Corporate Powers of Local Government Units (LGUs)

The Local Government Code of 1991 (Republic Act No. 7160) governs the corporate powers of Local Government Units (LGUs) in the Philippines. These powers enable LGUs to act as legal entities, manage local affairs, and enter into legal contracts. The purpose of conferring corporate powers is to ensure that LGUs, as public corporations, can act autonomously to perform their local functions effectively and efficiently. Below is a detailed discussion on the corporate powers of LGUs under the Local Government Code:

1. Nature of LGUs as Public Corporations

LGUs are considered public corporations, which are legal entities created by law to perform governmental and proprietary functions. As such, they possess a dual character:

Governmental Functions: These pertain to the exercise of the State's sovereign powers delegated to the LGUs, such as police power, eminent domain, and taxation.
Proprietary Functions: These refer to functions that relate to activities traditionally considered commercial, similar to those performed by private corporations.

2. Corporate Powers of LGUs

Under Section 22 of the Local Government Code, LGUs have three specific corporate powers:

A. To Have Continuous Succession in Its Corporate Name

An LGU, as a public corporation, exists perpetually in law and continues to operate in its corporate name regardless of changes in leadership. This continuity is necessary to ensure that the LGU can perform its duties and obligations uninterrupted, including entering into contracts and acquiring assets.

B. To Sue and Be Sued

This corporate power allows LGUs to initiate legal actions and defend themselves in court. LGUs can sue any party in their corporate capacity, and they can be sued for obligations they incur. This ensures accountability and the legal capacity to enforce rights and obligations.

Scope of Liability: LGUs may be held liable for damages arising from their proprietary functions, but they generally enjoy immunity from suit concerning their governmental functions unless there is a waiver or legislative approval.
Restrictions: The power to sue and be sued is limited by statutory provisions, including compliance with procedural requirements such as obtaining prior approval from the Sangguniang Bayan, Panlungsod, or Panlalawigan before entering into or settling disputes.

C. To Enter into Contracts

LGUs, through their executive officials (i.e., mayor or governor), may enter into contracts necessary for the proper exercise of their functions. This includes contracts for the provision of services, acquisition of property, or establishment of partnerships.

Limitations: Contracts must be in line with the LGU’s powers and functions under the law, and they must comply with procedural requirements such as:
- Authorization by the Sangguniang (council) concerned;
- Compliance with public bidding requirements for procurement and disposal of property, as provided under Republic Act No. 9184 (Government Procurement Reform Act);
- Adherence to budgetary limits and funding availability.
Ultra Vires Acts: Any contract entered into by an LGU that is outside its lawful powers or without the requisite authorization is considered ultra vires and unenforceable.

3. Exercise of Corporate Powers by the Local Chief Executive

The local chief executive, such as the governor, city mayor, or municipal mayor, represents the LGU in its corporate dealings. However, the Local Government Code provides that certain acts by the local chief executive require prior authorization from the Sangguniang or legislative council, such as:

Entering into long-term contracts;
Loan agreements;
Sale or lease of LGU properties.

The local chief executive is also responsible for the proper execution of contracts and ensuring that obligations are fulfilled.

4. Limitations on the Exercise of Corporate Powers

The exercise of corporate powers by LGUs is not absolute and is subject to several limitations and controls, including:

Fiscal Autonomy: While LGUs enjoy a degree of fiscal autonomy, they must ensure that expenditures do not exceed available resources. Contractual obligations must comply with the approved local budget.
Public Accountability: As public entities, LGUs are subject to laws on transparency, accountability, and good governance. This includes the prohibition on contracts manifesting conflict of interest, such as those involving relatives of public officials.
Compliance with National Laws: LGUs must operate within the bounds of national laws and policies. For example, their taxing and regulatory powers cannot contravene national statutes or infringe upon the powers of national agencies.

5. LGUs as Proprietary Entities

In their capacity as public corporations, LGUs may engage in proprietary activities. These activities are undertaken primarily for profit and do not directly relate to the exercise of governmental functions. For example:

Establishment of Economic Enterprises: LGUs can establish local economic enterprises (e.g., public markets, slaughterhouses, and transportation systems) to generate revenue for the local government.
Public-Private Partnerships (PPPs): LGUs are allowed to enter into joint ventures or partnerships with private entities for the development of public infrastructure projects or other economic endeavors. These partnerships are governed by Republic Act No. 6957 (as amended by Republic Act No. 7718), also known as the Build-Operate-Transfer (BOT) Law.

6. Corporate Powers of Barangays

Even the smallest political subdivisions, such as barangays, have corporate powers. However, due to their size and limited resources, barangays have more restricted powers compared to cities, municipalities, and provinces. Their corporate powers are usually limited to:

Providing basic services and facilities;
Constructing and maintaining barangay infrastructure projects;
Collecting minimal fees for certain services.

Barangays also have the power to enter into contracts and sue and be sued, though these contracts are typically limited in scope and value due to budgetary constraints.

7. Key Jurisprudence on LGU Corporate Powers

Several landmark Supreme Court rulings have shaped the understanding and application of LGU corporate powers:

Pimentel v. Aguirre (2000): The Court ruled that LGUs enjoy a measure of fiscal autonomy and that any executive act that unduly interferes with such autonomy, such as the imposition of restrictions on their corporate powers without legal basis, is unconstitutional.
Municipality of San Narciso v. Mendez (1995): The Supreme Court held that an LGU cannot disavow its contracts or obligations by simply claiming it was acting in its governmental capacity. LGUs are liable for obligations that arise from proprietary functions.
Municipality of Bacoor v. IAC (1985): This case highlights the distinction between governmental and proprietary functions, holding that LGUs may be held liable for damages arising from their proprietary acts but may enjoy immunity for governmental acts, unless waived by law.

8. Conclusion

The corporate powers of LGUs are essential in enabling them to function autonomously in managing local affairs. These powers are exercised within the framework of the Local Government Code and are subject to certain limitations, such as fiscal responsibility, transparency, and accountability. LGUs must balance their dual roles as public corporations performing governmental functions and as entities engaging in proprietary activities to promote the welfare and development of their local communities.