LEYNES vs. COA (Public Corporation)

G.R. No. 143596               December 11, 2003

JUDGE TOMAS C. LEYNES, petitioner,

vs.

THE COMMISSION ON AUDIT (COA), HON. GREGORIA S. ONG, DIRECTOR, COMMISSION ON AUDIT and HON. SALVACION DALISAY, PROVINCIAL AUDITOR, respondents

FACTS:

Petitioner Judge Tomas C. Leynes who was formerly assigned to the Municipality of Naujan, Oriental Mindoro as the sole presiding judge of the Municipal Trial Court thereof. As such, his salary and representation and transportation allowance (RATA) were drawn from the budget of the Supreme Court. In addition, petitioner received a monthly allowance of ₱944 from the local funds of the Municipality of Naujan starting 1984.

On March 15, 1993, the Sangguniang Bayan of Naujan, through Resolution No. 057, sought the opinion of the Provincial Auditor and the Provincial Budget Officer regarding any budgetary limitation on the grant of a monthly allowance by the municipality to petitioner judge, the Sangguniang Bayan unanimously approved Resolution No. 101 increasing petitioner judge’s monthly allowance from ₱944 to ₱1,600 (an increase of ₱656) starting May 1993. By virtue of said resolution, the municipal government (the Municipal Mayor and the Sangguniang Bayan) approved a supplemental budget which was likewise approved by the Sangguniang Panlalawigan and the Office of Provincial Budget and Management of Oriental Mindoro. In 1994, the Municipal Government of Naujan again provided for petitioner judge’s ₱1,600 monthly allowance in its annual budget which was again approved by the Sangguniang Panlalawigan and the Office of Provincial Budget and Management of Oriental Mindoro.

On February 17, 1994, Provincial Auditor Salvacion M. Dalisay sent a letter to the Municipal Mayor and the Sangguniang Bayan of Naujan directing them to stop the payment of the ₱1,600 monthly allowance or RATA to petitioner judge and to require the immediate refund of the amounts previously paid to the latter. She opined that the Municipality of Naujan could not grant RATA to petitioner judge in addition to the RATA the latter was already receiving from the Supreme Court. 

No one shall be allowed to collect RATA from more than one source.

Petitioner judge appealed to COA Regional Director Gregoria S. Ong who, however, upheld the opinion of Provincial Auditor Dalisay.

Petitioner judge appealed the unfavorable resolution of the Regional Director to the Commission on Audit. 

On September 14, 1999, the COA issued its decision affirming the resolution of Regional Director Gregoria S. Ong.

Respondent Commission on Audit opposes the grant by the Municipality of Naujan of the ₱1,600 monthly allowance to petitioner Judge Leynes for the reason that the municipality could not grant RATA to judges in addition to the RATA already received from the Supreme Court.

Petitioner judge filed a motion for reconsideration of the above decision but it was denied by the Commission. Hence instant petition.

ISSUE:

WHETHER OR NOT THE DEPARTMENT OF BUDGET AND MANAGEMENT (DBM) CAN, BY THE ISSUANCE OF BUDGET CIRCULARS, RESTRICT A MUNICIPAL GOVERNMENT FROM EXERCISING ITS GIVEN LEGISLATIVE POWERS OF PROVIDING ADDITIONAL ALLOWANCES AND OTHER BENEFITS TO NATIONAL EMPLOYEES STATIONED OR ASSIGNED TO THEIR MUNICIPALITY FOR AS LONG AS THEIR FINANCES SO ALLOW.

RULING:

No, Respondent COA erred in opposing the grant of the ₱1,600 monthly allowance by the Municipality of Naujan to petitioner Judge Leynes.

In this case, RA 7160 (the LGC of 1991) is a special law which exclusively deals with local government units (LGUs), outlining their powers and functions in consonance with the constitutionally mandated policy of local autonomy. 

To rule against the power of LGUs to grant allowances to judges as what respondent COA would like us to do will subvert the principle of local autonomy zealously guaranteed by the Constitution. The Local Government Code of 1991 was specially promulgated by Congress to ensure the autonomy of local governments as mandated by the Constitution. By upholding, in the present case, the power of LGUs to grant allowances to judges and leaving to their discretion the amount of allowances they may want to grant, depending on the availability of local funds, we ensure the genuine and meaningful local autonomy of LGUs.

By prohibiting LGUs from granting allowances similar to the allowances granted by the national government, Section 3 (e) of LBC No. 53 practically prohibits LGUs from granting allowances to judges and, in effect, totally nullifies their statutory power to do so. Being unduly restrictive therefore of the statutory power of LGUs to grant allowances to judges and being violative of their autonomy guaranteed by the Constitution, Section 3, paragraph (e) of LBC No. 53 is hereby declared null and void.

In sum, we hereby affirm the power of the Municipality of Naujan to grant the questioned allowance to petitioner Judge Leynes in accordance with the constitutionally mandated policy of local autonomy and the provisions of the Local Government Code of 1991. We also sustain the validity of Resolution No. 101, Series of 1993, of the Sangguniang Bayan of Naujan for being in accordance with the law.

WHEREFORE, the petition is hereby GRANTED.

LEE vs. CA (Commercial Law Review)

G.R. No. 117913               February 1, 2002

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO, petitioners,

vs.

COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

FACTS:

President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans and other banking facilities and accommodations, such as, but not limited to discount loans, letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications.

MICO availed of the some loans and as security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed a Deed of Real Estate Mortgage over its properties.

Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a Surety Agreement in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom.

Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom extrajudicially foreclosed MICO’s real estate mortgage and sold the said mortgaged properties in a public auction.

PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila, which was raffled to Branch 55, alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors.

Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void.

The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. 

