G.R. No. 91649 May 14, 1991 ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ, petitioners, vs. PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent. H.B. Basco & Associates for petitioners. Valmonte Law Offices collaborating counsel for petitioners. Aguirre, Laborte and Capule for respondent PAGCOR. PARAS, J.: A TV ad proudly announces: "The new PAGCOR — responding through responsible gaming." But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter — PD 1869, because it is allegedly contrary to morals, public policy and order, and because — xxx B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy; What was the reason behind the enactment of P.D. 1869? P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." (2) Income and other taxes. — a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority (Section 13 [2]). Their contention stated hereinabove is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445). (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus: Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked. Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant . . . Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus: G.R. No. 93252 August 5, 1991 RODOLFO T. GANZON, petitioner, vs. THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, respondents. G.R. No. 93746 August 5,1991 MARY ANN RIVERA ARTIEDA, petitioner, vs. HON. LUIS SANTOS, in his capacity as Secretary of the Department of Local Government, NICANOR M. PATRICIO, in his capacity as Chief, Legal Service of the Department of Local Government and SALVADOR CABALUNA JR., respondents. G.R. No. 95245 August 5,1991 RODOLFO T. GANZON, petitioner, vs. THE HONORABLE COURT OF APPEALS and LUIS T. SANTOS, in his capacity as the Secretary of the Department of Local Government, respondents. Nicolas P. Sonalan for petitioner in 93252. Romeo A. Gerochi for petitioner in 93746. Eugenio Original for petitioner in 95245. SARMIENTO, J.: The petitioners take common issue on the power of the President (acting through the Secretary of Local Government), to suspend and/or remove local officials. Xxx It is the considered opinion of the Court that notwithstanding the change in the constitutional language, the charter did not intend to divest the legislature of its right or the President of her prerogative as conferred by existing legislation to provide administrative sanctions against local officials. The Constitution did not, however, intend, for the sake of local autonomy, to deprive the legislature of all authority over municipal corporations, in particular, concerning discipline. Xxx "local autonomy" is not instantly self-executing, but subject to, among other things, the passage of a local government code,27 a local tax law,28 income distribution legislation,29 and a national representation law,30 and measures31 designed to realize autonomy at the local level. As the Constitution itself declares, local autonomy means "a more responsive and accountable local government structure instituted through a system of decentralization. Magtajas vs Pryce Properties, 234 SCRA 255 Facts: The controversy centers on the establishment of a casino in Cagayan de Oro City by the Philippine Amusement and Gaming Corporation (PAGCOR) in collaboration with Pryce Properties Corporation, Inc. This decision was met with widespread opposition from various sectors of the city, including civic organizations, religious groups, women’s groups, the youth, the mayor, and city legislators. Responding to the public outcry, the Sangguniang Panlungsod of Cagayan de Oro City enacted Ordinance No. 3353 on December 7, 1992, prohibiting the issuance and renewal of business permits to establishments for casino operations. This was followed by a more stringent Ordinance No. 3375-93 on January 4, 1993, outrightly prohibiting casino operations within the city limits. Pryce Properties and PAGCOR challenged the validity of these ordinances before the Court of Appeals, which ruled in their favor, declaring the ordinances invalid and enjoining their enforcement. The City of Cagayan de Oro and its mayor then elevated the case to the Supreme Court via a petition for review under Rule 45 of the Rules of Court, questioning the appellate court’s rulings and asserting the city’s authority to enact the ordinances under the Local Government Code. ### Issues: 1. Whether the Sangguniang Panlungsod of Cagayan de Oro has the authority under the Local Government Code to prohibit the establishment and operation of a PAGCOR casino within its territorial jurisdiction. 2. Whether the prohibited “gambling and other prohibited games of chance” under Section 458 of the Local Government Code strictly pertain only to illegal gambling. 3. Whether the questioned ordinances effectively annul PD 1869 (PAGCOR Charter) and are thus invalid. 4. If the ordinances are discriminatory against casinos while being partial to other forms of gambling like cockfighting. 5. The reasonableness and consistency of the ordinances with the statutory powers and policies of the state. ### Court’s Decision: The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. It clarified that the Local Government Code empowered local governments to regulate, but not prohibit, gambling activities expressly allowed by law, such as those under PD 1869 which established PAGCOR. The Court distinguished between regulation and outright prohibition, indicating that the challenged ordinances ventured into the territory of prohibition which overstepped the bounds of authority granted to local governments. It underscored the principle that ordinances should not contravene existing statutes like PD 1869. The Court also highlighted that PAGCOR’s charter was not repealed or otherwise rendered ineffective by the Local Government Code. ### Doctrine: The Supreme Court upheld the principle that local government units (LGUs) have the authority to regulate but not prohibit activities that are expressly allowed by national law. In cases where a local ordinance conflicts with a statute, the statute prevails. Furthermore, the power of PAGCOR to centralize and regulate casinos as granted by PD 1869 remains unimpaired by the Local Government Code. ### Class Notes: – LGUs may enact ordinances to promote general welfare but must not contravene national laws or statutes. – The principle of local autonomy does not grant LGUs the power to prohibit activities expressly allowed by law. – PD 1869 (PAGCOR Charter) grants PAGCOR the authority to operate and regulate casinos, a power that cannot be negated by local ordinances. – Principles involved: non-contravention of statutes by local ordinances, legislative power of LGUs under the Local Government Code, and the specific regulatory powers of PAGCOR. ### Historical Background: The case highlights the tension between the national government’s interest in utilizing gambling for revenue generation through PAGCOR and local governments’ attempts to exercise their autonomy to regulate or prohibit gambling within their jurisdictions pursuant to the Local Government Code of 1991, which aimed at decentralizing powers to LGUs, promoting local autonomy, and enhancing local governance. Magtajas vs Pryce Properties, Inc. [234 SCRA 255] Posted by Pius Morados on November 6, 2011 (Municipal Corporation – Tests of a Valid Ordinance) Facts: The Philippine Amusement and Gaming Corporation (PAGCOR) is a corporation created directly by P.D. 1869 to help centralize and regulate all games of chance, including casinos on land and sea within the territorial jurisdiction of the Philippines. In Basco v. Philippine Amusements and Gaming Corporation, this Court sustained the constitutionality of the decree and even cited the benefits of the entity to the national economy as the third highest revenue-earner in the government. PAGCOR decided to expand its operations to Cagayan de Oro City by leasing a portion of a building belonging to Pryce Properties Corporation Inc. for its casino. On December 7, 1992, Sangguniang Panlungsod of CDO enacted ordinance 3353, prohibiting the issuance of business permit and cancelling existing business permit to any establishment for the using and allowing to be used its premises or portion thereof for the operation of a casino. On January 4, 1993, it enacted Ordinance 3375-93, prohibiting the operation of casino and providing penalty for violation therefore. Pryce assailed the ordinances before the CA, where it was joined by PAGCOR as intervenor. The Court found the ordinances invalid and issued the writ prayed for to prohibit their enforcement. CDO City and its mayor filed a petition for review under Rules of Court with the Supreme Court. Issue: WON the Sangguniang Panlungsod can prohibit the establishment of casino operated by PAGCOR through an ordinance or resolution. Held: No. Gambling is not illegal per se. While it is generally considered inimical to the interests of the people, there is nothing in the Constitution categorically proscribing or penalizing gambling or, for that matter, even mentioning it at all. In the exercise of its own discretion, the Congress may prohibit gambling altogether or allow it without limitation or it may prohibit some forms of gambling and allow others for whatever reasons it may consider sufficient. Under Sec. 458 of the Local Government Code, local government units are authorized to prevent or suppress, among others, “gambling and other prohibited games of chance.” Ordinances should not contravene a statue as municipal governments are only agents of the national government. Local councils exercise only delegated powers conferred on them by Congress as the national lawmaking body. The delegate cannot be superior to the principal or exercise powers higher than those of the latter. The tests of a valid ordinance are well established. A long line of decisions has held that to be valid, an ordinance must conform to the following substantive requirements: 1) It must not contravene the constitution or any statute. 2) It must not be unfair or oppressive. 3) It must not be partial or discriminatory. 4) It must not prohibit but may regulate trade. 5) It must be general and consistent with public policy. 6) It must not be unreasonable. Pimentel vs Aguirre 336 SCRA 201 Title: Pimentel Jr. vs. Aguirre: A Landmark Case on Local Government Autonomy and the President’s Power of Supervision Facts: The case centers around Administrative Order No. 372 issued by President Fidel V. Ramos on December 27, 1997, as a fiscal management measure to address the economic challenges posed by the peso’s depreciation. The order directed all government agencies, including local government units (LGUs), to identify and implement measures to reduce their expenditures by at least 25% of their authorized regular appropriations for non-personal services items. Further, Section 4 of AO 372 mandated the withholding of 10% of the internal revenue allotments (IRAs) due to LGUs, pending evaluation by the Development Budget Coordinating Committee on the fiscal situation. This provision was later amended by President Joseph Estrada through AO No. 43, reducing the withholding to 5% and ordering its release before December 25, 1998. Subsequently, Senator Aquilino Pimentel Jr. filed a petition for Certiorari and Prohibition, challenging the legality of specific sections of AO 372. The Supreme Court’s jurisdiction was invoked directly due to the significance and urgency of the issues. The petitioner argued that President’s directives overstepped the constitutional limits of his supervisory authority over LGUs and infringed upon the autonomy and fiscal independence guaranteed to them by the law, particularly the Local Government Code and the Constitution. Issues: 1. Whether the President, by issuing AO 372, exercised control rather than supervision over LGUs in violation of their fiscal autonomy. 2. Whether the withholding of 10% (later amended to 5%) of LGUs’ IRAs under Section 4 of AO 372 is lawful. Court’s Decision: The Philippine Supreme Court held that while Section 1 of AO 372, which advised LGUs to reduce their expenditures by 25%, was within the President’s supervisory powers and merely advisory in character, Section 4, which ordered the withholding of a portion of the IRAs, was unconstitutional. The Court distinguished the power of supervision from the power of control, finding that the President could not interfere with the autonomy of LGUs by withholding funds due to them, as this action contravened the constitutional guarantee of automatic release of LGUs’ shares in the national internal revenue. Doctrine: The decision reiterates the doctrine that the President of the Philippines exercises general supervision, not control, over local government units. Additionally, it underscores the principle of local autonomy, particularly in fiscal matters, against unwarranted interference by the national government, ensuring the automatic release of LGUs’ shares in national taxes. Class Notes: – The Philippine Constitution distinguishes between supervision and control, with the President having only supervision over LGUs. – Local Government Code secures fiscal autonomy for LGUs, including the automatic release of their IRA shares without any lien or holdback by the national government. – Supervision entails overseeing the performance of duties and ensuring compliance with law, without the authority to coerce or make decisions for the supervised entity. Historical Background: The context of this case springs from the 1997 Asian Financial Crisis, which significantly affected the Philippine economy. AO 372 was issued in response to economic difficulties, aiming for fiscal consolidation across all levels of government. However, its application to LGUs raised significant constitutional issues regarding local autonomy and the scope of presidential supervision, leading to this landmark decision by the Supreme Court that reinforced the fiscal independence of local governments and refined the boundaries of executive supervision over LGUs, rooted in earlier legal and constitutional principles.