jurisprudential precepts, let us now look into the nature of AO
372. As its preambular clauses declare, the Order was a "cash management measure" adopted by the
government "to match expenditures with available resources," which were presumably depleted at the
time due to "economic difficulties brought about by the peso depreciation." Because of a looming
financial crisis, the President deemed it necessary to "direct all government agencies, state universities
and colleges, government-owned and controlled corporations as well as local governments to reduce
their total expenditures by at least 25 percent along suggested areas mentioned in AO 372.
Under existing law, local government units, in addition to having administrative autonomy in the
exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local
governments have the power to create their own sources of revenue in addition to their equitable share
in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof. They are not formulated at the
national level and imposed on local governments, whether they are relevant to local needs and
resources or not. Hence, the necessity of a balancing of viewpoints and the harmonization of proposals
from both local and national officials, [24] who in any case are partners in the attainment of national
goals.
Local fiscal autonomy does not however rule out any manner of national government intervention
by way of supervision, in order to ensure that local programs, fiscal and otherwise, are consistent with
national goals. Significantly, the President, by constitutional fiat, is the head of the economic and
planning agency of the government,[25] primarily responsible for formulating and implementing
continuing, coordinated and integrated social and economic policies, plans and programs [26] for the
entire country. However, under the Constitution, the formulation and the implementation of such
policies and programs are subject to "consultations with the appropriate public agencies, various
private sectors, and local government units." The President cannot do so unilaterally.
Consequently, the Local Government Code provides:[27]
"x x x [I]n the event the national government incurs an unmanaged public sector deficit, the President
of the Philippines is hereby authorized, upon the recommendation of [the] Secretary of Finance,
Secretary of the Interior and Local Government and Secretary of Budget and Management, and subject
to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to
make the necessary adjustments in the internal revenue allotment of local government units but in no
case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue
taxes of the third fiscal year preceding the current fiscal year x x x."
There are therefore several requisites before the President may interfere in local fiscal matters: (1)
an unmanaged public sector deficit of the national government; (2) consultations with the presiding
officers of the Senate and the House of Representatives and the presidents of the various local
leagues; and (3) the corresponding recommendation of the secretaries of the Department of Finance,
Interior and Local Government, and Budget and Management. Furthermore, any adjustment in the
allotment shall in no case be less than thirty percent (30%) of the collection of national internal
revenue taxes of the third fiscal year preceding the current one.
Petitioner points out that respondents failed to comply with these requisites before the issuance
and the implementation of AO 372. At the very least, they did not even try to show that the national
government was suffering from an unmanageable public sector deficit. Neither did they claim having
conducted consultations with the different leagues of local governments.Without these requisites, the
President has no authority to adjust, much less to reduce, unilaterally the LGU's internal revenue
allotment.
The solicitor general insists, however, that AO 372 is merely directory and has been issued by the
President consistent with his power of supervision over local governments. It is intended only
to advise all government agencies and instrumentalities to undertake cost-reduction measures that will
help maintain economic stability in the country, which is facing economic difficulties. Besides, it does
not contain any sanction in case of noncompliance. Being merely an advisory, therefore, Section 1 of
AO 372 is well within the powers of the President. Since it is not a mandatory imposition, the directive
cannot be characterized as an exercise of the power of control.
While the wordings of Section 1 of AO 372 have a rather commanding tone, and while we agree
with petitioner that the requirements of Section 284 of the Local Government Code have not been
satisfied, we are prepared to accept the solicitor general's assurance that the directive to "identify and
implement measures x x x that will reduce total expenditures x x x by at least 25% of authorized
regular appropriation" is merely advisory in character, and does not constitute a mandatory or binding
order that interferes with local autonomy. The language used, while authoritative, does not amount to a
command that emanates from a boss to a subaltern.
Rather, the provision is merely an advisory to prevail upon local executives to recognize the need
for fiscal restraint in a period of economic difficulty. Indeed, all concerned would do well to heed the
President's call to unity, solidarity and teamwork to help alleviate the crisis. It is understood, however,
that no legal sanction may be imposed upon LGUs and their officials who do not follow such advice. It
is in this light that we sustain the solicitor general's contention in regard to Section 1.
Withholding a Part of LGUs' IRA
Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is
the automatic release of the shares of LGUs in the national internal revenue. This is mandated by no
less than the Constitution.[28] The Local Government Code[29] specifies further that the release shall be
made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not
be subject to any lien or holdback that may be imposed by the national government for whatever
purpose."[30] As a rule, the term "shall" is a word of command that must be given a compulsory
meaning.[31] The provision is, therefore, imperative.
Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of
the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating
Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the
Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something
held back or withheld, often temporarily."[32] Hence, the "temporary" nature of the retention by the
national government does not matter. Any retention is prohibited.
In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national
crisis, Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on
the fiscal autonomy of local governments. Concededly, the President was well-intentioned in issuing
his Order to withhold the LGUs IRA, but the rule of law requires that even the best intentions must be
carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be
carried out by legal methods.
Refutation of Justice Kapunan's Dissent
Mr. Justice Santiago M. Kapunan dissents from our Decision on the grounds that, allegedly, (1)
the Petition is premature; (2) AO 372 falls within the powers of the President as chief fiscal officer;
and (3) the withholding of the LGUs IRA is implied in the President's authority to adjust it in case of
an unmanageable public sector deficit.
First, on prematurity. According to the Dissent, when "the conduct has not yet occurred and the
challenged construction has not yet been adopted by the agency charged with administering the
administrative order, the determination of the scope and constitutionality of the executive action in
advance of its immediate adverse effect involves too remote and abstract an inquiry for the proper
exercise of judicial function."
This is a rather novel theory -- that people should await the implementing evil to befall on them
before they can question acts that are illegal or unconstitutional. Be it remembered that the real issue
here is whether the Constitution and the law are contravened by Section 4 of AO 372, not whether they
are violated by the acts implementing it. In the unanimous en banc case Taada v. Angara, [33] this Court
held that when an act of the legislative department is seriously alleged to have infringed the
Constitution, settling the controversy becomes the duty of this Court. By the mere enactment of the
questioned law or the approval of the challenged action, the dispute is said to have ripened into a
judicial controversy even without any other overt act. Indeed, even a singular violation of the
Constitution and/or the law is enough to awaken judicial duty. Said the Court:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution,
the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of
the judiciary to settle the dispute. 'The question thus posed is judicial rather than political. The duty (to
adjudicate) remains to assure that the supremacy of the Constitution is upheld.'[34] Once a 'controversy
as to the application or interpretation of a constitutional provision is raised before this Court x x x , it
becomes a legal issue which the Court is bound by constitutional mandate to decide.'[35]
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases,[36] it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of
discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or
department of the government."
In the same vein, the Court also held in Tatad v. Secretary of the Department of Energy:[37]
"x x x Judicial power includes not only the duty of the courts to settle actual controversies involving
rights which are legally demandable and enforceable, but also the duty to determine whether or not
there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of government. The courts, as guardians of the Constitution, have the
inherent authority to determine whether a statute enacted by the legislature transcends the limit
imposed by the fundamental law. Where the statute violates the Constitution, it is not only the right but
the duty of the judiciary to declare such act unconstitutional and void."
By the same token, when an act of the President, who in our constitutional scheme is a coequal of
Congress, is seriously alleged to have infringed the Constitution and the laws, as in the present case,
settling the dispute becomes the duty and the responsibility of the courts.
Besides, the issue that the Petition is premature has not been raised by the parties; hence it is
deemed waived. Considerations of due process really prevents its use against a party that has not been
given sufficient notice of its presentation, and thus has not been given the opportunity to refute it. [38]
Second, on the President's power as chief fiscal officer of the country. Justice Kapunan posits that
Section 4 of AO 372 conforms with the President's role as chief fiscal officer, who allegedly "is clothed
by law with certain powers to ensure the observance of safeguards and auditing requirements, as well
as the legal prerequisites in the release and use of IRAs, taking into account the constitutional and
statutory mandates."[39] He cites instances when the President may lawfully intervene in the fiscal
affairs of LGUs.
Precisely, such powers referred to in the Dissent have specifically been authorized by law and
have not been challenged as violative of the Constitution. On the other hand, Section 4 of AO 372, as
explained earlier, contravenes explicit provisions of the Local Government Code (LGC) and the
Constitution. In other words, the acts alluded to in the Dissent are indeed authorized by law; but, quite
the opposite, Section 4 of AO 372 is bereft of any legal or constitutional basis.
Third, on the President's authority to adjust the IRA of LGUs in case of an unmanageable public
sector deficit. It must be emphasized that in striking down Section 4 of AO 372, this Court is not ruling
out any form of reduction in the IRAs of LGUs. Indeed, as the President may make necessary
adjustments in case of an unmanageable public sector deficit, as stated in the main part of this
Decision, and in line with Section 284 of the LGC, which Justice Kapunan cites. He, however, merely
glances over a specific requirement in the same provision -- that such reduction is subject to
consultation with the presiding officers of both Houses of Congress and, more importantly, with the
presidents of the leagues of local governments.
Notably, Justice Kapunan recognizes the need for "interaction between the national government
and the LGUs at the planning level," in order to ensure that "local development plans x x x hew to
national policies and standards." The problem is that no such interaction or consultation was ever held
prior to the issuance of AO 372. This is why the petitioner and the intervenor (who was a provincial
governor and at the same time president of the League of Provinces of the Philippines and chairman of
the League of Leagues of Local Governments) have protested and instituted this action. Significantly,
respondents do not deny the lack of consultation.
In addition, Justice Kapunan cites Section 287 [40] of the LGC as impliedly authorizing the
President to withhold the IRA of an LGU, pending its compliance with certain requirements.Even a
cursory reading of the provision reveals that it is totally inapplicable to the issue at bar. It directs LGUs
to appropriate in their annual budgets 20 percent of their respective IRAs for development projects. It
speaks of no positive power granted the President to priorly withhold any amount. Not at all.
 WHEREFORE, the Petition is GRANTED. Respondents and their successors are hereby
permanently PROHIBITED from implementing Administrative Order Nos. 372 and 43, respectively
dated December 27, 1997 and December 10, 1998, insofar as local government units are concerned.
SO ORDERED.
 [G.R. No. 136831. July 30, 2002]
CAROLINA LIQUETE GANZON, petitioner, vs. HONORABLE COURT OF APPEALS,
FLORISCO BANHAW, HONORATO BANHAW, ROLANDO BANHAW, IGMEDIO
PAMA, ANGELINO ABELITA, RENATO ABELITA and AMABLE
ABELITA, respondents.
DECISION
VITUG, J.:
The primary issue raised in this petition for review is whether or not an agricultural leasehold
tenancy relation exists between petitioner Carolina Liquete Ganzon and private respondents Florisco
Banhaw, et al., such that if, indeed, the latter could so qualify as agricultural leasehold tenants, they
should not be ejected from the property in question on account of their security of tenure, or whether
such relationship is merely one of an ordinary civil law lease that would entitle petitioner, given the
factual settings, to recover possession of the property.
An action for recovery of possession with damages was filed by petitioner Carolina Ganzon in
November 1985 before the Regional Trial Court (RTC), Branch 29, of Iloilo, (Civil Case No.
16822). The action was anchored by petitioner on two causes of action, i.e., (a) expiration of the
contract of lease and (b) violation of the terms of said contract by respondent Florisco Banhaw. The
complaint contained a number of allegations, among them -
x x x (1) that plaintiff is the registered owner of a parcel of land situated in Balasa, Iloilo with an area
of 17.4909 hectares, covered by TCT Nos. T-48983, and another lot with an area of 1.7655 hectares
covered by TD No. 0085; (2) that on March 11, 1974, plaintiff and defendant Florisco Banhaw entered
into a contract of lease on said lot for a term of three (3) years, commencing from the crop year 1974-
1975 up to and including the crop year 1976-1977; (3) that it is provided in the contract of lease that
defendant Banhaw cannot sub-lease the subject land; (4) that the term of the lease has already expired
without defendant returning possession thereof, and that it was later discovered that defendant sub-
leased the property to the other defendants; (5) that, despite demands, defendants refused to vacate the
property (pp. 1-3, Complaint; pp. 1-3, Records). Thus, plaintiff prayed that judgment be rendered
ordering defendants to vacate the property and for defendants to pay plaintiff damages and attorneys
fees.[1]
Private respondents filed their answer, with counterclaim, admitting the allegations of petitioner
with the qualification that the latter, through her husband Buenaventura Ganzon, continued to receive
rentals on the property. Private respondents, however, denied petitioners allegation about the sublease
and averred that it was made with the knowledge of petitioner.Respondents submitted that the
complaint did not state a cause of action because the landholding was by then already covered by the
Operation Land Transfer Program of the government and thereby within the jurisdiction of the
Department of Agrarian Reform (DAR) as so provided in Section 12(b) of Presidential Decree No.
946 to the effect that -
x x x matters involving the administrative implementation of the transfer of the land to the tenant-
farmer under Presidential Decree No. 27 and amendatory and related decrees, orders, instructions,
rules and regulations, shall be exclusively cognizable by the Secretary of Agrarian Reform namely:
(underscoring supplied).
1. Classification and identification of land-holdings;
2. Identification of tenant-farmers and land-owners, and determination of their tenancy relationship. [2]
The case was thereupon referred to the DAR (Civil Case No. 16822) for preliminary
determination on whether a tenancy relationship existed between plaintiff and defendants. The matter,
however, remained unacted upon until the enactment of Republic Act ("R.A.") No. 6657, prompting
the DAR Secretary to issue a Circular, dated 25 August 1988, directing that cases that have been
referred to DAR pursuant to the x x x decrees before June 15, 1988 and are still pending for resolution
are to be resolved and returned to the courts of origin and/or Fiscal offices with the proper certification
within 30 days from the receipt thereof. Without waiting for the DAR certification on the nature of the
relationship between the parties upon the premise that the DARs determination was not binding on it,
the RTC subsequently issued an order setting the case for pre-trial. The pre-trial resulted in the
limitation of the issues to -
1. Whether or not this Court has still jurisdiction over the present case;
2. Whether or not the contract entered into by plaintiff and defendant Florisco Banhaw dated
July 11, 1974 was a civil lease;
3. Whether or not plaintiff has the right to recover the possession of the property from the
defendants;
4. Assuming that plaintiff has the right to recover the possession of the property subject of
litigation from the defendants, whether or not plaintiff is entitled to the
reasonable rentals on the property from the time of the expiration of the lease
contract in 1977 up to the present;
5. Whether or not plaintiff is entitled to recover any form of damages, expenses of litigation,
and attorneys fees from defendants;
6. If the plaintiff has no more right to recover the possession of the property subject of
litigation, whether defendants are entitled to damages on their counterclaim and
attorneys fees.[3]
After trial, the RTC, in its decision of 07 May 1991, resolved the case thusly:
WHEREFORE, plaintiffs complaint is hereby DISMISSED. Likewise, in the absence of cogent
evidence in support of defendants claim for damages, their counterclaim is likewise DISMISSED. [4]
Petitioner, not satisfied with the decision of the trial court, pursued the case with the Court of Appeals
(CA-G.R. CV No. 35417).
Meantime, it would appear that the DAR Secretary, acting on the referred case (Civil Case No.
16822) for preliminary determination, issued an order, dated 14 August 1991 or barely four months
following the RTC decision dismissing petitioners case, holding that:
A perusal of the Contract of Lease entered into by and between Carolina L. Ganzon, Plaintiff, and
Florisco Banhaw, one of the defendants on July 11, 1974 shows that the same is a civil law lease
contract and not an agricultural lease, the term or period of which was for three (3) years commencing
from the crop year 1974-1975 up to and including the crop year 1976-1977.The consideration for the
said contract is an annual payment of 220 cavans of palay by the lessee to the lessor payable within the
month of February of every year. One important condition embodied in the contract is that the lessee
cannot sub-lease the subject land to any other person.
xxxxxxxxx
Under the facts of this case, the investigation reports revealed that the lessee instituted his two
children, namely, Nolasco and Honorato, both surnamed Banhaw, as well as his son-in-law, Amable
Abelita, as tenants on the landholding in question. In the same manner, Angelino Abelita (another co-
defendant) was instituted as tenant in the same landholding by the same Florisco Banhaw. Renato
Abelita, son of Angelino Abelita, was instituted tenant therein by his father.
We agree with the findings of the Regional Director which we find to be supported by substantial
evidence that herein defendant Florisco Banhaw is a civil law lessee on the landholding in question and
therefore he could not institute as tenants his co-defendants Honorato Banhaw, Nolasco Banhaw,
Renato Abelita and Amable Abelita not only because they are immediate members of his farm
household but because of the fact that under the expressed terms of the contract, the lessee cannot
sublease the land to other persons. The same argument holds true in respect to the employment of
Messrs. Angelino Abelita and Igmedio Pama. The argument that tenancy relation can be created with
the consent of the lawful owner, lessee, usufructuary, or legal possessor of the landholding is
untenable. It is worthy to mention the case of Gabriel vs. De Leon where the Court ruled that `in order
to determine the real intention and purpose of the parties in entering into this contract of lease, recourse
has to be made to the clear and unequivocal provisions of the contract.[5]
Petitioner gave stress to these pronouncements, made by then DAR Secretary Benjamin T. Leong,
before the Court of Appeals to show that the trial court erred in its finding that respondents were
agricultural leasehold tenants entitled to security of tenure under Section 7 of Republic Act No.
1199. Petitioner maintained that the vinculum that bound Florisco Banhaw and petitioner was an
ordinary contract of lease.
The Court of Appeals was not convinced. In its decision of 03 December 1997, the appellate
court affirmed the trial courts finding on the existence of an agricultural leasehold tenancy but took
exception from the ruling of the trial court on the application of Republic Act No. 1199 by pointing out
that the applicable law, instead, was Republic Act No. 3844, as amended by Republic Act No.
6389. The appellate court held:
Having reviewed the records of this case and the applicable jurisprudence, the Court finds that while
the court a quo was correct in confirming the relationship between plaintiff-appellant and defendants-
appellees as that of an agricultural leasehold tenancy, the court a quo, however, erred in applying
Republic Act No. 1199 [known as the Agricultural Tenancy Act] as the governing statute. It must be
pointed out that R.A. 1199 had already been rendered inoperative by the passage of Republic Act No.
3844, as amended by Republic Act No. 6389 [also known as the Agrarian Reform Code]. R.A. 1199
which was approved in 1954, sought to establish a system of agricultural share and leasehold tenancy
relations between the tenant and the landholder. However, with the enactment of R.A. 3844, as
amended, in August 1963, the system of agricultural share tenancy was abolished for being contrary to
public policy. (Bernas v. Court of Appeals, 225 SCRA 119, at page 123 [1993]). Thus, for all intents
and purposes, R.A. 3844, as amended by R.A. 6389, is the governing statute in the case at bench.
Section 5 of R.A. 3844 provides for the establishment of agricultural leasehold relations, as follows:
`The agricultural leasehold relation shall be established by operation of law in accordance with Section
four of this Code and, in other cases, either orally or in writing, expressly or impliedly. Based on the
foregoing, it has been ruled by the Supreme Court that from the moment the lessor, plaintiff-appellant
in this case, granted the cultivation and use of the landholding to the lessee, Florisco Banhaw, in
exchange or consideration for a sharing in the harvest, an agricultural leasehold relationship emerged
between them by `operation of law. (Bernas v. Court of Appeals, ibid., at page 135)
Moreover, Section 7 of R.A. 3844 gave agricultural lessees security of tenure by providing the
following: `The agricultural leasehold relation once established shall confer upon the agricultural
lessee the right to continue working on the landholding and cannot be ejected therefrom unless
authorized by the Court for causes provided therein.
From the foregoing provisions, it is clear that regardless of the existence of the contract of lease
(Exhibit `B) executed by plaintiff-appellant as lessor, and defendant-appellee Florisco Banhaw as
lessee, and regardless of the extinction of the contractual relations between them, defendant-appellee
Banhaw cannot be ejected from plaintiff-appellants landholding except upon judicial authority and for
one of the causes provided by law.[6]
Petitioner moved for a reconsideration; the motion was denied by the appellate court in its
resolution of 20 November 1998.
Hence, this quest for a review before the Supreme Court. Petitioner submits these issues; viz:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AND GRAVELY ERRED IN FINDING THAT THE RELATIONSHIP BETWEEN
THE PETITIONER AND THE PRIVATE RESPONDENTS IS ONE OF AGRICULTURAL
TENANCY NOTWITHSTANDING THE CONTRACT OF LEASE (EXHIBIT `B) EXECUTED
BETWEEN PETITIONER AND RESPONDENT FLORISCO BANHAW AND OTHER EVIDENCE
ON RECORD WHICH CLEARLY ESTABLISH THE RELATIONSHIP AS ONE OF CIVIL LAW
LEASE.
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AND GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENTS ARE
ENTITLED TO SECURITY OF TENURE UNDER THE LAW DESPITE ITS FINDING THAT THE
OTHER RESPONDENTS BECAME SUB-LESSEES OF THE LAND AS A RESULT OF THE
VIOLATION BY RESPONDENT BANHAW OF AN EXPRESS PROVISION IN THE LEASE
CONTRACT PROHIBITING HIM FROM SUB-LEASING THE LAND IN QUESTION.
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AND GRAVELY ERRED IN AFFIRMING IN TOTO THE DECISION OF THE
COURT A QUO DISMISSING THE COMPLAINT AND DENYING THE CLAIM OF PETITIONER
FOR DAMAGES AND ATTORNEYS FEES.[7]
The pivotal issue, it would appear, remains to be the question of whether or not private
respondents should be considered agricultural tenants of petitioner. On this score, the Court of Appeals,
seconding the trial court, said:
Defendants and their witnesses had testified that from 1974, up to the time that the husband of plaintiff,
Buenaventura Ganzon, died in 1985, they had been personally cultivating particular areas of the
landholding with the knowledge of Buenaventura Ganzon who had been receiving the corresponding
rentals on the property from them personally. Such testimonies were not rebutted by plaintiff. In fact,
such personal cultivation by defendants is even admitted, but plaintiff claims that the same was done
without her consent. Under Section 7 of R.A. 1199 as amended, a tenancy relationship may be
established, either verbally or in writing, expressly or impliedly. Once such relationship is established,
the tenant shall be entitled to security of tenure. In this case, assuming that Exhibit `B is a civil lease,
and that under its terms, Florisco Banhaw is prohibited from subleasing the property subject thereof,
such cannot affect the security of tenure of the other defendants as sublessees, who became tenants on
the property by implication, because the violation was committed by the lessee Florisco Banhaw, and
not by the sublessees, who were not parties to the contract. Moreover, such breach of contract was, in
effect condoned by the landholders husband, Buenaventura Ganzon, when he extended the lifetime of
the lease in 1977, with full knowledge of the fact that the sublessees, the other defendants in this case,
had been and were still holding and intended to constitute holding the land in question as tenants.[8]
Republic Act No. 1199 defines agricultural tenancy as being the physical possession by a person
of land devoted to agriculture belonging to, or legally possessed by, another for the purpose of
