Classification of Corporations

Private v. Public Corporation

1. Boy Scout of the Phil. V. COA, June 7, 2011. 2011
https://lawphil.net/judjuris/juri2011/jun2011/gr_177131_2011.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 177131               June 7, 2011

BOY SCOUTS OF THE PHILIPPINES, Petitioner, 

vs.
COMMISSION ON AUDIT, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject
matter of this controversy that reached us via petition for prohibition 1 filed by the BSP under Rule 65 of the 1997
Rules of Court. In this petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002
Decision,2 its February 21, 2007 Resolution,3 as well as all other issuances arising therefrom, and that all of the
foregoing be rendered null and void. 4

Antecedent Facts and Background of the Case

This case arose when the COA issued Resolution No. 99-011 5 on August 19, 1999 ("the COA Resolution"), with the
subject "Defining the Commission’s policy with respect to the audit of the Boy Scouts of the Philippines." In its
whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under
Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy
Scouts of the Philippines v. National Labor Relations Commission, 6 the Supreme Court ruled that the BSP, as
constituted under its charter, was a "government-controlled corporation within the meaning of Article IX(B)(2)(1) of
the Constitution"; and that "the BSP is appropriately regarded as a government instrumentality under the 1987
Administrative Code."7 The COA Resolution also cited its constitutional mandate under Section 2(1), Article IX (D).
Finally, the COA Resolution reads:

NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED, AS
IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in
accordance with generally accepted auditing standards, and express an opinion on whether the financial statements
which include the Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial
position and results of operations.

xxxx

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall
be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and
Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by
employing the team audit approach.8 (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter 9 dated November 26, 1999 signed by the BSP
National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the Commission’s jurisdiction on the
following grounds:

1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations
Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is
anchored on the "substantial Government participation" in the National Executive Board of the BSP. It is to
be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as
amended by Presidential Decree 460.

However, may we humbly refer you to Republic Act No. 7278 which amended the BSP’s charter after the cited case
was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National
Executive Board of the BSP.

The said RA virtually eliminated the "substantial government participation" in the National Executive Board by
removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of
Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines,
as Chief Scout, over the members of the said Board.

The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the case’s conclusion
that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs.
NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized as
stock or non-stock corporations which the BSP, under its present charter, is not.

Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides
is that the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to
time donate and contribute funds to the BSP.

xxxx

Also the BSP respectfully believes that the BSP is not "appropriately regarded as a government instrumentality
under the 1987 Administrative Code" as stated in the COA resolution. As defined by Section 2(10) of the said code,
instrumentality refers to "any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter."

The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x

It may be argued also that the BSP is not an "agency" of the Government. The 1987 Administrative Code, merely
referred the BSP as an "attached agency" of the DECS as distinguished from an actual line agency of departments
that are included in the National Budget. The BSP believes that an "attached agency" is different from an "agency."
Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the
Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or
local government or distinct unit therein.

Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive
department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal
subdivision or unit of any department (Section 2[8], Administrative Code). 10

Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P.
Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout
Executive of Calbayog City.11

In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished
the BSP with a copy of the Memorandum13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General
Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the
Court’s ruling in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law
eliminated the substantial government participation in the selection of members of the National Executive Board of
the BSP. The Memorandum further provides:

Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3)
grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the
BSP’s purposes and functions which has a public aspect and the statutory designation of the BSP as a "public
corporation". These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as
evidenced by the amendment made relative to BSP’s purposes stated in Section 3 of R.A. No. 7278.

On the argument that BSP is not appropriately regarded as "a government instrumentality" and "agency" of the
government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the
BSP case when it declared that BSP is regarded as, both a "government-controlled corporation with an original
charter" and as an "instrumentality" of the Government. Likewise, it is not disputed that the Administrative Code of
1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does
not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA
audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power,
authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original
charters.14

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with
the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the
Philippines.15

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP
that a preliminary survey of its organizational structure, operations and accounting system/records shall be
conducted on November 21 to 22, 2000. 16

Upon the BSP’s request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with
Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA
in its questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for
reconsideration but this was likewise denied under its questioned Resolution. 17

This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining
order against the COA.

The Issue

As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COA’s audit
jurisdiction.

The Parties’ Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for
purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National
Labor Relations Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP
employees.18

While the BSP concedes that its functions do relate to those that the government might otherwise completely
assume on its own, it avers that this alone was not determinative of the COA’s audit jurisdiction over it. The BSP
further avers that the Court in Boy Scouts of the Philippines v. National Labor Relations Commission "simply stated
x x x that in respect of functions, the BSP is akin to a public corporation" but this was not synonymous to holding
that the BSP is a government corporation or entity subject to audit by the COA. 19
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of
the Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the
government has ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court
therein must be taken only within the context of that case; that the Court had categorically found that its assets were
acquired from the Boy Scouts of America and not from the Philippine government, and that its operations are
financed chiefly from membership dues of the Boy Scouts themselves as well as from property rentals; and that "the
BSP may correctly be characterized as non-governmental, and hence, beyond the audit jurisdiction of the COA." It
further claims that the designation by the Court of the BSP as a government agency or instrumentality is mere obiter
dictum.20

The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of BSP has come to be
overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of
Education, Culture and Sports."21 It cites Philippine Airlines Inc. v. Commission on Audit 22 wherein the Court declared
that, "PAL, having ceased to be a government-owned or controlled corporation is no longer under the audit
jurisdiction of the COA."23 Claiming that the amendments introduced by Republic Act No. 7278 constituted a
supervening event that changed the BSP’s corporate identity in the same way that the government’s privatization
program changed PAL’s, the BSP makes the case that the government no longer has control over it; thus, the COA
cannot use the Boy Scouts of the Philippines v. National Labor Relations Commission as its basis for the exercise of
its jurisdiction and the issuance of COA Resolution No. 99-011. 24 The BSP further claims as follows:

It is not far-fetched, in fact, to concede that BSP’s funds and assets are private in character. Unlike ordinary public
corporations, such as provinces, cities, and municipalities, or government-owned and controlled corporations, such
as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not
derived from any government grant. For its operations, BSP is not dependent in any way on any government
appropriation; as a matter of fact, it has not even been included in any appropriations for the government. To be
sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP
received, receives or continues to receive assets and funds from any agency of the government. The foregoing
simply point to the private nature of the funds and assets of petitioner BSP.

xxxx

As stated in petitioner’s third argument, BSP’s assets and funds were never acquired from the government. Its
operations are not in any way financed by the government, as BSP has never been included in any appropriations
act for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a
user of government property or funds; nor have properties of the government been held in trust by BSP. This is
precisely the reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x. 25

To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation;
neither is it an instrumentality, agency, or subdivision of the government.

In its Comment,26 the COA argues as follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and
whose functions relate to the fostering of public virtues of citizenship and patriotism and the general
improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the
BSP was created indubitably prove that it is a government agency.

2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the
audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987
Constitution.

3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled
corporation and government instrumentality.27

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism,
courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and
discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA
contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less
than the law which created it had designated it as a public corporation and its statutory mandate embraces
performance of sovereign functions.28

The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission
even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an
attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the
government; and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of
1987, embraced under the term government instrumentality. 29

The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject
to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes, 30 wherein the
Court held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640,
designates it as one. Furthermore, the COA quotes the Court as saying in that case:

In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign
functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the
public sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and
love of country.

xxxx

Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have
been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private
corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed
that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of
VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The
erroneous application of the law by public officers does not bar a subsequent correct application of the
law.31(Citations omitted.)

The COA points out that the government is not precluded by law from extending financial support to the BSP and
adding to its funds, and that "as a government instrumentality which continues to perform a vital function imbued
with public interest and reflective of the government’s policy to stimulate patriotic sentiments and love of country, the
BSP’s funds from whatever source are public funds, and can be used solely for public purpose in pursuance of the
provisions of Republic Act No. [7278]." 32

The COA claims that the fact that it has not yet audited the BSP’s funds may not bar the subsequent exercise of its
audit jurisdiction.

The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory designation as a "public corporation" and
the public character of its purpose and functions are not determinative of the COA’s audit jurisdiction; reiterating its
stand that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because
the aspect of government ownership and control has been removed by Republic Act No. 7278; and concluding that
the funds and property that it either owned or held in trust are not public funds and are not subject to the COA’s
audit jurisdiction.

Thereafter, considering the BSP’s claim that it is a private corporation, this Court, in a Resolution 34 dated July 20,
2010, required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective
comments on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional.

In compliance with the Court’s resolution, the parties filed their respective Comments.
In its Comment35 dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111,
as amended, is not determinative of the resolution of the present controversy on the COA’s audit jurisdiction over
petitioner, and in fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial
inquiry may be made, as set forth in Commissioner of Internal Revenue v. Court of Tax Appeals, 36 have not been
fully met.37 Moreover, the COA maintains that behind every law lies the presumption of constitutionality. 38 The COA
likewise argues that contrary to the BSP’s position, repeal of a law by implication is not favored. 39 Lastly, the COA
claims that there was no violation of Section 16, Article XII of the 1987 Constitution with the creation or declaration
of the BSP as a government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit,40 the COA further alleges:

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is created by the State as the latter’s own agency or
instrumentality to help it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. x x x.41

For its part, in its Comment42 filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No.
111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the
Constitution. The BSP alleges that "while [it] is not a public corporation within the purview of COA’s audit jurisdiction,
neither is it a private corporation created by special law falling within the ambit of the constitutional prohibition x x
x."43 The BSP further alleges:

Petitioner’s purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus:

xxxx

A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth,
specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner
redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that
petitioner’s purpose and functions are more of a public rather than a private character. Petitioner caters to all boys
who wish to join the organization without any distinction. It does not limit its membership to a particular class of
boys. Petitioner’s members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to become model citizens
and outstanding leaders of the country.44

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of
the audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before
an entity may be subject of said jurisdiction. 45 It avers that it merely stated in its Reply that the withdrawal of
government control is akin to privatization, but it does not necessarily mean that petitioner is a private
corporation.46The BSP claims that it has a unique characteristic which "neither classifies it as a purely public nor a
purely private corporation";47 that it is not a quasi-public corporation; and that it may belong to a different class
altogether.48

The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of
Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the
enactment of the BSP’s charter,49 as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily
benefit from its creation are not its officers but its entire membership consisting of boys being trained in scoutcraft all
over the country; (iii) it caters to all boys who wish to join the organization without any distinction; and (iv) it does not
limit its membership to a particular class or group of boys. Thus, the enactment of its charter confers no special
privilege to particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to
certain groups to the prejudice of others or of the interest of the country, which are the evils sought to be prevented
by the constitutional provision involved. 50

Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear
showing of its repugnancy to the Constitution.51

The Ruling of the Court

After looking at the legislative history of its amended charter and carefully studying the applicable laws and the
arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COA’s audit
jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create a Public
Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes" created the
BSP as a "public corporation" to serve the following public interest or purpose:

Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other
agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided
substantial changes in the BSP organizational structure. Pertinent provisions are quoted below:

Section II. Section 5 of the said Act is also amended to read as follows:

The governing body of the said corporation shall consist of a National Executive Board composed of (a) the
President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the
Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional
Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of
Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary
of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number of
individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of
Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the cultural
minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their
annual meetings, and the Scouts of their respective regions, all members of the National Executive Board shall be
either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head
of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining members, subject to
ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of members of the National
Executive Board necessary to constitute a quorum of the board, which number may be less than a majority of the
whole number of the board. The National Executive Board shall have power to make and to amend the by-laws,
and, by a two-thirds vote of the whole board at a meeting called for this purpose, may authorize and cause to be
executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 "by
strengthening the volunteer and democratic character" of the BSP and reducing government representation in its
governing body, as follows:

Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows:

"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into
contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and
choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal
property by gift, devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the
same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the
regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and
regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and
things, including the establishment of regulations for the election of associates and successors, as may be
necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That
said corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives and
purposes being solely of benevolent character and not for pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other
agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4
shall read as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall consist of a National Executive Board, the members of
which shall be Filipino citizens of good moral character. The Board shall be composed of the following:

"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of
the National Council at its meeting called for this purpose;

"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local
scout councils of the region during its meeting called for this purpose: Provided, That a candidate for
regional chairman need not be the chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;

"(d) The National President of the Girl Scouts of the Philippines;

"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout
delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called
for this purpose, to represent the boy scout membership;

"(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called
for this purpose;

"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be
elected by the members of the National Executive Board referred to in the immediately preceding
paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National
Executive Board which shall be held immediately after the meeting of the National Council wherein the
twelve (12) regular members and the one (1) charter member were elected.

xxxx

"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by
the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign
government or by private, entities and individuals shall be expended by the National Executive Board in pursuance
of this Act.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code

There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted
under Republic Act No. 7278, falls under the second classification. Article 44 reads:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose created by law; their
personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases
supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article
45 of the Civil Code, which provides:

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws
creating or recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the provisions of this Code
concerning partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State
policy declared in Article II, Section 13 of the Constitution, which reads:

ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their
physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism,
and encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional
mandate, comes within the class of "public corporations" defined by paragraph 2, Article 44 of the Civil Code and
governed by the law which creates it, pursuant to Article 45 of the same Code.

The BSP’s Classification Under the Administrative Code of 1987

The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the
Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative
Code of 1987, which states:

TITLE VI – EDUCATION, CULTURE AND SPORTS

Chapter 8 – Attached Agencies
SEC. 20. Attached Agencies. – The following agencies are hereby attached to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the department is defined in the Administrative Code of
1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 – ADMINISTRATIVE RELATIONSHIP

SEC. 38. Definition of Administrative Relationship. – Unless otherwise expressly stated in the Code or in other laws
defining the special relationships of particular agencies, administrative relationships shall be categorized and
defined as follows:

xxxx

(3) Attachment. – (a) This refers to the lateral relationship between the department or its equivalent and the
attached agency or corporation for purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing board of the attached agency or corporation,
either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the
attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of
programs and projects; and having the department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework for the internal policies of the attached corporation
or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is
achieved by having at least one representative of government in its governing board, which in the case of the BSP
is the DECS Secretary. In this sense, the BSP is not under government control or "supervision and control." Still this
characteristic does not make the attached chartered agency a private corporation covered by the constitutional
proscription in question.

Art. XII, Sec. 16 of the Constitution refers to "private corporations" created by government for proprietary or
economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution,
entitled "National Economy and Patrimony." Section 1 of Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the
people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and
agrarian reform, through industries that make full and efficient use of human and natural resources, and which are
competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair
foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned
declaration of state policies and goals which pertains to national economy and patrimony and the interests of the
people in economic development.

Section 16, Article XII deals with "the formation, organization, or regulation of private corporations," 52 which should
be done through a general law enacted by Congress, provides for an exception, that is: if the corporation is
government owned or controlled; its creation is in the interest of the common good; and it meets the test of
economic viability. The rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v.
Commission on Audit,53 in the following manner:

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other citizens. 54 (Emphasis
added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of "private corporations"
by special law. The said constitutional provision should not be construed so as to prohibit the creation of public
corporations or a corporate agency or instrumentality of the government intended to serve a public interest or
purpose, which should not be measured on the basis of economic viability, but according to the public interest or
purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the
Administrative Code of 1987.

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic
Viability

The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not
fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not
all corporations, which are not government owned or controlled, are ipso facto to be considered private corporations
as there exists another distinct class of corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or instrumentalities of the government which are
not subject to the tests of ownership or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative relationship to the government or
any of its Departments or Offices.

Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution
recognizes only two classes of corporations: private corporations under a general law, and government-owned or
controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy
and Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the
constitutional policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces "a totally different species of corporation, which
is neither a private corporation nor a government owned or controlled corporation" and, in so doing, is missing the
fact that the BSP, "which was created as a non-stock, non-profit corporation, can only be either a private corporation
or a government owned or controlled corporation."

Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former
charter, was regarded as both a government owned or controlled corporation with original charter and a "public
corporation." The said case pertinently stated:

While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we
believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a
public corporation" and the substantial participation of the Government in the selection of members of the National
Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX (B) (2) (1) of the Constitution.

We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of
the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the
Government" is defined as referring to any of the various units of the Government including a department, bureau,
office, instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein.
"Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner:

Instrumentality - refers to any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies,
chartered institutions and government-owned or controlled corporations.

The same Code describes a "chartered institution" in the following terms:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives. This term includes the state universities and
colleges, and the monetary authority of the State.

We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative
Code.

It thus appears that the BSP may be regarded as both a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution.
x x x.55(Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct
from private corporations and government owned or controlled corporation is best exemplified by the 1987
Administrative Code cited above, which we quote in part:
Sec. 2. General Terms Defined. – Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx

(10) "Instrumentality" refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned or controlled corporations.

xxxx

(12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law
with functions relating to specific constitutional policies or objectives. This term includes the state universities and
colleges and the monetary authority of the State.

(13) "Government-owned or controlled corporation" refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case
of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-
owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers,
functions and responsibilities with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of
reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases
to be a government instrumentality as it still retains all the characteristics of the latter as an attached agency of the
DECS under the Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the
government is not constitutionally prohibited and is allowed by the above-mentioned provisions of the Civil Code
and the 1987 Administrative Code.

Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations

As presently constituted, the BSP still remains an instrumentality of the national government. It is a public
corporation created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative
Code of 1987. It is not a private corporation which is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing "a new class of public corporation(s)" created by
special charter that will not be subject to the test of economic viability, the constitutional provision will be
circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the
highest law of our land to distinguish between government corporations performing governmental functions and
corporations involved in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized.

MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of the grounds for
organizing government corporations. x x x.

MR. OPLE. Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers’ money through
new equity infusions from the government and what is always invoked is the common good. x x x
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the
market test so that they become viable. x x x.

xxxx

THE PRESIDENT. Commissioner Quesada is recognized.

MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability?

THE PRESIDENT. Please proceed.

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all
benefits, including economic external as well as internal benefits. These are what they call externalities in
economics, so that these are not strictly financial criteria. Economic viability involves what we call economic returns
or benefits of the country that are not quantifiable in financial terms. x x x.

xxxx

MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into
activities engaged in by corporations?

MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved –
that there should be minimum government participation and intervention in the economy.

MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements
when the government would get into corporations. But this time around, we specifically mentioned economic
viability. x x x.

MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment.

MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with
Commissioner Foz. During the past three decades, there had been a proliferation of government corporations, very
few of which have succeeded, and many of which are now earmarked by the Presidential Reorganization
Commission for liquidation because they failed the economic test. x x x.

xxxx

MS. QUESADA. But would not the Commissioner say that the reason why many of the government-owned or
controlled corporations failed to come up with the economic test is due to the management of these corporations,
and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of management of
these corporations which could be remedied, not by eliminating government corporations or the idea of getting into
state-owned corporations, but improving management which our technocrats should be able to do, given the training
and the experience.

MR. OPLE. That is part of the economic viability, Madam President.

MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-
controlled corporations were given to private hands, and that there will be more goods and services that will be
affordable and within the reach of the ordinary citizens?

MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government
corporation in accordance with a special charter given by Congress. However, we are raising the standard a little bit
so that, in the future, corporations established by the government will meet the test of the common good but within
that framework we should also build a certain standard of economic viability.
xxxx

THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for
government-owned or controlled corporations, will these be in the pioneer fields or in places where the private
enterprise does not or cannot enter? Or is this so general that these government corporations can compete with
private corporations organized under a general law?

MR. MONSOD. Madam President, x x x. There are two types of government corporations – those that are involved
in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government
corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed
for corporations that want to go into business. First is for government corporations to first prove that they can be
efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of
activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the
private sector can do better.

MR. PADILLA. There is no question about corporations performing governmental functions or functions that are
impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively,
by private enterprise. It seems that under this provision the only qualification is economic viability and common
good, but shall government, through government-controlled corporations, compete with private enterprise?

MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private
enterprise is engaged in and can do better. x x x.56 (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental
functions, to which category the BSP belongs. The discussion above conveys the constitutional intent not to apply
this constitutional ban on the creation of public corporations where the economic viability test would be irrelevant.
The said test would only apply if the corporation is engaged in some economic activity or business function for the
government.

It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the
consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter,
one of the bill’s sponsors, Senator Joey Lina, described the BSP as follows:

Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should
be given this kind of a privilege – the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of
these two groups, I do not think there are other groups similarly situated.

The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how
huge the population of the young people is, at this point in time, and also considering the importance of having an
organization such as this that will inculcate moral uprightness among the young people, and further considering that
the development of these young people at that tender age of seven to sixteen is vital in the development of the
country producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the
Philippines from this general prohibition against providing tax exemption and privileges. 57

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic
Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress "to return the BSP to the private
sector." It was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic
youth organization, which has been its partner in forming responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278,
Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached
under its original charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the
amendments to its Charter under Presidential Decree No. 460. The BSP suffered from low morale and decrease in
number because the Secretaries of the different departments in government who were too busy to attend the
meetings of the BSP’s National Executive Board ("the Board") sent representatives who, as it turned out, changed
from meeting to meeting. Thus, the Scouting Councils established in the provinces and cities were not in touch with
what was happening on the national level, but they were left to implement what was decided by the Board. 58

A portion of the legislators’ discussion is quoted below to clearly show their intent:

HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout Movement
has done not only for the youth in particular but for the country in general. And that is why, if we look around, our
past and present national leaders, prominent men in the various fields of endeavor, public servants in government
offices, and civic leaders in the communities all over the land, and not only in our country but all over the world many
if not most of them have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this
line, Mr. Chairman, that we would like to have the early approval of this measure if only to pay back what we owe
much to the Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just – the Scouting
Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were
acknowledged as the third biggest scouting organization in the world x x x. And to our mind, Mr. Chairman, this
erratic growth and this decrease in membership [number] is because of the bad policy measures that were
enunciated with the enactment or promulgation by the President before of Presidential Decree No. 460 which we
feel is the culprit of the ills that is flagging the Boy Scout Movement today. And so, this is specifically what we are
attacking, Mr. Chairman, the disenfranchisement of the National Council in the election of the national board. x x x.
And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we
are also confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman,
that we see no impediment towards working together, the Boy Scout of the Philippines officers working together with
the House of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the Boy
Scout Movement. x x x.59 (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the bill, in the Committee on
Government Enterprises:

HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of
the Philippines did not provide for any direct government support by way of appropriation from the national budget to
support the activities of this organization. The point here is, and at the same time they have been subjected to a
governmental intervention, which to their mind has been inimical to the objectives and to the institution per se, that is
why they are seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act
111. Such having been the experience in the hands of government, meaning, there has been negative interference
on their part and inasmuch as their mandate is coming from a legislative fiat, then shouldn’t it be, this rhetorical
question, shouldn’t it be better for this organization to seek a mandate from, let’s say, the government the
Corporation Code of the Philippines and register with the SEC as non-profit non-stock corporation so that
government intervention could be very very minimal. Maybe that’s a rhetorical question, they may or they may not
answer, ano. I don’t know what would be the benefit of a charter or a mandate being provided for by way of
legislation versus a registration with the SEC under the Corporation Code of the Philippines inasmuch as they don’t
get anything from the government anyway insofar as direct funding. In fact, the only thing that they got from
government was intervention in their affairs. Maybe we can solicit some commentary comments from the resource
persons. Incidentally, don’t take that as an objection, I’m not objecting. I’m all for the objectives of these two bills. It
just occurred to me that since you have had very bad experience in the hands of government and you will always be
open to such possible intervention even in the future as long as you have a legislative mandate or your mandate or
your charter coming from legislative action.

xxxx

MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required
to register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of scout
organization. Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the
organization will lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a
complaint in the SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze
the assets of the organization and hamper the operation of the organization. I don’t know, Mr. Chairman, how you
look at it but there could be a danger for anybody filing a complaint against the organization in the SEC and the SEC
might suspend the registration permit of the organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the
SEC because even if you are government corporation, court action may be taken against you in other judicial bodies
because the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first
point that you raised. In effect, what you are saying is that with the legislative mandate creating your charter, in
effect, you have been given some sort of a franchise with this movement.

MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?

MR. ESCUDERO: Yes.

HON. AQUINO: Well, that’s very well taken so I will proceed with other issues, Mr. Chairman. x x x. 60 (Emphases
added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP
Board, this was done to more strongly promote the BSP’s objectives, which were not supported under Presidential
Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion
of the well-being of the youth, the future leaders of the country. The amendments were not done with the view of
changing the character of the BSP into a privatized corporation. The BSP remains an agency attached to a
department of the government, the DECS, and it was not at all stripped of its public character.

The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the
relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised
Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached government
agency as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and program coordination
between the BSP and the DECS.

Requisites for Declaration of Unconstitutionality Not Met in this Case

The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the
BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone
does not comply with the requisites for judicial review, which were clearly set forth in a recent case:

When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if
the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of
personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial
review is made at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.61(Emphasis
added.)

Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis
mota, or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would
be ignored under the dissent’s rather overreaching view of how this case should have been decided. True, it was
the Court that asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus,
the Court chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a law.

Re: the COA’s Jurisdiction

Regarding the COA’s jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive
contributions or donations from the government. Section 8 reads:

Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by
the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the
Executive Board in pursuance of this Act. lawph!1

The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises
while the bill was being deliberated, and the pertinent portion of the discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman,
the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to
raise its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some
revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time,
Mr. Chairman, when we have special activities we request for assistance or financial assistance from government
agencies, from private business and corporations, but this is only during special activities that the Boy Scouts of the
Philippines would conduct during the year. Otherwise, we have to raise our own funds to support the organization. 62

The nature of the funds of the BSP and the COA’s audit jurisdiction were likewise brought up in said congressional
deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government
corporation classified as such, are your funds or your finances subjected to the COA audit?

MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We don’t fall under the jurisdiction of the
COA.

HON. AQUINO: All right, but before were you?

MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge
Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an
annual… a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but
then this was… and the Boy Scouts then because of this funding partly from government was being subjected to
audit in the contributions being made in the part of the Sweepstakes. But this was removed later during the Martial
Law years with the creation of the Human Settlements Commission. So the situation right now is that the Boy
Scouts does not receive any funding from government, but then in the case of the local councils and this legislative
charter, so to speak, enables the local councils even the national headquarters in view of the provisions in the
existing law to receive donations from the government or any of its instrumentalities, which would be difficult if the
Boy Scouts is registered as a private corporation with the Securities and Exchange Commission. Government
bodies would be estopped from making donations to the Boy Scouts, which at present is not the case because there
is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.

THE CHAIRMAN: Yeah, Gentleman from Zamboanga.

HON. AMATONG: There is no auditing being made because there’s no money put in the organization, but how
about donated funds to this organization? What are the remedies of the donors of how will they know how their
money are being spent?

MR. ESCUDERO: May I answer, Mr. Chairman?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to
submit a financial report at the end of each year to the National Executive Board. So all the funds donated or
otherwise is accounted for at the end of the year by our external auditor. In this case the SGV. 63

Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused
thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth
under the Constitution, which pertinently provides:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional
bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous
state colleges and universities; (c) other government-owned or controlled corporations with original charters and
their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or
through the Government, which are required by law of the granting institution to submit to such audit as a condition
of subsidy or equity. x x x. 64

Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we
come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner
consistent with the provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
ANTONIO T. CARPIO CONCHITA CARPIO MORALES
Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had
been reached in consultation before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA
Chief Justice
 2. Liban v. Gordon, July 15, 2009. 2011
https://lawphil.net/judjuris/juri2011/jan2011/gr_175352_2011.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G. R. No. 175352               January 18, 2011

DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, Petitioners, 

vs.
RICHARD J. GORDON, Respondent.
PHILIPPINE NATIONAL RED CROSS, Intervenor.