The Court of Appeals reversed the ruling of the trial court. Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals but this was denied. 

Hence instant petition for review.

ISSUE:

Whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO,

RULING:

Yes. Citing Section 24 of the Negotiable Instruments Law which provides that "Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value", the Court of Appeals said that while the subject promissory notes and letters of credit issued by the PBCom made no mention of delivery of cash, it is presumed that said negotiable instruments were issued for valuable consideration. 

Documents presented have not merely created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor of respondent PBCom. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was given in a contract. Hence, petitioners should have presented credible evidence to rebut that presumption as well as the evidence presented by private respondent PBCom. The letters of credit show that the pertinent materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the account of MICO. On the other hand, aside from their bare denials petitioners did not present sufficient and competent evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of evidence, apart from its bare denials, to support its allegation that the loan transactions, real estate mortgage, letters of credit and trust receipts were issued allegedly without any consideration.

Expansion in the use of letters of credit was a natural development in commercial banking. Parties to a commercial letter of credit include (a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is usually the buyer’s bank which actually issues the letter of credit, (d) the notifying bank which is the correspondent bank of the opening bank through which it advises the beneficiary of the letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening bank.

In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented sufficient documentary and testimonial evidence that proved by preponderance of evidence its subject collection case against the defendants who are the petitioners herein. In view of all the foregoing, the Court of Appeals committed no reversible error in its appealed Decision.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled, "Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co," is AFFIRMED in toto.

BANK OF AMERICA, NT & SA, vs. COURT OF APPEALS (Commercial Law Review)

G.R. No. 105395 December 10, 1993

BANK OF AMERICA, NT & SA, petitioners,

vs.

COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE, respondents.

FACTS:

Petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd., of Thailand to cover the sale of plastic ropes and "agricultural files," with the petitioner as advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary.

Inter-Resin sought to make a partial availment under the letter of credit by submitting to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. 

Finally, after being satisfied that Inter-Resin's documents conformed with the conditions expressed in the letter of credit, Bank of America issued in favor of Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-Resin.

Bank of America wrote Bank of Ayudhya advising the latter of the availment under the letter of credit and sought the corresponding reimbursement therefor.

Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the second shipment of goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit fraudulent, Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. Bank of America kept Inter-Resin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well as the police and customs personnel of Thailand, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal who found no prima facie evidence to warrant prosecution.

On appeal, the Court of Appeals  sustained the trial court; hence, this present recourse by petitioner Bank of America.

ISSUE:

Whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary" 

RULING:

In letter of credit, there would at least be three (3) parties: (a) the buyer, who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller,  who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment.

The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank  may be utilized to convey to the seller the existence of the credit; or, of a confirming bank  which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank, which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, to have the draft discounted.

NO, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that liability. 

It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft.

No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us."  This written reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P.

As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. 

In fine, we hold that —

First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as a notifying bank and did not assume the responsibility of a confirming bank; and

Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the letter of credit which has been disowned by the alleged issuer bank.

WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund to petitioner Bank of America NT & SA.

BANK OF THE PHILIPPINE ISLANDS vs. DE RENY FABRIC INDUSTRIES, INC. (Commercial Law Review).

G.R. No. L-24821 October 16, 1970

BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.

DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES, defendants-appellants.

FACTS:

On four (4) different occasions, the De Reny Fabric Industries, Inc., a Philippine corporation through its co-defendants-applied to the Bank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods described in the covering L/C applications as "dyestuffs of various colors" from its American supplier, the J.B. Distributing Company. 

All the applications of the corporation were approved, and the corresponding Commercial L/C Agreements were executed pursuant to banking procedures. Under these agreements, the aforementioned officers of the corporation bound themselves personally as joint and solidary debtors with the corporation. Pursuant to banking regulations then in force, the corporation delivered to the Bank peso marginal deposits as each letter of credit was opened.

The Bank issued irrevocable commercial letters of credit addressed to its correspondent banks in the United States, 

Consequently, the J.B. Distributing Company drew upon, presented to and negotiated with these banks, its sight drafts covering the amounts of the merchandise ostensibly being exported by it, together with clean bills of lading, and collected the full value of the drafts up to the amounts appearing in the L/Cs as above indicated. These correspondent banks then debited the account of the Bank of the Philippine Islands with them up to the full value of the drafts presented by the J.B. Distributing Company, plus commission thereon, and, thereafter, endorsed and forwarded all documents to the Bank of the Philippine Islands.

In the meantime, as each shipment (covered by the above-mentioned letters of credit) arrived in the Philippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank amounting, in the aggregate, to P90,000. Further payments were, however, subsequently discontinued by the corporation when it became established, as a result of a chemical test conducted by the National Science Development Board, that the goods that arrived in Manila were colored chalks instead of dyestuffs.

The corporation also refused to take possession of these goods, and for this reason, the Bank filed a complaint then the lower court rendered its decision ordering the corporation and its co-defendants (the herein appellants) to pay to the plaintiff-appellee.

ISSUE:

Whether it is the duty of the foreign correspondent banks of the Bank of the Philippine Islands to take the necessary precaution to insure that the goods shipped under the covering L/Cs conformed with the item appearing therein.

RULING:

No. Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants agreed that the Bank shall not be responsible for the "existence, character, quality, quantity, conditions, packing, value, or delivery of the property purporting to be represented by documents; for any difference in character, quality, quantity, condition, or value of the property from that expressed in documents," or for "partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in the Credit," as well as "for any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves [purchasers] or any of us." Having agreed to these terms, the appellants have, therefore, no recourse but to comply with their covenant. 2

But even without the stipulation recited above, the appellants cannot shift the burden of loss to the Bank on account of the violation by their vendor of its prestation.

It was uncontrovertibly proven by the Bank during the trial below that banks, in providing financing in international business transactions such as those entered into by the appellants, do not deal with the property to be exported or shipped to the importer, but deal only with documents. The Bank introduced in evidence a provision contained in the "Uniform Customs and Practices for Commercial Documentary Credits Fixed for the Thirteenth Congress of International Chamber of Commerce," to which the Philippines is a signatory nation. Article 10 thereof provides: .

In documentary credit operations, all parties concerned deal in documents and not in goods. — Payment, negotiation or acceptance against documents in accordance with the terms and conditions of a credit by a Bank authorized to do so binds the party giving the authorization to take up the documents and reimburse the Bank making the payment, negotiation or acceptance.

The existence of a custom in international banking and financing circles negating any duty on the part of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants are bound by this established usage. They were, after all, the ones who tapped the facilities afforded by the Bank in order to engage in international business.

ACCORDINGLY, the judgment a quo is affirmed, at defendants-appellants' cost. 

TRANSFIELD PHILIPPINES, INC. vs. LUZON HYDRO CORPORATION (Commercial Law Review)

[G.R. NO. 146717 : November 22, 2004]

TRANSFIELD PHILIPPINES, INC., Petitioner, v. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, Respondents.

FACTS:

Transfield Philippines Inc. and Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract whereby Transfield, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station. Transfield was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project.

The Turnkey Contract provides that: (1) the target completion date of the Project shall be on  June 2000, or such later date as may be agreed upon between Transfield and LHC or otherwise determined in accordance with the Turnkey Contract; and (2) Transfield is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself. Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract.

To secure performance of Transfield's obligation on or before the target completion date, or such time for completion as may be determined by the parties' agreement, Transfield opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank) and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC) each in the amount of US$8,988,907.00.9

In the course of the construction of the project, Transfield sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition.

The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999. This was followed by another Request for Arbitration, this time filed by petitioner before the International Chamber of Commerce (ICC) on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date.

Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract, transfield in two separate letters both dated 10 August 2000 advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages.

LHC sent notice to transfield that pursuant to Clause 8.214 of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of transfield, however, both banks informed transfield that they would pay on the Securities if and when LHC calls on them.

Transfield filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati. Transfield sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. 

The RTC issued a temporary restraining order for appropriate proceedings, Later, the RTC, denied petitioner's application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent contract" 

Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction. It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated damages.

The Court of Appeals issued a temporary restraining order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in any manner disposing of the Securities.

However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.

On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial court's decision.

Hence instant Petition for Review.

ISSUE:

WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY.

RULING:

The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the bank's customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often negotiable.

In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits.

Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank.

Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.

In a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with. Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction.

Notably, the independence doctrine works to the benefit of both the issuing bank and the beneficiary.

WHEREFORE, the instant petition is DENIED.

BATANGAS CATV, INC. vs. CA (Public Corporation)

G.R. No. 138810             September 29, 2004

BATANGAS CATV, INC., petitioner,

vs.

THE COURT OF APPEALS, THE BATANGAS CITY SANGGUNIANG PANLUNGSOD and BATANGAS CITY MAYOR, respondents.

FACTS:

Respondent Sangguniang Panlungsod enacted Resolution No. 2107 granting petitioner a permit to construct, install, and operate a CATV system in Batangas City. Section 8 of the Resolution provides that petitioner is authorized to charge its subscribers the maximum rates specified therein, "provided, however, that any increase of rates shall be subject to the approval of the Sangguniang Panlungsod."8

Sometime in November 1993, petitioner increased its subscriber rates from ₱88.00 to ₱180.00 per month. As a result, respondent Mayor wrote petitioner a letter9 threatening to cancel its permit unless it secures the approval of respondent Sangguniang Panlungsod, pursuant to Resolution No. 210.

Petitioner then filed with the RTC, Branch 7, Batangas City, a petition for injunction docketed as Civil Case No. 4254. It alleged that respondent Sangguniang Panlungsod has no authority to regulate the subscriber rates charged by CATV operators because under Executive Order No. 205, the National Telecommunications Commission (NTC) has the sole authority to regulate the CATV operation in the Philippines.

On October 29, 1995, the trial court decided in favor of petitioner.

Unsatisfied, respondents elevated the case to the Court of Appeals, docketed as CA-G.R. CV No. 52361.

On February 12, 1999, the Appellate Court reversed and set aside the trial court’s Decision.

Petitioner filed a motion for reconsideration but was denied.

Hence, the instant petition for review on certiorari

ISSUE:

WHETHER THE THE COURT OF APPEALS ERRED IN HOLDING THAT THE GENERAL WELFARE CLAUSE of the LOCAL GOVERNMENT CODE AUTHORIZES RESPONDENT SANGGUNIANG PANLUNGSOD TO EXERCISE THE REGULATORY FUNCTION SOLELY LODGED WITH THE NATIONAL TELECOMMUNICATIONS COMMISSION UNDER EXECUTIVE ORDER NO. 205, INCLUDING THE AUTHORITY TO FIX AND/OR APPROVE THE SERVICE RATES OF CATV OPERATORS; 

RULING:

There is no dispute that respondent Sangguniang Panlungsod, like other local legislative bodies, has been empowered to enact ordinances and approve resolutions under the general welfare clause of B.P. Blg. 337, the Local Government Code of 1983. That it continues to posses such power is clear under the new law, R.A. No. 7160 (the Local Government Code of 1991). Section 16 thereof provides:

"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 others, 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."

In addition, Section 458 of the same Code specifically mandates:

"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, x x x:"

The general welfare clause is the delegation in statutory form of the police power of the State to LGUs.28 Through this, LGUs may prescribe regulations to protect the lives, health, and property of their constituents and maintain peace and order within their respective territorial jurisdictions. Accordingly, we have upheld enactments providing, for instance, the regulation of gambling,29 the occupation of rig drivers,30 the installation and operation of pinball machines,31 the maintenance and operation of cockpits,32 the exhumation and transfer of corpses from public burial grounds,33 and the operation of hotels, motels, and lodging houses34 as valid exercises by local legislatures of the police power under the general welfare clause.

Like any other enterprise, CATV operation maybe regulated by LGUs under the general welfare clause. This is primarily because the CATV system commits the indiscretion of crossing public properties. (It uses public properties in order to reach subscribers.) The physical realities of constructing CATV system – the use of public streets, rights of ways, the founding of structures, and the parceling of large regions – allow an LGU a certain degree of regulation over CATV operators.35 This is the same regulation that it exercises over all private enterprises within its territory.


Speaking for the Court in the leading case of United States vs. Abendan,37 Justice Moreland said: "An ordinance enacted by virtue of the general welfare clause is valid, unless it contravenes the fundamental law of the Philippine Islands, or an Act of the Philippine Legislature, or unless it is against public policy, or is unreasonable, oppressive, partial, discriminating, or in derogation of common right." In De la Cruz vs. Paraz,38 we laid the general rule "that ordinances passed by virtue of the implied power found in the general welfare clause must be reasonable, consonant with the general powers and purposes of the corporation, and not inconsistent with the laws or policy of the State."

The apparent defect in Resolution No. 210 is that it contravenes E.O. No. 205 and E.O. No. 436 insofar as it permits respondent Sangguniang Panlungsod to usurp a power exclusively vested in the NTC, i.e., the power to fix the subscriber rates charged by CATV operators. As earlier discussed, the fixing of subscriber rates is definitely one of the matters within the NTC’s exclusive domain.

But, while we recognize the LGUs’ power under the general welfare clause, we cannot sustain Resolution No. 210. We are convinced that respondents strayed from the well recognized limits of its power. The flaws in Resolution No. 210 are: (1) it violates the mandate of existing laws and (2) it violates the State’s deregulation policy over the CATV industry.
Since E.O. No. 205, a general law, mandates that the regulation of CATV operations shall be exercised by the NTC, an LGU cannot enact an ordinance or approve a resolution in violation of the said law.

It is a fundamental principle that municipal ordinances are inferior in status and subordinate to the laws of the state. An ordinance in conflict with a state law of general character and statewide application is universally held to be invalid.42 The principle is frequently expressed in the declaration that municipal authorities, under a general grant of power, cannot adopt ordinances which infringe the spirit of a state law or repugnant to the general policy of the state.43 In every power to pass ordinances given to a municipality, there is an implied restriction that the ordinances shall be consistent with the general law.44 In the language of Justice Isagani Cruz (ret.), this Court, in Magtajas vs. Pryce Properties Corp., Inc.,45 ruled that:

"The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal governments are only agents of the national government. Local councils exercise only delegated legislative 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. It is a heresy to suggest that the local government units can undo the acts of Congress, from which they have derived their power in the first place, and negate by mere ordinance the mandate of the statute.

‘Municipal corporations owe their origin to, and derive their powers and rights wholly from the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is some constitutional limitation on the right, the legislature might, by a single act, and if we can suppose it capable of so great a folly and so great a wrong, sweep from existence all of the municipal corporations in the State, and the corporation could not prevent it. We know of no limitation on the right so far as to the corporation themselves are concerned. They are, so to phrase it, the mere tenants at will of the legislature.’

LGUs must recognize that technical matters concerning CATV operation are within the exclusive regulatory power of the NTC.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals dated February 12, 1999 as well as its Resolution dated May 26, 1999 in CA-G.R. CV No. 52461, are hereby REVERSED. The RTC Decision in Civil Case No. 4254 is AFFIRMED.

JOHN HAY PEOPLES ALTERNATIVE COALITION vs. LIM (Public Corporation)

G. R. No. 119775               October 24, 2003

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIÑO FOUNDATION INC., CENTER FOR ALTERNATIVE SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB," BETTY I. STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS "BA-YAY," EDILBERTO T. CLARAVALL, CARMEN CAROMINA, LILIA G. YARANON, DIANE MONDOC, Petitioners,

vs.

VICTOR LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, Respondents.

FACTS:

By the present petition for prohibition, mandamus and declaratory relief with prayer for a temporary restraining order (TRO) and/or writ of preliminary injunction, petitioners assail, in the main, the constitutionality of Presidential Proclamation No. 420, Series of 1994, "CREATING AND DESIGNATING a portion of the area covered by the former Camp John [Hay] as THE JOHN HAY Special Economic Zone pursuant to R.A. No. 7227."

R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE USES, CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise known as the "Bases Conversion and Development Act of 1992," 

As noted in its title, R.A. No. 7227 created public respondent Bases Conversion and Development Authority2 (BCDA), vesting it with powers pertaining to the multifarious aspects of carrying out the ultimate objective of utilizing the base areas in accordance with the declared government policy.

And R.A. No. 7227 expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay.

By Resolution7 of September 29, 1993, the Sangguniang Panlungsod of Baguio City (the sanggunian) officially asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or coverage of any plan or program for its development.

On July 5, 1994 then President Ramos issued Proclamation No. 420,16 the title of which was earlier indicated, which established a SEZ on a portion of Camp John Hay.

The issuance of Proclamation No. 420 spawned the present petition for prohibition, mandamus and declaratory relief which was filed on April 25, 1995 challenging, in the main, its constitutionality or validity as well as the legality of the Memorandum of Agreement and Joint Venture Agreement between public respondent BCDA and private respondents Tuntex and AsiaWorld.

ISSUE:

PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THE POWERS AND INTERFERES WITH THE AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.

RULING:

With respect to the final issue raised by petitioners -- that Proclamation No. 420 is unconstitutional for being in derogation of Baguio City's local autonomy, objection is specifically mounted against Section 2 thereof in which BCDA is set up as the governing body of the John Hay SEZ.49

Petitioners argue that there is no authority of the President to subject the John Hay SEZ to the governance of BCDA which has just oversight functions over SEZ; and that to do so is to diminish the city government's power over an area within its jurisdiction, hence, Proclamation No. 420 unlawfully gives the President power of control over the local government instead of just mere supervision.

Petitioners' arguments are bereft of merit. Under R.A. No. 7227, the BCDA is entrusted with, among other things, the following purpose:50

x x x

(a) To own, hold and/or administer the military reservations of John Hay Air Station, Wallace Air Station, O'Donnell Transmitter Station, San Miguel Naval Communications Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those portions of Metro Manila Camps which may be transferred to it by the President;

x x x (Underscoring supplied)

With such broad rights of ownership and administration vested in BCDA over Camp John Hay, BCDA virtually has control over it, subject to certain limitations provided for by law. By designating BCDA as the governing agency of the John Hay SEZ, the law merely emphasizes or reiterates the statutory role or functions it has been granted.

The unconstitutionality of the grant of tax immunity and financial incentives as contained in the second sentence of Section 3 of Proclamation No. 420 notwithstanding, the entire assailed proclamation cannot be declared unconstitutional, the other parts thereof not being repugnant to law or the Constitution. The delineation and declaration of a portion of the area covered by Camp John Hay as a SEZ was well within the powers of the President to do so by means of a proclamation.51 The requisite prior concurrence by the Baguio City government to such proclamation appears to have been given in the form of a duly enacted resolution by the sanggunian. The other provisions of the proclamation had been proven to be consistent with R.A. No. 7227.

Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if separable from the invalid, may stand and be enforced.52 This Court finds that the other provisions in Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay SEZ are separable from the invalid second sentence of Section 3 thereof, hence they stand.

WHEREFORE, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL AND VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision.

Proclamation No. 420, without the invalidated portion, remains valid and effective.

JUDGE DADOLE vs. COA (Public Corporation)

G.R. No. 125350           December 3, 2002

HON. RTC JUDGES MERCEDES G. DADOLE (Executive Judge, Branch 28),

ULRIC R. CAÑETE (Presiding Judge, Branch 25),

AGUSTINE R. VESTIL (Presiding Judge, Branch 56),

HON. MTC JUDGES TEMISTOCLES M. BOHOLST (Presiding Judge, Branch 1),

VICENTE C. FANILAG (Judge Designate, Branch 2),

and WILFREDO A. DAGATAN (Presiding Judge, Branch 3), all of Mandaue City, petitioners,

vs.

COMMISSION ON AUDIT, respondent.

FACTS:

RTC and MTC judges of Mandaue City started receiving monthly allowances of P1,260 each through the yearly appropriation ordinance enacted by the Sangguniang Panlungsod of the said city. In 1991, Mandaue City increased the amount to P1,500 for each judge.

On March 15, 1994, the Department of Budget and Management (DBM) issued the disputed Local Budget Circular No. 55 (LBC 55) which provided that:

"x x x           x x x           x x x

2.3.2. In the light of the authority granted to the local government units under the Local Government Code to provide for additional allowances and other benefits to national government officials and employees assigned in their locality, such additional allowances in the form of honorarium at rates not exceeding P1,000.00 in provinces and cities and P700.00 in municipalities may be granted subject to conditions.

Acting on the DBM directive, the Mandaue City Auditor issued notices of disallowance to herein petitioners, namely, Honorable RTC Judges Mercedes G. Dadole, Ulric R. Cañete, Agustin R. Vestil, Honorable MTC Judges Temistocles M. Boholst, Vicente C. Fanilag and Wilfredo A. Dagatan, in excess of the amount authorized by LBC 55. Beginning October, 1994, the additional monthly allowances of the petitioner judges were reduced to P1,000 each. They were also asked to reimburse the amount they received in excess of P1,000 from April to September, 1994.

The petitioner judges filed with the Office of the City Auditor a protest against the notices of disallowance. But the City Auditor treated the protest as a motion for reconsideration and indorsed the same to the COA Regional Office No. 7. In turn, the COA Regional Office referred the motion to the head office with a recommendation that the same be denied.

Hence instant petition.

Petitioner judges argue that LBC 55 is void for infringing on the local autonomy of Mandaue City by dictating a uniform amount that a local government unit can disburse as additional allowances to judges stationed therein. They maintain that said circular is not supported by any law and therefore goes beyond the supervisory powers of the President. 

ISSUE:

Whether or not the City Ordinance of Mandaue which provides a higher rate of allowances to the appellant judges may prevail over that fixed by the DBM under Local Budget Circular No. 55 dated March 15, 1994.

RULING:

Yes. In Taule v. Santos, 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," we said.

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. 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. 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 President's 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.

Clearly then, the President can only interfere in the affairs and activities of a local government unit if he or she finds that the latter has acted contrary to law. This is the scope of the President's supervisory powers over local government units. Hence, the President or any of his or her alter egos cannot interfere in local affairs as long as the concerned local government unit acts within the parameters of the law and the Constitution. Any directive therefore by the President or any of his or her alter egos seeking to alter the wisdom of a law-conforming judgment on local affairs of a local government unit is a patent nullity because it violates the principle of local autonomy and separation of powers of the executive and legislative departments in governing municipal corporations.

WHEREFORE, the petition is hereby GRANTED, and the assailed decision and resolution of the Commission on Audit are hereby set aside.

PPC vs MUNICIPALITY OF PILILIA RIZAL (Public Corporation)

G.R. No. 90776             June 3, 1991

PHILIPPINE PETROLEUM CORPORATION, petitioner,

vs.

MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR NICOMEDES F. PATENIA, respondent.

Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.

FACTS:

Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the Municipality of Pililla, Rizal. 

The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973, directed to all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 76).

Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code.

Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit.

The trial court rendered a decision against the petitioner.

PPC moved for reconsideration of the decision, but this was denied by the lower court.

ISSUE:

Whether or not petitioner PPC is liable to pay business tax under municipal tax ordinance.

RULING:

(a) YES. The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments. Thus:

Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy . . .

(b) But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products.

Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails.

(c) There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is valid especially Section 9 (A) which according to the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law.

MAGTAJAS vs. PRYCE PROPERTIES (Public Corporation)

G.R. No. 111097 July 20, 1994

MAYOR PABLO P. MAGTAJAS & THE CITY OF CAGAYAN DE ORO, petitioners,

vs.

PRYCE PROPERTIES CORPORATION, INC. & PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondents.

Aquilino G. Pimentel, Jr. and Associates for petitioners.

R.R. Torralba & Associates for private respondent.

CRUZ, J.:

FACTS:
PAGCOR decided to expand its operations to Cagayan de Oro City. To this end, it leased a portion of a building belonging to Pryce Properties Corporation, Inc., one of the herein private respondents, renovated and equipped the same.

The reaction of the Sangguniang Panlungsod of Cagayan de Oro City was swift and hostile. It opposed such through enactment of rdinances (Ordinance No. 3355 and Ordinance No. 3375-93) prohibiting the operation of casino.

Pryce assailed the ordinances before the Court of Appeals, where it was joined by PAGCOR as intervenor and supplemental petitioner. Their challenge succeeded.

The Court of Appeals declared the ordinances invalid and issued the writ prayed for to prohibit their enforcement.  Reconsideration of this decision was denied.

Cagayan de Oro City and its mayor are now before us in this petition for review under Rule 45 of the Rules of Court. They aver that the respondent Court of Appeals erred in holding their decisions.

ISSUE:
Whether Ordinance No. 3355 and Ordinance No. 3375-93 as enacted by the Sangguniang Panlungsod of Cagayan de Oro City are valid.


RULING:
No, while it is true that Cagayan de Oro City, like other local political subdivisions, is empowered to enact ordinances for the purposes indicated in the Local Government Code. It is expressly vested with the police power under what is known as the General Welfare Clause.

We find that the ordinances violate P.D. 1869, which has the character and force of a statute, as well as the public policy expressed in the decree allowing the playing of certain games of chance despite the prohibition of gambling in general.

The rationale of the requirement that the ordinances should not contravene a statute is obvious. Municipal governments are only agents of the national government. Local councils exercise only delegated legislative 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. It is a heresy to suggest that the local government units can undo the acts of Congress, from which they have derived their power in the first place, and negate by mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights wholly from the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so it may destroy. As it may destroy, it may abridge and control. Unless there is some constitutional limitation on the right, the legislature might, by a single act, and if we can suppose it capable of so great a folly and so great a wrong, sweep from existence all of the municipal corporations in the State, and the corporation could not prevent it. We know of no limitation on the right so far as to the corporation themselves are concerned. They are, so to phrase it, the mere tenants at will of the legislature.

This basic relationship between the national legislature and the local government units has not been enfeebled by the new provisions in the Constitution strengthening the policy of local autonomy. Without meaning to detract from that policy, we here confirm that Congress retains control of the local government units although in significantly reduced degree now than under our previous Constitutions. The power to create still includes the power to destroy. The power to grant still includes the power to withhold or recall. True, there are certain notable innovations in the Constitution, like the direct conferment on the local government units of the power to tax, which cannot now be withdrawn by mere statute. By and large, however, the national legislature is still the principal of the local government units, which cannot defy its will or modify or violate it.

Casino gambling is authorized by P.D. 1869. This decree has the status of a statute that cannot be amended or nullified by a mere ordinance. Hence, it was not competent for the Sangguniang Panlungsod of Cagayan de Oro City to enact Ordinance No. 3353 prohibiting the use of buildings for the operation of a casino and Ordinance No. 3375-93 prohibiting the operation of casinos. For all their praiseworthy motives, these ordinances are contrary to P.D. 1869 and the public policy announced therein and are therefore ultra vires and void.

WHEREFORE, the petition is DENIED and the challenged decision of the respondent Court of Appeals is AFFIRMED, with costs against the petitioners.

LLDA vs. CA (Public Corporation)

G.R. No. 110120 March 16, 1994

LAGUNA LAKE DEVELOPMENT AUTHORITY, Petitioner, v. COURT OF APPEALS, HON. MANUEL JN. SERAPIO, Presiding Judge RTC, Branch 127, Caloocan City, HON. MACARIO A. ASISTIO, JR., City Mayor of Caloocan and/or THE CITY GOVERNMENT OF CALOOCAN, Respondents.

FACTS:

The Task Force Camarin Dumpsite of Our Lady of Lourdes Parish, Barangay Camarin, Caloocan City, filed a letter-complaint with the Laguna Lake Development Authority or LLDA seeking to stop the operation of the 8.6-hectare open garbage dumpsite in Tala Estate, Barangay Camarin, Caloocan City due to its harmful effects on the health of the residents and the possibility of pollution of the water content of the surrounding area.

The LLDA Legal and Technical personnel found that the City Government of Caloocan was maintaining an open dumpsite at the Camarin area without first securing an Environmental Compliance Certificate (ECC) from the Environmental Management Bureau (EMB) of the Department of Environment and Natural Resources, as required under Presidential Decree No. 1586, 4and clearance from LLDA as required under Republic Act No. 4850, 5as amended by Presidential Decree No. 813 and Executive Order No. 927, series of 1983.

City Government of Caloocan filed with the Regional Trial Court of Caloocan City an action for the declaration of nullity of the cease and desist order with prayer for the issuance of writ of injunction, docketed as Civil Case No. C-15598. In its complaint, the City Government of Caloocan sought to be declared as the sole authority empowered to promote the health and safety and enhance the right of the people in Caloocan City to a balanced ecology within its territorial jurisdiction. 9chanrobles virtual law library

On September 25, 1992, the Executive Judge of the Regional Trial Court of Caloocan City issued a temporary restraining order enjoining the LLDA from enforcing its cease and desist order. 

LLDA, for its part, filed on October 2, 1992 motion to dismiss.

October 16, 1992, Judge Manuel Jn. Serapio, after hearing the motion to dismiss, issued in the consolidated cases an order denying LLDA's motion to dismiss and granting the issuance of a writ of preliminary injunction enjoining the LLDA, its agent and all persons acting for and on its behalf, from enforcing or implementing its cease and desist order which prevents plaintiff City of Caloocan from dumping garbage at the Camarin dumpsite during the pendency of this case and/or until further orders of the court.

On November 5, 1992, the LLDA filed a petition for certiorari, prohibition and injunction with prayer for restraining order with the Supreme Court, seeking to nullify the aforesaid order issued by the Regional Trial Court, Branch 127 of Caloocan City denying its motion to dismiss.

ISSUE:

Does the LLDA have the power and authority to issue a "cease and desist" order under Republic Act No. 4850 and its amendatory laws, on the basis of the facts presented in this case, enjoining the dumping of garbage in Tala Estate, Barangay Camarin, Caloocan City.

RULING:

The irresistible answer is in the affirmative.

The cease and desist order issued by the LLDA requiring the City Government of Caloocan to stop dumping its garbage in the Camarin open dumpsite found by the LLDA to have been done in violation of Republic Act No. 4850, as amended, and other relevant environment laws, cannot be stamped as an unauthorized exercise by the LLDA of injunctive powers. By its express terms, Republic Act No. 4850, as amended by P.D. No. 813 and Executive Order No. 927, series of 1983, authorizes the LLDA to "make, alter or modify order requiring the discontinuance or pollution." (Emphasis supplied) Section 4, par. (d) explicitly authorizes the LLDA to make whatever order may be necessary in the exercise of its jurisdiction.

To be sure, the LLDA was not expressly conferred the power "to issue and ex-parte cease and desist order" in a language, as suggested by the City Government of Caloocan, similar to the express grant to the defunct National Pollution Control Commission under Section 7 of P.D. No. 984 which, admittedly was not reproduced in P.D. No. 813 and E.O. No. 927, series of 1983. However, it would be a mistake to draw therefrom the conclusion that there is a denial of the power to issue the order in question when the power "to make, alter or modify orders requiring the discontinuance of pollution" is expressly and clearly bestowed upon the LLDA by Executive Order No. 927, series of 1983.

The issuance, therefore, of the cease and desist order by the LLDA, as a practical matter of procedure under the circumstances of the case, is a proper exercise of its power and authority under its charter and its amendatory laws. Had the cease and desist order issued by the LLDA been complied with by the City Government of Caloocan as it did in the first instance, no further legal steps would have been necessary.

WHEREFORE, the petition is GRANTED. The temporary restraining order issued by the Court on July 19, 1993 enjoining the City Mayor of Caloocan and/or the City Government of Caloocan from dumping their garbage at the Tala Estate, Barangay Camarin, Caloocan City is hereby made permanent.

• 
  

SAN JUAN vs. CIVIL SERVICE COMMISSION (Public Corporation)

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.

FACTS:

REYNALDO R. SAN JUAN, petitioner, is the Governor of province of Rizal.

The position of Provincial Budget Officer (PBO) for the province of Rizal was left vacant by its former holder.

Governor Reynaldo informed Director Reynaldo Abella of the Department of Budget and Management (DBM) Region IV that Ms. Dalisay Santos assumed office as Acting PBO pursuant to a Memorandum issued by him 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.

However, Director Abella of Region IV recommended the appointment of Cecilia Almajose as PBO of Rizal According to Abella, Cecilia was the most qualified since she was the only Certified Public Accountant among the contenders.

The DBM Undersecretary Nazario S. Cabuquit, Jr. signed the appointment papers of Cecilia as PBO of Rizal upon the aforestated recommendation of Abella.

Governor Reynaldo reiterated his request for the appointment of Dalisay Santos to the contested position.

DBM Regional Director Agripino G. Galvez wrote to Gov. Reynaldo 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.

Gov. Reynaldo after having been informed of the Cecilia'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.

DBM, through its Director of the Bureau of Legal & Legislative Affairs (BLLA) Virgilio A. Afurung, issued a Memorandum ruling that the Gov. Reynaldo letter-protest is not meritorious.

Gov. Reynaldo moved for a reconsideration of the BLLA ruling but was denied.

Thus he wrote public respondent CSC protesting against the appointment of the private respondent and reiterating his position regarding the matter.

ISSUE:
WHETHER THE CSC ERRED IN UPHOLDING THE APPOINTMENT BY DBM ASSISTANT SECRETARY CABUQUIT OF CECILIA ALMAJOSE AS PBO OF RIZAL.

RULING:
YES.

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 Malacañang and the other beneficial to local autonomy, the scales must be weighed in favor of autonomy.

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.

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."

On the other hand, Control "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."

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.

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 Department of Budget and Management is ordered to appoint the Provincial Budget Officer of Rizal from among qualified nominees submitted by the Provincial Governor.

MACARIOLA vs. ASUNCION (Commercial Law Review)

A.M. No. 133-J May 31, 1982

BERNARDITA R. MACARIOLA, complainant,

vs.

HONORABLE ELIAS B. ASUNCION, Judge of the Court of First Instance of Leyte, respondent.

FACTS:

Bernardita R. Macariola charged respondent Judge Elias B. Asuncion of the Court of First Instance of Leyte, now Associate Justice of the Court of Appeals, with "acts unbecoming a judge."

This was culled from the complaint for partition filed by Sinforosa R. Bales, Luz R. Bakunawa, Anacorita Reyes, Ruperto Reyes, Adela Reyes, and Priscilla Reyes, plaintiffs, against Bernardita R. Macariola, defendant, concerning the properties left by the deceased Francisco Reyes, the common father of the plaintiff and defendant.

A project of partition was submitted to Judge Asuncion. Notwithstanding the fact that the project of partition was not signed by the parties themselves but only by the respective counsel of plaintiffs and defendant, Judge Asuncion approved it in his Order dated October 23, 1963

One of the properties mentioned in the project of partition was Lot 1184 or rather one-half thereof with an area of 15,162.5 sq. meters. This lot, which according to the decision was the exclusive property of the deceased Francisco Reyes, was adjudicated in said project of partition to the plaintiffs Luz, Anacorita Ruperto, Adela, and Priscilla all surnamed Reyes in equal shares, and when the project of partition was approved by the trial court the adjudicatees caused Lot 1184 to be subdivided into five lots denominated as Lot 1184-A to 1184-E inclusive (Exh. V).

Lot 1184-D was conveyed to Enriqueta D. Anota, a stenographer in Judge Asuncion's court (Exhs. F, F-1 and V-1), while Lot 1184-E which had an area of 2,172.5556 sq. meters was sold on July 31, 1964 to Dr. Arcadio Galapon (Exh. 2) who was issued transfer certificate of title No. 2338 of the Register of Deeds of the city of Tacloban (Exh. 12).

On March 6, 1965, Dr. Arcadio Galapon and his wife Sold a portion of Lot 1184-E with an area of around 1,306 sq. meters to Judge Asuncion and his wife, Victoria S. Asuncion (Exh. 11), which particular portion was declared by the latter for taxation purposes (Exh. F).

On August 31, 1966, spouses Asuncion and spouses Galapon conveyed their respective shares and interest in Lot 1184-E to "The Traders Manufacturing and Fishing Industries Inc." (Exit 15 & 16). At the time of said sale the stockholders of the corporation were Dominador Arigpa Tan, Humilia Jalandoni Tan, Jaime Arigpa Tan, Judge Asuncion, and the latter's wife, Victoria S. Asuncion, with Judge Asuncion as the President and Mrs. Asuncion as the secretary (Exhs. E-4 to E-7). The Articles of Incorporation of "The Traders Manufacturing and Fishing Industries, Inc." which we shall henceforth refer to as "TRADERS" were registered with the Securities and Exchange Commission only on January 9, 1967 (Exh. E) [pp. 378-385, rec.].

Complainant Bernardita R. Macariola filed on August 9, 1968 the instant complaint dated August 6, 1968 alleging four causes of action, one of which was he violated Article 14, paragraphs I and 5 of the Code of Commerce, Section 3, paragraph H, of R.A. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, Section 12, Rule XVIII of the Civil Service Rules, and Canon 25 of the Canons of Judicial Ethics, by associating himself with the Traders Manufacturing and Fishing Industries, Inc., as a stockholder and a ranking officer while he was a judge of the Court of First Instance of Leyte;

ISSUE:

Whether the Judge violated Code of Commerce Article 14.

RULING:

With respect to the second cause of action, the complainant alleged that respondent Judge violated paragraphs 1 and 5, Article 14 of the Code of Commerce when he associated himself with the Traders Manufacturing and Fishing Industries, Inc. as a stockholder and a ranking officer, said corporation having been organized to engage in business. Said Article provides that:

Article 14 — The following cannot engage in commerce, either in person or by proxy, nor can they hold any office or have any direct, administrative, or financial intervention in commercial or industrial companies within the limits of the districts, provinces, or towns in which they discharge their duties:

1. Justices of the Supreme Court, judges and officials of the department of public prosecution in active service. This provision shall not be applicable to mayors, municipal judges, and municipal prosecuting attorneys nor to those who by chance are temporarily discharging the functions of judge or prosecuting attorney.

xxx xxx xxx

5. Those who by virtue of laws or special provisions may not engage in commerce in a determinate territory.

It is Our considered view that although the aforestated provision is incorporated in the Code of Commerce which is part of the commercial laws of the Philippines, it, however, partakes of the nature of a political law as it regulates the relationship between the government and certain public officers and employees, like justices and judges.

 Article 14 of the Code of Commerce partakes more of the nature of an administrative law because it regulates the conduct of certain public officers and employees with respect to engaging in business: hence, political in essence.

Upon the transfer of sovereignty from Spain to the United States and later on from the United States to the Republic of the Philippines, Article 14 of this Code of Commerce must be deemed to have been abrogated because where there is change of sovereignty, the political laws of the former sovereign, whether compatible or not with those of the new sovereign, are automatically abrogated, unless they are expressly re-enacted by affirmative act of the new sovereign.

Article 14 of the Code of Commerce which prohibits judges from engaging in commerce is, as heretofore stated, deemed abrogated automatically upon the transfer of sovereignty from Spain to America, because it is political in nature.