production through the labor of the former and the members of his immediate farm household, in
consideration of which the former agrees to share the harvest with the latter, or to pay a price certain or
ascertainable, either in the produce or in money, or in both. Under this law, there are two systems of
agricultural tenancy established: (1) the share tenancy, and (2) the leasehold tenancy.
Republic Act No. 3844, amending Republic Act No. 1199, abolished the share tenancy system;
thus:
Sec. 4. Abolition of Agricultural Share Tenancy. Agricultural share tenancy, as herein defined, is
hereby declared to be contrary to public policy and shall be abolished: Provided, That existing share
tenancy contracts may continue in force and effect in any region or locality, to be governed in the
meantime by the pertinent provisions of Republic Act Numbered Eleven hundred and ninety-nine, as
amended, until the end of the agricultural year when the National Land Reform Council proclaims that
all the government machineries and agencies in that region or locality relating to leasehold envisioned
in this Code are operating, unless such contracts provide for a shorter period or the tenant sooner
exercises his option to elect the leasehold system: Provided, further, That in order not to jeopardize
international commitments, lands devoted to crops covered by marketing allotments shall be made the
subject of a separate proclamation that adequate provisions, such as the organization of cooperatives,
marketing agreements, or other similar workable arrangements, have been made to insure efficient
management on all matters requiring synchronization of the agricultural with the processing phases of
such crops: Provided, furthermore, That where the agricultural share tenancy contract has ceased to be
operative by virtue of this Code, or where such a tenancy contract has been entered into in violation of
the provisions of this Code and is, therefore, null and void, and the tenant continues in possession of
the land for cultivation, there shall be presumed to exist a leasehold relationship under the
provisions of this Code, without prejudice to the right of the landowner and the former tenant to enter
into any other lawful contract in relation to the land formerly under tenancy contract, as long as in the
interim the security of tenure of the former tenant under Republic Act Numbered Eleven hundred and
ninety-nine, as amended, and as provided in this Code, is not impaired: Provided, finally, That if a
lawful leasehold tenancy contract was entered into prior to the effectivity of this Code, the rights and
obligations arising therefrom shall continue to subsist until modified by the parties in accordance with
the provisions of this Code.
Sec. 5. Establishment of Agricultural Leasehold Relation. - The agricultural leasehold relation shall be
established by operation of law in accordance with Section four of this Code and, in other cases, either
orally or in writing, expressly or impliedly.
Sec. 6. Parties to Agricultural Leasehold Relation. - The agricultural leasehold relation shall be limited
to the person who furnishes the landholding, either as owner, civil law lessee, usufructuary, or legal
possessor, and the person who personally cultivates the same.
Sec. 7. Tenure of Agricultural Leasehold Relation. The agricultural leasehold relation once established
shall confer upon the agricultural lessee the right to continue working on the landholding until such
leasehold relation is extinguished. The agricultural lessee shall be entitled to security of tenure on his
landholding and cannot be ejected therefrom unless authorized by the Court for causes herein
provided.
Sec. 8. Extinguishment of Agricultural Leasehold Relation. The agricultural leasehold relation
established under this Code shall be extinguished by:
(1) Abandonment of the landholding without the knowledge of the agricultural lessor;
(2) Voluntary surrender of the landholding by the agricultural lessee, written notice of which shall be
served three months in advance; or
(3) Absence of the persons under Section nine to succeed to the lessee, in the event of death or
permanent incapacity of the lessee.
Republic Act No. 3844 was further amended by Republic Act No. 6389 by providing for the automatic
conversion of share tenancy to agricultural leasehold[9]
 Petitioner would argue that the contract between her and private respondent Florisco Banhaw was
a civil law lease for a period of three years starting from the crop year 1974-1975 until the crop year
1976-1977. Petitioner, however, filed the case for recovery of possession with damages only in
November 1985, which would indicate that private respondent Florisco Banhaw and his sublessees (the
other respondents) continued to cultivate the landholding in question beyond the period of the lease
contract that should have ended by the crop year 1976-1977.
The Court of Appeals held that respondents became agricultural leasehold tenants by implication
when Buenaventura Ganzon (the husband of petitioner), with full knowledge of the fact that the
sublessees were still then holding the land in question as tenants, received the rental payments from
respondents and, in effect,[10] condoned the breach committed by Florisco Banhaw in subleasing the
landholding to the other private respondents as agricultural leasehold tenants on the land. The appellate
court then concluded that from the moment petitioners husband had granted the cultivation and use of
the landholding in question to private respondents in exchange for an alleged sharing in the harvest
(220 cavans of palay every year), an agricultural leasehold relationship emerged between them by
operation of law, a relationship that could be established either orally or in writing, expressly or
impliedly.
This Court finds itself unable to agree with the appellate court.
This Court has laid down the rule that in order for a tenancy relationship to exist, these elements
must be present: (1) That the parties are the landowner and the tenant or agricultural lessee; (2) that the
subject matter of the relationship is an agricultural land; (3) that there is consent between the parties to
the relationship; (4) that the purpose of the relationship is to bring about agricultural production; (5)
that there is personal cultivation on the part of the tenant or agricultural lessee; and (6) that the harvest
is shared between the landowner and the tenant or agricultural lessee. [11]
Respondent Florisco Banhaw was not instituted as an agricultural lessee but, rather, as civil law
lessee of the land. Neither were the other private respondents, Rolando Banhaw, Honorato Banhaw,
Igmedio Pama, et al., so installed by the landowner as tenants. The DAR itself, in its ORDER of 14
August 1991, confirmed that respondents could not be installed agricultural lessees by Florisco
Banhaw himself since they were members of his (Florisco) immediate farm household. Unlike the case
of Bernas vs. Court of Appeals, [12] relied on by the appellate court, respondent Florisco Banhaw was
never an agricultural lessee of the land, a fact made evident by the contract of lease executed by the
parties. Nor were respondents impliedly installed as tenants or agricultural lessees by reason alone of
an acquiescence by Buenaventura Ganzon to the continued possession of the property. It would appear
that the lease rentals of 220 cavans of palay payable annually within the month of February to the
landowner/lessor was the then existing consideration for the civil law lease contract paid by Florisco
Banhaw to petitioners husband while the other private respondents who were members of his farm
household paid their share to Florisco Banhaw:
x x x defendant-appellee Florisco Banhaw testified:
Q. And long before Buenaventura Ganzon and you entered into a lease contract, these other
defendants had been paying rentals directly to you?
A. Yes, your Honor.
Q. Do I understand from you that your agreement between the other defendants with respect to the
landholding was entered with you only?
A. The rentals were paid to me but once in a while Buenaventura Ganzon check up the payment to
me because he does not know these other people.
Q. Bu you all knew these defendants?
A. Yes, your Honor. (t.s.n., G. Villanueva, 5-9-90, pp. 23-24, underscoring supplied).
Defendant-appellee Raymundo Galido himself, on cross-examination, testified that:
Q. Is it not a fact that you know that these people are paying rentals to Florisco Banhaw?
A. Yes, sir. They are paying. (t.s.n., Villanueva, 5-8-90, p. 14)
and
Q. But you are always sure that it was Florisco Banhaw who paid Buenaventura Ganzon?
A. Yes, sir. (t.s.n., Villanueva, 5-8-90, p. 25).[13]
The DAR itself found thusly:
It was established that the agreement entered into between Florisco Banhaw and Carolina L. Ganzon is
one of a civil law lease. As such civil law lessee, Banhaw who was in legal possession of the
questioned landholdings may institute tenants thereon. However, the record of this case is bereft of
any credible and substantial evidence to prove that the other defendants herein allegedly
instituted as tenants by Florisco Banhaw are sharing or paying rentals to him or to the
landowner. Mere allegations without the corresponding receipts would not sufficiently establish
tenancy relationship especially since there was an express prohibition in the civil law lease
contract to sub-lease the subject land to any other person.[14]
Petitioner and private respondents could not have been automatically placed in an agricultural
leasehold agreement under Presidential Decree No. 27. This decree took effect on 21 October
1972. The civil law lease relationship of the parties, however, came about only during the crop year
1974-1975 that could not have placed them within the coverage of the Operation Land Transfer
Program of the government as of 21 October 1972.
The appellate court apparently predicated its finding on the existence of leasehold tenancy
relations between petitioner and private respondents on the principle of estoppel; it advanced:
The status of the other defendants-appellees as duly-constituted sub-lessees of the subject landholding
is likewise sufficiently established. Despite plaintiff-appellees assertion of lack of consent thereto, the
records adequately buttress the fact that plaintiff-appellant was well aware of the presence of the other
defendants-appellees on the subject landholding thereby putting them in estoppel.[15]
Estoppel in pais, or equitable estoppel arises when one, by his acts, representations or admissions
or by his silence when he ought to speak out, intentionally or through culpable negligence, induces
another to believe certain facts to exist and such other rightfully relies and acts on such belief so that
he will be prejudiced if the former is permitted to deny the existence of such facts. [16] The real office of
the equitable norm of estoppel is limited to supplying deficiency in the law, but it should not supplant
positive law.[17] The requisites for the existence of a tenancy relationship are explicit in the law and
these elements cannot be done away with by conjectures.
WHEREFORE, the instant petition for review is GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 35417 appealed from is reversed and set aside. The complaint in Civil
Case No. 16822 for recovery of possession with damages before the Regional Trial Court of Iloilo is
hereby ordered reinstated and the case remanded for further proceedings. The Regional Trial Court of
Iloilo, Branch 29, is ordered to resolve the case with immediate dispatch. No costs.
SO ORDERED.
G.R. No. 92299 April 19, 1991
REYNALDO R. SAN JUAN, petitioner,
vs.
CIVIL SERVICE COMMISSION, DEPARTMENT OF BUDGET AND MANAGEMENT and
CECILIA ALMAJOSE, respondents.
Legal Services Division for petitioner.
Sumulong, Sumulong, Paras & Abano Law Offices for private respondent.
GUTIERREZ, JR., J.:
In this petition for certiorari pursuant to Section 7, Article IX (A) of the present Constitution, the
petitioner Governor of the Province of Rizal, prays for the nullification of Resolution No. 89-868 of
the Civil Service Commission (CSC) dated November 21, 1989 and its Resolution No. 90-150 dated
February 9, 1990.
The dispositive portion of the questioned Resolution reads:
WHEREFORE, foregoing premises considered, the Commission resolved to dismiss, as it
hereby dismisses the appeal of Governor Reynaldo San Juan of Rizal. Accordingly, the
approved appointment of Ms. Cecilia Almajose as Provincial Budget Officer of Rizal, is
upheld. (Rollo, p. 32)
The subsequent Resolution No. 90-150 reiterates CSC's position upholding the private respondent's
appointment by denying the petitioner's motion for reconsideration for lack of merit.
The antecedent facts of the case are as follows:
On March 22, 1988, the position of Provincial Budget Officer (PBO) for the province of Rizal was left
vacant by its former holder, a certain Henedima del Rosario.
In a letter dated April 18, 1988, the petitioner informed Director Reynaldo Abella of the Department of
Budget and Management (DBM) Region IV that Ms. Dalisay Santos assumed office as Acting PBO
since March 22, 1988 pursuant to a Memorandum issued by the petitioner who further requested
Director Abella to endorse the appointment of the said Ms. Dalisay Santos to the contested position of
PBO of Rizal. Ms. Dalisay Santos was then Municipal Budget Officer of Taytay, Rizal before she
discharged the functions of acting PBO.
In a Memorandum dated July 26, 1988 addressed to the DBM Secretary, then Director Abella of
Region IV recommended the appointment of the private respondent as PBO of Rizal on the basis of a
comparative study of all Municipal Budget Officers of the said province which included three
nominees of the petitioner. According to Abella, the private respondent was the most qualified since
she was the only Certified Public Accountant among the contenders.
On August 1, 1988, DBM Undersecretary Nazario S. Cabuquit, Jr. signed the appointment papers of
the private respondent as PBO of Rizal upon the aforestated recommendation of Abella.
In a letter dated August 3, 1988 addressed to Secretary Carague, the petitioner reiterated his request for
the appointment of Dalisay Santos to the contested position unaware of the earlier appointment made
by Undersecretary Cabuquit.
On August 31, 1988, DBM Regional Director Agripino G. Galvez wrote the petitioner that Dalisay
Santos and his other recommendees did not meet the minimum requirements under Local Budget
Circular No. 31 for the position of a local budget officer. Director Galvez whether or not through
oversight further required the petitioner to submit at least three other qualified nominees who are
qualified for the position of PBO of Rizal for evaluation and processing.
On November 2, 1988, the petitioner after having been informed of the private respondent's
appointment wrote Secretary Carague protesting against the said appointment on the grounds that
Cabuquit as DBM Undersecretary is not legally authorized to appoint the PBO; that the private
respondent lacks the required three years work experience as provided in Local Budget Circular No.
31; and that under Executive Order No. 112, it is the Provincial Governor, not the Regional Director or
a Congressman, who has the power to recommend nominees for the position of PBO.
On January 9, 1989 respondent DBM, through its Director of the Bureau of Legal & Legislative
Affairs (BLLA) Virgilio A. Afurung, issued a Memorandum ruling that the petitioner's letter-protest is
not meritorious considering that public respondent DBM validly exercised its prerogative in filling-up
the contested position since none of the petitioner's nominees met the prescribed requirements.
On January 27, 1989, the petitioner moved for a reconsideration of the BLLA ruling.
On February 28, 1989, the DBM Secretary denied the petitioner's motion for reconsideration.
On March 27, 1989, the petitioner wrote public respondent CSC protesting against the appointment of
the private respondent and reiterating his position regarding the matter.
Subsequently, public respondent CSC issued the questioned resolutions which prompted the petitioner
to submit before us the following assignment of errors:
A. THE CSC ERRED IN UPHOLDING THE APPOINTMENT BY DBM ASSISTANT
SECRETARY CABUQUIT OF CECILIA ALMAJOSE AS PBO OF RIZAL.
B. THE CSC ERRED IN HOLDING THAT CECILIA ALMA JOSE POSSESSES ALL THE
REQUIRED QUALIFICATIONS.
 C. THE CSC ERRED IN DECLARING THAT PETITIONER'S NOMINEES ARE NOT
QUALIFIED TO THE SUBJECT POSITION.
D. THE CSC AND THE DBM GRAVELY ABUSED THEIR DISCRETION IN NOT
ALLOWING PETITIONER TO SUBMIT NEW NOMINEES WHO COULD MEET THE
REQUIRED QUALIFICATION (Petition, pp. 7-8, Rollo, pp. 15-16)
All the assigned errors relate to the issue of whether or not the private respondent is lawfully entitled to
discharge the functions of PBO of Rizal pursuant to the appointment made by public respondent
DBM's Undersecretary upon the recommendation of then Director Abella of DBM Region IV.
The petitioner's arguments rest on his contention that he has the sole right and privilege to recommend
the nominees to the position of PBO and that the appointee should come only from his nominees. In
support thereof, he invokes Section 1 of Executive Order No. 112 which provides that:
Sec. 1. All budget officers of provinces, cities and municipalities shall be appointed
henceforth by the Minister of Budget and Management upon recommendation of the local
chief executive concerned, subject to civil service law, rules and regulations, and they shall be
placed under the administrative control and technical supervision of the Ministry of Budget
and Management.
The petitioner maintains that the appointment of the private respondent to the contested position was
made in derogation of the provision so that both the public respondents committed grave abuse of
discretion in upholding Almajose's appointment.
There is no question that under Section 1 of Executive Order No. 112 the petitioner's power to
recommend is subject to the qualifications prescribed by existing laws for the position of PBO.
Consequently, in the event that the recommendations made by the petitioner fall short of the required
standards, the appointing authority, the Minister (now Secretary) of public respondent DBM is
expected to reject the same.
In the event that the Governor recommends an unqualified person, is the Department Head free to
appoint anyone he fancies ? This is the issue before us.
Before the promulgation of Executive Order No. 112 on December 24, 1986, Batas Pambansa Blg.
337, otherwise known as the Local Government Code vested upon the Governor, subject to civil
service rules and regulations, the power to appoint the PBO (Sec. 216, subparagraph (1), BP 337). The
Code further enumerated the qualifications for the position of PBO. Thus, Section 216, subparagraph
(2) of the same code states that:
(2) No person shall be appointed provincial budget officer unless he is a citizen of the
Philippines, of good moral character, a holder of a degree preferably in law, commerce, public
administration or any related course from a recognized college or university, a first grade civil
service eligibility or its equivalent, and has acquired at least five years experience in
budgeting or in any related field.
The petitioner contends that since the appointing authority with respect to the Provincial Budget
Officer of Rizal was vested in him before, then, the real intent behind Executive Order No. 112 in
empowering him to recommend nominees to the position of Provincial Budget Officer is to make his
recommendation part and parcel of the appointment process. He states that the phrase "upon
recommendation of the local chief executive concerned" must be given mandatory application in
consonance with the state policy of local autonomy as guaranteed by the 1987 Constitution under Art.
II, Sec. 25 and Art. X, Sec. 2 thereof. He further argues that his power to recommend cannot validly be
defeated by a mere administrative issuance of public respondent DBM reserving to itself the right to
fill-up any existing vacancy in case the petitioner's nominees do not meet the qualification
requirements as embodied in public respondent DBM's Local Budget Circular No. 31 dated February
9, 1988.
The questioned ruling is justified by the public respondent CSC as follows:
As required by said E.O. No. 112, the DBM Secretary may choose from among the
recommendees of the Provincial Governor who are thus qualified and eligible for appointment
to the position of the PBO of Rizal. Notwithstanding, the recommendation of the local chief
executive is merely directory and not a condition sine qua non to the exercise by the Secretary
of DBM of his appointing prerogative. To rule otherwise would in effect give the law or E.O.
No. 112 a different interpretation or construction not intended therein, taking into
consideration that said officer has been nationalized and is directly under the control and
supervision of the DBM Secretary or through his duly authorized representative. It cannot be
gainsaid that said national officer has a similar role in the local government unit, only on
another area or concern, to that of a Commission on Audit resident auditor. Hence, to preserve
and maintain the independence of said officer from the local government unit, he must be
primarily the choice of the national appointing official, and the exercise thereof must not be
unduly hampered or interfered with, provided the appointee finally selected meets the
requirements for the position in accordance with prescribed Civil Service Law, Rules and
Regulations. In other words, the appointing official is not restricted or circumscribed to the
list submitted or recommended by the local chief executive in the final selection of an
appointee for the position. He may consider other nominees for the position vis a vis the
nominees of the local chief executive. (CSC Resolution No. 89-868, p. 2; Rollo, p. 31)
The issue before the Court is not limited to the validity of the appointment of one Provincial Budget
Officer. The tug of war between the Secretary of Budget and Management and the Governor of the
premier province of Rizal over a seemingly innocuous position involves the application of a most
important constitutional policy and principle, that of local autonomy. We have to obey the clear
mandate on local autonomy. Where a law is capable of two interpretations, one in favor of centralized
power in Malacaang and the other beneficial to local autonomy, the scales must be weighed in favor
of autonomy.
The exercise by local governments of meaningful power has been a national goal since the turn of the
century. And yet, inspite of constitutional provisions and, as in this case, legislation mandating greater
autonomy for local officials, national officers cannot seem to let go of centralized powers. They deny
or water down what little grants of autonomy have so far been given to municipal corporations.
President McKinley's Instructions dated April 7, 1900 to the Second Philippine Commission ordered
the new Government "to devote their attention in the first instance to the establishment of municipal
governments in which natives of the Islands, both in the cities and rural communities, shall be afforded
the opportunity to manage their own local officers to the fullest extent of which they are capable and
subject to the least degree of supervision and control which a careful study of their capacities and
observation of the workings of native control show to be consistent with the maintenance of law, order
and loyalty.
In this initial organic act for the Philippines, the Commission which combined both executive and
legislative powers was directed to give top priority to making local autonomy effective.
The 1935 Constitution had no specific article on local autonomy. However, in distinguishing between
presidential control and supervision as follows:
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. (Sec. 11, Article VII, 1935 Constitution)
the Constitution clearly limited the executive power over local governments to "general supervision . . .
as may be provided by law." The President controls the executive departments. He has no such power
over local governments. He has only supervision and that supervision is both general and
circumscribed by statute.
In Tecson v. Salas, 34 SCRA 275, 282 (1970), this Court stated:
. . . Hebron v. Reyes, (104 Phil. 175 [1958]) with the then Justice, now Chief Justice,
Concepcion as the ponente, clarified matters. As was pointed out, the presidential competence
is not even supervision in general, but general supervision as may be provided by law. He
could not thus go beyond the applicable statutory provisions, which bind and fetter his
discretion on the matter. Moreover, as had been earlier ruled in an opinion penned by Justice
Padilla in Mondano V. Silvosa, (97 Phil. 143 [1955]) referred to by the present Chief Justice
in his opinion in the Hebron case, supervision goes no further than "overseeing or the power
or authority of an officer to see that subordinate officers perform their duties. If the latter fail
or neglect to fulfill them the former may take such action or step as prescribed by law to make
them perform their duties." (Ibid, pp. 147-148) Control, on the other hand, "means the power
of an officer to alter or modify or nullify or set aside what a subordinate had done in the
performance of their duties and to substitute the judgment of the former for that of the latter."
It would follow then, according to the present Chief Justice, to go back to the Hebron opinion,
that the President had to abide by the then provisions of the Revised Administrative Code on
suspension and removal of municipal officials, there being no power of control that he could
rightfully exercise, the law clearly specifying the procedure by which such disciplinary action
would be taken.
Pursuant to this principle under the 1935 Constitution, legislation implementing local autonomy was
enacted. In 1959, Republic Act No. 2264, "An Act Amending the Law Governing Local Governments
by Increasing Their Autonomy and Reorganizing Local Governments" was passed. It was followed in
1967 when Republic Act No. 5185, the Decentralization Law was enacted, giving "further autonomous
powers to local governments governments."
The provisions of the 1973 Constitution moved the country further, at least insofar as legal provisions
are concerned, towards greater autonomy. It provided under Article II as a basic principle of
government:
Sec. 10. The State shall guarantee and promote the autonomy of local government units,
especially the barangay to ensure their fullest development as self-reliant communities.
An entire article on Local Government was incorporated into the Constitution. It called for a local
government code defining more responsive and accountable local government structures. Any creation,
merger, abolition, or substantial boundary alteration cannot be done except in accordance with the local
government code and upon approval by a plebiscite. The power to create sources of revenue and to
levy taxes was specifically settled upon local governments.
The exercise of greater local autonomy is even more marked in the present Constitution.
Article II, Section 25 on State Policies provides:
Sec. 25. The State shall ensure the autonomy of local governments
The 14 sections in Article X on Local Government not only reiterate earlier doctrines but give in
greater detail the provisions making local autonomy more meaningful. Thus, Sections 2 and 3 of
Article X provide:
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
Sec. 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units.
When the Civil Service Commission interpreted the recommending power of the Provincial Governor
as purely directory, it went against the letter and spirit of the constitutional provisions on local
autonomy. If the DBM Secretary jealously hoards the entirety of budgetary powers and ignores the
right of local governments to develop self-reliance and resoluteness in the handling of their own funds,
the goal of meaningful local autonomy is frustrated and set back.
The right given by Local Budget Circular No. 31 which states:
 Sec. 6.0 The DBM reserves the right to fill up any existing vacancy where none of the Department of Budget and Management is ordered to appoint the Provincial Budget Officer of Rizal
nominees of the local chief executive meet the prescribed requirements. from among qualified nominees submitted by the Provincial Governor.