RESOLUTION

LEONARDO-DE CASTRO, J.:

This resolves the Motion for Clarification and/or for Reconsideration 1 filed on August 10, 2009 by respondent
Richard J. Gordon (respondent) of the Decision promulgated by this Court on July 15, 2009 (the Decision), the
Motion for Partial Reconsideration2 filed on August 27, 2009 by movant-intervenor Philippine National Red Cross
(PNRC), and the latter’s Manifestation and Motion to Admit Attached Position Paper 3 filed on December 23, 2009.

In the Decision,4 the Court held that respondent did not forfeit his seat in the Senate when he accepted the
chairmanship of the PNRC Board of Governors, as "the office of the PNRC Chairman is not a government office or
an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of
the 1987 Constitution."5 The Decision, however, further declared void the PNRC Charter "insofar as it creates the
PNRC as a private corporation" and consequently ruled that "the PNRC should incorporate under the Corporation
Code and register with the Securities and Exchange Commission if it wants to be a private corporation." 6 The
dispositive portion of the Decision reads as follows:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the
Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos.
1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers. 7

In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1) as the issue of
constitutionality of Republic Act (R.A.) No. 95 was not raised by the parties, the Court went beyond the case in
deciding such issue; and (2) as the Court decided that Petitioners did not have standing to file the instant Petition,
the pronouncement of the Court on the validity of R.A. No. 95 should be considered obiter. 8

Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary for the Court to
decide on that question. Respondent cites Laurel v. Garcia, 9 wherein the Court said that it "will not pass upon a
constitutional question although properly presented by the record if the case can be disposed of on some other
ground" and goes on to claim that since this Court, in the Decision, disposed of the petition on some other ground,
i.e., lack of standing of petitioners, there was no need for it to delve into the validity of R.A. No. 95, and the rest of
the judgment should be deemed obiter.

In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the constitutionality of its Charter on the
following grounds:

A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS AMENDED

DEPRIVED INTERVENOR PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS.
 1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY.

2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS NEVER AN

ISSUE IN THIS CASE.

B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND NOT REPUBLIC ACT NO.
95. PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF CONGRESS.

C. PNRC’S STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS PERFORMING

HUMANITARIAN FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE
AND INDEPENDENT OF GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS STRICTLY PRIVATE IN
CHARACTER.

In his Comment and Manifestation10 filed on November 9, 2009, respondent manifests: (1) that he agrees with the
position taken by the PNRC in its Motion for Partial Reconsideration dated August 27, 2009; and (2) as of the writing
of said Comment and Manifestation, there was pending before the Congress of the Philippines a proposed bill
entitled "An Act Recognizing the PNRC as an Independent, Autonomous, Non-Governmental Organization Auxiliary
to the Authorities of the Republic of the Philippines in the Humanitarian Field, to be Known as The Philippine Red
Cross."11

After a thorough study of the arguments and points raised by the respondent as well as those of movant-intervenor
in their respective motions, we have reconsidered our pronouncements in our Decision dated July 15, 2009 with
regard to the nature of the PNRC and the constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as
amended.

As correctly pointed out in respondent’s Motion, the issue of constitutionality of R.A. No. 95 was not raised by the
parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis mota of the
case. We have reiterated the rule as to when the Court will consider the issue of constitutionality in Alvarez v.
PICOP Resources, Inc.,12 thus:

This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that
a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless
such question is raised by the parties and that when it is raised, if the record also presents some other ground upon
which the court may [rest] its judgment, that course will be adopted and the constitutional question will be left for
consideration until such question will be unavoidable. 13

Under the rule quoted above, therefore, this Court should not have declared void certain sections of R.A. No. 95,
as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter. Instead, the Court should have
exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could
have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of
unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of
the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years
of existence in this country.

Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality notwithstanding

that R.A. No. 95 was enacted on March 22, 1947 during the effectivity of the 1935 Constitution, which provided for a
proscription against the creation of private corporations by special law, to wit:

SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations, unless such corporations are owned and controlled by the Government or any subdivision or
instrumentality thereof. (Art. XIV, 1935 Constitution.)

Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16 of the 1987
Constitution. The latter reads:
SECTION 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16,
1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D.
No. 1643, respectively. The passage of several laws relating to the PNRC’s corporate existence notwithstanding the
effectivity of the constitutional proscription on the creation of private corporations by law, is a recognition that the
PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure, but also in
terms of history, public service and official status accorded to it by the State and the international community. There
is merit in PNRC’s contention that its structure is sui generis.

The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines since 1917.
It was created by an Act of Congress after the Republic of the Philippines became an independent nation on July 6,
1946 and proclaimed on February 14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the
Amelioration of the Condition of the Wounded and Sick of Armies in the Field (the "Geneva Red Cross Convention").
By that action the Philippines indicated its desire to participate with the nations of the world in mitigating the
suffering caused by war and to establish in the Philippines a voluntary organization for that purpose and like other
volunteer organizations established in other countries which have ratified the Geneva Conventions, to promote the
health and welfare of the people in peace and in war.14

The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by P.D. Nos. 1264
and 1643, show the historical background and legal basis of the creation of the PNRC by legislative fiat, as a
voluntary organization impressed with public interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides:

WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations of the world unanimously
agreed to diminish within their power the evils inherent in war;

WHEREAS, more than one hundred forty nations of the world have ratified or adhered to the Geneva Conventions
of August 12, 1949 for the Amelioration of the Condition of the Wounded and Sick of Armed Forces in the Field and
at Sea, The Prisoners of War, and The Civilian Population in Time of War referred to in this Charter as the Geneva
Conventions;

WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946, and proclaimed on
February 14, 1947 its adherence to the Geneva Conventions of 1929, and by the action, indicated its desire to
participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a
voluntary organization for that purpose as contemplated by the Geneva Conventions;

WHEREAS, there existed in the Philippines since 1917 a chapter of the American National Red Cross which was
terminated in view of the independence of the Philippines; and

WHEREAS, the volunteer organizations established in other countries which have ratified or adhered to the Geneva
Conventions assist in promoting the health and welfare of their people in peace and in war, and through their mutual
assistance and cooperation directly and through their international organizations promote better understanding and
sympathy among the people of the world;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines and pursuant to
Proclamation No. 1081 dated September 21, 1972, and General Order No. 1 dated September 22, 1972, do hereby
decree and order that Republic Act No. 95, Charter of the Philippine National Red Cross (PNRC) as amended by
Republic Acts No. 855 and 6373, be further amended as follows:

Section 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary
organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in
the Geneva Conventions and to perform such other duties as are inherent upon a national Red Cross Society. The
national headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied.)

The significant public service rendered by the PNRC can be gleaned from Section 3 of its Charter, which provides:

Section 3. That the purposes of this Corporation shall be as follows:

(a) To provide volunteer aid to the sick and wounded of armed forces in time of war, in accordance with the
spirit of and under the conditions prescribed by the Geneva Conventions to which the Republic of the
Philippines proclaimed its adherence;

(b) For the purposes mentioned in the preceding sub-section, to perform all duties devolving upon the
Corporation as a result of the adherence of the Republic of the Philippines to the said Convention;

(c) To act in matters of voluntary relief and in accordance with the authorities of the armed forces as a
medium of communication between people of the Republic of the Philippines and their Armed Forces, in
time of peace and in time of war, and to act in such matters between similar national societies of other
governments and the Governments and people and the Armed Forces of the Republic of the Philippines;

(d) To establish and maintain a system of national and international relief in time of peace and in time of war
and apply the same in meeting and emergency needs caused by typhoons, flood, fires, earthquakes, and
other natural disasters and to devise and carry on measures for minimizing the suffering caused by such
disasters;

(e) To devise and promote such other services in time of peace and in time of war as may be found
desirable in improving the health, safety and welfare of the Filipino people;

(f) To devise such means as to make every citizen and/or resident of the Philippines a member of the Red
Cross.

The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the International
Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International Red Cross and Red
Crescent Movement (the Movement). They constitute a worldwide humanitarian movement, whose mission is:

[T]o prevent and alleviate human suffering wherever it may be found, to protect life and health and ensure respect
for the human being, in particular in times of armed conflict and other emergencies, to work for the prevention of
disease and for the promotion of health and social welfare, to encourage voluntary service and a constant readiness
to give help by the members of the Movement, and a universal sense of solidarity towards all those in need of its
protection and assistance.15

The PNRC works closely with the ICRC and has been involved in humanitarian activities in the Philippines since
1982. Among others, these activities in the country include:

1. Giving protection and assistance to civilians displaced or otherwise affected by armed clashes between
the government and armed opposition groups, primarily in Mindanao;

2. Working to minimize the effects of armed hostilities and violence on the population;

3. Visiting detainees; and

4. Promoting awareness of international humanitarian law in the public and private sectors. 16

National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in the
humanitarian field and provide a range of services including disaster relief and health and social programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position Paper, 17 submitted by
the PNRC, is instructive with regard to the elements of the specific nature of the National Societies such as the
PNRC, to wit:

National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red Crescent Societies,
have certain specificities deriving from the 1949 Geneva Convention and the Statutes of the International Red Cross
and Red Crescent Movement (the Movement). They are also guided by the seven Fundamental Principles of the
Red Cross and Red Crescent Movement: Humanity, Impartiality, Neutrality, Independence, Voluntary Service, Unity
and Universality.

A National Society partakes of a sui generis character. It is a protected component of the Red Cross movement
under Articles 24 and 26 of the First Geneva Convention, especially in times of armed conflict. These provisions
require that the staff of a National Society shall be respected and protected in all circumstances. Such protection is
not ordinarily afforded by an international treaty to ordinary private entities or even non-governmental organisations
(NGOs). This sui generis character is also emphasized by the Fourth Geneva Convention which holds that an
Occupying Power cannot require any change in the personnel or structure of a National Society. National societies
are therefore organizations that are directly regulated by international humanitarian law, in contrast to other
ordinary private entities, including NGOs.
xxxx
In addition, National Societies are not only officially recognized by their public authorities as voluntary aid societies,
auxiliary to the public authorities in the humanitarian field, but also benefit from recognition at the International level.
This is considered to be an element distinguishing National Societies from other organisations (mainly NGOs) and
other forms of humanitarian response.

x x x. No other organisation belongs to a world-wide Movement in which all Societies have equal status and share
equal responsibilities and duties in helping each other. This is considered to be the essence of the Fundamental
Principle of Universality.

Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the humanitarian
field. x x x.

The auxiliary status of [a] Red Cross Society means that it is at one and the same time a private institution and
a public service organization because the very nature of its work implies cooperation with the authorities, a
link with the State. In carrying out their major functions, Red Cross Societies give their humanitarian support to
official bodies, in general having larger resources than the Societies, working towards comparable ends in a given
sector.
x x x No other organization has a duty to be its government’s humanitarian partner while remaining
independent.18(Emphases ours.)

It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from
the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973
Constitution and the 1987 Constitution.

The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not
even in this case before the Court now.

In the Decision, the Court, citing Feliciano v. Commission on Audit, 19 explained that the purpose of the constitutional
provision prohibiting Congress from creating private corporations was to prevent the granting of special privileges to
certain individuals, families, or groups, which were denied to other groups. Based on the above discussion, it can be
seen that the PNRC Charter does not come within the spirit of this constitutional provision, as it does not grant
special privileges to a particular individual, family, or group, but creates an entity that strives to serve the common
good.

Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will hinder the
State in adopting measures that will serve the public good or national interest. It should be noted that a special law,
R.A. No. 9520, the Philippine Cooperative Code of 2008, and not the general corporation code, vests corporate
power and capacities upon cooperatives which are private corporations, in order to implement the State’s avowed
policy.
In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC as the
government’s partner in the observance of its international commitments, to wit:

The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely,
effective, and compassionate humanitarian assistance for the most vulnerable without consideration of nationality,
race, religion, gender, social status, or political affiliation. The PNRC provides six major services: Blood Services,
Disaster Management, Safety Services, Community Health and Nursing, Social Services and Voluntary Service.

The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary
organization for the purpose contemplated in the Geneva Convention of 27 July 1929. x x x. 20 (Citations omitted.)

So must this Court recognize too the country’s adherence to the Geneva Convention and respect the
unique status of the PNRC in consonance with its treaty obligations. The Geneva Convention has the force
and effect of law.21 Under the Constitution, the Philippines adopts the generally accepted principles of international
law as part of the law of the land. 22 This constitutional provision must be reconciled and harmonized with Article XII,
Section 16 of the Constitution, instead of using the latter to negate the former.

By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision
of July 15, 2009 lost sight of the PNRC’s special status under international humanitarian law and as an auxiliary of
the State, designated to assist it in discharging its obligations under the Geneva Conventions. Although the PNRC is
called to be independent under its Fundamental Principles, it interprets such independence as inclusive of its duty to
be the government’s humanitarian partner. To be recognized in the International Committee, the PNRC must have
an autonomous status, and carry out its humanitarian mission in a neutral and impartial manner.

However, in accordance with the Fundamental Principle of Voluntary Service of National Societies of the Movement,
the PNRC must be distinguished from private and profit-making entities. It is the main characteristic of National
Societies that they "are not inspired by the desire for financial gain but by individual commitment and devotion to a
humanitarian purpose freely chosen or accepted as part of the service that National Societies through its volunteers
and/or members render to the Community."23

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither "be
classified as an instrumentality of the State, so as not to lose its character of neutrality" as well as its independence,
nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an
auxiliary of the State.24

Based on the above, the sui generis status of the PNRC is now sufficiently established.  Although it is neither a
1âwphi1

subdivision, agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a

subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so much so that respondent, under the
Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator,
such a conclusion does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the
provision of the Constitution, that must be organized under the Corporation Code. As correctly mentioned by Justice
Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the PNRC on a
case-to-case basis.

In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian
field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to
recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by
the parties. It bears emphasizing that the PNRC has responded to almost all national disasters since 1947, and is
widely known to provide a substantial portion of the country’s blood requirements. Its humanitarian work is
unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would not
only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have
adverse effects on the image of the Philippines in the international community. The sections of the PNRC Charter
that were declared void must therefore stay.

WHEREFORE, premises considered, respondent Richard J. Gordon’s Motion for Clarification and/or for
Reconsideration and movant-intervenor PNRC’s Motion for Partial Reconsideration of the Decision in G.R. No.
175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter of the
Philippine National Red Cross, was not raised by the parties as an issue and should not have been passed upon by
this Court. The structure of the PNRC is sui generis¸ being neither strictly private nor public in nature. R.A. No. 95
remains valid and constitutional in its entirety. The dispositive portion of the Decision should therefore be MODIFIED
by deleting the second sentence, to now read as follows:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

No part
RENATO C. CORONA
Chief Justice

See dissenting opinion I join the dissent of J. CarpioCONCHITA

ANTONIO T. CARPIO CARPIO MORALES
Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

I join the dissent of J. Carpio

DIOSDADO M. PERALTA
ARTURO D. BRION
Associate Justice
Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

See my concurring opinion

MARTIN S. VILLARAMA, JR.
ROBERTO A. ABAD
Associate Justice
Associate Justice

I join J. Carpio in his dissent

JOSE C. MENDOZA
JOSE PORTUGAL PEREZ
Associate Justice
Associate Justice

I agree with the dissent of J. Carpio

MARIA LOURDES P. A. SERENO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Resolution had
been reached in consultation before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA
Chief Justice
 3. Baluyot v. Holganza, 325.5.526
https://www.lawphil.net/judjuris/juri2000/feb2000/gr_136374_2000.html

SECOND DIVISION

G.R. No. 136374           February 9, 2000

FRANCISCA S. BALUYOT, petitioner, 
vs.
PAUL E. HOLGANZA and the OFFICE OF THE OMBUDSMAN (VISAYAS) represented by its Deputy
Ombudsman for the Visayas ARTURO C. MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft
Investigation Officer I ANNA MARIE P. MILITANTE, respondents.

DE LEON, JR., J.:

Before us is a special civil action for certiorari, seeking the reversal of the Orders dated August 21, 1998 and
October 28, 1998 issued by the Office of the Ombudsman, which denied petitioner's motion to dismiss and motion
for reconsideration, respectively.
1âwphi1.nêt

The facts are:

During a spot audit conducted on March 21, 1977 by a team of auditors from the Philippine National Red Cross
(PNRC) headquarters, a cash shortage of P154,350.13 was discovered in the funds of its Bohol chapter. The
chapter administrator, petitioner Francisca S. Baluyot, was held accountable for the shortage. Thereafter, on
January 8, 1998, private respondent Paul E. Holganza, in his capacity as a member of the board of directors of the
Bohol chapter, filed an affidavit-complaint 1 before the Office of the Ombudsman charging petitioner of malversation
under Article 217 of the Revised Penal Code. The complaint was docketed as OMB-VIS-CRIM-98-0022. However,
upon recommendation by respondent Anna Marie P. Militante, Graft Investigation Officer I, an administrative docket
for dishonesty was also opened against petitioner; hence, OMB-VIS-ADM-98-0063. 2

On February 6, 1998, public respondent issued an Order3 requiring petitioner to file her counter-affidavit to the
charges of malversation and dishonesty within ten days from notice, with a warning that her failure to comply would
be construed as a waiver on her part to refute the charges, and that the case would be resolved based on the
evidence on record. On March 14, 1998, petitioner filed her counter-affidavit, 4 raising principally the defense that
public respondent had no jurisdiction over the controversy. She argued that the Ombudsman had authority only over
government-owned or controlled corporations, which the PNRC was not, or so she claimed.

On August 21, 1998, public respondent issued the first assailed Order 5 denying petitioner's motion to dismiss. It
further scheduled a clarificatory hearing on the criminal aspect of the complaint and a preliminary conference on its
administrative aspect on September 2, 1998. Petitioner received the order on August 26, 1998 and she filed a
motion for reconsideration6 the next day.

On October 28, 1998, public respondent issued the second assailed Order 7 denying petitioner's motion for
reconsideration. Hence, this recourse.

We dismiss the petition.

Petitioner contends that the Ombudsman has no jurisdiction over the subject matter of the controversy since the
PNRC is allegedly a private voluntary organization. The following circumstances, she insists, are indicative of the
private character of the organization: (1) the PNRC does not receive any budgetary support from the government,
and that all money given to it by the latter and its instrumentalities become private funds of the organization; (2)
funds for the payment of personnel's salaries and other emoluments come from yearly fund campaigns, private
contributions and rentals from its properties; and (3) it is not audited by the Commission on Audit. Petitioner states
that the PNRC falls under the International Federation of Red Cross, a Switzerland-based organization, and that the
power to discipline employees accused of misconduct, malfeasance, or immorality belongs to the PNRC Secretary
General by virtue of Section "G", Article IX of its by-laws.8 She threatens that "to classify the PNRC as a
government-owned or controlled corporation would create a dangerous precedent as it would lose its neutrality,
independence and impartiality . . . .9

Practically the same issue was addressed in Camporedondo v. National Labor Relations Commission, et. al.,10where
an almost identical set of facts obtained. Petitioner therein was the administrator of the Surigao del Norte chapter of
the PNRC. An audit conducted by a field auditor revealed a shortage in the chapter funds in the sum of
P109,000.00. When required to restitute the amount of P135,927.78, petitioner therein instead applied for early
retirement, which was denied by the Secretary General of the PNRC. Subsequently, the petitioner filed a complaint
for illegal dismissal and damages against PNRC before the National Labor Relations Commission. In turn, PNRC
moved to dismiss the complaint on the ground of lack of jurisdiction, averring that PNRC was a government
corporation whose employees are embraced by civil service regulation. The labor arbiter dismissed the complaint,
and the Commission sustained his order. The petitioner assailed the dismissal of his complaint via a petition
for certiorari, contending that the PNRC is a private organization and not a government-owned or controlled
corporation. In dismissing the petition, we ruled thus:

Resolving the issue set out in the opening paragraph of this opinion, we rule that the Philippine National Red
Cross (PNRC) is a government owned and controlled corporation, with an original charter under Republic
Act No. 95, as amended. The test to determine whether a corporation is government owned or controlled, or
private in nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are government corporations
subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and
are compulsory members of the Government Service Insurance System. The PNRC was not "impliedly
converted to a private corporation" simply because its charter was amended to vest in it the authority to
secure loans, be exempted from payment of all duties, taxes, fees and other charges of all kinds on all
importations and purchases for its exclusive use, on donations for its disaster relief work and other services
and in its benefits and fund raising drives, and be allotted one lottery draw a year by the Philippine Charity
Sweepstakes Office for the support of its disaster relief operation in addition to its existing lottery draws for
blood program.

Clearly then, public respondent has jurisdiction over the matter, pursuant to Section 13, of Republic Act No. 6770,
otherwise known as "The Ombudsman Act of 1989", to wit:

Sec. 13. Mandate. — The Ombudsman and his Deputies, as protectors of the people, shall act promptly on
complaints filed in any form or manner against officers or employees of the Government, or of any
subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and
enforce their administrative, civil and criminal liability in ever case where the evidence warrants in order to
promote efficient service by the Government to the people. 11

WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against petitioner.

SO ORDERED. 1âwphi1.nêt

Quisumbing and Buena, JJ., concur.

Bellosillo, J., no part due relation of a party.
Mendoza, J., no part due to personal relation to one of parties.
 4. Vet. Fel. Of the Phil. v. Reyes, 483 5 526
https://lawphil.net/judjuris/juri2006/feb2006/gr_155027_2006.html

EN BANC

G. R. No. 155027             February 28, 2006

THE VETERANS FEDERATION OF THE PHILIPPINES represented by Esmeraldo R. Acorda, Petitioner, 

vs.
Hon. ANGELO T. REYES in his capacity as Secretary of National Defense; and Hon. EDGARDO E. BATENGA
in his capacity as Undersecretary for Civil Relations and Administration of the Department of National
Defense, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil Procedure, with a prayer to
declare as void Department Circular No. 04 of the Department of National Defense (DND), dated 10 June 2002.

Petitioner in this case is the Veterans Federation of the Philippines (VFP), a corporate body organized under
Republic Act No. 2640, dated 18 June 1960, as amended, and duly registered with the Securities and Exchange
Commission. Respondent Angelo T. Reyes was the Secretary of National Defense (DND Secretary) who issued the
assailed Department Circular No. 04, dated 10 June 2002. Respondent Edgardo E. Batenga was the DND
Undersecretary for Civil Relations and Administration who was tasked by the respondent DND Secretary to conduct
an extensive management audit of the records of petitioner.

The factual and procedural antecedents of this case are as follows:

Petitioner VFP was created under Rep. Act No. 2640, 1 a statute approved on 18 June 1960.

On 15 April 2002, petitioner’s incumbent president received a letter dated 13 April 2002 which reads:

Col. Emmanuel V. De Ocampo (Ret.)

President

Veterans Federation of the Philippines

Makati, Metro Manila

Dear Col. De Ocampo:

Please be informed that during the preparation of my briefing before the Cabinet and the President last March 9,
2002, we came across some legal bases which tended to show that there is an organizational and management
relationship between Veterans Federation of the Philippines and the Philippine Veterans Bank which for many years
have been inadvertently overlooked.
I refer to Republic Act 2640 creating the body corporate known as the VFP and Republic Act 3518 creating the Phil.
Vets [sic] Bank.

1. RA 2640 dated 18 June 60 Section 1 ... "hereby created a body corporate, under the control and
supervision of the Secretary of National Defense."

2. RA 2640 Section 12 ... "On or before the last day of the month following the end of each fiscal year, the
Federation shall make and transmit to the President of the Philippines or to the Secretary of National
Defense, a report of its proceedings for the past year, including a full, complete and itemized report of
receipts and expenditures of whatever kind."

3. Republic Act 3518 dated 18 June 1963 (An Act Creating the Philippine Veterans Bank, and for Other
Purposes) provides in Section 6 that ... "the affairs and business of the Philippine Veterans Bank shall be
directed and its property managed, controlled and preserved, unless otherwise provided in this Act, by a
Board of Directors consisting of eleven (11) members to be composed of three ex officio members to wit: the
Philippine Veterans Administrator, the President of the Veteran’s Federation of the Philippines and the
Secretary of National Defense x x x.

It is therefore in the context of clarification and rectification of what should have been done by the DND (Department
of National Defense) for and about the VFP and PVB that I am requesting appropriate information and report about
these two corporate bodies.

Therefore it may become necessary that a conference with your staffs in these two bodies be set.

Thank you and anticipating your action on this request.

Very truly yours,

(SGD) ANGELO T. REYES

[DND] Secretary

On 10 June 2002, respondent DND Secretary issued the assailed DND Department Circular No. 04 entitled,
"Further Implementing the Provisions of Sections 12 and 23 of Republic Act No. 2640," the full text of which appears
as follows:

Department of National Defense

Department Circular No. 04

Subject: Further Implementing the Provisions of Sections 1 & 2 of
Republic Act No. 2640
Authority: Republic Act No. 2640
Executive Order No. 292 dated July 25, 1987
Section 1

These rules shall govern and apply to the management and operations of the Veterans Federation of the Philippines
(VFP) within the context provided by EO 292 s-1987.

Section 2 – DEFINITION OF TERMS – for the purpose of these rules, the terms, phrases or words used herein
shall, unless the context indicates otherwise, mean or be understood as follows:

Supervision and Control – it shall include authority to act directly whenever a specific function is entrusted by law or
regulation to a subordinate; direct the performance of a duty; restrain the commission of acts; approve, reverse or
modify acts and decisions of subordinate officials or units; determine priorities in the execution of plans and
programs; and prescribe standards, guidelines, plans and programs.
Power of Control – power to alter, modify, nullify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former to that of the latter.

Supervision – means overseeing or the power of an officer to see to it that their subordinate officers perform their
duties; it does not allow the superior to annul the acts of the subordinate.

Administrative Process – embraces matter concerning the procedure in the disposition of both routine and contested
matters, and the matter in which determinations are made, enforced or reviewed.

Government Agency – as defined under PD 1445, a government agency or agency of government or "agency"
refers to any department, bureau or office of the national government, or any of its branches or instrumentalities, of
any political subdivision, as well as any government owned or controlled corporation, including its subsidiaries, or
other self-governing board or commission of the government.

Government Owned and Controlled Corporation (GOCC) – refer to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the government directly or through its instrumentalities wholly or, where applicable as in the case of stock
corporations, to the extent of at least 50% of its capital stock.

Fund – sum of money or other resources set aside for the purpose of carrying out specific activities or attaining
certain objectives in accordance with special regulations, restrictions or limitations and constitutes an independent,
fiscal and accounting entity.

Government Fund – includes public monies of every sort and other resources pertaining to any agency of the
government.

Veteran – any person who rendered military service in the land, sea or air forces of the Philippines during the
revolution against Spain, the Philippine American War, World War II, including Filipino citizens who served in Allied
Forces in the Philippine territory and foreign nationals who served in Philippine forces; the Korean campaign, the
Vietnam campaign, the Anti-dissidence campaign, or other wars or military campaigns; or who rendered military
service in the Armed Forces of the Philippines and has been honorably discharged or separated after at least six (6)
years total cumulative active service or sooner separated due to the death or disability arising from a wound or injury
received or sickness or disease incurred in line of duty while in the active service.

Section 3 – Relationship Between the DND and the VFP

3.1 Sec 1 of RA 3140 provides "... the following persons (heads of various veterans associations and organizations
in the Philippines) and their associates and successors are hereby created a body corporate, under the control and
supervision of the Secretary of National Defense, under the name, style and title of "Veterans Federation of the
Philippines ..."

The Secretary of National Defense shall be charged with the duty of supervising the veterans and allied program
under the jurisdiction of the Department. It shall also have the responsibility of overseeing and ensuring the
judicious and effective implementation of veterans assistance, benefits, and utilization of VFP assets.

3.2 To effectively supervise and control the corporate affairs of the Federation and to safeguard the interests and
welfare of the veterans who are also wards of the State entrusted under the protection of the DND, the Secretary
may personally or through a designated representative, require the submission of reports, documents and other
papers regarding any or all of the Federation’s business transactions particularly those relating to the VFP functions
under Section 2 of RA 2640.

The Secretary or his representative may attend conferences of the supreme council of the VFP and such other
activities he may deem relevant.

3.3 The Secretary shall from time to time issue guidelines, directives and other orders governing vital government
activities including, but not limited to, the conduct of elections; the acquisition, management and dispositions of
properties, the accounting of funds, financial interests, stocks and bonds, corporate investments, etc. and such other
transactions which may affect the interests of the veterans.

3.4 Financial transactions of the Federation shall follow the provisions of the government auditing code (PD 1445)
i.e. government funds shall be spent or used for public purposes; trust funds shall be available and may be spent
only for the specific purpose for which the trust was created or the funds received; fiscal responsibility shall, to the
greatest extent, be shared by all those exercising authority over the financial affairs, transactions, and operations of
the federation; disbursements or dispositions of government funds or property shall invariably bear the approval of
the proper officials.

Section 4 – Records of the FEDERATION

As a corporate body and in accordance with appropriate laws, it shall keep and carefully preserve records of all
business transactions, minutes of meetings of stockholders/members of the board of directors reflecting all details
about such activity.

All such records and minutes shall be open to directors, trustees, stockholders, and other members for inspection
and copies of which may be requested.

As a body corporate, it shall submit the following: annual report; proceedings of council meetings; report of
operations together with financial statement of its assets and liabilities and fund balance per year; statement of
revenues and expenses per year; statement of cash flows per year as certified by the accountant; and other
documents/reports as may be necessary or required by the SND.

Section 5 – Submission of Annual and Periodic Report

As mandated under appropriate laws, the following reports shall be submitted to the SND, to wit:

a. Annual Report to be submitted not later than every January 31 of the following year. Said report shall
consist of the following:

1. Financial Report of the Federation, signed by the Treasurer General and Auditor General;

2. Roster of Members of the Supreme Council;

3. Roster of Members of the Executive Board and National Officers; and

4. Current listing of officers and management of VFP.

b. Report on the proceedings of each Supreme Council Meeting to be submitted not later than one month
after the meeting;

c. Report of the VFP President as may be required by SND or as may be found necessary by the President
of the Federation;

d. Resolutions passed by the Executive Board and the Supreme Council for confirmation to be submitted not
later than one month after the approval of the resolution;

e. After Operation/Activity Reports to be submitted not later than one month after such operation or activity;

Section 6 – Penal Sanctions

As an attached agency to a regular department of the government, the VFP and all its instrumentalities, officials and
personnel shall be subject to the penal provisions of such laws, rules and regulations applicable to the attached
agencies of the government.
In a letter dated 6 August 2002 addressed to the President of petitioner, respondent DND Secretary reiterated his
instructions in his earlier letter of 13 April 2002.

Thereafter, petitioner’s President received a letter dated 23 August 2002 from respondent Undersecretary, informing
him that Department Order No. 129 dated 23 August 2002 directed "the conduct of a Management Audit of the
Veterans Federation of the Philippines."4 The letter went on to state that respondent DND Secretary "believes that
the mandate given by said law can be meaningfully exercised if this department can better appreciate the functions,
responsibilities and situation on the ground and this can be done by undertaking a thorough study of the
organization."5

Respondent Undersecretary also requested both for a briefing and for documents on personnel, ongoing projects
and petitioner’s financial condition. The letter ended by stating that, after the briefing, the support staff of the Audit
Committee would begin their work to meet the one-month target within which to submit a report.

A letter dated 28 August 2003 informed petitioner’s President that the Management Audit Group headed by the
Undersecretary would be paying petitioner a visit on 30 August 2002 for an update on VFP’s different affiliates and
the financial statement of the Federation.

Subsequently, the Secretary General of the VFP sent an undated letter to respondent DND Secretary, with notice to
respondent Undersecretary for Civil Relations and Administration, complaining about the alleged broadness of the
scope of the management audit and requesting the suspension thereof until such time that specific areas of the
audit shall have been agreed upon.

The request was, however, denied by the Undersecretary in a letter dated 4 September 2002 on the ground that a
specific timeframe had been set for the activity.

Petitioner thus filed this Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil Procedure,
praying for the following reliefs:

1. For this Court to issue a temporary restraining order and a writ of preliminary prohibitory and mandatory
injunction to enjoin respondent Secretary and all those acting under his discretion and authority from: (a)
implementing DND Department Circular No. 04; and (b) continuing with the ongoing management audit of
petitioner’s books of account;

2. After hearing the issues on notice –

a. Declare DND Department Circular No. 04 as null and void for being ultra vires;

b. Convert the writ of prohibition, preliminary prohibitory and mandatory injunction into a permanent
one.6

GIVING DUE COURSE TO THE PETITION

Petitioner asserts that, although cases which question the constitutionality or validity of administrative issuances are
ordinarily filed with the lower courts, the urgency and substantive importance of the question on hand and the public
interest attendant to the subject matter of the petition justify its being filed with this Court directly as an original
action.7

It is settled that the Regional Trial Court and the Court of Appeals also exercise original jurisdiction over petitions for
certiorari and prohibition. As we have held in numerous occasions, however, such concurrence of original
jurisdiction does not mean that the party seeking extraordinary writs has the absolute freedom to file his petition in
the court of his choice.8 Thus, in Commissioner of Internal Revenue v. Leal, 9 we held that:

Such concurrence of original jurisdiction among the Regional Trial Court, the Court of Appeals and this Court,
however, does not mean that the party seeking any of the extraordinary writs has the absolute freedom to file his
petition in the court of his choice. The hierarchy of courts in our judicial system determines the appropriate forum for
these petitions. Thus, petitions for the issuance of the said writs against the first level (inferior) courts must be filed
with the Regional Trial Court and those against the latter, with the Court of Appeals. A direct invocation of this
Court’s original jurisdiction to issue these writs should be allowed only where there are special and important
reasons therefor, specifically and sufficiently set forth in the petition. This is the established policy to prevent
inordinate demands upon the Court’s time and attention, which are better devoted to matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Court’s docket. Thus, it was proper for petitioner to institute
the special civil action for certiorari with the Court of Appeals assailing the RTC order denying his motion to dismiss
based on lack of jurisdiction.

The petition itself, in this case, does not specifically and sufficiently set forth the special and important reasons why
the Court should give due course to this petition in the first instance, hereby failing to fulfill the conditions set forth in
Commissioner of Internal Revenue v. Leal.10 While we reiterate the policies set forth in Leal and allied cases and
continue to abhor the propensity of a number of litigants to disregard the principle of hierarchy of courts in our
judicial system, we, however, resolve to take judicial notice of the fact that the persons who stand to lose in a
possible protracted litigation in this case are war veterans, many of whom have precious little time left to enjoy the
benefits that can be conferred by petitioner corporation. This bickering for the power over petitioner corporation, an
entity created to represent and defend the interests of Filipino veterans, should be resolved as soon as possible in
order for it to once and for all direct its resources to its rightful beneficiaries all over the country. All these said, we
hereby resolve to give due course to this petition.

ISSUES

Petitioner mainly alleges that the rules and guidelines laid down in the assailed Department Circular No. 04
expanded the scope of "control and supervision" beyond what has been laid down in Rep. Act No. 2640. 11 Petitioner
further submits the following issues to this Court:

1. Was the challenged department circular passed in the valid exercise of the respondent Secretary’s
"control and supervision"?

2. Could the challenged department circular validly lay standards classifying the VFP, an essentially civilian
organization, within the ambit of statutes only applying to government entities?

3. Does the department circular, which grants respondent direct management control on the VFP, unduly
encroach on the prerogatives of VFP’s governing body?

At the heart of all these issues and all of petitioner’s prayers and assertions in this case is petitioner’s claim that it is
a private non-government corporation.

CENTRAL ISSUE:

IS THE VFP A PRIVATE CORPORATION?

Petitioner claims that it is not a public nor a governmental entity but a private organization, and advances this claim
to prove that the issuance of DND Department Circular No. 04 is an invalid exercise of respondent Secretary’s
control and supervision.12

This Court has defined the power of control as "the power of an officer to alter or modify or nullify or set aside what a
subordinate has done in the performance of his duties and to substitute the judgment of the former to that of the
latter."13 The power of supervision, on the other hand, means "overseeing, or the power or authority of an officer to
see that subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such
action or step as prescribed by law to make them perform their duties." 14 These definitions are synonymous with the
definitions in the assailed Department Circular No. 04, while the other provisions of the assailed department circular
are mere consequences of control and supervision as defined.

Thus, in order for petitioner’s premise to be able to support its conclusion, petitioners should be deemed to imply
either of the following: (1) that it is unconstitutional/impermissible for the law (Rep. Act No. 2640) to grant control
and/or supervision to the Secretary of National Defense over a private organization, or (2) that the control and/or
supervision that can be granted to the Secretary of National Defense over a private organization is limited, and is
not as strong as they are defined above.

The following provision of the 1935 Constitution, the organic act controlling at the time of the creation of the VFP in
1960, is relevant:

Section 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations, unless such corporations are owned and controlled by the Government or any subdivision or
instrumentality thereof.15

On the other hand, its counterparts in the 1973 and 1987 constitutions are the following:

Section 4. The National Assembly shall not, except by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations are owned or controlled by the government or any
subdivision or instrumentality thereof.16

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of
private corporations. Government-owned and controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic viability. 17

From the foregoing, it is crystal clear that our constitutions explicitly prohibit the regulation by special laws of private
corporations, with the exception of government-owned or controlled corporations (GOCCs). Hence, it would be
impermissible for the law to grant control of the VFP to a public official if it were neither a public corporation, an
unincorporated governmental entity, nor a GOCC.18 Said constitutional provisions can even be read to prohibit the
creation itself of the VFP if it were neither of the three mentioned above, but we cannot go into that in this case since
there is no challenge to the creation of the VFP in the petition as to permit this Court from considering its nullity.

Petitioner vigorously argues that the VFP is a private non-government organization, pressing on the following
contentions:

1. The VFP does not possess the elements which would qualify it as a public office, particularly the
possession/delegation of a portion of sovereign power of government to be exercised for the benefit of the
public;

2. VFP funds are not public funds because –

a) No budgetary appropriations or government funds have been released to the VFP directly or
indirectly from the Department of Budget and Management (DBM);

b) VFP funds come from membership dues;

c) The lease rentals raised from the use of government lands reserved for the VFP are private in
character and do not belong to the government. Said rentals are fruits of VFP’s labor and efforts in
managing and administering the lands for VFP purposes and objectives. A close analogy would be
any Filipino citizen settling on government land and who tills the land for his livelihood and
sustenance. The fruits of his labor belong to him and not to the owner of the land. Such fruits are not
public funds.

3. Although the juridical personality of the VFP emanates from a statutory charter, the VFP retains its
essential character as a private, civilian federation of veterans voluntarily formed by the veterans themselves
to attain a unity of effort, purpose and objectives, e.g. –

a. The members of the VFP are individual members and retirees from the public and military service;

b. Membership in the VFP is voluntary, not compulsory;

 c. The VFP is governed, not by the Civil Service Law, the Articles of War nor the GSIS Law, but by
the Labor Code and the SSS Law;

d. The VFP has its own Constitution and By-Laws and is governed by a Supreme Council who are
elected from and by the members themselves;

4. The Administrative Code of 1987 does not provide that the VFP is an attached agency, nor does it provide
that it is an entity under the control and supervision of the DND in the context of the provisions of said code.

5. The DBM declared that the VFP is a non-government organization and issued a certificate that the VFP
has not been a direct recipient of any funds released by the DBM.

These arguments of petitioner notwithstanding, we are constrained to rule that petitioner is in fact a public
corporation. Before responding to petitioner’s allegations one by one, here are the more evident reasons why the
VFP is a public corporation:

(1) Rep. Act No. 2640 is entitled "An Act to Create a Public Corporation to be Known as the Veterans
Federation of the Philippines, Defining its Powers, and for Other Purposes."

(2) Any action or decision of the Federation or of the Supreme Council shall be subject to the approval of the
Secretary of Defense.19

(3) The VFP is required to submit annual reports of its proceedings for the past year, including a full,
complete and itemized report of receipts and expenditures of whatever kind, to the President of the
Philippines or to the Secretary of National Defense. 20

(4) Under Executive Order No. 37 dated 2 December 1992, the VFP was listed as among the government-
owned and controlled corporations that will not be privatized.

(5) In Ang Bagong Bayani – OFW Labor Party v. COMELEC, 21 this Court held in a minute resolution that the
"VFP [Veterans Federation Party] is an adjunct of the government, as it is merely an incarnation of the
Veterans Federation of the Philippines.

And now to answer petitioner’s reasons for insisting that it is a private corporation:

1. Petitioner claims that the VFP does not possess the elements which would qualify it as a public office, particularly
the possession/delegation of a portion of sovereign power of government to be exercised for the benefit of the
public;

In Laurel v. Desierto,22 we adopted the definition of Mechem of a public office, that it is "the right, authority and duty,
created and conferred by law, by which, for a given period, either fixed by law or enduring at the pleasure of the
creating power, an individual is invested with some portion of the sovereign functions of the government, to be
exercised by him for the benefit of the public."

In the same case, we went on to adopt Mechem’s view that the delegation to the individual of some of the sovereign
functions of government is "[t]he most important characteristic" in determining whether a position is a public office or
not.23 Such portion of the sovereignty of the country, either legislative, executive or judicial, must attach to the office
for the time being, to be exercised for the public benefit. Unless the powers conferred are of this nature, the
individual is not a public officer. The most important characteristic which distinguishes an office from an employment
or contract is that the creation and conferring of an office involves a delegation to the individual of some of the
sovereign functions of government, to be exercised by him for the benefit of the public; – that some portion of the
sovereignty of the country, either legislative, executive or judicial, attaches, for the time being, to be exercised for
the public benefit. Unless the powers conferred are of this nature, the individual is not a public officer. 24 The issue,
therefore, is whether the VFA’s officers have been delegated some portion of the sovereignty of the country, to be
exercised for the public benefit.
In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign
functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the
public sovereign nature of operations needed either to promote social justice 25 or to stimulate patriotic sentiments
and love of country.26

As regards the promotion of social justice as a sovereign function, we held in Agricultural Credit and Cooperative
Financing Administration (ACCFA) v. Confederation of Unions in Government Corporations and Offices
(CUGCO),27that the compelling urgency with which the Constitution speaks of social justice does not leave any
doubt that land reform is not an optional but a compulsory function of sovereignty. The same reason was used in
our declaration that socialized housing is likewise a sovereign function. 28 Highly significant here is the observation of
former Chief Justice Querube Makalintal:

The growing complexities of modern society, however, have rendered this traditional classification of the functions of
government [into constituent and ministrant functions] quite unrealistic, not to say obsolete. The areas which used to
be left to private enterprise and initiative and which the government was called upon to enter optionally, and only
"because it was better equipped to administer for the public welfare than is any private individual or group of
individuals," continue to lose their well-defined boundaries and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times. Here[,] as
almost everywhere else[,] the tendency is undoubtedly towards a greater socialization of economic forces. Here, of
course, this development was envisioned, indeed adopted as a national policy, by the Constitution itself in its
declaration of principle concerning the promotion of social justice. 29 (Emphasis supplied.)

It was, on the other hand, the fact that the National Centennial Celebrations was calculated to arouse and stimulate
patriotic sentiments and love of country that it was considered as a sovereign function in Laurel v. Desierto. 30 In
Laurel, the Court then took its cue from a similar case in the United States involving a Fourth of July fireworks
display. The holding of the Centennial Celebrations was held to be an executive function, as it was intended to
enforce Article XIV of the Constitution which provides for the conservation, promotion and popularization of the
nation’s historical and cultural heritage and resources, and artistic relations.

In the case at bar, the functions of petitioner corporation enshrined in Section 4 of Rep. Act No. 2640 31 should most
certainly fall within the category of sovereign functions. The protection of the interests of war veterans is not only
meant to promote social justice, but is also intended to reward patriotism. All of the functions in Section 4 concern
the well-being of war veterans, our countrymen who risked their lives and lost their limbs in fighting for and
defending our nation. It would be injustice of catastrophic proportions to say that it is beyond sovereignty’s power to
reward the people who defended her.

Like the holding of the National Centennial Celebrations, the functions of the VFP are executive functions, designed
to implement not just the provisions of Rep. Act No. 2640, but also, and more importantly, the Constitutional
mandate for the State to provide immediate and adequate care, benefits and other forms of assistance to war
veterans and veterans of military campaigns, their surviving spouses and orphans. 32

2. Petitioner claims that VFP funds are not public funds.

Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have
been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private
corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed
that the VFP is a private corporation. 33 If the DBM, however, is mistaken as to its conclusion regarding the nature of
VFP’s incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The
erroneous application of the law by public officers does not bar a subsequent correct application of the law. 34

Nevertheless, funds in the hands of the VFP from whatever source are public funds, and can be used only for public
purposes. This is mandated by the following provisions of Rep. Act No. 2640:
 (1) Section 2 provides that the VFP can only "invest its funds for the exclusive benefit of the Veterans of the
Philippines;"
(2) Section 2 likewise provides that "(a)ny action or decision of the Federation or of the Supreme Council
shall be subject to the approval of the Secretary of National Defense." Hence, all activities of the VFP to
which the Supreme Council can apply its funds are subject to the approval of the Secretary of National
Defense;
(3) Section 4 provides that "the Federation shall exist solely for the purposes of a benevolent character, and
not for the pecuniary benefit of its members;"1avvphil.net

(4) Section 6 provides that all funds of the VFP in excess of operating expenses are "reserved for
disbursement, as the Supreme Council may authorize, for the purposes stated in Section two of this Act;"
(5) Section 10 provides that "(a)ny donation or contribution which from time to time may be made to the
Federation by the Government of the Philippines or any of its subdivisions, branches, offices, agencies or
instrumentalities shall be expended by the Supreme Council only for the purposes mentioned in this Act.";
and finally,
(6) Section 12 requires the submission of annual reports of VFP proceedings for the past year, including a
full, complete and itemized report of receipts and expenditures of whatever kind, to the President of the
Philippines or to the Secretary of National Defense.

It is important to note here that the membership dues collected from the individual members of VFP’s affiliate
organizations do not become public funds while they are still funds of the affiliate organizations. A close reading of
Section 135 of Rep. Act No. 2640 reveals that what has been created as a body corporate is not the individual
membership of the affiliate organizations, but merely the aggregation of the heads of the affiliate organizations.
Thus, only the money remitted by the affiliate organizations to the VFP partake in the public nature of the VFP
funds.

In Republic v. COCOFED,36 we held that the Coconut Levy Funds are public funds because, inter alia, (1) they were
meant to be for the benefit of the coconut industry, one of the major industries supporting the national economy, and
its farmers; and (2) the very laws governing coconut levies recognize their public character. The same is true with
regard to the VFP funds. No less public is the use for the VFP funds, as such use is limited to the purposes of the
VFP which we have ruled to be sovereign functions. Likewise, the law governing VFP funds (Rep. Act No. 2640)
recognizes the public character of the funds as shown in the enumerated provisions above.

We also observed in the same COCOFED case that "(e)ven if the money is allocated for a special purpose and
raised by special means, it is still public in character." 37 In the case at bar, some of the funds were raised by even
more special means, as the contributions from affiliate organizations of the VFP can hardly be regarded as enforced
contributions as to be considered taxes. They are more in the nature of donations which have always been
recognized as a source of public funding. Affiliate organizations of the VFP cannot complain of their contributions
becoming public funds upon the receipt by the VFP, since they are presumed aware of the provisions of Rep. Act
No. 2640 which not only specifies the exclusive purposes for which VFP funds can be used, but also provides for
the regulation of such funds by the national government through the Secretary of National Defense. There is nothing
wrong, whether legally or morally, from raising revenues through non-traditional methods. As remarked by Justice
Florentino Feliciano in his concurring opinion in Kilosbayan, Incorporated v. Guingona, Jr. 38 where he explained that
the funds raised by the On-line Lottery System were also public in nature, thus:

x x x [T]he more successful the government is in raising revenues by non-traditional methods such as PAGCOR
operations and privatization measures, the lesser will be the pressure upon the traditional sources of public
revenues, i.e., the pocket books of individual taxpayers and importers.

Petitioner additionally harps on the inapplicability of the case of Laurel v. Desierto 39 which was cited by
Respondents. Petitioner claims that among the reasons National Centennial Commission Chair Salvador Laurel was
considered a public officer was the fact that his compensation was derived from public funds. Having ruled that VFP
funds from whatever source are public funds, we can safely conclude that the Supreme Council’s compensation,
taken as they are from VFP funds under the term "operating expenses" in Section 6 of Rep. Act No. 2640, are
derived from public funds. The particular nomenclature of the compensation taken from VFP funds is not even of
relevance here. As we said in Laurel concerning compensation as an element of public office:
Under particular circumstances, "compensation" has been held to include allowance for personal expenses,
commissions, expenses, fees, an honorarium, mileage or traveling expenses, payments for services, restitution or a
balancing of accounts, salary, and wages.40

3. Petitioner argues that it is a civilian federation where membership is voluntary.

Petitioner claims that the Secretary of National Defense "historically did not indulge in the direct or
‘micromanagement’ of the VFP precisely because it is essentially a civilian organization where membership is
voluntary."41 This reliance of petitioner on what has "historically" been done is erroneous, since laws are not
repealed by disuse, custom, or practice to the contrary. 42 Furthermore, as earlier stated, the erroneous application of
the law by public officers does not bar a subsequent correct application of the law. 43

Neither is the civilian nature of VFP relevant in this case. The Constitution does not contain any prohibition, express
or implied, against the grant of control and/or supervision to the Secretary of National Defense over a civilian
organization. The Office of the Secretary of National Defense is itself a civilian office, its occupant being an alter ego
of the civilian Commander-in-Chief. This set-up is the manifestation of the constitutional principle that civilian
authority is, at all times, supreme over the military.44 There being no such constitutional prohibition, the creation of a
civilian public organization by Rep. Act No. 2640 is not rendered invalid by its being placed under the control and
supervision of the Secretary of National Defense.

Petitioner’s stand that the VFP is a private corporation because membership thereto is voluntary is likewise
erroneous. As stated above, the membership of the VFP is not the individual membership of the affiliate
organizations, but merely the aggregation of the heads of such affiliate organizations. These heads forming the VFP
then elect the Supreme Council and the other officers, 45 of this public corporation.

4. Petitioner claims that the Administrative Code of 1987 does not provide that the VFP is an attached agency, and
nor does it provide that it is an entity under the control and supervision of the DND in the context of the provisions of
said code.

The Administrative Code, by giving definitions of the various entities covered by it, acknowledges that its
enumeration is not exclusive. The Administrative Code could not be said to have repealed nor enormously modified
Rep. Act No. 2640 by implication, as such repeal or enormous modification by implication is not favored in statutory
construction.46

5. Petitioner offers as evidence the DBM opinion that the VFP is a non-government organization in its certification
that the VFP "has not been a direct recipient of any funds released by the DBM."

Respondents claim that the supposed declaration of the DBM that petitioner is a non-government organization is not
persuasive, since DBM is not a quasi-judicial agency. They aver that what we have said of the Bureau of Local
Government Finance (BLGF) in Philippine Long Distance Telephone Company (PLDT) v. City of Davao 47 can be
applied to DBM:

In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioner’s
exemption from local taxes has been restored is a contemporaneous construction of Section 23 [of R.A. No. 7925
and, as such, is entitled to great weight.

The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a special
court created for the purpose of reviewing tax cases, the BLGF was created merely to provide consultative services
and technical assistance to local governments and the general public on local taxation and other related matters.
Thus, the rule that the "Court will not set aside conclusions rendered by the CTA, which is, by the very nature of its
function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of authority" cannot apply in the
case of the BLGF.

On this score, though, we disagree with respondents and hold that the DBM’s appraisal is considered persuasive.
Respondents misread the PLDT case in asserting that only quasi-judicial agencies’ determination can be
considered persuasive. What the PLDT case points out is that, for an administrative agency’s opinion to be
persuasive, the administrative agency involved (whether it has quasi-judicial powers or not) must be an expert in the
field they are giving their opinion on.

The DBM is indeed an expert on determining what the various government agencies and corporations are. This
determination is necessary for the DBM to fulfill its mandate:

Sec. 2. Mandate. - The Department shall be responsible for the formulation and implementation of the National
Budget with the goal of attaining our national socio-economic plans and objectives.

The Department shall be responsible for the efficient and sound utilization of government funds and revenues to
effectively achieve our country's development objectives. 48

The persuasiveness of the DBM opinion has, however, been overcome by all the previous explanations we have
laid so far. It has also been eclipsed by another similarly persuasive opinion, that of the Department of National
Defense embodied in Department Circular No. 04. The DND is clearly more of an expert with respect to the
determination of the entities under it, and its Administrative Rules and Regulations are entitled to great respect and
have in their favor the presumption of legality.49

The DBM opinion furthermore suffers from its lack of explanation and justification in the "certification of non-receipt"
where said opinion was given. The DBM has not furnished, in said certification or elsewhere, an explanation for its
opinion that VFP is a non-government organization.

THE FATE OF DEPARTMENT CIRCULAR NO. 04

Our ruling that petitioner is a public corporation is determinative of whether or not we should grant petitioner’s prayer
to declare Department Circular No. 04 void.
Petitioner assails Department Circular No. 04 on the ground that it expanded the scope of control and supervision
beyond what has been laid down in Rep. Act No. 2640. Petitioner alleges that "(t)he equation of the meaning of
`control’ and `supervision’ of the Administrative Code of 1987 as the same `control and supervision’ under Rep. Act
No. 2640, takes out the context of the original legislative intent from the peculiar surrounding circumstances and
conditions that brought about the creation of the VFP." 50 Petitioner claims that the VFP "was intended as a self-
governing autonomous body with a Supreme Council as governing authority," and that the assailed circular "pre-
empts VFP’s original self-governance and autonomy (in) representing veterans organizations, and substitutes
government discretion and decisions to that of the veterans’ own determination." 51 Petitioner says that the circular’s
provisions practically render the Supreme Council inutile, despite its being the statutory governing body of the VFP. 52

As previously mentioned, this Court has defined the power of control as "the power of an officer to alter or modify or
nullify or set aside what a subordinate has done in the performance of his duties and to substitute the judgment of
the former to that of the latter."53 The power of supervision, on the other hand, means "overseeing, or the power or
authority of an officer to see that subordinate officers perform their duties." 54 Under the Administrative Code of
1987:55

Supervision and control shall include the authority to act directly whenever a specific function is entrusted by law or
regulation to a subordinate; direct the performance of duty; restrain the commission of acts; review, approve,
reverse or modify acts and decisions of subordinate officials or units; determine priorities in the execution of plans
and programs; and prescribe standards, guidelines, plans and programs. x x x

The definition of the power of control and supervision under Section 2 of the assailed Department Circular are
synonymous with the foregoing definitions. Consequently, and considering that petitioner is a public corporation, the
provisions of the assailed Department Circular No. 04 did not supplant nor modify the provisions of Republic Act No.
2640, thus not violating the settled rule that "all such (administrative) issuances must not override, but must remain
consistent and in harmony with the law they seek to apply or implement. Administrative rules and regulations are
intended to carry out, neither to supplant nor to modify, the law." 56

Section 3.2 of the assailed department circular, which authorizes the Secretary of National Defense to "x x x
personally or through a designated representative, require the submission of reports, documents and other papers
regarding any or all of the Federation’s business functions, x x x."
as well as Section 3.3 which allows the Secretary of DND to

x x x [F]rom time to time issue guidelines, directives and other orders governing vital government activities including,
but not limited to, the conduct of elections, the acquisition, management and dispositions of properties, the
accounting of funds, financial interests, stocks and bonds, corporate investments, etc. and such other transactions
which may affect the interests of the veterans.

are merely consequences of both the power of control and supervision granted by Rep. Act No. 2640. The power to
alter or modify or nullify or set aside what a subordinate has done in the performance of his duties, or to see to it that
subordinate officers perform their duties in accordance with law, necessarily requires the ability of the superior
officer to monitor, as closely as it desires, the acts of the subordinate.

The same is true with respect to Sections 4 and 5 of the assailed Department Circular No. 04, which requires the
preservation of the records of the Federation and the submission to the Secretary of National Defense of annual and
periodic reports.

Petitioner likewise claims that the assailed DND Department Circular No. 04 was never published, and hence
void.57 Respondents deny such non-publication. 58

We have put forth both the rule and the exception on the publication of administrative rules and regulations in the
case of Tañada v. Tuvera:59

x x x Administrative rules and regulations must also be published if their purpose is to enforce or implement existing
law pursuant also to a valid delegation.

Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the
administrative agency and not the public, need not be published. Neither is publication required of the so-called
letters of instructions issued by administrative superiors concerning the rules on guidelines to be followed by their
subordinates in the performance of their duties.

Even assuming that the assailed circular was not published, its validity is not affected by such non-publication for
the reason that its provisions fall under two of the exceptions enumerated in Tañada.

Department Circular No. 04 is an internal regulation. As we have ruled, they are meant to regulate a public
corporation under the control of DND, and not the public in general. As likewise discussed above, what has been
created as a body corporate by Rep. Act No. 2640 is not the individual membership of the affiliate organizations of
the VFP, but merely the aggregation of the heads of the affiliate organizations. Consequently, the individual
members of the affiliate organizations, who are not public officers, are beyond the regulation of the circular.

Sections 2, 3 and 6 of the assailed circular are additionally merely interpretative in nature. They add nothing to the
law. They do not affect the substantial rights of any person, whether party to the case at bar or not. In Sections 2
and 3, control and supervision are defined, mentioning actions that can be performed as consequences of such
control and supervision, but without specifying the particular actions that shall be rendered to control and supervise
the VFP. Section 6, in the same vein, merely state what the drafters of the circular perceived to be consequences of
being an attached agency to a regular department of the government, enumerating sanctions and remedies
provided by law that may be availed of whenever desired.

Petitioner then objects to the implementation of Sec. 3.4 of the assailed Department Circular, which provides that –

3.4 Financial transactions of the Federation shall follow the provisions of the government auditing code (PD 1445)
i.e. government funds shall be spent or used for public purposes; trust funds shall be available and may be spent
only for the specific purpose for which the trust was created or the funds received; fiscal responsibility shall, to the
greatest extent, be shared by all those exercising authority over the financial affairs, transactions, and operations of
the federation; disbursements or dispositions of government funds or property shall invariably bear the approval of
the proper officials.
Since we have also previously determined that VFP funds are public funds, there is likewise no reason to declare
this provision invalid. Section 3.4 is correct in requiring the VFP funds to be used for public purposes, but only
insofar the term "public purposes" is construed to mean "public purposes enumerated in Rep. Act No. 2640."

Having in their possession public funds, the officers of the VFP, especially its fiscal officers, must indeed share in
the fiscal responsibility to the greatest extent.

As to petitioner’s allegation that VFP was intended as a self-governing autonomous body with a Supreme Council as
governing authority, we find that the provisions of Rep. Act No. 2640 concerning the control and supervision of the
Secretary of National Defense clearly withholds from the VFP complete autonomy. To say, however, that such
provisions render the VFP inutile is an exaggeration. An office is not rendered inutile by the fact that it is placed
under the control of a higher office. These subordinate offices, such as the executive offices under the control of the
President, exercise discretion at the first instance. While their acts can be altered or even set aside by the superior,
these acts are effective and are deemed the acts of the superior until they are modified. Surely, we cannot say that
the offices of all the Department Secretaries are worthless positions.

In sum, the assailed DND Department Circular No. 04 does not supplant nor modify and is, on the contrary, perfectly
in consonance with Rep. Act No. 2640. Petitioner VFP is a public corporation. As such, it can be placed under the
control and supervision of the Secretary of National Defense, who consequently has the power to conduct an
extensive management audit of petitioner corporation.

WHEREFORE, the Petition is hereby DISMISSED for lack of merit. The validity of the Department of National
Defense Department Circular No. 04 is AFFIRMED.

SO ORDERED.
MINITA V. CHICO-NAZARIO 
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice

REYNATO S. PUNO LEONARDO A. QUISUMBING

Associate Justice Asscociate Justice

CONSUELO YNARES-SANTIAGO ANGELINA SANDOVAL-GUTIERREZ

Associate Justice Asscociate Justice

ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Asscociate Justice

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Asscociate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

DANTE O. TINGA CANCIO C. GARCIA

Associate Justice Asscociate Justice

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.
ARTEMIO V. PANGANIBAN 
Chief Justice

5. MIA v. CA, 495 5 591

https://www.lawphil.net/judjuris/juri2006/jul2006/gr_155650_2006.html

EN BANC

G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, 

vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA)
Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila
International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and
buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further
provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless
specifically approved by the President of the Philippines. 5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC
opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax
imposed by the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the
taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
 E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on
the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport
Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out
that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of
exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate
tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque
from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The
petition was docketed as CA-G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration
and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for
review.7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of
Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the
main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003
issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced
the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at
the Legislative Session Hall Building of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent Ex-
Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain
respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City
Treasurer of Parañaque, and the City Assessor of Parañaque ("respondents") — from auctioning the Airport Lands
and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court
ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings.
Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO
only at 1:25 p.m. or three hours after the conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the
hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective
Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport
Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to
public use and public service, the ownership of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate
tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code
because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property
is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax
creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption
privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government
Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person,
thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of
the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings
are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the
Local Government Code has withdrawn the exemption from real estate tax granted to international airports.
Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real
estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque,
and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate
tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its
charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-
owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax
Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.
(Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is

not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be
increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties,
movable and immovable[,] which may be contributed by the National Government or transferred by it from
any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and
Management and the Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%)
of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National
Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of
the National Government in the Authority. Thereafter, the Government contribution to the capital of the
Authority shall be provided in the General Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but
it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock
corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury. 11 This prevents MIAA from qualifying as a non-stock
corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, 12 police authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order." 15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department framework. The
MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its
operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled corporations in the
strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship
and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide." 18

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of
money that has to be handled by government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such
agencies.19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended
to tax government instrumentalities for the delivery of essential public services for sound and compelling
policy considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the powers
vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or
the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
 (2) Those which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is
patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service,
shall form part of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the
State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international
and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the
public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation
by the government of a tollway does not change the character of the road as one for public use. Someone must pay
for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using the road. The tollway system
is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is of public dominion
or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the
government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can
use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of
the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the
public who actually use a public facility instead of taxing all the public including those who never use the particular
public facility. A user's tax is more equitable — a principle of taxation mandated in the 1987 Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic," 22 are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this
Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public
works of general service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff
 municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which
it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be
the object of a contract, and plazas and streets are outside of this commerce, as was decided by the
supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot
be sold because they are by their very nature outside of commerce are those for public use, such as
the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the
commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available
to the public in general. They are outside the commerce of man and cannot be disposed of or even leased
by the municipality to private parties. While in case of war or during an emergency, town plazas may be
occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of
Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the
town officials should see to it that the town plazas should ever be kept open to the public and free from
encumbrances or illegal private constructions.24 (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void
for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel
the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public
usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law governing the classification and disposition of lands of the public
domain other than timber and mineral lands," 27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as reservations for
the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the
public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power
sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until
again declared alienable under the provisions of this Act or by proclamation of the President.
(Emphasis and underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains
with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use,
is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
 SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12,
Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by
the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by
the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President,
unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive
head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign
such deed of conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of
Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands
and other appropriate government agencies shall undertake an actual survey of the area transferred within
one year from the promulgation of this Executive Order and the corresponding title to be issued in the name
of the Authority. Any portion thereof shall not be disposed through sale or through any other mode
unless specifically approved by the President of the Philippines. (Emphasis supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities,
runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the operation of crash fire
and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation
and Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a
division under the Bureau of Air Transportation is hereby abolished.
 x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to
MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of airport accommodation and service comparable
with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet
the current and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will
best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and instrumentalities of the Government[.]
(Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a
division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA's assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines." This only means
that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of
the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the
Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who
can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands
and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the
Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments
from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies
and instrumentalitiesx x x." The real properties owned by the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."
MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government
Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to
real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to
a taxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the
land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government
Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the
Code. Section 193 provides:

SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate
tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down
the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or
the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not
just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation
from Section 133(o) to ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the
tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the
Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing
any kind of tax on national government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and
local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government,
its agencies and instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving
clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real
estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax
by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the
three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It
would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section
193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code.
This theory will result in gross absurdities. It will make the national government, which itself is a juridical person,
subject to tax by local governments since the national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real
estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be
subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities
vested by law with juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research
Institute,31Laguna Lake

Development Authority,32 Fisheries Development Authority, 33 Bases Conversion Development Authority,34Philippine

Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and
Philippine National Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not
distinguish between national government instrumentalities with or without juridical personalities. Where the law does
not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local
taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code."
This means that unless the Local Government Code grants an express authorization, local governments have no
power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have
no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local
governments may tax the national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which
makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a
taxable entity. Section 234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real
property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

x x x. (Emphasis supplied)

Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this
exemption is when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies
and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies
only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to public use or public service but devoted to the private
gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the
later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section
133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis
supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193
and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive
argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code."
By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the
exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on
certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the
power simply cannot exercise the power on matters withheld from its power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section
133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to
tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax
on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power
than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and
purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the
taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section 133,
then local governments can impose any kind of tax on the national government, its agencies and instrumentalities
— a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless
otherwise provided in this Code." This exception — which is an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to Section 234(a) of the Code. The exception to the exemption in
Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government,
its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or
controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may
require a different meaning than that defined in the Administrative Code. However, this does not automatically mean
that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different
meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language
in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from
the definition in the Administrative Code, the definition in the Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned
or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The
Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the
major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the
governing law defining the status and relationship of government departments, bureaus, offices, agencies and
instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government
unit or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to
corporations organized under the Corporation Code, the general incorporation law, and not to corporations created
by special charters. The minority sees no reason why government corporations with special charters should have a
capital stock. Thus, the minority declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code
refer to those corporations owned by the government or its instrumentalities which are created not by
legislative enactment, but formed and organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose
full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare
dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It
will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does
not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as
stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the
Philippines. The special charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into
seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully
subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten
pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-
three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion
Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are
available for subscription by the National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred
Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining
after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the
Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National
Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned
corporations organized under special charters as stock corporations are subject to real estate tax on real properties
owned by them. To rule that they are not government-owned or controlled corporations because they are not
registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the
Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the
two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-
owned or controlled corporation must be established for the common good. The second condition is that the
government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the
1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations"
through special charters only if these entities are required to meet the twin conditions of common good and
economic viability. In other words, Congress has no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of
the State for the common good — meaning for economic development purposes — these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like ordinary private
corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public
functions need not meet the test of economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These instrumentalities are
not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with
corporate powers but performing essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided these instrumentalities perform essential
government functions or public services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic viability because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from
commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the
creation of government-owned or controlled corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission
the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers' money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social
services like health and education, to augment the salaries of grossly underpaid public employees. And yet
this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And so, Madam President, I reiterate, for the
committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion
of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good. 45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however,
is the phrase "in the interest of the common good and subject to the test of economic viability." The addition
includes the ideas that they must show capacity to function efficiently in business and that they should not
go into activities which the private sector can do better. Moreover, economic viability is more than financial
viability but also includes capability to make profit and generate benefits not quantifiable in financial
terms.46(Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and
performing essential public services. The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of rendering such essential public service
does not excuse the State from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the Corporation Code, that
fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative
Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in
the market place. MIAA does not compete in the market place because there is no competing international airport
operated by the private sector. MIAA performs an essential public service as the primary domestic and international
airport of the Philippines. The operation of an international airport requires the presence of personnel from the
following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers,
screening out those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of
infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into
the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to
enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings — for the government
personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international
airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal
fees that MIAA charges every passenger are regulatory or administrative fees 47 and not income from commercial
transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of
the Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section
2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential
public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
"government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled
corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions
for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes
a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with
corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions
of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code
provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by
the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use
or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public
dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of
the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject
to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5
October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of
the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We
declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued
by the City of Parañaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the
assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport
Authority.

No costs.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio

Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.
 6. National Coal Co. v. Collector of Internal Revenue. 46 Phil. 583 [1924]
https://www.lawphil.net/judjuris/juri1924/dec1924/gr_l-22619_1924.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22619        December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee, 

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.

Attorney-General Villa-Real for appellant.

Perfecto J. Salas Rodriguez for appellee.

JOHNSON, J.:

This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the
purpose of recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to
the defendant, as specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of
the Philippine Legislature for the purpose of developing the coal industry in the Philippine Islands and is actually
engaged in coal mining on reserved lands belonging to the Government. It claimed exemption from taxes under the
provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the
plaintiff said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and costs
against the defendant.

The defendant answered denying generally and specifically all the material allegations of the complaint, except the
legal existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of
P12,044.68 was paid by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to
the Government of the Philippine Islands under the provisions of section 1496 of the Administrative Code and
prayed that the complaint be dismissed, with costs against the plaintiff.

Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by
both parties, the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in
section 15 of Act No. 2719 should be understood to mean "lands held in lease or usufruct," in harmony with the
other provision of said Act; that the coal lands possessed by the plaintiff, belonging to the Government, fell within
the provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal
extracted therefrom, as provided in said section, was the only tax which should be collected from the plaintiff; and
sentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the difference between the amount
collected under section 1496 of the Administrative Code and the amount which should have been collected under
the provisions of said section 15 of Act No. 2719. From that sentence the defendant appealed, and now makes the
following assignments of error:

I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons
and corporations.

II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the
Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No.
2719, or to the specific taxes under section 1496 of the Administrative Code.

The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of
developing the coal industry in the Philippine Island, in harmony with the general plan of the Government to
encourage the development of the natural resources of the country, and to provided facilities therefor. By said Act,
the company was granted the general powers of a corporation "and such other powers as may be necessary to
enable it to prosecute the business of developing coal deposits in the Philippine Island and of mining, extracting,
transporting and selling the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705)
the Government of the Philippine Islands is made the majority stockholder, evidently in order to insure proper
government supervision and control, and thus to place the Government in a position to render all possible
encouragement, assistance and help in the prosecution and furtherance of the company's business.

On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the
Philippine Legislature passed Act No. 2719 "to provide for the leasing and development of coal lands in the
Philippine Islands." On October 18, 1917, upon petition of the National Coal Company, the Governor-General, by
Proclamation No. 39, withdrew "from settlement, entry, sale or other disposition, all coal-bearing public lands within
the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas."
Almost immediately after the issuance of said proclamation the National Coal Company took possession of the coal
lands within the said reservation, with an area of about 400 hectares, without any further formality, contract or lease.
Of the 30,000 shares of stock issued by the company, the Government of the Philippine Islands is the owner of
29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has
mined the coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the
provisions of the section 1496 of the Administrative Code. That contention of the plaintiff leads us to an examination
of the evidence upon the question of the ownership of the land from which the coal in question was mined. Was the
plaintiff the owner of the land from which the coal in question was mined? If the evidence shows the affirmative, then
the judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff, then the
judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act.

The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr.
Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the
plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General,
known as Proclamation No. 39 of the year 1917; that no document had been issued in favor of the plaintiff
corporation; that said corporation had received no permission from the Secretary of Agriculture and Natural
Resources; that it took possession of said lands covering an area of about 400 hectares, from which the coal in
question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).

Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of
October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from
settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." It will be noted that said
proclamation only provided that all coal-bearing public lands within said province and island should be withdrawn
from settlement, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the plaintiff
or any other person to enter upon said reversations and to mine coal, and no provision of law has been called to our
attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation
without first obtaining permission therefor.

The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does
not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions
of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705
are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no greater
rights, powers or privileges than any other corporation which might be organized for the same purpose under the
Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation No. 39
withdrew "from settlement, entry, sale, or other disposition of coal-bearing public lands within the Province of
Zamboanga . . . and the Island of Polillo," it made no provision for the occupation and operation by the plaintiff, to
the exclusion of other persons or corporations who might, under proper permission, enter upon the operate coal
mines.

On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island
in "an Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal
provision. Section 1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not
be disposed of in any manner except as provided in this Act," thereby giving a clear indication that no "coal-bearing
lands of the public domain" had been disposed of by virtue of said proclamation.

Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof
found in Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands
without first having obtained permission from the Secretary of Agriculture and Natural Resources. lawphi1.net

The following propositions are fully sustained by the facts and the law:

(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no
greater powers nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10
of Act No. 2719, and they do not change the situation here.

(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.

(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of
article 1946 of the Administrative Code on the 15th day of December, 1922.

(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.

(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by authority
of section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands
within the Province of Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal
Company, but for any person or corporation of the Philippine Islands or of the United States.

(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows,
without any lease or other authority from either the Secretary of Agriculture and Natural Resources or any person
having the power to grant a leave or authority.

From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The
plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes provided for under
section 15 of Act No. 2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the
internal revenue duty provided for in section 1496 of the Administrative Code. That being the issue, an examination
of the provisions of Act No. 2719 becomes necessary.

An examination of said Act (No. 2719) discloses the following facts important for consideration here:

First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner
except as provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural
Resources of "unreserved, unappropriated coal-bearing public lands," and the obligation to the Government which
shall be imposed by said Secretary upon the lessee. lawphi1.net

Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm,
association or corporation.

To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved,
unappropriated coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural
Resources; and, second, that said Act (No. 2719) provides an internal revenue duty and tax imposed upon any
person, firm, association or corporation, who may be the owner of "coal-bearing lands." A reading of said Act clearly
shows that the tax imposed thereby is imposed upon two classes of persons only — lessees and owners.
The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by
reason of what he believed to be some difference in the interpretation of the language used in Spanish and English.
While there is some ground for confusion in the use of the language in Spanish and English, we are persuaded,
considering all the provisions of said Act, that said section 15 has reference only to persons, firms, associations or
corporations which had already, prior to the existence of said Act, become the owners of coal lands. Section 15
cannot certainty refer to "holders or lessees of coal lands' for the reason that practically all of the other provisions of
said Act has reference to lessees or holders. If section 15 means that the persons, firms, associations, or
corporation mentioned therein are holders or lessees of coal lands only, it is difficult to understand why the internal
revenue duty and tax in said section was made different from the obligations mentioned in section 3 of said Act,
imposed upon lessees or holders.

From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing
lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the
provisions of section 1496 of the Administrative Code?

Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton,
fifty centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a
specific internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or
consumption, and upon things imported from the United States or foreign countries. It having been demonstrated
that the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the land from which the
coal was produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax under
the provisions of section 1496 of the Administrative Code, and is not subject to the payment of the internal revenue
tax under section 15 of Act No. 2719, nor to any other provisions of said Act.

Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all
responsibility under the complaint. And, without any finding as to costs, it is so ordered.

Street, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.

 7. Cervantes v. Auditor General, 91 Phil. 359 [1952]
https://www.lawphil.net/judjuris/juri1952/may1952/gr_l-4043_1952.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-4043             May 26, 1952

CENON S. CERVANTES, petitioner, 
vs.
THE AUDITOR GENERAL, respondent.

Cenon Cervantes in his own behalf.

Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent.

REYES, J.:

This is a petition to review a decision of the Auditor General denying petitioner's claim for quarters allowance as
manager of the National Abaca and Other Fibers Corporation, otherwise known as the NAFCO.

It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000 a year. By a resolution of
the Board of Directors of this corporation approved on January 19 of that year, he was granted quarters allowance
of not exceeding P400 a month effective the first of that month. Submitted the Control Committee of the Government
Enterprises Council for approval, the said resolution was on August 3, 1949, disapproved by the said Committee on
strenght of the recommendation of the NAFCO auditor, concurred in by the Auditor General, (1) that quarters
allowance constituted additional compensation prohibited by the charter of the NAFCO, which fixes the salary of the
general manager thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial condition of
the corporation did not warrant the granting of such allowance.

On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and approve his claim for
allowance for January to June 15, 1949, amounting to P1,650. The claim was again referred by the Control
Committee to the auditor General for comment. The latter, in turn referred it to the NAFCO auditor, who reaffirmed
his previous recommendation and emphasized that the fact that the corporation's finances had not improved. In
view of this, the auditor General also reiterated his previous opinion against the granting of the petitioner's claim and
so informed both the Control Committee and the petitioner. But as the petitioner insisted on his claim the Auditor
General Informed him on June 19, 1950, of his refusal to modify his decision. Hence this petition for review.

The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939, with a capital stock of
P20,000,000, 51 per cent of which was to be able to be subscribed by the National Government and the remainder
to be offered to provincial, municipal, and the city governments and to the general public. The management the
corporation was vested in a board of directors of not more than 5 members appointed by the president of the
Philippines with the consent of the Commission on Appointments. But the corporation was made subject to the
provisions of the corporation law in so far as they were compatible with the provisions of its charter and the
purposes of which it was created and was to enjoy the general powers mentioned in the corporation law in addition
to those granted in its charter. The members of the board were to receive each a per diem of not to exceed P30 for
each day of meeting actually attended, except the chairman of the board, who was to be at the same time the
general manager of the corporation and to receive a salary not to exceed P15,000 per annum.

On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the Philippines, among other
things, to effect such reforms and changes in government owned and controlled corporations for the purpose of
promoting simplicity, economy and efficiency in their operation Pursuant to this authority, the President on October
4, 1947, promulgated Executive Order No. 93 creating the Government Enterprises Council to be composed of the
President of the Philippines as chairman, the Secretary of Commerce and Industry as vice-chairman, the chairman
of the board of directors and managing heads of all such corporations as ex-officio members, and such additional
members as the President might appoint from time to time with the consent of the Commission on Appointments.
The council was to advise the President in the excercise of his power of supervision and control over these
corporations and to formulate and adopt such policy and measures as might be necessary to coordinate their
functions and activities. The Executive Order also provided that the council was to have a Control Committee
composed of the Secretary of Commerce and Industry as chairman, a member to be designated by the President
from among the members of the council as vice-chairman and the secretary as ex-officio member, and with the
power, among others —

(1) To supervise, for and under the direction of the President, all the corporations owned or controlled by the
Government for the purpose of insuring efficiency and economy in their operations;

(2) To pass upon the program of activities and the yearly budget of expenditures approved by the respective
Boards of Directors of the said corporations; and

(3) To carry out the policies and measures formulated by the Government Enterprises Council with the
approval of the President. (Sec. 3, Executive Order No. 93.)

With its controlling stock owned by the Government and the power of appointing its directors vested in the President
of the Philippines, there can be no question that the NAFCO is Government controlled corporation subject to the
provisions of Republic Act No. 51 and the executive order (No. 93) promulgated in accordance therewith.
Consequently, it was also subject to the powers of the Control Committee created in said executive order, among
which is the power of supervision for the purpose of insuring efficiency and economy in the operations of the
corporation and also the power to pass upon the program of activities and the yearly budget of expenditures
approved by the board of directors. It can hardly be questioned that under these powers the Control Committee had
the right to pass upon, and consequently to approve or disapprove, the resolution of the NAFCO board of directors
granting quarters allowance to the petitioners as such allowance necessarily constitute an item of expenditure in the
corporation's budget. That the Control Committee had good grounds for disapproving the resolution is also clear,
for, as pointed out by the Auditor General and the NAFCO auditor, the granting of the allowance amounted to an
illegal increase of petitioner's salary beyond the limit fixed in the corporate charter and was furthermore not justified
by the precarious financial condition of the corporation.

It is argued, however, that Executive Order No. 93 is null and void, not only because it is based on a law that is
unconstitutional as an illegal delegation of legislature power to executive, but also because it was promulgated
beyond the period of one year limited in said law.

The second ground ignores the rule that in the computation of the time for doing an act, the first day is excluded and
the last day included (Section 13 Rev. Ad. Code.) As the act was approved on October 4, 1946, and the President
was given a period of one year within which to promulgate his executive order and that the order was in fact
promulgated on October 4, 1947, it is obvious that under the above rule the said executive order was promulgated
within the period given.

As to the first ground, the rule is that so long as the Legislature "lays down a policy and a standard is established by
the statute" there is no undue delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes in government-controlled corporations, lays down a
standard and policy that the purpose shall be to meet the exigencies attendant upon the establishment of the free
and independent government of the Philippines and to promote simplicity, economy and efficiency in their
operations. The standard was set and the policy fixed. The President had to carry the mandate. This he did by
promulgating the executive order in question which, tested by the rule above cited, does not constitute an undue
delegation of legislative power.

It is also contended that the quarters allowance is not compensation and so the granting of it to the petitioner by the
NAFCO board of directors does not contravene the provisions of the NAFCO charter that the salary of the chairman
of said board who is also to be general manager shall not exceed P15,000 per anum. But regardless of whether
quarters allowance should be considered as compensation or not, the resolution of the board of the directors
authorizing payment thereof to the petitioner cannot be given effect since it was disapproved by the Control
Committee in the exercise of powers granted to it by Executive Order No. 93. And in any event, petitioner's
contention that quarters allowance is not compensation, a proposition on which American authorities appear
divided, cannot be insisted on behalf of officers and employees working for the Government of the Philippines and
its Instrumentalities, including, naturally, government-controlled corporations. This is so because Executive Order
No. 332 of 1941, which prohibits the payment of additional compensation to those working for the Government and
its Instrumentalities, including government-controlled corporations, was in 1945 amended by Executive Order No. 77
by expressly exempting from the prohibition the payment of quarters allowance "in favor of local government officials
and employees entitled to this under existing law." The amendment is a clear indication that quarters allowance was
meant to be included in the term "additional compensation", for otherwise the amendment would not have expressly
excepted it from the prohibition. This being so, we hold that, for the purpose of the executive order just mentioned,
quarters allowance is considered additional compensation and, therefore, prohibited.

In view of the foregoing, the petition for review is dismissed, with costs.

Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo, JJ., concur.
 8. PNOC-Energy Dev. Corp v. NLRC, 201 SCRA 487 [1991]
https://www.lawphil.net/judjuris/juri1991/sep1991/gr_79182_1991.html

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 79182 September 11, 1991

PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner, 

vs.
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO, respondents.

Bacorro & Associates for petitioner.

Alberto L. Dalmacion for private respondent.

PARAS, J.:

This is a petition for certiorari to set aside the Resolution   dated July 3, 1987 of respondent National Labor Relations
*

Commission (NLRC for brevity) which affirmed the decision dated April 30, 1986 of Labor Arbiter Vito J. Minoria of
the NLRC, Regional Arbitration Branch No. VII at Cebu City in Case No. RAB-VII-0556-85 entitled "Danilo Mercado,
Complainant, vs. Philippine National Oil Company-Energy Development Corporation, Respondent", ordering the
reinstatement of complainant Danilo Mercado and the award of various monetary claims.

The factual background of this case is as follows:

Private respondent Danilo Mercado was first employed by herein petitioner Philippine National Oil Company-Energy
Development Corporation (PNOC-EDC for brevity) on August 13, 1979. He held various positions ranging from
clerk, general clerk to shipping clerk during his employment at its Cebu office until his transfer to its establishment at
Palimpinon, Dumaguete, Oriental Negros on September 5, 1984. On June 30, 1985, private respondent Mercado
was dismissed. His last salary was P1,585.00 a month basic pay plus P800.00 living allowance (Labor Arbiter's
Decision, Annex "E" of Petition, Rollo, p. 52).

The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty committed as follows:

1. On ApriI 12, 1985, Danilo Mercado was ordered to purchase 1,400 pieces of nipa shingles from Mrs.
Leonardo Nodado of Banilad, Dumaguete City, for the total purchase price of Pl,680.00. Against company
policy, regulations and specific orders, Danilo Mercado withdrew the nipa shingles from the supplier but paid
the amount of P1,000.00 only. Danilo Mercado appropriated the balance of P680.00 for his personal use;

2. In the same transaction stated above, the supplier agreed to give the company a discount of P70.00
which Danilo Mercado did not report to the company;

3. On March 28, 1985, Danilo Mercado was instructed to contract the services of Fred R. Melon of
Dumaguete City, for the fabrication of rubber stamps, for the total amount of P28.66. Danilo Mercado paid
the amount of P20.00 to Fred R. Melon and appropriated for his personal use the balance of P8.66.
 In addition, private respondent, Danilo Mercado violated company rules and regulations in the following
instances:

1. On June 5, 1985, Danilo Mercado was absent from work without leave, without proper turn-over of his
work, causing disruption and delay of company work activities;

2. On June 15, 1985, Danilo Mercado went on vacation leave without prior leave, against company policy,
rules and regulations. (Petitioner's Memorandum, Rollo, p. 195).

On September 23, 1985, private respondent Mercado filed a complaint for illegal dismissal, retirement benefits,
separation pay, unpaid wages, etc. against petitioner PNOC-EDC before the NLRC Regional Arbitration Branch No.
VII docketed as Case No. RAB-VII-0556-85.

After private respondent Mercado filed his position paper on December 16, 1985 (Annex "B" of the Petition, Rollo,
pp. 28-40), petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss on January 15, 1986, praying for the
dismissal of the case on the ground that the Labor Arbiter and/or the NLRC had no jurisdiction over the case (Annex
"C" of the Petition, Rollo, pp. 41-45), which was assailed by private respondent Mercado in his Opposition to the
Position Paper/Motion to Dismiss dated March 12, 1986 (Annex "D" of the Petition, Rollo, pp. 46-50).

The Labor Arbiter ruled in favor of private respondent Mercado. The dispositive onion of said decision reads as
follows:

WHEREFORE, in view of the foregoing, respondents are hereby ordered:

1) To reinstate complainant to his former position with full back wages from the date of his dismissal up to
the time of his actual reinstatement without loss of seniority rights and other privileges;

2) To pay complainant the amount of P10,000.00 representing his personal share of his savings account
with the respondents;

3) To pay complainants the amount of P30,000.00 moral damages; P20,000.00 exemplary damages and
P5,000.00 attorney's fees;

4) To pay complainant the amount of P792.50 as his proportionate 13th month pay for 1985.

Respondents are hereby further ordered to deposit the aforementioned amounts with this Office within ten
days from receipt of a copy of this decision for further disposition.

SO ORDERED. 
(Labor Arbiter's Decision, Rollo, p. 56)

The appeal to the NLRC was dismissed for lack of merit on July 3, 1987 and the assailed decision was affirmed.

Hence, this petition.

The issues raised by petitioner in this instant petition are:

1. Whether or not matters of employment affecting the PNOC-EDC, a government-owned and controlled
corporation, are within the jurisdiction of the Labor Arbiter and the NLRC.

2. Assuming the affirmative, whether or not the Labor Arbiter and the NLRC are justified in ordering the
reinstatement of private respondent, payment of his savings, and proportionate 13th month pay and
payment of damages as well as attorney's fee.

Petitioner PNOC-EDC alleges that it is a corporation wholly owned and controlled by the government; that the
Energy Development Corporation is a subsidiary of the Philippine National Oil Company which is a government
entity created under Presidential Decree No. 334, as amended; that being a government-owned and controlled
corporation, it is governed by the Civil Service Law as provided for in Section 1, Article XII-B of the 1973
Constitution, Section 56 of Presidential Decree No. 807 (Civil Service Decree) and Article 277 of Presidential
Decree No. 442, as amended (Labor Code).

The 1973 Constitution provides:

The Civil Service embraces every branch, agency, subdivision and instrumentality of the government
including government-owned or controlled corporations.

Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the decision at the time when the 1973
Constitution was in force, said decision is null and void because under the 1973 Constitution, government-owned
and controlled corporations were governed by the Civil Service Law. Even assuming that PNOC-EDC has no
original or special charter and Section 2(i), Article IX-B of the 1987 Constitution provides that:

The Civil Service embraces all branches, subdivision, instrumentalities and agencies of the Government,
including government-owned or controlled corporations with original charters.

such circumstances cannot give validity to the decision of the Labor Arbiter (Ibid., pp. 192-193).

This issue has already been laid to rest in the case of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5, 1989),
involving the same petitioner and the same issue, where this Court ruled that the doctrine that employees of
government-owned and/or con controlled corporations, whether created by special law or formed as subsidiaries
under the General Corporation law are governed by the Civil Service Law and not by the Labor Code, has been
supplanted by the present Constitution. "Thus, under the present state of the law, the test in determining whether a
government-owned or controlled corporation is subject to the Civil Service Law are the manner of its creation, such
that government corporations created by special charter are subject to its provisions while those incorporated under
the General Corporation Law are not within its coverage."

Specifically, the PNOC-EDC having been incorporated under the General Corporation Law was held to be a
government owned or controlled corporation whose employees are subject to the provisions of the Labor Code
(Ibid.).

The fact that the case arose at the time when the 1973 Constitution was still in effect, does not deprive the NLRC of
jurisdiction on the premise that it is the 1987 Constitution that governs because it is the Constitution in place at the
time of the decision (NASECO v. NLRC, G.R. No. 69870, 168 SCRA 122 [1988]).

In the case at bar, the decision of the NLRC was promulgated on July 3, 1987. Accordingly, this case falls squarely
under the rulings of the aforementioned cases.

As regards the second issue, the record shows that PNOC-EDC's accusations of dishonesty and violations of
company rules are not supported by evidence. Nonetheless, while acknowledging the rule that administrative bodies
are not governed by the strict rules of evidence, petitioner PNOC-EDC alleges that the labor arbiter's propensity to
decide the case through the position papers submitted by the parties is violative of due process thereby rendering
the decision null and void (Ibid., p. 196).

On the other hand, private respondent contends that as can be seen from petitioner's Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57- 64), the latter never questioned the
findings of facts of the Labor Arbiter but simply limited its objection to the lack of legal basis in view of its stand that
the NLRC had no jurisdiction over the case (Private Respondent's Memorandum, Rollo, p. 104).

Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January 15, 1986 (Annex "C" of the Petition
Rollo, pp. 41-45) before the Regional Arbitration Branch No. VII of Cebu City and its Motion for Reconsideration
and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57-64) before the NLRC of Cebu City.
Indisputably, the requirements of due process are satisfied when the parties are given an opportunity to submit
position papers. What the fundamental law abhors is not the absence of previous notice but rather the absolute lack
of opportunity to ventilate a party's side. There is no denial of due process where the party submitted its position
paper and flied its motion for reconsideration (Odin Security Agency vs. De la Serna, 182 SCRA 472 [February 21,
1990]). Petitioner's subsequent Motion for Reconsideration and/or Appeal has the effect of curing whatever
irregularity might have been committed in the proceedings below (T.H. Valderama and Sons, Inc. vs. Drilon, 181
SCRA 308 [January 22, 1990]).

Furthermore, it has been consistently held that findings of administrative agencies which have acquired expertise
because their jurisdiction is confined to specific matters are accorded not only respect but even finality (Asian
Construction and Development Corporation vs. NLRC, 187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation vs.
Federation of Free Workers, 189 SCRA 179 [August 30, 1990]). Judicial review by this Court does not go so far as
to evaluate the sufficiency of the evidence but is limited to issues of jurisdiction or grave abuse of discretion
(Filipinas Manufacturers Bank vs. NLRC, 182 SCRA 848 [February 28, 1990]). A careful study of the records shows
no substantive reason to depart from these established principles.

While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee, such loss or
breach of trust must have some basis (Gubac v. NLRC, 187 SCRA 412 [July 13, 1990]). As found by the Labor
Arbiter, the accusations of petitioner PNOC-EDC against private respondent Mercado have no basis. Mrs. Leonardo
Nodado, from whom the nipa shingles were purchased, sufficiently explained in her affidavit (Rollo, p. 36) that the
total purchase price of P1,680.00 was paid by respondent Mercado as agreed upon. The alleged discount given by
Mrs. Nodado is not supported by evidence as well as the alleged appropriation of P8.66 from the cost of fabrication
of rubber stamps. The Labor Arbiter, likewise, found no evidence to support the alleged violation of company rules.
On the contrary, he found respondent Mercado's explanation in his affidavit (Rollo, pp. 38-40) as to the alleged
violations to be satisfactory. Moreover, these findings were never contradicted by petitioner petitioner PNOC-EDC.

PREMISES CONSIDERED, the petition is DENIED and the resolution of respondent NLRC dated July 3, 1987 is
AFFIRMED with the modification that the moral damages are reduced to Ten Thousand (P10,000.00) Pesos, and
the exemplary damages reduced to Five Thousand (P5,000.00) Pesos.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla and Regalado, JJ., concur.

Sarmiento, J., is on leave.
 9. Davao City Water District v. Civil Service Commission, 201 SCRA 593 [1991]
https://www.lawphil.net/judjuris/juri1991/sep1991/gr_95237_38_1991.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 95237-38 September 13, 1991

DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER
DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY WATER
DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER
DISTRICT, LA UNION WATER DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT,
URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM
WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN WATER
DISTRICT,petitioners, 
vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.

Rodolfo S. De Jesus for petitioners.

Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-Tingzon for CSC.

MEDIALDEA, J.:p

Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No.
198, as amended, are government-owned or controlled corporations with original charter falling under the Civil
Service Law and/or covered by the visitorial power of the Commission on Audit is the issue which the petitioners
entreat this Court, en banc, to shed light on.

Petitioners are among the more than five hundred (500) water districts existing throughout the country formed
pursuant to the provisions of Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479,
otherwise known as the "Provincial Water Utilities Act of 1973."

Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his legislative power
under Proclamation No. 1081. It authorized the different local legislative bodies to form and create their respective
water districts through a resolution they will pass subject to the guidelines, rules and regulations therein laid down.
The decree further created and formed the "Local Water Utilities Administration" (LWUA), a national agency
attached to the National Economic and Development Authority (NEDA), and granted with regulatory power
necessary to optimize public service from water utilities operations.

The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on Audit (COA),
both government agencies and represented in this case by the Solicitor General.

On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No. 63742, 172
SCRA 253):
 Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of the government, including government-owned
and controlled corporations with original charters. Inasmuch as PD No. 198, as amended, is the original
charter of the petitioner, Tanjay Water District, and respondent Tarlac Water District and all water districts in
the country, they come under the coverage of the Civil Service Law, rules and regulations. (Sec. 35, Art. VIII
and Sec. 37, Art. IX of PD No. 807).

As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the dispositive portion of
which reads:

NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby resolves to rule that
Local Water Districts, being quasi-public corporations created by law to perform public services and supply
public wants, the matter of hiring and firing of its officers and employees should be governed by the Civil
Service Law, rules and regulations. Henceforth, all appointments of personnel of the different local water
districts in the country shall be submitted to the Commission for appropriate action. (Rollo. p. 22).

However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National Labor Relations
Commission, et al.," the Third Division of this Court ruled in a minute resolution:

x x x           x x x          x x x

Considering that PD 198 is a general legislation empowering and/or authorizing government agencies and
entities to create water districts, said PD 198 cannot be considered as the charter itself creating the Water
District. Public respondent NLRC did not commit any grave abuse of discretion in holding that the operative
act, that created the Metro Iloilo Water District was the resolution of the Sangguniang Panglunsod of Iloilo
City. Hence, the employees of Water Districts are not covered by Civil Service Laws as the latter do (sic) not
have original charters.

In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-575 by issuing
Resolution No. 90-770 which reads:

x x x           x x x          x x x

NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it hereby rules, that
the implementation of CSC. Resolution No. 575 dated June 27, 1990 be deferred in the meantime pending
clarification from the Supreme Court are regards its conflicting decisions in the cases of Tanjay Water
District v. Gabaton and Metro Iloilo Water District v. National Labor Relations Commission. (p. 26, Rollo)

In the meanwhile, there exists a divergence of opinions between COA on one hand, and the (LWUA), on the other
hand, with respect to the authority of COA to audit the different water districts.

COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in them by
law (letter of COA to LWUA dated August 13, 1985, pp. 29-30, Rollo).

On the other hand, LWUA maintained that only those water districts with subsidies from the government fall within
the COA's jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision of the
Government Auditing Code of the Phils.

It is to be observed that just like the question of whether the employees of the water districts falls under the
coverage of the Civil Service Law, the conflict between the water districts and the COA is also dependent on the
final determination of whether or not water districts are government-owned or controlled corporations with original
charter. The reason behind this is Sec. 2(1), Article IX-D of the 1987 constitution which reads:

Sec. 2(1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle
all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies or
 instrumentalities, including government-owned or controlled corporations with original charters, and on a
post audit basis. (emphasis supplied)

Petitioners' main argument is that they are private corporations without original charter, hence they are outside the
jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case which declared petitioners as
quasi-public corporations created by virtue of PD 198, a general legislation which cannot be considered as the
charter itself creating the water districts. Holding on to this ruling, petitioners contend that they are private
corporations which are only regarded as quasi-public or semi-public because they serve public interest and
convenience and that since PD 198 is a general legislation, the operative act which created a water district is not the
said decree but the resolution of the sanggunian concerned.

After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well as the
constitutional provisions involved, We rule against the petitioners and reiterate Our ruling in Tanjay case declaring
water districts government-owned or controlled corporations with original charter.

As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA 730), We
already ruled that a water district is a corporation created pursuant to a special law — P.D. No. 198, as amended,
and as such its officers and employees are covered by the Civil Service Law.

In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA 272), We ruled
once again that local water districts are quasi-public corporations whose employees belong to the Civil Service. The
Court's pronoucement in this case, as extensively quoted in the Tanjay case, supra, partly reads:

"The only question here is whether or not local water districts are governmkent owned or controlled
corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section
25 of Presidential decree No. 198, known as the Provincial Water Utilities Act of 1973" which went onto
effect in 25 May 1973, and which provides as follows:

Exemption from Civil Service. — The district and its employees, being engaged in a proprietary
function, are hereby exempt from the provisions of the Civil Service Law. Collective Bargaining shall
be available only to personnel below supervisory levels: Provided, however, That the total of all
salaries, wages emoluments, benefits or other compensation paid to all employees in any month
shall not exceed fifty percent (50%) of average net monthy revenue. Said net revenue representing
income from water sales and sewerage service charges, less pro-rata share of debt service and
expenses for fuel or energy for pumping during the preceding fiscal year.

The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479, which went into
effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198 quoted above, and Section 26 of
PD 198 was renumbered as Section 25 in the following manner:

Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:

Section 25. Authorization. — The district may exercise all the powers which are expressly granted by this
Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the
purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain,
the exercise thereof shall, however, be subject to review by the Administration.

Thus, Section 25 of PD 198 exempting the employees of water districts from the application of the Civil
Service Law was removed from the statute books:

x x x           x x x          x x x

We grant the petition for the following reasons:

 1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD No. 198 was
amended ro read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree took effect on June 11,
1978.

x x x           x x x          x x x

3. The BWD is a corporation created pursuant to a special law — PD No. 198, as amended. As such its
officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).

Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the different water
districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a special purpose which is
intended to meet a particular set of conditions and cirmcumstances. The fact that said decree generally applies to all
water districts throughout the country does not change the fact that PD 198 is a special law. Accordingly, this
Court's resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby abandoned.

By "government-owned or controlled corporation with original charter," We mean government owned or controlled
corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case
of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:

The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No
69870, promulgated on 29 November 1988, quoting extensively from the deliberations of 1986 Constitutional
Commission in respect of the intent and meaning of the new phrase "with original character," in effect held
that government-owned and controlled corporations with original charter refer to corporations chartered by
special law as distinguished from corporations organized under our general incorporation statute — the
Corporations Code. In NASECO, the company involved had been organized under the general incorporation
statute and was a sbusidiary of the National Investment Development Corporation (NIDC) which in turn was
a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-
owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service.
(emphasis supplied)

From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those
corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said
code, but on the contrary, they were created pursuant to a special law and are governed primarily by its provision.

No consideration may thus be given to petitioners' contention that the operative act which created the water districts
are the resolutions of the respective local sanggunians and that consequently, PD 198, as amended, cannot be
considered as their charter.

It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a district.
Section 6 of said decree provides:

Sec. 6. Formation of District. — This Act is the source of authorization and power to form and maintain a
district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any
political subdivision, . . . .

Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a charter
creating a juridical person. For example, Section 6(a) provides for the name that will be used by a water district,
thus:

Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall enact a resolution
containing the following:

a) The name of the local water district, which shall include the name of the city, municipality, or province, or
region thereof, served by said system, followed by the words "Water District."

It also prescribes for the numbers and qualifications of the members of the Board of Directors:
 Sec. 8. Number and Qualification. — The Board of Directors of a district shall be composed of five citizens of
the Philippines who are of voting age and residents within the district. One member shall be a representative
of civic-oriented service clubs, one member of representative of professional associations, one member a
representative of business, commercial or financial organizations, one member a representative of
educational institutions and one member a representative of women's organization. No public official shall
serve as director. Provided, however, that if the district has availed of the financial assistance of the
Administration, the Administration may appoint any of its personnel to sit in the board of directors with all the
rights and privileges appertaining to a regular member for such period as the indebtedness remains unpaid
in which case the board shall be composed of six members; (as amended by PDs Nos. 768 and 1479).

the manner of their appointment and nominations;

Sec. 9. Appointment. — Board members shall be appointed by the appointing authority. Said appointments
shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations are
submitted, the appointing authority shall appoint any qualified person of the category to the vacant position;

Sec.10. Nominations. — On or before October 1 of each even numbered year, the secretary of the district
shall contact each known organization, association, or institution being represented by the director whose
term will expire on December 31 and solicit nominations from these organizations to fill the position for the
ensuing term. One nomination may be submitted in writing by each such organization to the Secretary of the
district on or before November 1 of such year: This list of nominees shall be transmitted by the Secretary of
the district to the office of the appointing authority on or before November 15 of such year and he shall make
his appointment from the list submitted on or before December 15. In the event the appointing authority fails
to make his appointments on or before December 15, selection shall be made from said list of nominees by
majority vote of the seated directors of the district constituting a quorum. Initial nominations for all five seats
of the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution
forming the district. Thirty days thereafter, a list of nominees shall be submitted to the provincial governor in
the event the resolution forming the district is by a provincial board, or the mayor of the city or municipality in
the event the resolution forming the adoption of the district is by the city or municipal board of councilors,
who shall select the initial directors therefrom within 15 days after receipt of such nominations;

their terms of office:

Sec. 11. Term of Office. — Of the five initial directors of each newly formed district, two shall be appointed
for a maximum term of two years, two for a maximum term of four years, and one for a maximum term of six
years. Terms of office of all directors in a given district shall be such that the term of at least one director, but
not more then two, shall expire on December 31 of each even-numbered year. Regular terms of office after
the initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors may be
removed for cause only, subject to review and approval of the Administration; (as amended by PD 768).

the manner of filling up vacancies:

Sec. 12. Vacancies. — In the event of a vacancy in the board of directors occurring more than six months
before expiration of any director's term, the remaining directors shall within 30 days, serve notice to or
request the secretary of the district for nominations and within 30 days, thereafter a list of nominees shall be
submitted to the appointing authority for his appointment of a replacement director from the list of nominees.
In the absence of such nominations, the appointing authority shall make such appointment. If within 30 days
after submission to him of a list of nominees the appointing authority fails to make an appointment, the
vacancy shall be filled from such list by a majority vote of the remaining members of the Board of Directors
constituting a quorum. Vacancies occurring within the last six months of an unexpired term shall also be
filled by the Board in the above manner. The director thus appointed shall serve the unexpired term only; (as
amended by PD 768).

and the compensation and personal liability of the members of the Board of Directors:

Sec. 13. Compensation. — Each director shall receive a per diem, to be determined by the board, for each
meeting of the board actually attended by him, but no director shag receive per diems in any given month in
 excess of the equivalent of the total per diems of four meetings in any given month. No director shall receive
other compensation for services to the district.

Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD
768).

Sec. 14. Personal Liability. — No director may be held to be personally liable for any action of the district.

Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually contained
in other corporate charters. The conclusion is inescapable that the said decree is in truth and in fact the charter of
the different water districts for it clearly defines the latter's primary purpose and its basic organizational set-up. In
other words, PD 198, as amended, is the very law which gives a water district juridical personality. While it is true
that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion
that said resolution cannot be considered as its charter, the same being intended only to implement the provisions
of said decree. In passing a resolution forming a water district, the local sanggunian is entrusted with no authority or
discretion to grant a charter for the creation of a private corporation. It is merely given the authority for the formation
of a water district, on a local option basis, to be exercised under and in pursuance of PD 198.

More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b) of the
same decree which reads:

Sec. 3(b). Appointing authority. — The person empowered to appoint the members of the Board of Directors
of a local water district, depending upon the geographic coverage and population make-up of the particular
district. In the event that more than seventy-five percent of the total active water service connections of a
local water districts are within the boundary of any city or municipality, the appointing authority shall be the
mayor of that city or municipality, as the case may be; otherwise, the appointing authority shall be the
governor of the province within which the district is located: Provided, That if the existing waterworks system
in the city or municipality established as a water district under this Decree is operated and managed by the
province, initial appointment shall be extended by the governor of the province. Subsequent appointments
shall be as specified herein.

If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governors then the power to appoint shall rotate between the governors involved with
the initial appointments made by the governor in whose province the greatest number of service connections
exists (as amended by PD 768).

The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. It is
clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the local
executives of the local subdivision units where such districts are located. In contrast, the members of the Board of
Directors or trustees of a private corporation are elected from among the members and stockholders thereof. It
would not be amiss to emphasize at this point that a private corporation is created for the private purpose, benefit,
aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free
hand to choose those who will compose the governing body of their corporation. But this is not the case here and
this clearly indicates that petitioners are definitely not private corporations.

The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this may
bring to the thousands of water districts' employees throughout the country who stand to be affected because they
do not have the necessary civil service eligibilities. As these employees are equally protected by the constitutional
guarantee to security of tenure, We find it necessary to rule for the protection of such right which cannot be impaired
by a subsequent ruling of this Court. Thus, those employees who have already acquired their permanent
employment status at the time of the promulgation of this decision cannot be removed by the mere reason that they
lack the necessary civil service eligibilities.

ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or controlled
corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA.

SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Padilla, Griño-Aquino, Regalado and Davide, Jr., JJ.,
concur.
Gutierrez, Jr., Feliciano and Sarmiento, JJ., are on leave.

Religious Sole and Aggregate [Sec. 107 et. seq.]

1. Director of Land v. IAC, 146 SCRA 509 [1986]
https://www.lawphil.net/judjuris/juri1986/dec1986/gr_73002_1986.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 73002 December 29, 1986

THE DIRECTOR OF LANDS, petitioner, 

vs.
INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC., ETC., respondents.

D. Nacion Law Office for private respondent.

NARVASA, J.:

The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate Appellate Court
affirming a decision of the Court of First Instance of Isabela, which ordered registration in favor of Acme Plywood &
Veneer Co., Inc. of five parcels of land measuring 481, 390 square meters, more or less, acquired by it from
Mariano and Acer Infiel, members of the Dumagat tribe.

The registration proceedings were for confirmation of title under Section 48 of Commonwealth Act No. 141 (The
Public Land Act). as amended: and the appealed judgment sums up the findings of the trial court in said
proceedings in this wise:

1. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario is a corporation duly
organized in accordance with the laws of the Republic of the Philippines and registered with the Securities
and Exchange Commission on December 23, 1959;

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can acquire real properties
pursuant to the provisions of the Articles of Incorporation particularly on the provision of its secondary
purposes (paragraph (9), Exhibit 'M-l');

3. That the land subject of the Land Registration proceeding was ancestrally acquired by Acme Plywood &
Veneer Co., Inc., on October 29, 1962, from Mariano Infiel and Acer Infiel, both members of the Dumagat
tribe and as such are cultural minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as the sale took place on
October 29, 1962;

5. That the possession of the Infiels over the land relinquished or sold to Acme Plywood & Veneer Co., Inc.,
dates back before the Philippines was discovered by Magellan as the ancestors of the Infiels have
 possessed and occupied the land from generation to generation until the same came into the possession of
Mariano Infiel and Acer Infiel;

6. That the possession of the applicant Acme Plywood & Veneer Co., Inc., is continuous, adverse and public
from 1962 to the present and tacking the possession of the Infiels who were granted from whom the
applicant bought said land on October 29, 1962, hence the possession is already considered from time
immemorial.

7. That the land sought to be registered is a private land pursuant to the provisions of Republic Act No. 3872
granting absolute ownership to members of the non-Christian Tribes on land occupied by them or their
ancestral lands, whether with the alienable or disposable public land or within the public domain;

8. That applicant Acme Plywood & Veneer Co. Inc., has introduced more than Forty-Five Million
(P45,000,000.00) Pesos worth of improvements, said improvements were seen by the Court during its
ocular investigation of the land sought to be registered on September 18, 1982;

9. That the ownership and possession of the land sought to be registered by the applicant was duly
recognized by the government when the Municipal Officials of Maconacon, Isabela, have negotiated for the
donation of the townsite from Acme Plywood & Veneer Co., Inc., and this negotiation came to reality when
the Board of Directors of the Acme Plywood & Veneer Co., Inc., had donated a part of the land bought by
the Company from the Infiels for the townsite of Maconacon Isabela (Exh. 'N') on November 15, 1979, and
which donation was accepted by the Municipal Government of Maconacon, Isabela (Exh. 'N-l'), during their
special session on November 22, 1979.

The Director of Lands takes no issue with any of these findings except as to the applicability of the 1935 Constitution
to the matter at hand. Concerning this, he asserts that, the registration proceedings have been commenced only on
July 17, 1981, or long after the 1973 Constitution had gone into effect, the latter is the correctly applicable law; and
since section 11 of its Article XIV prohibits private corporations or associations from holding alienable lands of the
public domain, except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935 Constitution which
was in force in 1962 when Acme purchased the lands in question from the Infiels), it was reversible error to decree
registration in favor of Acme Section 48, paragraphs (b) and (c), of Commonwealth Act No. 141, as amended,
reads:

SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for confirmation
of their claims, and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

xxx xxx xxx

(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition or ownership, for at least thirty years immediately preceding the filing of the
application for confirmation of title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter.

(c) Members of the National Cultural minorities who by themselves or through their predecessors-in-interest
have been in open. continuous, exclusive and notorious possession and occupation of lands of the public
domain suitable to agriculture, whether disposable or not, under a bona fide claim of ownership for at least
30 years shall be entitled to the rights granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court which were cited
and affirmed by the Intermediate Appellate Court, it can no longer controvert before this Court-the fact that Mariano
and Acer Infiel, from whom Acme purchased the lands in question on October 29, 1962, are members of the
national cultural minorities who had, by themselves and through their progenitors, possessed and occupied those
lands since time immemorial, or for more than the required 30-year period and were, by reason thereof, entitled to
exercise the right granted in Section 48 of the Public Land Act to have their title judicially confirmed. Nor is there any
pretension that Acme, as the successor-in-interest of the Infiels, is disqualified to acquire and register ownership of
said lands under any provisions of the 1973 Constitution other than Section 11 of its Article XIV already referred to.

Given the foregoing, the question before this Court is whether or not the title that the Infiels had transferred to Acme
in 1962 could be confirmed in favor of the latter in proceedings instituted by it in 1981 when the 1973 Constitution
was already in effect, having in mind the prohibition therein against private corporations holding lands of the public
domain except in lease not exceeding 1,000 hectares.

The question turns upon a determination of the character of the lands at the time of institution of the registration
proceedings in 1981. If they were then still part of the public domain, it must be answered in the negative. If, on the
other hand, they were then already private lands, the constitutional prohibition against their acquisition by private
corporations or associations obviously does not apply.

In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et al,   where a similar
1

set of facts prevailed. In that case, Manila Electric Company, a domestic corporation more than 60% of the capital
stock of which is Filipino-owned, had purchased in 1947 two lots in Tanay, Rizal from the Piguing spouses. The lots
had been possessed by the vendors and, before them, by their predecessor-in-interest, Olimpia Ramos, since prior
to the outbreak of the Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First Instance of
Rizal, Makati Branch, for confirmation of title to said lots. The court, assuming that the lots were public land,
dismissed the application on the ground that Meralco, a juridical person, was not qualified to apply for registration
under Section 48(b) of the Public Land Act which allows only Filipino citizens or natural persons to apply for judicial
confirmation of imperfect titles to public land. Meralco appealed, and a majority of this Court upheld the dismissal. It
was held that:

..., the said land is still public land. It would cease to be public land only upon the issuance of the certificate
of title to any Filipino citizen claiming it under section 48(b). Because it is still public land and the Meralco, as
a juridical person, is disqualified to apply for its registration under section 48(b), Meralco's application cannot
be given due course or has to be dismissed.

Finally, it may be observed that the constitutional prohibition makes no distinction between (on the one
hand) alienable agricultural public lands as to which no occupant has an imperfect title and (on the other
hand) alienable lands of the public domain as to which an occupant has on imperfect title subject to judicial
confirmation.

Since section 11 of Article XIV does not distinguish, we should not make any distinction or qualification. The
prohibition applies to alienable public lands as to which a Torrens title may be secured under section 48(b).
The proceeding under section 48(b) 'presupposes that the land is public' (Mindanao vs. Director of Lands, L-
19535, July 30, 1967, 20 SCRA 641, 644).

The present Chief Justice entered a vigorous dissent, tracing the line of cases beginning with Carino in
1909   thru Susi in 1925   down to Herico in 1980,   which developed, affirmed and reaffirmed the doctrine that open,
2 3 4

exclusive and undisputed possession of alienable public land for the period prescribed by law creates the legal
fiction whereby the land, upon completion of the requisite period ipso jure and without the need of judicial or other
sanction, ceases to be public land and becomes private property. That said dissent expressed what is the better —
and, indeed, the correct, view-becomes evident from a consideration of some of the principal rulings cited therein,

The main theme was given birth, so to speak, in Carino involving the Decree/Regulations of June 25, 1880 for
adjustment of royal lands wrongfully occupied by private individuals in the Philippine Islands. It was ruled that:

It is true that the language of articles 4 and 5   attributes title to those 'who may prove' possession for the
5

necessary time and we do not overlook the argument that this means may prove in registration proceedings.
It may be that an English conveyancer would have recommended an application under the foregoing decree,
but certainly it was not calculated to convey to the mind of an Igorot chief the notion that ancient family
possessions were in danger, if he had read every word of it. The words 'may prove' (acrediten) as well or
better, in view of the other provisions, might be taken to mean when called upon to do so in any litigation.
There are indications that registration was expected from all but none sufficient to show that, for want of it,
 ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but
simply to establish it, as already conferred by the decree, if not by earlier law. ...

That ruling assumed a more doctrinal character because expressed in more categorical language, in Susi:

.... In favor of Valentin Susi, there is, moreover, the presumption juris et de jure established in paragraph (b)
of section 45 of Act No. 2874, amending Act No. 926, that all the necessary requirements for a grant by the
Government were complied with, for he has been in actual and physical possession, personally and through
his predecessors, of an agricultural land of the public domain openly, continuously, exclusively and publicly
since July 26, 1984, with a right to a certificate of title to said land under the provisions of Chapter VIII of
said Act. So that when Angela Razon applied for the grant in her favor, Valentin Susi had already acquired,
by operation of law not only a right to a grant, but a grant of the Government, for it is not necessary that a
certificate of title should be issued in order that said grant may be sanctioned by the courts, an application
therefore is sufficient, under the provisions of section 47 of Act No. 2874. If by a legal fiction, Valentin Susi
had acquired the land in question by a grant of the State, it had already ceased to be of the public domain
and had become private property, at least by presumption, of Valentin Susi, beyond the control of the
Director of Lands. Consequently, in selling the land in question of Angela Razon, the Director of Lands
disposed of a land over which he had no longer any title or control, and the sale thus made was void and of
no effect, and Angela Razon did not thereby acquire any right.  6

Succeeding cases, of which only some need be mentioned, likeof Lacaste vs. Director of Lands,   Mesina vs. Vda.
7

de Sonza,   Manarpac vs. Cabanatuan,   Miguel vs. Court of Appeals   and Herico vs. Dar, supra, by invoking and
8 9 10

affirming the Susi doctrine have firmly rooted it in jurisprudence.

Herico, in particular, appears to be squarely affirmative: 

11

.... Secondly, under the provisions of Republic Act No. 1942, which the respondent Court held to be
inapplicable to the petitioner's case, with the latter's proven occupation and cultivation for more than 30
years since 1914, by himself and by his predecessors-in-interest, title over the land has vested on petitioner
so as to segregate the land from the mass of public land. Thereafter, it is no longer disposable under the
Public Land Act as by free patent. ....

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing provision are complied
with, the possessor is deemed to have acquired, by operation of law, a right to a grant, a government grant,
without the necessity of a certificate of title being issued. The land, therefore, ceases to be of the public
domain and beyond the authority of the Director of Lands to dispose of. The application for confirmation is
mere formality, the lack of which does not affect the legal sufficiency of the title as would be evidenced by
the patent and the Torrens title to be issued upon the strength of said patent. 12

Nothing can more clearly demonstrate the logical inevitability of considering possession of public land which is of the
character and duration prescribed by statute as the equivalent of an express grant from the State than the dictum of
the statute itself   that the possessor(s) "... shall be conclusively presumed to have performed all the conditions
13

essential to a Government grant and shall be entitled to a certificate of title .... " No proof being admissible to
overcome a conclusive presumption, confirmation proceedings would, in truth be little more than a formality, at the
most limited to ascertaining whether the possession claimed is of the required character and length of time; and
registration thereunder would not confer title, but simply recognize a title already vested. The proceedings would
not originally convert the land from public to private land, but only confirm such a conversion already affected by
operation of law from the moment the required period of possession became complete. As was so well put
in Carino, "... (T)here are indications that registration was expected from all, but none sufficient to show that, for
want of it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title,
but simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a legally sufficient and
transferable title on October 29, 1962 when Acme acquired it from said owners, it must also be conceded that Acme
had a perfect right to make such acquisition, there being nothing in the 1935 Constitution then in force (or, for that
matter, in the 1973 Constitution which came into effect later) prohibiting corporations from acquiring and owning
private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial possession of the
Infiels and their ancestors, until title in their favor was actually confirmed in appropriate proceedings under the Public
Land Act, there can be no serious question of Acmes right to acquire the land at the time it did, there also being
nothing in the 1935 Constitution that might be construed to prohibit corporations from purchasing or acquiring
interests in public land to which the vendor had already acquired that type of so-called "incomplete" or "imperfect"
title. The only limitation then extant was that corporations could not acquire, hold or lease public agricultural lands in
excess of 1,024 hectares. The purely accidental circumstance that confirmation proceedings were brought under the
aegis of the 1973 Constitution which forbids corporations from owning lands of the public domain cannot defeat a
right already vested before that law came into effect, or invalidate transactions then perfectly valid and proper. This
Court has already held, in analogous circumstances, that the Constitution cannot impair vested rights.

We hold that the said constitutional prohibition   has no retroactive application to the sales application of
14

Binan Development Co., Inc. because it had already acquired a vested right to the land applied for at the
time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution. Section 2, Article
XIII of the 1935 Constitution allows private corporations to purchase public agricultural lands not exceeding
one thousand and twenty-four hectares. Petitioner' prohibition action is barred by the doctrine of vested
rights in constitutional law.

xxx xxx xxx

The due process clause prohibits the annihilation of vested rights. 'A state may not impair vested rights by
legislative enactment, by the enactment or by the subsequent repeal of a municipal ordinance, or by a
change in the constitution of the State, except in a legitimate exercise of the police power'(16 C.J.S. 1177-
78).

xxx xxx xxx

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the right of the
corporation to purchase the land in question had become fixed and established and was no longer open to
doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had the effect of
segregating the said land from the public domain. The corporation's right to obtain a patent for the land is
protected by law. It cannot be deprived of that right without due process (Director of Lands vs. CA, 123 Phil.
919).<äre||anº•1àw> 
15

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name must be regarded as
simply another accidental circumstance, productive of a defect hardly more than procedural and in nowise affecting
the substance and merits of the right of ownership sought to be confirmed in said proceedings, there being no doubt
of Acme's entitlement to the land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under
either the 1935 or the 1973 Constitution, could have had title in themselves confirmed and registered, only a rigid
subservience to the letter of the law would deny the same benefit to their lawful successor-in-interest by valid
conveyance which violates no constitutional mandate.

The Court, in the light of the foregoing, is of the view, and so holds, that the majority ruling in Meralco must be
reconsidered and no longer deemed to be binding precedent. The correct rule, as enunciated in the line of cases
already referred to, is that alienable public land held by a possessor, personally or through his predecessors-in-
interest, openly, continuously and exclusively for the prescribed statutory period (30 years under The Public Land
Act, as amended) is converted to private property by the mere lapse or completion of said period, ipso jure.
Following that rule and on the basis of the undisputed facts, the land subject of this appeal was already private
property at the time it was acquired from the Infiels by Acme. Acme thereby acquired a registrable title, there being
at the time no prohibition against said corporation's holding or owning private land. The objection that, as a juridical
person, Acme is not qualified to apply for judicial confirmation of title under section 48(b) of the Public Land Act is
technical, rather than substantial and, again, finds its answer in the dissent in Meralco:

6. To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act
allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would be
impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical error
not having filed the application for registration in the name of the Piguing spouses as the original owners and
vendors, still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco
and neither is there any prohibition against the application being refiled with retroactive effect in the name of
the original owners and vendors (as such natural persons) with the end result of their application being
granted, because of their indisputable acquisition of ownership by operation of law and the conclusive
presumption therein provided in their favor. It should not be necessary to go through all the rituals at the
great cost of refiling of all such applications in their names and adding to the overcrowded court dockets
when the Court can after all these years dispose of it here and now. (See Francisco vs. City of Davao)

The ends of justice would best be served, therefore, by considering the applications for confirmation as
amended to conform to the evidence, i.e. as filed in the names of the original persons who as natural
persons are duly qualified to apply for formal confirmation of the title that they had acquired by conclusive
presumption and mandate of the Public Land Act and who thereafter duly sold to the herein corporations
(both admittedly Filipino corporations duly qualified to hold and own private lands) and granting the
applications for confirmation of title to the private lands so acquired and sold or exchanged.

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter from themselves
applying for confirmation of title and, after issuance of the certificate/s of title in their names, deeding the lands back
to Acme. But this would be merely indulging in empty charades, whereas the same result is more efficaciously and
speedily obtained, with no prejudice to anyone, by a liberal application of the rule on amendment to conform to the
evidence suggested in the dissent in Meralco.

While this opinion seemingly reverses an earlier ruling of comparatively recent vintage, in a real sense, it breaks no
precedent, but only reaffirms and re-established, as it were, doctrines the soundness of which has passed the test of
searching examination and inquiry in many past cases. Indeed, it is worth noting that the majority opinion, as well as
the concurring opinions of Chief Justice Fernando and Justice Abad Santos, in Meralco rested chiefly on the
proposition that the petitioner therein, a juridical person, was disqualified from applying for confirmation of an
imperfect title to public land under Section 48(b) of the Public Land Act. Reference to the 1973 Constitution and its
Article XIV, Section 11, was only tangential limited to a brief paragraph in the main opinion, and may, in that context,
be considered as essentially obiter. Meralco, in short, decided no constitutional question.

WHEREFORE, there being no reversible error in the appealed judgment of the Intermediate Appellate Court, the
same is hereby affirmed, without costs in this instance.

SO ORDERED.

Feria, Yap, Fernan, Alampay, Cruz, Paras and Feliciano, JJ., concur.
 2. Republic v. Iglesia ni Cristo, 127 SCRA 687 [1984]
http://www.chanrobles.com/cralaw/1984februarydecisions.php?id=72

SECOND DIVISION

[G.R. No. L-61145. February 20, 1984.]

REPUBLIC OF THE PHILIPPINES (Director of Lands), Petitioner, v. IGLESIA NI CRISTO and

JUDGE DOMINGO M. ANGELES, Branch I, Court of First Instance of Camarines
Norte, Respondents.

The Solicitor General for Petitioner.

Joaquin Ortega and Cruz, Esguerra, Tafalla Perel & Associates for Respondents.

SYLLABUS

1. CIVIL LAW; LAND REGISTRATION; PUBLIC LAND LAW; IGLESIA NI CRISTO NOT ENTITLED TO
APPLY FOR REGISTRATION OF LAND UNDER SECTION 48(b) THEREOF. — The trial court found, and
it is a matter of judicial notice, that the Iglesia "is a duly registered corporation sole." As the
application is for confirmation of an imperfect or incomplete title, that application is necessarily
subject to the provisions of law only Filipino citizens are entitled to apply for registration of lands of
the public domain. The Iglesia is not a Filipino citizen. The lands in question are still public lands until
registered.

2. CONSTITUTIONAL LAW; PATRIMONY OF THE NATION; IGLESIA NI CRISTO AS A CORPORATION

CANNOT ACQUIRE ALIENABLE PUBLIC LAND. — Under Section 11 of Article XIV of the Constitution,
the Iglesia ni Cristo is disqualified as a corporation to hold lands of the public domain except by
lease. The Iglesia in its appellee’s brief has not shown that it is not covered by the said constitutional
and statutory provisions. Its statement on page 2 of its brief that it "is not a religious corporation"
when it filed its application is belied by the facts.

3. MERCANTILE LAW; CORPORATION LAW; IGLESIA NI CRISTO, REGISTERED AS A CORPORATION

SOLE, NOT AS A TRUSTEE; NOT QUALIFIED TO REGISTER LAND AS TRUSTEE IN THE CASE AT BAR.
— Iglesia ni Cristo contends that it is entitled to register the lands as a trustee. This contention is
erroneous. The unarguable fact is that it is a corporation sole governed by section 109 et sequitur of
the Corporation Code. It did not apply for registration as a trustee. As stated at the outset, the
matter is subject to the governing principle of stare decisis et non quieta movere (follow past
precedents and do not disturb what has been settled).

DECISION

AQUINO, J.:

This case is about the same issue which was resolved against the Iglesia ni Cristo and is, therefore,
res judicata: that, as a corporation sole, (1) it is not entitled to register lands under section 48(b) of
the Public Land Law, which refers only to Filipino citizens, and (2) that it is disqualified under section
11, Article XIV of the Constitution to hold alienable public lands except by lease. (Republic v.
Villanueva, G.R. No. 55289, June 29, 1982, 114 SCRA 875; Republic v. Gonong, G.R. No. 56025,
November 25, 1982, 118 SCRA 729; Republic v. Court of Appeals, G.R. No. 59447 and Republic v.
Cendaña, G.R. No. 60188, December 27, 1982, 119 SCRA 449 and Republic v. Court of First Instance
of Nueva Ecija, L-35273, July 25, 1983, 123 SCRA 516.) chanrobles.com.ph : virtual law library

The Iglesia on November 6, 1976 filed an application for confirmation and registration of its title over
two parcels of land located at Barrio Calabaca and the poblacion of Capalonga, Camarines Norte with
areas of 300 and 599 square meters used as sites of its chapels.

The town lot was purchased by the Iglesia on May 30, 1955 from Josefina Diezmo who in turn
purchased it from Esteban Arcea who had used the lot for residential purposes since 1920. The realty
taxes had been paid up to the time Diezmo possessed the lot.

The Calabaca lot was purchased by the Iglesia on July 18, 1973 from Basilio Parale who inherited it
from his father Simeon. It used to be coconut land. Simeon possessed the lot since 1920 and used it
for residential purposes. He paid realty taxes on the land.

The Iglesia and its predecessors claimed to have actual, public, peaceful, continuous and
uninterrupted possession of the two lots in the concept of an owner for more than thirty years
preceding the filing of the application. No realty taxes were paid by the Iglesia because it is an
exempt corporation.

The Director of Lands opposed the application. The trial court in its decision of April 30, 1982 granted
it, confirmed the title of the applicant and ordered the lands registered "in the name of Iglesia ni
Cristo, with its Executive Minister Eraño G. Manalo, as corporation sole, with office and postal
address at corner Central and Don Mariano Marcos Avenues, Diliman, Quezon City, Metro Manila." cralaw virtua1aw library

The Republic appealed under Republic Act No. 5440 in relation to Rule 45 of the Rules of Court. The
trial court found, and it is a matter of judicial notice, that the Iglesia "is a duly registered corporation
sole" (Exhs. E and F). As the application is for confirmation of an imperfect or incomplete title, that
application is necessarily subject to the following provisions of the Public Land Law, Commonwealth
Act No. 141: jgc:chanrobles.com.ph

"SEC. 48. The following described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefor, unless the Land
Registration Act, to wit: chanrob1es virtual 1aw library

(a) . . .
(b) Those who by themselves or through their predecessors in interest have been in open,
continuous, exclusive, and notorious possession and occupation of agricultural lands of the public
domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately
preceding the filing of the application for confirmation of title except when prevented by war or force
majeure. These shall be conclusively presumed to have performed all the conditions essential to a
Government grant and shall be entitled to a certificate of title under the provisions of this chapter." cralaw virtua1aw library

(c) . . .

"Sec. 49. No person claiming title to lands of the public domain not in possession of the qualifications
specified in the last preceding section may apply for the benefits of this chapter." cralaw virtua1aw library

The Iglesia is not a Filipino citizen, The lands in question are still public lands until registered (Heirs
of Pelagio Zara v. Director of Lands, 127 Phil. 8). Moreover, under the aforecited section 11 of Article
XIV, it is disqualified as a corporation to hold lands of the public domain except by lease. (Manila
Electric Company v. Castro Bartolome, L-49623, June 29, 182, 114 SCRA 799; Director of Lands, v.
Lood, L-32521, September 2, 1983, 124 SCRA 460).

The Iglesia in its appellee’s brief has not shown that it is not covered by the said constitutional and
statutory provisions. Its statement on page 2 of its brief that it "is not a religious corporation" when
it filed its application is belied by the facts.

It contends that it is entitled to register the lands as a trustee. This contention is erroneous. The
unarguable fact is that it is a corporation sole governed by section 109 et sequitur of the Corporation
Code. It did not apply for registration as a trustee.

As stated at the outset, the matter is subject to the governing principle of stare decisis et non quieta
movere (follow past precedents and do not disturb what has been settled).

WHEREFORE, the trial court’s decision is reversed and set aside and the Iglesia’s application is
dismissed with costs against it.

SO ORDERED.

Concepcion, Jr., Guerrero, Abad Santos, De Castro and Escolin, JJ., concur.

Makasiar (Chairman), J., I reiterate my dissent in the cited cases.

 3. Republic v. IAC, 168 SCRA 165 [1988]
https://www.lawphil.net/judjuris/juri1988/nov1988/gr_75042_1988.html

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75042 November 29, 1988

REPUBLIC OF THE PHILIPPINES, petitioner, 

vs.
INTERMEDIATE APPELLATE COURT, ROMAN CATHOLIC BISHOP OF LUCENA, represented by Msgr. Jose
T. Sanchez, and REGIONAL TRIAL COURT, BRANCH LIII, LUCENA CITY, respondents.

The Solicitor General for petitioner.

Gilbert D. Camaligan for private respondent.

BIDIN, J.:

This is an appeal from the 1) decision * of the FIRST CIVIL CASES DIVISION of the then Intermediate Appellate Court dated May 13, 1986, in AC G.R. No. 01410
entitled the ROMAN CATHOLIC BISHOP OF Lucena, represented by Msgr. Jose T. Sanchez, applicant-appellee vs. Republic of the Philippines, et al.,
Oppositors-appellants, affirming the decision ** of the then Court of FIRST INSTANCE of Quezon, 9th Judicial District, Branch 1, dated November 4, 1980 in Land
Registration Case No. N-1106 entitled the ROMAN CATHOLIC BISHOP of Lucena, represented by Msgr. Jose T. Sanchez, applicant vs. the Director of Lands
and the Director, Bureau of Forest Development, oppositors, ordering the registration of title to the parcel of land designated, as lots 1, 2 and 3 of plan PSD-65686
and its technical descriptions, and the parcel of land described in plan PSU-112592 and its technical description, together with whatever improvements existing
thereon, in the name of the ROMAN CATHOLIC BISHOP of Lucena and 2) its resolution Dated June 19,1986, denying appellant's "Motion for Reconsideration for
lack of merit."

The factual background of the case as found by the Intermediate Appellate Court are as follows:

On February 2, 1979, the ROMAN CATHOLIC BISHOP of Lucena, represented by Msgr. Jose T.
Sanchez, filed an application for confirmation of title to four (4) parcels of land. Three of said parcels,
denominated as Lots 1, 2 and 3, respectively, of plan PSU-65686 are situated in Barrio Masin,
Municipality of Candelaria, Quezon Province. The fourth parcels under plan PSU-112592 is located
in Barrio Bucal (Taguan), same municipality and province. As basis for the application, the applicant
claimed title to the various properties through either purchase or donation dating as far back as
1928.

The legal requirements of publication and posting were duly complied with, as was the service of
copies of notice of initial hearing on the proper government officials.
In behalf of the Director of Lands and the Director of the Bureau of Forest Development, the Solicitor
General filed an Opposition on April 20, 1979, alleging therein among others, that the applicant did
not have an imperfect title or title in fee simple to the parcel of land being applied for.

At the initial hearing held on November 13, 1979, only the Provincial Fiscal in representation of the
Solicitor General appeared to interpose personal objection to the application. Hence, an Order of
General Default against the whole world was issued by the Court a quo except for the Director of
Lands and the Director of the Bureau of Forest Development.

The preliminaries dispensed with, the applicant then introduced its proofs in support of the petition,
summed up by the lower court as follows:

With respect to Lots 1, 2, and 3, plan PSU-65686.

Lots 1, 2 and 3 of plan PSU-65686 respectively containing an area of 18,977, 6,910

and 16,221 square meters, are adjoining lots & are situated in the Barrio of Masin,
Municipality of Candelaria, Province of Quezon (formerly Tayabas) (Exhibits F, F-1,
F-2 and F-3). Said lots were surveyed for the Roman Catholic Church on November
3, 1928 (Exhibit P-5) and the survey plan approved on October 20, 1929 (Exhibit F-
6).

Lot 1 was acquired by the Roman Catholic Church thru Rev. Father Raymundo
Esquenet by purchase from the spouses Atanacio Yranso and Maria Coronado on
October 20, 1928 (Exhibits G, G-1), portion of Lot 2 also by purchase thru Rev.
Father Raymundo Esquenet from the spouses Benito Maramot and Venancia
Descaller on May 22, 1969 (Exhibits M, N-1), while the remaining portion of Lot 2 and
Lot 3 were already owned and possessed by the Roman Catholic Church even prior
to the survey of the said three lots in 1928.

Records of burial of the Roman Catholic Church of Candelaria, Quezon showed that
even as early as November 1918, Lot 3 has already been utilized by the Roman
Catholic Church as its cemetery in Candelaria, Quezon (Exhibit N, N-1 to N-5). <äre||anº•1àw>

These three lots presently constituted the Roman Catholic Church cemetery in
Candelaria, Quezon.

Lots 1, 2 and 3 are declared for taxation purposes in the name of the Roman
Catholic Church under Tax Declaration Nos. 22-19-02-079, 22-19-02-077 and 22-19-
02-082 as 'cemetery site' (Exhibit S, V and T).

With respect to the parcel of land described in plan PSU-112592:

This parcel of land situated in the barrio of Bucal (Taguan), Municipality of

Candelaria, Province of Quezon (formerly Tayabas) and more particularly described
in plan PSU-1 12592 and its technical description with an area of 3,221 square
meters (Exhibit 1) was formerly owned and possessed by the spouses Paulo G.
Macasaet, and Gabriela V. de Macasaet. Said spouses, on February 26, 1941,
donated this lot to the Roman Catholic Church represented by Reverend Father
Raymundo Esquenet (Exhibit J, J-1 to J-4). It was surveyed for the Roman Catholic
Church on Aug. 16, 1940 as church site and the corresponding survey plan approved
on Jan. 15, 1941 (Exhibits I-1, I-2, 1-3).

Previously erected on this Lot was an old chapel which was demolished and new
chapel now stands in its place on the same site.

For his part, the Fiscal in a Manifestation dated July 22, 1980, said 'the State will not adduce
evidence in support of its opposition and will submit the instant case for decision.'
 Evaluating the applicant's submitted proofs, the court a quo concluded, on the basis of acquisitive
prescription at the very least, that the former had adequately shown title to the parcels of land being
claimed.

Since the acquisition of these four (4) lots by the applicant, it has been in continuous
possession and enjoyment thereof, and such possession, together with its
predecessors-in interest, covering a period of more than 52 years (at least from the
date of the survey in 1928) with respect to lots 1 and 2, about 62 years with respect
to lot 3, all of plan PSU- 65686; and more than 39 years with respect to the fourth
parcel described in plan PSU-112592 (at least from the date of the survey in 1940)
have been open, public, continuous, peaceful, adverse against the whole world, and
in the concept of owner.

Accordingly, the court ordered the registration of the four parcels together with the improvements
thereon "in the name of the ROMAN CATHOLIC BISHOP OF LUCENA, INC., a religious corporation
sole duly registered and existing under the laws of the Republic of the Philippines."

Against this decision, the Solicitor General filed a Motion for reconsideration on the following
grounds:

1. Article XIV, Section 11 of the New Constitution(1973) disqualifies a private corporation from
acquiring alienable lands for the public domain.

2. In the case at bar the application was filed after the effectivity on the New Constitution on January
17, 1973.

which was denied by the lower court for lack of merit.

Still insisting of the alleged unconstitutionality of the registration (a point which, incidentally, the
appellant never raised in the lower court prior to its Motion for Reconsideration), the Republic
elevated this appeal. (Rollo, pp. 25-28)

On May 13, 1986, the first Civil Cases Division of the Intermediate Appellate Court rendered its Decision the
dispositive part of which reads:

WHEREFORE, finding the judgment a quo to be supported by law and the evidence on record, the
same is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED. (Rollo p. 30)

A reconsideration of the aforequoted Decision was sought by Appellant Republic of the Philippines, but for lack of
merit, its motion for reconsideration was denied on June 19, 1986, by Resolution of the First Civil Case Division,
Intermediate Appellate Court which resolution reads in full:

Considering appellant Republic of the Philippines "Motion for reconsideration" filed on June 4, 1986;
the Court RESOLVED to DENY the Motion for Reconsideration for lack of merit, grounds raised
therein having all been considered in the decision. (Rollo, p. 31)

Hence, this petition.

The following are the assigned errors raised by the petitioner in its petition:

1. The decision and the resolution in question are contrary to law and decisions of this honorable
Court in Meralco vs. Castro-Bartolome and Republic, 114 SCRA 799 (prom. June
29,1982); Republic vs. Judge Villanueva and Iglesia ni Cristo, 114 SCRA 875, June 29, 1982); and
Republic vs. Judge Gonong and Iglesia ni Cristo, 118 SCRA 729-733 (November 25,1982); Director
of Lands vs. Hermanos y Hermanas, Inc. 141 SCRA 21-25 (Jan. 7,1986).
 2. The lands applied for registration were the subject of a previous registration case where a decree
of registration was already issued.

3. Respondent corporation failed to establish the indentity of the lands applied for. (Rollo, pp. 14-15)

The issue raised in this case involves the question of whether the Roman Catholic Bishop of Lucena, as a
corporation sole is qualified to apply for confirmation of its title to the four (4) parcels of land subject of this case.

Corollary thereto is the question of whether or not a corporation sole should be treated as an ordinary private
corporation, for purpose of the application of Art. XIV, Sec. 11 of the 1973 Constitution.

Article XIV, Sec. 11 of the 1973 Constitution, in part provides:

Sec. 11. .... No private corporation or association may hold alienable lands of the public domain
except by lease not to exceed one thousand hectares in area; nor may any citizen hold such lands
by lease in excess of five hundred hectares....

Sec. 48 of the Public Land Act, in part, provides:

Sec. 48. The following described citizens of the Philippines occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a Certificate of title therefor, under the Land
Registration Act, to wit:

(a) ...

(b) Those who by themselves or through their predecessor-in-interest have been in

open, continuous, exclusive, and notorious possession and occupation of agricultural
lands of the public domain under a bona fide claim of acquisition of ownership for at
least thirty years immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be conclusively
presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this chapter.

(c) ...

In its Motion for Reconsideration, petitioner contends that the Roman Catholic Bishop of Lucena (private respondent
herein) which is admittedly a corporation sole is disqualified to own and register its title over the parcels of land
involved herein. (Rollo, p. 41)

In its petition it likewise argued that being a juridical entity, private respondent cannot avail of the benefits of Sec.
48(b) of the public land law which applies to FILIPINO citizens or NATURAL persons. On the other hand, private
respondent in its MEMORANDUM espoused the contrary view.

There is no merit in this petition.

The parties herein do not dispute that since the acquisition of the four (4) lots by the applicant, it has been in
continuous possession and enjoyment thereof, and such possession, together with its predecessors-in-interest,
covering a period of more than 52 years (at least from the date of survey in 1928) with respect to lots 1 and 2, about
62 years with respect to lot 3, all of plan PSU-65686; and more than 39 years with respect to the fourth parcel
described in plan PSU-11 2592 (at least from the date of the survey in 1940) have been open, public, continuous,
peaceful, adverse against the whole world, and in the concept of owner.

Being disputed before this Court is the matter of the applicability of Art. XIV Sec. 11 of the 1973 Constitution to the
case at bar.
Petitioner argues that considering such constitutional prohibition, private respondent is disqualified to own and
register its title to the lots in question. Further, it argues that since the application for registration was filed only on
February 2, 1979, long after the 1973 Constitution took effect on January 17, 1973, the application for registration
and confirmation of title is ineffectual because at the time it was filed, private corporation had been declared
ineligible to acquire alienable lands of the public domain pursuant to Art. XIV, Sec. 11 of the said constitution. (Rollo,
p. 41)

The questioned posed before this Court has been settled in the case of DIRECTOR OF LANDS vs. Intermediate
Appellate Court (146 SCRA 509 [1986]) which reversed the ruling first enunciated in the 1982 case of Manila
Electric Co. vs. CASTRO BARTOLOME, (114 SCRA 789 [1982]) imposing the constitutional ban on public land
acquisition by private corporations which ruling was declared emphatically as res judicata on January 7, 1986
in Director of Lands vs. Hermanos y Hermanas de Sta. Cruz de Mayo, Inc., (141 SCRA 21 [1986]). In said case,
<äre||anº•1àw> 

(Director of Lands v. IAC, supra), this Court stated that a determination of the character of the lands at the time of
institution of the registration proceedings must be made. If they were then still part of the public domain, it must be
answered in the negative.

If, on the other hand, they were already private lands, the constitutional prohibition against their acquisition by
private corporation or association obviously does not apply. In affirming the Decision of the Intermediate Appellate
Court in said case, this Court adopted the vigorous dissent of the then Justice, later Chief Justice Claudio
Teehankee, tracing the line of cases beginning with CARINO,   in 1909, thru SUSI,   in 1925, down to HERICO,   in
1 2 3

1980, which developed, affirmed and reaffirmed the doctrine that open, exclusive and undisputed possession of
alienable public land for the period prescribed by law creates the legal fiction whereby the land, upon completion of
the requisite period ipso jure and without the need of judicial or other sanction, ceases to be public land and
becomes' private property. (DIRECTOR OF LANDS vs. IAC, supra, p. 518).

Nothing can more clearly demonstrate the logical inevitability of considering possession of public land which is of the
character and duration prescribed by statute as the equivalent of an express grant from the state than the dictim of
the statute itself;   that the possessor "... shall be conclusively presumed to have performed all the conditions
4

essential to a government grant and shall be entitled to a certificate of title ..." No proof being admissable to
overcome a conclusive presumption, confirmation proceedings would, in truth be little more than a formality, at the
most limited to ascertaining whether the possession claimed is of the required character and length of time, and
registration thereunder would not confer title, but simply recognize a title already vested. The proceedings would not
ORIGINALLY convert the land from public to private land, but only confirm such a conversion already effected by
operation of law from the moment the required period of possession became complete. As was so well put in
Carino, "... There are indications that registration was expected from all, but none sufficient to show that, for want of
it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but
simply to establish it, as already conferred by the decree, if not by earlier law. (DIRECTOR OF LANDS vs.
IAC, supra, p. 520).

The open, continuous and exclusive possession of the four lots by private respondent can clearly be gleaned from
the following facts on record: Lot 1 and portion of Lot 2 was acquired by purchase in 1928 and 1929, respectively.
The remaining portion of lots 2 and 3 was already owned and possessed by private respondent even prior to the
survey of said lots in 1928. In fact, records of burial of the Roman Catholic Church of Candelaria, Quezon showed
that as early as 1919, Lot 3 has already been utilized by the Roman Catholic Church as its cemetery. That at
present, said three lots are utilized as the Roman Catholic Church of Candelaria, Quezon. That said lots are
declared for taxation purposes in the name of the Roman Catholic Church. The fourth parcel of land was acquired
by donation in 1941 and same lot is utilized as church site.

It must be emphasized that the Court is not here saying that a corporation sole should be treated like an ordinary
private corporation.

In Roman Catholic Apostolic Administration of Davao, Inc. vs. Land Registration Commission, et al. (L-8451,
December 20,1957,102 Phil. 596). We articulated:

In solving the problem thus submitted to our consideration, We can say the following: A corporation
sole is a special form of corporation usually associated with the clergy. Conceived and introduced
into the common law by sheer necessity, this legal creation which was referred to as "that unhappy
freak of English Law" was designed to facilitate the exercise of the functions of ownership carried on
 by the clerics for and on behalf of the church which was regarded as the property owner (See 1
Bouvier's Law Dictionary, p. 682-683).

A corporation sole consists of one person only, and his successors (who will always be one at a
time), in some particular station, who are incorporated by law in order to give them some legal
capacities and advantages, particulary that of perpetuity, which in their natural persons they could
not have had. In this sense, the King is a sole corporation; so is a bishop, or deans distinct from their
several chapters (Reid vs. Barry, 93 fla. 849, 112 So. 846).

Pertinent to this case is the provision of Sec. 113 Batas Pambansa Blg. 68 which reads as follows:

Sec. 113. Acquisition and alienation of property. — Any corporation sole may purchase and hold real
estate and personal property for its church, charitable, benevolent or educational purposes, and may
receive bequests or gifts for such purposes. Such corporation may mortgage or sell real property
held by it upon obtaining an order for that purpose from the Court of First Instance of the province
where the property is situated; but before the order is issued, proof must be made to the satisfaction
of the Court that notice of the application for leave to mortgage or sell has been given by publication
or otherwise in such manner and for such time as said court may have directed, and that it is to the
interest of the corporation that leave to mortgage or sell should be granted. The application for leave
to mortgage or sell must be made by petition, duly verified by the chief archbishop, bishop, priest,
minister, rabbi or presiding elder acting as corporation sole, and may be opposed by any member of
the religious denomination, sect or church represented by the corporation sole: Provided, That in
cases where the rules, regulations and discipline of the religious denomination, sect or church
religious society or order concerned represented by such corporation sole regulate the method of
acquiring, holding, selling and mortgaging real estate and personal property, such rules, regulations
and discipline shall control and the intervention of the courts shall not be necessary.

There is no doubt that a corporation sole by the nature of its Incorporation is vested with the right to purchase and
hold real estate and personal property. It need not therefore be treated as an ordinary private corporation because
whether or not it be so treated as such, the Constitutional provision involved will, nevertheless, be not applicable.

In the light of the facts obtaining in this case and the ruling of this Court in Director of Lands vs. IAC, (supra, 513),
the lands subject of this petition were already private property at the time the application for confirmation of title was
filed in 1979. There is therefore no cogent reason to disturb the findings of the appellate court.

WHEREFORE, the petition is dismissed for lack of merit and the appealed decision and Resolution of the
Intermediate Appellate Court is hereby AFFIRMED.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

 Nationality of Corporations
1. Gamboa vs. Teves, 652 SCRA 680 [2011]
https://lawphil.net/judjuris/juri2011/jun2011/gr_176579_2011.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 176579               June 28, 2011

WILSON P. GAMBOA, Petitioner, 
vs.
FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION
COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF
METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC
CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE
COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS
LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.

DECISION

CARPIO, J.:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares
of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the
Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First
Pacific).

The Antecedents

The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone
Company (PLDT), are as follows:1

On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the
right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to
PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose
Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of
Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares
of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The
111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic of the Philippines. 2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent
of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the
Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding
capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public
bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of ₱25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February
2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007
to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional
Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, with the Philippine Government for the price of ₱25,217,556,000 or US$510,580,189. The sale was
completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With
the sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby
increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.3

On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and
PCGG Commissioner Ricardo Abcede allege the following relevant facts:

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC
held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on
the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis
Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently
declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC
shares were reconveyed to the Republic of the Philippines in accordance with this Court’s decision 4 which became
final and executory on 8 August 2006.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published
in nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of
₱25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results
and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTIC’s Articles of
Incorporation. First Pacific announced its intention to match Parallax’s bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public
hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla
were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the
auction of the government’s 111,415 PTIC shares bore due diligence, transparency and conformity with existing
legal procedures; and (b) First Pacific’s intended acquisition of the government’s 111,415 PTIC shares
resulting in First Pacific’s 100% ownership of PTIC will not violate the 40 percent constitutional limit on
foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common
shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of
PTIC.

Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of
111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC
shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting to
₱25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTIC’s
Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid
offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC ₱25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration
of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC
shares would result in an increase in First Pacific’s common shareholdings in PLDT from 30.7 percent to 37 percent,
and this, combined with Japanese NTT DoCoMo’s common shareholdings in PLDT, would result to a total foreign
common shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner
asserts:

If and when the sale is completed, First Pacific’s equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common – or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign
investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale, data
culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities,
which own at least five percent of common equity, will collectively own 81.47 percent of PLDT’s common equity. x x
x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership as early as 2003. x x x" 7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public
respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific;
and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common
capital stock violates the constitutional limit on foreign ownership of a public utility. 8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the
Petition-in-Intervention.

Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the
sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that,
as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine Government
is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the
nationality restrictions of the Philippine Constitution."

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner, 9 which indisputably demand a
thorough examination of the evidence of the parties, are generally beyond this Court’s jurisdiction. Adhering to this
well-settled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and
purely legal issue of whether the term "capital" in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred
shares) of PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for
prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the
Regional Trial Court and the Court of Appeals. The actions for declaratory relief, 10 injunction, and annulment of sale
are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have
been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition, 11 the Court shall nevertheless refrain
from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale
was consummated when MPAH paid IPC ₱25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII of
the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory
relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case,
which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final
judgment in the civil case for damages on the tourist’s dollar deposit with a local bank, the Court declared Section
113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any
other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that
"injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x" that would "negate
Article 10 of the Civil Code which provides that ‘in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail.’" The Court therefore required respondents
Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the
civil case for damages and to release the dollar deposit of the accused to satisfy the judgment.

In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity
of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether
the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to
which they were entitled under the law. Specifically, the question was: "Are the branches, agencies, subdivisions,
and instrumentalities of the Government, including government owned or controlled corporations included among
the four ‘employers’ under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth
(13th) month pay x x x ?" The Constitutional principle involved therein affected all government employees, clearly
justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed
presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue
involved has far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to
this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions
that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of the
Constitution. He prays that this Court declare that the term "capital" refers to common shares only, and that such
shares constitute "the sole basis in determining foreign equity in a public utility." Petitioner further asks this Court to
declare any ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to
the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class
citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of
the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the threshhold legal issue presented in this case.

The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the
Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same
public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the
constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court
declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of
courts.17There, petitioner Fernandez assailed on a pure question of law the Regional Trial Court’s Decision of 21
February 2003 via a petition for review under Rule 45. The Court’s Resolution, denying the petition, became final on
21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legal
issuewhich is of transcendental importance to the national economy and a fundamental requirement to a faithful
adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the
litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution,
"a self-reliant and independent national economy effectively controlled by Filipinos."18 Besides, in the light of
vague and confusing positions taken by government agencies on this purely legal issue, present and future foreign
investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of
their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for
over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term "capital," which appears not only in Section 11, Article XII of
the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the
development of our natural resources,19 in Section 7, Article XII on ownership of private lands, 20 in Section 10, Article
XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of
educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies. 23

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale,
which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the
sale indeed violates the Constitution, then there is a possibility that PLDT’s franchise could be revoked, a dire
consequence directly affecting petitioner’s interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic
welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to
bring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance
to the public, thus:

In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of
mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in
interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of
the laws, he need not show that he has any legal or special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then
recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to be valid
and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the
petitioners’ legal standing, the Court declared that the right they sought to be enforced ‘is a public right recognized
by no less than the fundamental law of the land.’

Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that ‘when a mandamus
proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the
mere fact that petitioner is a citizen and, therefore, part of the general ‘public’ which possesses the right.’

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under the
questioned contract for the development, management and operation of the Manila International Container
Terminal, ‘public interest [was] definitely involved considering the important role [of the subject contract] . . .
in the economic development of the country and the magnitude of the financial consideration involved.’ We
concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority
for upholding the petitioner’s standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.

Definition of the Term "Capital" in

Section 11, Article XII of the 1987 Constitution

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration,
or repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of
such corporation or association must be citizens of the Philippines. (Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or other entities organized under
the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the
Philippines,nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period
than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so
requires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the
Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the
1935 Constitutional Convention.25 The 1987 Constitution "provides for the Filipinization of public utilities by requiring
that any form of authorization for the operation of public utilities should be granted only to ‘citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens.’ The provision is [an express] recognition of the sensitive and vital position
of public utilities both in the national economy and for national security." 26 The evident purpose of the
citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the
national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to
an overriding economic goal of the 1987 Constitution: to "conserve and develop our patrimony" 28 and ensure "a self-
reliant and independent national economy effectively controlled by Filipinos."29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority
to operate a public utility, at least 60 percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article XII of
the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and
non-voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common
shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised.
Petitioner posits that the term "capital" in Section 11, Article XII of the Constitution refers to "the ownership of
common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of
PLDT, can vote and elect members of the board of directors." It is undisputed that PLDT’s non-voting preferred
shares are held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217, 31 issued on 16 June 1973
by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting
preferred shares to pay for the investment cost of installing the telephone line. 32

Petitioners-in-intervention basically reiterate petitioner’s arguments and adopt petitioner’s definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of
PLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means that foreigners
exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities
prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the
Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than
40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazareno’s Memorandum, consisting of 73 pages, harps mainly on the procedural
infirmities of the petition and the supposed violation of the due process rights of the "affected foreign common
shareholders." Respondent Nazareno does not deny petitioner’s allegation of foreigners’ dominating the common
shareholdings of PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common
shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership
over their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that
they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common
shareholders.

While Nazareno does not introduce any definition of the term "capital," he states that "among the factual
assertions that need to be established to counter petitioner’s allegations is the uniform interpretation by
government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil
Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and common
shares in "controlling interest" in view of testing compliance with the 40% constitutional limitation on
foreign ownership in public utilities."35

Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the
Constitution. Neither does he refute petitioner’s claim of foreigners holding more than 40 percent of PLDT’s common
shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of
the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of
this Court’s jurisdiction over the petition; (2) petitioner’s lack of standing; (3) mootness of the petition; (4) non-
availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges
that the issue should be whether "owners of shares in PLDT as well as owners of shares in companies holding
shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any law
requiring them to surrender their shares and also without notice and trial."

Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality
requirement on the shareholders of the utility company as a condition for keeping their shares in the utility
company." According to him, "Section 11 does not authorize taking one person’s property (the shareholder’s stock
in the utility company) on the basis of another party’s alleged failure to satisfy a requirement that is a condition only
for that other party’s retention of another piece of property (the utility company being at least 60% Filipino-owned to
keep its franchise)."36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In its
Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of
the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for
injunction. The OSG does not present any definition or interpretation of the term "capital" in Section 11, Article XII of
the Constitution. The OSG contends that "the petition actually partakes of a collateral attack on PLDT’s franchise as
a public utility," which in effect requires a "full-blown trial where all the parties in interest are given their day in
court."38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following
grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required
all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the
petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of
PLDT, contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common
shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership
of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being
exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said
activities. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were to be given credence, it
would be possible for the ownership structure of a public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court’s ruling adopting
respondents’ arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation
wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.

xxxx

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the
controlling interest.

xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of
shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the
stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in
the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative
agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear
intent of the framers of the Constitution.

In the same vein, the SEC’s construction of Section 11, Article XII of the Constitution is at best merely advisory for it
is the courts that finally determine what a law means. 39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y.
Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L.
Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of the
Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:

16. The Constitution applies its foreign ownership limitation on the corporation’s "capital," without distinction as to
classes of shares. x x x

In this connection, the Corporation Code – which was already in force at the time the present (1987) Constitution
was drafted – defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. – The term "outstanding capital stock", as used in this Code, means
the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or
not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude
either class of shares, in determining the outstanding capital stock (the "capital") of a corporation. Consequently,
petitioner’s suggestion to reckon PLDT’s foreign equity only on the basis of PLDT’s outstanding common shares is
without legal basis. The language of the Constitution should be understood in the sense it has in common use.

xxxx

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) – which petitioner misleadingly cited in the Petition
x x x – which supports petitioner’s view that only common shares should form the basis for computing a public
utility’s foreign equity.

xxxx

18. In addition, the SEC – the government agency primarily responsible for implementing the Corporation Code, and
which also has the responsibility of ensuring compliance with the Constitution’s foreign equity restrictions as regards
nationalized activities x x x – has categorically ruled that both common and preferred shares are properly
considered in determining outstanding capital stock and the nationality composition thereof. 40

We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting
preferred shares.

The Corporation Code of the Philippines 42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or
all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles
of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building
and loan associations shall not be permitted to issue no-par value shares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in
the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That
such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without
par value may not be issued for a consideration less than the value of five (₱5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal
requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall
be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate
act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. 44 In the absence of provisions in the articles of incorporation denying voting
rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in
the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can
be deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting,
and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 47

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term
"capital" shall include such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional
Commission, "capital" refers to the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a
corporation"? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of
voting stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

xxxx

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent
of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares.
So we can have a situation where the corporation is controlled by foreigners despite being the minority
because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions
is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we
say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed. 49 (Emphasis supplied)

Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing
this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of
a "Philippine national" in the Foreign Investments Act of 1991, 50 to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis
supplied)

In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:

b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned
by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least
sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee
is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine
nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to
vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of
the members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that
the corporation shall be considered a Philippine national. The control test shall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote
are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-
Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is
required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital" of
which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII
of the Constitution is also used in the same context in numerous laws reserving certain areas of investments to
Filipino citizens.

To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-
votingpreferred shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a
self-reliant and independent national economy effectively controlled by Filipinos." A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a
corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (₱1.00) per share. Under the broad definition of
the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit on foreign
equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election of directors,
even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise
control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity,
cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the
intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national
economy effectively controlled by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case.

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles
of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any
meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in
any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders." 51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.
PLDT’s Articles of Incorporation52 state that "each holder of Common Capital Stock shall have one vote in respect of
each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes."53

In short, only holders of common shares can vote in the election of directors, meaning only common shareholders
exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of
directors, do not have any control over PLDT. In fact, under PLDT’s Articles of Incorporation, holders of common
shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose
whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS),54 which is a document required to be
submitted annually to the Securities and Exchange Commission, 55 foreigners hold 120,046,690 common shares of
PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total
number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the common
shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in
Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009, 57 as submitted to the SEC, shows that per share the
SIP58preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for
the common shares at ₱70.00 per share, while the declared dividends for the preferred shares amounted to a
measly ₱1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also have
very little and obviously negligible dividend earning capacity compared to common shares.

As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is ₱5.00 per
share, whereas the par value of preferred shares is ₱10.00 per share. In other words, preferred shares have twice
the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares.
Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of
the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while
common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-
voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent
Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos
in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is constitutionally required for the State’s grant of authority to
operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-
voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution
that "[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted
except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens x x x."

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right
to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s
common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the
dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This
kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of ₱5.00 have a current stock market value of
₱2,328.00 per share,64 while PLDT preferred shares with a par value of ₱10.00 per share have a current stock
market value ranging from only ₱10.92 to ₱11.06 per share, 65 is a glaring confirmation by the market that control and
beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and
non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a
clear abdication of the State’s constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control what the Constitution has expressly
reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must
perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the
Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There is no need for legislation to implement
these self-executing provisions of the Constitution. The rationale why these constitutional provisions are self-
executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate,
the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are
treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as
it has always been, that —

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-
executing. . . . Unless the contrary is clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the legislature discretion to determine when, or
whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body, which
could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis
supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice,
agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future
legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-
executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and
nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may
give breath to constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the
rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination.
It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing
the fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional
provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis
supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the
provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68this
Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and
as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and
it should only be the State that should be allowed to intervene and determine what is to be done with the property
subject of the violation. We have said that what the State should do or could do in such matters is a matter of public
policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996,
June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases of
violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the
disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution,
or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to
corporations, at least 60 percent of the "capital" of which is owned by Filipinos, was enforceable. In short, the
framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of
investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral
resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the
legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners. This
Court cannot allow such an absurd interpretation of the Constitution.

This Court has held that the SEC "has both regulatory and adjudicative functions." 69 Under its regulatory functions,
the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the
same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear
and decide a possible violation of any law it administers or enforces when it is mandated by law to investigate such
violation.
1awphi1
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the
Articles of Incorporation of any corporation where "the required percentage of ownership of the capital stock to
be owned by citizens of the Philippines has not been complied with as required by existing laws or the
Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality
requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in
a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC
to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on
the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the "power and function" to
"suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law." The SEC is mandated
under Section 5(d) of the same Code with the "power and function" to "investigate x x x the activities of persons
to ensure compliance" with the laws and regulations that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually should put the SEC on guard against violations of the
nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a
petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a
possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDT’s voting
shares, as admitted by respondents and as stated in PLDT’s 2010 GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present
case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred
shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition
of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the
appropriate sanctions under the law.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE C. MENDOZA

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice
 CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court.
RENATO C. CORONA
Chief Justice
2. Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp.,
G.R. No. 195580, April 21, 2014
https://www.lawphil.net/judjuris/juri2014/apr2014/gr_195580_2014.html

Republic of the Philippines

SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 195580               April 21, 2014

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and
MCARTHUR MINING, INC., Petitioners, 
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.

DECISION

VELASCO, JR., J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and Mining Development
Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur Mining Inc. (McArthur), which seeks to
reverse the October 1, 2010 Decision  and the February 15, 2011 Resolution of the Court of Appeals (CA).
1

The Facts

Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation
organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of
Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the
areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an
MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay
Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares
in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur. 2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining
& Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B,
DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed,
transferred and/or assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly
EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of
Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions
for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned
and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs
over the areas covered by applications since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were
mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which
are reserved only for Filipino citizens.

In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of Republic Act No. (RA)
7942 or the Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether in singular or plural,
shall mean:

xxxx

(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and
financial capability to undertake mineral resources development and duly registered in accordance with law at least
sixty per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided, That a legally
organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration
permit, financial or technical assistance agreement or mineral processing permit.

Additionally, they stated that their nationality as applicants is immaterial because they also applied for Financial or
Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and
AFTA-IVB-07 for Narra, which are granted to foreign-owned corporations. Nevertheless, they claimed that the issue
on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their
capital is owned by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC
(which owns 5,997 shares of Narra),  40% of the shares of MMC (which owns 5,997 shares of McArthur)  and 40%
3 4

of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),  the shares of MBMI will not make it the owner
5

of at least 60% of the capital stock of each of petitioners. They added that the best tool used in determining the
nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of
1991. They also claimed that the POA of DENR did not have jurisdiction over the issues in Redmont’s petition since
they are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no personality to sue them
because it has no pending claim or application over the areas applied for by petitioners.

On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held:

[I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other
hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is reason
to believe that the cancellation and/or revocation of permits already issued under the premises is in order and open
the areas covered to other qualified applicants.

xxxx

WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and
Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as
Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL
AND VOID. 6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a 100% Canadian
company and declared their MPSAs null and void. In the same Resolution, it gave due course to Redmont’s EPAs.
Thereafter, on February 7, 2008, the POA issued an Order  denying the Motion for Reconsideration filed by
7

petitioners.

Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of Appeal  and
8

Memorandum of Appeal  with the Mines Adjudication Board (MAB) while Narra separately filed its Notice of
9

Appeal  and Memorandum of Appeal.

10 11

In their respective memorandum, petitioners emphasized that they are qualified persons under the law. Also,
through a letter, they informed the MAB that they had their individual MPSA applications converted to FTAAs.
McArthur’s FTAA was denominated as AFTA-IVB-09  on May 2007, while Tesoro’s MPSA application was
12

converted to AFTA-IVB-08  on May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-07  on March 30,
13 14

2006.

Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a Complaint  with the
15

Securities and Exchange Commission (SEC), seeking the revocation of the certificates for registration of petitioners
on the ground that they are foreign-owned or controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding before
the MAB praying for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.

Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon City, Branch 92
(RTC) a Complaint  for injunction with application for issuance of a temporary restraining order (TRO) and/or writ of
16

preliminary injunction, docketed as Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB
proceedings pending the resolution of the Complaint before the SEC.

But before the RTC can resolve Redmont’s Complaint and applications for injunctive reliefs, the MAB issued an
Order on September 10, 2008, finding the appeal meritorious. It held:

WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and SETS ASIDE the
Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case
Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines Corporation on 02 January
2007 is hereby ordered DISMISSED. 17

Belatedly, on September 16, 2008, the RTC issued an Order  granting Redmont’s application for a TRO and setting
18

the case for hearing the prayer for the issuance of a writ of preliminary injunction on September 19, 2008.

Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration  of the September 10, 2008 Order
19

of the MAB. Subsequently, it filed a Supplemental Motion for Reconsideration  on September 29, 2008.
20

Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental Motion for Reconsideration,
Redmont filed before the RTC a Supplemental Complaint  in Civil Case No. 08-63379.
21

On October 6, 2008, the RTC issued an Order  granting the issuance of a writ of preliminary injunction enjoining the
22

MAB from finally disposing of the appeals of petitioners and from resolving Redmont’s Motion for Reconsideration
and Supplement Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.

On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion for Reconsideration and
Supplemental Motion for Reconsideration and resolving the appeals filed by petitioners.

Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the MAB. On October
1, 2010, the CA rendered a Decision, the dispositive of which reads:

WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10, 2008 and July 1,
2009 of the Mining Adjudication Board are reversed and set aside. The findings of the Panel of Arbitrators of the
Department of Environment and Natural Resources that respondents McArthur, Tesoro and Narra are foreign
corporations is upheld and, therefore, the rejection of their applications for Mineral Product Sharing Agreement
should be recommended to the Secretary of the DENR.

With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance
Agreement (FTAA) or conversion of their MPSA applications to FTAA, the matter for its rejection or approval is left
for determination by the Secretary of the DENR and the President of the Republic of the Philippines.

SO ORDERED. 23

In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by petitioners.

After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it
realized that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to
the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of petitioners. It
provided:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging to
aliens. (emphasis supplied)
24

In determining the nationality of petitioners, the CA looked into their corporate structures and their corresponding
common shareholders. Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the
common stocks of the petitioners as well as at least 60% equity interest of other majority shareholders of petitioners
through joint venture agreements. The CA found that through a "web of corporate layering, it is clear that one
common controlling investor in all mining corporations involved x x x is MBMI."  Thus, it concluded that petitioners
25

McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.

Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA applications
suspicious in nature and, as a consequence, it recommended the rejection of petitioners’ MPSA applications by the
Secretary of the DENR.

With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the POA has
jurisdiction over them and that it also has the power to determine the of nationality of petitioners as a prerequisite of
the Constitution prior the conferring of rights to "co-production, joint venture or production-sharing agreements" of
the state to mining rights. However, it also stated that the POA’s jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the MPSAs. It stipulated that only the Secretary of the DENR is
vested with the power to approve or reject applications for MPSA.

Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which considered petitioners
McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA determined that the POA’s declaration
that the MPSAs of McArthur, Tesoro and Narra are void is highly improper.

While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a petition dated May
7, 2010 seeking the cancellation of petitioners’ FTAAs. The OP rendered a Decision  on April 6, 2011, wherein it
26

canceled and revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[,] the Small Scale
Mining Law and Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act
and E.O. 584."  The OP, in affirming the cancellation of the issued FTAAs, agreed with Redmont stating that
27

petitioners committed violations against the abovementioned laws and failed to submit evidence to negate them.
The Decision further quoted the December 14, 2007 Order of the POA focusing on the alleged misrepresentation
and claims made by petitioners of being domestic or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining Permit inside the area earlier applied for an
MPSA application which was eventually transferred to Narra. It also agreed with the POA’s estimation that the filing
of the FTAA applications by petitioners is a clear admission that they are "not capable of conducting a large scale
mining operation and that they need the financial and technical assistance of a foreign entity in their operation, that
is why they sought the participation of MBMI Resources, Inc."  The Decision further quoted:
28

The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting
operation only through their local counterparts.29

The Motion for Reconsideration of the Decision was further denied by the OP in a Resolution  dated July 6, 2011.
30

Petitioners then filed a Petition for Review on Certiorari of the OP’s Decision and Resolution with the CA, docketed
as CA-G.R. SP No. 120409. In the CA Decision dated February 29, 2012, the CA affirmed the Decision and
Resolution of the OP. Thereafter, petitioners appealed the same CA decision to this Court which is now pending
with a different division.

Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners put forth the
following errors of the CA:

I.

The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject
matter of the controversy, the MPSA Applications, have already been converted into FTAA applications and
that the same have already been granted.

II.

The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel
of Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur.

III.

The Court of Appeals erred when it did not dismiss the case on account of Redmont’s willful forum shopping.

IV.

The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the
"Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of
1991, as amended, and the FIA Rules.

V.

The Court of Appeals erred when it applied the exceptions to the res inter alios acta rule.

VI.

The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA
Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without
any shred of evidence to show the same. 31

We find the petition to be without merit.

This case not moot and academic

The claim of petitioners that the CA erred in not rendering the instant case as moot is without merit.

Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of no practical use or value."  Thus, the courts
32

"generally decline jurisdiction over the case or dismiss it on the ground of mootness."33

The "mootness" principle, however, does accept certain exceptions and the mere raising of an issue of "mootness"
will not deter the courts from trying a case when there is a valid reason to do so. In David v. Macapagal-Arroyo
(David), the Court provided four instances where courts can decide an otherwise moot case, thus:

1.) There is a grave violation of the Constitution;

2.) The exceptional character of the situation and paramount public interest is involved;

3.) When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar,
and the public; and

4.) The case is capable of repetition yet evading review. 34

All of the exceptions stated above are present in the instant case. We of this Court note that a grave violation of the
Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our
country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations. The intricate
corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves paramount
public interest since it undeniably affects the exploitation of our Country’s natural resources. The corresponding
actions of petitioners during the lifetime and existence of the instant case raise questions as what principle is to be
applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence,
the disposition of the issues or errors in the instant case will serve as a guide "to the bench, the bar and the
public."  Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI,
35

can keep on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of
applications to skirt the constitutional prohibition against foreign mining in Philippine soil.

Conversion of MPSA applications to FTAA applications

We shall discuss the first error in conjunction with the sixth error presented by petitioners since both involve the
conversion of MPSA applications to FTAA applications. Petitioners propound that the CA erred in ruling against
them since the questioned MPSA applications were already converted into FTAA applications; thus, the issue on the
prohibition relating to MPSA applications of foreign mining corporations is academic. Also, petitioners would want us
to correct the CA’s finding which deemed the aforementioned conversions of applications as suspicious in nature,
since it is based on mere conjectures and surmises and not supported with evidence.

We disagree.

The CA’s analysis of the actions of petitioners after the case was filed against them by respondent is on point. The
changing of applications by petitioners from one type to another just because a case was filed against them, in truth,
would raise not a few sceptics’ eyebrows. What is the reason for such conversion? Did the said conversion not stem
from the case challenging their citizenship and to have the case dismissed against them for being "moot"? It is quite
obvious that it is petitioners’ strategy to have the case dismissed against them for being "moot."

Consider the history of this case and how petitioners responded to every action done by the court or appropriate
government agency: on January 2, 2007, Redmont filed three separate petitions for denial of the MPSA applications
of petitioners before the POA. On June 15, 2007, petitioners filed a conversion of their MPSA applications to FTAAs.
The POA, in its December 14, 2007 Resolution, observed this suspect change of applications while the case was
pending before it and held:

The filing of the Financial or Technical Assistance Agreement application is a clear admission that the respondents
are not capable of conducting a large scale mining operation and that they need the financial and technical
assistance of a foreign entity in their operation that is why they sought the participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves the fact that it is the Canadian company that will provide the
finances and the resources to operate the mining areas for the greater benefit and interest of the same and not the
Filipino stockholders who only have a less substantial financial stake in the corporation.

xxxx

x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the
violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting
operation only through their local counterparts.36

On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing and setting aside the
September 10, 2008 and July 1, 2009 Orders of the MAB. In the said Decision, the CA upheld the findings of the
POA of the DENR that the herein petitioners are in fact foreign corporations thus a recommendation of the rejection
of their MPSA applications were recommended to the Secretary of the DENR. With respect to the FTAA applications
or conversion of the MPSA applications to FTAAs, the CA deferred the matter for the determination of the Secretary
of the DENR and the President of the Republic of the Philippines. 37

In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal of the petition
asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and issued in their favor FTAA No.
05-2010-IVB, which rendered the petition moot and academic. However, the CA, in a Resolution dated February 15,
2011 denied their motion for being a mere "rehash of their claims and defenses."  Standing firm on its Decision, the
38

CA affirmed the ruling that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the
case to us via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA. Interestingly,
the OP rendered a Decision dated April 6, 2011, a day after this petition for review was filed, cancelling and revoking
the FTAAs, quoting the Order of the POA and stating that petitioners are foreign corporations since they needed the
financial strength of MBMI, Inc. in order to conduct large scale mining operations. The OP Decision also based the
cancellation on the misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584."  On July 6, 2011,
39

the OP issued a Resolution, denying the Motion for Reconsideration filed by the petitioners.

Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP’s
Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old
arguments claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation
and Submission dated October 19, 2012,  wherein they asserted that the present petition is moot since, in a
40

remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI
Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective corporations fully-Filipino
owned.

Again, it is quite evident that petitioners have been trying to have this case dismissed for being "moot." Their final
act, wherein MBMI was able to allegedly sell/assign all its shares and interest in the petitioner "holding companies"
to DMCI, only proves that they were in fact not Filipino corporations from the start. The recent divesting of interest
by MBMI will not change the stand of this Court with respect to the nationality of petitioners prior the suspicious
change in their corporate structures. The new documents filed by petitioners are factual evidence that this Court has
no power to verify.

The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have
violated several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead
to the revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or around the law
using shifty actions and strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.

Grandfather test

The main issue in this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign. In their
previous petitions, they had been adamant in insisting that they were Filipino corporations, until they submitted their
Manifestation and Submission dated October 19, 2012 where they stated the alleged change of corporate
ownership to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner
corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens
shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least
60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be
recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or
partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos
and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality,"
pertains to the control test or the liberal rule. On the other hand, the second part of the DOJ Opinion which provides,
"if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as Philippine nationality," pertains to the stricter, more
stringent grandfather rule.

Prior to this recent change of events, petitioners were constant in advocating the application of the "control test"
under RA 7042, as amended by RA 8179, otherwise known as the Foreign Investments Act (FIA), rather than using
the stricter grandfather rule. The pertinent provision under Sec. 3 of the FIA provides:

SECTION 3. Definitions. - As used in this Act:

a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by the citizens of the Philippines; a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That
were a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the
members of the Board of Directors, in order that the corporation shall be considered a Philippine national.
(emphasis supplied)

The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a
"Philippine National" under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has
been abandoned and is no longer the applicable rule."  They also opined that the last portion of Sec. 3 of the FIA
41

admits the application of a "corporate layering" scheme of corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the court from construing it and prevent the court’s use of discretion
in applying the law. They said that the plain, literal meaning of the statute meant the application of the control test is
obligatory.

We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution
and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has
already been abandoned must be discredited for lack of basis.

Art. XII, Sec. 2 of the Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be provided by law.

xxxx

The President may enter into agreements with Foreign-owned corporations involving either technical or financial
assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real contributions to the economic growth
and general welfare of the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)

The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the
exploration, development, and utilization of natural resources with entities who are deemed Filipino due to 60
percent ownership of capital is pertinent to this case, since the issues are centered on the utilization of our country’s
natural resources or specifically, mining. Thus, there is a need to ascertain the nationality of petitioners since, as the
Constitution so provides, such agreements are only allowed corporations or associations "at least 60 percent of
such capital is owned by such citizens." The deliberations in the Records of the 1986 Constitutional Commission
shed light on how a citizenship of a corporation will be determined:

Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent national economy is freedom
from undue foreign control? What is the meaning of undue foreign control?

MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and the welfare of the
Filipino in the economic sphere.

MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply freedom from foreign
control? I think that is the meaning of independence, because as phrased, it still allows for foreign control.

MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the 60/40 possibility in
the cultivation of natural resources, 40 percent involves some control; not total control, but some control.

MR. BENNAGEN: In any case, I think in due time we will propose some amendments.

MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.

Mr. BENNAGEN: Yes.

Thank you, Mr. Vice-President.

xxxx

MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely,
60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

MR. VILLEGAS: That is right.

MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do we base the equity requirement,
is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation’?
Will the Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP Law Center who
provided us with a draft. The phrase that is contained here which we adopted from the UP draft is ‘60 percent of the
voting stock.’

MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared delinquent, unpaid
capital stock shall be entitled to vote.

MR. VILLEGAS: That is right.

MR. NOLLEDO: Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?

MR. VILLEGAS: Yes, that is the understanding of the Committee.

MR. NOLLEDO: Therefore, we need additional Filipino capital?

MR. VILLEGAS: Yes.  (emphasis supplied)

42

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where
corporate layering is present.

Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution
will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National
Economy and Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the honorable framers of
our Constitution, the grandfather rule prevails and must be applied.

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:

The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a corporation for
purposes, among others, of determining compliance with nationality requirements (the ‘Investee Corporation’). Such
manner of computation is necessary since the shares in the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules
thus provide for the determination of nationality depending on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.

Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation.
The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is
considered as Filipino.

The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and
the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.

Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation
and added to the shares directly owned in the Investee Corporation x x x.

xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC
Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the
grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate
ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI,
funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less
than 60%. 43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this
Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where
"doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word
only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total
stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have
"60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be
denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the
Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent
the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or
indirect, of MBMI, the grandfather rule must be used.

McArthur Mining, Inc.

To establish the actual ownership, interest or participation of MBMI in each of petitioners’ corporate structure, they
have to be "grandfathered."

As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its application from
SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into 10,000 common shares at
one thousand pesos (PhP 1,000) per share, subscribed to by the following: 44

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Madridejos Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corporation
MBMI Resources, Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Inc.
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
  Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition
as McArthur. In fact, it would seem that MBMI is also a major investor and "controls"  MBMI and also, similar
45

nominal shareholders were present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T.
Mason (Mason) and Kenneth Cawkell (Cawkell):

Madridejos Mining Corporation

Name Nationality Number of Amount Amount Paid

Shares Subscribed
Olympic Mines Filipino 6,663 PhP 6,663,000.00 PhP 0
&

Development

Corp.
MBMI Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
Resources,

Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
  Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

(emphasis supplied)

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the
number of shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder
in MMC. MBMI’s 2006 Annual Report sheds light on why Olympic failed to pay any amount with respect to the
number of shares it subscribed to. It states that Olympic entered into joint venture agreements with several
Philippine companies, wherein it holds directly and indirectly a 60% effective equity interest in the Olympic
Properties.  Quoting the said Annual report:
46

On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic") entered into a
series of agreements including a Property Purchase and Development Agreement (the Transaction Documents)
with respect to three nickel laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction
Documents effectively establish a joint venture between the Company and Olympic for purposes of developing the
Olympic Properties. The Company holds directly and indirectly an initial 60% interest in the joint venture. Under
certain circumstances and upon achieving certain milestones, the Company may earn up to a 100% interest, subject
to a 2.5% net revenue royalty.  (emphasis supplied)
47
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized
by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in
McArthur, making the latter a foreign corporation.

Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000)
divided into ten thousand (10,000) common shares at PhP 1,000 per share, as demonstrated below:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00

Mining, Inc.

MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60

Resources, Inc.

Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

  Total 10,000 PhP PhP 2,708,174.60

10,000,000.00
(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate
structure of petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar,
Esguerra, Agcaoili, Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed,"
and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s corporate structure:

Sara Marie Mining, Inc.

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Development

Corp.

MBMI Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,794,000.00

Inc.

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra

Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando

Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

  Total 10,000 PhP PhP 2,809,900.00

10,000,000.00
(emphasis supplied)

After subsequently studying SMMI’s corporate structure, it is not farfetched for us to spot the glaring similarity
between SMMI and MMC’s corporate structure. Again, the presence of identical stockholders, namely: Olympic,
MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the
amount paid by MBMI which now reflects the amount of two million seven hundred ninety four thousand pesos (PhP
2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred pesos
(PhP 2,809,900).

Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s participation in SMMI’s corporate
structure, it is clear that MBMI is in control of Tesoro and owns 60% or more equity interest in Tesoro. This makes
petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization and
development of our natural resources.

Narra Nickel Mining and Development Corporation

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDC’s MPSA application, whose
corporate structure’s arrangement is similar to that of the first two petitioners discussed. The capital stock of Narra is
ten million pesos (PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one thousand
pesos (PhP 1,000) per share, shown as follows:

[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Name Nationality Number of Amount Amount Paid

Shares Subscribed

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Mining &

Development

Corp.

MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00

Resources, Inc.

Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00

Mendoza, Jr.

Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00

Fernandez

Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Bocalan

Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

McCurdy

Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

  Total 10,000 PhP PhP 2,800,000.00

10,000,000.00 (emphasis supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present in this corporate
structure.

Patricia Louise Mining & Development Corporation

Using the grandfather method, we further look and examine PLMDC’s corporate structure:

Name Nationalit Number of Amount Amount Paid

y Shares Subscribed
Palawan Alpha South Filipino 6,596 PhP PhP 0
Resources Development 6,596,000.00
Corporation
MBMI Resources, Canadian 3,396 PhP PhP
3,396,000.00 2,796,000.00
Inc.
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
 Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
  Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners’ corporate structures are present. Similarly, the amount of money paid by
the 2nd tier majority stock holder, in this case, Palawan Alpha South Resources and Development Corp. (PASRDC),
is zero.

Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005 explains the reason behind
the intricate corporate layering that MBMI immersed itself in:

JOINT VENTURES The Company’s ownership interests in various mining ventures engaged in the acquisition,
exploration and development of mineral properties in the Philippines is described as follows:

(a) Olympic Group

The Philippine companies holding the Olympic Property, and the ownership and interests therein, are as follows:

Olympic- Philippines (the "Olympic Group")

Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%

Tesoro Mining & Development, Inc. (Tesoro) 60.0%

Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Olympic Property of 60.0%. Pursuant to a shareholders’ agreement, the Company exercises joint
control over the companies in the Olympic Group.

(b) Alpha Group

The Philippine companies holding the Alpha Property, and the ownership interests therein, are as follows:

Alpha- Philippines (the "Alpha Group")

Patricia Louise Mining Development Inc. ("Patricia") 34.0%

Narra Nickel Mining & Development Corporation (Narra) 60.4%

Under a joint venture agreement the Company holds directly and indirectly an effective equity interest in the Alpha
Property of 60.4%. Pursuant to a shareholders’ agreement, the Company exercises joint control over the companies
in the Alpha Group.  (emphasis supplied)
48

Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not
Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is
derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture"
agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the
"Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between
and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.

Application of the res inter alios acta rule

Petitioners question the CA’s use of the exception of the res inter alios acta or the "admission by co-partner or
agent" rule and "admission by privies" under the Rules of Court in the instant case, by pointing out that statements
made by MBMI should not be admitted in this case since it is not a party to the case and that it is not a "partner" of
petitioners.

Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:

Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the party within the scope
of his authority and during the existence of the partnership or agency, may be given in evidence against such party
after the partnership or agency is shown by evidence other than such act or declaration itself. The same rule applies
to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party.

Sec. 31. Admission by privies.- Where one derives title to property from another, the act, declaration, or omission of
the latter, while holding the title, in relation to the property, is evidence against the former.

Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership relation must be
shown, and that proof of the fact must be made by evidence other than the admission itself."  Thus, petitioners
49

assert that the CA erred in finding that a partnership relationship exists between them and MBMI because, in fact,
no such partnership exists.

Partnerships vs. joint venture agreements

Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint
venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They challenged the conclusion of the CA
which pertains to the close characteristics of

"partnerships" and "joint venture agreements." Further, they asserted that before this particular partnership can be
formed, it should have been formally reduced into writing since the capital involved is more than three thousand
pesos (PhP 3,000). Being that there is no evidence of written agreement to form a partnership between petitioners
and MBMI, no partnership was created.

We disagree.

A partnership is defined as two or more persons who bind themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves.  On the other hand, joint ventures have
50

been deemed to be "akin" to partnerships since it is difficult to distinguish between joint ventures and partnerships.
Thus:

[T]he relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a
partnership that it is ordinarily held that their rights, duties, and liabilities are to be tested by rules which are closely
analogous to and substantially the same, if not exactly the same, as those which govern partnership. In fact, it has
been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very
little law being found applicable to one that does not apply to the other. 51
Though some claim that partnerships and joint ventures are totally different animals, there are very few rules that
differentiate one from the other; thus, joint ventures are deemed "akin" or similar to a partnership. In fact, in joint
venture agreements, rules and legal incidents governing partnerships are applied. 52

Accordingly, culled from the incidents and records of this case, it can be assumed that the relationships entered
between and among petitioners and MBMI are no simple "joint venture agreements." As a rule, corporations are
prohibited from entering into partnership agreements; consequently, corporations enter into joint venture
agreements with other corporations or partnerships for certain transactions in order to form "pseudo partnerships."

Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was executed to
circumvent the legal prohibition against corporations entering into partnerships, then the relationship created should
be deemed as "partnerships," and the laws on partnership should be applied. Thus, a joint venture agreement
between and among corporations may be seen as similar to partnerships since the elements of partnership are
present.

Considering that the relationships found between petitioners and MBMI are considered to be partnerships, then the
CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI have
a joint interest" with Narra, Tesoro and McArthur.

Panel of Arbitrators’ jurisdiction

We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has
jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont
against petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition against petitioners, is asserting the
right of Filipinos over mining areas in the Philippines against alleged foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:

Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall have
exclusive and original jurisdiction to hear and decide the following:

(a) Disputes involving rights to mining areas

(b) Disputes involving mineral agreements or permits

We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53

The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or opposition to an
application for mineral agreement. The POA therefore has the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral agreement filed with the concerned Regional Office of the MGB.
This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:

Sec. 38.

xxxx

Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the authorized
officer(s) of the concerned office(s) shall issue a certification(s) that the publication/posting/radio announcement
have been complied with. Any adverse claim, protest, opposition shall be filed directly, within thirty (30) calendar
days from the last date of publication/posting/radio announcement, with the concerned Regional Office or through
any concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its resolution by the
Panel of Arbitrators pursuant to the provisions of this Act and these implementing rules and regulations. Upon final
resolution of any adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a certification to
that effect within five (5) working days from the date of finality of resolution thereof. Where there is no adverse claim,
protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect within five working
days therefrom.

xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully complied with and any
adverse claim/protest/opposition is finally resolved by the Panel of Arbitrators.

Sec. 41.

xxxx

Within fifteen (15) working days form the receipt of the Certification issued by the Panel of Arbitrators as provided in
Section 38 hereof, the concerned Regional Director shall initially evaluate the Mineral Agreement applications in
areas outside Mineral reservations. He/She shall thereafter endorse his/her findings to the Bureau for further
evaluation by the Director within fifteen (15) working days from receipt of forwarded documents. Thereafter, the
Director shall endorse the same to the secretary for consideration/approval within fifteen working days from receipt
of such endorsement.

In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15) working days from
receipt of the Certification issued by the Panel of Arbitrators as provided for in Section 38 hereof, the same shall be
evaluated and endorsed by the Director to the Secretary for consideration/approval within fifteen days from receipt
of such endorsement. (emphasis supplied)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec.
77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of
mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement.-

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin
boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy
furnished the barangays where the proposed contract area is located once a week for two (2) consecutive weeks in
a language generally understood in the locality. After forty-five (45) days from the last date of publication/posting
has been made and no adverse claim, protest or opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of publication/posting, with the
Regional Offices concerned, or through the Department’s Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However previously published valid and subsisting mining claims are
exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)

It has been made clear from the aforecited provisions that the "disputes involving rights to mining areas" under Sec.
77(a) specifically refer only to those disputes relative to the applications for a mineral agreement or conferment of
mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right application is further
elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of Sections 28, 43 and 57
above, any adverse claim, protest or opposition specified in said sections may also be filed directly with the Panel of
Arbitrators within the concerned periods for filing such claim, protest or opposition as specified in said Sections.

Sec. 43. Publication/Posting of Mineral Agreement Application.-

xxxx

The Regional Director or concerned Regional Director shall also cause the posting of the application on the bulletin
boards of the Bureau, concerned Regional office(s) and in the concerned province(s) and municipality(ies), copy
furnished the barangays where the proposed contract area is located once a week for two (2) consecutive weeks in
a language generally understood in the locality. After forty-five (45) days from the last date of publication/posting
has been made and no adverse claim, protest or opposition was filed within the said forty-five (45) days, the
concerned offices shall issue a certification that publication/posting has been made and that no adverse claim,
protest or opposition of whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of publication/posting, with the
Regional offices concerned, or through the Department’s Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However, previously published valid and subsisting mining claims are
exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully complied with and any
opposition/adverse claim is dealt with in writing by the Director and resolved by the Panel of Arbitrators. (Emphasis
supplied.)

These provisions lead us to conclude that the power of the POA to resolve any adverse claim, opposition, or protest
relative to mining rights under Sec. 77(a) of RA 7942 is confined only to adverse claims, conflicts and oppositions
relating to applications for the grant of mineral rights.

POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions and it has no
authority to approve or reject said applications. Such power is vested in the DENR Secretary upon recommendation
of the MGB Director. Clearly, POA’s jurisdiction over "disputes involving rights to mining areas" has nothing to do
with the cancellation of existing mineral agreements. (emphasis ours)

Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve disputes over MPSA
applications subject of Redmont’s petitions. However, said jurisdiction does not include either the approval or
rejection of the MPSA applications, which is vested only upon the Secretary of the DENR. Thus, the finding of the
POA, with respect to the rejection of petitioners’ MPSA applications being that they are foreign corporation, is valid.

Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the POA, that has
jurisdiction over the MPSA applications of petitioners.

This postulation is incorrect.

It is basic that the jurisdiction of the court is determined by the statute in force at the time of the commencement of
the action.54

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Act of 1980" reads:

Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original jurisdiction:

1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—

x x x Within thirty (30) days, after the submission of the case by the parties for the decision, the panel shall
have exclusive and original jurisdiction to hear and decide the following:

(c) Disputes involving rights to mining areas

(d) Disputes involving mineral agreements or permits

It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas.
One such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another
interested applicant.  In the case at bar, the dispute arose or originated from MPSA applications where petitioners
1âwphi1

are asserting their rights to mining areas subject of their respective MPSA applications. Since respondent filed 3
separate petitions for the denial of said applications, then a controversy has developed between the parties and it is
POA’s jurisdiction to resolve said disputes.

Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the DENR Regional
Office or any concerned DENRE or CENRO are MPSA applications. Thus POA has jurisdiction.

Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-
med Laboratories v. Province of Batangas  elucidates:
55

The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise,
specialized training and knowledge of an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction.

Whatever may be the decision of the POA will eventually reach the court system via a resort to the CA and to this
Court as a last recourse.

Selling of MBMI’s shares to DMCI

As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare the
instant petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of
MBMI to DMCI, a corporation duly organized and existing under Philippine laws and is at least 60% Philippine-
owned.  Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer of their shares
56

supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA contract with the
State should stand since "even wholly-owned foreign corporations can enter into an FTAA with the
State." Petitioners stress that there should no longer be any issue left as regards their qualification to enter into
57

FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted since it would pass
both tests.

The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be
disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877
pending before this Court.  Thus, the question of whether petitioners, allegedly a Philippine-owned corporation due
1âwphi1

to the sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this
case.

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated
October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.
SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
Associate Justice

ROBERTO A. ABAD JOSE CATRAL MENDOZA

Associate Justice Associate Justice

I dissent. See Separate Opinion

MARVIC MARIO VICTOR F. LEONEN
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice