League of Cities vs.

COMELEC
Facts:
During the 11th Congress, Congress enacted into law 33 bills converting 33 municipalities
into cities. However, Congress did not act on bills converting 24 other municipalities into
cities. During the 12th Congress, Congress enacted into law Republic Act No. 9009 which
took effect on June 30, 2001. RA 9009 amended Section 450 of the Local Government Code
by increasing the annual income requirement for conversion of a municipality into a city
from P20 million to P100 million. After the effectivity of RA 9009, the House of
Representatives of the 12th Congress adopted Joint Resolution No. 29, which sought to
exempt from the P100 million income requirements in RA 9009 the 24 municipalities whose
cityhood bills were not approved in the 11th Congress. However, the 12th Congress ended
without the Senate approving Joint Resolution No. 29. During the 13th Congress, the House
of Representatives re-adopted Joint Resolution No. 29 as Joint Resolution No. 1 and
forwarded it to the Senate for approval. However, the Senate again failed to approve the
Joint Resolution. Following the advice of Senator Aquilino Pimentel, 16 municipalities filed,
through their respective sponsors, individual cityhood bills. The 16 cityhood bills contained a
common provision exempting all the 16 municipalities from the P100 million income
requirements in RA 9009. On December 22, 2006, the House of Representatives approved
the cityhood bills. The Senate also approved the cityhood bills in February 2007, except that
of Naga, Cebu which was passed on June 7, 2007. The cityhood bills lapsed into law
(Cityhood Laws) on various dates from March to July 2007 without the President's signature.
The Cityhood Laws direct the COMELEC to hold plebiscites to determine whether the voters
in each respondent municipality approve of the conversion of their municipality into a city.
Petitioners filed the present petitions to declare the Cityhood Laws unconstitutional for
violation of Section 10, Article X of the Constitution, as well as for violation of the equal
protection clause. Petitioners also lament that the wholesale conversion of municipalities
into cities will reduce the share of existing cities in the Internal Revenue Allotment because
more cities will share the same amount of internal revenue set aside for all cities under
Section 285 of the Local Government Code.
Issues:
1. Whether the Cityhood Laws violate Section 10, Article X of the Constitution; and
2. Whether or not the Cityhood Laws violate the equal protection clause.
Held:
1. The Cityhood Laws violate Sections 6 and 10, Article X of the Constitution, and are thus
unconstitutional.
2. Yes. There is no substantial distinction between municipalities with pending cityhood bills
in the 11th Congress and municipalities that did not have pending bills. The mere pendency
of a cityhood bill in the 11th Congress is not a material difference to distinguish one
municipality from another for the purpose of the income requirement. The pendency of a
cityhood bill in the 11th Congress does not affect or determine the level of income of a
municipality. Municipalities with pending cityhood bills in the 11th Congress might even have
lower annual income than municipalities that did not have pending cityhood bills. In short,
the classification criterion mere pendency of a cityhood bill in the 11th Congress is not
rationally related to the purpose of the law which is to prevent fiscally non-viable
municipalities from converting into cities

PROVINCE OF NEGROS OCCIDENTAL v. COMMISSIONERS ON AUDIT (28 SEPT. 2008,

CARPIO, J)
Substantial

Petitioner:

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.
o

Such enactment was a clear exercise of its express powers under the principle
of local fiscal autonomy which includes the power of LGUs to allocate their
resources in accordance with their own priorities.

Also, an LGU has fiscal control over its own revenues derived solely from its
own tax base.

Respondent:

Although LGUs are afforded local fiscal autonomy, LGUs are still bound by RA 6758
and their actions are subject to the scrutiny of the DBM and applicable auditing rules
and regulations enforced by the COA.

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.

Issue: WON the insurance benefits granted to the employees require prior approval from
the President as required under Administrative Order No. 103

Held: NO
Ratio:

AO 103 took effect eleven months before the SangguniangPanlalawigan 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.

It is clear from Sec. 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. In Sec. 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.

From a close reading of the provisions of AO 103, petitioner did not violate the rule of
prior approval from the President since Sec. 2 states that the prohibition applies only
to government offices/agencies, including GOCCs, as well as their respective
governing boards. Nowhere is it indicated 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 GOCCs.
o

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. 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
PD 1519 were sufficient to cover the needs of government employees especially
those employed by LGUs.

Petitioner correctly relied on the CSC Memorandum Circular No. 33 which provided
the policy framework for working conditions at the workplace. 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.
o

The CSC, through 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. RA 7875 (National Health Insurance Act) instituting
a National Health Insurance Program (NHIP) for all Filipinos was only approved
two months after the SangguniangPanlalawigan 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 Sec. 25, Article II and Section 2, Article X, and the LGC, the Court
declares that the grant and release of the hospitalization and health care insurance
benefits were validly enacted through an ordinance passed by the
SangguniangPanlalawigan.

CIVIL SERVICE COMMISSION, Petitoner,

vs.
DR. AGNES OUIDA P. YU, Respondent.
The Facts

In 1992, the national government implemented a devolution program pursuant to Republic

Act (R.A.) No. 7160, otherwise known as the The Local Government Code of 1991, which
affected the Department of Health (DOH) along with other government agencies.
Prior to the devolution, Dr. Fortunata Castillo (hereinafter Dr. Castillo) held the position of
Provincial Health Officer II (PHO II) of the Department of Health (DOH) Regional Office No. IX
in Zamboanga City and was the head of both the Basilan Provincial Health Hospital and
Public Health Services. Respondent Dr. Agnes Ouida P. Yu (Dr. Yu), on the other hand, held
the position of Provincial Health Officer I (PHO I). She was assigned, however, at the
Integrated Provincial Health Office in Isabela, Basilan.
Upon the implementation of the devolution program, then Basilan Governor Gerry
Salapuddin (Governor Salapuddin) refused to accept Dr. Castillo as the incumbent of the PHO
II position that was to be devolved to the local government unit of Basilan, prompting the
DOH to retain Dr. Castillo at the Regional Office No. IX in Zamboanga City where she would
serve the remaining four years of her public service. She retired in 1996.
Meanwhile, in 1994, or two years after the implementation of the devolution program,
Governor Salapuddin appointed Dr. Yu to the PHO II position.
On February 23, 1998, Republic Act No. 8543, otherwise known as An Act Converting the
Basilan Provincial Hospital in the Municipality of Isabela, Province of Basilan, into a Tertiary
Hospital Under the Full Administrative and Technical Supervision of the Department of
Health, Increasing the Capacity to One Hundred Beds and Appropriating Funds
Therefor," was passed into law whereby the hospital positions previously devolved to the
local government unit of Basilan were re-nationalized and reverted to the DOH. The Basilan
Provincial Health Hospital was later renamed the Basilan General Hospital, and the position
of PHO II was then re-classified to Chief of Hospital II.
While Dr. Yu was among the personnel reverted to the DOH with the re-nationalization of the
Basilan General Hospital, she was made to retain her original item of PHO II instead of being
given the re-classified position of Chief of Hospital II. Subsequently, on August 1, 2003, then
DOH Secretary Manuel M. Dayrit (Secretary Dayrit) appointed Dr. Domingo Remus A. Dayrit
(Dr. Dayrit) to the position of Chief of Hospital II.
Aggrieved, Dr. Yu filed a letter of protest dated September 30, 2003 3 before the CSC claiming
that she has a vested right to the position of Chief of Hospital II. The pertinent portions of
said letter read:
I come before your good office protesting the appointment issued by DOH Secretary
Manuel M. Dayrit in favor of Dr. Domingo Remus A. Dayrit as Chief of Hospital of the
Basilan General Hospital
xxx
the position of Chief of Hospital II to which Dr. Dayrit has been appointed is a mere
conversion from the item of Provincial Health Officer II previously occupied by the herein
protestant.

When what used to be called the Basilan Provincial Hospital was re-nationalized, now called
the Basilan General Hospital, the position of Provincial Health Officer II, then occupied by the
undersigned, was refused re-nationalized (sic) by DOH alleging the same position to be an
LGU-created position, that is, that the Local Government of Basilan created the position.
Thus, instead of the undersigned being automatically re-appointed Provincial Health Officer II
of the Hospital, later to be renamed Chief of Hospital II, pursuant to the Re-Nationalization
Law, she was instead given an appointment still as Provincial Health Officer II but under a
co-terminous status at the Center for Health and Development, DOH which position the
undersigned refused to accept...
On June 7, 2004, the CSC issued Resolution4 No. 040655 granting Dr. Yu's protest and
revoking the appointment of Dr. Dayrit as Chief of Hospital II of Basilan General Hospital.
Further, Secretary Dayrit was directed to appoint Dr. Yu to said position. Upon motion for
reconsideration, however, the CSC reversed itself and issued Resolution5No. 040967 dated
September 1, 2004 declaring that the position of PHO II was never devolved to the Provincial
Government of Basilan but was retained by the DOH; that the PHO II position held by Dr. Yu
was a newly-created position; and that, therefore, she did not have a vested right to the
Chief of Hospital II position that was created by virtue of R.A No. 8543.
Dr. Yu then filed a motion for reconsideration which was denied by the CSC in its
Resolution6 No. 050287 dated February 28, 2005. She then elevated her case to the CA on
petition for review raising the sole issue of whether the item of PHO II she previously
occupied was a devolved position or a locally created one.
On March 30, 2009, the CA rendered the assailed Decision in favor of Dr. Yu, disposing as
follows:
FOR REASONS STATED, the Petition for Review is GRANTED and CSC Resolutions Nos.
040967 and 050287 are REVERSED and SET ASIDE. Petitioner is declared to have a vested
right in the Chief of Hospital II position up to her retirement in August 24, 2004 and should
receive her corresponding salaries and benefits.
SO ORDERED.7
In ruling that the PHO II position was devolved to the Basilan Provincial Government, the
appellate court ratiocinated in this wise:
xxx The CSCs ruling that there are two PHO II positions is not implausible but contrary to the
evidence on hand.
A perusal of the pleadings and attachments reveal that the PHO II position was devolved to
the Basilan Provincial Government. In a letter dated May 19, 1994, Ms. Vivian L. Young,
Officer-in-Charge of the Department of Health, Local Government Assistance & Monitoring
Service informed former Governor Salapuddin that the PHO II position was devolved to the
local government, viz:
Dear Gov. Salapuddin,
This will refer to your letter relative to the item position of Dr. Fortunata C. Castillo which has
been devolved to the provincial government of BASILAN.

Please be informed that only the devolved health personnel who were not accepted by their
Local Chief Executive have been retained by DOH, the item positions per se remained in the
respective LGUs. xxx The LGUs have the option to retain the items vacated or to collapse
the same for financial reasons.
xxx
Based on the foregoing letter, Dr. Milagros L. Fernandez, Director IV of the DOH Regional
Field Office No. IX, Zamboanga City, wrote a letter to petitioner, to wit:
xxx
Madam:
The letter dated May 19, 1994 of Ms. Vivian L. Young, Office-in-Charge (sic), LGAMS,
Department of Health, clarifies the issue raised by the Provincial Governor, in his letter
dated April 14, 1994, insofar as the retention of the Provincial Health Officer II of the
province, in the person of Dr. Fortunata Castillo by the DOH in view of the non-acceptance by
the Governor consistent with the provisions of law on devolution.
1. Dr. Fortunata A. Castillo, who was holding the position of Provincial Health Officer II
of the province, and a devolved health personnel, was retained by the DOH for
reason above-mentioned.
2. While she, the occupant, was retained, the item position remained as among those
items in the Plantilla of Personnel of the Integrated Provincial Health Office devolved
to the Office of the Provincial Governor.
3. The Governor, in such a case, may or may not retain her item in his Plantilla, or
abolish it for reason therein stated. The position herewith (sic) was left vacant with
the retention of Dr. Castillo in this office.
4. The funds for salary and other benefits of the devolved item position of Provincial
Health Officer II remained devolved with the Office of the Governor.
In other words, with the retention of Dr. Castillo hereto, she never carried with her the item
position and the funds appropriated for salary and other benefits accruing to the position of
Provincial Health Officer II.
xxx
In a letter dated October 26, 2001, Director Macybel Alfaro-Sashi of the Civil Service
Commission Regional Office IX informed the petitioner that:
At the outset, it is apparent that the position you presently occupy is one which should be
included in the list of renationalized positions notwithstanding the fact that the said position
carries a position item number different from that carried by the previous holder thereof.
Hence, the contention of the DOH Regional Office that your position is not the same as that
of the previous holder simply because they bear different position item numbers deserves
very scant consideration. The position item numbers are immaterial in case of

renationalization as such a system is merely adopted for purposes of proper and systematic
coding of all positions in the government, particularly in the budgeting process. Thus, the
position you are presently holding should be considered as one belonging to the national
government prior to its devolution, regardless of the position item number attached to the
position of the previous holder thereof.
Thus, it is apparent that the PHO II position occupied by petitioner is one and the same
position which was previously occupied by Dr. Castillo before the devolution. When the latter
was not accepted by Gov. Salapuddin, Dr. Castillo was retained by the DOH but the PHO II
item was devolved to the Provincial Government of Basilan. Consequently, the position of
PHO II became vacant. This is obvious by the fact that the salaries of Dr. Castillo were taken
from a special fund and not from the appropriation for the PHO II position.
The motion for reconsideration of the foregoing Decision filed by the CSC was denied by the
CA in its Resolution8dated July 9, 2009. Hence, in this petition for review on certiorari, the
CSC alleged that The Issue
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PHO II POSITION
PREVIOUSLY OCCUPIED BY RESPONDENT YU IS A DEVOLVED POSITION.9
The Ruling of the Court
In pursuance of the declared policy under The Local Government Code of 1991 (R.A. No.
7160) to provide for a more responsive and accountable local government structure through
a system of decentralization,10 national agencies or offices, including the DOH, were
mandated to devolve to the local government units the responsibility for the provision of
basic services and facilities.11
As defined, devolution is the act by which the national government confers power and
authority upon the various local government units to perform specific functions and
responsibilities.12 Specifically, Section 17(i) of the same Code prescribes the manner of
devolution, as follows:
(i) The devolution contemplated in this Code shall include the transfer to local government
units of the records, equipment, and other assets and personnel of national agencies and
offices corresponding to the devolved powers, functions and responsibilities.
Personnel of said national agencies or offices shall be absorbed by the local government
units to which they belong or in whose areas they are assigned to the extent that it is
administratively viable as determined by the said oversight committee: Provided,
further, That regional directors who are career executive service officers and other officers of
similar rank in the said regional offices who cannot be absorbed by the local government
unit shall be retained by the national government, without any diminution of rank, salary or
tenure.
To ensure the proper implementation of the devolution process, then President Corazon C.
Aquino issued Executive Order (E.O.) No. 503, otherwise known as the Rules and
Regulations Implementing the Transfer of Personnel and Assets, Liabilities and Records of

National Government Agencies Whose Functions Are To Be Devolved To The Local

Government Units And For Other Related Purposes," which laid down the following pertinent
guidelines with respect to the transfer of personnel:
Section 2. Principles and Policies Governing Transfer of Personnel. a. Coverage, Tenure, Compensation and Career Development.
xxx
2. The absorption of the NGA personnel by the LGU shall be mandatory, in which
case, the LGUs shall create the equivalent positions of the affected personnel except
when it is not administratively viable.
3. Absorption is not administratively viable when there is a duplication of functions
unless the LGU opts to absorb the personnel concerned.
4. The national personnel who are not absorbed by the LGUs under no. 3 above, shall
be retained by the NGA concerned, subject to civil service law, rules and regulations.
xxx
12. Except as herein otherwise provided, devolved permanent personnel shall be
automatically reappointed by the local chief executive concerned immediately upon
their transfer which shall not go beyond June 30, 1992. xxx
On the basis of the foregoing, it was mandatory for Governor Salapuddin to absorb the
position of PHO II, as well as its incumbent, Dr. Fortunata Castillo. Highlighting the absence
of discretion is the use of the word shall both in Section 17 (i) of R.A. No. 7160 and in
Section 2(a)(2) of E.O. No. 503, which connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the idea of discretion. 13 The only
instance that the LGU concerned may choose not to absorb the NGA personnel is when
absorption is not administratively viable, meaning, it would result to duplication of functions,
in which case, the NGA personnel shall be retained by the national government. However, in
the absence of the recognized exception, devolved permanent personnel shall be
automatically reappointed Section 2(a)(12) by the local chief executive concerned
immediately upon their transfer which shall not go beyond June 30, 1992. Webster's Third
New International Dictionary defines automatic as involuntary either wholly or to a
major extent so that any activity of the will is largely negligible. Being automatic, thus,
connotes something mechanical, spontaneous and perfunctory. 14
There is no dearth of evidence showing that the item position of PHO II was, in fact, devolved
to the Provincial Government of Basilan. Governor Salapuddin himself certified 15 that said
position was included in the 1992 OSCAS16 received from the Department of Budget and
Management (DBM) with its corresponding budget appropriation. He further declared that
during the formal turn over program in 1993 attended by Dr. Milagros Fernandez,
representing the DOH Regional Office, the item position of PHO II was among the positions
turned over to the Provincial Government of Basilan. Thus, the argument 17 of petitioner CSC
that only 53 plantilla positions, not 54, were devolved to the local government of Basilan
does not hold water. It cannot be disputed that Dr. Castillo's PHO II position was devolved.

However, Governor Salapuddin refused to reappoint Dr. Castillo to her devolved position in
the LGU for no other reason than that he wanted to accept only the item position of PHO
II.18 It was not shown, and no attempt was ever made on the part of the LGU to show, that
the absorption of Dr. Castillo was not administratively viable. There being no valid and legal
basis therefor, Governor Salapuddin's refusal to accept Dr. Castillo was, plainly and
simply, whimsical.1wphi1
Be that as it may, Governor Salapuddin's refusal did not prevent the devolution of Dr.Castillo
which, together with that of the PHO II position, took effect by operation of law. In order to
solve his dilemma, Governor Salapuddin requested that Dr. Castillo be detailed instead at
the DOH, which was confirmed by then Secretary of Health Juan M. Flavier in his Department
Order19 No. 228, series of 1993, signed on July 9, 1993, reproduced hereunder as follows:
This will officially confirm the detail of Dr. Fortunata A. Castillo PHO-II Basilan at the
Regional Health Field Office No. IX, Zamboanga City per request of the Governor of Basilan,
the Honorable Jerry (sic) Salapuddin in his letter to Dr. Castillo, provided that the provincial
government of Basilan will continue to pay her salary and other benefits she's entitled
thereto until further notice or order. (Emphasis added)
Clearly therefore, the drawing of Dr. Castillo's salary from the LGU of Basilan which Governor
Salapuddin claimed to have allowed simply to accommodate her (Dr. Castillo)" 20 was, in
fact, a necessary consequence of her devolution to the LGU and subsequent detail to the
DOH. Officials and employees on detail with other offices shall be paid their salaries,
emoluments, allowances, fringe benefits and other personal services costs from the
appropriations of their parent agencies and in no case shall such be charged against the
appropriations of the agencies where they are assigned or detailed, except when authorized
by law.21
A detail is defined and governed by Executive Order 292, Book V, Title 1, Subtitle A, Chapter
5, Section 26 (6), thus:22
(6) Detail. A detail is the movement of an employee from one agency to another without the
issuance of an appointment and shall be allowed, only for a limited period in the case of
employees occupying professional, technical and scientific positions. If the employee
believes that there is no justification for the detail, he may appeal his case to the
Commission. Pending appeal, the decision to detail the employee shall be executory unless
otherwise ordered by the Commission. (Emphasis added)
Had Dr. Castillo felt aggrieved by her detail to the DOH Regional Office, she was not without
recourse. The law afforded her the right to appeal her case to the CSC, but she had not seen
fit to question the justification for her detail. We could only surmise that, since Dr. Castillo
was looking at only three more years from the time of her detail until her retirement in 1996,
and considering that she obviously would not suffer any diminution in salary and rank, she
found it pointless to pursue the matter.
Neither did Dr. Castillo find need to raise a howl when, at the behest of Governor Salapuddin
who was determined to replace her, DOH officials categorized her as a devolution non-viable
employee, along with 216 others nationwide, by the mere fact that she was not accepted by
the LGU of Basilan and not because of an actual non-viability. Hence, in 1994, when
Governor Salapuddin formally manifested his intention to stop the drawing of Dr. Castillo's
salary from the LGU in anticipation of his appointment of Dr. Yu to the PHO II position, Dr.

Castillo ceased to be a detailed employee at the DOH Regional Office but was re-absorbed
by the DOH as a devolution non-viable employee and, consequently, paid salaries and
benefits from the Miscellaneous Personnel Benefits Fund that had been set aside under the
Office of the Secretary of Health precisely for such employees.
Ms. Vivian L. Young, Officer-In-Charge of the DOH Local Government Assistance and
Monitoring Service, assured23 Governor Salapuddin that, while Dr. Castillo was retained by
the DOH, her item position remained with the LGU of Basilan. Moreover, Dr. Milagros L.
Fernandez, Director IV of the DOH Regional Field Office No. IX in Zamboanga City,
clarified24 that Dr. Castillo never carried with her the item position and the funds
appropriated for salary and other benefits accruing to the position of Provincial Health
Officer II.
Hence, the appointment of Dr. Yu to the position PHO II.
The next question to be answered is may Dr. Castillo be considered to have abandoned her
position for consistently failing to assert her rights thereto?
We certainly do not believe so.
Abandonment of an office is the voluntary relinquishment of an office by the holder with
the intention of terminating his possession and control thereof. In order to constitute
abandonment of office, it must be total and under such circumstance as clearly to indicate
an absolute relinquishment. There must be a complete abandonment of duties of such
continuance that the law will infer a relinquishment. Abandonment of duties is a voluntary
act; it springs from and is accompanied by deliberation and freedom of choice. There are,
therefore, two essential elements of abandonment: first, an intention to abandon and,
second, an overt or 'external' act by which the intention is carried into effect." 25
By no stretch of the imagination can Dr. Castillo's seeming lackadaisical attitude towards
protecting her rights be construed as an abandonment of her position resulting in her having
intentionally and voluntarily vacated the same. Governor Salapuddin's tenacious refusal to
accept Dr. Castillo negates any and all voluntariness on the part of the latter to let go of her
position. The risk of incurring the ire of a powerful politician effectively tied Dr. Castillo's
hands, and it was quite understandable that she could not don her gloves and fight, even if
she wanted to. Considering, however, that Governor Salapuddin's clear infraction of the law
is not in issue before us, we need not make any pronouncement on this matter.
We rule, therefore, under the attendant circumstances of the case, that with Dr. Castillo's reabsorption by the DOH which appears to bear the former's approval, her devolved position
with the LGU of Basilan was left vacant. In her May 19, 1994 letter to Governor Salapuddin,
Ms. Vivian L. Young informed the local chief executive that he had the option to retain the
item vacated or to collapse the same for financial reasons.26 Thus, we hold that Dr. Yu was
validly appointed to the position of PHO II in 1994 and, consequently, acquired a vested right
to its re-classified designation Chief of Hospital II. As such, Dr. Yu should have been
automatically re-appointed by Secretary Dayrit in accordance with the Guidelines for the ReNationalization of Personnel, Assets and Appropriations of Basilan Provincial Hospital, 27 the
pertinent portion of which provides, as follows:
Item III. Principles and Policies Governing the Transfer of Basilan Provincial Hospital

A) xxx
3) The DOH shall assure that the re-nationalized personnel of the hospital shall:
3.i)

Not be involuntarily separated, terminated or laid off;

3.ii)

Continue to enjoy security of tenure;

3.iii)
Be automatically re-appointed by the Secretary immediately upon their
transfer;
3.iv)

Retain their pay or benefits without diminution. (Emphasis supplied)

Considering, however, that Dr. Yu had already retired on August 24, 2004, we uphold the
following findings of the appellate court, to wit:
xxx ln as much as a re-appointment is no longer feasible due to her retirement, petitioner
should at least recover her salaries for the services she had rendered. However, petitioner
admitted that she received her salary as PHO II converted to Chief of Hospital for the period
August to November 2001. Therefore, she should receive her salary and benefits as Chief of
Hospital from December 2001 up to her retirement in August 24, 2004. 28
WHEREFORE, the instant petition is hereby DENIED for lack of merit. The assailed Decision
dated March 30, 2009 in CA-G.R. SP No. 00327-MIN is AFFIRMED

MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

DECISION
CARPIO, J.:
This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012
Resolution of the Court of Tax. Appeals (CTA) En Banc.
Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011 Resolution5 of
the CTA First Division, which in turn affirmed the 2 December 2008 Decision6 and 21 May
2009 Order7 of the Regional Trial Court of Tanauan City, Batangas, Branch 6. The trial court
declared void the assessment imposed by respondent Municipality of Malvar, Batangas
against petitioner Smart Communications, Inc. for its telecommunications tower for 2001 to
July 2003 and directed respondent to assess petitioner only for the period starting 1 October
2003.
FACTS:
Petitioner Smart Communications, Inc. (Smart) In the course of its business, Smart
constructed a telecommunications tower within the territorial jurisdiction of the Municipality.
The construction of the tower was for the purpose of receiving and transmitting cellular
communications within the covered area.

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of
the Mayor of the Municipality an assessment letter with a schedule of payment for the total
amount of P389,950.00 for Smarts telecommunications tower.
Due to the alleged arrears in the payment of the assessment, the Municipality also caused
the posting of a closure notice on the telecommunications tower.
On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of
the assessment and closure notice. In the same protest, Smart challenged the validity of
Ordinance No. 18 on which the assessment was based. The Municipality denied Smarts
protest.
On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas,
Branch 6, an "Appeal/Petition" assailing the validity of Ordinance No. 18.
TRIAL COURT RULED:
The trial court held that the assessment covering the period from 2001 to July 2003 was void
since Ordinance No. 18 was approved only on 30 July 2003. However, the trial court declared
valid the assessment starting 1 October 2003, citing Article 4 of the Civil Code of the
Philippines,9 in relation to the provisions of Ordinance No. 18 and Section 166 of Republic
Act No. 7160 or the Local Government Code of 1991 (LGC).10 The dispositive portion of the
trial courts Decision reads:
WHEREFORE, in light of the foregoing, the Petition is partly GRANTED.
CTA division and CTA en banc dismissed the petition for review of Smart.
The Ruling of the CTA En Banc:
The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En
Banc declared that it is a court of special jurisdiction and as such, it can take cognizance
only of such matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of
Republic Act No. 9282, the CTA En Banc held that the CTA has exclusive appellate jurisdiction
to review on appeal, decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally resolved by them in the exercise of their original or appellate jurisdiction.
However, the same provision does not confer on the CTA jurisdiction to resolve cases where
the constitutionality of a law or rule is challenged.
ISSUES:
The petition raises the following arguments:
1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being
contrary to law and jurisprudence considering that the CTA En Banc should have exercised
its jurisdiction and declared the Ordinance as illegal.
2. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being
contrary to law and jurisprudence considering that the doctrine of exhaustion of
administrative remedies does not apply in [this case].
3. The [CTA En Banc Decision and Resolution] should be reversed and set aside for being
contrary to law and jurisprudence considering that the respondent has no authority to
impose the so-called "fees" on the basis of the void ordinance.

HELD:
Petitioner: Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are
not regulatory, but revenue-raising. Smart contends that the designation of "fees" in
Ordinance No. 18 is not controlling.
COURT:
The Court finds that the fees imposed under Ordinance No. 18 are not taxes.
Section 5, Article X of the 1987 Constitution provides that "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 government."
Consistent with this constitutional mandate, the LGC grants the taxing powers to each local
government unit. Specifically, Section 142 of the LGC grants municipalities the power to levy
taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides
for the scale of taxes on business that may be imposed by municipalities while Section 147
of the same law provides for the fees and charges that may be imposed by municipalities on
business and occupation.
The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees
against persons or property, while the term "fee" means "a charge fixed by law or ordinance
for the regulation or inspection of a business or activity."
In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance
Regulating the Establishment of Special Projects," to regulate the "placing, stringing,
attaching, installing, repair and construction of all gas mains, electric, telegraph and
telephone wires, conduits, meters and other apparatus, and provide for the correction,
condemnation or removal of the same when found to be dangerous, defective or otherwise
hazardous to the welfare of the inhabitant[s]." It was also envisioned to address the foreseen
"environmental depredation" to be brought about by these "special projects" to the
Municipality. Pursuant to these objectives, the Municipality imposed fees on various
structures, which included telecommunications towers.
As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to
regulate the "placing, stringing, attaching, installing, repair and construction of all gas
mains, electric, telegraph and telephone wires, conduits, meters and other apparatus" listed
therein, which included Smarts telecommunications tower. Clearly, the purpose of the
assailed Ordinance is to regulate the enumerated activities particularly related to the
construction and maintenance of various structures. The fees in Ordinance No. 18 are not
impositions on the building or structure itself; rather, they are impositions on the activity
subject of government regulation, such as the installation and construction of the structures.
Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of
the identified special projects, which included "cell sites" or telecommunications towers, the
fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily
revenue-raising. While the fees may contribute to the revenues of the Municipality, this
effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
In Progressive Development Corporation v. Quezon City, the Court declared that "if the
generating of revenue is the primary purpose and regulation is merely incidental, the

imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax."
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart
is questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition
for lack of jurisdiction. Likewise, Section 187 of the LGC, which outlines the procedure for
questioning the constitutionality of a tax ordinance, is inapplicable, rendering unnecessary
the resolution of the issue on non-exhaustion of administrative remedies.
PETITIONER:
Smart argues that the Municipality exceeded its power to impose taxes and fees as provided
in Book II, Title One, Chapter 2, Article II of the LGC. Smart maintains that the mayors
permit fees in Ordinance No. 18 (equivalent to 1% of the project cost) are not among those
expressly enumerated in the LGC.
COURT:
As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not
appear in the enumeration of taxes under Section 143 of the LGC.
Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC,
the Municipality is empowered to impose taxes, fees and charges, not specifically
enumerated in the LGC or taxed under the Tax Code or other applicable law. Section 186 of
the LGC, granting local government units wide latitude in imposing fees, expressly provides:
Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal
Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or
charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the ordinance levying such taxes, fees or charges
shall not be enacted without any prior public hearing conducted for the purpose.
PETITIONER: argues that the Municipality is encroaching on the regulatory powers of the
National Telecommunications Commission (NTC).
COURT: The fees are not imposed to regulate the administrative, technical, financial, or
marketing operations of telecommunications entities, such as Smarts; rather, to regulate
the installation and maintenance of physical structures Smarts cell sites or
telecommunications tower. The regulation of the installation and maintenance of such
physical structures is an exercise of the police power of the Municipality. Clearly, the
Municipality does not encroach on NTCs regulatory powers.
PETITIONER: Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since the
fees are unjust, excessive, oppressive and confiscatory
COURT: On the constitutionality issue, Smart merely pleaded for the declaration of
unconstitutionality of Ordinance No. 18 in the Prayer of the Petition, without any argument
or evidence to support its plea. Nowhere in the body of the Petition was this issue
specifically raised and discussed. Significantly, Smart failed to cite any constitutional
provision allegedly violated by respondent when it issued Ordinance No. 18.
Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike
down a law as unconstitutional, Smart has the burden to prove a clear and unequivocal
breach of the Constitution, which Smart miserably failed to do.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

SMART VS DAVAO
On February 18, 2002, Smart filed a special civil action for declaratory relief 3 for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao, which
imposes a franchise tax on businesses enjoying a franchise within the territorial jurisdiction
of Davao. Smart avers that its telecenter in Davao City is exempt from payment of franchise
tax to the City.
On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for
reconsideration, which was denied by the trial court in an Order dated September 26, 2002.
Smart filed an appeal before this Court, but the same was denied in a decision dated
September 16, 2008. Hence, the instant motion for reconsideration raising the following
grounds: (1) the "in lieu of all taxes" clause in Smarts franchise, Republic Act No. 7294 (RA
7294), covers local taxes; the rule of strict construction against tax exemptions is not
applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective by the Expanded
VAT Law; (3) Section 23 of Republic Act No. 7925 4 (RA 7925) includes a tax exemption; and
(4) the imposition of a local franchise tax on Smart would violate the constitutional
prohibition against impairment of the obligation of contracts.
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of
Smarts legislative franchise contains the contentious "in lieu of all taxes" clause. The
Section reads:
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate buildings and personal property, exclusive of this franchise,
as other persons or corporations which are now or hereafter may be required by law to pay.
In addition thereto, the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the business transacted under this
franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of
all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or
assigns shall continue to be liable for income taxes payable under Title II of the National
Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter
enactment is amended or repealed, in which case the amendment or repeal shall be
applicable thereto.
xxx5
Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality
clause, contains the word "exemption," viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry Any advantage, favor,
privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted telecommunications franchises
and shall be accorded immediately and unconditionally to the grantees of such franchises:
Provided, however, That the foregoing shall neither apply to nor affect provisions of

telecommunications franchises concerning territory covered by the franchise, the life span of
the franchise, or the type of the service authorized by the franchise. 6
A review of the recent decisions of the Court on the matter of exemptions from local
franchise tax and the interpretation of the word "exemption" found in Section 23 of RA 7925
is imperative in order to resolve this issue once and for all.
In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan, 7 Digitel
used as an argument the "in lieu of all taxes" clauses/provisos found in the legislative
franchises of Globe,8 Smart and Bell,9 vis--visSection 23 of RA 7925, in order to claim
exemption from the payment of local franchise tax. Digitel claimed, just like the petitioner in
this case, that it was exempt from the payment of any other taxes except the national
franchise and income taxes. Digitel alleged that Smart was exempted from the payment of
local franchise tax.
However, it failed to substantiate its allegation, and, thus, the Court denied Digitels claim
for exemption from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City
of Davao,10 wherein the Court, speaking through Mr. Justice Vicente V. Mendoza, held that in
approving Section 23 of RA No. 7925, Congress did not intend it to operate as a blanket tax
exemption to all telecommunications entities. Section 23 cannot be considered as having
amended PLDTs franchise so as to entitle it to exemption from the imposition of local
franchise taxes. The Court further held that tax exemptions are highly disfavored and that a
tax exemption must be expressed in the statute in clear language that leaves no doubt of
the intention of the legislature to grant such exemption. And, even in the instances when it
is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that
the word "exemption" as used in the statute refers or pertains merely to an exemption from
regulatory or reporting requirements of the Department of Transportation and
Communication or the National Transmission Corporation and not to an exemption from the
grantees tax liability.
In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, 11 PLDT was a
holder of a legislative franchise under Act No. 3436, as amended. On August 24, 1991, the
terms and conditions of its franchise were consolidated under Republic Act No. 7082, Section
12 of which embodies the so-called "in-lieu-of-all taxes" clause. Under the said Section, PLDT
shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which
franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve was
whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in lieu
of all taxes" clause in its franchise and Section 23 of RA 7925.lawph!l
Applying the rule of strict construction of laws granting tax exemptions and the rule that
doubts are resolved in favor of municipal corporations in interpreting statutory provisions on
municipal taxing powers, the Court held that Section 23 of RA 7925 could not be considered
as having amended petitioner's franchise so as to entitle it to exemption from the imposition
of local franchise taxes.
In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of
Davao12 and PLDT v. City of Bacolod,13 in denying the claim for exemption from the payment
of local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the
franchisee is still liable to pay the local franchise tax, unless it is expressly and unequivocally
exempted from the payment thereof under its legislative franchise. The "in lieu of all taxes"
clause in a legislative franchise should categorically state that the exemption applies to both
local and national taxes; otherwise, the exemption claimed should be strictly construed
against the taxpayer and liberally in favor of the taxing authority.
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or
abolish the payment of local franchise tax. It merely replaced the national franchise tax that
was previously paid by telecommunications franchise holders and in its stead imposed a ten
percent (10%) VAT in accordance with Section 108 of the Tax Code. VAT replaced the
national franchise tax, but it did not prohibit nor abolish the imposition of local franchise tax
by cities or municipaties.
The power to tax by local government units emanates from Section 5, Article X of the
Constitution which empowers them to create their own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may
provide. The imposition of local franchise tax is not inconsistent with the advent of the VAT,
which renders functus officio the franchise tax paid to the national government. VAT inures
to the benefit of the national government, while a local franchise tax is a revenue of the
local government unit.
WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.
SO ORDERED

Lagcao vs. Labra

Facts: On July 9, 1986, the court a quo ruled in favor of petitioners and ordered the Province
of Cebu to execute the final deed of sale in favor of petitioners. On June 11, 1992, the Court
of Appeals affirmed the decision of the trial court. Pursuant to the ruling of the appellate
court, the Province of Cebu executed on June 17, 1994 a deed of absolute sale over Lot 1029
in favor of petitioners. Thereafter, Transfer Certificate of Title (TCT) No. 129306 was issued in
the name of petitioners and Crispina Lagcao.3
After acquiring title, petitioners tried to take possession of the lot only to discover that it was
already occupied by squatters. Thus, on June 15, 1997, petitioners instituted ejectment
proceedings against the squatters. The Municipal Trial Court in Cities (MTCC), Branch 1, Cebu
City, rendered a decision on April 1, 1998, ordering the squatters to vacate the lot. On
appeal, the RTC affirmed the MTCCs decision and issued a writ of execution and order of
demolition.1avvphi1
However, when the demolition order was about to be implemented, Cebu City Mayor Alvin
Garcia wrote two letters4 to the MTCC, requesting the deferment of the demolition on the
ground that the City was still looking for a relocation site for the squatters.
Issue: Is Cebu City ordinance no. 1843 violative of substantive due process
Ruling: Yes, Ordinance No. 1843 to be constitutionally infirm for being violative of the
petitioners right to due process.

It should also be noted that, as early as 1998, petitioners had already obtained a favorable
judgment of eviction against the illegal occupants of their property. The judgment in this
ejectment case had, in fact, already attained finality, with a writ of execution and an order of
demolition. But Mayor Garcia requested the trial court to suspend the demolition on the
pretext that the City was still searching for a relocation site for the squatters. However,
instead of looking for a relocation site during the suspension period, the city council
suddenly enacted Ordinance No. 1843 for the expropriation of petitioners lot. It was trickery
and bad faith, pure and simple. The unconscionable manner in which the questioned
ordinance was passed clearly indicated that respondent City transgressed the Constitution,
RA 7160 and RA 7279