is ultra vires and is, accordingly, set aside. The DBM may appoint only from the list of qualified SO ORDERED.
recommendees nominated by the Governor. If none is qualified, he must return the list of nominees to
the Governor explaining why no one meets the legal requirements and ask for new recommendees who
have the necessary eligibilities and qualifications.

The PBO is expected to synchronize his work with DBM. More important, however, is the proper
administration of fiscal affairs at the local level. Provincial and municipal budgets are prepared at the
local level and after completion are forwarded to the national officials for review. They are prepared by
the local officials who must work within the constraints of those budgets. They are not formulated in
the inner sanctums of an all-knowing DBM and unilaterally imposed on local governments whether or
not they are relevant to local needs and resources. It is for this reason that there should be a genuine
interplay, a balancing of viewpoints, and a harmonization of proposals from both the local and national
officials. It is for this reason that the nomination and appointment process involves a sharing of power
between the two levels of government.

It may not be amiss to give by way of analogy the procedure followed in the appointments of Justices
and Judges.1wphi1 Under Article VIII of the Constitution, nominations for judicial positions are made
by the Judicial and Bar Council. The President makes the appointments from the list of nominees
submitted to her by the Council. She cannot apply the DBM procedure, reject all the Council
nominees, and appoint another person whom she feels is better qualified. There can be no reservation
of the right to fill up a position with a person of the appointing power's personal choice.

The public respondent's grave abuse of discretion is aggravated by the fact that Director Galvez
required the Provincial Governor to submit at least three other names of nominees better qualified than
his earlier recommendation. It was a meaningless exercise. The appointment of the private respondent
was formalized before the Governor was extended the courtesy of being informed that his nominee had
been rejected. The complete disregard of the local government's prerogative and the smug belief that
the DBM has absolute wisdom, authority, and discretion are manifest.

In his classic work "Philippine Political Law" Dean Vicente G. Sinco stated that the value of local
governments as institutions of democracy is measured by the degree of autonomy that they
enjoy. Citing Tocqueville, he stated that "local assemblies of citizens constitute the strength of free
nations. . . . A people may establish a system of free government but without the spirit of municipal
institutions, it cannot have the spirit of liberty." (Sinco, Philippine Political Law, Eleventh Edition, pp.
705-706).

Our national officials should not only comply with the constitutional provisions on local autonomy but
should also appreciate the spirit of liberty upon which these provisions are based.

WHEREFORE, the petition is hereby GRANTED. The questioned resolutions of the Civil Service
Commission are SET ASIDE. The appointment of respondent Cecilia Almajose is nullified. The
 G.R. No. 199752, February 17, 2015
After evaluating AOM No. 03-005, Regional Cluster Director Sy issued NC No. 2004-04-101 dated
LUCENA D. DEMAALA, Petitioner, v. COMMISSION ON AUDIT, REPRESENTED BY ITS August 30, 200413 in the amount of P1,125,416.56. He held Demaala, the municipal treasurer of Narra,
CHAIRPERSON COMMISSIONER MA. GRACIA M. PULIDO TAN, Respondent. and all special education fund payors liable for the deficiency in special education fund collections.

This Notice of Charge reads:

DECISION
NC No. 2004-04-101
LEONEN, J.: Date: August 30, 2004

Through this Petition for Certiorari, Lucena D. Demaala (Demaala) prays that the September 22, 2008 NOTICE OF CHARGE
Decision (Decision No. 2008-087)1 and the November 16, 2011 Resolution (Decision No. 2011-
083)2of the Commission on Audit be reversed and set aside. The Municipal Mayor
Narra, Palawan
The Commission on Audits Decision No. 2008-0873 denied Demaalas appeal and affirmed with
modification Local Decision No. 2006-0564 dated April 19, 2006 of the Commission on Audits Legal Attention: Municipal Accountant
and Adjudication Office (LAO). LAO Local Decision No. 2006-056, in turn, affirmed Notice of
Charge (NC) No. 2004-04-101.5 NC No. 2004-04-101 was dated August 30, 2004 and issued by We have reviewed and evaluated Audit Obersvation Memorandum (AOM) No. 03-005 dated August 7,
Rodolfo C. Sy (Regional Cluster Director Sy), Regional Cluster Director of the Legal Adjudication 2003 and noted the following deficiencies:
Sector, Commission on Audit Regional Office No. IV, Quezon City.
Reference PAYOR AMOUNT Persons LIABLE FACTS AND/OR
The Commission on Audits Decision No. 2011-083 denied the Motion for Reconsideration filed by
No. Date CHARGED REASONS FOR
Demaala.6
CHARGE
I 1,125,416.56 Lucena D. Demaala The additional levy for
SEF should be one per
The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, Series of 1995, - Municipal Mayor cent (1%) instead of
entitled An Ordinance Approving and Adopting the Code Governing the Revision of Assessments, - for allowing the reduced rate 0.5% as provided in RA
Classification and Valuation of Real Properties in the Province of Palawan (Ordinance). 7 Chapter 5, of additional real property 5447 dated September
Please see attached schedule
Section 48 of the Ordinance provides for an additional levy on real property tax for the special taxes 25, 1968
education fund at the rate of one-half percent or 0.5% as follows:

Section 48- Additional Levy on Real Property Tax for Special Education Fund. There is hereby Municipal Treasurer
levied an annual tax at the rate of one-half percent (1/2%) of the assessed value property tax. The
proceeds thereof shall exclusively accrue to the Special Education Fund (SEF). 8 - for collecting understated
taxes
In conformity with Section 48 of the Ordinance, the Municipality of Narra, Palawan, with Demaala as
mayor, collected from owners of real properties located within its territory an annual tax as special All payors
education fund at the rate of 0.5% of the assessed value of the property subject to tax. This collection
was effected through the municipal treasurer.9
1,125,416.56
On post-audit, Audit Team Leader Juanito A. Nostratis issued Audit Observation Memorandum (AOM)
No. 03-005 dated August 7, 2003 in which he noted supposed deficiencies in the special education
fund collected by the Municipality of Narra.10 He questioned the levy of the special education fund at Charge not appealed within six (6) months as prescribed under Sections 49, 50 and 51 of PD No. 1445
the rate of only 0.5% rather than at 1%, the rate stated in Section 23511 of Republic Act No. 7160, shall become final and executory.
otherwise known as the Local Government Code of 1991 (Local Government Code).12
 RODOLFY C. SY (sgd.)
Regional Cluster Director14
The Municipality of Narra, through Demaala, filed the Motion for Reconsideration15 dated December
2, 2004. It stressed that the collection of the special education fund at the rate of 0.5% was merely in
accordance with the Ordinance. On March 9, 2005, Regional Cluster Director Sy issued an
Indorsement denying this Motion for Reconsideration.16
17
Following this, the Municipality of Narra, through Demaala, filed an appeal with the Commission on
Audits Legal and Adjudication Office. In Local Decision No. 2006-05618 dated April 19, 2006, this
appeal was denied.
The Municipality of Narra, through Demaala, then filed a Petition for Review19 with the Commission
on Audit.
In Decision No. 2008-08720 dated September 22, 2008, the Commission on Audit ruled against
Demaala and affirmed LAO Local Decision No. 2006-056 with the modification that former Palawan
Vice Governor Joel T. Reyes and the other members of the Sangguniang Panlalawigan of Palawan who
enacted the Ordinance21 were held jointly and severally liable with Demaala, the municipal treasurer of
Narra, and the special education fund payors.22
The dispositive portion of this Decision reads:
WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit.
Accordingly, LAO Local Decision No. 2006-056 is AFFIRMED with modification, to include Former
Vice-Governor and Presiding Officer Joel T. Reyes, Chairman Pro-Tempore Rosalino R. Acosta,
Majority Floor Leader Ernesto A. Llacuna, Asst. Majority Floor Leader Antonio C. Alvarez, Asst.
Minority Floor Leader Haide B. Barroma, Hon. Leoncio N. Ola, Hon. Ramon A. Zabala, Hon. Belen
B. Abordo, Hon. Valentin A. Baaco, Hon. Claro Ordinario, Hon. Derrick R. Pablico, Hon. Laine C.
Abogado and Hon. Joel B. Bitongon among the persons liable in the Notice of Charge. They shall be
jointly and severally liable with Mayor Lucena D. Demaala, together with the Municipal Treasurer and
all the payors of the under-collected real property tax in the total amount of P1,125,416.56.
The Audit Team Leader is directed to issue a Supplemental Notice of Charge to include the members
of the Sangguniang Panlalawigan as among the persons liable.23
Thereafter, Demaala, who was no longer the mayor of the Municipality of Narra, filed a Motion for
Reconsideration.24 Former Vice Governor Joel T. Reyes and the other members of the Sangguniang
Panlalawigan of Palawan who were held liable under Decision No. 2008-087 filed a separate Motion
for Reconsideration.25 The Commission on Audits Decision No. 2011-08326 dated November 16, 2011
affirmed its September 22, 2008 Decision.
Demaala then filed with this court the present Petition for Certiorari. 27
Respondent Commission on Audit, through the Office of the Solicitor General, filed its Comment 28 on
April 20, 2012. Petitioner Demaala filed her Reply29 on September 6, 2012. Thereafter, the parties
filed their respective Memoranda.30
II
For resolution in this case are the following issues:
First, whether respondent committed grave abuse of discretion amounting to lack or excess of
jurisdiction in holding that there was a deficiency in the Municipality of Narras collection of the
additional levy for the special education fund. Subsumed in this issue is the matter of whether a
municipality within the Metropolitan Manila Area, a city, or a province may have an additional levy on
real property for the special education fund at the rate of less than 1%.
Second, assuming that respondent correctly held that there was a deficiency, whether respondent
committed grave abuse of discretion amounting to lack or excess or jurisdiction in holding petitioner
personally liable for the deficiency.
We find for petitioner.
Setting the rate of the additional levy for the special education fund at less than 1% is within the taxing
power of local government units. It is consistent with the guiding constitutional principle of local
autonomy.
III
The power to tax is an attribute of sovereignty. It is inherent in the state. Provinces, cities,
municipalities, and barangays are mere territorial and political subdivisions of the state. They act only
as part of the sovereign. Thus, they do not have the inherent power to tax.31 Their power to tax must be
prescribed by law.
Consistent with the view that the power to tax does not inhere in local government units, this court has
held that a reserved temperament must be adhered to in construing the extent of a local government
units power to tax. As explained in Icard v. City Council of Baguio:32
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the
municipality. Inferences, implications, deductions all these have no place in the interpretation of
the taxing power of a municipal corporation.33 (Emphasis supplied)
Article X, Section 5 of the 1987 Constitution is the basis of the taxing power of local government
units:
Section 5. Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments. (Emphasis supplied)
The taxing power granted by constitutional fiat to local government units exists in the wider context to
ensure the autonomy of local governments.34 As Article II, Section 25 of the 1987 Constitution
unequivocally provides:
Section 25. The State shall ensure the autonomy of local governments.
Article II, Section 25 is complemented by Article X, Section 2:
Section 2. The territorial and political subdivisions shall enjoy local autonomy.
The 1935 Constitution was entirely silent on local autonomy, albeit making a distinction between
executive departments, bureaus, and offices on the one hand, and local governments on the other. It
provided that the President had control over the former but merely exercise[d] general
supervision35 over the latter. Article VII, Section 10(1) of the 1935 Constitution provided:
SEC. 10. (1) 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.
Similarly, the 1935 Constitution was silent on the taxing power of local government units.
The 1973 Constitution provided for local autonomy. Article II, Section 10 of the 1973 Constitution
read:
SEC. 10. The State shall guarantee and promote the autonomy of local government units, especially
the [barangays], to ensure their fullest development as self-reliant communities.
Any trend in the 1973 Constitution towards greater autonomy for local government units was aborted
in 1972 when Ferdinand Marcos placed the entire country under martial law [thereby] stunt[ing] the
development of local governments by centralizing the government in Manila.36 While local autonomy
was provided for in the 1973 Constitution, its existence was confined to principle and theory. Practice
neutered all of Article XI of the 1973 Constitution (on local government), including Section 5 which
provided for the taxing power of local government units. Article XI, Section 5 reads:
SEC. 5. Each local government unit shall have the power to create its own sources of revenue and to
levy taxes, subject to such limitations as may be provided by law.
Article X, Section 5 of the 1987 Constitution is more emphatic in empowering local government units
in the matter of taxation compared with Article XI, Section 5 of the 1973 Constitution. In addition to
stating that local government units have the power to tax (subject to Congressional guidelines and
limitations), Article X, Section 5 of the 1987 Constitution adds the phrase consistent with the basic
policy of local autonomy. Further, it is definite with the use of funds generated by local government
units through the exercise of their taxing powers, providing that [s]uch taxes, fees, and charges shall
accrue exclusively to the local governments.37
Apart from administrative autonomy, an equally vital facet of local governance under the 1987
Constitution is fiscal autonomy. In Pimentel v. Aguirre:38
Under existing law, local government units, in addition to having administrative autonomy in the
exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local
governments have the power to create their own sources of revenue in addition to their equitable share
in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof. They are not formulated at the
national level and imposed on local governments, whether they are relevant to local needs and
resources or not. Hence, the necessity of a balancing of viewpoints and the harmonization of proposals
from both local and national officials, who in any case are partners in the attainment of national
goals.39
IV
The taxing powers of local government units must be read in relation to their power to effect their
basic autonomy.
Consistent with the 1987 Constitutions declared preference, the taxing powers of local government
units must be resolved in favor of their local fiscal autonomy. In City Government of San Pablo v.
Reyes:40
The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the Constitution. Thus Article X, Section 5 of the
Constitution reads:
Sec. 5 Each Local Government unit shall have the power to create its own sources of revenue and to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments.
The important legal effect of Section 5 is that henceforth, in interpreting statutory provision on
municipal fiscal powers, doubts will have to be resolved in favor of municipal corporations. 41
(Emphasis supplied)
Similarly, in San Juan v. Civil Service Commission,42 this court stated:
We have to obey the clear mandate on local autonomy. Where a law is capable of two interpretations,
one in favor of centralized power in Malacaang and the other beneficial to local autonomy, the scales
must be weighed in favor of autonomy.43
The Local Government Code was enacted pursuant to the specific mandate of Article X, Section 3 of
the 1987 Constitution44 and its requirements of decentralization. Its provisions, including those on
local taxation, must be read in light of the jurisprudentially settled preference for local autonomy.
V whether they have discretion on the rate at which they are to collect.
The limits on the level of additional levy for the special education fund under Section 235 of the Local
Government Code should be read as granting fiscal flexibility to local government units.
Book II of the Local Government Code governs local taxation and fiscal matters. Title II of Book II
governs real property taxation.
Section 235 of the Local Government Code allows provinces and cities, as well as municipalities in
Metro Manila, to collect, on top of the basic annual real property tax, an additional levy which shall
exclusively accrue to the special education fund:
Section 235. Additional Levy on Real Property for the Special Education Fund. - A province or city, or
a municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent
(1%) on the assessed value of real property which shall be in addition to the basic real property tax.
The proceeds thereof shall exclusively accrue to the Special Education Fund (SEF). (Emphasis
supplied)
The special education fund is not an original creation of the Local Government Code. It was initially
devised by Republic Act No. 5447.45 The rate of 1% is also not a detail that is original to the Local
Government Code. As discussed in Commission on Audit v. Province of Cebu:46
The Special Education Fund was created by virtue of R. A. No. 5447, which is [a]n act creating a
special education fund to be constituted from the proceeds of an additional real property tax and a
certain portion of the taxes on Virginia-type cigarettes and duties on imported leaf tobacco, defining
the activities to be financed, creating school boards for the purpose, and appropriating funds therefrom,
which took effect on January 1, 1969. Pursuant thereto, P.D. No. 464, also known as the Real Property
Tax Code of the Philippines, imposed an annual tax of 1% on real property which shall accrue to the
SEF.47 (Citations omitted)
The operative phrase in Section 235s grant to municipalities in Metro Manila, cities, and provinces of
the power to impose an additional levy for the special education fund is prefixed with may, thus,
may levy and collect an annual tax of one percent (1%).
In Buklod nang Magbubukid sa Lupaing Ramos, Inc. v. E.M. Ramos and Sons, Inc.48 the meaning of
may was discussed as follows:
Where the provision reads may, this word shows that it is not mandatory but discretionary. It is an
auxiliary verb indicating liberty, opportunity, permission and possibility. The use of the word may in
a statute denotes that it is directory in nature and generally permissive only.49
Respondent concedes that Section 235s grant to municipalities in Metro Manila, to cities, and to
provinces of the power to impose an additional levy for the special education fund makes its collection
optional. It is not mandatory that the levy be imposed and collected. The controversy which the
Commission on Audit created is not whether these local government units have discretion to collect but
It is respondents position that the option granted to a local government unit is limited to the matter of
whether it shall actually collect, and that the rate at which it shall collect (should it choose to do so) is
fixed by Section 235. In contrast, it is petitioners contention that the option given to a local
government unit extends not only to the matter of whether to collect but also to the rate at which
collection is to be made.
We sustain the position of petitioner.
Section 235s permissive language is unqualified. Moreover, there is no limiting qualifier to the
articulated rate of 1% which unequivocally indicates that any and all special education fund collections
must be at such rate.
At most, there is a seeming ambiguity in Section 235. Consistent with what has earlier been discussed
however, any such ambiguity must be read in favor of local fiscal autonomy. As in San Juan v. Civil
Service Commission,50 the scales must weigh in favor of the local government unit.
Fiscal autonomy entails the power to create . . . own sources of revenue.51 In turn, this power
necessarily entails enabling local government units with the capacity to create revenue sources
in accordance with the realities and contingencies present in their specific contexts. The power to
create must mean the local government units power to create what is most appropriate and optimal for
them; otherwise, they would be mere automatons that are turned on and off to perform prearranged
operations.
Devolving power but denying its necessary incidents and accessories is tantamount to not devolving
power at all. A local government unit with a more affluent constituency may thus realize that it can
levy taxes at rates greater than those which local government units with more austere constituencies
can collect. For the latter, collecting taxes at prohibitive rates may be counterproductive. High tax
rates can be a disincentive for doing business, rendering it unattractive to commerce and thereby
stunting, rather than facilitating, their development. In this sense, insisting on uniformity would be a
disservice to certain local government units and would ultimately undermine the aims of local
autonomy and decentralization.
VI
Of course, fiscal autonomy entails working within the constraints. 52 To echo the language of Article
X, Section 5 of the 1987 Constitution, this is to say that the taxing power of local government units is
subject to such guidelines and limitations as the Congress may provide.53 It is the 1% as a constraint
on which the respondent Commission on Audit is insisting.
There are, in this case, three (3) considerations that illumine our task of interpretation: (1) the text of
Section 235, which, to reiterate, is cast in permissive language; (2) the seminal purpose of fiscal
autonomy; and (3) the jurisprudentially established preference for weighing the scales in favor of
autonomy of local government units. We find it to be in keeping with harmonizing these
considerations to conclude that Section 235s specified rate of 1% is a maximum rate rather than an
immutable edict. Accordingly, it was well within the power of the Sangguniang Panlalawigan of
Palawan to enact an ordinance providing for additional levy on real property tax for the special
education fund at the rate of 0.5% rather than at 1%.
VII
It was an error amounting to grave abuse of discretion for respondent to hold petitioner personally
liable for the supposed deficiency.
Having established the propriety of imposing an additional levy for the special education fund at the
rate of 0.5%, it follows that there was nothing erroneous in the Municipality of Narras having acted
pursuant to Section 48 of the Ordinance. It could thus not be faulted for collecting from owners of real
properties located within its territory an annual tax as special education fund at the rate of 0.5% of the
assessed value subject to tax of the property. Likewise, it follows that it was an error for respondent to
hold petitioner personally liable for the supposed deficiency in collections.
Even if a contrary ruling were to be had on the propriety of collecting at a rate less than 1%, it would
still not follow that petitioner is personally liable for deficiencies.
In its Memorandum, respondent cited the 1996 case of Salalima v. Guingona54 as a precedent for
finding local officials liable for violations that have to do with the special education fund.
Moreover, in Decision No. 2008-087, respondent asserted that there was no cogent reason to exclude
[petitioner] from liability since her participation as one of the local officials who implemented the
collection of the reduced levy rate. . . led to the loss on reduction [sic] of government income. 55 It
added that, [c]orollary thereto, the government can also go against the officials who are responsible
for the passage of [the Ordinance],56 i.e., the members of the Sangguniang Panlalawigan of the
Province of Palawan.
Respondents reliance on Salalima and on petitioners having been incidentally the mayor of Narra,
Palawan when supposedly deficient collections were undertaken is misguided.
Per respondents own summation of Salalima, in that case, this court:
held that the governor, vice-governor and members of the Sangguniang Panlalawigan are collectively
responsible with other provincial officials in the administration of fiscal and financial transactions of
the province pursuant to Sections 304 and 305 of RA 7160 for denying the other beneficiaries of their
share of the SEF. These local officials cannot claim ignorance of the law as to the sharing scheme of
the real property tax and the SEF as the same is clearly provided in RA 7160.57 (Emphasis supplied)
Salalima involved several administrative Complaints filed before the Office of the President against
the elective officials of the Province of Albay. One of these OP Case No. 5470 was a Complaint
for malversation, and consistent [and] habitual violation of pars. (c) and (d) of Section 60 of [the
Local Government Code]58 which was filed by Tiwi, Albay Mayor Naomi Corral against Albay
Governor Romeo Salalima, Vice-Governor Danilo Azaa, and other Sangguniang Panlalawigan
members.
This Complaint was precipitated by the refusal of the provincial officials of Albay to make available to
the Municipality of Tiwi, Albay its share in the collections of the special education fund. This was
contrary to Section 272 of the Local Government Code59 which requires equal sharing between
provincial and municipal school boards. Specifically, it was found that the Sangguniang Panlalawigan
passed Ordinance No. 09-92, which declared as forfeited in favor of the Province of Albay (and to the
exclusion of the municipalities in Albay) all payments made by the National Power Corporation to the
former pursuant to a memorandum of agreement through which the National Power Corporation
settled its real property tax obligations.
As regards the personal liability of the respondents in that case, the Office of the President was quoted
to have anchored on the following disquisition its imposition of the penalty of suspension on the
respondent provincial officials:
It cannot be denied that the Sangguniang Panlalawigan has control over the Provinces purse as it
may approve or not resolutions or ordinances generating revenue or imposing taxes as well as
appropriating and authorizing the disbursement of funds to meet operational requirements or for the
prosecution of projects.
Being entrusted with such responsibility, the provincial governor, vice-governor and the members of
the Sangguniang Panlalawigan, must always be guided by the so-called fundamental principles
enunciated under the Local Government Code[.] . . .
All the respondents could not claim ignorance of the law especially with respect to the provisions of
P.D. No. 464 that lay down the sharing scheme among local government units concerned and the
national government, for both the basic real property tax and additional tax pertaining to the Special
Education Fund. Nor can they claim that the Province could validly forfeit the P40,724,471.74 paid by
NPC considering that the Province is only entitled to a portion thereof and that the balance was merely
being held in trust for the other beneficiaries.
As a public officer, respondent Azaa (and the other respondents as well) has a duty to protect the
interests not only of the Province but also of the municipalities of Tiwi and Daraga and even the
national government. When the passage of an illegal or unlawful ordinance by the Sangguniang
Panlalawigan is imminent, the presiding officer has a duty to act accordingly, but actively opposing the
same by temporarily relinquishing his chair and participating in the deliberations. If his colleagues
insist on its passage, he should make known his opposition thereto by placing the same on record. No
evidence of any sort was shown in this regard by respondent Azaa.
Clearly, all the respondents have, whether by act or omission, denied the other beneficiaries of their
rightful shares in the tax delinquency payments made by the NPC and caused the illegal forfeiture,
appropriation and disbursement of funds not belonging to the Province, through the passage and
approval of Ordinance No. 09-92 and Resolution Nos. 178-92 and 204-92.
The foregoing factual setting shows a wanton disregard of law on the part of the respondents
tantamount to abuse of authority. Moreover, the illegal disbursements made can qualify as technical
malversation.60
It is evident that the circumstances in Salalima are not analogous to the circumstances pertinent to
petitioner.
improper for respondent to attribute personal liability to petitioner and to require her to personally
answer to the deficiency in special education fund collections.
WHEREFORE, the Petition is GRANTED. Decision No. 2008-087 dated September 22, 2008 and
Decision No. 2011-083 dated November 16, 2011 of respondent Commission on Audit
are ANNULLED and SET ASIDE.
SO ORDERED.

While Salalima involved the mishandling of proceeds which was tantamount to abuse of authority
and which can qualify as technical malversation, this case involves the collection of the additional
levy for the special education fund at a rate which, at the time of the collection, was pursuant to an
ordinance that was yet to be invalidated.

Likewise, Salalima involved the liability of the provincial officials who were themselves the authors of
an invalid ordinance. In this case, the Municipality of Narra as subordinate to the Province of
Palawan merely enforced a provincial ordinance. Respondent, in its own Memorandum,
acknowledged that it was not even petitioner but the municipal treasurer who actually effected the
collection at a supposedly erroneous rate.61

Also, Salalima entailed the imposition of the administrative penalty of suspension. In this case,
respondent is not concerned with the imposition of administrative penalties but insists that petitioner
must herself (jointly and severally with the other persons named) pay for the deficiency in collections.

We find it improper to hold petitioner personally liable for the uncollected amount on account of the
sheer happenstance that she was the mayor of Narra, Palawan, when the Ordinance was enforced.

VIII

The actions of the officials of the Municipality of Narra are consistent with the rule that ordinances are
presumed valid. In finding liability, respondent suggests that officers of the Municipality should not
comply with an ordinance duly passed by the Sangguniang Panlalawigan.

It is true that petitioner, as the local chief executive, was charged with fidelity to our laws. However, it
would be grossly unfair to sustain respondents position. It implacably dwells on supposed non-
compliance with Section 235 but turns a blind eye on the context which precipitated the collection
made by the Municipality of Narra at the reduced rate of 0.5%.

The mayors actions were done pursuant to an ordinance which, at the time of the collection, was yet to
be invalidated.

It is basic that laws and local ordinances are presumed to be valid unless and until the courts declare
the contrary in clear and unequivocal terms.62 Thus, the concerned officials of the Municipality of
Narra, Palawan must be deemed to have conducted themselves in good faith and with regularity when
they acted pursuant to Chapter 5, Section 48 of Provincial Ordinance No. 332-A, Series of 1995, and
collected the additional levy for the special education fund at the rate of 0.5%. Accordingly, it was
G.R. No. 199439 April 22, 2014
CITY OF GENERAL SANTOS, represented by its Mayor, HON. DARLENE MAGNOLIA R.
ANTONINO-CUSTODIO Petitioner,
vs.
COMMISSION ON AUDIT, Respondent.
DECISION
LEONEN, J.:
In order to be able to deliver more effective and efficient services, the law allows local government
units the power to reorganize. In doing so, they should be given leeway to entice their employees to
avail of severance benefits that the local government can afford. However, local government units may
not provide such when it amounts to a supplementary retirement benefit scheme.
In this special civil action for certiorari,1 the city of General Santos asks us to find grave abuse of
discretion on the part of the Commission on Audit (COA). On January 20, 2011, respondent
Commission on Audit affirmed the findings of its Legal Services Sector in its Opinion No. 2010-021
declaring Ordinance No. 08, series of 2009, as illegal. This was reiterated in respondent Commissions
resolution denying the motion for reconsideration dated October 17, 2011.2
Ordinance No. 08, series of 2009, was enacted by the city of General Santos on August 13, 2009. It is
entitled An Ordinance Establishing the GenSan Scheme on Early Retirement for Valued Employees
Security (GenSan SERVES).3
It is important to view this ordinance in its proper context.
Then mayor of General Santos City, Pedro B. Acharon, Jr., issued Executive Order No. 40, series of
2008, creating management teams pursuant to its organization development program. This was
patterned after Executive Order No. 366 dated October 4, 2004 entitled Directing a Strategic Review
of the Operations and Organizations of the Executive Branch and Providing Options and Incentives for
Government Employees who may be Affected by the Rationalization of the Functions and Agencies of
the Executive Branch and its implementing rules and regulations.4
Mayor Pedro B. Acharon, Jr. declared the citys byword of "Total Quality Service" in his state of the
city address in 2005. This was followed by the conduct of a process and practice review for each
department, section, and unit of the local government. The product was an organization development
masterplan adopted as Executive Order No. 13, series of 2009.5
This was followed by Resolution No. 004, series of 2009, requesting for the mayors support for
GenSan SERVES, an early retirement program to be proposed to the Sangguniang Panlungsod.
Consequently, Ordinance No. 08, series of 2009, was passed together with its implementing rules and
regulations, designed "to entice those employees who were unproductive due to health reasons to avail
of the incentives being offered therein by way of early retirement package."6
This contextual background in the passing of Ordinance No. 08, series of 2009, was not contested by
respondent Commission on Audit.
The ordinance, as amended, provides that qualified employees below sixty (60) years of age but not
less than fifty (50) years and sickly employees below fifty (50) years of age but not less than forty (40)
years may avail of the incentives under the program.7 In other words, the ordinance "provides for
separation benefits for sickly employees who have not yet reached retirement age." 8 Section 5 of the
ordinance states:
Section 5. GenSan SERVES Program Incentives On Top of Government Service Insurance System
(GSIS) and PAG-IBIG Benefits Any personnel qualified and approved to receive the incentives of
this program shall be entitled to whatever retirement benefits the GSIS or PAG-IBIG is granting to a
retiring government employee.
Moreover, an eligible employee shall receive an early retirement incentive provided under this program
at the rate of one and one-half (1 1/2) months of the employees latest basic salary for every year of
service in the City Government.9
Also, the ordinance provides:
Section 6. GenSan SERVES Post-Retirement Incentives Upon availment of early retirement, a
qualified employee shall enjoy the following in addition to the above incentives:
(a) Cash gift of Fifty Thousand Pesos (P50,000.00) for the sickly employees;
(b) Lifetime free medical consultation at General Santos City Hospital;
(c) Annual aid in the maximum amount of Five Thousand Pesos (P5,000.00), if admitted at
General Santos City Hospital; and
(d) 14 karat gold ring as a token.10
As provided, payment would be made in two tranches: 50% paid in January 2010 and the remainder in
July 2010.11 Petitioner city alleged that out of its 1,361 regular employees, 50 employees applied, from
which 39 employees qualified to avail of the incentives provided by the ordinance.12 The first tranche
of benefits was released in January 2010.13
In a letter dated February 10, 2010, the citys audit team leader, through its supervising auditor, sent a
query on the legality of the ordinance to respondent Commission on Audits director for Regional
Office No. XII, Cotabato City.14
In his second indorsement dated March 15, 2010, respondent Commissions regional director agreed
that the grant lacked legal basis and was contrary to the Government Service Insurance System (GSIS)
Act. He forwarded the matter to respondent Commissions Office of General Counsel, Legal Services
Sector, for a more authoritative opinion.15
The Office of General Counsel issued COA-LSS Opinion No. 2010-021 on March 25, 2010. The
opinion explained that Ordinance No. 08, series of 2009, partakes of a supplementary retirement
benefit plan. In its view, Section 28, paragraph (b) of Commonwealth Act No. 186, as amended,
prohibits government agencies from establishing supplementary retirement or pension plans from the
time the Government Service Insurance System charter took effect while those plans already existing
when the charter was enacted were declared abolished.16
The opinion discussed that this prohibition was reiterated in Conte v. Commission on Audit.17 Larao v.
Commission on Audit,18 on the other hand, ruled that an early retirement program should be by virtue
of a valid reorganization pursuant to law in order to be valid. The opinion concludes as follows:
In fine, since Ordinance No. 08 is in the nature of an ERP [Early Retirement Program] of the City
Government of General Santos, a law authorizing the same is a requisite for its validity. In the absence,
however, of such law, the nullity of Ordinance No. 08 becomes a necessary consequence.
It is hoped that the foregoing sufficiently answers the instant query.19
Petitioner city, through then mayor, Pedro B. Acharon, Jr., filed a letter-reconsideration dated June 7,
2010. They followed through with two letters addressed to respondent Commissions chairman dated
July 26, 2010 and October 6, 2010, respectively, for the reconsideration of COA-LSS Opinion No.
2010-021.20
Respondent Commission on Audit treated these letters as an appeal. On January 20, 2011, it rendered
its decision denying the appeal and affirming COA-LSS Opinion No. 2010-021.21 It also denied
reconsideration by resolution dated October 17, 2011.22 The dispositive portion of its decision reads:
WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit and COA-
LSS Opinion No. 2010-021 dated March 25, 2010 of the OGC, this Commission is hereby
AFFIRMED. Accordingly, the ATL of General Santos City is hereby directed to issue a Notice of
Disallowance on the illegal disbursements made under the Gen[S]san SERVES.23
Respondent Commission on Audit agreed that Ordinance No. 08, series of 2009, partakes of the nature
of a supplementary retirement benefit plan proscribed by Section 28, paragraph (b) of Commonwealth
Act No. 186 as amended. It also cited Conte v. Commission on Audit24 and Larao v. Commission on
Audit.25
In its opinion, respondent Commission on Audit observed that GenSan SERVES was not based on a
law passed by Congress but on ordinances and resolutions passed and approved by the Sangguniang
Panlungsod and Executive Orders by the city mayor.26 Moreover, nowhere in Section 76 of Republic
Act No. 7160, otherwise known as the Local Government Code, does it provide a specific power for
local government units to establish an early retirement program.
Mayor Acharon, Jr. submitted that other local government units such as Cebu in 2005 and 2008 have
adopted their own early retirement programs. The resolutions of the Sangguniang Panlungsod of Cebu
invoked Republic Act No. 6683 dated December 2, 1988, which provided for early retirement and
voluntary separation. The questioned decision mentioned that respondent Commission on Audit would
look into this program supposedly adopted by Cebu.27 Assuming Cebus invocation of Republic Act
No. 6683 was proper, respondent Commission on Audit explained that this has already been amended
by Republic Act No. 8291, otherwise known as the GSIS Act of 1997. Moreover, Section 9 of Republic
Act No. 668328 provides for limited application.29
The present petition raises this sole issue:
WHETHER RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF
DISCRETION WHEN IT CONSIDERED ORDINANCE NO. 08, SERIES OF 2009, IN THE
NATURE OF AN EARLY RETIREMENT PROGRAM REQUIRING A LAW AUTHORIZING IT
FOR ITS VALIDITY
I
This court has consistently held that findings of administrative agencies are generally respected, unless
found to have been tainted with unfairness that amounted to grave abuse of discretion:
It is the general policy of the Court to sustain the decisions of administrative authorities, especially one
which is constitutionally-created not only on the basis of the doctrine of separation of powers but also
for their presumed expertise in the laws they are entrusted to enforce. Findings of administrative
agencies are accorded not only respect but also finality when the decision and order are not tainted
with unfairness or arbitrariness that would amount to grave abuse of discretion. It is only when the
COA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack
or excess of jurisdiction, that this Court entertains a petition questioning its rulings. There is grave
abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law
and evidence but on caprice, whim and despotism.30 (Emphasis supplied, citations omitted)
We have ruled that "not every error in the proceedings, or every erroneous conclusion of law or fact,
constitutes grave abuse of discretion."31 Grave abuse of discretion has been defined as follows:
By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave abuse of
discretion as when the power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and must be so patent and so gross as to amount to an evasion of a positive duty or
to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. x x x.32
In Yap v. Commission on Audit,33 this court explained that the Commission on Audit has the duty to
make its own assessment of the merits of the disallowance and need not be limited to a review of the
grounds relied upon by the auditor of the agency concerned:
x x x we rule that, in resolving cases brought before it on appeal, respondent COA is not required to
limit its review only to the grounds relied upon by a government agencys auditor with respect to
disallowing certain disbursements of public funds. In consonance with its general audit power,
respondent COA is not merely legally permitted, but is also duty-bound to make its own assessment of
the merits of the disallowed disbursement and not simply restrict itself to reviewing the validity of the
ground relied upon by the auditor of the government agency concerned. To hold otherwise would
render COAs vital constitutional power unduly limited and thereby useless and ineffective. 34
Moreover, Article IX-A, Section 7 of the Constitution provides that "unless otherwise provided by this
Constitution or by law, any decision, order, or ruling of each Commission may be brought to the
Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a copy thereof."
Rule 64, Section 2 of the Revised Rules of Civil Procedure also provides that "a judgment or final
order or resolution of the Commission on Elections and the Commission on Audit may be brought by
the aggrieved party to the Supreme Court on certiorari under Rule 65, except as hereinafter provided."
Thus, we proceed to determine whether respondent Commission on Audit acted with grave abuse of
discretion in affirming the opinion of its Legal Services Sector and finding that the entire Ordinance
No. 08, series of 2009, partakes of the nature of a proscribed supplementary retirement benefit plan.
II
According to petitioner city, GenSan SERVES does not provide for supplementary retirement benefits,
and Conte does not apply.35
Petitioner city explains that unlike the facts in Conte, Ordinance No. 08, series of 2009, was designed
to entice employees who are unproductive due to health reasons to avail of the incentives by way of an
early retirement package. In essence, the incentives are severance pay. Those who have reached
retirement age are disqualified.36
Petitioner city adds that GenSan SERVES is a one-time offer. It is available only to qualified
employees who applied within two months from the ordinances effectivity. In fact, out of its 1,361
regular employees, 50 employees applied. Out of all that applied, only 39 employees qualified to avail
of the incentives provided by the ordinance.37
These incentives are independent and distinct from the Government Service Insurance System
retirement package.38
Section 5 of Ordinance No. 08, series of 2009, was amended by Ordinance No. 11, series of 2009, "to
exclude those GSIS and PAG-IBIG benefits the payment[s] of which are passed on [to] the
employer."39 This was to remove any doubt as to its coverage and applicability and to ensure that no
employee will be paid twice.40 The amended provision reads:
Section 5. Gen[S]an SERVES Program Incentives On Top of Government Service Insurance System
(GSIS) and PAG-IBIG Benefits Any personnel qualified and approved to receive the incentives of
this program shall be entitled to whatever retirement benefits the GSIS or PAG-IBIG is granting to a
retiring government employee, except those benefits the payment of which are passed on to the
employer. In which case, the benefits granted under this ordinance shall only be considered as one of
the options available to a retiring city employee.
Moreover, an eligible employee shall receive an early retirement incentive provided under this program
at the rate of one and one-half (1 1/2) months of the employees latest basic salary for every year of
service in the City Government. (Emphasis supplied)
According to petitioner city, GenSan SERVES is an initial step pursuant to its organization
development masterplan,41 which began with the city mayors issuance of Executive Order No. 40,
series of 2008, creating change management teams.42
Petitioner city cites Sections 16 and 76 of the Local Government Code as its authority to reorganize. It
argues that these provisions necessarily imply the authority of petitioner city to provide retirement
benefits, separation pay, and other incentives to those affected by the reorganization.43
Petitioner city also cites Republic Act No. 6656, otherwise known as An Act to Protect the Security of
Tenure of Civil Service Officers and Employees in the Implementation of Government
Reorganization.44 According to petitioner city, this not only requires good faith in the implementation
of reorganization but mandates the payment of appropriate separation pay, retirement, and other
benefits under existing laws within 90 days from effectivity date of separation.45
Even President Gloria Macapagal-Arroyo issued Executive Order No. 184 entitled Directing the
Reorganization and Streamlining of the National Development Company on March 10, 2003. In
Section 4, it provides for a separation package anchored on Republic Act No. 6656.46 Petitioner city
submits that if the President can reorganize in the absence of any law authorizing her to do so and
provide compensation based on Republic Act No. 6656, with more reason that a local government unit
can reorganize as its power to reorganize is expressly provided in the Local Government Code. 47
Respondent Commission on Audit counters that it correctly found Ordinance No. 08, series of 2009, as
invalid in the absence of a law passed by Congress specifically authorizing the enactment of an
ordinance granting an early retirement scheme.48
Respondent Commission on Audit contends that Sections 16 and 76 of the Local Government Code do
not confer authority upon any local government unit to create a separate or supplementary retirement
benefit plan.49 As for Republic Act No. 6656, this contemplates situations where a government position
has been abolished, or rendered redundant, or a need to merge, divide or consolidate positions for
lawful causes allowed by the Civil Service Law exists.50
According to respondent Commission on Audit, petitioner city failed to demonstrate arbitrariness on its
part as it merely observed the proscription under Section 28, paragraph (b) of Commonwealth Act No.
186 when it found the ordinance a nullity.51
We agree with respondent Commission on Audit but only insofar as Section 5 of the ordinance is
concerned. We declare Section 6 on post-retirement incentives as valid.
III
The constitutional mandate for local autonomy supports petitioner citys issuance of Executive Order
No. 40, series of 2008, creating change management teams52 as an initial step for its organization
development masterplan.
Local autonomy also grants local governments the power to streamline and reorganize. This power is
inferred from Section 76 of the Local Government Code on organizational structure and staffing
pattern, and Section 16 otherwise known as the general welfare clause:
Section 76. Organizational Structure and Staffing Pattern. - Every local government unit shall design
and implement its own organizational structure and staffing pattern taking into consideration its service
requirements and financial capability, subject to the minimum standards and guidelines prescribed by
the Civil Service Commission.
Section 16. General Welfare. - Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental
for its efficient and effective governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government units shall ensure and
support, among other things, the preservation and enrichment of culture, promote health and safety,
enhance the right of the people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities, improve public morals, enhance
economic prosperity and social justice, promote full employment among their residents, maintain
peace and order, and preserve the comfort and convenience of their inhabitants.
Section 5, paragraph (a) of the Local Government Code states that "any provision on a power of a local
government unit shall be liberally interpreted in its favor, and in case of doubt, any question thereon
shall be resolved in favor or devolution of powers x x x."
Section 5, paragraph (c) also provides that "the general welfare provisions in this Code shall be
liberally interpreted to give more powers to local government units in accelerating economic
development and upgrading the quality of life for the people in the community." These rules of
interpretation emphasize the policy of local autonomy and the devolution of powers to the local
government units.
Designing and implementing a local government units own "organizational structure and staffing
pattern" also implies the power to revise and reorganize. Without such power, local governments will
lose the ability to adjust to the needs of its constituents. Effective and efficient governmental services
especially at the local government level require rational and deliberate changes planned and executed
in good faith from time to time.
This was implied in Province of Negros Occidental v. Commissioners, Commission on Audit. 53 In that
case, this court declared as valid the ordinance passed by the province granting and releasing
hospitalization and health care insurance benefits to its officials and employees. This court held that
Section 2 of Administrative Order No. 10354 requiring the Presidents prior approval before the grant of
any allowance or benefit is applicable only to offices under the executive branch.55 Section 2 does not
mention local government units, thus, the prohibition does not apply to them. 56 This court then referred
to the policy of local autonomy as follows:
Thus, consistent with the state policy of local autonomy as guaranteed by the 1987 Constitution, under
Section 25, Article II and Section 2, Article X, and the Local Government Code of 1991, we declare
that the grant and release of the hospitalization and health care insurance benefits given to petitioners
officials and employees were validly enacted through an ordinance passed by petitioners Sangguniang
Panlalawigan.57
Local autonomy allows an interpretation of Sections 76 and 16 as granting petitioner city the authority
to create its organization development program.
Petitioner citys vision in 2005 of "Total Quality Service" for "the improvement of the quality of
services delivered by the city to the delight of its internal and external customers" 58 is a matter within
its discretion. It then conducted a process and practice review for each and every unit within the city,
resulting in the formulation of an organization development masterplan adopted as Executive Order
No. 13, series of 2009.59
Resolution No. 004, series of 2009, was later passed requesting for the mayors support for GenSan
SERVES. The third preambular clause states that in order "to transform the bureaucracy into [an]
effective and result[s]-oriented structure, redounding to improved governance, there is a need to entice
employees aged 50-59 years old, to retire earlier than [age] 65 for them to enjoy their retirement while
they are still healthy."60 Consequently, Ordinance No. 08, series of 2009, was passed creating the
GenSan SERVES program.
In Betoy v. The Board of Directors, NAPOCOR,61 this court explained that a streamlining of
organization for a more efficient system must pass the test of good faith in order to be valid:
A reorganization involves the reduction of personnel, consolidation of offices, or abolition thereof by
reason of economy or redundancy of functions.62 It could result in the loss of one's position through
removal or abolition of an office. However, for a reorganization for the purpose of economy or to make
the bureaucracy more efficient to be valid, it must pass the test of good faith; otherwise, it is void ab
initio.63 (Emphasis supplied)
There are indicia of bad faith, none of which are present in this case.
Republic Act No. 6656 invoked by petitioner city as authority for the creation of GenSan SERVES, for
example, enumerates situations considered as bad faith when employees are removed as a result of any
reorganization:
SECTION 2. No officer or employee in the career service shall be removed except for a valid cause
and after due notice and hearing. A valid cause for removal exists when, pursuant to a bona fide
reorganization, a position has been abolished or rendered redundant or there is a need to merge, divide,
or consolidate positions in order to meet the exigencies of the service, or other lawful causes allowed
by the Civil Service Law. The existence of any or some of the following circumstances may be
considered as evidence of bad faith in the removals made as a result of reorganization, giving rise to a
claim for reinstatement or reappointment by an aggrieved party:
a) Where there is a significant increase in the number of positions in the new staffing pattern
of the department or agency concerned;
b) Where an office is abolished and another performing substantially the same functions in
created;
c) Where incumbents are replaced by those less qualified in terms of status of appointment,
performance and merit;
d) Where there is a reclassification of offices in the department or agency concerned and the
reclassified offices perform substantially the same functions as the original offices; and
e) Where the removal violates the order of separation provided in Section 3 hereof. (Emphasis
supplied)
None of these badges of bad faith exist in this case.
Petitioner city followed the order of priority under Section 4 of its ordinance.64 It required applicants to
undergo medical examination with the local hospital and considered the hospital chiefs
recommendations.65
Unfortunately, these allegations showing good faith is not enough to declare the program created by
petitioner city as a reorganization that justifies the creation of a retirement benefit plan.
Petitioner city alleged that the positions occupied by those who qualified for GenSan SERVES
remained vacant, and it would neither hire replacements nor promote employees earlier than June 30,
2011.66 This means the positions left by those who availed of the program will eventually be filled up
by others. Their positions were not abolished or merged with other positions for streamlining in the
service.
IV
The assailed decision by respondent Commission on Audit was anchored on Section 28, paragraph (b)
of Commonwealth Act No. 186, otherwise known as the Government Service Insurance Act, 67 as
amended by Republic Act No. 4968.68 This proscribes all supplementary retirement or pension plans
for government employees:
(b) Hereafter no insurance or retirement plan for officers or employees shall be created by any
employer. All supplementary retirement or pension plans heretofore in force in any government office,
agency, or instrumentality or corporation owned and controlled by the government, are hereby declared
inoperative or abolished: Provided, That the rights of those who are already eligible to retire thereunder
shall not be affected.
Jurisprudence has discussed the nature and purpose of retirement benefits and pension plans as
follows:
Retirement benefits are, after all, a form of reward for an employees loyalty and service to the
employer, and are intended to help the employee enjoy the remaining years of his life, lessening the
burden of worrying about his financial support or upkeep. On the other hand, a pension partakes of the
nature of "retained wages" of the retiree for a dual purpose: to entice competent people to enter the
government service, and to permit them to retire from the service with relative security, not only for
those who have retained their vigor, but more so for those who have been incapacitated by illness or
accident.69 (Emphasis supplied)
In Conte v. Commission on Audit,70 this court discussed the purpose behind the proscription found in
Section 28, paragraph (b), as amended. It was to address the need to prevent the proliferation of
inequitous plans:
x x x Sec. 28 (b) as amended by RA 4968 in no uncertain terms bars the creation of any insurance or
retirement plan other than the GSIS for government officers and employees, in order to prevent the
undue and inequitous proliferation of such plans. x x x. To ignore this and rule otherwise would be
tantamount to permitting every other government office or agency to put up its own supplementary
retirement benefit plan under the guise of such "financial assistance.71
Section 2 of the ordinance, as amended, defined "applicants" as referring to "qualified employees
below sixty (60) years of age but not less than fifty (50) years and sickly employees below fifty (50)
years of age but not less than forty (40) years old from the effectivity of this Ordinance and shall have
rendered service in the City government for at least 15 years."
This means that even employees other than those who are unproductive due to health reasons may
apply under the ordinance. Albeit last in priority, they may still qualify to avail of the incentives
pursuant to Section 4, paragraph (d), as amended:
Section 4. Prioritization. The following applicants shall be prioritized in availing the program:
a) First Employees below sixty (60) years of age but not less than fifty (50) years who are
determined by the Chief of General Santos City Hospital to be qualified to avail of the
program;
b) Second Employees below sixty (60) years of age but not less than fifty (50) years who
are under continuous medication as determined by the Chief of General Santos City Hospital;
c) Third Employees below fifty (50) years of age but not less than forty (40) years who are
determined by the Chief of General Santos City Hospital to be physically or mentally
incapacitated to further continue rendering service with the City Government and
recommended to avail of the program; and
d) Fourth Employees below sixty (60) years of age but not less than fifty (50) years who are
desirous to avail of the program.
Moreover, Section 3 of the ordinance, as amended, enumerates those who are covered by the program
and may thus apply under the ordinance:
Section 3. Coverage. GenSan SERVES program covers the following employees of the City
Government:
(a) personnel occupying permanent positions;
(b) those who are below sixty (60) years of age but not less than fifty (50) years on the date of
application;
(c) those who are below fifty (50) years of age but not less than forty (40) years on the date of
application but confirmed by the Chief of General Santos City Hospital to be sickly and
recommended to avail early retirement; and
(d) those who must have served the City Government of General Santos a minimum of fifteen
(15) continuous years.
Under paragraph (d), employees should have served for a minimum of 15 years to qualify. This
requirement is consistent with the definition of a retirement plan as a form of reward for an employees
loyalty and service to the employer. Moreover, pension plans as defined permit employees to retire
with relative security, especially for those who have been incapacitated by illness. 72
Section 5 states that "an eligible employee shall receive an early retirement incentive provided under
this program at the rate of 1 1/2 months of the employees latest basic salary for every year of service
in the City Government." This may be more than the amount of annuity provided in Section 11,
paragraph (a) of Commonwealth Act No. 186 as amended,73 considering that an applicant must have
rendered at least 15 years of service in the city government to qualify.74
Section 5 refers to an "early retirement incentive," the amount of which is pegged on the beneficiarys
years of service in the city government. The ordinance provides that only those who have rendered
service to the city government for at least 15 years may apply.75 Consequently, this provision falls
under the definition of a retirement benefit. Applying the definition in Conte, it is a form of reward for
an employees loyalty and service to the city government, and it is intended to help the employee enjoy
the remaining years of his or her life by lessening his or her financial worries.
V
In any case, those who availed of the GenSan SERVES were separated from the service. Those who
are separated from the service, whether compulsorily for lawful cause,76 or voluntarily when
incentivized to retire early for streamlining purposes, 77 should consequently be entitled to a form of
separation or severance pay.
Petitioner city invoked Republic Act No. 6656, which provides that employees separated from the
service as a result of any reorganization shall be entitled to separation pay, retirement, and other
benefits:
Section 9. All officers and employees who are found by the Civil Service Commission to have been
separated in violation of the provisions of this Act, shall be ordered reinstated or reappointed as the
case may be without loss of seniority and shall be entitled to full pay for the period of separation.
Unless also separated for cause, all officers and employees, who have been separated pursuant to
reorganization shall, if entitled thereto, be paid the appropriate separation pay and retirement and other
benefits under existing laws within ninety (90) days from the date of the effectivity of their separation
or from the date of the receipt of the resolution of their appeals as the case may be: Provided, That
application for clearance has been filed and no action thereon has been made by the corresponding
department or agency. Those who are not entitled to said benefits shall be paid a separation gratuity in
the amount equivalent to one (1) month salary for every year of service. Such separation pay and
retirement benefits shall have priority of payment out of the savings of the department or agency
concerned. (Emphasis supplied)
Separation or severance pay has been defined as "an allowance usually based on length of service that
is payable to an employee on severance x x x, or as compensation due an employee upon the severance
of his employment status with the employer."78
Section 6 of the ordinance on post-retirement incentives provides for benefits that are not computed
based on years of service. They are lump sum amounts and healthcare benefits:
Section 6. GenSan SERVES Post-Retirement Incentives Upon availment of early retirement, a
qualified employee shall enjoy the following in addition to the above incentives:
(e) Cash gift of Fifty Thousand Pesos (P50,000.00) for the sickly employees;
(f) Lifetime free medical consultation at General Santos City Hospital;
(g) Annual aid in the maximum amount of Five Thousand Pesos (P5,000.00), if admitted at
General Santos City Hospital; and
(h) 14 karat gold ring as token.
The text of the ordinance indicates its purpose of encouraging employees, especially those who are
unproductive due to health reasons, to avail of the program even before they reach the compulsory
retirement age. Section 6 provides for a form of severance pay to those who availed of GenSan
SERVES, which was executed in good faith.
We should not be misled by the use of the term "retirement" in Section 6 in determining the nature of
the benefits it provides. Labels are not determinative of substantive content. It is the purpose behind
these incentives, as read from the text of the ordinance and as inferred from the effect of the ordinance
as applied, which must govern.
The purpose of Section 6 is also different from the benefits proscribed in Conte v. Commission on
Audit,79 and the nature of its benefits must be taken in the context of its rationale. The benefits
provided in Section 6 serve its purpose of inducing petitioner citys employees, who are unproductive
due to health reasons, to retire early. Respondent Commission on Audits observation that the benefit
provided is broader than that provided in Conte v Commission on Audit fails to take this rationale into
consideration. Furthermore, the benefits under GenSan SERVES were only given to a select fewthe
sickly and unproductive due to health reasons. Certainly, this negates the position that the benefits
provide for supplementary retirement benefits that augment existing retirement laws.
In Conte v. Commission on Audit80 cited by respondent Commission on Audit, this court held that the
"financial assistance" option for the difference of benefits under Republic Act No. 660 and Republic
Act No. 1616 violated Section 28, paragraph (b) as amended. Social Security System (SSS) Resolution
No. 56 subject of that case provides in part:
NOW, THEREFORE, BE IT RESOLVED, That all the SSS employees who are simultaneously
qualified for compulsory retirement at age 65 or for optional retirement at a lower age be encouraged
to avail for themselves the life annuity under R.A. 660, as amended; x x x.81
The fifth preambular clause of Resolution No. 56 also states that "it is the policy of the Social Security
Commission to promote and to protect the interest of all SSS employees, with a view to providing for
their well-being during both their working and retirement years."82 The financial assistance provides
benefits to all Social Security System employees who are retirable under existing laws and who are
qualified to apply. It is available to all present and future Social Security System employees upon
reaching retirement age.83
Without doubt, this financial assistance of Conte augments the retirement benefits provided under
existing laws, in violation of Section 28, paragraph (b), as amended.
On the other hand, Section 3 of Ordinance No. 08, series of 2009 limits its coverage.1a\^/phi1 Only
qualified employees below sixty (60) years of age but not less than fifty (50) years and sickly
employees below fifty (50) years of age but not less than forty (40) years from the effectivity of the
ordinance, with at least 15 years of service, are considered. Out of 1,361 regular employees of
petitioner city, only 50 employees applied, from which only 39 employees qualified to avail of the
ordinance benefits.84 Petitioner city alleged that there was one more applicant who was supposed to
qualify, but she had died of acute renal failure secondary to diabetes nephropathy before her
application was acted upon.85
Furthermore, unlike in Conte, Ordinance No. 08, series of 2009, was a one-time limited offer.86 The
availment period was only within two months from the ordinances effectivity.87
In any case, petitioner city is authorized by the Local Government Code to approve ordinances to
provide for the care of the sick:
SECTION 458. Powers, Duties, Functions and Compensation. (a) The Sangguniang Panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for
the general welfare of the city and its inhabitants pursuant to section 16 of this Code and in the proper
exercise of the corporate powers of the city as provided for under section 22 of this Code, and shall:
(5) Approve ordinances which shall ensure the efficient and effective delivery of the basic services
and facilities as provided for under Section 17 of this Code, and in addition to said services and
facilities, shall:
(xiv) Provide for the care of disabled persons, paupers, the aged, the sick, persons of unsound mind,
abandoned minors, juvenile delinquents, drug dependents, abused children and other needy and
disadvantaged persons, particularly children and youth below eighteen (18) years of age; and, subject
to availability of funds, establish and provide for the operation of centers and facilities for said needy
and disadvantaged persons[.] (Emphasis supplied)
This is also consistent with the constitutional mandate for a comprehensive approach to health
development, with priority for the needs of the sick:
ARTICLE XIII
Social Justice and Human Rights HEALTH
Section 11. The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the underprivileged, sick, elderly,
disabled, women, and children. The State shall endeavor to provide free medical care to paupers.
Thus, the cash gift for the sickly employees, lifetime free medical consultation in petitioner city's
hospital, and other similar benefits under Section 6 of the ordinance are valid.
The proscription under Section 28, paragraph (b) of Commonwealth Act No. 186, as amended, does
not apply to Section 6 of the ordinance.1wphi1 Consequently, the Commission on Audit acted with
grave abuse of discretion when it declared the entire ordinance void and of no effect.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Commission on Audit decision
dated January 20, 2011 and resolution dated October 17, 2011 are AFFIRMED with MODIFICATION
insofar as Section 6 of Ordinance No. 08, series of 2009, as amended by Ordinance No. 11, series of
2009, is declared as VALID.
SO ORDERED.
G.R. No. 182574 September 28, 2010
THE PROVINCE OF NEGROS OCCIDENTAL, represented by its Governor ISIDRO P.
ZAYCO, Petitioner,
vs.
THE COMMISSIONERS, COMMISSION ON AUDIT; THE DIRECTOR, CLUSTER IV-
VISAYAS; THE REGIONAL CLUSTER DIRECTORS; and THE PROVINCIAL AUDITOR,
NEGROS OCCIDENTAL, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for certiorari1 assailing Decision No. 2006-0442 dated 14 July 2006 and
Decision No. 2008-0103 dated 30 January 2008 of the Commission on Audit (COA) disallowing
premium payment for the hospitalization and health care insurance benefits of 1,949 officials and
employees of the Province of Negros Occidental.
The Facts
On 21 December 1994, the Sangguniang Panlalawigan of Negros Occidental passed Resolution No.
720-A4allocating P4,000,000 of its retained earnings for the hospitalization and health care insurance
benefits of 1,949 officials and employees of the province. After a public bidding, the Committee on
Awards granted the insurance coverage to Philam Care Health System Incorporated (Philam Care).
Petitioner Province of Negros Occidental, represented by its then Governor Rafael L. Coscolluela, and
Philam Care entered into a Group Health Care Agreement involving a total payment of P3,760,000
representing the insurance premiums of its officials and employees. The total premium amount was
paid on 25 January 1996.
On 23 January 1997, after a post-audit investigation, the Provincial Auditor issued Notice of
Suspension No. 97-001-1015 suspending the premium payment because of lack of approval from the
Office of the President (OP) as provided under Administrative Order No. 1036 (AO 103) dated 14
January 1994. The Provincial Auditor explained that the premium payment for health care benefits
violated Republic Act No. 6758 (RA 6758),7 otherwise known as the Salary Standardization Law.
Petitioner complied with the directive post-facto and sent a letter-request dated 12 January 1999 to the
OP. In a Memorandum dated 26 January 1999,8 then President Joseph E. Estrada directed the COA to
lift the suspension but only in the amount of P100,000. The Provincial Auditor ignored the directive of
the President and instead issued Notice of Disallowance No. 99-005-101(96)9 dated 10 September
1999 stating similar grounds as mentioned in Notice of Suspension No. 97-001-101.
Petitioner appealed the disallowance to the COA. In a Decision dated 14 July 2006, the COA affirmed
the Provincial Auditors Notice of Disallowance dated 10 September 1999.10 The COA ruled that under
AO 103, no government entity, including a local government unit, is exempt from securing prior
approval from the President granting additional benefits to its personnel. This is in conformity with the
policy of standardization of compensation laid down in RA 6758. The COA added that Section 468(a)
(1)(viii)11 of Republic Act No. 7160 (RA 7160) or the Local Government Code of 1991 relied upon by
petitioner does not stand on its own but has to be harmonized with Section 1212 of RA 6758.
Further, the COA stated that the insurance benefits from Philam Care, a private insurance company,
was a duplication of the benefits provided to employees under the Medicare program which is
mandated by law. Being merely a creation of a local legislative body, the provincial health care
program should not contravene but instead be consistent with national laws enacted by Congress from
where local legislative bodies draw their authority.
The COA held the following persons liable: (1) all the 1,949 officials and employees of the province
who benefited from the hospitalization and health care insurance benefits with regard to their
proportionate shares; (2) former Governor Rafael L. Coscolluela, being the person who signed the
contract on behalf of petitioner as well as the person who approved the disbursement voucher; and (3)
the Sangguniang Panlalawigan members who passed Resolution No. 720-A. The COA did not hold
Philam Care and Provincial Accountant Merly P. Fortu liable for the disallowed disbursement. The
COA explained that it was unjust to require Philam Care to refund the amount received for services it
had duly rendered since insurance law prohibits the refund of premiums after risks had already
attached to the policy contract. As for the Provincial Accountant, the COA declared that
the Sangguniang Panlalawigan resolution was sufficient basis for the accountant to sign the
disbursement voucher since there were adequate funds available for the purpose. However, being one
of the officials who benefited from the subject disallowance, the inclusion of the accountants name in
the persons liable was proper with regard to her proportionate share of the premium.
The dispositive portion of the COAs 14 July 2006 decision states:
WHEREFORE, premises considered, and finding no substantial ground or cogent reason to disturb the
subject disallowance, the instant appeal is hereby denied for lack of merit. Accordingly, Notice of
Disallowance No. 99-005-101(96) dated 10 September 1999 in the total amount of P3,760,000.00
representing the hospitalization and insurance benefits of the officials and employees of the Province
of Negros Occidental is hereby AFFIRMED and the refund thereof is hereby ordered.
The Cluster Director, Cluster IV-Visayas, COA Regional Office No. VII, Cebu City shall ensure the
proper implementation of this decision.13
Petitioner filed a Motion for Reconsideration dated 23 October 2006 which the COA denied in a
Resolution dated 30 January 2008.
Hence, the instant petition.
The Issue
The main issue is whether COA committed grave abuse of discretion in affirming the disallowance
of P3,760,000 for premium paid for the hospitalization and health care insurance benefits granted by
the Province of Negros Occidental to its 1,949 officials and employees.
The Courts Ruling
Petitioner insists that the payment of the insurance premium for the health benefits of its officers and
employees was not unlawful and improper since it was paid from an allocation of its retained earnings
pursuant to a valid appropriation ordinance. Petitioner states that such enactment was a clear exercise
of its express powers under the principle of local fiscal autonomy which includes the power of Local
Government Units (LGUs) to allocate their resources in accordance with their own priorities. Petitioner
adds that while it is true that LGUs are only agents of the national government and local autonomy
simply means decentralization, it is equally true that an LGU has fiscal control over its own revenues
derived solely from its own tax base.
Respondents, on the other hand, maintain that although LGUs are afforded local fiscal autonomy,
LGUs are still bound by RA 6758 and their actions are subject to the scrutiny of the Department of
Budget and Management (DBM) and applicable auditing rules and regulations enforced by the COA.
Respondents add that the grant of additional compensation, like the hospitalization and health care
insurance benefits in the present case, must have prior Presidential approval to conform with the state
policy on salary standardization for government workers.
AO 103 took effect on 14 January 1994 or eleven months before the Sangguniang Panlalawigan of the
Province of Negros Occidental passed Resolution No. 720-A. The main purpose of AO 103 is to
prevent discontentment, dissatisfaction and demoralization among government personnel, national or
local, who do not receive, or who receive less, productivity incentive benefits or other forms of
allowances or benefits. This is clear in the Whereas Clauses of AO 103 which state:
WHEREAS, the faithful implementation of statutes, including the Administrative Code of 1987 and all
laws governing all forms of additional compensation and personnel benefits is a Constitutional
prerogative vested in the President of the Philippines under Section 17, Article VII of the 1987
Constitution;
WHEREAS, the Constitutional prerogative includes the determination of the rates, the timing and
schedule of payment, and final authority to commit limited resources of government for the payment of
personal incentives, cash awards, productivity bonus, and other forms of additional compensation and
fringe benefits;
WHEREAS, the unilateral and uncoordinated grant of productivity incentive benefits in the past
gave rise to discontentment, dissatisfaction and demoralization among government personnel
who have received less or have not received at all such benefits;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of
the powers vested in me by law and in order to forestall further demoralization of government
personnel do hereby direct: x x x (Emphasis supplied)
Sections 1 and 2 of AO 103 state:
SECTION 1. All agencies of the National Government including government-owned and/or
-controlled corporations and government financial institutions, and local government units, are
hereby authorized to grant productivity incentive benefit in the maximum amount of TWO
THOUSAND PESOS (P2,000.00) each to their permanent and full-time temporary and casual
employees, including contractual personnel with employment in the nature of a regular employee, who
have rendered at least one (1) year of service in the Government as of December 31, 1993.
SECTION 2. All heads of government offices/agencies, including government owned and/or
controlled corporations, as well as their respective governing boards are hereby enjoined and
prohibited from authorizing/granting Productivity Incentive Benefits or any and all forms of
allowances/benefits without prior approval and authorization via Administrative Order by the Office of
the President. Henceforth, anyone found violating any of the mandates in this Order, including all
officials/agency found to have taken part thereof, shall be accordingly and severely dealt with in
accordance with the applicable provisions of existing administrative and penal laws.
Consequently, all administrative authorizations to grant any form of allowances/benefits and all forms
of additional compensation usually paid outside of the prescribed basic salary under R.A. 6758, the
Salary Standardization Law, that are inconsistent with the legislated policy on the matter or are not
covered by any legislative action are hereby revoked. (Emphasis supplied)
It is clear from Section 1 of AO 103 that the President authorized all agencies of the national
government as well as LGUs to grant the maximum amount of P2,000 productivity incentive benefit to
each employee who has rendered at least one year of service as of 31 December 1993. In Section 2, the
President enjoined all heads of government offices and agencies from granting productivity incentive
benefits or any and all similar forms of allowances and benefits without the Presidents prior approval.
In the present case, petitioner, through an approved Sangguniang Panlalawigan resolution, granted and
released the disbursement for the hospitalization and health care insurance benefits of the provinces
officials and employees without any prior approval from the President. The COA disallowed the
premium payment for such benefits since petitioner disregarded AO 103 and RA 6758.
We disagree with the COA. From a close reading of the provisions of AO 103, petitioner did not
violate the rule of prior approval from the President since Section 2 states that the prohibition applies
only to "government offices/agencies, including government-owned and/or controlled corporations, as
well as their respective governing boards." Nowhere is it indicated in Section 2 that the prohibition
also applies to LGUs. The requirement then of prior approval from the President under AO 103 is
applicable only to departments, bureaus, offices and government-owned and controlled corporations
under the Executive branch. In other words, AO 103 must be observed by government offices under
the Presidents control as mandated by Section 17, Article VII of the Constitution which states:
Section 17. The President shall have control of all executive departments, bureaus and offices. He shall
ensure that the laws be faithfully executed. (Emphasis supplied)1awphi1
Being an LGU, petitioner is merely under the Presidents general supervision pursuant to Section 4,
Article X of the Constitution:
Sec. 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays shall ensure that the acts of their component units
are within the scope of their prescribed powers and functions. (Emphasis supplied)
The Presidents power of general supervision means the power of a superior officer to see to it that
subordinates perform their functions according to law.14 This is distinguished from the Presidents
power of control which is the power to alter or modify or set aside what a subordinate officer had done
in the performance of his duties and to substitute the judgment of the President over that of the
subordinate officer.15 The power of control gives the President the power to revise or reverse the acts or
decisions of a subordinate officer involving the exercise of discretion.16
Since LGUs are subject only to the power of general supervision of the President, the Presidents
authority is limited to seeing to it that rules are followed and laws are faithfully executed. The
President may only point out that rules have not been followed but the President cannot lay down the
rules, neither does he have the discretion to modify or replace the rules. Thus, the grant of additional
compensation like hospitalization and health care insurance benefits in the present case does not need
the approval of the President to be valid.
Also, while it is true that LGUs are still bound by RA 6758, the COA did not clearly establish that the
medical care benefits given by the government at the time under Presidential Decree No. 1519 17 were
sufficient to cover the needs of government employees especially those employed by LGUs.
Petitioner correctly relied on the Civil Service Commissions (CSC) Memorandum Circular No. 33 WHEREFORE, we GRANT the petition. We REVERSE AND SET ASIDE Decision No. 2006-044
(CSC MC No. 33), series of 1997, issued on 22 December 1997 which provided the policy framework dated 14 July 2006 and Decision No. 2008-010 dated 30 January 2008 of the Commission on Audit.
for working conditions at the workplace. In this circular, the CSC pursuant to CSC Resolution No. 97-
4684 dated 18 December 1997 took note of the inadequate policy on basic health and safety conditions SO ORDERED.
of work experienced by government personnel. Thus, under CSC MC No. 33, all government offices
including LGUs were directed to provide a health program for government employees which included
hospitalization services and annual mental, medical-physical examinations.

Later, CSC MC No. 33 was further reiterated in Administrative Order No. 40218 (AO 402) which took
effect on 2 June 1998. Sections 1, 2, and 4 of AO 402 state:

Section 1. Establishment of the Annual Medical Check-up Program. An annual medical check-up for
government of officials and employees is hereby authorized to be established starting this year, in the
meantime that this benefit is not yet integrated under the National Health Insurance Program being
administered by the Philippine Health Insurance Corporation (PHIC).

Section 2. Coverage. x x x Local Government Units are also encouraged to establish a similar
program for their personnel.

Section 4. Funding. x x x Local Government Units, which may establish a similar medical program
for their personnel, shall utilize local funds for the purpose. (Emphasis supplied)

The CSC, through CSC MC No. 33, as well as the President, through AO 402, recognized the
deficiency of the state of health care and medical services implemented at the time. Republic Act No.
787519 or the National Health Insurance Act of 1995 instituting a National Health Insurance Program
(NHIP) for all Filipinos was only approved on 14 February 1995 or about two months after
petitioners Sangguniang Panlalawigan passed Resolution No. 720-A. Even with the establishment of
the NHIP, AO 402 was still issued three years later addressing a primary concern that basic health
services under the NHIP either are still inadequate or have not reached geographic areas like that of
petitioner.

Thus, consistent with the state policy of local autonomy as guaranteed by the 1987 Constitution, under
Section 25, Article II20 and Section 2, Article X,21 and the Local Government Code of 1991,22 we
declare that the grant and release of the hospitalization and health care insurance benefits given to
petitioners officials and employees were validly enacted through an ordinance passed by
petitioners Sangguniang Panlalawigan.

In sum, since petitioners grant and release of the questioned disbursement without the Presidents
approval did not violate the Presidents directive in AO 103, the COA then gravely abused its
discretion in applying AO 103 to disallow the premium payment for the hospitalization and health care
insurance benefits of petitioners officials and employees.
 G.R. No. 195390, December 10, 2014
GOV. LUIS RAYMUND F. VILLAFUERTE, JR., AND THE PROVINCE OF CAMARINES
SUR, Petitioners, v. HON. JESSE M. ROBREDO, IN HIS CAPACITY AS SECRETARY OF
THE DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT, Respondent.
DECISION
REYES, J.:
This is a petition for certiorari and prohibition1 under Rule 65 of the 1997 Revised Rules of Court filed
by former Governor Luis Raymund F. Villafuerte, Jr. (Villafuerte) and the Province of Camarines Sur
(petitioners), seeking to annul and set aside the following issuances of the late Honorable Jesse M.
Robredo (respondent), in his capacity as then Secretary of the Department of the Interior and Local
Government (DILG), to wit:
(a) Memorandum Circular (MC) No. 2010-83 dated August 31, 2010, pertaining to the full disclosure
of local budget and finances, and bids and public offerings;2
(b) MC No. 2010-138 dated December 2, 2010, pertaining to the use of the 20% component of the
annual internal revenue allotment shares;3 and
(c) MC No. 2011-08 dated January 13, 2011, pertaining to the strict adherence to Section 90 of
Republic Act (R.A.) No. 10147 or the General Appropriations Act of 2011.4
The petitioners seek the nullification of the foregoing issuances on the ground of unconstitutionality
and for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.
The Facts
In 1995, the Commission on Audit (COA) conducted an examination and audit on the manner the local
government units (LGUs) utilized their Internal Revenue Allotment (IRA) for the calendar years 1993-
1994. The examination yielded an official report, showing that a substantial portion of the 20%
development fund of some LGUs was not actually utilized for development projects but was diverted
to expenses properly chargeable against the Maintenance and Other Operating Expenses (MOOE), in
stark violation of Section 287 of R.A. No. 7160, otherwise known as the Local Government Code of
1991 (LGC). Thus, on December 14, 1995, the DILG issued MC No. 95-216,5 enumerating the policies
and guidelines on the utilization of the development fund component of the IRA. It likewise carried a
reminder to LGUs of the strict mandate to ensure that public funds, like the 20% development fund,
shall be spent judiciously and only for the very purpose or purposes for which such funds are
intended.6
On September 20, 2005, then DILG Secretary Angelo T. Reyes and Department of Budget and
Management Secretary Romulo L. Neri issued Joint MC No. 1, series of 2005,7 pertaining to the
guidelines on the appropriation and utilization of the 20% of the IRA for development projects, which
aims to enhance accountability of the LGUs in undertaking development projects. The said
memorandum circular underscored that the 20% of the IRA intended for development projects should
be utilized for social development, economic development and environmental management.8
On August 31, 2010, the respondent, in his capacity as DILG Secretary, issued the assailed MC No.
2010-83,9 entitled Full Disclosure of Local Budget and Finances, and Bids and Public Offerings,
which aims to promote good governance through enhanced transparency and accountability of LGUs.
The pertinent portion of the issuance reads:
Legal and Administrative Authority
Section 352 of the Local Government Code of 1991 requires the posting within 30 days from the end
of each fiscal year in at least three (3) publicly accessible and conspicuous places in the local
government unit a summary of all revenues collected and funds received including the appropriations
and disbursements of such funds during the preceding fiscal year.
On the other hand, Republic Act No. 9184, known as the Government Procurement Reform Act, calls
for the posting of the Invitation to Bid, Notice of Award, Notice to Proceed and Approved Contract in
the procuring entitys premises, in newspapers of general circulation, the Philippine Government
Electronic Procurement System (PhilGEPS) and the website of the procuring entity.
The declared policy of the State to promote good local governance also calls for the posting of budgets,
expenditures, contracts and loans, and procurement plans of local government units in conspicuous
places within public buildings in the locality, in the web, and in print media of community or general
circulation.
Furthermore, the President, in his first State of the Nation Address, directed all government agencies
and entities to bring to an end luxurious spending and misappropriation of public funds and to expunge
mendacious and erroneous projects, and adhere to the zero-based approach budgetary principle.
Responsibility of the Local Chief Executive
All Provincial Governors, City Mayors and Municipal Mayors, are directed to faithfully comply with
the abovecited [sic] provisions of laws, and existing national policy, by posting in conspicuous places
within public buildings in the locality, or in print media of community or general circulation, and in
their websites, the following:
1. CY 2010 Annual Budget, information detail to the level of particulars of personal
services, maintenance and other operating expenses and capital outlay per
individual offices (Source Document - Local Budget Preparation Form No. 3, titled,
Program Appropriation and Obligation by Object of Expenditure, limited to PS,
MOOE and CO. For sample form, please visit www.naga.gov.ph);
2. Quarterly Statement of Cash Flows, information detail to the level of particulars of
cash flows from operating activities (e.g. cash inflows, total cash inflows, total cash
outflows), cash flows from investing activities (e.g. cash outflows), net increase in
cash and cash at the beginning of the period (Source Document - Statement of Cash
Flows Form);
3. CY 2009 Statement of Receipts and Expenditures, information detail to the level of
particulars of beginning cash balance, receipts or income on local sources (e.g., tax
revenue, non-tax revenue), external sources, and receipts from loans and
borrowings, surplus of prior years, expenditures on general services, economic
services, social services and debt services, and total expenditures (Source Document
- Local Budget Preparation Form No. 2, titled, Statement of Receipts and
Expenditures);
4. CY 2010 Trust Fund (PDAF) Utilization, information detail to the level of
particulars of object expenditures (Source Document - Local Budget Preparation
Form No. 3, titled, Program Appropriation and Obligation by Object of Expenditure,
limited to PDAF Utilization);
5. CY 2010 Special Education Fund Utilization, information detail to the level of
particulars of object expenditures (Source Document - Local Budget Preparation
Form No. 3, titled, Program Appropriation and Obligation by Object of Expenditure,
limited to Special Education Fund);
6. CY 2010 20% Component of the IRA Utilization, information detail to the level of
particulars of objects of expenditure on social development, economic development
and environmental management (Source Document - Local Budget Preparation
Form No. 3, titled, Program Appropriation and Obligation by Object of Expenditure,
limited to 20% Component of the Internal Revenue Allotment);
7. CY 2010 Gender and Development Fund Utilization, information detail to the level
of particulars of object expenditures (Source Document - Local Budget Preparation
Form No. 3, titled, Program Appropriation and Obligation by Object of Expenditure,
limited to Gender and Development Fund);
8. CY 2010 Statement of Debt Service, information detail to the level of name of
creditor, purpose of loan, date contracted, term, principal amount, previous payment
made on the principal and interest, amount due for the budget year and balance of
the principal (Source Document - Local Budget Preparation Form No. 6, titled,
Statement of Debt Service);
9. CY 2010 Annual Procurement Plan or Procurement List, information detail to the
level of name of project, individual item or article and specification or description of
goods and services, procurement method, procuring office or fund source, unit price
or estimated cost or approved budget for the contract and procurement schedule
(Source Document - LGU Form No. 02, Makati City. For sample form, please visit
www.makati.gov.ph.)[;]
10. Items to Bid, information detail to the level of individual Invitation to Bid,
containing information as prescribed in Section 21.1 of Republic Act No. 9184, or
The Government Procurement Reform Act, to be updated quarterly (Source
Document - Invitation to Apply for Eligibility and to Bid, as prescribed in Section
21.1 of R.A. No. 9184. For sample form, please visit www.naga.gov.ph);
11. Bid Results on Civil Works, and Goods and Services, information detail to the level
of project reference number, name and location of project, name (company and
proprietor) and address of winning bidder, bid amount, approved budget for the
contract, bidding date, and contract duration, to be updated quarterly (Source
Document Infrastructure Projects/Goods and Services Bid-Out (2010), Naga City.
For sample form, please visit www.naga.gov.ph); and
12. Abstract of Bids as Calculated, information detail to the level of project name,
location, implementing office, approved budget for the contract, quantity and items
subject for bidding, and bids of competing bidders, to be updated quarterly (Source
Document - Standard Form No. SF-GOOD-40, Revised May 24, 2004, Naga City.
For sample form, please visit www.naga.gov.ph).
The foregoing circular also states that non-compliance will be meted sanctions in accordance with
pertinent laws, rules and regulations.10
On December 2, 2010, the respondent issued MC No. 2010-138,11 reiterating that 20% component of
the IRA shall be utilized for desirable social, economic and environmental outcomes essential to the
attainment of the constitutional objective of a quality of life for all. It also listed the following
enumeration of expenses for which the fund must not be utilized, viz:
1. Administrative expenses such as cash gifts, bonuses, food allowance, medical
assistance, uniforms, supplies, meetings, communication, water and light, petroleum
products, and the like;
2. Salaries, wages or overtime pay;
3. Travelling expenses, whether domestic or foreign;
4. Registration or participation fees in training, seminars, conferences or conventions;
5. Construction, repair or refinishing of administrative offices;
6. Purchase of administrative office furniture, fixtures, equipment or appliances; and
7. Purchase, maintenance or repair of motor vehicles or motorcycles, except
ambulances.12
On January 13, 2011, the respondent issued MC No. 2011-08,13 directing for the strict adherence to
Section 90 of R.A. No. 10147 or the General Appropriations Act of 2011. The pertinent portion of the
issuance reads as follows:
Legal and Administrative Authority
Section 90 of Republic Act No. 10147 (General Appropriations Act) FY 2011 re Use and
Disbursement of Internal Revenue Allotment of LGUs, [sic] stipulates: The amount appropriated
for the LGUs share in the Internal Revenue Allotment shall be used in accordance with Sections 17 (g)
and 287 of R.A. No 7160. The annual budgets of LGUs shall be prepared in accordance with the
forms, procedures, and schedules prescribed by the Department of Budget and Management and those
jointly issued with the Commission on Audit. Strict compliance with Sections 288 and 354 of R.A. No.
7160 and DILG Memorandum Circular No. 2010-83, entitled Full Disclosure of Local Budget and
Finances, and Bids and Public offering is hereby mandated; PROVIDED, That in addition to the
publication or posting requirement under Section 352 of R.A. No. 7160 in three (3) publicly accessible
and conspicuous places in the local government unit, the LGUs shall also post the detailed
information on the use and disbursement, and status of programs and projects in the LGUS websites.
Failure to comply with these requirements shall subject the responsible officials to disciplinary actions
in accordance with existing laws. x x x14
xxxx
Sanctions
Non-compliance with the foregoing shall be dealt with in accordance with pertinent laws, rules and
regulations. In particular, attention is invited to the provision of the Local Government Code of 1991,
quoted as follows:chanroblesvirtuallawlibrary
Section 60. Grounds for Disciplinary Actions - An elective local official may be disciplined,
suspended, or removed from office on: (c) Dishonesty, oppression, misconduct in office, gross
negligence, or dereliction of duty . x x x15 (Emphasis and underscoring in the original)
On February 21, 2011, Villafuerte, then Governor of Camarines Sur, joined by the Provincial
Government of Camarines Sur, filed the instant petition for certiorari, seeking to nullify the assailed
issuances of the respondent for being unconstitutional and having been issued with grave abuse of
discretion.
On June 2, 2011, the respondent filed his Comment on the petition.16 Then, on June 22, 2011, the
petitioners filed their Reply (With Urgent Prayer for the Issuance of a Writ of Preliminary Injunction
and/or Temporary Restraining Order).17 In the Resolution18 dated October 11, 2011, the Court gave due
course to the petition and directed the parties to file their respective memorandum. In compliance
therewith, the respondent and the petitioners filed their Memorandum on January 19, 201219 and on
February 8, 201220 respectively.
The petitioners raised the following issues:
Issues
I
THE HON. SECRETARY OF THE INTERIOR AND LOCAL GOVERNMENT COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN HE ISSUED THE ASSAILED MEMORANDUM CIRCULARS IN VIOLATION OF THE
PRINCIPLES OF LOCAL AUTONOMY AND FISCAL AUTONOMY ENSHRINED IN THE 1987
CONSTITUTION AND THE LOCAL GOVERNMENT CODE OF 1991[.]
II
THE HON. SECRETARY OF THE INTERIOR AND LOCAL GOVERNMENT COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN HE INVALIDLY ASSUMED LEGISLATIVE POWERS IN PROMULGATING THE
ASSAILED MEMORANDUM CIRCULARS WHICH WENT BEYOND THE CLEAR AND
MANIFEST INTENT OF THE 1987 CONSTITUTION AND THE LOCAL GOVERNMENT CODE
OF 1991[.]21
Ruling of the Court
The present petition revolves around the main issue: Whether or not the assailed memorandum
circulars violate the principles of local and fiscal autonomy enshrined in the Constitution and the LGC.
The present petition is ripe for
judicial review.
At the outset, the respondent is questioning the propriety of the exercise of the Courts power of
judicial review over the instant case. He argues that the petition is premature since there is yet any
actual controversy that is ripe for judicial determination. He points out the lack of allegation in the
petition that the assailed issuances had been fully implemented and that the petitioners had already
exhausted administrative remedies under Section 25 of the Revised Administrative Code before filing
the same in court.22
It is well-settled that the Courts exercise of the power of judicial review requires the concurrence of
the following elements: (1) there must be an actual case or controversy calling for the exercise of
judicial power; (2) the person challenging the act must have the standing to question the validity of the
subject act or issuance; otherwise stated, he must have a personal and substantial interest in the case
such that he has sustained, or will sustain, direct injury as a result of its enforcement; (3) the question
of constitutionality must be raised at the earliest opportunity; and (4) the issue of constitutionality must
be the very lis mota of the case.23
The respondent claims that there is yet any actual case or controversy that calls for the exercise of
judicial review. He contends that the mere expectation of an administrative sanction does not give rise
to a justiciable controversy especially, in this case, that the petitioners have yet to exhaust
administrative remedies available.24
The Court disagrees.

25
In La Bugal-Blaan Tribal Association, Inc. v. Ramos, the Court characterized an actual case or
controversy, viz:
An actual case or controversy means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory, lest the decision of the court would amount to an
advisory opinion. The power does not extend to hypothetical questions since any attempt at abstraction
could only lead to dialectics and barren legal questions and to sterile conclusions unrelated to
actualities.26 (Citations omitted)
The existence of an actual controversy in the instant case cannot be overemphasized. At the time of
filing of the instant petition, the respondent had already implemented the assailed memorandum
circulars. In fact, on May 26, 2011, Villafuerte received Audit Observation Memorandum (AOM) No.
2011-009 dated May 10, 201127 from the Office of the Provincial Auditor of Camarines Sur, requiring
him to comment on the observation of the audit team, which states:
The Province failed to post the transactions and documents required under Department of Interior and
Local Government (DILG) Memorandum Circular No. 2010-83, thereby violating the mandate of full
disclosure of Local Budget and Finances, and Bids and Public Offering.
xxxx
The local officials concerned are reminded of the sanctions mentioned in the circular which is quoted
hereunder, thus:
Noncompliance with the foregoing shall be dealt with in accordance with pertinent laws, rules and
regulations. In particular, attention is invited to the provision of Local Government Code of 1991,
quoted as follows:chanroblesvirtuallawlibrary
Section 60. Grounds for Disciplinary Actions An elective local official may be disciplined,
suspended or removed from office on: (c) Dishonesty, oppression, misconduct in office, gross
negligence or dereliction of duty.28
The issuance of AOM No. 2011-009 to Villafuerte is a clear indication that the assailed issuances of the
respondent are already in the full course of implementation. The audit memorandum specifically
mentioned of Villafuertes alleged non-compliance with MC No. 2010-83 regarding the posting
requirements stated in the circular and reiterated the sanctions that may be imposed for the omission.
The fact that Villafuerte is being required to comment on the contents of AOM No. 2011-009 signifies
that the process of investigation for his alleged violation has already begun. Ultimately, the
investigation is expected to end in a resolution on whether a violation has indeed been committed,
together with the appropriate sanctions that come with it. Clearly, Villafuertes apprehension is real and
well-founded as he stands to be sanctioned for non-compliance with the issuances.
There is likewise no merit in the respondents claim that the petitioners failure to exhaust
administrative remedies warrants the dismissal of the petition. It bears emphasizing that the assailed
issuances were issued pursuant to the rule-making or quasi-legislative power of the DILG. This
pertains to the power to make rules and regulations which results in delegated legislation that is
within the confines of the granting statute.29 Not to be confused with the quasi-legislative or rule-
making power of an administrative agency is its quasi-judicial or administrative adjudicatory power.
This is the power to hear and determine questions of fact to which the legislative policy is to apply and
to decide in accordance with the standards laid down by the law itself in enforcing and administering
the same law.30 In challenging the validity of an administrative issuance carried out pursuant to the
agencys rule-making power, the doctrine of exhaustion of administrative remedies does not stand as a
bar in promptly resorting to the filing of a case in court. This was made clear by the Court in Smart
Communications, Inc. (SMART) v. National Telecommunications Commission (NTC),31 where it was
ruled, thus:
In questioning the validity or constitutionality of a rule or regulation issued by an administrative
agency, a party need not exhaust administrative remedies before going to court. This principle applies
only where the act of the administrative agency concerned was performed pursuant to its quasi-judicial
function, and not when the assailed act pertained to its rule-making or quasi-legislative power. x x x. 32
Considering the foregoing clarification, there is thus no bar for the Court to resolve the substantive
issues raised in the petition.
The assailed memorandum circulars
do not transgress the local and fiscal
autonomy granted to LGUs.
The petitioners argue that the assailed issuances of the respondent interfere with the local and fiscal
autonomy of LGUs embodied in the Constitution and the LGC. In particular, they claim that MC No.
2010-138 transgressed these constitutionally-protected liberties when it restricted the meaning of
development and enumerated activities which the local government must finance from the 20%
development fund component of the IRA and provided sanctions for local authorities who shall use the
said component of the fund for the excluded purposes stated therein.33 They argue that the respondent
cannot substitute his own discretion with that of the local legislative council in enacting its annual
budget and specifying the development projects that the 20% component of its IRA should fund.34
The argument fails to persuade.
The Constitution has expressly adopted the policy of ensuring the autonomy of LGUs.35 To highlight
its significance, the entire Article X of the Constitution was devoted to laying down the bedrock upon
which this policy is anchored.
It is also pursuant to the mandate of the Constitution of enhancing local autonomy that the LGC was
enacted. Section 2 thereof was a reiteration of the state policy. It reads, thus:
Sec. 2. Declaration of Policy. (a) It is hereby declared the policy of the State that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make them more effective partners
in the attainment of national goals. Toward this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization whereby local
government units shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government units.
Verily, local autonomy means a more responsive and accountable local government structure instituted
through a system of decentralization.36 In Limbona v. Mangelin,37 the Court elaborated on the concept
of decentralization, thus:
[A]utonomy is either decentralization of administration or decentralization of power. There is
decentralization of administration when the central government delegates administrative powers to
political subdivisions in order to broaden the base of government power and in the process to make
local governments more responsive and accountable, and ensure their fullest development as self-
reliant communities and make them more effective partners in the pursuit of national development and
social progress. At the same time, it relieves the central government of the burden of managing local
affairs and enables it to concentrate on national concerns. x x x.
Decentralization of power, on the other hand, involves an abdication of political power in the favor of
local governments [sic] units declared to be autonomous. In that case, the autonomous government is
free to chart its own destiny and shape its future with minimum intervention from central authorities. x
x x.38 (Citations omitted)
To safeguard the state policy on local autonomy, the Constitution confines the power of the President
over LGUs to mere supervision.39 The President exercises general supervision over them, but only to
ensure that local affairs are administered according to law. He has no control over their acts in the
sense that he can substitute their judgments with his own.40 Thus, Section 4, Article X of the
Constitution, states:
Section 4. The President of the Philippines shall exercise general supervision over local governments.
Provinces with respect to component cities and municipalities, and cities and municipalities with
respect to component barangays, shall ensure that the acts of their component units are within the
scope of their prescribed powers and functions.
In Province of Negros Occidental v. Commissioners, Commission on Audit,41 the Court distinguished
general supervision from executive control in the following manner:
The Presidents power of general supervision means the power of a superior officer to see to it that
subordinates perform their functions according to law. This is distinguished from the Presidents power
of control which is the power to alter or modify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the President over that of the subordinate
officer. The power of control gives the President the power to revise or reverse the acts or decisions of
a subordinate officer involving the exercise of discretion.42 (Citations omitted)
It is the petitioners contention that the respondent went beyond the confines of his supervisory powers,
as alter ego of the President, when he issued MC No. 2010-138. They argue that the mandatory nature
of the circular, with the threat of imposition of sanctions for non-compliance, evinces a clear desire to
exercise control over LGUs.43
The Court, however, perceives otherwise.
A reading of MC No. 2010-138 shows that it is a mere reiteration of an existing provision in the LGC.
It was plainly intended to remind LGUs to faithfully observe the directive stated in Section 287 of the
LGC to utilize the 20% portion of the IRA for development projects. It was, at best, an advisory to
LGUs to examine themselves if they have been complying with the law. It must be recalled that the
assailed circular was issued in response to the report of the COA that a substantial portion of the 20%
development fund of some LGUs was not actually utilized for development projects but was diverted
to expenses more properly categorized as MOOE, in violation of Section 287 of the LGC. This
intention was highlighted in the very first paragraph of MC No. 2010-138, which reads:
Section 287 of the Local Government Code mandates every local government to appropriate in its
annual budget no less than 20% of its annual revenue allotment for development projects. In common
understanding, development means the realization of desirable social, economic and environmental
outcomes essential in the attainment of the constitutional objective of a desired quality of life for
all.44 (Underscoring in the original)
That the term development was characterized as the realization of desirable social, economic and
environmental outcome does not operate as a restriction of the term so as to exclude some other
activities that may bring about the same result. The definition was a plain characterization of the
concept of development as it is commonly understood. The statement of a general definition was only
necessary to illustrate among LGUs the nature of expenses that are properly chargeable against the
development fund component of the IRA. It is expected to guide them and aid them in rethinking their
ways so that they may be able to rectify lapses in judgment, should there be any, or it may simply stand
as a reaffirmation of an already proper administration of expenses.
The same clarification may be said of the enumeration of expenses in MC No. 2010-138. To begin
with, it is erroneous to call them exclusions because such a term signifies compulsory disallowance of
a particular item or activity. This is not the contemplation of the enumeration. Again, it is helpful to
retrace the very reason for the issuance of the assailed circular for a better understanding. The
petitioners should be reminded that the issuance of MC No. 2010-138 was brought about by the report
of the COA that the development fund was not being utilized accordingly. To curb the alleged misuse
of the development fund, the respondent deemed it proper to remind LGUs of the nature and purpose
of the provision for the IRA through MC No. 2010-138. To illustrate his point, he included the
contested enumeration of the items for which the development fund must generally not be used. The
enumerated items comprised the expenses which the COA perceived to have been improperly
earmarked or charged against the development fund based on the audit it conducted.
Contrary to the petitioners posturing, however, the enumeration was not meant to restrict the
discretion of the LGUs in the utilization of their funds. It was meant to enlighten LGUs as to the nature
of the development fund by delineating it from other types of expenses. It was incorporated in the
assailed circular in order to guide them in the proper disposition of the IRA and avert further misuse of
the fund by citing current practices which seemed to be incompatible with the purpose of the fund.
Even then, LGUs remain at liberty to map out their respective development plans solely on the basis of
their own judgment and utilize their IRAs accordingly, with the only restriction that 20% thereof be
expended for development projects. They may even spend their IRAs for some of the enumerated
items should they partake of indirect costs of undertaking development projects. In such case, however,
the concerned LGU must ascertain that applicable rules and regulations on budgetary allocation have
been observed lest it be inviting an administrative probe.
The petitioners likewise misread the issuance by claiming that the provision of sanctions therein is a
clear indication of the Presidents interference in the fiscal autonomy of LGUs. The relevant portion of
the assailed issuance reads, thus:
All local authorities are further reminded that utilizing the 20% component of the Internal Revenue
Allotment, whether willfully or through negligence, for any purpose beyond those expressly prescribed
by law or public policy shall be subject to the sanctions provided under the Local Government Code
and under such other applicable laws.45
Significantly, the issuance itself did not provide for sanctions. It did not particularly establish a new set
of acts or omissions which are deemed violations and provide the corresponding penalties therefor. It
simply stated a reminder to LGUs that there are existing rules to consider in the disbursement of the
20% development fund and that non-compliance therewith may render them liable to sanctions which
are provided in the LGC and other applicable laws. Nonetheless, this warning for possible imposition
of sanctions did not alter the advisory nature of the issuance.
At any rate, LGUs must be reminded that the local autonomy granted to them does not completely
severe them from the national government or turn them into impenetrable states. Autonomy does not
make local governments sovereign within the state.46 In Ganzon v. Court of Appeals,47 the Court
reiterated:
Autonomy, however, is not meant to end the relation of partnership and interdependence between the
central administration and local government units, or otherwise, to usher in a regime of federalism. The
Charter has not taken such a radical step. Local governments, under the Constitution, are subject to
regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to enhance
self-government.48
Thus, notwithstanding the local fiscal autonomy being enjoyed by LGUs, they are still under the
supervision of the President and maybe held accountable for malfeasance or violations of existing
laws. Supervision is not incompatible with discipline. And the power to discipline and ensure that the
laws be faithfully executed must be construed to authorize the President to order an investigation of the
act or conduct of local officials when in his opinion the good of the public service so requires.49
Clearly then, the Presidents power of supervision is not antithetical to investigation and imposition of
sanctions. In Hon. Joson v. Exec. Sec. Torres,50 the Court pointed out, thus:
Independently of any statutory provision authorizing the President to conduct an investigation of the
nature involved in this proceeding, and in view of the nature and character of the executive authority
with which the President of the Philippines is invested, the constitutional grant to him of power to
exercise general supervision over all local governments and to take care that the laws be faithfully
executed must be construed to authorize him to order an investigation of the act or conduct of the
petitioner herein. Supervision is not a meaningless thing. It is an active power. It is certainly not
without limitation, but it at least implies authority to inquire into facts and conditions in order to
render the power real and effective. x x x.51 (Emphasis ours and italics in the original)
As in MC No. 2010-138, the Court finds nothing in two other questioned issuances of the respondent,
i.e., MC Nos. 2010-83 and 2011-08, that can be construed as infringing on the fiscal autonomy of
LGUs. The petitioners claim that the requirement to post other documents in the mentioned issuances
went beyond the letter and spirit of Section 352 of the LGC and R.A. No. 9184, otherwise known as
the Government Procurement Reform Act, by requiring that budgets, expenditures, contracts and loans,
and procurement plans of LGUs be publicly posted as well.52
Pertinently, Section 352 of the LGC reads:
Section 352. Posting of the Summary of Income and Expenditures. Local treasurers, accountants,
budget officers, and other accountable officers shall, within thirty (30) days from the end of the fiscal
year, post in at least three (3) publicly accessible and conspicuous places in the local government unit a
summary of all revenues collected and funds received including the appropriations and disbursements
of such funds during the preceding fiscal year.
R.A. No. 9184, on the other hand, requires the posting of the invitation to bid, notice of award, notice
to proceed, and approved contract in the procuring entitys premises, in newspapers of general
circulation, and the website of the procuring entity.53
It is well to remember that fiscal autonomy does not leave LGUs with unbridled discretion in the
disbursement of public funds. They remain accountable to their constituency. For, public office was
created for the benefit of the people and not the person who holds office.
The Court strongly enunciated in ABAKADA GURO Party List (formerly AASJS), et al. v. Hon.
Purisima, et al.,54 thus:
Public office is a public trust. It must be discharged by its holder not for his own personal gain but for
the benefit of the public for whom he holds it in trust. By demanding accountability and service with
responsibility, integrity, loyalty, efficiency, patriotism and justice, all government officials and
employees have the duty to be responsive to the needs of the people they are called upon to serve. 55
Thus, the Constitution strongly summoned the State to adopt and implement a policy of full disclosure
of all transactions involving public interest and provide the people with the right to access public
information.56 Section 352 of the LGC is a response to this call for transparency. It is a mechanism of
transparency and accountability of local government officials and is in fact incorporated under Chapter
IV of the LGC which deals with Expenditures, Disbursements, Accounting and Accountability.
In the same manner, R.A. No. 9184 established a system of transparency in the procurement process
and in the implementation of procurement contracts in government agencies. 57 It is the public
monitoring of the procurement process and the implementation of awarded contracts with the end in
view of guaranteeing that these contracts are awarded pursuant to the provisions of the law and its
implementing rules and regulations, and that all these contracts are performed strictly according to
specifications.58
The assailed issuances of the respondent, MC Nos. 2010-83 and 2011-08, are but implementation of
this avowed policy of the State to make public officials accountable to the people. They are
amalgamations of existing laws, rules and regulation designed to give teeth to the constitutional
mandate of transparency and accountability.
matters relating to official transactions and those involving public interest. Pertinently, Section 28,
Article II and Section 7, Article III of the Constitution, provide:
Article II
Declaration of Principles and State Policies Principles
Section 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a
policy of full public disclosure of all its transactions involving public interest.

A scrutiny of the contents of the mentioned issuances shows that they do not, in any manner, violate Article III
the fiscal autonomy of LGUs. To be clear, [f]iscal autonomy means that local governments have the Bill of Rights
power to create their own sources of revenue in addition to their equitable share in the national taxes
released by the national government, as well as the power to allocate their resources in accordance Section 7. The right of the people to information on matters of public concern shall be recognized.
with their own priorities. It extends to the preparation of their budgets, and local officials in turn have Access to official records, and to documents and papers pertaining to official acts, transactions, or
to work within the constraints thereof.59 decisions, as well as to government research data used as basis for policy development, shall be
afforded the citizen, subject to such limitations as may be provided by law.
It is inconceivable, however, how the publication of budgets, expenditures, contracts and loans and
procurement plans of LGUs required in the assailed issuances could have infringed on the local fiscal
In the instant case, the assailed issuances were issued pursuant to the policy of promoting good
autonomy of LGUs. Firstly, the issuances do not interfere with the discretion of the LGUs in the
governance through transparency, accountability and participation. The action of the respondent is
specification of their priority projects and the allocation of their budgets. The posting requirements are
certainly within the constitutional bounds of his power as alter ego of the President.
mere transparency measures which do not at all hurt the manner by which LGUs decide the utilization
and allocation of their funds.
It is needless to say that the power to govern is a delegated authority from the people who hailed the
public official to office through the democratic process of election. His stay in office remains a
Secondly, it appears that even Section 352 of the LGC that is being invoked by the petitioners does not
privilege which may be withdrawn by the people should he betray his oath of office. Thus, he must not
exclude the requirement for the posting of the additional documents stated in MC Nos. 2010-83 and
frown upon accountability checks which aim to show how well he is performing his delegated power.
2011-08. Apparently, the mentioned provision requires the publication of a summary of revenues
For, it is through these mechanisms of transparency and accountability that he is able to prove to his
collected and funds received, including the appropriations and disbursements of such funds. The
constituency that he is worthy of the continued privilege.
additional requirement for the posting of budgets, expenditures, contracts and loans, and procurement
plans are well-within the contemplation of Section 352 of the LGC considering they are documents
WHEREFORE, in view of the foregoing considerations, the petition is DISMISSED for lack of
necessary for an accurate presentation of a summary of appropriations and disbursements that an LGU
merit.
is required to publish.
SO ORDERED.
Finally, the Court believes that the supervisory powers of the President are broad enough to embrace
the power to require the publication of certain documents as a mechanism of transparency. In Pimentel,
Jr. v. Hon. Aguirre,60 the Court reminded that local fiscal autonomy does not rule out any manner of
national government intervention by way of supervision, in order to ensure that local programs, fiscal
and otherwise, are consistent with national goals. The President, by constitutional fiat, is the head of
the economic and planning agency of the government, primarily responsible for formulating and
implementing continuing, coordinated and integrated social and economic policies, plans and programs
for the entire country.61

Moreover, the Constitution, which was drafted after long years of dictatorship and abuse of power, is
now replete with numerous provisions directing the adoption of measures to uphold transparency and
accountability in government, with a view of protecting the nation from repeating its atrocious past. In
particular, the Constitution commands the strict adherence to full disclosure of information on all
G.R. No. 175368 April 11, 2013 On September 13, 2004, Atlantic Mines and Trading Corporation (AMTC) filed with the PENRO of
Bulacan an Application for Exploration Permit (AEP) covering 5,281 hectares of the area covered by
LEAGUE OF PROVINCES OF THE PHILIPPINES, Petitioner, Golden Falcon's Application for Financial and Technical Assistance Agreement.6
vs.
DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES and HON. ANGELO T. On October 19, 2004, DENR-MGB Director Horacio C. Ramos, in response to MGB R-III Director
REYES, in his capacity as Secretary of DENR, Respondents. Arnulfo V. Cabantog's memorandum query dated September 8, 2004, categorically stated that the
MGB-Central Office's Order dated July 16, 2004 became final on August 11, 2004, fifteen (15) days
DECISION after Golden Falcon received the said Order, per the Certification dated October 8, 2004 issued by the
Postmaster II of the Philippine Postal Corporation of Cainta, Rizal.7
PERALTA, J.:
Through letters dated May 5 and May 10, 2005, AMTC notified the PENRO of Bulacan and the MGB
1 R-III Director, respectively, that the subject Applications for Quarry Permit fell within its (AMTC's)
This is a petition for certiorari, prohibition and mandamus, praying that this Court order the following:
existing valid and prior Application for Exploration Permit, and the the former area of Golden Falcon
( 1) declare as unconstitutional Section 17(b)(3)(iii) of Republic Act (R.A.) No. 7160, otherwise known
was open to mining location only on August 11, 2004 per the Memorandum dated October 19, 2004 of
as The Local Government Code of 1991 and Section 24 of Republic Act (R.A.) No. 7076, otherwise
the MGB Director, Central Office.8
known as the People's Small-Scale Mining Act of 1991; (2) prohibit and bar respondents from
exercising control over provinces; and (3) declare as illegal the respondent Secretary of the Department
of Energy and Natural Resources' (DENR) nullification, voiding and cancellation of the Small-Scale On June 24, 2005, Ricardo Medina, Jr., PENRO of Bulacan, indorsed AMTC's letter to the Provincial
Mining permits issued by the Provincial Governor of Bulacan. Legal Officer, Atty. Eugenio F. Resurreccion, for his legal opinion on which date of denial of Golden
Falcon's application/appeal April 29, 1998 or July 16, 2004 is to be considered in the deliberation
of the Provincial Mining Regulatory Board (PMRB) for the purpose of determining when the land
The Facts are as follows:
subject of the Applications for Quarry Permit could be considered open for application.
On March 28, 1996, Golden Falcon Mineral Exploration Corporation (Golden Falcon) filed with the
On June 28, 2005, Provincial Legal Officer Eugenio Resurreccion issued a legal opinion stating that
DENR Mines and Geosciences Bureau Regional Office No. III (MGB R-III) an Application for
the Order dated July 16, 2004 of the MGB-Central Office was a mere reaffirmation of the Order dated
Financial and Technical Assistance Agreement (FTAA) covering an area of 61,136 hectares situated in
April 29, 1998 of the MGB R-III; hence, the Order dated April 29, 1998 should be the reckoning
the Municipalities of San Miguel, San Ildefonso, Norzagaray and San Jose del Monte, Bulacan.2
period of the denial of the application of Golden Falcon.
On April 29, 1998, the MGB R-III issued an Order denying Golden Falcon's Application for Financial
On July 22, 2005, AMTC filed with the PMRB of Bulacan a formal protest against the aforesaid
and Technical Assistance Agreement for failure to secure area clearances from the Forest Management
Applications for Quarry Permit on the ground that the subject area was already covered by its
Sector and Lands Management Sector of the DENR Regional Office No. III. 3
Application for Exploration Permit.9
On November 11, 1998, Golden Falcon filed an appeal with the DENR Mines and Geosciences Bureau
On August 8, 2005, MGB R-III Director Cabantog, who was the concurrent Chairman of the PMRB,
Central Office (MGB-Central Office), and sought reconsideration of the Order dated April 29, 1998.4
endorsed to the Provincial Governor of Bulacan, Governor Josefina M. dela Cruz, the aforesaid
Applications for Quarry Permit that had apparently been converted to Applications for Small-Scale
On February 10, 2004, while Golden Falcon's appeal was pending, Eduardo D. Mercado, Benedicto S. Mining Permit of Eduardo D. Mercado, Benedicto S. Cruz, Gerardo R. Cruz and Lucila S. Valdez
Cruz, Gerardo R. Cruz and Liberato Sembrano filed with the Provincial Environment and Natural (formerly Liberato Sembrano).10
Resources Office (PENRO) of Bulacan their respective Applications for Quarry Permit (AQP), which
covered the same area subject of Golden Falcon's Application for Financial and Technical Assistance
On August 9, 2005, the PENRO of Bulacan issued four memoranda recommending to Governor Dela
Agreement.5
Cruz the approval of the aforesaid Applications for Small-Scale Mining Permit.11
On July 16, 2004, the MGB-Central Office issued an Order denying Golden Falcon's appeal and
On August 10, 2005, Governor Dela Cruz issued the corresponding Small-Scale Mining Permits in
affirming the MGB R-III's Order dated April 29, 1998.
favor of Eduardo D. Mercado, Benedicto S. Cruz, Gerardo R. Cruz and Lucila S. Valdez.12

Subsequently, AMTC appealed to respondent DENR Secretary the grant of the aforesaid Small-Scale
Mining Permits, arguing that: (1) The PMRB of Bulacan erred in giving due course to the Applications
for Small-Scale Mining Permit without first resolving its formal protest; (2) The areas covered by the
Small-Scale Mining Permits fall within the area covered by AMTC's valid prior Application for
Exploration Permit; (3) The Applications for Quarry Permit were illegally converted to Applications
for Small-Scale Mining Permit; (4) DENR-MGB Director Horacio C. Ramos' ruling that the subject
areas became open for mining location only on August 11, 2004 was controlling; (5) The Small-Scale
Mining Permits were null and void because they covered areas that were never declared People's
Small-Scale Mining Program sites as mandated by Section 4 of the People's Small-Scale Mining Act of
1991; and (6) Iron ore is not considered as one of the quarry resources, as defined by Section 43 of the
Philippine Mining Act of 1995, which could be subjects of an Application for Quarry Permit.13
On August 8, 2006, respondent DENR Secretary rendered a Decision14 in favor of AMTC. The DENR
Secretary agreed with MGB Director Horacio C. Ramos that the area was open to mining location only
on August 11, 2004, fifteen (15) days after the receipt by Golden Falcon on July 27, 2004 of a copy of
the MGB-Central Office's Order dated July 16, 2004, which Order denied Golden Falcon's appeal.
According to the DENR Secretary, the filing by Golden Falcon of the letter-appeal suspended the
finality of the Order of denial issued on April 29, 1998 by the Regional Director until the resolution of
the appeal on July 16, 2004 by the MGB-Central Office. He stated that the Applications for Quarry
Permit were filed on February 10, 2004 when the area was still closed to mining location; hence, the
Small-Scale Mining Permits granted by the PMRB and the Governor were null and void. On the other
hand, the DENR Secretary declared that AMTC filed its Application for Exploration Permit when the
area was already open to other mining applicants; thus, AMTCs Application for Exploration Permit
was valid. Moreover, the DENR Secretary held that the questioned Small-Scale Mining Permits were
issued in violation of Section 4 of R.A. No. 7076 and beyond the authority of the Provincial Governor
pursuant to Section 43 of R.A. No. 7942, because the area was never proclaimed to be under the
People's Small-Scale Mining Program. Further, the DENR Secretary stated that iron ore mineral is not
considered among the quarry resources.
The dispositive portion of the DENR Secretarys Decision reads:
WHEREFORE, the Application for Exploration Permit, AEP-III-02-04 of Atlantic Mines and Trading
Corp. is declared valid and may now be given due course. The Small-Scale Mining Permits, SSMP-B-
002-05 of Gerardo Cruz, SSMP-B-003-05 of Eduardo D. Mercado, SSMP-B-004-05 of Benedicto S.
Cruz and SSMP-B-005-05 of Lucila S. Valdez are declared NULL AND VOID. Consequently, the said
permits are hereby CANCELLED.15
Hence, petitioner League of Provinces filed this petition.
Petitioner is a duly organized league of local governments incorporated under R.A. No. 7160.
Petitioner declares that it is composed of 81 provincial governments, including the Province of
Bulacan. It states that this is not an action of one province alone, but the collective action of all
provinces through the League, as a favorable ruling will not only benefit one province, but all
provinces and all local governments.
Petitioner raises these issues:
I
WHETHER OR NOT SECTION 17(B)(3)(III) OF THE, 1991 LOCAL GOVERNMENT CODE AND
SECTION 24 OF THE PEOPLE'S SMALL-SCALE MINING ACT OF 1991 ARE
UNCONSTITUTIONAL FOR PROVIDING FOR EXECUTIVE CONTROL AND INFRINGING
UPON THE LOCAL AUTONOMY OF PROVINCES.
II
WHETHER OR NOT THE ACT OF RESPONDENT [DENR] IN NULLIFYING, VOIDING AND
CANCELLING THE SMALL-SCALE MINING PERMITS AMOUNTS TO EXECUTIVE
CONTROL, NOT MERELY SUPERVISION AND USURPS THE DEVOLVED POWERS OF ALL
PROVINCES.16
To start, the Court finds that petitioner has legal standing to file this petition because it is tasked under
Section 504 of the Local Government Code of 1991 to promote local autonomy at the provincial
level;17 adopt measures for the promotion of the welfare of all provinces and its officials and
employees;18 and exercise such other powers and perform such other duties and functions as the league
may prescribe for the welfare of the provinces.19
Before this Court determines the validity of an act of a co-equal and coordinate branch of the
Government, it bears emphasis that ingrained in our jurisprudence is the time-honored principle that a
statute is presumed to be valid.20 This presumption is rooted in the doctrine of separation of powers
which enjoins upon the three coordinate departments of the Government a becoming courtesy for each
other's acts.21 This Court, however, may declare a law, or portions thereof, unconstitutional where a
petitioner has shown a clear and unequivocal breach of the Constitution,22 leaving no doubt or
hesitation in the mind of the Court.23
In this case, petitioner admits that respondent DENR Secretary had the authority to nullify the Small-
Scale Mining Permits issued by the Provincial Governor of Bulacan, as the DENR Secretary has
control over the PMRB, and the implementation of the Small-Scale Mining Program is subject to
control by respondent DENR.
Control of the DENR/DENR Secretary over small-scale mining in the provinces is granted by three
statutes: (1) R.A. No. 7061 or The Local Government Code of 1991; (2) R.A. No. 7076 or the People's
Small Scale Mining Act of 1991; and (3) R.A. No. 7942, otherwise known as the Philippine Mining
Act of 1995.24 The pertinent provisions of law sought to be declared as unconstitutional by petitioner
are as follows:
R.A. No. 7061 (The Local Government Code of 1991)
SEC. 17. Basic Services and Facilities. - (a) Local government units shall endeavor to be self-reliant
and shall continue exercising the powers and discharging the duties and functions currently vested
upon them. They shall also discharge the functions and responsibilities of national agencies and offices
devolved to them pursuant to this Code. Local government units shall likewise exercise such other
powers and discharge such other functions and responsibilities as are necessary, appropriate, or
incidental to efficient and effective provision of the basic services and facilities enumerated herein.
(b) Such basic services and facilities include, but are not limited to, the following:
(3) For a Province:c
(iii) Pursuant to national policies and subject to supervision, control and review of the DENR,
enforcement of forestry laws limited to community-based forestry projects, pollution control law,
small-scale mining law, and other laws on the protection of the environment; and mini-hydro electric
projects for local purposes; x x x25
R.A. No. 7076 (People's Small-Scale Mining Act of 1991)
Sec. 24. Provincial/City Mining Regulatory Board. - There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein called the
Board, which shall be the implementing agency of the Department, and shall exercise the following
powers and functions, subject to review by the Secretary:
(a) Declare and segregate existing gold-rush areas for small-scale mining;
(b) Reserve future gold and other mining areas for small-scale mining;
(c) Award contracts to small-scale miners;
(d) Formulate and implement rules and regulations related to small-scale mining;
(e) Settle disputes, conflicts or litigations over conflicting claims within a peoples small-scale
mining area, an area that is declared a small-mining; and
(f) Perform such other functions as may be necessary to achieve the goals and objectives of
this Act.26
Petitioner contends that the aforecited laws and DENR Administrative Order No. 9640 (the
Implementing Rules and Regulations of the Philippine Mining Act of 1995) did not explicitly confer
upon respondents DENR and the DENR Secretary the power to reverse, abrogate, nullify, void, or
cancel the permits issued by the Provincial Governor or small-scale mining contracts entered into by
the PMRB. The statutes are also silent as to the power of respondent DENR Secretary to substitute his
own judgment over that of the Provincial Governor and the PMRB.
Moreover, petitioner contends that Section 17 (b)(3)(iii) of the Local Government Code of 1991 and
Section 24 of R.A. No. 7076, which confer upon respondents DENR and the DENR Secretary the
power of control are unconstitutional, as the Constitution states that the President (and Executive
Departments and her alter-egos) has the power of supervision only, not control, over acts of the local
government units, and grants the local government units autonomy, thus:
The 1987 Constitution:
Article X, Section 4. The President of the Philippines shall exercise general supervision over local
governments. Provinces with respect to component cities and municipalities, and cities and
municipalities with respect to component barangays, shall ensure that the acts of their component units
are within the scope of their prescribed powers and functions.27
Petitioner contends that the policy in the above-cited constitutional provision is mirrored in the Local
Government Code, which states:
SEC. 25. National Supervision over Local Government Units. - (a) Consistent with the basic policy on
local autonomy, the President shall exercise general supervision over local government units to ensure
that their acts are within the scope of their prescribed powers and functions.
The President shall exercise supervisory authority directly over provinces, highly urbanized cities, and
independent component cities; through the province with respect to component cities and
municipalities; and through the city and municipality with respect to barangays. 28
Petitioner contends that the foregoing provisions of the Constitution and the Local Government Code
of 1991 show that the relationship between the President and the Provinces or respondent DENR, as
the alter ego of the President, and the Province of Bulacan is one of executive supervision, not one of
executive control. The term "control" has been defined as the power of an officer to alter or modify or
set aside what a subordinate officer had done in the performance of his/her duties and to substitute the
judgment of the former for the latter, while the term "supervision" is the power of a superior officer to
see to it that lower officers perform their function in accordance with law.29
Petitioner argues that respondent DENR Secretary went beyond mere executive supervision and
exercised control when he nullified the small-scale mining permits granted by the Provincial Governor
of Bulacan, as the former substituted the judgment of the latter.
Petitioner asserts that what is involved here is a devolved power.
Under the Local Government Code of 1991, the power to regulate small-scale mining has been
devolved to all provinces. In the exercise of devolved powers, departmental approval is not necessary.30
Petitioner contends that if the provisions in Section 24 of R.A. No. 7076 and Section 17 (b)(3)(iii) of
the Local Government Code of 1991 granting the power of control to the DENR/DENR Secretary are
not nullified, nothing would stop the DENR Secretary from nullifying, voiding and canceling the
small-scale mining permits that have been issued by a Provincial Governor.
Petitioner submits that the statutory grant of power of control to respondents is unconstitutional, as the
Constitution only allows supervision over local governments and proscribes control by the executive
departments.
In its Comment, respondents, represented by the Office of the Solicitor General, stated that contrary to
the assertion of petitioner, the power to implement the small-scale mining law is expressly limited in
Section 17 (b)(3)(iii) of the Local Government Code, which provides that it must be carried out
"pursuant to national policies and subject to supervision, control and review of the DENR." Moreover,
the fact that the power to implement the small-scale mining law has not been fully devolved to
provinces is further amplified by Section 4 of the People's Small-Scale Mining Act of 1991, which
provides, among others, that the People's Small-Scale Mining Program shall be implemented by the
DENR Secretary.
The petition lacks merit.
Paragraph 1 of Section 2, Article XII (National Economy and Patrimony) of the Constitution31 provides
that "the exploration, development and utilization of natural resources shall be under the full control
and supervision of the State."
Moreover, paragraph 3 of Section 2, Article XII of the Constitution provides that "the Congress may,
by law, allow small-scale utilization of natural resources by Filipino citizens x x x."
Pursuant to Section 2, Article XII of the Constitution, R.A. No. 7076 or the People's Small-Scale
Mining Act of 1991, was enacted, establishing under Section 4 thereof a People's Small-Scale Mining
Program to be implemented by the DENR Secretary in coordination with other concerned government
agencies.
The People's Small-Scale Mining Act of 1991 defines "small-scale mining" as "refer[ring] to mining
activities, which rely heavily on manual labor using simple implement and methods and do not use
explosives or heavy mining equipment."32
It should be pointed out that the Administrative Code of 198733 provides that the DENR is, subject to
law and higher authority, in charge of carrying out the State's constitutional mandate, under Section 2,
Article XII of the Constitution, to control and supervise the exploration, development, utilization and
conservation of the country's natural resources. Hence, the enforcement of small-scale mining law in
the provinces is made subject to the supervision, control and review of the DENR under the Local
Government Code of 1991, while the Peoples Small-Scale Mining Act of 1991 provides that the
Peoples Small-Scale Mining Program is to be implemented by the DENR Secretary in coordination
with other concerned local government agencies.
Indeed, Section 4, Article X (Local Government) of the Constitution states that "[t]he President of the
Philippines shall exercise general supervision over local governments," and Section 25 of the Local
Government Code reiterates the same. General supervision by the President means no more than
seeing to it that laws are faithfully executed or that subordinate officers act within the law.34
The Court has clarified that the constitutional guarantee of local autonomy in the Constitution Art. X,
Sec. 2 refers to the administrative autonomy of local government units or, cast in more technical
language, the decentralization of government authority.35 It does not make local governments sovereign
within the State.36 Administrative autonomy may involve devolution of powers, but subject to
limitations like following national policies or standards, 37 and those provided by the Local Government
Code, as the structuring of local governments and the allocation of powers, responsibilities, and
resources among the different local government units and local officials have been placed by the
Constitution in the hands of Congress38 under Section 3, Article X of the Constitution.
Section 3, Article X of the Constitution mandated Congress to "enact a local government code which
shall provide for a more responsive and accountable local government structure instituted through a
system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and provide
for the qualifications, election, appointment and removal, term, salaries, powers and functions and
duties of local officials, and all other matters relating to the organization and operation of the local
units."
In connection with the enforcement of the small-scale mining law in the province, Section 17 of the
Local Government Code provides:
SEC. 17. Basic Services and Facilities. - (a) Local government units shall endeavor to be self-reliant
and shall continue exercising the powers and discharging the duties and functions currently vested
upon them. They shall also discharge the functions and responsibilities of national agencies and offices
devolved to them pursuant to this Code. Local government units shall likewise exercise such other
powers and discharge such other functions and responsibilities as are necessary, appropriate, or
incidental to efficient and effective provision of the basic services and facilities enumerated herein.
(b) Such basic services and facilities include, but are not limited to, the following:
xxxx
(3) For a Province:c
xxxx
(iii) Pursuant to national policies and subject to supervision, control and review of the DENR,
enforcement of forestry laws limited to community-based forestry projects, pollution control law,
small-scale mining law, and other laws on the protection of the environment; and mini-hydro electric
projects for local purposes;39
Clearly, the Local Government Code did not fully devolve the enforcement of the small-scale mining
law to the provincial government, as its enforcement is subject to the supervision, control and review
of the DENR, which is in charge, subject to law and higher authority, of carrying out the State's
constitutional mandate to control and supervise the exploration, development, utilization of the
country's natural resources.40
Section 17 (b)(3)(iii) of the Local Government Code of 1991 is in harmony with R.A. No. 7076 or the
People's Small-Scale Mining Act of 1991,41 which established a People's Small-Scale Mining Program
to be implemented by the Secretary of the DENR, thus:
Sec. 2. Declaration of Policy. It is hereby declared of the State to promote, develop, protect and
rationalize viable small-scale mining activities in order to generate more employment opportunities
and provide an equitable sharing of the nation's wealth and natural resources, giving due regard to
existing rights as herein provided.
xxxx
Sec. 4. People's Small-Scale Mining Program. - For the purpose of carrying out the declared policy
provided in Section 2 hereof, there is hereby established a People's Small-Scale Mining Program to be
implemented by the Secretary of the Department of Environment and Natural Resources, hereinafter
called the Department, in coordination with other concerned government agencies, designed to achieve
an orderly, systematic and rational scheme for the small-scale development and utilization of mineral
resources in certain mineral areas in order to address the social, economic, technical, and
environmental problems connected with small-scale mining activities.
xxxx
Sec. 24. Provincial/City Mining Regulatory Board. There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein called the
Board, which shall be the implementing agency of the Department, and shall exercise the following
powers and functions, subject to review by the Secretary:
(a) Declare and segregate existing gold-rush areas for small-scale mining;
(b) Reserve future gold and other mining areas for small-scale mining;
(c) Award contracts to small-scale miners;
(d) Formulate and implement rules and regulations related to small-scale mining;
(e) Settle disputes, conflicts or litigations over conflicting claims within a peoples
small-scale mining area, an area that is declared a small-mining; and
(f) Perform such other functions as may be necessary to achieve the goals and
objectives of this Act.42
DENR Administrative Order No. 34, series of 1992, containing the Rules and Regulations to
implement R.A. No. 7076, provides:
SEC. 21. Administrative Supervision over the People's Small-Scale Mining Program. The following
DENR officials shall exercise the following supervisory functions in the implementation of the
Program:
21.1 DENR Secretrary direct supervision and control over the program and
activities of the small-scale miners within the people's small-scale mining area;
21.2 Director the Director shall:
a. Recommend the depth or length of the tunnel or adit taking into account
the: (1) size of membership and capitalization of the cooperative; (2) size of
mineralized areas; (3) quantity of mineral deposits; (4) safety of miners; and
(5) environmental impact and other considerations;
b. Determine the right of small-scale miners to existing facilities in
consultation with the operator, claimowner, landowner or lessor of an
affected area upon declaration of a small-scale mining area;
c. Recommend to the Secretary the withdrawal of the status of the people's
small-scale mining area when it can no longer be feasibly operated on a
small-scale basis; and
d. See to it that the small-scale mining contractors abide by small-scale
mines safety rules and regulations.
xxxx
SEC. 22. Provincial/City Mining Regulatory Board. The Provincial/City Mining Regulatory Board
created under R.A. 7076 shall exercise the following powers and functions, subject to review by the
Secretary:
22.1 Declares and segregates existing gold rush area for small-scale mining;
22.2 Reserves for the future, mineralized areas/mineral lands for people's small-scale
mining;
22.3 Awards contracts to small-scale miners cooperative;
22.4 Formulates and implements rules and regulations related to R.A. 7076;
22.5 Settles disputes, conflicts or litigations over conflicting claims within ninety
(90) days upon filing of protests or complaints; Provided, That any aggrieved party
may appeal within five (5) days from the Board's decision to the Secretary for final
resolution otherwise the same is considered final and executory; and
 22.6 Performs such other functions as may be necessary to achieve the goals and
objectives of R.A. 7076.
SEC. 6. Declaration of People's Small-Scale Mining Areas. The Board created under R.A. 7076 shall
have the authority to declare and set aside People's Small-Scale Mining Areas in sites onshore suitable
for small-scale mining operations subject to review by the DENR Secretary thru the Director.43
DENR Administrative Order No. 23, otherwise known as the Implementing Rules and Regulations of
R.A. No. 7942, otherwise known as the Philippine Mining Act of 1995, adopted on August 15, 1995,
provides under Section 12344 thereof that small-scale mining applications should be filed with the
PMRB45 and the corresponding permits shall be issued by the Provincial Governor, except small-scale
mining applications within the mineral reservations.
Thereafter, DENR Administrative Order No. 96-40, otherwise known as the Revised Implementing
Rules and Regulations of R.A. No. 7942, otherwise known as the Philippine Mining Act of 1995,
adopted on December 19, 1996, provides that applications for Small-Scale Mining Permits shall be
filed with the Provincial Governor/City Mayor through the concerned Provincial/City Mining
Regulatory Board for areas outside the Mineral Reservations and with the Director though the Bureau
for areas within the Mineral Reservations.46 Moreover, it provides that Local Government Units shall,
in coordination with the Bureau/ Regional Offices and subject to valid and existing mining rights,
"approve applications for small-scale mining, sand and gravel, quarry x x x and gravel permits not
exceeding five (5) hectares."47
Petitioner contends that the Local Government Code of 1991, R.A. No. 7076, DENR Administrative
Orders Nos. 95-23 and 96-40 granted the DENR Secretary the broad statutory power of control, but did
not confer upon the respondents DENR and DENR Secretary the power to reverse, abrogate, nullify,
void, cancel the permits issued by the Provincial Governor or small-scale mining contracts entered into
by the Board.
The contention does not persuade.
The settlement of disputes over conflicting claims in small-scale mining is provided for in Section 24
of R.A. No. 7076, thus:
Sec. 24. Provincial/City Mining Regulatory Board. There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein called the
Board, which shall be the implementing agency of the Department, and shall exercise the following
powers and functions, subject to review by the Secretary:
xxxx
(e) Settle disputes, conflicts or litigations over conflicting claims within a people's small-scale mining
area, an area that is declared a small mining area; x x x
Section 24, paragraph (e) of R.A. No. 7076 cited above is reflected in Section 22, paragraph 22.5 of the
Implementing Rules and Regulations of R.A. No. 7076, to wit:
SEC. 22. Provincial/City Mining Regulatory Board. The Provincial/City Mining Regulatory Board
created under R.A. No. 7076 shall exercise the following powers and functions, subject to review by
the Secretary:
xxxx
22.5 Settles disputes, conflicts or litigations over conflicting claims within ninety (90) days upon filing
of protests or complaints; Provided, That any aggrieved party may appeal within five (5) days from the
Board's decision to the Secretary for final resolution otherwise the same is considered final and
executory; x x x
In this case, in accordance with Section 22, paragraph 22.5 of the Implementing Rules and Regulations
of R.A. No. 7076, the AMTC filed on July 22, 2005 with the PMRB of Bulacan a formal protest
against the Applications for Quarry Permits of Eduardo Mercado, Benedicto Cruz, Liberato Sembrano
(replaced by Lucila Valdez) and Gerardo Cruz on the ground that the subject area was already covered
by its Application for Exploration Permit.48However, on August 8, 2005, the PMRB issued Resolution
Nos. 05-8, 05-9, 05-10 and 05-11, resolving to submit to the Provincial Governor of Bulacan the
Applications for Small-Scale Mining Permits of Eduardo Mercado, Benedicto Cruz, Lucila Valdez and
Gerardo Cruz for the granting/issuance of the said permits.49 On August 10, 2005, the Provincial
Governor of Bulacan issued the Small-Scale Mining Permits to Eduardo Mercado, Benedicto Cruz,
Lucila Valdez and Gerardo Cruz based on the legal opinion of the Provincial Legal Officer and the
Resolutions of the PMRB of Bulacan.
Hence, AMTC filed an appeal with respondent DENR Secretary, appealing from Letter-Resolution No.
05-1317 and Resolution Nos. 05-08, 05-09, 05-10 and 05-11, all dated August 8, 2005, of the PMRB of
Bulacan, which resolutions gave due course and granted, on August 10, 2005, Small-Scale Mining
Permits to Eduardo D. Mercado, Benedicto S. Cruz, Lucila Valdez and Gerardo Cruz involving parcels
of mineral land situated at Camachin, Doa Remedios Trinidad, Bulacan.
The PMRB of Bulacan filed its Answer, stating that it is an administrative body, created under R.A.
No. 7076, which cannot be equated with the court wherein a full-blown hearing could be conducted,
but it is enough that the parties were given the opportunity to present evidence. It asserted that the
questioned resolutions it issued were in accordance with the mining laws and that the Small-Scale
Mining Permits granted were registered ahead of AMTC's Application for Exploration Permit. Further,
the Board stated that the Governor of Bulacan had the power to approve the Small-Scale Mining
Permits under R.A. No. 7160.
The DENR Secretary found the appeal meritorious, and resolved these pivotal issues: (1) when is the
subject mining area open for mining location by other applicants; and (2) who among the applicants
have valid applications.1wphi1 The pertinent portion of the decision of the DENR Secretary reads:
We agree with the ruling of the MGB Director that the area is open only to mining location on August
11, 2004, fifteen (15) days after the receipt by Golden Falcon on July 27, 2004 of a copy of the subject
Order of July 16, 2004.1wphi1 The filing by Golden Falcon of the letter-appeal suspended the finality
of the Order of Denial issued on April 29, 1998 by the Regional Director until the Resolution thereof
on July 16, 2004.
Although the subject AQPs/SSMPs were processed in accordance with the procedures of the PMRB,
however, the AQPs were filed on February 10, 2004 when the area is still closed to mining location.
Consequently, the SSMPs granted by the PMRB and the Governor are null and void making thereby
AEP No. III-02-04 of the AMTC valid, it having been filed when the area is already open to other
mining applicants.
Records also show that the AQPs were converted into SSMPs. These are two (2) different applications.
The questioned SSMPs were issued in violation of Section 4 of RA 7076 and beyond the authority of
the Provincial Governor pursuant to Section 43 of RA 7942 because the area was never proclaimed as
"People's Small-Scale Mining Program." Moreover, iron ore mineral is not considered among the
quarry resources.
xxxx
WHEREFORE, the Application for Exploration Permit, AEP-III-02-04 of Atlantic Mines and Trading
Corp. is declared valid and may now be given due course. The Small-Scale Mining Permits, SSMP-B-
002-05 of Gerardo Cruz, SSMP-B-003-05 of Eduardo D. Mercado, SSMP-B-004-05 of Benedicto S.
Cruz and SSMP-B-005-05 of Lucila S. Valdez are declared NULL AND VOID. Consequently, the said
permits are hereby CANCELLED.50
The Court finds that the decision of the DENR Secretary was rendered in accordance with the power of
review granted to the DENR Secretary in the resolution of disputes, which is provided for in Section
24 of R.A. No. 707651 and Section 22 of its Implementing Rules and Regulations.52 It is noted that
although AMTC filed a protest with the PMRB regarding its superior and prior Application for
Exploration Permit over the Applications for Quarry Permit, which were converted to Small-Scale
Mining Permits, the PMRB did not resolve the same, but issued Resolution Nos. 05-08 to 05-11 on
August 8, 2005, resolving to submit to the Provincial Governor of Bulacan the Applications for Small-
Scale Mining Permits of Eduardo Mercado, Benedicto Cruz, Lucila Valdez and Gerardo Cruz for the
granting of the said permits. After the Provincial Governor of Bulacan issued the Small-Scale Mining
Permits on August 10, 2005, AMTC appealed the Resolutions of the PMRB giving due course to the
granting of the Small-Scale Mining Permits by the Provincial Governor.
Hence, the decision of the DENR Secretary, declaring that the Application for Exploration Permit of
AMTC was valid and may be given due course, and canceling the Small-Scale Mining Permits issued
by the Provincial Governor, emanated from the power of review granted to the DENR Secretary under
R.A. No. 7076 and its Implementing Rules and Regulations. The DENR Secretary's power to review
and, therefore, decide, in this case, the issue on the validity of the issuance of the Small-Scale Mining
Permits by the Provincial Governor as recommended by the PMRB, is a quasi-judicial function, which
involves the determination of what the law is, and what the legal rights of the contending parties are,
with respect to the matter in controversy and, on the basis thereof and the facts obtaining, the
adjudication of their respective rights.53 The DENR Secretary exercises quasi-judicial function under
R.A. No. 7076 and its Implementing Rules and Regulations to the extent necessary in settling disputes,
conflicts or litigations over conflicting claims. This quasi-judicial function of the DENR Secretary can
neither be equated with "substitution of judgment" of the Provincial Governor in issuing Small-Scale
Mining Permits nor "control" over the said act of the Provincial Governor as it is a determination of the
rights of AMTC over conflicting claims based on the law.
In determining whether Section 17 (b)(3)(iii) of the Local Government Code of 1991 and Section 24 of
R.A. No. 7076 are unconstitutional, the Court has been guided by Beltran v. The Secretary of
Health, 54 which held:
The fundamental criterion is that all reasonable doubts should be resolved in favor of the
constitutionality of a statute. Every law has in its favor the presumption of constitutionality. For a law
to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution. The
ground for nullity must be clear and beyond reasonable doubt. Those who petition this Court to declare
a law, or parts thereof, unconstitutional must clearly establish the basis therefor. Otherwise, the petition
must fail. 55
In this case, the Court finds that the grounds raised by petitioner to challenge the constitutionality of
Section 17 (b )(3)(iii) of the Local Government Code of 1991 and Section 24 'of R.A. No.7076 failed
to overcome the constitutionality of the said provisions of law.
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED.