G.R. No. 181756, June 15, 2015
The Authority shall be exempt from
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY
(MCIAA), Petitioner, v. CITY OF LAPU-LAPU AND ELENA T.
PACALDO, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a clear opportunity for this Court to clarify the effects of our two
previous decisions, issued a decade apart, on the power of local
government units to collect real property taxes from airport authorities
located within their area, and the nature or the juridical personality of
said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure seeking to reverse and set aside the
October 8, 2007 Decision1 of the Court of Appeals (Cebu City) in CA-
G.R. SP No. 01360 and the February 12, 2008 Resolution2 denying
petitioners motion for reconsideration.
THE FACTS
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was
created by Congress on July 31, 1990 under Republic Act No.
69583 to undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in
the Province of Cebu and the Lahug Airport in Cebu City x x x and
such other airports as may be established in the Province of Cebu. It
is represented in this case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and political
subdivision, created and existing under its own charter with capacity
to sue and be sued. Respondent Elena T. Pacaldo was impleaded in
her capacity as the City Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes
under the following provision of Republic Act No.
6958:chanRoblesvirtualLawlibrary
Section 14. Tax Exemptions.
realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities: Provided, That no tax
exemption herein granted shall extend to any subsidiary which may
be organized by the Authority.chanroblesvirtuallawlibrary
On September 11, 1996, however, this Court rendered a decision
in Mactan-Cebu International Airport Authority v. Marcos4 (the 1996
MCIAA case) declaring that upon the effectivity of Republic Act No.
7160 (The Local Government Code of 1991), petitioner was no longer
exempt from real estate taxes. The Court
held:chanRoblesvirtualLawlibrary
Since the last paragraph of Section 234 unequivocally withdrew, upon
the effectivity of the LGC, exemptions from payment of real property
taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said
section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. x x x.chanroblesvirtuallawlibrary
On January 7, 1997, respondent City issued to petitioner a Statement
of Real Estate Tax assessing the lots comprising
the Mactan International Airport in the amount of P162,058,959.52.
Petitioner complained that there were discrepancies in said Statement
of Real Estate Tax as follows:chanRoblesvirtualLawlibrary
(a) [T]he statement included lots and buildings not found in the
inventory of petitioners real properties;
(b) [S]ome of the lots were covered by two separate tax declarations
which resulted in double assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental
purposes.5
Respondent City amended its billing and sent a new Statement of
Real Estate Tax to petitioner in the amount of P151,376,134.66.
Petitioner averred that this amount covered real estate taxes on the
lots utilized solely and exclusively for public or governmental purposes
such as the airfield, runway and taxiway, and the lots on which they
are situated.6chanrobleslaw
Petitioner paid respondent City the amount of four million pesos
(P4,000,000.00) monthly, which was later increased to six million
pesos (P6,000,000.00) monthly. As of December 2003, petitioner had
paid respondent City a total of P275,728,313.36.7chanrobleslaw
Upon request of petitioners General Manager, the Secretary of the
Department of Justice (DOJ) issued Opinion No. 50, Series of
1998,8 and we quote the pertinent portions of said Opinion
below:chanRoblesvirtualLawlibrary
You further state that among the real properties deemed transferred
to MCIAA are the airfield, runway, taxiway and the lots on which the
runway and taxiway are situated, the tax declarations of which were
transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu
imposed real estate taxes on these properties invoking the provisions
of the Local Government Code.
It is your view that these properties are not subject to real property tax
because they are exclusively used for airport purposes. You said that
the runway and taxiway are not only used by the commercial airlines
but also by the Philippine Air Force and other government agencies.
As such and in conjunction with the above interpretation of Section 15
of R.A. No. 6958, you believe that these properties are considered
owned by the Republic of the Philippines. Hence, this request for
opinion.
The query is resolved in the affirmative. The properties used for
airport purposes (i.e. airfield, runway, taxiway and the lots on
which the runway and taxiway are situated) are owned by the
Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete
control over the property which a municipal corporation has acquired
in its public or governmental capacity and which is devoted to public
or governmental use. The municipality in dealing with said property is
subject to such restrictions and limitations as the legislature may
impose. On the other hand, property which a municipal corporation
acquired in its private or proprietary capacity, is held by it in the same
character as a private individual. Hence, the legislature in dealing with
such property, is subject to the constitutional restrictions concerning
property (Martin, Public Corporations [1997], p. 30; see also Province
of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The
same may be said of properties transferred to the MCIAA and used
for airport purposes, such as those involved herein. Since such
properties are of public dominion, they are deemed held by the
MCIAA in trust for the Government and can be alienated only as may
be provided by law.
Based on the foregoing, it is our considered opinion that the
properties used for airport purposes, such as the airfield, runway
and taxiway and the lots on which the runway and taxiway are
located, are owned by the State or by the Republic of the
Philippines and are merely held in trust by the MCIAA,
notwithstanding that certificates of titles thereto may have been
issued in the name of the MCIAA.(Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued
a 2nd Indorsement to the City Treasurer of Lapu-Lapu dated August 3,
1998,9 which reads:chanRoblesvirtualLawlibrary
The distinction as to which among the MCIAA properties are still
considered owned by the State or by the Republic of the Philippines,
such as the resolution in the above-cited DOJ Opinion No. 50, for
purposes of real property tax exemption is hereby deemed tenable
considering that the subject airfield, runway, taxiway and the lots on
which the runway and taxiway are situated appears to be the subject
of real property tax assessment and collection of the city government
of Lapu-Lapu, hence, the same are definitely located within the
jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the
Department of Finance, in his 1st Indorsement dated May 18,
1998, advanced that this Department (DOF) interposes no
objection to the request of Mactan Cebu International Airport
Authority for exemption from payment of real property tax on the
property used for airport purposes mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the
assessment of the subject airfield, runway, taxiway and the lots
on which the runway and taxiway are situated, from the Taxable
Roll to the Exempt Roll of real properties.
The City Treasurer thereat should be informed on the action taken for
his immediate appropriate action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a
Statement of Real Property Tax Balances up to the year 2002
reflecting the amount of P246,395,477.20. Petitioner claimed that the
statement again included the lots utilized solely and exclusively for
public purpose such as the airfield, runway, and taxiway and the lots
on which these are built. Respondent Pacaldo then issued Notices of
Levy on 18 sets of real properties of petitioner.10chanrobleslaw
Petitioner filed a petition for prohibition11 with the Regional Trial Court
(RTC) of Lapu-Lapu City with prayer for the issuance of a temporary
restraining order (TRO) and/or a writ of preliminary injunction,
docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then
issued a 72-hour TRO. The petition for prohibition sought to enjoin
respondent City from issuing a warrant of levy against petitioners
properties and from selling them at public auction for delinquency in
realty tax obligations. The petition likewise prayed for a declaration
that the airport terminal building, the airfield, runway, taxiway and the
lots on which they are situated are exempted from real estate taxes
after due hearing. Petitioner based its claim of exemption on DOJ
Opinion No. 50.
The RTC issued an Order denying the motion for extension of the
TRO. Thus, on December 10, 2003, respondent City auctioned 27 of
petitioners properties. As there was no interested bidder who
participated in the auction sale, respondent City forfeited and
purchased said properties. The corresponding Certificates of Sale of
Delinquent Property were issued to respondent City.12chanrobleslaw
Petitioner claimed before the RTC that it had discovered that
respondent City did not pass any ordinance authorizing the collection
of real property tax, a tax for the special education fund (SEF), and a
penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and
collect real property tax, an additional tax for the SEF, and penalty
interest from petitioner.13chanrobleslaw
The RTC issued an Order14 on December 28, 2004 granting
petitioners application for a writ of preliminary injunction. The
pertinent portions of the Order are quoted
below:chanRoblesvirtualLawlibrary
The supervening legal issue has rendered it imperative that the matter
of the consolidation of the ownership of the auctioned properties be
placed on hold. Furthermore, it is the view of the Court that great
prejudice and damage will be suffered by petitioner if it were to lose its
dominion over these properties now when the most important legal
issue has still to be resolved by the Court. Besides, the respondents
and the intervenor have not sufficiently shown cause why petitioners
application should not be granted.
WHEREFORE, the foregoing considered, petitioners application for a
writ of preliminary injunction is granted. Consequently, upon the
approval of a bond in the amount of one million pesos
(P1,000,000.00), let a writ of preliminary injunction issue enjoining the
respondents, the intervenor, their agents or persons acting in [their]
behalf, to desist from consolidating and exercising ownership over the
properties of the petitioner.chanroblesvirtuallawlibrary
However, upon motion of respondents, the RTC lifted the writ of
preliminary injunction in an Order15dated December 5, 2005. The RTC
reasoned as follows:chanRoblesvirtualLawlibrary
The respondent City, in the course of the hearing of its motion,
presented to this Court a certified copy of its Ordinance No. 44
(Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25
whereof authorized the collection of a rate of one and one-half (1 )
[per centum] from owners, executors or administrators of any real
estate lying within the jurisdiction of the City of Lapu-Lapu, based on
the assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic
Act No. 7160 (Local Government Code of 1991), to the mind of the
Court this ordinance is still a valid and effective ordinance in view of
Sec. 529 of RA 7160 x x x [and the] Implementing Rules and
Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25% penalty collected is higher
than the 2% interest allowed under Sec. 255 of the said law which
provides:chanRoblesvirtualLawlibrary
In case of failure to pay the basic real property tax or any other tax
levied under this Title upon the expiration of the periods as provided in
Section 250, or when due, as the case may be, shall subject the
taxpayer to the payment of interest at the rate of two percent (2%) per
month on the unpaid amount or a fraction thereof, until the delinquent
tax shall have been fully paid: Provided, however, That in no case
shall the total interest on the unpaid tax or portion thereof exceed
thirty-six (36) months.chanroblesvirtuallawlibrary
This difference does not however detract from the essential
enforceability and effectivity of Ordinance No. 44 pursuant to Section
529 of RA 7160 and Article 278 of the Implementing Rules and
Regulations. The outcome of this disparity is simply that respondent
City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioners tax
liability.
It is also the Courts perception that respondent City can still collect
the additional 1% tax on real property without an ordinance to this
effect. It may be recalled that Republic Act No. 5447 has created the
Special Education Fund which is constituted from the proceeds of the
additional tax on real property imposed by the law. Respondent City
has collected this tax as mandated by this law without any ordinance
for the purpose, as there is no need for it. Even when RA 5447 was
amended by PD 464 (Real Property Tax Code), respondent City had
continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been
repealed are only Section 3, a(3) and b(2) which concern the
allocation of the additional tax, considering that under RA 7160, the
proceeds of the additional 1% tax on real property accrue exclusively
to the Special Education Fund. Nevertheless, RA 5447 has not been
totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an
ordinance be enacted to enable the collection of the additional 1% tax.
This is so since RA 5447 is still in force and effect, and the declared
policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection
of the tax. Considering that this is a tax of far-reaching importance, to
require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the
local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no
jurisdiction to entertain the instant petition, the Court deems it proper,
at this stage of the proceedings, not to treat this issue, as it involves
facts which are yet to be established.
x x x [T]he Courts issuance of a writ of preliminary injunction may
appear to be a futile gesture in the light of Section 263 of RA 7160. x x
x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer
fails to redeem within the one-year period, ownership fully vests on
the local government unit concerned. Thus, when in the present case
petitioner failed to redeem the parcels of land acquired by respondent
City, the ownership thereof became fully vested on respondent City
without the latter having to perform any other acts to perfect its
ownership. Corollary thereto, ownership on the part of respondent City
has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations,
respondents motion for reconsideration is granted, and the order of
this Court dated December 28, 2004 is hereby reconsidered.
Consequently, the writ of preliminary injunction issued by this Court is
hereby lifted.chanroblesvirtuallawlibrary
Aggrieved, petitioner filed a petition for certiorari16 with the Court of
Appeals (Cebu City), with urgent prayer for the issuance of a TRO
and/or writ of preliminary injunction, docketed as CA-G.R. SP No.
01360. The Court of Appeals (Cebu City) issued a TRO17 on January
5, 2006 and shortly thereafter, issued a writ of preliminary
injunction18 on February 17, 2006.
RULING OF THE COURT OF APPEALS
The Court of Appeals (Cebu City) promulgated the questioned
Decision on October 8, 2007, holding that petitioner is a government-
owned or controlled corporation and its properties are subject to realty
tax. The dispositive portion of the questioned Decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, judgment is hereby rendered
by us as follows:
a. We DECLARE the airport terminal building, the airfield,
runway, taxiway and the lots on which they are situated NOT
EXEMPT from the real estate tax imposed by the respondent
City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate
tax, the additional levy for the Special Education Fund and the
penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city
can only collect an interest of 2% per month on the unpaid tax
which total interest shall, in no case, exceed thirty-six (36)
months;
c. We DECLARE the sale in public auction of the aforesaid
properties and the eventual forfeiture and purchase of the
subject property by the respondent City of Lapu-Lapu
as NULL and VOID. However, petitioner MCIAAs property is
encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of
the Local Government Code.19
Petitioner filed a Motion for Partial Reconsideration20 of the
questioned Decision covering only the portion of said decision
declaring that petitioner is a GOCC and, therefore, not exempt from
the realty tax and special education fund imposed by respondent City.
Petitioner cited Manila International Airport Authority v. Court of
Appeals21 (the 2006 MIAA case) involving the City of Paraaque and
the Manila International Airport Authority. Petitioner claimed that it had
been described by this Court as a government instrumentality, and
that it followed as a logical consequence that petitioner is exempt
from the taxing powers of respondent City of Lapu-Lapu.22 Petitioner
alleged that the 1996 MCIAA case had been overturned by the Court
in the 2006 MIAA case. Petitioner thus prayed that it be declared
exempt from paying the realty tax, special education fund, and interest
being collected by respondent City.
On February 12, 2008, the Court of Appeals denied petitioners
motion for partial reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established
in the 1996 MCIAA case and refused to apply the 2006 MIAA case.
The Court of Appeals wrote in the questioned Decision: We find that
our position is in line with the coherent and cohesive interpretation of
the relevant provisions of the Local Government Code on local
taxation enunciated in the [1996 MCIAA] case which to our mind is
more elegant and rational and provides intellectual clarity than the one
provided by the Supreme Court in the
[2006] MIAA case.23chanrobleslaw
In the questioned Decision, the Court of Appeals held that petitioners
airport terminal building, airfield, runway, taxiway, and the lots on
which they are situated are not exempt from real estate tax reasoning
as follows:chanRoblesvirtualLawlibrary
Under the Local Government Code (LGC for brevity), enacted
pursuant to the constitutional mandate of local autonomy, all natural
and juridical persons, including government-owned or controlled
corporations (GOCCs), instrumentalities and agencies, are no longer
exempt from local taxes even if previously granted an exemption. The
only exemptions from local taxes are those specifically provided under
the Code itself, or those enacted through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the
Constitution, provides for the exercise by local government units of
their power to tax, the scope thereof or its limitations, and the
exemptions from local taxation.
Section 133 of the LGC prescribes the common limitations on the
taxing powers of local government units. x x x.
xxxx
The above-stated provision, however, qualified the exemption of the
National Government, its agencies and instrumentalities from local
taxation with the phrase unless otherwise provided herein.
Section 232 of the LGC provides for the power of the local
government units (LGUs for brevity) to levy real property tax. x x x.
xxxx
Section 234 of the LGC provides for the exemptions from payment of
real property taxes and withdraws previous exemptions granted to
natural and juridical persons, including government-owned and
controlled corporations, except as provided therein. x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax
exemption privileges. x x x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the
Supreme Court in the 2006 MIAAcase, it finds and rules
that:chanRoblesvirtualLawlibrary
a) Section 133 of the LGC is not an absolute prohibition on the power
of the LGUs to tax the National Government, its agencies and
instrumentalities as the same is qualified by Sections 193, 232 and
234 which otherwise provided; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)
The Court of Appeals ratiocinated in the following
manner:chanRoblesvirtualLawlibrary
Pursuant to the explicit provision of Section 193 of the LGC,
exemptions previously enjoyed by persons, whether natural or
juridical, like the petitioner MCIAA, are deemed withdrawn upon the
effectivity of the Code. Further, the last paragraph of Section 234 of
the Code also unequivocally withdrew, upon the Codes effectivity,
exemptions from payment of real property taxes previously granted to
natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section. Petitioner
MCIAA, undoubtedly a juridical person, it follows that its exemption
from such tax granted under Section 14 of R.A. 6958 has been
withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section
133 of the LGC, instrumentalities were generally exempt from all
forms of local government taxation, unless otherwise provided in the
Code. On the other hand, Section 232 otherwise provided insofar as
it allowed local government units to levy an ad valorem real property
tax, irrespective of who owned the property. At the same time, the
imposition of real property taxes under Section 232 is, in turn,
qualified by the phrase not hereinafter specifically exempted. The
exemptions from real property taxes are enumerated in Section 234 of
the Code which specifically states that only real properties owned by
the Republic of the Philippines or any of its political subdivisions are
exempted from the payment of the tax. Clearly, instrumentalities or
GOCCs do not fall within the exceptions under Section 234 of the
LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the
national government, its agencies and instrumentalities under Section
133 is qualified by Sections 232 and 234, and accordingly, the only
relevant exemption now applicable to these bodies is what is now
provided under Section 234(a) of the Code. It may be noted that the
express withdrawal of previously granted exemptions to persons from
the payment of real property tax by the LGC does not even make any
distinction as to whether the exempt person is a governmental entity
or not. As Sections 193 and 234 of the Code both state, the
withdrawal applies to all persons, including GOCCs, thus
encompassing the two classes of persons recognized under our laws,
natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality
or a GOCC has already been lengthily but soundly, cogently and
lucidly answered in the [1996 MCIAA] case x x x.
xxxx
Based on the foregoing, the claim of the majority of the Supreme
Court in the [2006 MIAA] case that MIAA (and also petitioner MCIAA)
is not a government-owned or controlled corporation but an
instrumentality based on Section 2(10) of the Administrative Code of
1987 appears to be unsound. In the [2006 MIAA] case, the majority
justifies MIAAs purported exemption on Section 133(o) of the Local
Government Code which places agencies and instrumentalities: as
generally exempt from the taxation powers of the LGUs. It further
went on to hold that By express mandate of the Local Government
Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. x x x.26 (Citations
omitted.)
The Court of Appeals further cited Justice Tingas dissent in the
2006 MIAA case as well as provisions from petitioner MCIAAs charter
to show that petitioner is a GOCC.27 The Court of Appeals
wrote:chanRoblesvirtualLawlibrary
These cited provisions establish the fitness of the petitioner MCIAA to
be the subject of legal relations. Under its charter, it has the power to
acquire, possess and incur obligations. It also has the power to
contract in its own name and to acquire title to movable or immovable
property. More importantly, it may likewise exercise powers of a
corporation under the Corporation Code. Moreover, based on its own
allegation, it even recognized itself as a GOCC when it alleged in its
petition for prohibition filed before the lower court that it is a body
corporate organized and existing under Republic Act No. 6958 x x x.
We also find to be not meritorious the assertion of petitioner MCIAA
that the respondent city can no longer challenge the tax-exempt
character of the properties since it is estopped from doing so when
respondent City of Lapu-Lapu, through its former mayor, Ernest H.
Weigel, Jr., had long ago conceded that petitioners properties are
exempt from real property tax.
It is not denied by the respondent city that it considered, through its
former mayor, Ernest H. Weigel, Jr., petitioners subject properties,
specifically the runway and taxiway, as exempt from taxes. However,
as astutely pointed out by the respondent city it can never be in
estoppel, particularly in matters involving taxes. It is a well-known rule
that erroneous application and enforcement of the law by public
officers do not preclude subsequent correct application of the statute,
and that the Government is never estopped by mistake or error on the
part of its agents.28 (Citations omitted.)
The Court of Appeals established the
following:chanRoblesvirtualLawlibrary
a) [R]espondent City was able to prove and establish that it has a
valid and existing ordinance for the imposition of realty tax against
petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special
Education Fund (SEF) is authorized by law, Republic Act No. 5447;
and
c) [T]he collection of penalty interest for delinquent taxes is not only
authorized by law but is likewise [sanctioned] by respondent Citys
ordinance.29
The Court of Appeals likewise held that respondent City has a valid
and existing local tax ordinance, Ordinance No. 44, or the Omnibus
Tax Ordinance of Lapu-Lapu City, which provided for the imposition of
real property tax. The relevant provision
reads:chanRoblesvirtualLawlibrary
Chapter 5 Tax on Real Property Ownership
Section 25. RATE OF TAX. - A rate of one and one-half (1 )
percentum shall be collected from owners, executors or administrators
of any real estate lying within the territorial jurisdiction of the City of
Lapu-Lapu, based on the assessed value as shown in the latest
revision.30
The Court of Appeals found that even if Ordinance No. 44 was
enacted prior to the effectivity of the LGC, it remained in force and
effect, citing Section 529 of the LGC and Article 278 of the LGCs
Implementing Rules and Regulations.31chanrobleslaw
As regards the Special Education Fund, the Court of Appeals held
that respondent City can still collect the additional 1% tax on real
property even without an ordinance to this effect, as this is authorized
by Republic Act No. 5447, as amended by Presidential Decree No.
464 (the Real Property Tax Code), which does not require an enabling
tax ordinance. The Court of Appeals affirmed the RTCs ruling that
Republic Act No. 5447 was still in force and effect notwithstanding the
passing of the LGC, as the latter only partially repealed the former
law. What Section 534 of the LGC repealed was Section 3 a(3) and
b(2) of Republic Act No. 5447, and not the entire law that created the
Special Education Fund.32 The repealed provisions referred to
allocation of taxes on Virginia type cigarettes and duties on imported
leaf tobacco and the percentage remittances to the taxing authority
concerned. The Court of Appeals, citing The Commission on Audit of
the Province of Cebu v. Province of Cebu,33 held that [t]he failure to
add a specific repealing clause particularly mentioning the statute to
be repealed indicates that the intent was not to repeal any existing law
on the matter, unless an irreconcilable inconsistency and repugnancy
exists in the terms of the new and the old laws.34 The Court of
Appeals quoted the RTCs discussion on this issue, which we
reproduce below:chanRoblesvirtualLawlibrary
It may be observed that there is no requirement in RA 7160 that an
ordinance be enacted to enable the collection of the additional 1% tax.
This is so since R.A. 5447 is still in force and effect, and the declared
policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection
of the tax. Considering that this is a tax of far-reaching importance, to
require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the
local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.35
Regarding the penalty interest, the Court of Appeals found that
Section 30 of Ordinance No. 44 of respondent City provided for a
penalty surcharge of 25% of the tax due for a given year. Said
provision reads:chanRoblesvirtualLawlibrary
Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to
pay the tax provided for under this Chapter within the time fixed in
Section 27, shall subject the taxpayer to a surcharge of twenty-five
percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the
Local Government Code, the respondent City could only collect
penalty surcharge up to the extent of 72%, covering a period of three
years or 36 months, for the entire delinquent property.37 This was
lower than the 25% per annum surcharge imposed by Ordinance No.
44.38 The Court of Appeals affirmed the findings of the RTC in the
decision quoted below:chanRoblesvirtualLawlibrary
The tax collected under Ordinance No. 44 is within the rates
prescribed by RA 7160, though the 25% penalty collected is higher
than the 2% allowed under Sec. 255 of the said law which
provides:ChanRoblesVirtualawlibrary
xxxx
This difference does not however detract from the essential
enforceability and effectivity of Ordinance No. 44 pursuant to Section
529 of RA No. 7160 and Article 278 of the Implementing Rules and
Regulations. The outcome of this disparity is simply that respondent
City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioners
tax liability.39
It is worthy to note that the Court of Appeals nevertheless held
that even if it is clear that respondent City has the power to
impose real property taxes over petitioner, it is also evident and
categorical that, under Republic Act No. 6958, the properties of
petitioner MCIAA may not be conveyed or transferred to any
person or entity except to the national government.40 The
relevant provisions of the said law are quoted
below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall
have the following functions, powers and
duties:ChanRoblesVirtualawlibrary
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any
interest therein: Provided, That any asset located in
the Mactan International Airport important to national security shall not
be subject to alienation or mortgage by the Authority nor to transfer to
any entity other than the National Government[.]
Section 13. Borrowing Power. The Authority may, in accordance
with Section 21, Article XII of the Constitution and other existing laws,
rules and regulations on local or foreign borrowing, raise funds, either
from local or international sources, by way of loans, credit or
securities, and other borrowing instruments with the power to create
pledges, mortgages and other voluntary liens or encumbrances on
any of its assets or properties, subject to the prior approval of the
President of the Philippines.
All loans contracted by the Authority under this section, together with
all interests and other sums payable in respect thereof, shall
constitute a charge upon all the revenues and assets of the Authority
and shall rank equally with one another, but shall have priority over
any other claim or charge on the revenue and assets of the Authority:
Provided, That this provision shall not be construed as a prohibition or
restriction on the power of the Authority to create pledges, mortgages
and other voluntary liens or encumbrances on any asset or property of
the Authority.
The payment of the loans or other indebtedness of the Authority may
be guaranteed by the National Government subject to the approval of
the President of the Philippines.chanroblesvirtuallawlibrary
The Court of Appeals concluded that it is clear that petitioner MCIAA
is denied by its charter the absolute right to dispose of its property to
any person or entity except to the national government and it is not
empowered to obtain loans or encumber its property without the
approval of the President.41 The questioned Decision contained the
following conclusion:chanRoblesvirtualLawlibrary
With the advent of RA 7160, the Local Government Code, the power
to tax is no longer vested exclusively on Congress. LGUs, through its
local legislative bodies, are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, Section 5 of the 1987
Constitution. And one of the most significant provisions of the LGC is
the removal of the blanket inclusion of instrumentalities and agencies
of the national government from the coverage of local taxation. The
express withdrawal by the Code of previously granted exemptions
from realty taxes applied to instrumentalities and government-owned
or controlled corporations (GOCCs) such as the petitioner Mactan-
Cebu International Airport Authority. Thus, petitioner MCIAA became
a taxable person in view of the withdrawal of the realty tax exemption
that it previously enjoyed under Section 14 of RA No. 6958 of its
charter. As expressed and categorically held in the Mactan case, the
removal and withdrawal of tax exemptions previously enjoyed by
persons, natural or juridical, are consistent with the State policy to
ensure autonomy to local governments and the objective of the Local
Government Code that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-
reliant communities and make them effective partners in the
attainment of national goals.
However, in the case at bench, petitioner MCIAAs charter expressly
bars the alienation or mortgage of its property to any person or entity
except to the national government. Therefore, while petitioner MCIAA
is a taxable person for purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing, selling and owning these
properties by and through a public auction in order to satisfy petitioner
MCIAAs tax liability.42 (Citations omitted.)
In the questioned Resolution that affirmed its questioned Decision, the
Court of Appeals denied petitioners motion for reconsideration based
on the following grounds:chanRoblesvirtualLawlibrary
First, the MCIAA case remains the controlling law on the matter
as the same is the established precedent; not the MIAA case but
the MCIAA case since the former, as keenly pointed out by the
respondent City of Lapu-Lapu, has not yet attained finality as
there is still yet a pending motion for reconsideration filed with
the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court
in the MIAA case cannot be similarly invoked in the case at
bench. The said case cannot be considered as the law of the
case. The law of the case doctrine has been defined as that
principle under which determinations of questions of law will generally
be held to govern a case throughout all its subsequent stages where
such determination has already been made on a prior appeal to a
court of last resort. It is merely a rule of procedure and does not go to
the power of the court, and will not be adhered to where its application
will result in an unjust decision. It relates entirely to questions of law,
and is confined in its operation to subsequent proceedings in the
same case. According to said doctrine, whatever has been irrevocably
established constitutes the law of the case only as to the same parties
in the same case and not to different parties in an entirely different
case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably
established anything.
Thus, after a thorough and judicious review of the allegations in
petitioners motion for reconsideration, this Court resolves to deny the
same as the matters raised therein had already been exhaustively
discussed in the decision sought to be reconsidered, and that no new
matters were raised which would warrant the modification, much less
reversal, thereof.43 (Emphasis added, citations omitted.)
PETITIONERS THEORY
Petitioner is before us now claiming that this Court, in the
2006 MIAA case, had expressly declared that petitioner, while vested
with corporate powers, is not considered a government-owned or
controlled corporation, but is a government instrumentality like the
Manila International Airport Authority (MIAA), Philippine Ports
Authority (PPA), University of the Philippines, and Bangko Sentral ng
Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real
estate taxes imposed by respondent City.44chanrobleslaw
Petitioner alleges that Republic Act No. 6958 placed a limitation on
petitioners administration of its assets and properties as it provides
under Section 4(e) that any asset in the international airport important
to national security cannot be alienated or mortgaged by petitioner or
transferred to any entity other than the National
Government.45chanrobleslaw
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely
erred in disregarding the following:chanRoblesvirtualLawlibrary
I Petitioner compares its charter (Republic Act No. 6958) with that of
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS
EXPRESSLY DECLARED BY THE HONORABLE COURT IN
THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL
ESTATE TAXES IMPOSED BY RESPONDENT CITY OF LAPU-
LAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE
AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY,
INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE
EXEMPT FROM REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL
PROPERTY TAX WITHOUT ANY APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN
ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION FUND IN
THE ABSENCE OF ANY CORRESPONDING ORDINANCE.
V may deem proper and necessary.chanroblesvirtuallawlibrary
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY
INTEREST SANS ANY ORDINANCE MANDATING ITS
IMPOSITION.46
Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical
functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic
airport in Paranaque City for public use, while MCIAA was
organized to operate the international and domestic airport
in Mactan for public use.
4. Both are attached agencies of the Department of
Transportation and Communications.47
MIAA (Executive Order No. 903).
Section 3 of Executive Order No. 903
provides:chanRoblesvirtualLawlibrary
Sec. 3. Creation of the Manila International Airport Authority. There is
hereby established a body corporate to be known as the Manila
International Airport Authority which shall be attached to the Ministry
of Transportation and Communications. The principal office of the
Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or
subsidiaries as it may deem proper and necessary; x x
x.chanroblesvirtuallawlibrary
Section 2 of Republic Act No. 6958 reads:chanRoblesvirtualLawlibrary
Section 2. Creation of the Mactan-Cebu International Airport
Authority. There is hereby established a body corporate to be
known as the Mactan-Cebu International Airport Authority which shall
be attached to the Department of Transportation and
Communications. The principal office of the Authority shall be located
at the MactanInternational Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it
As to MIAAs purposes and objectives, Section 4 of Executive Order
No. 903 reads:chanRoblesvirtualLawlibrary
Sec. 4. Purposes and Objectives. The Authority shall have the
following purposes and objectives:ChanRoblesVirtualawlibrary
(a) To help encourage and promote international and domestic air
traffic in the Philippines as a means of making the Philippines a center
of international trade and tourism and accelerating the development of
the means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally
acceptable standards of airport accommodation and service; and

(c) To upgrade and provide safe, efficient, and reliable airport facilities
for international and domestic air travel.chanroblesvirtuallawlibrary
Petitioner claims that the above purposes and objectives are
analogous to those enumerated in its charter, specifically Section 3 of
Republic Act No. 6958, which reads:chanRoblesvirtualLawlibrary
Section 3. Primary Purposes and Objectives. The Authority shall
principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in
the Province of Cebu and the Lahug Airport in Cebu City, hereinafter
collectively referred to as the airports, and such other airports as may
be established in the Province of Cebu. In addition, it shall have the
following objectives:ChanRoblesVirtualawlibrary
(a) To encourage, promote and develop international and domestic air
traffic in the central Visayas and Mindanao regions as a means of
making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and
communications in the country; and
(b) To upgrade the services and facilities of the airports and to
formulate internationally acceptable standards of airport
accommodation and service.chanroblesvirtuallawlibrary
The powers, functions and duties of MIAA under Section 5 of
Executive Order No. 903 are:ChanRoblesVirtualawlibrary
Sec. 5. Functions, Powers and Duties. The Authority shall have the
following functions, powers and duties:chanRoblesvirtualLawlibrary
(a) To formulate, in coordination with the Bureau of Air Transportation
and other appropriate government agencies, a comprehensive and
integrated policy and program for the Airport and to implement,
review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide
such facilities or services as shall be necessary for the efficient
functioning of the Airport;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the
Airport, and to control and/or supervise as may be necessary the
construction of any structure or the rendition of any services within
the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time
to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property
of whatever kind and nature, whether movable or immovable, or
any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its
purposes and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the
use of the Airport premises, works, appliances, facilities or
concessions or for any service provided by the Authority, subject
to the approval of the Minister of Transportation and
Communications in consultation with the Minister of Finance, and
subject further to the provisions of Batas Pambansa Blg. 325
where applicable;
(l) To invest its idle funds, as it may deem proper, in government
securities and other evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the
Airport and the approaches thereof, which shall include but shall
not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on
the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the
care, convenience and security of passengers, visitors and
other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of
baggage and goods.
(n) To perform such other acts and transact such other business,
directly or indirectly necessary, incidental or conducive to the
 attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy
congestion in the Airport; and
(o) To exercise all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties
under Section 4 of Republic Act No. 6958, as shown in the provision
quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall
have the following functions, powers and
duties:ChanRoblesVirtualawlibrary
(a) To formulate a comprehensive and integrated development policy
and program for the airports and to implement, review and update
such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide
such facilities or services as shall be necessary for the efficient
functioning of the airports;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the
airports, and to control and supervise the construction of any structure
or the rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation
Code of the Philippines, insofar as those powers are not inconsistent
with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any
interest therein: Provided, That any asset located in
the Mactan International Airport important to national security shall not
be subject to alienation or mortgage by the Authority nor to transfer to
any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its
purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use
of airport premises, works, appliances, facilities or concessions, or for
any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the
Authority relative to the use of airport premises for such measures as
may be necessary to make the Authority more effective and efficient
in the discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government
securities and other evidences of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the
airports and the approaches thereof as may be necessary or in
connection with the maintenance and operation of the airports and
their facilities.chanroblesvirtuallawlibrary
Petitioner claims that like MIAA, it has police authority within its
premises, as shown in their respective charters quoted
below:chanRoblesvirtualLawlibrary
EO 903, Sec. 6. Police Authority. The Authority shall have the
power to exercise such police authority as may be necessary within its
premises to carry out its functions and attain its purposes and
objectives, without prejudice to the exercise of functions within the
same premises by the Ministry of National Defense through the
Aviation Security Command (AVSECOM) as provided in LOI 961:
Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be
required. x x x.
R.A. No. 6958, Section 5. Police Authority. The Authority shall
have the power to exercise such police authority as may be necessary
within its premises or areas of operation to carry out its functions and
attain its purposes and objectives: Provided, That the Authority may
request the assistance of law enforcement agencies, including
request for deputization as may be required. x x
x.chanroblesvirtuallawlibrary
Petitioner pointed out other similarities in the two charters, such
as:ChanRoblesVirtualawlibrary
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules
and regulations (Section 15, Executive Order No. 903; Section 12,
Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21,
Executive Order No. 903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an
annual report generally dealing with their activities and operations
(Section 14, Executive Order No. 903; Section 11, Republic Act No.
6958); and
4. Both have borrowing power subject to the approval of the President
(Section 16, Executive Order No. 903; Section 13, Republic Act No.
6958).48chanrobleslaw
Petitioner suggests that it is because of its similarity with MIAA that
this Court, in the 2006 MIAA case, placed it in the same class as
MIAA and considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality
like MIAA, the following conclusion arrived by the Court in the
2006 MIAA case is also applicable to
petitioner:chanRoblesvirtualLawlibrary
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 Paraaque.
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.49 (Emphases added.)
Petitioner insists that its properties consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are
situated are not subject to real property tax because they are actually,
solely and exclusively used for public purposes.50 They are
indispensable to the operation of the MactanInternational Airport and
by their very nature, these properties are exempt from tax. Said
properties belong to the State and are merely held by petitioner in
trust. As earlier mentioned, petitioner claims that these properties are
important to national security and cannot be alienated, mortgaged, or
transferred to any entity except the National Government.
Petitioner prays that judgment be
rendered:chanRoblesvirtualLawlibrary
a) Declaring petitioner exempt from paying real property taxes as it is
a government instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority
 to levy and collect the basic real property tax, the additional tax for
the SEF and the penalty interest for its failure to pass the
corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of
petitioner as exempt from real property taxes as they are used
solely and exclusively for public purpose.51
In its Consolidated Reply filed through the OSG, petitioner claims that
the 2006 MIAA ruling has overturned the 1996 MCIAA ruling.
Petitioner cites Justice Dante O. Tingas dissent in the MIAA ruling, as
follows:chanRoblesvirtualLawlibrary
[The] ineluctable conclusion is that the majority rejects the rationale
and ruling in Mactan. The majority provides for a wildly different
interpretation of Section 133, 193 and 234 of the Local Government
Code than that employed by the Court in Mactan. Moreover, the
parties in Mactan and in this case are similarly situated, as can be
obviously deducted from the fact that both petitioners are airport
authorities operating under similarly worded charters. And the fact that
the majority cites doctrines contrapuntal to the Local Government
Code as in Basco and Maceda evinces an intent to go against the
Courts jurisprudential trend adopting the philosophy of expanded
local government rule under the Local Government Code.
x x x The majority is obviously inconsistent with Mactan and there is
no way these two rulings can stand together. Following basic
principles in statutory construction, Mactan will be deemed as giving
way to this new ruling.
xxxx
There is no way the majority can be justified unless Mactan is
overturned. The MCIAA and the MIAA are similarly situated. They are
both, as will be demonstrated, GOCCs, commonly engaged in the
business of operating an airport. They are the owners of airport
properties they respectively maintain and hold title over these
properties in their name. These entities are both owned by the State,
and denied by their respective charters the absolute right to dispose
of their properties without prior approval elsewhere. Both of them are
not empowered to obtain loans or encumber their properties without
prior approval the prior approval of the President.52 (Citations
omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-
2007 is an admission on respondent Citys part that it must have a tax
measure to be able to impose a tax or special assessment. Petitioner
avers that assuming that it is a non-exempt entity or that its airport
lands and buildings are not exempt, it was only upon the effectivity of
Ordinance No. 070-2007 on January 1, 2008 that respondent City
could properly impose the basic real property tax, the additional tax
for the SEF, and the interest in case of nonpayment.53chanrobleslaw
Petitioner filed its Memorandum54 on June 17, 2009.
RESPONDENTS THEORY
In their Comment,55 respondents point out that petitioner partially
moved for a reconsideration of the questioned Decision only as to the
issue of whether petitioner is a GOCC or not. Thus, respondents
declare that the other portions of the questioned decision had already
attained finality and ought not to be placed in issue in this petition
for certiorari. Thus, respondents discussed the other issues raised by
petitioner with reservation as to this objection.
Respondents summarized the issues and the grounds relied upon as
follows:chanRoblesvirtualLawlibrary
STATEMENT OF THE ISSUES
WHETHER OR NOT PETITIONER IS A GOVERNMENT
INSTRUMENTALITY EXEMPT FROM PAYING REAL PROPERTY
TAXES
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY
TAX, SPECIAL EDUCATION FUND AND PENALTY INTEREST
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING,
AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS ON WHICH
THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES
GROUNDS RELIED UPON
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM
REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT
EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY
WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE
LGC56
Respondents claim that the mere mention of MCIAA in the MIAA v.
[Court of Appeals] case does not make it the controlling case on the
matter.57 Respondents further claim that the 1996 MCIAA case where
this Court held that petitioner is a GOCC is the controlling
jurisprudence. Respondents point out that petitioner and MIAA are
two very different entities. Respondents argue that petitioner is a
GOCC contrary to its assertions, based on its Charter and on DOJ
Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an
instrumentality of the government, still the following statement in the
1996 MCIAA case applies:chanRoblesvirtualLawlibrary
Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one
can doubt its wisdom.58
Respondents argue that MCIAA properties such as the terminal
building, taxiway and runway are not exempt from real property
taxation. As discussed in the 1996 MCIAA case, Section 234 of the
LGC omitted GOCCs such as MCIAA from entities enjoying tax
exemptions. Said decision also provides that the transfer of ownership
of the land to petitioner was absolute and petitioner cannot evade
payment of taxes.59chanrobleslaw
Even if the following issues were not raised by petitioner in its motion
for reconsideration of the questioned Decision, and thus the ruling
pertaining to these issues in the questioned decision had become
final, respondents still discussed its side over its objections as to the
propriety of bringing these up before this Court.
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233,
255) and its IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or
the Omnibus Tax Ordinance, wherein the imposition of real
property tax was made. This Ordinance was in force and effect
by virtue of Article 278 of the IRR of Republic Act No.
7160.60chanrobleslaw
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu
City Revenue Code, imposed real property taxes, special
education fund and further provided for the payment of interest
and surcharges. Thus, the issue is pass and is moot and
academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for
the collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy,
imposition and collection need not be covered by ordinance.
Besides, the City has enacted the Revenue Code containing
provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:ChanRoblesVirtualawlibrary
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the
denial of the writ of preliminary injunction by the RTC and the
Court of Appeals. Petitioner failed to show irreparable injury.
 b. Comparing the alleged damage that may be caused petitioner
and the direct affront and challenge against the power to tax,
which is an attribute of sovereignty, it is but appropriate that
injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under
protest.
a. Petitioner should have protested the tax imposition as
provided in Article 285 of the IRR of Republic Act No. 7160.
Section 252 of Republic Act No. 716062 requires that the
taxpayers protest can only be entertained if the tax is first paid
under protest.63
Respondents submitted their Memorandum64 on June 30, 2009,
wherein they allege that the 1996 MCIAAcase is still good law, as
shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment
Appeals of Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549
Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil.
785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492
(2009)].
Respondents assert that the constant reference to the
1996 MCIAA case could hardly mean that the doctrine has breathed
its last and that the 1996 MCIAA case stands as precedent and is
controlling on petitioner MCIAA.65chanrobleslaw
Respondents allege that the issue for consideration is whether it is
proper for petitioner to raise the issue of whether it is not liable to pay
real property taxes, special education fund (SEF), interests and/or
surcharges.66 Respondents argue that the Court of Appeals was
correct in declaring petitioner liable for realty taxes, etc., on the
terminal building, taxiway, and runway. Respondent City relies on the
following grounds:chanRoblesvirtualLawlibrary
1. The case of MCIAA v. Marcos, et al., is controlling on
petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local
Government Code of 1991 authorizes the collection of real
property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public
Dominion and are not exempt from realty taxes, special
education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and
Special Education Fund from MCIAA; [and]
6. Estoppel does not lie against the government.67
THIS COURTS RULING
The petition has merit. The petitioner is an instrumentality of the
government; thus, its properties actually, solely and exclusively used
for public purposes, consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated, are not
subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.
DISCUSSION
The Court of Appeals (Cebu City) erred in declaring that the
1996 MCIAA case still controls and that petitioner is a GOCC. The
2006 MIAA case governs.
The Court of Appeals reliance on the 1996 MCIAA case is misplaced
and its staunch refusal to apply the 2006 MIAA case is patently
erroneous. The Court of Appeals, finding for respondents, refused to
apply the ruling in the 2006 MIAA case on the premise that the same
had not yet reached finality, and that as far as MCIAA is concerned,
the 1996 MCIAA case is still good law.68chanrobleslaw
While it is true, as respondents allege, that the 1996 MCIAA case was
cited in a long line of cases,69 still, in 2006, the Court en banc decided
a case that in effect reversed the 1996 Mactan ruling. The
2006 MIAA case had, since the promulgation of the questioned
Decision and Resolution, reached finality and had in fact been either
affirmed or cited in numerous cases by the Court.70 The decision
became final and executory on November 3, 2006.71 Furthermore, the
2006 MIAA case was decided by the Court en banc while the
1996 MCIAA case was decided by a Division. Hence, the
1996 MCIAA case should be read in light of the subsequent and
unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAAs airport lands
and buildings are exempt from real estate tax imposed by local
governments; that it is not a GOCC but an instrumentality of the
national government, with its real properties being owned by the
Republic of the Philippines, and these are exempt from real estate
tax. Specifically referring to petitioner, we stated as
follows:chanRoblesvirtualLawlibrary
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.72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was whether the
Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws.73 We quote the extensive discussion of the Court
that led to its finding that MIAAs lands and buildings were exempt
from real estate tax imposed by local
governments:chanRoblesvirtualLawlibrary
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
xxxx
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:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - 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.chanroblesvirtuallawlibrary
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. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.
Section 3 of the Corporation Code 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. 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:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - 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.chanroblesvirtuallawlibrary
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, police authority and the levying of fees and charges. 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.
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 will make
its operation more financially viable.
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.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on
the taxing power of the local governments as against the national
government or its instrumentality:chanRoblesvirtualLawlibrary
A government instrumentality like MIAA falls under Section 133(o) of
the Local Government Code, which
states:chanRoblesvirtualLawlibrary
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:ChanRoblesVirtualawlibrary
xxxx
(o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities and local government units. x x
x.chanroblesvirtuallawlibrary
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.
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. x x x.
xxxx
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. x x x.75(Emphases ours,
citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA
are owned by the Republic and belong to the public domain. The
Court said:chanRoblesvirtualLawlibrary
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines. x x x.
xxxx
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. x x x.
xxxx
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 users 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 users
tax is more equitable - a principle of taxation mandated in the 1987
Constitution.
The Airport Lands and Buildings of MIAA x x x 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.76 (Emphases supplied,
citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and
buildings are outside the commerce of man.
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:ChanRoblesVirtualawlibrary
xxxx
The Civil Code, Article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.
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 Paraaque 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 encumber the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands and
Buildings. x x x.
xxxx
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:chanRoblesvirtualLawlibrary
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;
xxxx
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.77
Thus, the Court held that MIAA is merely holding title to the Airport
Lands and Buildings in trust for the Republic. [Under] Section 48,
Chapter 12, Book I of the Administrative Code [which] allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic.78chanrobleslaw
The Court in the 2006 MIAA case cited Section 234(a) of the Local
Government Code and held that said provision exempts from real
estate tax any [r]eal property owned by the Republic of the
Philippines.79The Court emphasized, however, that portions of the
Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. The Court further
held:chanRoblesvirtualLawlibrary
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 instrumentalities x 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. x x x.80
Significantly, the Court reiterated the above ruling and applied the
same reasoning in Manila International Airport Authority v. City of
Pasay,81 thus:chanRoblesvirtualLawlibrary
The only difference between the 2006 MIAA case and this case is
that the 2006 MIAA case involved airport lands and buildings
located in Paraaque City while this case involved airport lands
and buildings located in Pasay City. The 2006 MIAA case and this
case raised the same threshold issue: whether the local government
can impose real property tax on the airport lands, consisting mostly of
the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code of 1987 uses the
phrase includes x x x government-owned or controlled corporations
which means that a government instrumentality may or may not be a
government-owned or controlled corporation. Obviously, the term
government instrumentality is broader than the term government-
owned or controlled corporation. x x x.
xxxx
The fact that two terms have separate definitions means that while a
government instrumentality may include a government-owned or
controlled corporation, there may be a government instrumentality
that will not qualify as a government-owned or controlled
corporation.
A close scrutiny of the definition of government-owned or controlled
corporation in Section 2(13) will show that MIAA would not fall under
such definition. MIAA is a government instrumentality that does
not qualify as a government-owned or controlled corporation. x
x x.
xxxx
Thus, MIAA is not a government-owned or controlled corporation but
a government instrumentality which is exempt from any kind of tax
from the local governments. Indeed, the exercise of the taxing power
of local government units is subject to the limitations enumerated in
Section 133 of the Local Government Code. Under Section 133(o) of
the Local Government Code, local government units have no power to
tax instrumentalities of the national government like the MIAA. Hence,
MIAA is not liable to pay real property tax for the NAIA Pasay
properties.
Furthermore, the airport lands and buildings of MIAA are properties of
public dominion intended for public use, and as such are exempt from
real property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to
a taxable person, the specific property leased becomes subject to real
property tax. In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay. (Emphases added,
citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated
as MIAA. It also mentioned several other government
instrumentalities, among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006 MIAA ruling, the
Court, in Philippine Fisheries Development Authority v. Court of
Appeals,82 held:chanRoblesvirtualLawlibrary
On the basis of the parameters set in the MIAA case, the Authority
should be classified as an instrumentality of the national government.
As such, it is generally exempt from payment of real property tax,
except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development
Authority was cited as among the instrumentalities of the national
government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the
government. The Authority has a capital stock but it is not divided into
shares of stocks. Also, it has no stockholders or voting shares. Hence,
it is not a stock corporation. Neither [is it] a non-stock corporation
because it has no members.
The Authority is actually a national government instrumentality which
is defined as an 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. 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, the Authority which is tasked with the special public function to
carry out the governments policy to promote the development of the
countrys fishing industry and improve the efficiency in handling,
preserving, marketing, and distribution of fish and other aquatic
products, exercises the governmental powers of eminent domain,
and the power to levy fees and charges. At the same time, the
Authority exercises the general corporate powers conferred by laws
upon private and government-owned or controlled corporations.
xxxx
In light of the foregoing, the Authority should be classified as an
instrumentality of the national government which is liable to pay taxes
only with respect to the portions of the property, the beneficial use of
which were vested in private entities. 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.
Thus, the real property tax assessments issued by the City of Iloilo
should be upheld only with respect to the portions leased to private
persons. In case the Authority fails to pay the real property taxes due
thereon, said portions cannot be sold at public auction to satisfy the
tax delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the
national government, hence, it is liable to pay real property taxes
assessed by the City of Iloilo on the IFPC only with respect to those
portions which are leased to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC, the latter or any part
thereof, being a property of public domain, cannot be sold at public
auction. This means that the City of Iloilo has to satisfy the tax
delinquency through means other than the sale at public auction of
the IFPC. (Citations omitted.)
Another government instrumentality specifically mentioned in the
2006 MIAA case was the Philippine Ports Authority (PPA). Hence,
in Curata v. Philippine Ports Authority,83 the Court held that the PPA is
similarly situated as MIAA, and ruled in this
wise:chanRoblesvirtualLawlibrary
This Courts disquisition in Manila International Airport Authority v.
Court of Appeals ruling that MIAA is not a government-owned
and/or controlled corporation (GOCC), but an instrumentality of the
National Government and thus exempt from local taxation, and that its
real properties are owned by the Republic of the Philippines is
instructive. x x x. These findings are squarely applicable to PPA, as it
is similarly situated as MIAA. First, PPA is likewise not a GOCC for
not having shares of stocks or members. Second, the docks, piers
and buildings it administers are likewise owned by the Republic and,
thus, outside the commerce of man. Third, PPA is a mere trustee of
these properties. Hence, like MIAA, PPA is clearly a government
instrumentality, an agency of the government vested with corporate
powers to perform efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake
of government funds, and such may not be garnished absent an
allocation by its Board or by statutory grant. If the PPA funds cannot
be garnished and its properties, being government properties, cannot
be levied via a writ of execution pursuant to a final judgment, then the
trial court likewise cannot grant discretionary execution pending
appeal, as it would run afoul of the established jurisprudence that
government properties are exempt from execution. What cannot be
done directly cannot be done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City
Assessor of the City of Manila84 the Court found that the GSIS was
also a government instrumentality and not a GOCC, applying the
2006 MIAA case even though the GSIS was not among those
specifically mentioned by the Court as similarly situated as MIAA. The
Court said:chanRoblesvirtualLawlibrary
GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Courts fairly recent ruling
in Manila International Airport Authority v. Court of Appeals, a case
likewise involving real estate tax assessments by a Metro Manila city
on the real properties administered by MIAA, argues for the non-tax
liability of GSIS for real estate taxes. x x x.
xxxx
While perhaps not of governing sway in all fours inasmuch as
what were involved in Manila International Airport Authority, e.g.,
airfields and runways, are properties of the public dominion and,
hence, outside the commerce of man, the rationale underpinning
the disposition in that case is squarely applicable to GSIS, both
MIAA and GSIS being similarly situated. First, while created under
CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291,
GSIS is not, in the context of the aforequoted Sec. 193 of the LGC, a
GOCC following the teaching of Manila International Airport Authority,
for, like MIAA, GSISs capital is not divided into unit shares. Also,
GSIS has no members to speak of. And by members, the reference is
to those who, under Sec. 87 of the Corporation Code, make up the
non-stock corporation, and not to the compulsory members of the
system who are government employees. Its management is entrusted
to a Board of Trustees whose members are appointed by the
President.
Second, the subject properties under GSISs name are likewise
owned by the Republic. The GSIS is but a mere trustee of the subject
properties which have either been ceded to it by the Government or
acquired for the enhancement of the system. This particular property
arrangement is clearly shown by the fact that the disposal or
conveyance of said subject properties are either done by or through
the authority of the President of the Philippines. x x x. (Emphasis
added, citations omitted.)
All the more do we find that petitioner MCIAA, with its many
similarities to the MIAA, should be classified as a government
instrumentality, as its properties are being used for public purposes,
and should be exempt from real estate taxes. This is not to derogate
in any way the delegated authority of local government units to collect
realty taxes, but to uphold the fundamental doctrines of uniformity in
taxation and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar authorities,
agencies, and instrumentalities, whether covered by the
2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is
not a stock or non-stock corporation, which is a necessary condition
before an agency or instrumentality is deemed a government-owned
or controlled corporation. Like MIAA, petitioner MCIAA has capital
under its charter but it is not divided into shares of stock. It also has
no stockholders or voting shares. Republic Act No. 6958
provides:chanRoblesvirtualLawlibrary
Section 9. Capital. The [Mactan-Cebu International Airport]
Authority shall have an authorized capital stock equal to and
consisting of:ChanRoblesVirtualawlibrary
(a) The value of fixed assets (including airport facilities, runways and
equipment) and such other properties, movable and immovable,
currently administered by or belonging to the airports as valued on the
date of the effectivity of this Act;
(b) The value of such real estate owned and/or administered by the
airports; and
(c) Government contribution in such amount as may be deemed an
appropriate initial balance. Such initial amount, as approved by the
President of the Philippines, which shall be more or less equivalent to
six (6) months working capital requirement of the Authority, is hereby
authorized to be appropriated in the General Appropriations Act of the
year following its enactment into law.chanroblesvirtuallawlibrary
Thereafter, the government contribution to the capital of the Authority
shall be provided for in the General Appropriations Act.
Like in MIAA, the airport lands and buildings of MCIAA 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, and are outside the commerce of
man. This, unless petitioner leases its real property to a taxable
person, the specific property leased becomes subject to real property
tax; in which case, only those portions of petitioners properties which
are leased to taxable persons like private parties are subject to real
property tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and
conclusions of the Court in the 2006 MIAA case, and we
quote:chanRoblesvirtualLawlibrary
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.
x x x.
xxxx
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 Paraaque.
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.85 (Emphases added.)
WHEREFORE, we hereby GRANT the petition.
We REVERSE and SET ASIDE the Decision dated October 8,
2007 and the Resolution dated February 12, 2008 of the Court of
Appeals (Cebu City)in CA-G.R. SP No. 01360. Accordingly,
we DECLARE:
1. Petitioners properties that are actually, solely and exclusively
used for public purpose, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the
City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the
additional tax for the special education fund and the penalty
interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioners
properties, except the assessment covering the portions that
petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioners
properties and the eventual forfeiture and purchase of the said
properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of
Delinquent Property issued to respondent City of Lapu-Lapu.
SO ORDERED.
BOY SCOUTS OF THE PHILIPPINES, G.R. No. 177131 controversy that reached us via petition for prohibition[1] filed by the
Petitioner, BSP under Rule 65 of the 1997 Rules of Court. In this petition, the
Present: 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
CORONA, C.J., other issuances arising therefrom, and that all of the foregoing be
CARPIO, rendered null and void. [4]
CARPIO MORALES,
VELASCO, JR., Antecedent Facts and Background of the Case
NACHURA,
This case arose when the COA issued Resolution No. 99-011[5] on
LEONARDO-DE CASTRO,
BRION, August 19, 1999 (the COA Resolution), with the subject Defining the
- versus - PERALTA, Commissions policy with respect to the audit of the Boy Scouts of the
BERSAMIN, Philippines. In its whereas clauses, the COA Resolution stated that
DEL CASTILLO, the BSP was created as a public corporation under Commonwealth
ABAD, Act No. 111, as amended by Presidential Decree No. 460 and
VILLARAMA, JR., Republic Act No. 7278; that in Boy Scouts of the Philippines v.
PEREZ, National Labor Relations Commission,[6] the Supreme Court ruled that
MENDOZA, and the BSP, as constituted under its charter, was a government-
SERENO, JJ. 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
COMMISSION ON AUDIT, Promulgated: Code.[7] The COA Resolution also cited its constitutional mandate
Respondent. under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
June 7, 2011
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
x-------------------------------------------------- and the Statement of Cash Flows present fairly its financial position
x and results of operations.

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
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 Commissions 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 BSPs 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 cases 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 letter[12] dated July 3, 2000, Director Crescencio S. Sunico,
Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a
copy of the Memorandum[13] 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 Courts 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 BSPs 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 BSPs 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 BSPs 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 COAs 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 COAs 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 BSPs
corporate identity in the same way that the governments privatization
program changed PALs, 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 BSPs 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 petitioners third argument, BSPs 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
governments policy to stimulate patriotic sentiments and love of
country, the BSPs 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 BSPs
funds may not bar the subsequent exercise of its audit jurisdiction.
The BSP filed its Reply[33] 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 COAs 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 COAs audit jurisdiction.
Thereafter, considering the BSPs 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 Courts resolution, the parties filed their
respective Comments.
In its Comment[35] 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
COAs 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 BSPs 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 latters 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 Comment[42] 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 COAs 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:
Petitioners 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 petitioners 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. Petitioners 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.[46] The
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 BSPs
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 COAs 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 BSPs 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 agencyof 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 bills 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 BSPs 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 shouldnt it be,
this rhetorical question, shouldnt it be better for this
organization to seek a mandate from, lets 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 thats a rhetorical
question, they may or they may not answer, ano. I dont 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 dont 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, dont take that as an objection, Im
not objecting. Im 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 dont 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, thats 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 BSPs 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 dissents 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 COAs Jurisdiction

Regarding the COAs 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.
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 COAs 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 dont 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 theres
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.
PHILIPPINE SOCIETY FOR G.R. No. 169752 Before the Court is a special civil action for Certiorari and Prohibition
THE PREVENTION OF under Rule 65 of the Rules of Court, in relation to Section 2 of Rule
CRUELTY TO ANIMALS, 64, filed by the petitioner assailing Office Order No. 2005-021[1] dated
Petitioners, Members: September 14, 2005 issued by the respondents which constituted the
audit team, as well as its September 23, 2005 Letter[2]informing the
PUNO, C.J. petitioner that respondents audit team shall conduct an audit survey
QUISUMBING, on the petitioner for a detailed audit of its accounts, operations, and
YNARES-SANTIAGO, financial transactions.No temporary restraining order was issued.
SANDOVAL-GUTIERREZ,
CARPIO, The petitioner was incorporated as a juridical entity over one hundred
AUSTRIA-MARTINEZ, years ago by virtue of Act No. 1285, enacted on January 19, 1905, by
CORONA, the Philippine Commission. The petitioner, at the time it was created,
- versus - CARPIO-MORALES, was composed of animal aficionados and animal propagandists. The
AZCUNA, objects of the petitioner, as stated in Section 2 of its charter, shall be
TINGA, to enforce laws relating to cruelty inflicted upon animals or the
CHICO-NAZARIO, protection of animals in the Philippine Islands, and generally, to do
GARCIA, and perform all things which may tend in any way to alleviate the
VELASCO, JR., suffering of animals and promote their welfare.[3]
NACHURA, and
REYES, JJ. At the time of the enactment of Act No. 1285, the original Corporation
COMMISSION ON AUDIT, Law, Act No. 1459, was not yet in existence. Act No. 1285 antedated
DIR. RODULFO J. ARIESGA both the Corporation Law and the constitution of the Securities and
(in his official capacity as Director Exchange Commission. Important to note is that the nature of the
of the Commission on Audit), MS. petitioner as a corporate entity is distinguished from
MERLE M. VALENTIN and MS. the sociedadanonimas under the Spanish Code of Commerce.
SUSAN GUARDIAN (in their official
capacities as Team Leader and For the purpose of enhancing its powers in promoting animal welfare
Team and enforcing laws for the protection of animals, the petitioner was
Member, respectively, of the audit Promulgated: initially imbued under its charter with the power to apprehend violators
Team of the Commission on Audit), of animal welfare laws. In addition, the petitioner was to share one-
Respondents. September 25, 2007 half (1/2) of the fines imposed and collected through its efforts for
x-------------------------------------------------- violations of the laws related thereto. As originally worded, Sections 4
---------x and 5 of Act No. 1285 provide:
DECISION
SEC. 4. The said society is authorized to appoint not to exceed five
AUSTRIA-MARTINEZ, J.: agents in the City of Manila, and not to exceed two in each of the
provinces of the Philippine Islands who shall have all the power and
authority of a police officer to make arrests for violation of the
laws enacted for the prevention of cruelty to animals and the
protection of animals, and to serve any process in connection with the
execution of such laws; and in addition thereto, all the police force of
the Philippine Islands, wherever organized, shall, as occasion
requires, assist said society, its members or agents, in the
enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the
efforts of said society, its members or its agents, for violations of the
laws enacted for the prevention of cruelty to animals and for their
protection, shall belong to said society and shall be used to promote
its objects.
(emphasis supplied)
Subsequently, however, the power to make arrests as well as the
privilege to retain a portion of the fines collected for violation of
animal-related laws were recalled by virtue of Commonwealth Act
(C.A.) No. 148,[4] which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-
five as amended by Act Numbered Thirty five hundred and forty-eight,
is hereby further amended so as to read as follows:
Sec. 4. The said society is authorized to appoint not to exceed ten
agents in the City of Manila, and not to exceed one in each
municipality of the Philippines who shall have the authority to
denounce to regular peace officers any violation of the laws enacted
for the prevention of cruelty to animals and the protection of animals
and to cooperate with said peace officers in the prosecution of
transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws
against cruelty to animals and for the protection of animals, shall
accrue to the general fund of the Municipalitywhere the offense was
committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
Immediately thereafter, then President Manuel L. Quezon issued
Executive Order (E.O.) No. 63 dated November 12, 1936, portions of
which provide:
Whereas, during the first regular session of the National Assembly,
Commonwealth Act Numbered One Hundred Forty Eight was enacted
depriving the agents of the Society for the Prevention of Cruelty to
Animals of their power to arrest persons who have violated the laws
prohibiting cruelty to animals thereby correcting a serious defect in
one of the laws existing in our statute books.
xxxx
Whereas, the cruel treatment of animals is an offense against the
State, penalized under our statutes, which the Government is duty
bound to enforce;
Now, therefore, I, Manuel L. Quezon, President of the Philippines,
pursuant to the authority conferred upon me by the Constitution,
hereby decree, order, and direct the Commissioner of Public Safety,
the Provost Marshal General as head of the Constabulary Division of
the Philippine Army, every Mayor of a chartered city, and every
municipal president to detail and organize special members of the
police force, local, national, and the Constabulary to watch, capture,
and prosecute offenders against the laws enacted to prevent cruelty
to animals.(Emphasis supplied)
On December 1, 2003, an audit team from respondent Commission
on Audit (COA) visited the office of the petitioner to conduct an audit
survey pursuant to COA Office Order No. 2003-051 dated November
18, 2003[5] addressed to the petitioner. The petitioner demurred on the
ground that it was a private entity not under the jurisdiction of COA,
citing Section 2(1) of Article IX of the Constitution which specifies the
general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. 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 officers that have been
granted fiscal autonomy under the Constitution; (b) autonomous state
colleges and universities; (c) other government-owned or controlled
corporations 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 or the granting
institution to submit to such audit as a condition of subsidy or
equity. However, where the internal control system of the audited
agencies is inadequate, the Commission may adopt such measures,
including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general
accounts of the Government, and for such period as may be provided
by law, preserve the vouchers and other supporting papers pertaining
thereto. (Emphasis supplied)
Petitioner explained thus:
a. Although the petitioner was created by special legislation, this
necessarily came about because in January 1905 there was as yet
neither a Corporation Law or any other general law under which it
may be organized and incorporated, nor a Securities and Exchange
Commission which would have passed upon its organization and
incorporation.
b. That Executive Order No. 63, issued during the Commonwealth
period, effectively deprived the petitioner of its power to make arrests,
and that the petitioner lost its operational funding, underscore the fact
that it exercises no governmental function. In fine, the government
itself, by its overt acts, confirmed petitioners status as a private
juridical entity.
The COA General Counsel issued a Memorandum[6] dated May 6,
2004, asserting that the petitioner was subject to its audit authority. In
a letter dated May 17, 2004,[7]respondent COA informed the petitioner
of the result of the evaluation, furnishing it with a copy of said
Memorandum dated May 6, 2004 of the General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-
evaluation dated May 19, 2004,[8] insisting that it was a private
domestic corporation.
Acting on the said request, the General Counsel of respondent COA,
in a Memorandum dated July 13, 2004,[9] affirmed her earlier opinion
that the petitioner was a government entity that was subject to the
audit jurisdiction of respondent COA. In a letter dated September 14,
2004, the respondent COA informed the petitioner of the result of the
re-evaluation, maintaining its position that the petitioner was subject to
its audit jurisdiction, and requested an initial conference with the
respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar
reported to COA Assistant Commissioner Juanito Espino, Corporate
Government Sector, that the audit survey was not conducted due to
the refusal of the petitioner because the latter maintained that it was a
private corporation.
Petitioner received on September 27, 2005 the subject COA Office
Order 2005-021 dated September 14, 2005 and the COA Letter
dated September 23, 2005.
Hence, herein Petition on the following grounds:
A.
RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT RULED THAT PETITIONER IS SUBJECT
TO ITS AUDIT AUTHORITY.
B.
PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE
BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE
REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO
IT.[10]
The essential question before this Court is whether the petitioner
qualifies as a government agency that may be subject to audit by
respondent COA.
Petitioner argues: first, even though it was created by special
legislation in 1905 as there was no general law then existing under
which it may be organized or incorporated, it exercises no
governmental functions because these have been revoked by C.A.
No. 148 and E.O. No. 63; second, nowhere in its charter is it indicated
that it is a public corporation, unlike, for instance, C.A. No. 111 which
created the Boy Scouts of the Philippines, defined its powers and
purposes, and specifically stated that it was An Act to Create a Public
Corporation in which, even as amended by Presidential Decree No.
460, the law still adverted to the Boy Scouts of the Philippines as a
public corporation, all of which are not obtaining in the charter of the
petitioner; third, if it were a government body, there would have been
no need for the State to grant it tax exemptions under Republic Act
No. 1178, and the fact that it was so exempted strengthens its
position that it is a private institution; fourth, the employees of the
petitioner are registered and covered by the Social Security System at
the latters initiative and not through the Government Service
Insurance System, which should have been the case had the
employees been considered government employees; fifth, the
petitioner does not receive any form of financial assistance from the
government, since C.A. No. 148, amending Section 5 of Act No. 1285,
states that the full amount of the fines, collected for violation of the
laws against cruelty to animals and for the protection of animals, shall
accrue to the general fund of the Municipality where the offense was
committed; sixth, C.A. No. 148 effectively deprived the petitioner of its
powers to make arrests and serve processes as these functions were
placed in the hands of the police force; seventh, no government
appointee or representative sits on the board of trustees of the
petitioner; eighth, a reading of the provisions of its charter (Act No.
1285) fails to show that any act or decision of the petitioner is subject
to the approval of or control by any government agency, except to the
extent that it is governed by the law on private corporations in general;
and finally, ninth, the Committee on Animal Welfare, under the Animal
Welfare Act of 1998, includes members from both the private and the
public sectors.
The respondents contend that since the petitioner is a body politic
created by virtue of a special legislation and endowed with a
governmental purpose, then, indubitably, the COA may audit the
financial activities of the latter. Respondents in effect divide their
contentions into six strains: first, the test to determine whether an
entity is a government corporation lies in the manner of its creation,
and, since the petitioner was created by virtue of a special charter, it
is thus a government corporation subject to respondents auditing
power; second, the petitioner exercises sovereign powers, that is, it is
tasked to enforce the laws for the protection and welfare of animals
which ultimately redound to the public good and welfare, and,
therefore, it is deemed to be a government instrumentality as defined
under the Administrative Code of 1987, the purpose of which is
connected with the administration of government, as purportedly
affirmed by American jurisprudence; third, by virtue of Section
23,[11] Title II, Book III of the same Code, the Office of the President
exercises supervision or control over the petitioner; fourth, under the
same Code, the requirement under its special charter for the petitioner
to render a report to the Civil Governor, whose functions have been
inherited by the Office of the President, clearly reflects the nature of
the petitioner as a government instrumentality; fifth, despite the
passage of the Corporation Code, the law creating the petitioner had
not been abolished, nor had it been re-incorporated under any general
corporation law; and finally, sixth, Republic Act No. 8485, otherwise
known as the Animal Welfare Act of 1998, designates the petitioner as
a member of its Committee on Animal Welfare which is attached to
the Department of Agriculture.
In view of the phrase One-half of all the fines imposed and collected
through the efforts of said society, the Court, in a Resolution dated
January 30, 2007, required the Office of the Solicitor General (OSG)
and the parties to comment on: a) petitioner's authority to impose
fines and the validity of the provisions of Act No. 1285 and
Commonwealth Act No. 148 considering that there are no standard
measures provided for in the aforecited laws as to the manner of
implementation, the specific violations of the law, the person/s
authorized to impose fine and in what amount; and, b) the effect of the
1935 and 1987 Constitutions on whether petitioner continues to exist
or should organize as a private corporation under the Corporation
Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents
filed a Manifestation stating that since they were being represented by
the OSG which filed its Comment, they opted to dispense with the
filing of a separate one and adopt for the purpose that of the OSG.
The petitioner avers that it does not have the authority to impose fines
for violation of animal welfare laws; it only enjoyed the privilege of
sharing in the fines imposed and collected from its efforts in the
enforcement of animal welfare laws; such privilege, however, was
subsequently abolished by C.A. No. 148; that it continues to exist as a
private corporation since it was created by the Philippine Commission
before the effectivity of the Corporation law, Act No. 1459; and the
1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not
give petitioner the authority to impose fines for violation of
laws[12] relating to the prevention of cruelty to animals and the
protection of animals; that even prior to the amendment of Act No.
1285, petitioner was only entitled to share in the fines imposed; C.A.
No. 148 abolished that privilege to share in the fines collected; that
petitioner is a public corporation and has continued to exist since Act
No. 1285; petitioner was not repealed by the 1935 and 1987
Constitutions which contain transitory provisions maintaining all laws
issued not inconsistent therewith until amended, modified or repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are, can be disposed
of in five points.
First, the Court agrees with the petitioner that the charter test cannot
be applied.
Essentially, the charter test as it stands today provides:
[T]he 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.
xxx (Emphasis supplied)[13]
The petitioner is correct in stating that the charter test is predicated, at
best, on the legal regime established by the 1935 Constitution,
Section 7, Article XIII, which states:
Sec. 7. 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.[14]
The foregoing proscription has been carried over to the 1973 and the
1987 Constitutions. Section 16 of Article XII of the present
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.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of
the 1935 Constitution and Section 4 of Article XIV of the 1973
Constitution.
During the formulation of the 1935 Constitution, the Committee on
Franchises recommended the foregoing proscription to prevent the
pressure of special interests upon the lawmaking body in the creation
of corporations or in the regulation of the same. To permit the
lawmaking body by special law to provide for the organization,
formation, or regulation of private corporations would be in effect to
offer to it the temptation in many cases to favor certain groups, to the
prejudice of others or to the prejudice of the interests of the country.[15]
And since the underpinnings of the charter test had been introduced
by the 1935 Constitution and not earlier, it follows that the test cannot
apply to the petitioner, which was incorporated by virtue of Act No.
1285, enacted on January 19, 1905. Settled is the rule that laws in
general have no retroactive effect, unless the contrary is
provided.[16]All statutes are to be construed as having only a
prospective operation, unless the purpose and intention of the
legislature to give them a retrospective effect is expressly declared or
is necessarily implied from the language used. In case of doubt, the
doubt must be resolved against the retrospective effect.[17]
There are a few exceptions. Statutes can be given retroactive effect in
the following cases: (1) when the law itself so expressly provides; (2)
in case of remedial statutes; (3) in case of curative statutes; (4) in
case of laws interpreting others; and (5) in case of laws creating new
rights.[18] None of the exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to Act
No. 1459, otherwise known as the Corporation Law, which had been
enacted by virtue of the plenary powers of the Philippine Commission
on March 1, 1906, a little over a year after January 19, 1905, the time
the petitioner emerged as a juridical entity. Even the Corporation Law
respects the rights and powers of juridical entities organized
beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized,
and existing under the
laws of the Philippine Islands and lawfully transacting business in the
Philippine Islands on the date of the passage of this Act, shall be
subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled at its option either
to continue business as such corporation or to reform and organize
under and by virtue of the provisions of this Act, transferring all
corporate interests to the new corporation which, if a stock
corporation, is authorized to issue its shares of stock at par to the
stockholders or members of the old corporation according to their
interests. (Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions
contain transitory provisions maintaining all laws issued not
inconsistent therewith until amended, modified or repealed.[19]
In a legal regime where the charter test doctrine cannot be applied,
the mere fact that a corporation has been created by virtue of a
special law does not necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a corporate entity? What
legal regime governs its rights, powers, and duties?
As stated, at the time the petitioner was formed, the applicable law
was the Philippine Bill of 1902, and, emphatically, as also stated
above, no proscription similar to the charter test can be found therein.
The textual foundation of the charter test, which placed a limitation on
the power of the legislature, first appeared in the 1935
Constitution. However, the petitioner was incorporated in 1905 by
virtue of Act No. 1258, a law antedating the Corporation Law (Act No.
1459) by a year, and the 1935 Constitution, by thirty years. There
being neither a general law on the formation and organization of
private corporations nor a restriction on the legislature to create
private corporations by direct legislation, the Philippine Commission at
that moment in history was well within its powers in 1905 to constitute
the petitioner as a private juridical entity.
Time and again the Court must caution even the most brilliant
scholars of the law and all constitutional historians on the danger of
imposing legal concepts of a later date on facts of an earlier date.[20]
The amendments introduced by C.A. No. 148 made it clear that the
petitioner was a private corporation and not an agency of the
government. This was evident in Executive Order No. 63, issued by
then President of the Philippines Manuel L. Quezon, declaring that the
revocation of the powers of the petitioner to appoint agents with
powers of arrest corrected a serious defect in one of the laws existing
in the statute books.
As a curative statute, and based on the doctrines so far discussed,
C.A. No. 148 has to be given retroactive effect, thereby freeing all
doubt as to which class of corporations the petitioner belongs, that is,
it is a quasi-public corporation, a kind of private domestic corporation,
which the Court will further elaborate on under the fourth point.
Second, a reading of petitioners charter shows that it is not subject to
control or supervision by any agency of the State, unlike government-
owned and -controlled corporations. No government representative
sits on the board of trustees of the petitioner. Like all private
corporations, the successors of its members are determined
voluntarily and solely by the petitioner in accordance with its by-laws,
and may exercise those powers generally accorded to private
corporations, such as the powers to hold property, to sue and be
sued, to use a common seal, and so forth. It may adopt by-laws for its
internal operations: the petitioner shall be managed or operated by its
officers in accordance with its by-laws in force. The pertinent
provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William
F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby,
Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina
R. de Luzuriaga, and such other persons as may be associated with
them in conformity with this act, and their successors, are hereby
constituted and created a body politic and corporate at law, under the
name and style of The Philippines Society for the Prevention of
Cruelty to Animals.
As incorporated by this Act, said society shall have the power to add
to its organization such and as many members as it desires, to
provide for and choose such officers as it may deem advisable,
and in such manner as it may wish, and to remove members as it
shall provide.
It shall have the right to sue and be sued, to use a common seal, to
receive legacies and donations, to conduct social enterprises for the p
urpose of obtaining funds, to levy dues upon its members and provide
for their collection to hold real and personal estate such as may be
necessary for the accomplishment of the purposes of the society, and
to adopt such by-laws for its government as may not be inconsistent
with law or this charter.
xxxx

Sec. 3. The said society shall be operated under the direction of its
officers, in accordance with its by-laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be kept in the city
of Manila, and the society shall have full power to locate and establish
branch offices of the society wherever it may deem advisable in the
Philippine Islands, such branch offices to be under the supervision
and control of the principal office.
Third. The employees of the petitioner are registered and covered by
the Social Security System at the latters initiative, and not through the
Government Service Insurance System, which should be the case if
the employees are considered government employees. This is
another indication of petitioners nature as a private entity. Section 1 of
Republic Act No. 1161, as amended by Republic Act No. 8282,
otherwise known as the Social Security Act of 1997, defines the
employer:
Employer Any person, natural or juridical, domestic or foreign, who
carries on in the Philippines any trade, business, industry, undertaking
or activity of any kind and uses the services of another person who is
under his orders as regards the employment, except the Government
and any of its political subdivisions, branches or instrumentalities,
including corporations owned or controlled by the Government:
Provided, That a self-employed person shall be both employee and
employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a body politic
because its primary purpose is to secure the protection and welfare of
animals which, in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a certain juridical
entity is impressed with public interest does not, by that circumstance
alone, make the entity a public corporation, inasmuch as a corporation
may be private although its charter contains provisions of a public
character, incorporated solely for the public good. This class of
corporations may be considered quasi-public corporations, which are
private corporations that render public service, supply public
wants,[21] or pursue other eleemosynary objectives. While purposely
organized for the gain or benefit of its members, they are required by
law to discharge functions for the public benefit. Examples of these
corporations are utility,[22] railroad, warehouse, telegraph, telephone,
water supply corporations and transportation companies.[23] It must be
stressed that a quasi-public corporation is a species of private
corporations, but the qualifying factor is the type of service the
former renders to the public: if it performs a public service, then it
becomes a quasi-public corporation.[24]
Authorities are of the view that the purpose alone of the corporation
cannot be taken as a safe guide, for the fact is that almost all
corporations are nowadays created to promote the interest, good, or
convenience of the public. A bank, for example, is a private
corporation; yet, it is created for a public benefit. Private schools and
universities are likewise private corporations; and yet, they are
rendering public service. Private hospitals and wards are charged with
heavy social responsibilities. More so with all common carriers. On
the other hand, there may exist a public corporation even if it is
endowed with gifts or donations from private individuals.
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 latters own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered
cities, and barangays can best exemplify public corporations. They
are created by the State as its own device and agency for the
accomplishment of parts of its own public works.[25]
It is clear that the amendments introduced by C.A. No. 148 revoked
the powers of the petitioner to arrest offenders of animal welfare laws
and the power to serve processes in connection therewith.
Fifth. The respondents argue that since the charter of the petitioner
requires the latter to render periodic reports to the Civil Governor,
whose functions have been inherited by the President, the petitioner
is, therefore, a government instrumentality.
This contention is inconclusive. By virtue of the fiction that all
corporations owe their very existence and powers to the State, the
reportorial requirement is applicable to all corporations of whatever
nature, whether they are public, quasi-public, or private
corporationsas creatures of the State, there is a reserved right in the
legislature to investigate the activities of a corporation to determine
whether it acted within its powers. In other words, the reportorial
requirement is the principal means by which the State may see to it
that its creature acted according to the powers and functions
conferred upon it. These principles were extensively discussed
in Bataan Shipyard & Engineering Co., Inc. v. Presidential
Commission on Good Government.[26] Here, the Court, in holding that
the subject corporation could not invoke the right against self-
incrimination whenever the State demanded the production of its
corporate books and papers, extensively discussed the purpose of
reportorial requirements, viz:
employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The
defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully
refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation vested with
special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States, 55
Law Ed., 771, 780.)[27]
WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a
private domestic corporation subject to the jurisdiction of the
Securities and Exchange Commission. The respondents
are ENJOINED from investigating, examining and auditing the
petitioner's fiscal and financial affairs.
SO ORDERED.

x x x The corporation is a creature of the state. It is presumed to be

incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are limited by law. It
can make no contract not authorized by its charter. Its rights to act as
a corporation are only preserved to it so long as it obeys the laws of
its creation. There is a reserve[d] right in the legislature to investigate
its contracts and find out whether it has exceeded its powers. It would
be a strange anomaly to hold that a state, having chartered a
corporation to make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises had been
G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of
the Court of Appeals dated March 12, 2001 and July 10, 2001,
respectively, finding petitioner National Power Corporation (NPC)
liable to pay franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended.4 It is tasked to
undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other
sources, as well as, the transmission of electric power on a
nationwide basis."5 Concomitant to its mandated duty, petitioner has,
among others, the power to construct, operate and maintain power
plants, auxiliary plants, power stations and substations for the
purpose of developing hydraulic power and supplying such power to
the inhabitants.6
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in
1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter's gross receipts for
the preceding year.9
Petitioner, whose capital stock was subscribed and paid wholly by the
Philippine Government,10 refused to pay the tax assessment. It
argued that the respondent has no authority to impose tax on
government entities. Petitioner also contended that as a non-profit
organization, it is exempted from the payment of all forms of taxes,
charges, duties or fees11 in accordance with sec. 13 of Rep. Act No.
6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption
from all Taxes, Duties, Fees, Imposts and Other Charges by
Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return
from its capital investment, as well as excess revenues from
its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section
one of this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties
to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to
be paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced
sales tax, and wharfage fees on import of foreign goods
required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and
sale of electric power."12
The respondent filed a collection suit in the Regional Trial Court of
Cabanatuan City, demanding that petitioner pay the assessed tax
due, plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest.13Respondent alleged that petitioner's exemption
from local taxes has been repealed by section 193 of Rep. Act No.
7160,14 which reads as follows:
"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 the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the
case. It ruled that the tax exemption privileges granted to petitioner
subsist despite the passage of Rep. Act No. 7160 for the following
reasons: (1) Rep. Act No. 6395 is a particular law and it may not be
repealed by Rep. Act No. 7160 which is a general law; (2) section 193
of Rep. Act No. 7160 is in the nature of an implied repeal which is not
favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the
Order reads:
"The question of whether a particular law has been repealed or
not by a subsequent law is a matter of legislative intent. The
lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically
cite(s) the particular law or laws, and portions thereof, that are
intended to be repealed. A declaration in a statute, usually in
its repealing clause, that a particular and specific law,
identified by its number or title is repealed is an express
repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the
act or acts that are intended to be repealed. It is a well-settled
rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against
inconsistency and repugnancy for the legislative is presumed
to know the existing laws on the subject and not to have
enacted inconsistent or conflicting statutes. It is also a well-
settled rule that, generally, general law does not repeal a
special law unless it clearly appears that the legislative has
intended by the latter general act to modify or repeal the
earlier special law. Thus, despite the passage of R.A. No.
7160 from which the questioned Ordinance No. 165-92 was
based, the tax exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of
the Supreme Court in the case of Basco vs. Philippine
Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:
'Local governments have no power to tax
instrumentalities of the National Government.
PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All of its
shares of stocks are owned by the National
Government. xxx Being an instrumentality of the
government, PAGCOR should be and actually is
exempt from local taxes. Otherwise, its operation might
be burdened, impeded or subjected to control by mere
local government.'
Like PAGCOR, NPC, being a government owned and
controlled corporation with an original charter and its shares of
stocks owned by the National Government, is beyond the
taxing power of the Local Government. Corollary to this, it
should be noted here that in the NPC Charter's declaration of
Policy, Congress declared that: 'xxx (2) the total electrification
of the Philippines through the development of power from all
services to meet the needs of industrial development and
dispersal and needs of rural electrification are primary
objectives of the nations which shall be pursued coordinately
and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring
supplied). To allow plaintiff to subject defendant to its tax-
ordinance would be to impede the avowed goal of this
government instrumentality.
Unlike the State, a city or municipality has no inherent power
of taxation. Its taxing power is limited to that which is provided
for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its
existence.
From the existing law and the rulings of the Supreme Court
itself, it is very clear that the plaintiff could not impose the
subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on
the ground that section 193, in relation to sections 137 and 151 of the
LGC, expressly withdrew the exemptions granted to the petitioner.18 It
ordered the petitioner to pay the respondent city government the
following: (a) the sum of P808,606.41 representing the franchise tax
due based on gross receipts for the year 1992, (b) the tax due every
year thereafter based in the gross receipts earned by NPC, (c) in all
cases, to pay a surcharge of 25% of the tax due and unpaid, and (d)
the sum of P 10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on
the Court of Appeal's Decision. This was denied by the appellate
court, viz:
"The Court finds no merit in NPC's motion for reconsideration.
Its arguments reiterated therein that the taxing power of the
province under Art. 137 (sic) of the Local Government Code
refers merely to private persons or corporations in which
category it (NPC) does not belong, and that the LGC (RA
7160) which is a general law may not impliedly repeal the NPC
Charter which is a special lawfinds the answer in Section
193 of the LGC to the effect that '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 xxx are hereby
withdrawn.' The repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby
DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS
IT FAILED TO CONSIDER THAT SECTION 137 OF THE
LOCAL GOVERNMENT CODE IN RELATION TO SECTION
131 APPLIES ONLY TO PRIVATE PERSONS OR
CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF
TAXES HAS BEEN REPEALED BY THE PROVISION OF
THE LOCAL GOVERNMENT CODE AS THE ENACTMENT
OF A LATER LEGISLATION, WHICH IS A GENERAL LAW,
CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT
CONSIDERING THAT AN EXERCISE OF POLICE POWER
THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE
LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the
authority to issue Ordinance No. 165-92 and impose an annual tax on
"businesses enjoying a franchise," pursuant to section 151 in relation
to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption
granted by any law or other special law, the province may
impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not
exceed one-twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of
when the business started to operate, the tax shall be based
on the gross receipts for the preceding calendar year, or any
fraction thereof, as provided herein." (emphasis supplied)
x x x
Sec. 151. Scope of Taxing Powers.- Except as otherwise
provided in this Code, the city, may levy the taxes, fees, and
charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in
accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not
 more than fifty percent (50%) except the rates of professional
and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual
franchise tax to the respondent city government. It contends that
sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that
are engaged in trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or
privilege, affected with public interest which is conferred upon private
persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of
the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the
terms "persons" and "corporations." Hence, when the LGC uses the
term "franchise," petitioner submits that it should refer specifically to
franchises granted to private natural persons and to private
corporations.23 Ergo, its charter should not be considered a
"franchise" for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as
"trade or commercial activity regularly engaged in as means of
livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically
provides that it is a "non-profit organization." In any case, petitioner
argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for
expansion and improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city
government. It cites the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation26where this Court held that local
governments have no power to tax instrumentalities of the National
Government, viz:
"Local governments have no power to tax instrumentalities of
the National Government.
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control
by a mere local government.
'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 seriously burden it from
accomplishment of them.' (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics 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 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."27
Petitioner contends that section 193 of Rep. Act No. 7160,
withdrawing the tax privileges of government-owned or controlled
corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local
government code which is a general law. Consequently, petitioner
claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of
statutes by implication are not favored and as much as
possible, effect must be given to all enactments of the
legislature. Moreover, it has to be conceded that the charter of
the NPC constitutes a special law. Republic Act No. 7160, is a
general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot
be construed to have repealed a special law. Where there is a
conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative
intent more clearly than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid
exercise of police power, should prevail over the LGC. It alleges that
the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power
being the most pervasive, the least limitable and most demanding of
all powers, including the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.
In recent years, the increasing social challenges of the times
expanded the scope of state activity, and taxation has become a tool
to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as
public welfare and similar objectives.33 Taxation assumes even
greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to
levy taxes, fees and other charges34 pursuant to Article X, section 5 of
the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power
to create its own sources of revenue, to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."
This paradigm shift results from the realization that genuine
development can be achieved only by strengthening local autonomy
and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture
of dependence among local government leaders upon the national
leadership. It has also "dampened the spirit of initiative, innovation
and imaginative resilience in matters of local development on the part
of local government leaders."35 The only way to shatter this culture of
dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own
sources for the purpose. To achieve this goal, section 3 of Article X of
the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:
"Section 3. The Congress shall enact a local government code
which shall provide for a more responsive and accountable
local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local
government units their powers, responsibilities, and resources,
and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of
local officials, and all other matters relating to the organization
and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160,36 also
known as the Local Government Code of 1991 (LGC), various
measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,37 the Local Autonomy Act of
1959,38 the Decentralization Act of 196739 and the Local Government
Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government
units were faced with the same problems that hamper their
capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal
control over external sources of income, (c) limited authority to
prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control
over personnel of national line agencies.41
Considered as the most revolutionary piece of legislation on local
autonomy,42 the LGC effectively deals with the fiscal constraints faced
by LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose
tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and
maximum tax rates and leaves the determination of the actual rates to
the respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the
blanket exclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. Although as a
general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this
rule now admits an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of
the 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:
x x x franchise may refer to a general or primary franchise, or to a special
(o) Taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine
in Basco vs. Philippine Amusement and Gaming Corporation44 relied
upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the
LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However,
as this Court ruled in the case of Mactan Cebu International Airport
Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from
decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax.46 In
enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after
reviewing the specific provisions of the LGC, this Court held that
MCIAA, although an instrumentality of the national government, was
subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the
LGC, we conclude that as a general rule, as laid down in
section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any
kind on the national government, its agencies and
instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in
the Metropolitan Manila Area may impose the real property tax
except on, inter alia, '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 as provided in the item (a) of
the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC
clearly authorizes the respondent city government to impose on the
petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by
government authority, which does not belong to citizens of the country
generally as a matter of common right.48 In its specific sense, a
or secondary franchise. The former relates to the right to exist as a
corporation, by virtue of duly approved articles of incorporation, or a
charter pursuant to a special law creating the corporation.49 The right
under a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself.50 On the
other hand, the latter refers to the right or privileges conferred upon
an existing corporation such as the right to use the streets of a
municipality to lay pipes of tracks, erect poles or string wires.51 The
rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property,
except such special or secondary franchises as are charged with a
public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a
franchise in the sense of a secondary or special franchise. This is to
avoid any confusion when the word franchise is used in the context of
taxation. As commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate
franchises granted by the state."53 It is not levied on the corporation
simply for existing as a corporation, upon its property54 or its
income,55 but on its exercise of the rights or privileges granted to it by
the government. Hence, a corporation need not pay franchise tax from
the time it ceased to do business and exercise its franchise.56 It is
within this context that the phrase "tax on businesses enjoying a
franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by
the franchise tax in question, the following requisites should concur:
(1) that petitioner has a "franchise" in the sense of a secondary or
special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city
government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as
amended by Rep. Act No. 7395, constitutes petitioner's primary and
secondary franchises. It serves as the petitioner's charter, defining its
composition, capitalization, the appointment and the specific duties of
its corporate officers, and its corporate life span.57 As its secondary
franchise, Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to ordinary
corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development
of water power in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake,
spring or waterfall in the Philippines, for the purposes specified
in this Act; to intercept and divert the flow of waters from lands
of riparian owners and from persons owning or interested in
waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten,
obstruct or increase the flow of water in streams or water
channels intersecting or connecting therewith or contiguous to
its works or any part thereof: Provided, That just compensation
shall be paid to any person or persons whose property is,
directly or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary
plants, dams, reservoirs, pipes, mains, transmission lines,
power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek,
lake, spring and waterfall in the Philippines and supplying such
power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in
plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer
power and lighting systems for the transmission and utilization
of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems
and other government institutions, (3) electric cooperatives, (4)
franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent,
mortgage, encumber and otherwise dispose of property
incident to, or necessary, convenient or proper to carry out the
purposes for which the Corporation was created: Provided,
That in case a right of way is necessary for its transmission
lines, easement of right of way shall only be sought: Provided,
however, That in case the property itself shall be acquired by
purchase, the cost thereof shall be the fair market value at the
time of the taking of such property;
(i) To construct works across, or otherwise, any stream,
watercourse, canal, ditch, flume, street, avenue, highway or
railway of private and public ownership, as the location of said
works may require xxx;
 (j) To exercise the right of eminent domain for the purpose of
this Act in the manner provided by law for instituting
condemnation proceedings by the national, provincial and
municipal governments;
x x x These contentions must necessarily fail.
(m) To cooperate with, and to coordinate its operations with
those of the National Electrification Administration and public
service entities;
(n) To exercise complete jurisdiction and control over
watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the
Corporation. Upon determination by the Corporation of the
areas required for watersheds for a specific project, the
Bureau of Forestry, the Reforestation Administration and the
Bureau of Lands shall, upon written advice by the Corporation,
forthwith surrender jurisdiction to the Corporation of all areas
embraced within the watersheds, subject to existing private
rights, the needs of waterworks systems, and the requirements
of domestic water supply;
(o) In the prosecution and maintenance of its projects, the
Corporation shall adopt measures to prevent environmental
pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the
generation and distribution of electricity. This monopoly was
strengthened with the issuance of Pres. Decree No. 40,59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter
allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the
respondent city government's territorial jurisdiction pursuant to the
powers granted to it by Commonwealth Act No. 120, as amended.
From its operations in the City of Cabanatuan, petitioner realized a
gross income of P107,814,187.96 in 1992. Fulfilling both requisites,
petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the
franchise tax simply because its stocks are wholly owned by the
National Government, and its charter characterized it as a "non-profit"
organization.
To stress, a franchise tax is imposed based not on the ownership but
on the exercise by the corporation of a privilege to do business. The
taxable entity is the corporation which exercises the franchise, and not
the individual stockholders. By virtue of its charter, petitioner was
created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name,61 and can
exercise all the powers of a corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire
capital stock does not necessarily imply that petitioner is not engaged
in business. Section 2 of Pres. Decree No. 202963 classifies
government-owned or controlled corporations (GOCCs) into those
performing governmental functions and those performing proprietary
functions, viz:
"A government-owned or controlled corporation is a stock or a
non-stock corporation, whether performing governmental or
proprietary functions, which is directly chartered by special
law or if organized under the general corporation law is owned
or controlled by the government directly, or indirectly through a
parent corporation or subsidiary corporation, to the extent of at
least a majority of its outstanding voting capital stock x x x."
(emphases supplied)
Governmental functions are those pertaining to the administration of
government, and as such, are treated as absolute obligation on the
part of the state to perform while proprietary functions are those that
are undertaken only by way of advancing the general interest of
society, and are merely optional on the government.64 Included in the
class of GOCCs performing proprietary functions are "business-like"
entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS),
the Government Service Insurance System (GSIS), and the National
Water Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric
generation of power and the production of electricity from nuclear,
geothermal and other sources, as well as the transmission of electric
power on a nationwide basis."66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities
do not partake of the sovereign functions of the government. They are
purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does
not distract from the true nature of the petitioner as a commercial
enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply
and irrigation companies, gas, coal or light companies, power plants,
ice plant among others; all of which are declared by this Court as
ministrant or proprietary functions of government aimed at advancing
the general interest of society.67
A closer reading of its charter reveals that even the legislature treats
the character of the petitioner's enterprise as a "business," although it
limits petitioner's profits to twelve percent (12%), viz:68
"(n) When essential to the proper administration of its
corporate affairs or necessary for the proper transaction of
its business or to carry out the purposes for which it was
organized, to contract indebtedness and issue bonds subject
to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be
reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to
time, may be declared by the Board to be necessary, useful,
incidental or auxiliary to accomplish the said purpose
xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at
least sixty percent (60%) of its electricity requirement from the
petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to
devote "all its returns from its capital investment, as well as excess
revenues from its operation, for expansion"70 while other franchise
holders have the option to distribute their profits to its stockholders by
declaring dividends. We do not see why this fact can be a source of
difference in tax treatment. In both instances, the taxable entity is the
corporation, which exercises the franchise, and not the individual
stockholders.
We also do not find merit in the petitioner's contention that its tax
exemptions under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant.
Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions.71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting
from, among others, "all income taxes, franchise taxes and realty
taxes to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities."
However, section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed by private
and public corporations. Contrary to the contention of petitioner,
section 193 of the LGC is an express, albeit general, repeal of all
statutes granting tax exemptions from local taxes.72 It reads:
"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 the effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered
under R.A. No. 6938, or a non-stock and non-profit hospital or
educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to
some provisions of the LGC that expressly grant it exemption from
local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. In City
Government of San Pablo, Laguna v. Reyes,74 MERALCO's
exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the
subsequent case of Manila Electric Company v. Province of
Laguna.75 Ruling in favor of the local government in both instances,
we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of
Sections 137 and 193 of the LGC to support their position that
MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to
impose franchise tax 'notwithstanding any exemption granted
by any law or other special law' is all-encompassing and
clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that 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 (1) local
water districts, (2) cooperatives duly registered under R.A.
6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we
find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we
conclude that under the LGC the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of
the gross annual receipts for the preceding calendar based on
the incoming receipts realized within its territorial jurisdiction.
The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical
to attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been
used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the
LGUs, through ordinances duly approved, to grant tax exemptions,
initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-
92 which imposes an annual franchise tax "notwithstanding any
exemption granted by law or other special law," the respondent city
government clearly did not intend to exempt the petitioner from the
coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in
the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises."78 With the added burden of
devolution, it is even more imperative for government entities to share
in the requirements of development, fiscal or otherwise, by paying
taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed
Decision and Resolution of the Court of Appeals dated March 12,
2001 and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED
[G.R. No. 149240. July 11, 2002]
SOCIAL SECURITY SYSTEM, petitioner, vs. COMMISSION ON
AUDIT, respondent.
DECISION
BELLOSILLO, J.:
THE FUNDS contributed to the Social Security System (SSS) are not
only imbued with public interest, they are part and parcel of the fruits
of the workers labors pooled into one enormous trust fund under the
administration of the System designed to insure against the
vicissitudes and hazards of their working lives. In a very real sense,
the trust funds are the workers property which they could turn to when
necessity beckons and are thus more personal to them than the taxes
they pay. It is therefore only fair and proper that charges against the
trust fund be strictly scrutinized for every lawful and judicious
opportunity to keep it intact and viable in the interest of enhancing the
welfare of their true and ultimate beneficiaries.
This is a petition for certiorari under Rule 64 of the 1997 Rules of Civil
Procedure praying that this Court assess against the workers social
security fund the amount of P5,000.00 as contract signing bonus of
each official and employee of the SSS. The gratuity emanated from
the collective negotiation agreement (CNA) executed on 10 July 1996
between the Social Security Commission (SSC) in behalf of the SSS
and the Alert and Concerned Employees for Better SSS (ACCESS),
the sole and exclusive negotiating agent for employees of the
SSS.[1] In particular, Art. XIII of the CNA provided -
As a gesture of good will and benevolence, the Management agrees
that once the Collective Negotiation Agreement is approved and
signed by the parties, Management shall grant each official and
employee of the SYSTEM the amount of P5,000.00 as contract
signing bonus.[2]
To fund this undertaking, the SSC allocated P15,000,000.00 in the
budgetary appropriation of the SSS.[3]
On 18 February 1997 the Department of Budget and
Management (DBM) declared as illegal the contract signing bonus
which the CNA authorized to be distributed among the personnel of
the SSS.[4] On 1 July 1997 the SSS Corporate Auditor disallowed fund
releases for the signing bonus since it was an allowance in the form of
additional compensation prohibited by the Constitution.[5]
Two (2) years later, in a letter dated 29 September 1999,
ACCESS appealed the disallowance to the Commission on Audit
(COA).[6] On 5 July 2001 despite the delay in the filing of the appeal, a
procedural matter which COA considered to be
inconsequential,[7] COA affirmed the disallowance and ruled that the
grant of the signing bonus was improper.[8] It held that the provision on
the signing bonus in the CNA had no legal basis since Sec. 16 of RA
7658 (1989)[9] had repealed the authority of the SSC to fix the
compensation of its personnel.[10] Hence the instant petition which,
curiously, was filed in the name of the Social Security System (and
not ACCESS) by authority of the officer-in-charge for the
SSS[11]through its legal staff.[12]
Petitioner SSS argues that a signing bonus may be granted upon
the conclusion of negotiations leading to the execution of a CNA
where it is specifically authorized by law and that in the case at bar
such legal authority is found in Sec. 3, par. (c), of RA 1161 as
amended (Charter of the SSS) which allows the SSC to fix the
compensation of its personnel. On the other hand, respondent COA
asserts that the authority of the SSC to fix the compensation of its
personnel has been repealed by Secs. 12 and 16 of RA 6758 and is
therefore no longer effective.
We find no legitimate and compelling reason to reverse the COA.
To begin with, the instant petition is fatally defective. It was filed in the
name of the SSS although no directive from the SSC authorized the
instant suit and only the officer-in-charge in behalf of petitioner
executed the purported directive. Clearly, this is irregular since under
Sec. 4, par. 10, in relation to par. 7,[13] RA 1161 as amended by RA
8282 (The Social Security Act of 1997, which was already
effective[14] when the instant petition was filed), it is the SSC as a
collegiate body which has the power to approve, confirm, pass upon
or review the action of the SSS to sue in court. Moreover, the
appearance of the internal legal staff of the SSS as counsel in the
present proceedings is similarly questionable because under both RA
1161 and RA 8282 it is the Department of Justice (DoJ) that has the
authority to act as counsel of the SSS.[15]It is well settled that the
legality of the representation of an unauthorized counsel may be
raised at any stage of the proceedings[16] and that such illicit
representation produces no legal effect.[17] Since nothing in the case
at bar shows that the approval or ratification of the SSC has been
undertaken in the manner prescribed by law and that the DoJ has not
delegated the authority to act as counsel and appear herein, the
instant petition must necessarily fail. These procedural deficiencies
are serious matters which this Court cannot take lightly and simply
ignore since the SSS is in reality confessing judgment to charge
expenditure against the trust fund under its custodianship.
In Premium Marble Resources v. Court of Appeals[18] we held that
no person, not even its officers, could validly sue in behalf of a
corporation in the absence of any resolution from the governing body
authorizing the filing of such suit. Moreover, where the corporate
officers power as an agent of the corporation did not derive from such
resolution, it would nonetheless be necessary to show a clear source
of authority from the charter, the by-laws or the implied acts of the
governing body.[19] Unfortunately there is no palpable evidence in the
records to show that the officer-in-charge could all by himself order
the filing of the instant petition without the intervention of the SSC, nor
that the legal staff of SSS could act as its counsel and appear therein
without the intervention of the DoJ. The power of attorney supposedly
authorizing this suit as well as the signature of the legal counsel
appearing on the signing page of the instant petition is therefore
ineffectual.
Indeed we find no merit in the claim that the employees and
officers of SSS are entitled to the signing bonus provided for in the
CNA. In the first place, the process of collective negotiations in the
public sector does not encompass terms and conditions of
employment requiring the appropriation of public funds -
Sec. 13. Terms and conditions of employment or improvements
thereof, except those that are fixed by law, may be the subject of
negotiations between duly recognized employees organizations and
appropriate government authorities.[20]
More particularly -
Sec. 3. Those that require appropriation of funds, such as the
following, are not negotiable: (a) Increase in salary emoluments and
other allowances not presently provided for by law; (b) Facilities
requiring capital outlays; (c) Car plan; (d) Provident fund; (e) Special
hospitalization, medical and dental services; (f) Rice/sugar/other
subsidies; (g) Travel expenses; (h) Increase in retirement benefits.
Sec. 4. Matters that involve the exercise of management prerogatives,
such as the following, are likewise not subject to negotiation: (a)
Appointment; (b) Promotion; (c) Assignment/Detail; (d)
Reclassification/ upgrading of position; (e) Revision of compensation
structure; (f) Penalties imposed as a result of disciplinary actions; (g)
Selection of personnel to attend seminar, trainings, study grants; (h)
Distribution of work load; (I) External communication linkages.[21]
Petitioner however argues that the charter of SSS authorizes the
SSC to fix the compensation of its employees and officers so that in
reality the signing bonus is merely the fruit of the exercise of such
fundamental power. On this issue, we have to explain the relevant
amendments to the SSS charter in relation to the passage of RA
6758 (1989) entitled An Act Prescribing a Revised Compensation and
Position Classification in the Government and for other Purposes.
When the signing bonus was bestowed upon each employee and
officer of the SSS on 10 July 1996, which was earlier approved by the
SSC on 3 July 1996, the governing charter of the SSS was RA
1161 as amended by Sec. 1, RA 2658, and Sec. 1, PD 735. Under
this amended statute, the SSC was empowered to appoint an actuary,
and such other personnel as may be deemed necessary and to fix
their compensation.[22] The law also provided that the personnel of the
SSS shall be selected only from civil service eligibles and be subject
to civil service rules and regulations.[23]
On 9 August 1989 Congress passed RA 6758 which took effect
on 1 July 1989.[24] Its goal was to provide equal pay for substantially
equal work and to base differences in pay upon substantive
differences in duties and responsibilities, and qualification
requirements of the positions.[25] Towards this end, RA 6758 provided
for the consolidation of allowances and compensation in the
prescribed standardized salary rates except certain specified
allowances[26] and such other additional compensation as may be
determined by the Department of Budget and Management.[27] The
law also repealed [a]ll laws, decrees, executive orders, corporate
charters, and other issuances or parts thereof, that exempt agencies
from the coverage of the System, or that authorize and fix position
classification, salaries, pay rates or allowances of specified positions,
or groups of officials and employees or of agencies, which are
inconsistent with the System, including the proviso under Section 2
and Section 16 of Presidential Decree No. 985.[28]
Although it was the clear policy intent of RA 6758 to standardize
salary rates among government personnel, the Legislature under
Secs. 12[29] and 17[30] of the law nonetheless saw the need for equity
and justice in adopting the policy of non-diminution of pay when it
authorized incumbents as of 1 July 1989 to receive salaries and/or
allowances over and above those authorized by RA
6758. In Philippine Ports Authority v. Commission on Audit[31] we held
that no financial or non-financial incentive could be awarded to
employees of government owned and controlled corporations aside
from benefits which were being received by incumbent officials and
employees as of 1 July 1989. This Court also observed -
The consequential outcome, under sections 12 and 17, is that if the
incumbent resigns or is promoted to a higher position, his successor
is no longer entitled to his predecessors RATA privilege x x x or to the
transition allowance x x x x [A]fter July 1, 1989, additional financial
incentives such as RATA may no longer be given by GOCCs with the
exception of those which were authorized to be continued under
Section 12 of RA 6758.
Evidently, while RA 6758 intended to do away with multiple
allowances and other incentive packages and the resulting differences
in compensation among government personnel, the statute clearly did
not revoke existing benefits being enjoyed by incumbents of
government positions at the time of the passage of RA 6758 by virtue
of Secs. 12 and 17 thereof. In previous rulings of this Court, among
the financial and non-financial incentives which we allowed certain
government employees to enjoy after the effectivity of RA 6758 were
car plan benefits[32] and educational funding assistance[33] for
incumbents of existing positions as of 1 July 1989 until such gratuity
packages were gradually phased out.
We have no doubt that RA 6758 modified, if not repealed, Sec. 3,
par. (c), of RA 1161 as amended, at least insofar as it concerned the
authority of SSC to fix the compensation of SSS employees and
officers. This means that whatever salaries and other financial and
non-financial inducements that the SSC was minded to fix for them,
the compensation must comply with the terms of RA
6758. Consequently, only the remuneration which was being offered
as of 1 July 1989, and which was then being enjoyed by incumbent
SSS employees and officers, could be availed of exclusively by the
same employees and officers separate from and independent of the
prescribed standardized salary rates. Unfortunately, however, the
signing bonus in question did not qualify under Secs. 12 and 17 of RA
6758. It was non-existent as of 1 July 1989 as it accrued only in 1996
when the CNA was entered into by and between SSC and ACCESS.
The signing bonus therefore could not have been included in the
salutary provisions of the statute nor would it be legal to disburse to
the intended recipients.
Philippine International Trading Corporation v. Commission on
Audit[34] is instructive on this point. Like the SSS, the Philippine
International Trading Corporation (PITC) is a government-owned and
controlled corporation which was created under PD 252 (1973)
primarily for the purpose of promoting and developing Philippine trade
in pursuance of national economic development. In the same
judgment which affirmed the car financing program and allied
incentives being implemented prior to 1 July 1989 we held that the
charter of PITC was impliedly repealed by RA 6758 -
We deem it necessary though to resolve the third issue as to whether
PITC is exempt from PD 985 as subsequently amended by RA 6758.
According to petitioner, PITCs Revised Charter, PD 1071 dated
January 25, 1977, as amended by EO 756 dated December 29, 1981,
and further amended by EO 1067 dated November 25, 1985,
expressly exempted PITC from the Office of the Compensation and
Position Classification (OCPC) rules and regulations. Petitioner cites
Section 28 of P.D. 1071; Section 6 of EO 756; and Section 3 of EO
1067. According to the COA in its Decision No. 98-048 dated January
27, 1998, the exemption granted to the PITC has been repealed and
revoked by the repealing provisions of RA 6758, particularly Section
16 thereof which provides:
Sec. 16. Repeal of Special Salary Laws and Regulations. - All laws,
decrees, executive orders, corporate charters, and other issuances or
parts thereof, that exempt agencies from the coverage of the System,
or that authorize and fix position classifications, salaries, pay rates or
allowances of specified positions, or groups of officials, and
employees or of agencies, which are inconsistent with the System,
including the proviso under Section 2 and Section 16 of PD No. 985
are hereby repealed.
To this, [PITC] argues that RA 6758 which is a law of general
application cannot repeal provisions of the Revised Charter of PITC
and its amendatory laws expressly exempting PITC from OCPC
coverage being special laws x x x x In the case at bar, the repeal by
Section 16 of RA 6758 of all corporate charters that exempt agencies
from the coverage of the System was clear and expressed necessarily
to achieve the purposes for which the law was enacted, that is, the
standardization of salaries of all employees in government owned and
/ or controlled corporations to achieve equal pay for substantially
equal work. Henceforth, PITC should now be considered as covered
by laws prescribing a compensation and position classification system
in the government including RA 6758. This is without prejudice,
however, as discussed above, to the non-diminution of pay of
incumbents as of July 1, 1989 as provided in Sections 12 and 17 of
said law.
So we also rule in the instant case involving the charter of the SSS
or RA 1161 as amended.
The enactment of RA 8282 entitled The Social Security Act of
1997 does not change our holding. While it is true that Sec. 3, par. (c),
of RA 8282 expressly exempted the SSS from the provisions of RA
6758 and RA 7430 (The Attrition Law of 1992) thus -
The Commission, upon the recommendation of the SSS President,
shall appoint an actuary and such other personnel as may be deemed
necessary; fix their reasonable compensation, allowances and other
benefits x x x x [t]hat the personnel of the SSS shall be selected only
from civil service eligibles and be subject to civil service rules and
regulations: Provided, finally, That the SSS shall be exempt from the
provisions of Republic Act No. 6758 and Republic Act No. 7430,
it bears emphasis that RA 8282 took effect only on 23 May 1997, i.e.,
fifteen (15) days after its complete publication in two (2) newspapers
of general circulation on 7 May 1997[35] and 8 May 1997.[36] It holds to
reason that the prospective application of the statute renders
irrelevant to the case at bar whatever effects this exemption may have
on the power of the SSC to fix the compensation of SSS personnel.
Ironically, RA 8282 in fact buttresses our ruling that the signing bonus
cannot escape the provisions of RA 6758. The need to expressly
stipulate the exemption of the SSS can only mean that prior to the
effectivity of RA 8282, the SSS was subject to RA 6758 and even RA
7430 for, otherwise, there would have been no reason to rope in such
provision in RA 8282.
This Court has been very consistent in characterizing the funds
being administered by SSS as a trust fund for the welfare and benefit
of workers and employees in the private sector.[37] In United Christian
Missionary v. Social Security Commission[38] we were unequivocal in
declaring the funds contributed to the Social Security System by
compulsion of law as funds belonging to the members which were
merely held in trust by the government, and resolutely imposed the
duty upon the trustee to desist from any and all acts which would
diminish the property rights of owners and beneficiaries of the trust
fund. Consistent with this declaration, it would indeed be very
reasonable to construe the authority of the SSC to provide for the
compensation of SSS personnel in accordance with the established
rules governing the remuneration of trustees -
x x x x the modern rule is to give the trustee a reasonable
remuneration for his skill and industry x x x x In deciding what is a
reasonable compensation for a trustee the court will consider the
amount of income and capital received and disbursed, the pay
customarily given to agents or servants for similar work, the success
or failure of the work of the trustee, any unusual skill which the trustee
had and used, the amount of risk and responsibility, the time
consumed, the character of the work done (whether routine or of
unusual difficulty) and any other factors which prove the worth of the
trustees services to the cestuis x x x x The court has power to make
extraordinary compensation allowances, but will not do so unless the
trustee can prove that he has performed work beyond the ordinary
duties of his office and has engaged in especially arduous work.[39]
On the basis of the foregoing pronouncement, we do not find the
signing bonus to be a truly reasonable compensation. The gratuity
was of course the SSCs gesture of good will and benevolence for the
conclusion of collective negotiations between SSC and ACCESS, as
the CNA would itself state, but for what objective? Agitation and
propaganda which are so commonly practiced in private sector labor-
management relations have no place in the bureaucracy and that only
a peaceful collective negotiation which is concluded within a
reasonable time must be the standard for interaction in the public
sector. This desired conduct among civil servants should not come,
we must stress, with a price tag which is what the signing bonus
appears to be.
WHEREFORE, the instant Petition for Certiorari under Rule
64, 1997 Rules of Civil Procedure, is DISMISSED. The Decision No.
2001-123 of the Commission on Audit and the Notice of Disallowance
No. 97-002-0101 (96) of the Social Security System Corporate Auditor
prohibiting the payment of P5,000.00 signing bonus to each employee
and officer of the Social Security System as stipulated in Art. XIII of
the Collective Negotiation Agreement and as approved in Resolution
No. 593 of the Social Security Commission are AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

G.R. Nos. 120865-71 December 7, 1995
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE HERCULANO TECH,
PRESIDING JUDGE, BRANCH 70, REGIONAL TRIAL COURT OF
BINANGONAN RIZAL; FLEET DEVELOPMENT, INC. and
CARLITO ARROYO; THE MUNICIPALITY OF BINANGONAN
and/or MAYOR ISIDRO B. PACIS, respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE AURELIO C. TRAMPE,
PRESIDING JUDGE, BRANCH 163, REGIONAL TRIAL COURT OF
PASIG; MANILA MARINE LIFE BUSINESS RESOURCES, INC.
represented by, MR. TOBIAS REYNALD M. TIANGCO;
MUNICIPALITY OF TAGUIG, METRO MANILA and/or MAYOR
RICARDO D. PAPA, JR., respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE ALEJANDRO A. MARQUEZ,
PRESIDING JUDGE, BRANCH 79, REGIONAL TRIAL COURT OF
MORONG, RIZAL; GREENFIELD VENTURES INDUSTRIAL
DEVELOPMENT CORPORATION and R. J. ORION
DEVELOPMENT CORPORATION; MUNICIPALITY OF JALA-JALA
and/or MAYOR WALFREDO M. DE LA VEGA, respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE MANUEL S. PADOLINA,
PRESIDING JUDGE, BRANCH 162, REGIONAL TRIAL COURT OF
PASIG, METRO MANILA; IRMA FISHING & TRADING CORP.;
ARTM FISHING CORP.; BDR CORPORATION, MIRT
CORPORATION and TRIM CORPORATION; MUNICIPALITY OF
BINANGONAN and/or MAYOR ISIDRO B. PACIS, respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE,
PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL COURT OF
MORONG, RIZAL; BLUE LAGOON FISHING CORP. and ALCRIS
CHICKEN GROWERS, INC.; MUNICIPALITY OF JALA-JALA
and/or MAYOR WALFREDO M. DE LA VEGA, respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE,
PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL COURT OF
MORONG, RIZAL; AGP FISH VENTURES, INC., represented by its
PRESIDENT ALFONSO PUYAT; MUNICIPALITY OF JALA-JALA
and/or MAYOR WALFREDO M. DE LA VEGA, respondents.
LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,
vs.
COURT OF APPEALS; HON. JUDGE EUGENIO S. LABITORIA,
PRESIDING JUDGE, BRANCH 161, REGIONAL TRIAL COURT OF
PASIG, METRO MANILA; SEA MAR TRADING CO. INC.;
EASTERN LAGOON FISHING CORP.; MINAMAR FISHING CORP.;
MUNICIPALITY OF BINANGONAN and/or MAYOR ISIDRO B.
PACIS, respondents.
HERMOSISIMA, JR., J.:
It is difficult for a man, scavenging on the garbage dump created by
affluence and profligate consumption and extravagance of the rich or
fishing in the murky waters of the Pasig River and the Laguna Lake or
making a clearing in the forest so that he can produce food for his
family, to understand why protecting birds, fish, and trees is more
important than protecting him and keeping his family alive.
How do we strike a balance between environmental protection, on the
one hand, and the individual personal interests of people, on the
other?
Towards environmental protection and ecology, navigational safety,
and sustainable development, Republic Act No. 4850 created the
"Laguna Lake Development Authority." This Government Agency is
supposed to carry out and effectuate the aforesaid declared policy, so
as to accelerate the development and balanced growth of the Laguna
Lake area and the surrounding provinces, cities and towns, in the act
clearly named, within the context of the national and regional plans
and policies for social and economic development.
Presidential Decree No. 813 of former President Ferdinand E. Marcos
amended certain sections of Republic Act No. 4850 because of the
concern for the rapid expansion of Metropolitan Manila, the suburbs
and the lakeshore towns of Laguna de Bay, combined with current
and prospective uses of the lake for municipal-industrial water supply,
irrigation, fisheries, and the like. Concern on the part of the
Government and the general public over: the environment impact
of development on the water quality and ecology of the lake and its
related river systems; the inflow of polluted water from the Pasig
River, industrial, domestic and agricultural wastes from developed
areas around the lake; the increasing urbanization which induced the
deterioration of the lake, since water quality studies have shown that
the lake will deteriorate further if steps are not taken to check the
same; and the floods in Metropolitan Manila area and the lakeshore
towns which will influence the hydraulic system of Laguna de Bay,
since any scheme of controlling the floods will necessarily involve the
lake and its river systems, likewise gave impetus to the creation of
the Authority.
Section 1 of Republic Act No. 4850 was amended to read as follows:
Sec. 1. Declaration of Policy. It is hereby declared to
be the national policy to promote, and accelerate the
development and balanced growth of the Laguna Lake
area and the surrounding provinces, cities and towns
hereinafter referred to as the region, within the context
of the national and regional plans and policies for
social and economic development and to carry out the
development of the Laguna Lake region with due
regard and adequate provisions for environmental
management and control, preservation of the quality of
human life and ecological systems, and the prevention
of undue ecological disturbances, deterioration and
pollution.1
Special powers of the Authority, pertinent to the issues in this case,
include:
Sec. 3. Section 4 of the same Act is hereby further
amended by adding thereto seven new paragraphs to
be known as paragraphs (j), (k), (l), (m), (n), (o), and
(p) which shall read as follows:
xxx xxx xxx
(j) The provisions of existing laws to the
contrary notwithstanding, to engage in
fish production and other aqua-culture
projects in Laguna de Bay and other
bodies of water within its jurisdiction and
in pursuance thereof to conduct studies
and make experiments, whenever
necessary, with the collaboration and
assistance of the Bureau of Fisheries
and Aquatic Resources, with the end in
view of improving present techniques
and practices. Provided, that until
modified, altered or amended by the
procedure provided in the following sub-
paragraph, the present laws, rules and
permits or authorizations remain in
force;
(k) For the purpose of effectively
regulating and monitoring activities in
Laguna de Bay, the Authority shall have
exclusive jurisdiction to issue new
permit for the use of the lake waters for
any projects or activities in or affecting
the said lake including navigation,
construction, and operation of fishpens,
fish enclosures, fish corrals and the like,
and to impose necessary safeguards for
lake quality control and management
and to collect necessary fees for said
activities and projects: Provided, That
the fees collected for fisheries may be
shared between the Authority and other
government agencies and political sub-
divisions in such proportion as may be
determined by the President of the
Philippines upon recommendation of the
Authority's Board: Provided, further,
That the Authority's Board may
determine new areas of fishery
development or activities which it may
place under the supervision of the
Bureau of Fisheries and Aquatic
Resources taking into account the
overall development plans and
programs for Laguna de Bay and related
bodies of water: Provided, finally, That
the Authority shall subject to the
approval of the President of the
Philippines promulgate such rules and
regulations which shall govern fisheries
development activities in Laguna de Bay
which shall take into consideration
among others the following: socio-
economic amelioration of bonafide
resident fishermen whether individually
or collectively in the form of
cooperatives, lakeshore town
development, a master plan for fishpen
construction and operation, communal
fishing ground for lake shore town
residents, and preference to lake shore
town residents in hiring laborer for
fishery projects;
(l) To require the cities and
municipalities embraced within the
region to pass appropriate zoning
ordinances and other regulatory
measures necessary to carry out the
objectives of the Authority and enforce
the same with the assistance of the
Authority;
(m) The provisions of existing laws to
the contrary notwithstanding, to exercise
water rights over public waters within
the Laguna de Bay region whenever
necessary to carry out the Authority's
projects;
(n) To act in coordination with existing
governmental agencies in establishing
water quality standards for industrial,
agricultural and municipal waste
discharges into the lake and to
cooperate with said existing agencies of
the government of the Philippines in
enforcing such standards, or to
separately pursue enforcement and
penalty actions as provided for in
Section 4 (d) and Section 39-A of this
Act: Provided, That in case of conflict on
the appropriate water quality standard to
be enforced such conflict shall be
resolved thru the NEDA Board.2
To more effectively perform the role of the Authority under Republic
Act No. 4850, as though Presidential Decree No. 813 were not
thought to be completely effective, the Chief Executive, feeling that
the land and waters of the Laguna Lake Region are limited natural
resources requiring judicious management to their optimal utilization
to insure renewability and to preserve the ecological balance, the
competing options for the use of such resources and conflicting
jurisdictions over such uses having created undue constraints on the
institutional capabilities of the Authority in the light of the limited
powers vested in it by its charter, Executive Order No. 927 further
defined and enlarged the functions and powers of the Authority and
named and enumerated the towns, cities and provinces encompassed
by the term "Laguna de Bay Region".
Also, pertinent to the issues in this case are the following provisions of
Executive Order No. 927 which include in particular the sharing of
fees:
Sec 2. Water Rights Over Laguna de Bay and Other
Bodies of Water within the Lake Region: To effectively
regulate and monitor activities in the Laguna de Bay
region, the Authority shall have exclusive jurisdiction to
issue permit for the use of all surface water for any
projects or activities in or affecting the said region
including navigation, construction, and operation of
fishpens, fish enclosures, fish corrals and the like.
For the purpose of this Executive Order, the term
"Laguna de Bay Region" shall refer to the Provinces of
Rizal and Laguna; the Cities of San Pablo, Pasay,
Caloocan, Quezon, Manila and Tagaytay; the towns of
Tanauan, Sto. Tomas and Malvar in Batangas
Province; the towns of Silang and Carmona in Cavite
Province; the town of Lucban in Quezon Province; and
the towns of Marikina, Pasig, Taguig, Muntinlupa, and
Pateros in Metro Manila.
Sec 3. Collection of Fees. The Authority is hereby
empowered to collect fees for the use of the lake water
and its tributaries for all beneficial purposes including
but not limited to fisheries, recreation, municipal,
industrial, agricultural, navigation, irrigation, and waste
disposal purpose; Provided, that the rates of the fees to
be collected, and the sharing with other government
agencies and political subdivisions, if necessary, shall
be subject to the approval of the President of the
Philippines upon recommendation of the Authority's
Board, except fishpen fee, which will be shared in the
following manner; 20 percent of the fee shall go to the
lakeshore local governments, 5 percent shall go to the
Project Development Fund which shall be administered
by a Council and the remaining 75 percent shall
constitute the share of LLDA. However, after the
implementation within the three-year period of the
Laguna Lake Fishery Zoning and Management Plan,
the sharing will be modified as follows: 35 percent of
the fishpen fee goes to the lakeshore local
governments, 5 percent goes to the Project
Development Fund and the remaining 60 percent shall
be retained by LLDA; Provided, however, that the
share of LLDA shall form part of its corporate funds
and shall not be remitted to the National Treasury as
an exception to the provisions of Presidential Decree
No. 1234. (Emphasis supplied)
It is important to note that Section 29 of Presidential Decree No. 813
defined the term "Laguna Lake" in this manner:
Sec 41. Definition of Terms.
(11) Laguna Lake or Lake. Whenever Laguna Lake or
lake is used in this Act, the same shall refer to Laguna
de Bay which is that area covered by the lake water
when it is at the average annual maximum lake level of
elevation 12.50 meters, as referred to a datum 10.00
meters below mean lower low water (M.L.L.W). Lands
located at and below such elevation are public lands
which form part of the bed of said lake.
Then came Republic Act No. 7160, the Local Government Code of
1991. The municipalities in the Laguna Lake Region interpreted the
provisions of this law to mean that the newly passed law gave
municipal governments the exclusive jurisdiction to issue fishing
privileges within their municipal waters because R.A. 7160 provides:
Sec. 149. Fishery Rentals, Fees and Charges.
(a) Municipalities shall have the exclusive authority to
grant fishery privileges in the municipal waters and
impose rental fees or charges therefor in accordance
with the provisions of this Section.
(b) The Sangguniang Bayan may:
(1) Grant fishing privileges to erect fish
corrals, oyster, mussel or other aquatic
beds or bangus fry areas, within a
 definite zone of the municipal waters, as
determined by it; . . . .
(2) Grant privilege to gather, take or
catch bangus fry, prawn fry or kawag-
kawag or fry of other species and fish
from the municipal waters by nets, traps
or other fishing gears to marginal
fishermen free from any rental fee,
charges or any other imposition
whatsoever.
xxx xxx xxx
Sec. 447. Power, Duties, Functions and
Compensation. . . . .
xxx xxx xxx
(XI) Subject to the provisions of Book II
of this Code, grant exclusive privileges
of constructing fish corrals or fishpens,
or the taking or catching of bangus fry,
prawn fry or kawag-kawag or fry of any
species or fish within the municipal
waters.
xxx xxx xxx
Municipal governments thereupon assumed the authority to issue
fishing privileges and fishpen permits. Big fishpen operators took
advantage of the occasion to establish fishpens and fishcages to the
consternation of the Authority. Unregulated fishpens and fishcages, as
of July, 1995, occupied almost one-third of the entire lake water
surface area, increasing the occupation drastically from 7,000
hectares in 1990 to almost 21,000 hectares in 1995. The Mayor's
permit to construct fishpens and fishcages were all undertaken in
violation of the policies adopted by the Authority on fishpen zoning
and the Laguna Lake carrying capacity.
To be sure, the implementation by the lakeshore municipalities of
separate independent policies in the operation of fishpens and
fishcages within their claimed territorial municipal waters in the lake
and their indiscriminate grant of fishpen permits have already
saturated the lake area with fishpens, thereby aggravating the current
environmental problems and ecological stress of Laguna Lake.
In view of the foregoing circumstances, the Authority served notice to
the general public that:
In compliance with the instructions of His Excellency
PRESIDENT FIDEL V. RAMOS given on June 23,
1993 at Pila, Laguna pursuant to Republic Act 4850 as
amended by Presidential Decree 813 and Executive
Order 927 series of 1983 and in line with the policies
and programs of the Presidential Task Force on Illegal
Fishpens and Illegal Fishing, the general public is
hereby notified that:
1. All fishpens, fishcages and other aqua-culture
structures in the Laguna de Bay Region, which were
not registered or to which no application for registration
and/or permit has been filed with Laguna Lake
Development Authority as of March 31, 1993 are
hereby declared outrightly as illegal.
2. All fishpens, fishcages and other aqua-culture
structures so declared as illegal shall be subject to
demolition which shall be undertaken by the
Presidential Task Force for Illegal Fishpen and Illegal
Fishing.
3. Owners of fishpens, fishcages and other aqua-
culture structures declared as illegal shall, without
prejudice to demolition of their structures be criminally
charged in accordance with Section 39-A of Republic
Act 4850 as amended by P.D. 813 for violation of the
same laws. Violations of these laws carries a penalty of
imprisonment of not exceeding 3 years or a fine not
exceeding Five Thousand Pesos or both at the
discretion of the court.
 All operators of fishpens, fishcages and other aqua-
culture structures declared as illegal in accordance with
the foregoing Notice shall have one (1) month on or
before 27 October 1993 to show cause before the
LLDA why their said fishpens, fishcages and other
aqua-culture structures should not be
demolished/dismantled.
One month, thereafter, the Authority sent notices to the concerned
owners of the illegally constructed fishpens, fishcages and other
aqua-culture structures advising them to dismantle their respective
structures within 10 days from receipt thereof, otherwise, demolition
shall be effected.
Reacting thereto, the affected fishpen owners filed injunction cases
against the Authority before various regional trial courts, to wit: (a)
Civil Case No. 759-B, for Prohibition, Injunction and Damages,
Regional Trial Court, Branch 70, Binangonan, Rizal, filed by Fleet
Development, Inc. and Carlito Arroyo; (b) Civil Case No. 64049, for
Injunction, Regional Trial Court, Branch 162, Pasig, filed by IRMA
Fishing and Trading Corp., ARTM Fishing Corp., BDR Corp., MIRT
Corp. and TRIM Corp.; (c) Civil Case No. 566, for Declaratory Relief
and Injunction, Regional Trial Court, Branch 163, Pasig, filed by
Manila Marine Life Business Resources, Inc. and Tobias Reynaldo M.
Tianco; (d) Civil Case No. 556-M, for Prohibition, Injunction and
Damages, Regional Trial Court, Branch 78, Morong, Rizal, filed by
AGP Fishing Ventures, Inc.; (e) Civil Case No. 522-M, for Prohibition,
Injunction and Damages, Regional Trial Court, Branch 78, Morong,
Rizal, filed by Blue Lagoon and Alcris Chicken Growers, Inc.; (f) Civil
Case No. 554-, for Certiorari and Prohibition, Regional Trial Court,
Branch 79, Morong, Rizal, filed by Greenfields Ventures Industrial
Corp. and R.J. Orion Development Corp.; and (g) Civil Case No.
64124, for Injunction, Regional Trial Court, Branch 15, Pasig, filed by
SEA-MAR Trading Co., Inc. and Eastern Lagoon Fishing Corp. and
Minamar Fishing Corporation.
The Authority filed motions to dismiss the cases against it on
jurisdictional grounds. The motions to dismiss were invariably denied.
Meanwhile, temporary restraining order/writs of preliminary mandatory
injunction were issued in Civil Cases Nos. 64124, 759 and 566
enjoining the Authority from demolishing the fishpens and similar
structures in question.
Hence, the herein petition for certiorari, prohibition and injunction,
G.R. Nos. 120865-71, were filed by the Authority with this court.
Impleaded as parties-respondents are concerned regional trial courts
and respective private parties, and the municipalities and/or
respective Mayors of Binangonan, Taguig and Jala-jala, who issued
permits for the construction and operation of fishpens in Laguna de
Bay. The Authority sought the following reliefs, viz.:
(A) Nullification of the temporary restraining order/writs
of preliminary injunction issued in Civil Cases Nos.
64125, 759 and 566;
(B) Permanent prohibition against the regional trial
courts from exercising jurisdiction over cases involving
the Authority which is a co-equal body;
(C) Judicial pronouncement that R.A. 7610 (Local
Government Code of 1991) did not repeal, alter or
modify the provisions of R.A. 4850, as amended,
empowering the Authority to issue permits for fishpens,
fishcages and other aqua-culture structures in Laguna
de Bay and that, the Authority the government agency
vested with exclusive authority to issue said permits.
By this Court's resolution of May 2, 1994, the Authority's consolidated
petitions were referred to the Court of Appeals.
In a Decision, dated June 29, 1995, the Court of Appeals dismissed
the Authority's consolidated petitions, the Court of Appeals holding
that: (A) LLDA is not among those quasi-judicial agencies of
government whose decision or order are appealable only to the Court
of Appeals; (B) the LLDA charter does vest LLDA with quasi-judicial
functions insofar as fishpens are concerned; (C) the provisions of the
LLDA charter insofar as fishing privileges in Laguna de Bay are
concerned had been repealed by the Local Government Code of
1991; (D) in view of the aforesaid repeal, the power to grant permits
devolved to and is now vested with their respective local government
units concerned.
Not satisfied with the Court of Appeals decision, the Authority has
returned to this Court charging the following errors:
 1. THE HONORABLE COURT OF APPEALS
PROBABLY COMMITTED AN ERROR WHEN IT
RULED THAT THE LAGUNA LAKE DEVELOPMENT
AUTHORITY IS NOT A QUASI-JUDICIAL AGENCY.
2. THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS ERROR WHEN IT RULED
THAT R.A. 4850 AS AMENDED BY P.D. 813 AND
E.O. 927 SERIES OF 1983 HAS BEEN REPEALED
BY REPUBLIC ACT 7160. THE SAID RULING IS
CONTRARY TO ESTABLISHED PRINCIPLES AND
JURISPRUDENCE OF STATUTORY
CONSTRUCTION.
3. THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS ERROR WHEN IT RULED
THAT THE POWER TO ISSUE FISHPEN PERMITS IN
LAGUNA DE BAY HAS BEEN DEVOLVED TO
CONCERNED (LAKESHORE) LOCAL GOVERNMENT
UNITS.
We take a simplistic view of the controversy. Actually, the main and
only issue posed is: Which agency of the Government the Laguna
Lake Development Authority or the towns and municipalities
comprising the region should exercise jurisdiction over the Laguna
Lake and its environs insofar as the issuance of permits for fishery
privileges is concerned?
Section 4 (k) of the charter of the Laguna Lake Development
Authority, Republic Act No. 4850, the provisions of Presidential
Decree No. 813, and Section 2 of Executive Order No. 927, cited
above, specifically provide that the Laguna Lake Development
Authority shall have exclusive jurisdiction to issue permits for the use
of all surface water for any projects or activities in or affecting the said
region, including navigation, construction, and operation of fishpens,
fish enclosures, fish corrals and the like. On the other hand, Republic
Act No. 7160, the Local Government Code of 1991, has granted to the
municipalities the exclusive authority to grant fishery privileges in
municipal waters. The Sangguniang Bayan may grant fishery
privileges to erect fish corrals, oyster, mussels or other aquatic beds
or bangus fry area within a definite zone of the municipal waters.
We hold that the provisions of Republic Act No. 7160 do not
necessarily repeal the aforementioned laws creating the Laguna Lake
Development Authority and granting the latter water rights authority
over Laguna de Bay and the lake region.
The Local Government Code of 1991 does not contain any express
provision which categorically expressly repeal the charter of the
Authority. It has to be conceded that there was no intent on the part of
the legislature to repeal Republic Act No. 4850 and its amendments.
The repeal of laws should be made clear and expressed.
It has to be conceded that the charter of the Laguna Lake
Development Authority constitutes a special law. Republic Act No.
7160, the Local Government Code of 1991, is a general law. It is
basic in statutory construction that the enactment of a later legislation
which is a general law cannot be construed to have repealed a special
law. It is a well-settled rule in this jurisdiction that "a special statute,
provided for a particular case or class of cases, is not repealed by a
subsequent statute, general in its terms, provisions and application,
unless the intent to repeal or alter is manifest, although the terms of
the general law are broad enough to include the cases embraced in
the special law."3
Where there is a conflict between a general law and a special statute,
the special statute should prevail since it evinces the legislative intent
more clearly than the general statute. The special law is to be taken
as an exception to the general law in the absence of special
circumstances forcing a contrary conclusion. This is because implied
repeals are not favored and as much as possible, effect must be given
to all enactments of the legislature. A special law cannot be repealed,
amended or altered by a subsequent general law by mere
implication.4
Thus, it has to be concluded that the charter of the Authority should
prevail over the Local Government Code of 1991.
Considering the reasons behind the establishment of the Authority,
which are environmental protection, navigational safety, and
sustainable development, there is every indication that the legislative
intent is for the Authority to proceed with its mission.
We are on all fours with the manifestation of petitioner Laguna Lake
Development Authority that "Laguna de Bay, like any other single
body of water has its own unique natural ecosystem. The 900 km
lake surface water, the eight (8) major river tributaries and several
other smaller rivers that drain into the lake, the 2,920 km basin or
watershed transcending the boundaries of Laguna and Rizal
provinces, greater portion of Metro Manila, parts of Cavite, Batangas,
and Quezon provinces, constitute one integrated delicate natural
ecosystem that needs to be protected with uniform set of policies; if
we are to be serious in our aims of attaining sustainable development.
This is an exhaustible natural resource a very limited one which
requires judicious management and optimal utilization to ensure
renewability and preserve its ecological integrity and balance."
"Managing the lake resources would mean the implementation of a
national policy geared towards the protection, conservation, balanced
growth and sustainable development of the region with due regard to
the inter-generational use of its resources by the inhabitants in this
part of the earth. The authors of Republic Act 4850 have foreseen this
need when they passed this LLDA law the special law designed to
govern the management of our Laguna de Bay lake resources."
"Laguna de Bay therefore cannot be subjected to fragmented
concepts of management policies where lakeshore local government
units exercise exclusive dominion over specific portions of the lake
water. The garbage thrown or sewage discharged into the lake,
abstraction of water therefrom or construction of fishpens by enclosing
its certain area, affect not only that specific portion but the entire 900
km of lake water. The implementation of a cohesive and integrated
lake water resource management policy, therefore, is necessary to
conserve, protect and sustainably develop Laguna de Bay."5
The power of the local government units to issue fishing privileges
was clearly granted for revenue purposes. This is evident from the
fact that Section 149 of the New Local Government Code empowering
local governments to issue fishing permits is embodied in Chapter 2,
Book II, of Republic Act No. 7160 under the heading, "Specific
Provisions On The Taxing And Other Revenue Raising Power Of
Local Government Units."
On the other hand, the power of the Authority to grant permits for
fishpens, fishcages and other aqua-culture structures is for the
purpose of effectively regulating and monitoring activities in the
Laguna de Bay region (Section 2, Executive Order No. 927) and for
lake quality control and management.6 It does partake of the nature of
police power which is the most pervasive, the least limitable and the
most demanding of all State powers including the power of taxation.
Accordingly, the charter of the Authority which embodies a valid
exercise of police power should prevail over the Local Government
Code of 1991 on matters affecting Laguna de Bay.
There should be no quarrel over permit fees for fishpens, fishcages
and other aqua-culture structures in the Laguna de Bay area. Section
3 of Executive Order No. 927 provides for the proper sharing of fees
collected.
In respect to the question as to whether the Authority is a quasi-
judicial agency or not, it is our holding that, considering the provisions
of Section 4 of Republic Act No. 4850 and Section 4 of Executive
Order No. 927, series of 1983, and the ruling of this Court in Laguna
Lake Development Authority vs. Court of Appeals, 231 SCRA 304,
306, which we quote:
xxx xxx xxx
As a general rule, the adjudication of pollution cases
generally pertains to the Pollution Adjudication Board
(PAB), except in cases where the special law provides
for another forum. It must be recognized in this regard
that the LLDA, as a specialized administrative agency,
is specifically mandated under Republic Act No. 4850
and its amendatory laws to carry out and make
effective the declared national policy of promoting and
accelerating the development and balanced growth of
the Laguna Lake area and the surrounding provinces
of Rizal and Laguna and the cities of San Pablo,
Manila, Pasay, Quezon and Caloocan with due regard
and adequate provisions for environmental
management and control, preservation of the quality of
human life and ecological systems, and the prevention
of undue ecological disturbances, deterioration and
pollution. Under such a broad grant of power and
authority, the LLDA, by virtue of its special charter,
obviously has the responsibility to protect the
 inhabitants of the Laguna Lake region from the
deleterious effects of pollutants emanating from the
discharge of wastes from the surrounding areas. In
carrying out the aforementioned declared policy, the
LLDA is mandated, among others, to pass upon and
approve or disapprove all plans, programs, and
projects proposed by local government
offices/agencies within the region, public corporations,
and private persons or enterprises where such plans,
programs and/or projects are related to those of the
LLDA for the development of the region.
xxx xxx xxx
. . . . While it is a fundamental rule that an
administrative agency has only such powers as are
expressly granted to it by law, it is likewise a settled
rule that an administrative agency has also such
powers as are necessarily implied in the exercise of its
express powers. In the exercise, therefore, of its
express powers under its charter, as a regulatory and
quasi-judicial body with respect to pollution cases in
the Laguna Lake region, the authority of the LLDA to
issue a "cease and desist order" is, perforce, implied.
Otherwise, it may well be reduced to a "toothless"
paper agency.
there is no question that the Authority has express powers as
a regulatory and quasi-judicial body in respect to pollution
cases with authority to issue a "cease and desist order" and on
matters affecting the construction of illegal fishpens, fishcages
and other aqua-culture structures in Laguna de Bay. The
Authority's pretense, however, that it is co-equal to the
Regional Trial Courts such that all actions against it may only
be instituted before the Court of Appeals cannot be sustained.
On actions necessitating the resolution of legal questions
affecting the powers of the Authority as provided for in its
charter, the Regional Trial Courts have jurisdiction.
In view of the foregoing, this Court holds that Section 149 of Republic
Act No. 7160, otherwise known as the Local Government Code of
1991, has not repealed the provisions of the charter of the Laguna
Lake Development Authority, Republic Act No. 4850, as amended.
Thus, the Authority has the exclusive jurisdiction to issue permits for
the enjoyment of fishery privileges in Laguna de Bay to the exclusion
of municipalities situated therein and the authority to exercise such
powers as are by its charter vested on it.
Removal from the Authority of the aforesaid licensing authority will
render nugatory its avowed purpose of protecting and developing the
Laguna Lake Region. Otherwise stated, the abrogation of this power
would render useless its reason for being and will in effect denigrate,
if not abolish, the Laguna Lake Development Authority. This, the Local
Government Code of 1991 had never intended to do.
WHEREFORE, the petitions for prohibition, certiorari and injunction
are hereby granted, insofar as they relate to the authority of the
Laguna Lake Development Authority to grant fishing privileges within
the Laguna Lake Region.
The restraining orders and/or writs of injunction issued by Judge
Arturo Marave, RTC, Branch 78, Morong, Rizal; Judge Herculano
Tech, RTC, Branch 70, Binangonan, Rizal; and Judge Aurelio
Trampe, RTC, Branch 163, Pasig, Metro Manila, are hereby declared
null and void and ordered set aside for having been issued with grave
abuse of discretion.
The Municipal Mayors of the Laguna Lake Region are hereby
prohibited from issuing permits to construct and operate fishpens,
fishcages and other aqua-culture structures within the Laguna Lake
Region, their previous issuances being declared null and void. Thus,
the fishing permits issued by Mayors Isidro B. Pacis, Municipality of
Binangonan; Ricardo D. Papa, Municipality of Taguig; and Walfredo
M. de la Vega, Municipality of Jala-jala, specifically, are likewise
declared null and void and ordered cancelled.
The fishpens, fishcages and other aqua-culture structures put up by
operators by virtue of permits issued by Municipal Mayors within the
Laguna Lake Region, specifically, permits issued to Fleet
Development, Inc. and Carlito Arroyo; Manila Marine Life Business
Resources, Inc., represented by, Mr. Tobias Reynald M. Tiangco;
Greenfield Ventures Industrial Development Corporation and R.J.
Orion Development Corporation; IRMA Fishing And Trading
Corporation, ARTM Fishing Corporation, BDR Corporation, Mirt
Corporation and Trim Corporation; Blue Lagoon Fishing Corporation
and ALCRIS Chicken Growers, Inc.; AGP Fish Ventures, Inc.,
represented by its President Alfonso Puyat; SEA MAR Trading Co.,
Inc., Eastern Lagoon Fishing Corporation, and MINAMAR Fishing
Corporation, are hereby declared illegal structures subject to
demolition by the Laguna Lake Development Authority.
SO ORDERED.
Davide, Jr., Bellosillo and Kapunan, JJ., concur.
Separate Opinions
I fully concur with the decision written by Mr. Justice R. Hermosisima,
Jr.. I would only like to stress what the decision already states, i.e.,
that the local government units in the Laguna Lake area are not
precluded from imposing permits on fishery operations for revenue
raising purposes of such local government units. In other words, while
the exclusive jurisdiction to determine whether or not projects or
activities in the lake area should be allowed, as well as their
regulation, is with the Laguna Lake Development Authority, once the
Authority grants a permit, the permittee may still be subjected to an
additional local permit or license for revenue purposes of the local
government units concerned. This approach would clearly harmonize
the special law, Rep. Act No. 4850, as amended, with Rep. Act No.
7160, the Local Government Code. It will also enable small towns and
municipalities in the lake area, like Jala-Jala, to rise to some level of
economic viability.

PADILLA, J., concurring:

I fully concur with the decision written by Mr. Justice R. Hermosisima,

Jr.. I would only like to stress what the decision already states, i.e.,
that the local government units in the Laguna Lake area are not
precluded from imposing permits on fishery operations for revenue
raising purposes of such local government units. In other words, while
the exclusive jurisdiction to determine whether or not projects or
activities in the lake area should be allowed, as well as their
regulation, is with the Laguna Lake Development Authority, once the
Authority grants a permit, the permittee may still be subjected to an
additional local permit or license for revenue purposes of the local
government units concerned. This approach would clearly harmonize
the special law, Rep. Act No. 4850, as amended, with Rep. Act No.
7160, the Local Government Code. It will also enable small towns and
municipalities in the lake area, like Jala-Jala, to rise to some level of
economic viability.

Separate Opinions

PADILLA, J., concurring:


G.R. No. 112399 July 14, 1995
REPRESENTATIVE AMADO S. BAGATSING, petitioner,
vs.
COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL
COMPANY and THE HONORABLE EXECUTIVE
SECRETARY, respondents.
G.R. No. 115994 July 14, 1995
NEPTALI A. GONZALES, ERNESTO A. MACEDA, JOHN H.
OSMEA, WIGBERTO E. TAADA, JOKER O. ARROYO, AMADO
D. BAGATSING, and RENE A.V. SAGUISAG, petitioners,
vs.
DELFIN LAZARO, in his capacity as Chairman of the Philippine
National Oil Company, MONICO JACOB, in his capacity as
President of PNOC, COMMITTEE ON PRIVATIZATION,
PHILIPPINE NATIONAL OIL COMPANY, PETRON
CORPORATION, and ARAMCO OVERSEAS COMPANY
B.V., respondents.
QUIASON, J.:
The petition for prohibition in G.R. No. 112399 sought: (1) to nullify the
bidding conducted for the sale of a block of shares constituting 40% of
the capital stock (40% block) of Petron Corporation (PETRON) and
the award made to Aramco Overseas Company, B.V. (ARAMCO) as
the highest bidder in the bidding conducted on December 15, 1993;
and (2) to stop the sale of said block of shares to ARAMCO. The
Supplemental Petition in said case sought to annul the bidding of the
40% block held on December 15, 1993 and to set aside the award
given to ARAMCO (Rollo, pp. 94-99).
The petition for prohibition and certiorari in G.R. No. 115994 sought to
annul the sale of the same block of Petron shares subject of the
petition in G.R. No. 112399.
The petition in G.R. No. 112399 asked for the issuance of a temporary
restraining order to stop respondents from selling the 40% block to a
foreign buyer (Rollo, p. 15). The petition for a temporary restraining
order was reiterated in a motion filed subsequently (Rollo, pp. 107-
108).
The petition in G.R. No. 115994 asked for the issuance of a temporary
restraining order and a writ of preliminary injunction to restrain and
enjoin public respondents "from proceeding with the projected initial
public offering on July 18, 1994 of the 20% of Petron" (Rollo, p. 33).
The Urgent Supplemental Petition in said case reiterated the prayer
for the immediate issuance of a preliminary injunction to enjoin the
initial public offering of the Petron shares (Rollo, pp. 223-225).
Actions on the petitions and motions for the issuance of a temporary
restraining order and a writ of preliminary injunction were deferred.
The petition in G.R. No. 112399 was filed by Representative Amado
S. Bagatsing while the petition in G.R. No. 115994 was filed by
Senators Neptali A. Gonzales, Ernesto A. Maceda, John H. Osmea
and Wigberto E. Taada, Representatives Joker Arroyo and Amado
D. Bagatsing and former Senator Rene A.V. Saguisag all in their
capacity as members of Congress, taxpayers and concerned citizens,
except in the case of Mr. Saguisag, who sued as a private law
practitioner, member of the Integrated Bar of the Philippines, taxpayer
and concerned citizen.
Respondent Monico V. Jacob was impleaded in G.R. No. 115994 in
his capacity as President of respondent Philippine National Oil
Company (PNOC). At the time of the filing of the petition, he had
ceased to be the President of PNOC and a member of its governing
board. However, he is the Chairman of the Board of Directors and
Chief Executive Officer of PETRON, a respondent in both cases. He
asked for the dismissal of the petition on the ground that having
ceased to be PNOC President, petitioners had no more cause of
action against him. We deny the motion in view of the fact that the
petition questions his acts as President of PNOC.
In G.R. No. 115994, ARAMCO entered a limited appearance to
question the jurisdiction over its person, alleging that it is a foreign
company organized under the laws of the Netherlands, that it is not
doing nor licensed to do business in the Philippines, and that it does
not maintain an office or a business address in and has not appointed
a resident agent for the Philippines (Rollo, p. 240).
I
PETRON was originally registered with the Securities and Exchange
Commission (SEC) in 1966 under the corporate name "Esso
Philippines, Inc." (ESSO) as a subsidiary of Esso Eastern, Inc. and
Mobil Petroleum Company, Inc.
In 1973, at the height of the world-wide oil crisis brought about by the
Middle East conflicts, the Philippine government acquired ESSO
through the PNOC. ESSO became a wholly-owned company of the
government under the corporate name PETRON and as a subsidiary
of PNOC.
In acquiring PETRON, the government aimed to have a buffer against
the vagaries of oil prices in the international market. It was felt that
PETRON can serve as a counterfoil against price manipulation that
might go unchecked if all the oil companies were foreign-owned.
Indeed, PETRON helped alleviate the energy crises that visited the
country from 1973 to 1974, 1979 to 1980, and 1990 to 1991.
PETRON owns the largest, most modern complex refinery in
the Philippines with a nameplate capacity of 155,000 barrels
per stream day. It is also the country's biggest combined retail
and wholesale market of refined petroleum products. In 1992,
it garnered a 39.8% share of all domestic products sold, and at
year end its assets totalled P24.4 billion. PETRON's income as
of September 1993 was P2.7 billion. It is listed as the No. 1
corporation in terms of assets and income in the Philippines.
On December 8, 1986, President Corazon C. Aquino promulgated
Proclamation No. 50 in the exercise of her legislative power under the
Freedom Constitution.
The Proclamation is entitled "Proclaiming and Launching a Program
for the Expeditious Disposition and Privatization of Certain
Government Corporations and/or the Assets thereof, and Creating the
Committee on Privatization and the Asset Privatization Trust."
Implicit in the Proclamation is the need to raise revenue for the
Government and the ideal of leaving business to the private sector.
The Government can then concentrate on the delivery of basic
services and the performance of vital public functions.
On December 2, 1991, President Fidel V. Ramos noted that "[t]he
privatization program has proven successful and beneficial to the
economy in terms of expanding private economic activity, improving
investment climate, broadening ownership base and developing
capital markets, and generating substantial revenues for priority
government expenditure," but "[t]here is still much potential for
harnessing private initiative to undertake in behalf of government
certain activities which can be more effectively and efficiently
undertaken by the private sector" (G.R. No. 112399, Rollo, p. 31).
In its meeting held on September 9, 1992, the PNOC Board of
Directors approved Specific Thrust No. 6 and moved "to bring to the
attention of the Administration the need to privatize Petron whether or
not there will be deregulation [of the oil industry]" (G.R. No.
112399, Rollo p. 67).
In a letter dated October 21, 1992, Secretary Ramon R. Del Rosario,
as Chairman of the Committee on Privatization, endorsed to President
Ramos the proposal of PNOC to "privatize 65% of the stock of Petron,
open to both foreign as well as domestic investors." Secretary Del
Rosario added: "The entry of foreign investors in this field is expected
to result in improved technology and know-how and will enable Petron
to have access to international information network as well as access
to external markets and refining contracts" (G.R. No. 112399, Rollo, p.
72).
On January 4, 1993, a follow-up letter was sent by Secretary Del
Rosario informing the President that: "The privatization of Petron,
recommended by both the management of Philippine National Oil
Company (PNOC) and the Committee on Privatization (COP), will
send the right signals that may re-ignite investor interest in the
Philippines for 1993" (G.R. No. 112399, Rollo, p. 73).
In a letted dated January 6, 1993, Secretary designate Delfin L.
Lazaro of the Department of Energy, favorably endorsed for approval
the plan to sell up to 65% of the capital stock of PETRON. He also
noted that the said plan was "consistent with the Energy Sector Action
Plan approved by the President and the Cabinet on November 27,
1992" (G.R. No. 112399, Rollo, p. 74).
On January 12, 1993, the Cabinet approved the privatization of
PETRON as part of the Energy Sector Action Plan.
On March 25, 1993, the Government Corporate Monitoring and
Coordinating Committee (GCMCC) recommended a 100%
privatization of PETRON.
On March 31, 1993, the PNOC Board of Directors passed a resolution
authorizing the company to negotiate and conclude a contract with the
consortium of Salomon Brothers of Hongkong Limited and PCI Capital
Corporation for financial advisory services to be rendered to
PETRON.
On April 1, 1993, the GCMCC recommended to COP the privatization
of only 65% of the capital stock of PETRON, instead of the 100%
privatization previously recommended.
On June 10, 1993, in a letter addressed to Secretary Ernesto C.
Leung, the COP Chairman, President Ramos approved the
privatization of PETRON up to a maximum of 65% of its capital stock.
The Petron Privatization Working Committee (PWC) was thus formed.
It finalized a privatization strategy with 40% of the shares to be sold to
a strategic partner and 20% to the general public through the initial
public offering and employees stock option plan.
The Commission on Audit (COA) was consulted as to the valuation
methodologies and privatization process. The privatization plan was
also presented to the COP on July 23, 1993, and to the President on
July 31, 1993 for their approval.
On August 10, 1993, the President approved the 40% 40% 20%
privatization strategy of PETRON. In the press release on the
presidential approval of the said privatization, the Office of the
President commented:
For Petron, gaining a long-term strategic partner that
will ensure stable crude oil supplies and/or advance its
technological and financial position will be a definite
advantage. In addition, its partial privatization will
provide the flexibility and level playing field it needs to
remain a major, and therefore influential player in the
oil industry. In 1992, Petron dominated the oil industry
with a commanding 40% market share (G.R. No.
112399, Rollo, p. 83).
The invitation to bid was published in several newspapers of general
circulation, both local and foreign. The deadline for the submission of
proposals was set for December 15, 1993 at 5:00 P.M.
PETRON furnished the Office of the Solicitor General (OSG) with
copies of the draft of the stock purchase agreement and shareholders'
agreement, with a request for the review of the same.
In a meeting of the Petron PWC held on December 15, 1993 at 12:00
noon, it decided that Westmont Holdings (WESTMONT) was
disqualified from participating in the bidding for its alleged failure to
comply with the technical and financial requirements for a strategic
partner.
Salomon Brothers valued PETRON at US$600 million and the 40%
block at US$240 million. For the entire Petron shares, respondent
Secretary Lazaro proposed a valuation of US$1.4 billion; Petron
management, US$857 million; and Frances Onate, a member of the
Petron PWC, a valuation of US$743 million to US$1 billion.
Finally, the floor price bid for the 40% block was fixed at US$440
million.
The bids of Petroliam Nasional Berhad (PETRONAS), ARAMCO and
WESTMONT were submitted while the floor price was being
discussed.
At about 6:15 P.M. and before the bids were opened, WESTMONT
through its representative, Manuel Estrella, submitted additional
documents to prove its financial capability to carry out the purchase of
the 40% block. The PNOC Board of Directors adopted Resolution No.
865, S. 1993, rejecting the bid of WESTMONT for not having met the
pre-qualification criteria of financial capability, long-term crude supply
availability, and technical and management expertise in the oil
business. It was further resolved that the bid submitted by
WESTMONT would be returned unopened.
At 6:30 P.M., the other two bids were opened. The bid of ARAMCO
was for US$502 million while the bid of PETRONAS was for US$421
million. The PNOC Board of Directors then passed Resolution No.
866, S. 1993, declaring ARAMCO the winning bidder.
On December 15, 1993, the OSG informed PETRON that the drafts of
the stock purchase agreement and shareholders' agreement
contained no legally objectionable provisions and could be the basis
for PETRON's negotiation with the winning bidder.
On December 16, 1993, respondent Monico Jacob, in his capacity as
President and Chief Executive Officer of PNOC, endorsed to the COP
the bid of ARAMCO for approval. The COP gave its approval on the
same day. Also on the same day, Manuel Estrella filed a complaint in
behalf of WESTMONT with PNOC, questioning the award of the 40%
block of Petron shares to ARAMCO. The COP answered Estrella's
letter on January 14, 1994, explaining why WESTMONT's bid was
returned unopened.
On February 3, 1994, PNOC and ARAMCO signed the Stock
Purchase Agreement and on March 4, 1994, the two companies
signed the Shareholders' Agreement.
Public respondents submitted to the Securities and Exchange
Commission (SEC) a proposed price for the initial public offering of
the 20% block set for July 18, 1994, the second phase of PETRON's
privatization. PETRON proposed a price of between P7.00 and
P16.00 per share but the SEC approved a price of P9.00 per share.
II
PETRON questions the locus standi of petitioners to file the action
(Rollo, pp. 479-484). Petitioners however, countered that they filed the
action in their capacity as members of Congress.
In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R.
No. 113105, August 19, 1994, we held that the members of Congress
have the legal standing to question the validity of acts of the Executive
which injures them in their person or the institution of Congress to
which they belong. In the latter case, the acts cause derivative but
nonetheless substantial injury which can be questioned by members
of Congress (Kennedy v. James, 412 F. Supp. 353 [1976]). In the
absence of a claim that the contract in question violated the rights of
petitioners or impermissibly intruded into the domain of the
Legislature, petitioners have no legal standing to institute the instant
action in their capacity as members of Congress.
However, petitioners can bring the action in their capacity as
taxpayers under the doctrine laid down in Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may
question contracts entered into by the national government or
government-owned or controlled corporations alleged to be in
contravention of the law. As long as the ruling
in Kilosbayan on locus standi is not reversed, we have no choice but
to follow it and uphold the legal standing of petitioners as taxpayers to
institute the present action.
III
A. Petitioners in G.R. Nos. 112399 and 115994 claim that the
inclusion of PETRON in the privatization program contravened the
declared policy of the State to dispose of only non-performing assets
of the government and government-owned or controlled corporations
which have been found unnecessary or inappropriate for the
government sector to maintain. They contend that PETRON is neither
a non-performing asset nor is it unnecessary or inappropriate for the
government to maintain or operate (G.R. No. 112399, Rollo, pp. 3-4,
8-13; G.R. No. 115994, Rollo, pp. 14-17, 216-217).
To say that only non-performing assets should be the subject of
privatization does not conform with the realities of economic life. In the
world of business and finance, it is difficult to sell a business in dire,
financial distress. As entrepreneur Don Eugenio Lopez used to advert
to his younger executives: "Don't buy headaches. Don't even accept
them if they are offered to you on a silver platter." It is only in a fire
sale that the government can expect to get rid of its non-performing
assets, more so if the sequencing pattern insisted by petitioners (initial
public offering of 10% block to small investors) is followed.
While Proclamation No. 50 mandates that non-performing assets
should promptly be sold, it does not prohibit the disposal of the other
kinds of assets, whether performing, necessary or appropriate.
Section 1 of the Proclamation reads:
Statement of Policy. It shall be the policy of the
State to promote privatization through an orderly,
coordinated and efficient program for the prompt
disposition of the large number of non-performing
assets of the government financial institutions, and
certain government-owned or controlled corporations
which have been found unnecessary or inappropriate
for the government sector to maintain.
The said provision classifies two types of assets: (1) Non-performing
assets of government financial institutions; and (2) Government-
owned or controlled corporations which have been found unnecessary
or inappropriate for the government sector to maintain.
Under the Proclamation, it is the COP which is tasked with the duty of
identifying and arranging the sale of government assets. Section 5(1)
of the Proclamation provides:
Powers and Functions. The Committee shall have
the following powers and functions:
(1) To identify to the President of the Philippines, and
arrange for transfer to the National Government and/or
to the Trust and the subsequent divestment to the
private sector of (a) such non-performing assets as
may be identified by the Committee, and approved by
the President, for transfer from the government banks
for disposal by the Trust or the government banks, and
(b) such government corporations, whether parent or
subsidiary, and/or such of their assets, as may have
been recommended by the Committee for disposition,
and Provided, that no such identification,
recommendation or approval shall be necessary where
a parent corporation decides on its own to divest of, in
whole or in part, or liquidate a subsidiary corporation
organized under the Corporation Code; Provided
further, that any such independent disposition shall be
undertaken with the prior approval of the Committee
and in accordance with the general disposition
guidelines as the Committee may provide; Provided,
finally, that in every case the sale or disposition shall
be approved by the Committee with respect to the
buyer and price only; (Emphasis supplied).
xxx xxx xxx
After a long study by PNOC, PETRON was found to be "inappropriate
or unnecessary" for the government to maintain because refining and
marketing of petroleum is an aspect of the industry which is better left
to the private sector. In making such finding, PNOC was guided by
Section 4(a) of Proclamation No. 50, which provides:
. . . (a) divesting to the private sector in the soonest
possible time through the appropriate disposition
entities, those assets with viable productive potential
as going concerns, taking into account where
appropriate the implications of such transfers on
sectoral productive capacities and market limitation, . .
. . These objectives are to be pursued within the
context of furthering the national economy through
strengthened and revitalized private enterprise system.
The decision of PNOC to privatize PETRON and the approval of the
COP of such privatization, being made in accordance with
Proclamation No. 50, cannot be reviewed by this Court. Such acts are
exercises of the executive function as to which the Court will not pass
judgment upon or inquire into their wisdom (Llamas v. Orbos, 202
SCRA 844 [1991]).
Such identification by the COP of the government corporations to be
privatized was not even necessary in the case of PETRON. Under
Section 5(1) of Proclamation No. 50 ". . . [N]o such identification,
recommendation or approval shall be necessary where a parent
corporation decides on its own to divest of, in whole or in part, or
liquidate a subsidiary corporation organized under the Corporation
Code; . . . ."
The only participation of the COP in the sale of the Petron shares by
PNOC, the parent corporation, was the approval of the buyers and
price. The last sentence of paragraph (1) of Section 5 provides:
. . . Provided, finally, that in every case the sale or
disposition shall be approved by the Committee with
respect to the buyer and price only.
PNOC, in privatizing PETRON, was simply exercising its corporate
power to dispose of all or a portion of its shares in a subsidiary. PNOC
was created under P.D. No. 334, as amended by P.D. No. 927, which
empowers it to acquire shares of the capital stock of any other
corporation and to dispose of the same shares.
Besides, if only non-performing assets are intended to be sold, it
would be unnecessary to provide in the Proclamation for the
rehabilitation of government corporations to make the same more
attractive to investors and potential buyers.
Section 5 (5) of Proclamation No. 50 provides:
In its discretion, to approve or disapprove, subject to
the availability of funds for such purpose, the
rehabilitation of assets pending disposition by the Trust
or any other government agency authorized by the
Committee, or the Trust with the approval of the
Committee, Provided that, the budget for each
rehabilitation project shall be likewise subject to prior
approval by the Committee.
Nowhere in the Proclamation can one infer that it prohibits a partial
privatization of vital, appropriate and performing corporations owned
by the government.
Proclamation No. 50 contained an Annex listing the corporations to be
privatized and those to be retained. While PETRON was mentioned
among the corporations to be retained, Section 6 of the Proclamation
directed a continuing study on what corporations should be
recommended for privatization.
It is markworthy that the said Annex did not indicate the percentage of
shares that will be privatized or that will be retained. It can be
interpreted to mean that all the shares of the corporations in the list to
be privatized may be sold, while only some of the shares of the other
corporations may be sold. It is also worthy of note that the list of
corporations to be retained added the phrase "As of 31 August 1992,"
meaning that any of the corporations mentioned therein may be
delisted after that date if a study would justify such action.
The government is not disposing of all of its shares in PETRON but is
retaining a 40% block. Together with the widely-held 20% of the
private sector control of PETRON by the government is assured. With
such equity in PETRON, the government can also maintain a window
to the oil industry and at the same time share in the profits of the
company.
The privatization of PETRON could well be undertaken under laws
other than Proclamation No. 50.
Of significance is Section 2(c) of R.A. No. 7181, which provides that:
Privatization of government assets classified as
a strategic industry by the National Economic and
Development Authority shall first be approved by the
President of the Philippines (Emphasis supplied).
Section 6, the repealing clause of R.A. No. 7181, expressly repealed
Sections 3 and 10 of Proclamation No. 50 and all other laws, orders
and rules and regulations which are inconsistent therewith.
The only requirement under R.A. No. 7181 in order to privatize a
strategic industry like PETRON is the approval of the President. In the
case of PETRON's privatization, the President gave his approval not
only once but twice.
PETRON's privatization is also in line with and is part of the Philippine
Energy Program under R.A. No. 7638. Section 5(b) of the law
provides that the Philippine Energy Program shall include a policy
direction towards the privatization of government agencies related to
energy.
Under P.D. No. 334, the law creating PNOC, said corporation is
granted the authority "[t]o establish and maintain offices, branches,
agencies, subsidiaries, correspondents or other units anywhere as
may be needed by the Company and reorganize or abolish the same
as it may deem proper."
B. Petitioners next question the regularity and validity of the bidding
(G.R. No. 112399, Rollo, pp. 97-99; G.R. No. 115994, Rollo, pp. 17-
24, 221). Petitioners in G.R. No. 115994 claim that the public bidding
was tainted with haste and arbitrariness and that there was a failed
bidding because there was only one offeror (Rollo, pp. 17-24).
Taking the cudgels for WESTMONT, petitioners urge that said bidder
was only given two days to conduct a review PETRON's vast
business operations in order to comply with the technical and financial
requirements for pre-qualification. Petitioners also complain that the
pre-qualification and actual bidding were conducted on the same day,
thus denying a disqualified bidder an opportunity to protest or to
appeal. They question the fixing of the floor price on the same day as
the public bidding and only after the bids had been submitted.
Likewise, they say that the approval of the bid of ARAMCO by the
Assets Privatization Trust on the same day it is submitted is
anomalous (G.R. No. 115994, Rollo, pp. 22-24).
On the claim that there was a failed bidding, petitioners contend that
there were only three bidders. One of them, PETRONAS, submitted a
bid lower than the floor price while a second, failed to pre-qualify.
Citing Section V-2-a of COA Circular No. 89-296 dated January 27,
1989, they argue that where only one bidder qualifies, there is a
failure of public auction (G.R. No. 115994, Rollo, p. 22).
When a failure of bidding takes place is defined in Circular No. 89-296
of the Commission on Audit, which prescribes the "Audit Guidelines
on the Divestment or Disposal of Property and other Assets of the
National Government Agencies and Instrumentalities, Local
Government Units and Government-Owned or Controlled
Corporations and their Subsidiaries."
V. MODES OR DISPOSAL/DIVESTMENT:
xxx xxx xxx
2 Sale Thru Negotiation
For justifiable reasons and as demanded by the
exigencies of the service, disposal thru negotiated sale
may be resorted to and undertaken by the proper
committee or body in the agency or entity concerned
taking into consideration the following factors:
a. There was a failure of public auction. As envisioned
in this Circular, there is a failure of public auction in any
of the following instances:
1 if there is only one offeror.
In this case, the offer or bid, if sealed,
shall not be opened.
2 if all the offers/tenders are non-
complying or unacceptable.
A tender is non-complying or
unacceptable when it does not comply
with the prescribed legal, technical and
financial requirement for pre-
qualification.
Under said COA Circular, there is a failure of bidding when: 1) there is
only one offeror; or (2) when all the offers are non-complying or
unacceptable.
In the case at bench, there were three offerors: SAUDI ARAMCO,
PETRONAS and WESTMONT.
While two offerors were disqualified, PETRONAS for submitting a bid
below the floor price and WESTMONT for technical reasons, not all
the offerors were disqualified. To constitute a failed bidding under the
COA Circular, all the offerors must be disqualified.
Petitioners urge that in effect there was only one bidder and that it can
not be said that there was a competition on "an equal footing" (G.R.
No. 112399, Rollo, p. 122). But the COA Circular does not speak of
accepted bids but of offerors, without distinction as to whether they
were disqualified.
The COA itself, the agency that adopted the rules on bidding
procedure to be followed by government offices and corporations, had
upheld the validity and legality of the questioned bidding. The
interpretation of an agency of its own rules should be given more
weight than the interpretation by that agency of the law it is merely
tasked to administer.
The case of Danville Maritime, Inc. v. Commission on Audit, 175
SCRA 701 (1989), relied upon by petitioner, is inappropriate. In said
case, there was only one offeror in the bidding. The Court said: ". . .
[I]f there is only one participating bidder, the bidding is non-
competitive and, hence, falls short of the requirement. There would, in
fact, be no bidding at all since, obviously, the lone participant cannot
compete against himself."
C. According to petitioners, the law mandates the offer for sale of 10%
of the Petron shares to small investors before a sale of the 40% block
of shares to ARAMCO can be made.
They theorize that the best way to determine the real market price of
Petron shares was to first have a public offering as required by R.A.
No. 7181. The reverse procedure followed by private respondents,
according to petitioners, gave unwarranted benefits to private
respondents because they bought the Petron shares at only P6.70 per
share when the shares fetched as high as P16.00 per share in the
stock market (G.R. No. 115994, Rollo, pp. 24-27).
To bolster their theory, petitioners cite Section 2(d) of R.A. No. 7181,
which provides:
A minimum of ten (10) percent of the sale of assets in
corporation form shall first be offered to small local
investors including Filipino Overseas Workers and
where practicable also in the sale of any physical
asset.
Petitioners also invoke the Implementing Guidelines promulgated to
implement R.A. No. 7181, which provides:
In the sale of assets in corporate form, at least 10% of
the total shares for privatization shall first be offered to
small local investors. Employees Stock Ownership
Plans (ESOPS) and public offerings shall count
towards compliance with these provisions . . . (Sec. 3).
We agree with PETRON that the language of Section 2(d) of R.A. No.
7181 does not mandate any sequencing for the disposition of shares
in a government-owned corporation being privatized.
It is the unfortunate use of the word "first" in Section 2(d) of R.A. No.
7181 that threw petitioners off track and caused them to misread the
provision as one requiring a mandatory sequencing of the sale. As a
wit once said, if a centipede would be compelled to follow a
prescribed sequencing of its steps, it could never move an inch.
A reasonable reading of the provision is that it merely gives a right of
first refusal by the small investors vis-a-vis the 10% block of shares.
As far as the 10% block is concerned, the small investors shall have a
first chance to subscribe thereto whenever it is offered. The offer may
be made before, after or simultaneous with the offer of the shares to
strategic partners or major investors depending on the prevailing
condition of the market. Certainly, in an initial public offering, it is good
judgment and business sense that should prevail, rather than the rigid
and inflexible rules of step one, step two, etc.
The Rules and Regulations issued by the COP to implement R.A. No.
7181 set aside 10% of the shares subject of the privatization to be
offered first to the small local investors, and made clear that as far as
said 10% block is concerned, the small investors shall have the first
crack to buy the same. These Rules have been consistently applied in
previous privatizations, and they constitute a contemporaneous
construction and interpretation of a law by the implementing,
administrative agency. Such construction is accorded great respect by
the Court (Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504
[1991]).
What Congress clearly mandated in R.A. No. 7181 was that at least
10% of the shares of a privatized corporation must be reserved and
offered for sale to the general public. In the deliberation of the
Congressional Committee on Government-Owned and Controlled
Corporations on December 18, 1991, the Committee spoke of having
the 10% set aside without impeding the privatization process.
Note that when the bidding of the 40% block of Petron shares had
been announced, the 10% block for offering to the small local
investors had been identified, reserved and set aside. This is more
than a substantial compliance with the mandate of law.
There is great risk in first making an initial public offering of the 10%
block before bidding out the 40% block to a strategic partner. It may
happen that the price of the shares offered initially to the public
plunges below the offering price approved by the SEC.
The sensitive market forces involved in initial public offerings render
unrealistic any legislative mandate to follow a sequencing in the sale
of government-owned shares in the market. The legislators, practical
men of affairs as they are, were aware of the vagaries, variables and
vicissitudes of the stock market when they enacted R.A. No. 7181. It
is more reasonable to read the said law as leaving to the COP and the
government corporations concerned to determine the sequencing of
the sale to strategic investors and the general public. To require the
offer of 10% to the general public before the sale of a block to a
strategic partner may delay or even impede the entire privatization
program.
The clear policy behind Proclamation No. 50 is to give the COP and
APT maximum flexibility in their operation to ensure the most efficient
implementation of the privatization program.
Under Section 5(3) of the Proclamation, full powers are given the
COP to establish "mandatory as well as indicative guidelines for . . .
the disposition
of . . . assets." Under Section 12(2) thereof, the APT is given the
"widest latitude of flexibility . . . particularly in the areas of . . .
disposition . . . ."
Petitioners can not rely on Opinion No. 126, Series of 1992 dated
September 28, 1992. The query posed to the Secretary of Justice in
said opinion was the legality of the plan of National Development
Corporation to pass on to the prospective buyer of its shares in a local
bank the responsibility of complying with the requirement prescribed
in Section 2(d) of R.A. No. 7181 that a minimum of 10% of the shares
of a corporation "shall first be offered to small local investors . . . ."
The Secretary of Justice naturally opined that said proposal could not
legally be done on the principal ground that the "observance of this
legal requirement is incumbent upon the disposition entity, which in
this case is NDC, but as contemplated, the sale to small investors
shall be undertaken by the private buyer of the [local bank's] shares."
The query posed to the Secretary of Justice was not about the
sequencing of the sale of the 10% block.
We can not see how the failure to dispose the 10% block to the
general public before the sale of the 40% block to ARAMCO gave the
latter unwarranted benefits.
Actually ARAMCO paid a total of P14,671,985,306.00 for the
acquisition of the Petron shares. This aggregate amount represents in
peso terms: (1) the US$502 million winning bid paid by ARAMCO to
PNOC on March 4, 1994; and (2) the additional amount of
US$30,327,987.00 remitted on July 11, 1994, representing the
"purchase price adjustment" stipulated in the Stock Purchase
Agreement. Consequently, ARAMCO's acquisition cost was P7.336
per share.
A fair comparison between the ARAMCO price and the IPO price
should take into consideration the levels of financial, legal and
miscellaneous costs directly related to the ARAMCO purchase,
including the consequent opportunity cost or income to PNOC and the
National Government, had the proceeds been invested in Philippine
Treasury Bills from March 4 and July 11, respectively, to September
7, 1994. On this basis, the effective proceeds on the ARAMCO
purchase amount to P7.8559 per share, and not P6.70 as claimed by
petitioners (G.R. No. 115994, Rollo, pp. 506-507). On the other hand,
the seller's expenses incurred in connection with the IPO, including
taxes and other fees paid to the National Government, reached a total
of P833.081 million or P0.833 per share (G.R. No. 115944, Rollo, p.
507).
To make further a fair comparison between the two prices, the
proceeds from the IPO should be net of PNOC's share in PETRON's
net income from March to August 1994, because in effect it was giving
up this amount in favor of the IPO investors. As projected, the total net
income of PETRON from March to August 1994 is P1,870,500.00.
Twenty percent of this is P374,100.00 which translates to a per share
reduction of P0.3741 from the IPO proceeds. This would further erode
the effective proceeds from the IPO sale to P7.7929 per share.
Finally, cash dividends of P2 billion and property dividends of P153
million, or a total of P2.153 billion was declared and transferred to
PNOC before the ARAMCO purchase was effected. Imputing such
dividends would translate the effective proceeds to PNOC from the
ARAMCO sale to P8.2865 per share (P7.8559 plus P0.4306 [or 40%
of P2.153 Billion]). Using this figure, the IPO proceeds of P7.7929 per
share is definitely lower than the ARAMCO proceeds of P8.2865.
Unlike the ordinary buyers of shares listed in the stock exchange,
ARAMCO, as a strategic investor, had to spend for the due diligence
review of the business and records of PETRON.Aside from this
monetary considerations, PNOC derived the following value-added
benefits:
1) PNOC is assured of an adequate supply of crude oil. The element
of uncertainty on sources of crude oil supply is reduced, if not
eliminated, ARAMCO being the world's largest known producer and
exporter of five different types of crude oil.
2) PNOC's refinery can achieve optimum efficiency because of better
crude slates.
3) ARAMCO has to hold on to the Petron shares for the next five
years. Aside from its stabilizing effect on the market price of Petron
shares, this holding period will prevent ARAMCO from deriving any
speculative gains. Unlike ARAMCO, the buyers of the IPO can sell
their shares any time without constraints.
4) ARAMCO's presence in PETRON has a tremendous,
unquantifiable influence in investor's confidence in PETRON as a
publicly-listed company. This confidence could not be generated if
PETRON's partner has a bad track record.
5) ARAMCO will assist PNOC in raising funds to finance the more
than P12 billion in projected capital expenditures required over the
next four years to make PETRON competitive.
The pricing of shares of stock is a highly specialized field that is better
left to the experts. It involves an inquiry into the earning potential,
dividend history, business risks, capital structure, management, asset
values of the company; the prevailing business climate; the political
and economic conditions; and a myriad of other factors that bear on
the valuation of shares (Van Horne, Financial Management and Policy
652-653 [8th ed.]); Leffler and Farwell, The Stock Market 573-575 [3rd
ed.]).
D. Finally, petitioners contend that PETRON is a public utility, in which
foreign ownership of its equity shall not exceed 40% thereof and the
foreign participation in the governing body shall be limited to their
proportionate share in its capital. According to petitioners, ARAMCO
is entitled only to a maximum of four seats in the ten-man board but
was given five seats (G.R. No. 112389, Rollo, pp. 30-64; G.R. No.
115994, Rollo, pp. 30-31, 202-212).
This issue hinges on whether the business of oil refining is a "public
utility" within the purview of Section 11, Article XII of the 1987
Constitution (adopted from Sec. 5, Art. XIV of the 1973 Constitution),
which provides:
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 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).
Implementing Section 8 of Article XIV of the 1935 Constitution, the Examination of our statute books fails to reveal any law
progenitor of Section 5 of Article XIV of the 1973 Constitution, is or legal provision which, in explicit terms, either permits
Section 13(b) of the Public Service Act, which provides: or prohibits the establishment and operation of oil
refineries that would refine only imported crude oil
The term "public service" includes every person that (Opinion, No. 267, S. 1955).
now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with WHEREFORE, the petitions are DISMISSED.SO ORDERED.
general or limited clientele, whether permanent,
occasional, or accidental and done for general
business purposes, any common carrier, railroad,
street railway, . . . and other similar public services: . . .
.

More pertinent is Section 7 of R.A. No. 387, the Petroleum Act of

1949, which provides:

Petroleum operation a public utility. Everything

relating to the exploration for and exploitation of
petroleum which may consist naturally or below the
surface of the earth, and everything relating to the
manufacture, refining, storage, or transportation by
special methods of petroleum, as provided for in this
Act, is hereby declared to be of public utility (Rollo, p.
519; Emphasis supplied).

A "public utility" under the Constitution and the Public Service Law is
one organized "for hire or compensation" to serve the public, which is
given the right to demand its service. PETRON is not engaged in oil
refining for hire and compensation to process the oil of other parties.

Likewise, the activities considered as "public utility" under Section 7 of

R.A. No. 387 refer only to petroleum which is indigenous to the
Philippines. Hence, the refining of petroleum products sourced from
abroad as is done by Petron, is not within the contemplation of the
law.

We agree with the opinion of the Secretary of Justice that the refining
of imported crude oil is not regulated by, nor is it within the scope and
purview of the Petroleum Act of 1949. He said:
G.R. No. 113375 May 5, 1994
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO
A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T.
APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN
S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA,
and REP. JOKER P. ARROYO, petitioners,
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive
Secretary, Office of the President; RENATO CORONA, in his
capacity as Assistant Executive Secretary and Chairman of the
Presidential review Committee on the Lotto, Office of the
President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and
PHILIPPINE GAMING MANAGEMENT CORPORATION,
respondents.
Jovito R. Salonga, Fernando Santiago, Emilio C. Capulong, Jr. and
Felipe L. Gozon for petitioners.
Renato L. Cayetano and Eleazar B. Reyes for PGMC.
Gamaliel G. Bongco, Oscar Karaan and Jedideoh Sincero for
intervenors.
DAVIDE, JR., J.:
This is a special civil action for prohibition and injunction, with a prayer
for a temporary restraining order and preliminary injunction, which
seeks to prohibit and restrain the implementation of the "Contract of
Lease" executed by the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Gaming Management Corporation (PGMC)
in connection with the on- line lottery system, also known as "lotto."
Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a
non-stock domestic corporation composed of civic-spirited citizens,
pastors, priests, nuns, and lay leaders who are committed to the
cause of truth, justice, and national renewal. The rest of the
petitioners, except Senators Freddie Webb and Wigberto Taada and
Representative Joker P. Arroyo, are suing in their capacities as
members of the Board of Trustees of KILOSBAYAN and as taxpayers
and concerned citizens. Senators Webb and Taada and
Representative Arroyo are suing in their capacities as members of
Congress and as taxpayers and concerned citizens of the Philippines.
The pleadings of the parties disclose the factual antecedents which
triggered off the filing of this petition.
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as
amended by B.P. Blg. 42) which grants it the authority to hold and
conduct "charity sweepstakes races, lotteries and other similar
activities," the PCSO decided to establish an on- line lottery system
for the purpose of increasing its revenue base and diversifying its
sources of funds. Sometime before March 1993, after learning that the
PCSO was interested in operating an on-line lottery system, the
Berjaya Group Berhad, "a multinational company and one of the ten
largest public companies in Malaysia," long "engaged in, among
others, successful lottery operations in Asia, running both Lotto and
Digit games, thru its subsidiary, Sports Toto Malaysia," with its
"affiliate, the International Totalizator Systems, Inc., . . . an American
public company engaged in the international sale or provision of
computer systems, softwares, terminals, training and other technical
services to the gaming industry," "became interested to offer its
services and resources to PCSO." As an initial step, Berjaya Group
Berhad (through its individual nominees) organized with some Filipino
investors in March 1993 a Philippine corporation known as the
Philippine Gaming Management Corporation (PGMC), which "was
intended to be the medium through which the technical and
management services required for the project would be offered and
delivered to PCSO." 1
Before August 1993, the PCSO formally issued a Request for
Proposal (RFP) for the Lease Contract of an on-line lottery system for
the PCSO. 2 Relevant provisions of the RFP are the following:
1. EXECUTIVE SUMMARY
xxx xxx xxx
1.2. PCSO is seeking a suitable contractor which shall
build, at its own expense, all the facilities ('Facilities')
needed to operate and maintain a nationwide on-line
lottery system. PCSO shall lease the Facilities for a
fixed percentage ofquarterly gross receipts. All receipts
from ticket sales shall be turned over directly to PCSO.
All capital, operating expenses and expansion
expenses and risks shall be for the exclusive account
of the Lessor.
xxx xxx xxx
1.4. The lease shall be for a period not exceeding
fifteen (15) years.
1.5. The Lessor is expected to submit a comprehensive
nationwide lottery development plan ("Development
Plan") which will include the game, the marketing of the
games, and the logistics to introduce the games to all
the cities and municipalities of the country within five
(5) years.
xxx xxx xxx
1.7. The Lessor shall be selected based on its
technical expertise, hardware and software capability,
maintenance support, and financial resources. The
Development Plan shall have a substantial bearing on
the choice of the Lessor. The Lessor shall be a
domestic corporation, with at least sixty percent (60%)
of its shares owned by Filipino shareholders.
xxx xxx xxx
The Office of the President, the National Disaster
Control Coordinating Council, the Philippine National
Police, and the National Bureau of Investigation shall
be authorized to use the nationwide
telecommunications system of the Facilities Free of
Charge.
1.8. Upon expiration of the lease, the Facilities shall be
owned by PCSO without any additional consideration. 3
xxx xxx xxx
2.2. OBJECTIVES
The objectives of PCSO in leasing the Facilities from a
private entity are as follows:
xxx xxx xxx
2.2.2. Enable PCSO to operate a nationwide on-line
Lottery system at no expense or risk to the
government.
xxx xxx xxx
2.4. DUTIES AND RESPONSIBILITIES OF THE
LESSOR
xxx xxx xxx
2.4.2. THE LESSOR
The Proponent is expected to furnish and maintain the
Facilities, including the personnel needed to operate
the computers, the communications network and sales
offices under a build-lease basis. The printing of tickets
shall be undertaken under the supervision and control
of PCSO. The Facilities shall enable PCSO to
computerize the entire gaming system.
The Proponent is expected to formulate and design
consumer-oriented Master Games Plan suited to the
marketplace, especially geared to Filipino gaming
habits and preferences. In addition, the Master Games
Plan is expected to include a Product Plan for each
game and explain how each will be introduced into the
market. This will be an integral part of the Development
Plan which PCSO will require from the Proponent.
 xxx xxx xxx
The Proponent is expected to provide upgrades to
modernize the entire gaming system over the life ofthe
lease contract.
The Proponent is expected to provide technology
transfer to PCSO technical personnel. 4
7. GENERAL GUIDELINES FOR PROPONENTS
xxx xxx xxx
Finally, the Proponent must be able to stand the acid
test of proving that it is an entity able to take on the role
of responsible maintainer of the on-line lottery system,
and able to achieve PSCO's goal of formalizing an on-
line lottery system to achieve its mandated objective. 5
xxx xxx xxx
16. DEFINITION OF TERMS
Facilities: All capital equipment, computers, terminals,
software, nationwide telecommunication network, ticket
sales offices, furnishings, and fixtures; printing costs;
cost of salaries and wages; advertising and promotion
expenses; maintenance costs; expansion and
replacement costs; security and insurance, and all
other related expenses needed to operate nationwide
on-line lottery system.6
Considering the above citizenship requirement, the PGMC claims that
the Berjaya Group "undertook to reduce its equity stakes in PGMC to
40%," by selling 35% out of the original 75% foreign stockholdings to
local investors.
On 15 August 1993, PGMC submitted its bid to the PCSO.7
The bids were evaluated by the Special Pre-Qualification Bids and
Awards Committee (SPBAC) for the on-line lottery and its Bid Report
was thereafter submitted to the Office of the President. 8 The
submission was preceded by complaints by the Committee's
Chairperson, Dr. Mita Pardo de Tavera. 9
On 21 October 1993, the Office of the President announced that it had
given the respondent PGMC the go-signal to operate the country's on-
line lottery system and that the corresponding implementing contract
would be submitted not later than 8 November 1993 "for final
clearance and approval by the Chief Executive." 10 This
announcement was published in the Manila Standard, Philippine Daily
Inquirer, and the Manila Times on 29 October 1993. 11
On 4 November 1993, KILOSBAYAN sent an open letter to
Presidential Fidel V. Ramos strongly opposing the setting up to the
on-line lottery system on the basis of serious moral and ethical
considerations. 12
At the meeting of the Committee on Games and Amusements of the
Senate on 12 November 1993, KILOSBAYAN reiterated its vigorous
opposition to the on-line lottery on account of its immorality and
illegality. 13
On 19 November 1993, the media reported that despite the
opposition, "Malacaang will push through with the operation of an
on-line lottery system nationwide" and that it is actually the
respondent PCSO which will operate the lottery while the winning
corporate bidders are merely "lessors." 14
On 1 December 1993, KILOSBAYAN requested copies of all
documents pertaining to the lottery award from Executive Secretary
Teofisto Guingona, Jr. In his answer of 17 December 1993, the
Executive Secretary informed KILOSBAYAN that the requested
documents would be duly transmitted before the end of the month. 15.
However, on that same date, an agreement denominated as "Contract
of Lease" was finally executed by respondent PCSO and respondent
PGMC. 16 The President, per the press statement issued by the Office
of the President, approved it on 20 December 1993.17
In view of their materiality and relevance, we quote the following
salient provisions of the Contract of Lease:
1. DEFINITIONS
The following words and terms shall have the following
respective meanings:
1.1 Rental Fee Amount to be paid by PCSO to the
LESSOR as compensation for the fulfillment of the
obligations of the LESSOR under this Contract,
including, but not limited to the lease of the Facilities.
xxx xxx xxx
1.3 Facilities All capital equipment, computers,
terminals, software (including source codes for the On-
Line Lottery application software for the terminals,
telecommunications and central systems), technology,
intellectual property rights, telecommunications
network, and furnishings and fixtures.
1.4 Maintenance and Other Costs All costs and
expenses relating to printing, manpower, salaries and
wages, advertising and promotion, maintenance,
expansion and replacement, security and insurance,
and all other related expenses needed to operate an
On-Line Lottery System, which shall be for the account
of the LESSOR. All expenses relating to the setting-up,
operation and maintenance of ticket sales offices of
dealers and retailers shall be borne by PCSO's dealers
and retailers.
1.5 Development Plan The detailed plan of all
games, the marketing thereof, number of players, value
of winnings and the logistics required to introduce the
games, including the Master Games Plan as approved
by PCSO, attached hereto as Annex "A", modified as
necessary by the provisions of this Contract.
xxx xxx xxx
1.8 Escrow Deposit The proposal deposit in the sum
of Three Hundred Million Pesos (P300,000,000.00)
submitted by the LESSOR to PCSO pursuant to the
requirements of the Request for Proposals.
2. SUBJECT MATTER OF THE LEASE
The LESSOR shall build, furnish and maintain at its
own expense and risk the Facilities for the On-Line
Lottery System of PCSO in the Territory on an
exclusive basis. The LESSOR shall bear all
Maintenance and Other Costs as defined herein.
xxx xxx xxx
3. RENTAL FEE
For and in consideration of the performance by the
LESSOR of its obligations herein, PCSO shall pay
LESSOR a fixed Rental Fee equal to four point nine
percent (4.9%) of gross receipts from ticket sales,
payable net of taxes required by law to be withheld, on
a semi-monthly basis. Goodwill, franchise and similar
fees shall belong to PCSO.
4. LEASE PERIOD
The period of the lease shall commence ninety (90)
days from the date of effectivity of this Contract and
shall run for a period of eight (8) years thereafter,
unless sooner terminated in accordance with this
Contract.
5. RIGHTS AND OBLIGATIONS OF PCSO AS
OPERATOR OF THE ON-LINE LOTTERY SYSTEM
PCSO shall be the sole and individual operator of the
On-Line Lottery System. Consequently:
5.1 PCSO shall have sole responsibility to decide
whether to implement, fully or partially, the Master
Games Plan of the LESSOR. PCSO shall have the
sole responsibility to determine the time for introducing
new games to the market. The Master Games Plan
included in Annex "A" hereof is hereby approved by
PCSO.
5.2 PCSO shall have control over revenues and
receipts of whatever nature from the On-Line Lottery
System. After paying the Rental Fee to the LESSOR,
PCSO shall have exclusive responsibility to determine
the Revenue Allocation Plan; Provided, that the same
shall be consistent with the requirement of R.A. No.
1169, as amended, which fixes a prize fund of fifty five
percent (55%) on the average.
5.3 PCSO shall have exclusive control over the printing
of tickets, including but not limited to the design, text,
and contents thereof.
5.4 PCSO shall have sole responsibility over the
appointment of dealers or retailers throughout the
country. PCSO shall appoint the dealers and retailers
in a timely manner with due regard to the
implementation timetable of the On-Line Lottery
System. Nothing herein shall preclude the LESSOR
from recommending dealers or retailers for
appointment by PCSO, which shall act on said
recommendation within forty-eight (48) hours.
5.5 PCSO shall designate the necessary personnel to
monitor and audit the daily performance of the On-Line
Lottery System. For this purpose, PCSO designees
shall be given, free of charge, suitable and adequate
space, furniture and fixtures, in all offices of the
LESSOR, including but not limited to its headquarters,
alternate site, regional and area offices.
5.6 PCSO shall have the responsibility to resolve, and
exclusive jurisdiction over, all matters involving the
operation of the On-Line Lottery System not otherwise
provided in this Contract.
5.7 PCSO shall promulgate procedural and
coordinating rules governing all activities relating to the
On-Line Lottery System.
5.8 PCSO will be responsible for the payment of prize
monies, commissions to agents and dealers, and taxes
and levies (if any) chargeable to the operator of the
On-Line Lottery System. The LESSOR will bear all
other Maintenance and Other Costs, except as
provided in Section 1.4.
5.9 PCSO shall assist the LESSOR in the following:
5.9.1 Work permits for the LESSOR's
staff;
5.9.2 Approvals for importation of the
Facilities;
5.9.3 Approvals and consents for the
On-Line Lottery System; and
5.9.4 Business and premises licenses
for all offices of the LESSOR and
licenses for the telecommunications
network.
5.10 In the event that PCSO shall pre-terminate this
Contract or suspend the operation of the On-Line
Lottery System, in breach of this Contract and through
no fault of the LESSOR, PCSO shall promptly, and in
any event not later than sixty (60) days, reimburse the
LESSOR the amount of its total investment cost
associated with the On-Line Lottery System, including
but not limited to the cost of the Facilities, and further
compensate the LESSOR for loss of expected net
profit after tax, computed over the unexpired term of
the lease.
6. DUTIES AND RESPONSIBILITIES OF THE
LESSOR
The LESSOR is one of not more than three (3) lessors
of similar facilities for the nationwide On-Line Lottery
System of PCSO. It is understood that the rights of the
LESSOR are primarily those of a lessor of the
Facilities, and consequently, all rights involving the
business aspects of the use of the Facilities are within
the jurisdiction of PCSO. During the term of the lease,
the LESSOR shall.
6.1 Maintain and preserve its corporate existence,
rights and privileges, and conduct its business in an
orderly, efficient, and customary manner.
6.2 Maintain insurance coverage with insurers
acceptable to PCSO on all Facilities.
6.3 Comply with all laws, statues, rules and
regulations, orders and directives, obligations and
duties by which it is legally bound.
6.4 Duly pay and discharge all taxes, assessments and
government charges now and hereafter imposed of
whatever nature that may be legally levied upon it.
6.5 Keep all the Facilities in fail safe condition and, if
necessary, upgrade, replace and improve the Facilities
from time to time as new technology develops, in order
to make the On-Line Lottery System more cost-
effective and/or competitive, and as may be required
by PCSO shall not impose such requirements
unreasonably nor arbitrarily.
6.6 Provide PCSO with management terminals which
will allow real-time monitoring of the On-Line Lottery
System.
6.7 Upon effectivity of this Contract, commence the
training of PCSO and other local personnel and the
transfer of technology and expertise, such that at the
end of the term of this Contract, PCSO will be able to
effectively take-over the Facilities and efficiently
operate the On-Line Lottery System.
6.8 Undertake a positive advertising and promotions
campaign for both institutional and product lines
without engaging in negative advertising against other
lessors.
6.9 Bear all expenses and risks relating to the Facilities
including, but not limited to, Maintenance and Other
Costs and:
xxx xxx xxx
6.10 Bear all risks if the revenues from ticket sales, on
an annualized basis, are insufficient to pay the entire
prize money.
6.11 Be, and is hereby, authorized to collect and retain
for its own account, a security deposit from dealers and
retailers, in an amount determined with the approval of
PCSO, in respect of equipment supplied by the
LESSOR. PCSO's approval shall not be unreasonably
withheld.
xxx xxx xxx
6.12 Comply with procedural and coordinating rules
issued by PCSO.
7. REPRESENTATIONS AND WARRANTIES
The LESSOR represents and warrants that:
7.1 The LESSOR is corporation duly organized and
existing under the laws of the Republic of the
Philippines, at least sixty percent (60%) of the
outstanding capital stock of which is owned by Filipino
shareholders. The minimum required Filipino equity
participation shall not be impaired through voluntary or
involuntary transfer, disposition, or sale of shares of
stock by the present stockholders.
7.2 The LESSOR and its Affiliates have the full
corporate and legal power and authority to own and
operate their properties and to carry on their business
in the place where such properties are now or may be
conducted. . . .
7.3 The LESSOR has or has access to all the financing
and funding requirements to promptly and effectively
carry out the terms of this Contract. . . .
7.4 The LESSOR has or has access to all the
managerial and technical expertise to promptly and
effectively carry out the terms of this Contract. . . .
xxx xxx xxx
10. TELECOMMUNICATIONS NETWORK
The LESSOR shall establish a telecommunications
network that will connect all municipalities and cities in
the Territory in accordance with, at the LESSOR's
option, either of the LESSOR's proposals (or a
combinations of both such proposals) attached hereto
as Annex "B," and under the following PCSO schedule:
xxx xxx xxx
PCSO may, at its option, require the LESSOR to
establish the telecommunications network in
accordance with the above Timetable in provinces
where the LESSOR has not yet installed terminals.
Provided, that such provinces have existing nodes.
Once a municipality or city is serviced by land lines of a
licensed public telephone company, and such lines are
connected to Metro Manila, then the obligation of the
LESSOR to connect such municipality or city through a
telecommunications network shall cease with respect
to such municipality or city. The voice facility will cover
the four offices of the Office of the President, National
Disaster Control Coordinating Council, Philippine
National Police and the National Bureau of
Investigation, and each city and municipality in the
Territory except Metro Manila, and those cities and
municipalities which have easy telephone access from
these four offices. Voice calls from the four offices shall
be transmitted via radio or VSAT to the remote
municipalities which will be connected to this voice
facility through wired network or by radio. The facility
shall be designed to handle four private conversations
at any one time.
xxx xxx xxx
13. STOCK DISPERSAL PLAN
Within two (2) years from the effectivity of this Contract,
the LESSOR shall cause itself to be listed in the local
stock exchange and offer at least twenty five percent
(25%) of its equity to the public.
14. NON-COMPETITION
The LESSOR shall not, directly or indirectly, undertake
any activity or business in competition with or adverse
to the On-Line Lottery System of PCSO unless it
obtains the latter's prior written consent thereto.
15. HOLD HARMLESS CLAUSE
15.1 The LESSOR shall at all times protect and
defend, at its cost and expense, PCSO from and
against any and all liabilities and claims for damages
and/or suits for or by reason of any deaths of, or any
injury or injuries to any person or persons, or damages
to property of any kind whatsoever, caused by the
LESSOR, its subcontractors, its authorized agents or
employees, from any cause or causes whatsoever.
15.2 The LESSOR hereby covenants and agrees to
indemnify and hold PCSO harmless from all liabilities,
charges, expenses (including reasonable counsel fees)
and costs on account of or by reason of any such
death or deaths, injury or injuries, liabilities, claims,
suits or losses caused by the LESSOR's fault or
negligence.
15.3 The LESSOR shall at all times protect and
defend, at its own cost and expense, its title to the
facilities and PCSO's interest therein from and against
any and all claims for the duration of the Contract until
transfer to PCSO of ownership of the serviceable
Facilities.
16. SECURITY
16.1 To ensure faithful compliance by the LESSOR
with the terms of the Contract, the LESSOR shall
secure a Performance Bond from a reputable
insurance company or companies acceptable to
PCSO.
16.2 The Performance Bond shall be in the initial
amount of Three Hundred Million Pesos
(P300,000,000.00), to its U.S. dollar equivalent, and
shall be renewed to cover the duration of the Contract.
However, the Performance Bond shall be reduced
proportionately to the percentage of unencumbered
terminals installed; Provided, that the Performance
Bond shall in no case be less than One Hundred Fifty
Million Pesos (P150,000,000.00).
16.3 The LESSOR may at its option maintain its
Escrow Deposit as the Performance Bond. . . .
17. PENALTIES
17.1 Except as may be provided in Section 17.2,
should the LESSOR fail to take remedial measures
within seven (7) days, and rectify the breach within
thirty (30) days, from written notice by PCSO of any
wilfull or grossly negligent violation of the material
terms and conditions of this Contract, all
unencumbered Facilities shall automatically become
the property of PCSO without consideration and
without need for further notice or demand by PCSO.
The Performance Bond shall likewise be forfeited in
favor of PCSO.
17.2 Should the LESSOR fail to comply with the terms
of the Timetables provided in Section 9 and 10, it shall
be subject to an initial Penalty of Twenty Thousand
Pesos (P20,000.00), per city or municipality per every
month of delay; Provided, that the Penalty shall
increase, every ninety (90) days, by the amount of
Twenty Thousand Pesos (P20,000.00) per city or
municipality per month, whilst shall failure to comply
persists. The penalty shall be deducted by PCSO from
the rental fee.
xxx xxx xxx
20. OWNERSHIP OF THE FACILITIES
After expiration of the term of the lease as provided in
Section 4, the Facilities directly required for the On-
Line Lottery System mentioned in Section 1.3 shall
automatically belong in full ownership to PCSO without
any further consideration other than the Rental Fees
already paid during the effectivity of the lease.
21. TERMINATION OF THE LEASE
PCSO may terminate this Contract for any breach of
the material provisions of this Contract, including the
following:
21.1 The LESSOR is insolvent or bankrupt or unable to
pay its debts, stops or suspends or threatens to stop or
suspend payment of all or a material part of its debts,
or proposes or makes a general assignment or an
 arrangement or compositions with or for the benefit of ABUSE[D] THEIR DISCRETION
its creditors; or AND/OR FUNCTIONS TANTAMOUNT
TO LACK OF JURISDICTION AND/OR
21.2 An order is made or an effective resolution passed AUTHORITY IN RESPECTIVELY: (A)
for the winding up or dissolution of the LESSOR or APPROVING THE AWARD OF THE
when it ceases or threatens to cease to carry on all or CONTRACT TO, AND (B) ENTERING
a material part of its operations or business; or INTO THE SO-CALLED "CONTRACT
OF LEASE" WITH, RESPONDENT
21.3 Any material statement, representation or PGMC FOR THE INSTALLATION,
warranty made or furnished by the LESSOR proved to ESTABLISHMENT AND OPERATION
be materially false or misleading; OF THE ON-LINE LOTTERY AND
TELECOMMUNICATION SYSTEMS
said termination to take effect upon REQUIRED AND/OR AUTHORIZED
receipt of written notice of termination by UNDER THE SAID CONTRACT,
the LESSOR and failure to take CONSIDERING THAT:
remedial action within seven (7) days
and cure or remedy the same within a) Under Section 1 of the Charter of the PCSO, the
thirty (30) days from notice. PCSO is prohibited from holding and conducting
lotteries "in collaboration, association or joint venture
Any suspension, cancellation or with any person, association, company or entity";
termination of this Contract shall not
relieve the LESSOR of any liability that b) Under Act No. 3846 and established jurisprudence,
may have already accrued hereunder. a Congressional franchise is required before any
person may be allowed to establish and operate said
xxx xxx xxx telecommunications system;

Considering the denial by the Office of the President of its protest and c) Under Section 11, Article XII of the Constitution, a
the statement of Assistant Executive Secretary Renato Corona that less than 60% Filipino-owned and/or controlled
"only a court injunction can stop Malacaang," and the imminent corporation, like the PGMC, is disqualified from
implementation of the Contract of Lease in February 1994, operating a public service, like the said
KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this telecommunications system; and
petition.
d) Respondent PGMC is not authorized by its charter
In support of the petition, the petitioners claim that: and under the Foreign Investment Act (R.A. No. 7042)
to install, establish and operate the on-line lotto and
. . . X X THE OFFICE OF THE telecommunications systems.18
PRESIDENT, ACTING THROUGH
RESPONDENTS EXECUTIVE Petitioners submit that the PCSO cannot validly enter into the assailed
SECRETARY AND/OR ASSISTANT Contract of Lease with the PGMC because it is an arrangement
EXECUTIVE SECRETARY FOR LEGAL wherein the PCSO would hold and conduct the on-line lottery system
AFFAIRS, AND THE PCSO GRAVELY in "collaboration" or "association" with the PGMC, in violation of
Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting charity sweepstakes
races, lotteries, and other similar activities "in collaboration,
association or joint venture with any person, association, company or
entity, foreign or domestic." Even granting arguendo that a lease of
facilities is not within the contemplation of "collaboration" or
"association," an analysis, however, of the Contract of Lease clearly
shows that there is a "collaboration, association, or joint venture
between respondents PCSO and PGMC in the holding of the On-Line
Lottery System," and that there are terms and conditions of the
Contract "showing that respondent PGMC is the actual lotto operator
and not respondent PCSO."19
The petitioners also point out that paragraph 10 of the Contract of
Lease requires or authorizes PGMC to establish a
telecommunications network that will connect all the municipalities
and cities in the territory. However, PGMC cannot do that because it
has no franchise from Congress to construct, install, establish, or
operate the network pursuant to Section 1 of Act No. 3846, as
amended. Moreover, PGMC is a 75% foreign-owned or controlled
corporation and cannot, therefore, be granted a franchise for that
purpose because of Section 11, Article XII of the 1987 Constitution.
Furthermore, since "the subscribed foreign capital" of the PGMC
"comes to about 75%, as shown by paragraph EIGHT of its Articles of
Incorporation," it cannot lawfully enter into the contract in question
because all forms of gambling and lottery is one of them are
included in the so-called foreign investments negative list under the
Foreign Investments Act (R.A. No. 7042) where only up to 40%
foreign capital is allowed. 20
Finally, the petitioners insist that the Articles of Incorporation of PGMC
do not authorize it to establish and operate an on-line lottery and
telecommunications systems.21
Accordingly, the petitioners pray that we issue a temporary restraining
order and a writ of preliminary injunction commanding the
respondents or any person acting in their places or upon their
instructions to cease and desist from implementing the challenged
Contract of Lease and, after hearing the merits of the petition, that we
render judgment declaring the Contract of Lease void and without
effect and making the injunction permanent. 22
We required the respondents to comment on the petition.
In its Comment filed on 1 March 1994, private respondent PGMC
asserts that "(1) [it] is merely an independent contractor for a piece of
work, (i.e., the building and maintenance of a lottery system to be
used by PCSO in the operation of its lottery franchise); and (2) as
such independent contractor, PGMC is not a co-operator of the lottery
franchise with PCSO, nor is PCSO sharing its franchise, 'in
collaboration, association or joint venture' with PGMC as such
statutory limitation is viewed from the context, intent, and spirit of
Republic Act 1169, as amended by Batas Pambansa 42." It further
claims that as an independent contractor for a piece of work, it is
neither engaged in "gambling" nor in "public service" relative to the
telecommunications network, which the petitioners even consider as
an "indispensable requirement" of an on-line lottery system. Finally, it
states that the execution and implementation of the contract does not
violate the Constitution and the laws; that the issue on the "morality"
of the lottery franchise granted to the PCSO is political and not judicial
or legal, which should be ventilated in another forum; and that the
"petitioners do not appear to have the legal standing or real interest in
the subject contract and in obtaining the reliefs sought." 23
In their Comment filed by the Office of the Solicitor General, public
respondents Executive Secretary Teofisto Guingona, Jr., Assistant
Executive Secretary Renato Corona, and the PCSO maintain that the
contract of lease in question does not violate Section 1 of R.A. No.
1169, as amended by B.P. Blg. 42, and that the petitioner's
interpretation of the phrase "in collaboration, association or joint
venture" in Section 1 is "much too narrow, strained and utterly devoid
of logic" for it "ignores the reality that PCSO, as a corporate entity, is
vested with the basic and essential prerogative to enter into all kinds
of transactions or contracts as may be necessary for the attainment of
its purposes and objectives." What the PCSO charter "seeks to
prohibit is that arrangement akin to a "joint venture" or partnership
where there is "community of interest in the business, sharing of
profits and losses, and a mutual right of control," a characteristic
which does not obtain in a contract of lease." With respect to the
challenged Contract of Lease, the "role of PGMC is limited to that of a
lessor of the facilities" for the on-line lottery system; in "strict technical
and legal sense," said contract "can be categorized as a contract for a
piece of work as defined in Articles 1467, 1713 and 1644 of the Civil
Code."
They further claim that the establishment of the telecommunications
system stipulated in the Contract of Lease does not require a
congressional franchise because PGMC will not operate a public
utility; moreover, PGMC's "establishment of a telecommunications
system is not intended to establish a telecommunications business,"
and it has been held that where the facilities are operated "not for
business purposes but for its own use," a legislative franchise is not
required before a certificate of public convenience can be
granted. 24 Even granting arguendo that PGMC is a public utility,
pursuant to Albano S.
Reyes, 25 "it can establish a telecommunications system even without
a legislative franchise because not every public utility is required to
secure a legislative franchise before it could establish, maintain, and
operate the service"; and, in any case, "PGMC's establishment of the
telecommunications system stipulated in its contract of lease with
PCSO falls within the exceptions under Section 1 of Act No. 3846
where a legislative franchise is not necessary for the establishment of
radio stations."
They also argue that the contract does not violate the Foreign
Investment Act of 1991; that the Articles of Incorporation of PGMC
authorize it to enter into the Contract of Lease; and that the issues of
"wisdom, morality and propriety of acts of the executive department
are beyond the ambit of judicial review."
Finally, the public respondents allege that the petitioners have no
standing to maintain the instant suit, citing our resolution in Valmonte
vs. Philippine Charity Sweepstakes Office. 26
Several parties filed motions to intervene as petitioners in this
case, 27 but only the motion of Senators Alberto Romulo, Arturo
Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto
III, John Osmea, Ramon Revilla, and Jose Lina 28 was granted, and
the respondents were required to comment on their petition in
intervention, which the public respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and
Exchange Commission on 29 March 1994 a petition against PGMC
for the nullification of the latter's General Information Sheets. That
case, however, has no bearing in this petition.
On 11 April 1994, we heard the parties in oral arguments. Thereafter,
we resolved to consider the matter submitted for resolution and
pending resolution of the major issues in this case, to issue a
temporary restraining order commanding the respondents or any
person acting in their place or upon their instructions to cease and
desist from implementing the challenged Contract of Lease.
In the deliberation on this case on 26 April 1994, we resolved to
consider only these issues: (a) the locus standi of the petitioners, and
(b) the legality and validity of the Contract of Lease in the light of
Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting lotteries "in
collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign." On the
first issue, seven Justices voted to sustain the locus standi of the
petitioners, while six voted not to. On the second issue, the seven
Justices were of the opinion that the Contract of Lease violates the
exception to Section 1(B) of R.A. No. 1169, as amended by B.P. Blg.
42, and is, therefore, invalid and contrary to law. The six Justices
stated that they wished to express no opinion thereon in view of their
stand on the first issue. The Chief Justice took no part because one of
the Directors of the PCSO is his brother-in-law.
This case was then assigned to this ponente for the writing of the
opinion of the Court.
The preliminary issue on the locus standi of the petitioners should,
indeed, be resolved in their favor. A party's standing before this Court
is a procedural technicality which it may, in the exercise of its
discretion, set aside in view of the importance of the issues raised. In
the landmark Emergency Powers Cases, 29 this Court brushed aside
this technicality because "the transcendental importance to the public
of these cases demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure. (Avelino vs.
Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are concerned,
this Court had declared that it "is not devoid of discretion as to
whether or not it should be entertained," 30 or that it "enjoys an open
discretion to entertain the same or not." 31 In De La Llana vs.
Alba, 32 this Court declared:
1. The argument as to the lack of standing of
petitioners is easily resolved. As far as Judge de la
Llana is concerned, he certainly falls within the
principle set forth in Justice Laurel's opinion in People
vs. Vera [65 Phil. 56 (1937)]. Thus: "The unchallenged
rule is that the person who impugns the validity of a
statute must have a personal and substantial interest in
the case such that he has sustained, or will sustain,
direct injury as a result of its enforcement [Ibid, 89].
The other petitioners as members of the bar and
officers of the court cannot be considered as devoid of
"any personal and substantial interest" on the matter.
There is relevance to this excerpt from a separate
opinion in Aquino, Jr. v. Commission on Elections [L-
40004, January 31, 1975, 62 SCRA 275]: "Then there
is the attack on the standing of petitioners, as
vindicating at most what they consider a public right
and not protecting their rights as individuals. This is to
conjure the specter of the public right dogma as an
inhibition to parties intent on keeping public officials
staying on the path of constitutionalism. As was so well
put by Jaffe; "The protection of private rights is an
essential constituent of public interest and, conversely,
without a well-ordered state there could be no
enforcement of private rights. Private and public
interests are, both in a substantive and procedural
sense, aspects of the totality of the legal order."
Moreover, petitioners have convincingly shown that in
their capacity as taxpayers, their standing to sue has
been amply demonstrated. There would be a retreat
from the liberal approach followed in Pascual v.
Secretary of Public Works, foreshadowed by the very
decision of People v. Vera where the doctrine was first
fully discussed, if we act differently now. I do not think
we are prepared to take that step. Respondents,
however, would hard back to the American Supreme
Court doctrine in Mellon v. Frothingham, with their
claim that what petitioners possess "is an interest
which is shared in common by other people and is
comparatively so minute and indeterminate as to afford
any basis and assurance that the judicial process can
act on it." That is to speak in the language of a bygone
era, even in the United States. For as Chief Justice
Warren clearly pointed out in the later case of Flast v.
Cohen, the barrier thus set up if not breached has
definitely been lowered.
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan,33 reiterated in Basco vs. Philippine Amusements and Gaming
Corporation,34 this Court stated:
Objections to taxpayers' suits for lack of sufficient
personality standing or interest are, however, in the
main procedural matters. Considering the importance
to the public of the cases at bar, and in keeping with
the Court's duty, under the 1987 Constitution, to
determine whether or not the other branches of
government have kept themselves within the limits of
the Constitution and the laws and that they have not
abused the discretion given to them, this Court has
brushed aside technicalities of procedure and has
taken cognizance of these petitions.
and in Association of Small Landowners in the Philippines, Inc. vs.
Secretary of Agrarian Reform,35 it declared:
With particular regard to the requirement of proper
party as applied in the cases before us, we hold that
the same is satisfied by the petitioners and intervenors
because each of them has sustained or is in danger of
sustaining an immediate injury as a result of the acts or
measures complained of. [Ex ParteLevitt, 303 US
633]. And even if, strictly speaking, they are not
covered by the definition, it is still within the wide
discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving
the serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens
and taxpayers were allowed to question the
constitutionality of several executive orders issued by
President Quirino although they were invoking only an
indirect and general interest shared in common with
the public. The Court dismissed the objective that they
were not proper parties and ruled that the
transcendental importance to the public of these cases
 demands that they be settled promptly and definitely,
brushing aside, if we must, technicalities of procedure.
We have since then applied this exception in many
other cases. (Emphasis supplied)
In Daza vs. Singson, 36 this Court once more said:
. . . For another, we have early as in the Emergency
Powers Cases that where serious constitutional
questions are involved, "the transcendental importance
to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we
must, technicalities of procedure." The same policy has
since then been consistently followed by the Court, as
in Gonzales vs. Commission on Elections [21 SCRA
774] . . .
The Federal Supreme Court of the United States of America has also
expressed its discretionary power to liberalize the rule on locus standi.
In United States vs. Federal Power Commission and Virginia Rea
Association vs. Federal Power Commission,37 it held:
We hold that petitioners have standing. Differences of
view, however, preclude a single opinion of the Court
as to both petitioners. It would not further clarification of
this complicated specialty of federal jurisdiction, the
solution of whose problems is in any event more or
less determined by the specific circumstances of
individual situations, to set out the divergent grounds in
support of standing in these cases.
In line with the liberal policy of this Court on locus standi, ordinary
taxpayers, members of Congress, and even association of planters,
and non-profit civic organizations were allowed to initiate and
prosecute actions before this Court to question the constitutionality or
validity of laws, acts, decisions, rulings, or orders of various
government agencies or instrumentalities. Among such cases were
those assailing the constitutionality of (a) R.A. No. 3836 insofar as it
allows retirement gratuity and commutation of vacation and sick leave
to Senators and Representatives and to elective officials of both
Houses of Congress;38 (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed
members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions; 39 (c) the
automatic appropriation for debt service in the General Appropriations
Act; 40 (d) R.A. No. 7056 on the holding of desynchronized
elections; 41 (d) R.A. No. 1869 (the charter of the Philippine
Amusement and Gaming Corporation) on the ground that it is contrary
to morals, public policy, and order; 42 and (f) R.A. No. 6975,
establishing the Philippine National
Police. 43
Other cases where we have followed a liberal policy regarding locus
standi include those attacking the validity or legality of (a) an order
allowing the importation of rice in the light of the prohibition imposed
by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as they
proposed amendments to the Constitution and P.D. No. 1031 insofar
as it directed the COMELEC to supervise, control, hold, and conduct
the referendum-plebiscite on 16 October 1976; 45(c) the bidding for
the sale of the 3,179 square meters of land at Roppongi, Minato-ku,
Tokyo, Japan; 46 (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical
Corporation to transfer the site of its plant from Bataan to Batangas
and the validity of such transfer and the shift of feedstock from
naphtha only to naphtha and/or liquefied petroleum gas; 47 (e) the
decisions, orders, rulings, and resolutions of the Executive Secretary,
Secretary of Finance, Commissioner of Internal Revenue,
Commissioner of Customs, and the Fiscal Incentives Review Board
exempting the National Power Corporation from indirect tax and
duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6
December 1990 on the ground that the hearings conducted on the
second provisional increase in oil prices did not allow the petitioner
substantial cross-examination; 49 (g) Executive Order No. 478 which
levied a special duty of P0.95 per liter or P151.05 per barrel of
imported crude oil and P1.00 per liter of imported oil products; 50 (h)
resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members
of Sanggunians; 51 and (i) memorandum orders issued by a Mayor
affecting the Chief of Police of Pasay City.52
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court,
despite its unequivocal ruling that the petitioners therein had no
personality to file the petition, resolved nevertheless to pass upon the
issues raised because of the far-reaching implications of the petition.
We did no less in De Guia vs. COMELEC 54 where, although we
declared that De Guia "does not appear to have locus standi, a
standing in law, a personal or substantial interest," we brushed aside
the procedural infirmity "considering the importance of the issue
involved, concerning as it does the political exercise of qualified voters
affected by the apportionment, and petitioner alleging abuse of
discretion and violation of the Constitution by respondent."
We find the instant petition to be of transcendental importance to the
public. The issues it raised are of paramount public interest and of a
category even higher than those involved in many of the aforecited
cases. The ramifications of such issues immeasurably affect the
social, economic, and moral well-being of the people even in the
remotest barangays of the country and the counter-productive and
retrogressive effects of the envisioned on-line lottery system are as
staggering as the billions in pesos it is expected to raise. The legal
standing then of the petitioners deserves recognition and, in the
exercise of its sound discretion, this Court hereby brushes aside the
procedural barrier which the respondents tried to take advantage of.
And now on the substantive issue.
Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the
PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or
entity, whether domestic or foreign." Section 1 provides:
Sec. 1. The Philippine Charity Sweepstakes Office.
The Philippine Charity Sweepstakes Office, hereinafter
designated the Office, shall be the principal
government agency for raising and providing for funds
for health programs, medical assistance and services
and charities of national character, and as such shall
have the general powers conferred in section thirteen
of Act Numbered One thousand four hundred fifty-nine,
as amended, and shall have the authority:
A. To hold and conduct charity
sweepstakes races, lotteries and other
similar activities, in such frequency and
manner, as shall be determined, and
subject to such rules and regulations as
shall be promulgated by the Board of
Directors.
B. Subject to the approval of the
Minister of Human Settlements, to
engage in health and welfare-related
investments, programs, projects and
activities which may be profit-
oriented, by itself or in collaboration,
association or joint venture with any
person, association, company or entity,
whether domestic or foreign, except for
the activities mentioned in the preceding
paragraph (A), for the purpose of
providing for permanent and continuing
sources of funds for health programs,
including the expansion of existing ones,
medical assistance and services, and/or
charitable grants: Provided, That such
investment will not compete with the
private sector in areas where
investments are adequate as may be
determined by the National Economic
and Development Authority. (emphasis
supplied)
The language of the section is indisputably clear that with respect to
its franchise or privilege "to hold and conduct charity sweepstakes
races, lotteries and other similar activities," the PCSO cannot exercise
it "in collaboration, association or joint venture" with any other party.
This is the unequivocal meaning and import of the phrase "except for
the activities mentioned in the preceding paragraph (A)," namely,
"charity sweepstakes races, lotteries and other similar activities."
B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was
covered by Committee Report No. 103 as reported out by the
Committee on Socio-Economic Planning and Development of the
Interim Batasang Pambansa. The original text of paragraph B, Section
1 of Parliamentary Bill No. 622 reads as follows:
To engage in any and all investments and related
profit-oriented projects or programs and activities by
 itself or in collaboration, association or joint venture be to insert after "foreign"
with any person, association, company or entity, in the amendment just
whether domestic or foreign, for the main purpose of read the following:
raising funds for health and medical assistance and EXCEPT FOR THE
services and charitable grants. 55 ACTIVITY IN LETTER
(A) ABOVE.
During the period of committee amendments, the Committee on
Socio-Economic Planning and Development, through Assemblyman When it is joint venture or
Ronaldo B. Zamora, introduced an amendment by substitution to the in collaboration with any
said paragraph B such that, as amended, it should read as follows: entity such collaboration
or joint venture must not
Subject to the approval of the Minister of Human include activity activity
Settlements, to engage in health-oriented investments, letter (a) which is the
programs, projects and activities which may be profit- holding and conducting of
oriented, by itself or in collaboration, association, or sweepstakes races,
joint venture with any person, association, company or lotteries and other similar
entity, whether domestic or foreign, for the purpose of acts.
providing for permanent and continuing sources of
funds for health programs, including the expansion of MR. ZAMORA.
existing ones, medical assistance and services and/or
charitable grants. 56 We accept the amendment, Mr.
Speaker.
Before the motion of Assemblyman Zamora for the approval of the
amendment could be acted upon, Assemblyman Davide introduced MR. DAVIDE.
an amendment to the amendment:
Thank you, Mr. Speaker.
MR. DAVIDE.
THE SPEAKER.
Mr. Speaker.
Is there any objection to
THE SPEAKER. the amendment?
(Silence) The
The gentleman from Cebu is amendment, as
recognized. amended, is approved. 57

MR. DAVIDE. Further amendments to paragraph B were introduced and approved.

When Assemblyman Zamora read the final text of paragraph B as
May I introduce an further amended, the earlier approved amendment of Assemblyman
amendment to the Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN
committee amendment? PARAGRAPH (A)"; and by virtue of the amendment introduced by
The amendment would Assemblyman Emmanuel Pelaez, the word PRECEDING was
inserted before PARAGRAPH. Assemblyman Pelaez introduced other
amendments. Thereafter, the new paragraph B was approved. 58
This is now paragraph B, Section 1 of R.A. No. 1169, as amended by
B.P. Blg. 42.
No interpretation of the said provision to relax or circumvent the
prohibition can be allowed since the privilege to hold or conduct
charity sweepstakes races, lotteries, or other similar activities is a
franchise granted by the legislature to the PCSO. It is a settled rule
that "in all grants by the government to individuals or corporations of
rights, privileges and franchises, the words are to be taken most
strongly against the grantee .... [o]ne who claims a franchise or
privilege in derogation of the common rights of the public must prove
his title thereto by a grant which is clearly and definitely expressed,
and he cannot enlarge it by equivocal or doubtful provisions or by
probable inferences. Whatever is not unequivocally granted is
withheld. Nothing passes by mere implication." 59
In short then, by the exception explicitly made in paragraph B, Section
1 of its charter, the PCSO cannot share its franchise with another by
way of collaboration, association or joint venture. Neither can it
assign, transfer, or lease such franchise. It has been said that "the
rights and privileges conferred under a franchise may, without doubt,
be assigned or transferred when the grant is to the grantee and
assigns, or is authorized by statute. On the other hand, the right of
transfer or assignment may be restricted by statute or the constitution,
or be made subject to the approval of the grantor or a governmental
agency, such as a public utilities commission, exception that an
existing right of assignment cannot be impaired by subsequent
legislation." 60
It may also be pointed out that the franchise granted to the PCSO to
hold and conduct lotteries allows it to hold and conduct a species of
gambling. It is settled that "a statute which authorizes the carrying on
of a gambling activity or business should be strictly construed and
every reasonable doubt so resolved as to limit the powers and rights
claimed under its authority." 61
Does the challenged Contract of Lease violate or contravene the
exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO from holding and conducting lotteries "in
collaboration, association or joint venture with" another?
We agree with the petitioners that it does, notwithstanding its
denomination or designation as a (Contract of Lease). We are neither
convinced nor moved or fazed by the insistence and forceful
arguments of the PGMC that it does not because in reality it is only an
independent contractor for a piece of work, i.e., the building and
maintenance of a lottery system to be used by the PCSO in the
operation of its lottery franchise. Whether the contract in question is
one of lease or whether the PGMC is merely an independent
contractor should not be decided on the basis of the title or
designation of the contract but by the intent of the parties, which may
be gathered from the provisions of the contract itself. Animus hominis
est anima scripti. The intention of the party is the soul of the
instrument. In order to give life or effect to an instrument, it is essential
to look to the intention of the individual who executed it. 62 And,
pursuant to Article 1371 of the Civil Code, "to determine the intention
of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered." To put it more bluntly, no one
should be deceived by the title or designation of a contract.
A careful analysis and evaluation of the provisions of the contract and
a consideration of the contemporaneous acts of the PCSO and PGMC
indubitably disclose that the contract is not in reality a contract of
lease under which the PGMC is merely an independent contractor for
a piece of work, but one where the statutorily
proscribed collaboration or association, in the least, or joint venture, at
the most, exists between the contracting parties. Collaboration is
defined as the acts of working together in a joint
project. 63 Association means the act of a number of persons in uniting
together for some special purpose or business. 64 Joint venture is
defined as an association of persons or companies jointly undertaking
some commercial enterprise; generally all contribute assets and share
risks. It requires a community of interest in the performance of the
subject matter, a right to direct and govern the policy in connection
therewith, and duty, which may be altered by agreement to share both
in profit and
losses.65
The contemporaneous acts of the PCSO and the PGMC reveal that
the PCSO had neither funds of its own nor the expertise to operate
and manage an on-line lottery system, and that although it wished to
have the system, it would have it "at no expense or risks to the
government." Because of these serious constraints and unwillingness
to bear expenses and assume risks, the PCSO was candid enough to
state in its RFP that it is seeking for "a suitable contractor which shall
build, at its own expense, all the facilities needed to operate and
maintain" the system; exclusively bear "all capital, operating expenses
and expansion expenses and risks"; and submit "a comprehensive
nationwide lottery development plan . . . which will include the game,
the marketing of the games, and the logistics to introduce the game to
all the cities and municipalities of the country within five (5) years";
and that the operation of the on-line lottery system should be "at no
expense or risk to the government" meaning itself, since it is a
government-owned and controlled agency. The facilities referred to
means "all capital equipment, computers, terminals, software,
nationwide telecommunications network, ticket sales offices,
furnishings and fixtures, printing costs, costs of salaries and wages,
advertising and promotions expenses, maintenance costs, expansion
and replacement costs, security and insurance, and all other related
expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or
authority to operate the on-line lottery system; with the rest, including
the risks of the business, being borne by the proponent or bidder. It
could be for this reason that it warned that "the proponent must be
able to stand to the acid test of proving that it is an entity able to
take on the role of responsible maintainer of the on-line lottery
system." The PCSO, however, makes it clear in its RFP that the
proponent can propose a period of the contract which shall not
exceed fifteen years, during which time it is assured of a "rental"
which shall not exceed 12% of gross receipts. As admitted by the
PGMC, upon learning of the PCSO's decision, the Berjaya Group
Berhad, with its affiliates, wanted to offer its services and resources to
the PCSO. Forthwith, it organized the PGMC as "a medium through
which the technical and management services required for the project
would be offered and delivered to PCSO." 66
Undoubtedly, then, the Berjaya Group Berhad knew all along that in
connection with an on-line lottery system, the PCSO had nothing but
its franchise, which it solemnly guaranteed it had in the General
Information of the RFP. 67Howsoever viewed then, from the very
inception, the PCSO and the PGMC mutually understood that any
arrangement between them would necessarily leave to the PGMC
the technical, operations, and managementaspects of the on-line
lottery system while the PCSO would, primarily, provide the franchise.
The words Gaming andManagement in the corporate name of
respondent Philippine Gaming Management Corporation could not
have been conceived just for euphemistic purposes. Of course, the
RFP cannot substitute for the Contract of Lease which was
subsequently executed by the PCSO and the PGMC. Nevertheless,
the Contract of Lease incorporates their intention and understanding.
The so-called Contract of Lease is not, therefore, what it purports to
be. Its denomination as such is a crafty device, carefully conceived, to
provide a built-in defense in the event that the agreement is
questioned as violative of the exception in Section 1 (B) of the
PCSO's charter. The acuity or skill of its draftsmen to accomplish that
purpose easily manifests itself in the Contract of Lease. It is
outstanding for its careful and meticulous drafting designed to give an
immediate impression that it is a contract of lease. Yet, woven therein
are provisions which negate its title and betray the true intention of the
parties to be in or to have a joint venture for a period of eight years in
the operation and maintenance of the on-line lottery system.
Consistent with the above observations on the RFP, the PCSO has
only its franchise to offer, while the PGMC represents and warrants
that it has access to all managerial and technical expertise to promptly
and effectively carry out the terms of the contract. And, for a period of
eight years, the PGMC is under obligation to keep all the Facilitiesin
safe condition and if necessary, upgrade, replace, and improve them
from time to time as new technology develops to make the on-line
lottery system more cost-effective and competitive; exclusively bear
all costs and expenses relating to the printing, manpower, salaries
and wages, advertising and promotion, maintenance, expansion and
replacement, security and insurance, and all other related expenses
needed to operate the on-line lottery system; undertake a positive
advertising and promotions campaign for both institutional and
product lines without engaging in negative advertising against other
lessors; bear the salaries and related costs of skilled and qualified
personnel for administrative and technical operations; comply
with procedural and coordinating rulesissued by the PCSO; and to
train PCSO and other local personnel and to effect the transfer of
technology and other expertise, such that at the end of the term of the
contract, the PCSO will be able to effectively take over the Facilities
and efficiently operate the on-line lottery system. The latter simply
means that, indeed, the managers, technicians or employees who
shall operate the on-line lottery system are not managers, technicians
or employees of the PCSO, but of the PGMC and that it is only after
the expiration of the contract that the PCSO will operate the system.
After eight years, the PCSO would automatically become the owner of
the Facilities without any other further consideration.
For these reasons, too, the PGMC has the initial prerogative to
prepare the detailed plan of all games and the marketing thereof, and
determine the number of players, value of winnings, and the logistics
required to introduce the games, including the Master Games Plan. Of
course, the PCSO has the reserved authority to disapprove
them. 68 And, while the PCSO has the sole responsibility over the
appointment of dealers and retailers throughout the country, the
PGMC may, nevertheless, recommend for appointment dealers and
retailers which shall be acted upon by the PCSO within forty-eight
hours and collect and retain, for its own account, a security deposit
from dealers and retailers in respect of equipment supplied by it.
This joint venture is further established by the following:
(a) Rent is defined in the lease contract as the amount to be paid to
the PGMC as compensation for the fulfillment of its obligations under
the contract, including, but not limited to the lease of the Facilities.
However, this rent is not actually a fixed amount. Although it is stated
to be 4.9% of gross receipts from ticket sales, payable net of taxes
required by law to be withheld, it may be drastically reduced or, in
extreme cases, nothing may be due or demandable at all because the
PGMC binds itself to "bear all risks if the revenue from the ticket
sales, on an annualized basis, are insufficient to pay the entire prize
money." This risk-bearing provision is unusual in a lessor-lessee
relationship, but inherent in a joint venture.
(b) In the event of pre-termination of the contract by the PCSO, or its
suspension of operation of the on-line lottery system in breach of the
contract and through no fault of the PGMC, the PCSO binds itself "to
promptly, and in any event not later than sixty (60) days, reimburse
the Lessor the amount of its total investment cost associated with the
On-Line Lottery System, including but not limited to the cost of the
Facilities, and further compensate the LESSOR for loss of expected
net profit after tax, computed over the unexpired term of the lease." If
the contract were indeed one of lease, the payment of the expected
profits or rentals for the unexpired portion of the term of the contract
would be enough.
(c) The PGMC cannot "directly or indirectly undertake any activity or
business in competition with or adverse to the On-Line Lottery System
of PCSO unless it obtains the latter's prior written consent." If the
PGMC is engaged in the business of leasing equipment and
technology for an on-line lottery system, we fail to see any acceptable
reason why it should allow a restriction on the pursuit of such
business.
(d) The PGMC shall provide the PCSO the audited Annual Report
sent to its stockholders, and within two years from the effectivity of the
contract, cause itself to be listed in the local stock exchange and offer
at least 25% of its equity to the public. If the PGMC is merely a lessor,
this imposition is unreasonable and whimsical, and could only be tied
up to the fact that the PGMC will actually operate and manage the
system; hence, increasing public participation in the corporation would
enhance public interest.
(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00
pursuant to the requirements of the RFP, which it may, at its option,
maintain as its initial performance bond required to ensure its faithful
compliance with the terms of the contract.
(f) The PCSO shall designate the necessary personnel to monitor and
audit the daily performance of the on-line lottery system; and
promulgate procedural and coordinating rules governing all activities
relating to the on-line lottery system. The first further confirms that it is
the PGMC which will operate the system and the PCSO may, for the
protection of its interest, monitor and audit the daily performance of
the system. The second admits
the coordinating and cooperative powers and functions of the parties.
(g) The PCSO may validly terminate the contract if the PGMC
becomes insolvent or bankrupt or is unable to pay its debts, or if it
stops or suspends or threatens to stop or suspend payment of all or a
material part of its debts.
All of the foregoing unmistakably confirm the indispensable role of the
PGMC in the pursuit, operation, conduct, and management of the On-
Line Lottery System. They exhibit and demonstrate the parties'
indivisible community of interest in the conception, birth and growth of
the on-line lottery, and, above all, in its profits, with each having a
right in the formulation and implementation of policies related to the
business and sharing, as well, in the losses with the PGMC bearing Separate Opinions
the greatest burden because of its assumption of expenses and risks,
and the PCSO the least, because of its confessed unwillingness to
bear expenses and risks. In a manner of speaking, each is wed to the
other for better or for worse. In the final analysis, however, in the light CRUZ, J., concurring:
of the PCSO's RFP and the above highlighted provisions, as well as
the "Hold Harmless Clause" of the Contract of Lease, it is even safe to
I am happy to join Mr. Justice Hilario G. Davide, Jr. in his
conclude that the actual lessor in this case is the PCSO and the
excellent ponencia. I will add the following personal observations only
subject matter thereof is its franchise to hold and conduct lotteries
for emphasis as it is not necessary to supplement his thorough
since it is, in reality, the PGMC which operates and manages the on-
exposition.
line lottery system for a period of eight years.
The respondents take great pains to cite specific provisions of the
We thus declare that the challenged Contract of Lease violates the
contract to show that it is PCSO that is actually operating the on-line
exception provided for in paragraph B, Section 1 of R.A. No. 1169, as
lottery, but they have not succeeded in disproving the obvious, to wit,
amended by B.P. Blg. 42, and is, therefore, invalid for being contrary
that the document was intentionally so crafted to make it appear that
to law. This conclusion renders unnecessary further discussion on the
the operation is not a joint undertaking of PCSO and PGMC but a
other issues raised by the petitioners.
mere lease of services. It is a clever instrument, to be sure, but we
are, gratifyingly, not deluded. Lawyers have a special talent to
WHEREFORE, the instant petition is hereby GRANTED and the
disguise the real intention of the parties in a contract to make it come
challenged Contract of Lease executed on 17 December 1993 by ostensibly within the provisions of a law although the real if furtive
respondent Philippine Charity Sweepstakes Office (PCSO) and purpose is to violate it. That talent has been exercised in this case,
respondent Philippine Gaming Management Corporation (PGMC) is but not convincingly enough.
hereby DECLARED contrary to law and invalid.
It should be quite clear, from the adroit way the contract has been
The Temporary Restraining Order issued on 11 April 1994 is hereby drafted, that the primary objective was to avoid the conclusion that
MADE PERMANENT. PCSO will be operating a lottery "in association, collaboration or joint
venture with any person, association, company or entity," which is
No pronouncement as to costs. prohibited by Section 1 of Rep. Act No. 1169 as amended by B.P. Blg.
42. Citing the self-serving provisions of the contract, the respondents
SO ORDERED. would have us believe that the contract is perfectly lawful because all
it does is provide for the lease to PCSO of the technical know-how
Regalado, Romero and Bellosillo, JJ., concur. and equipment of PGMC, with PCSO acting as "the sole and
individual operator" of the lottery. I am glad we are not succumbing to
Narvasa, C.J., took no part. this sophistry.

Despite the artfulness of the contract (authorship of which was

pointedly denied by both counsel for the government and the private
respondent during the oral argument on this case), a careful study will
reveal telling stipulations that it is PGMC and not PCSO that will
actually be operating the lottery. Thus, it is provided inter alia that
PGMC shall furnish all capital equipment and other facilities needed
for the operation; bear all expenses relating to the operation, including
those for the salaries and wages of the administrative and technical
personnel; undertake a positive advertising and promotion campaign
for public support of the lottery; establish a radio communications
network throughout the country as part of the operation; and assume
all risks if the revenues from ticket sales are insufficient to pay the
entire prize money. Most significantly, to show that it is only after eight
years from the effectivity of the contract that PCSO will actually
operate the lottery, Par. 6.7 of the agreement provides that PGMC
shall:
6.7. Upon effectivity of this Contract, commence the
training of PCSO and other local personnel and the
transfer of technology and expertise, such that at the
end of the term of this Contract, PCSO will be able to
effectively take-over the Facilities and efficiently
operate the On-Line Lottery System. (Emphasis
supplied).
In the meantime, that is to say during the entire 8-year term of the
contract, it will be PGMC that will be operating the lottery. Only "at the
end of the term of this Contract" will PCSO "be able to effectively
take-over the Facilities and efficiently operate the On-Line Lottery
System."
Even on the assumption that it is PCSO that will be operating the
lottery at the very start, the authority granted to PGMC by the
agreement will readily show that PCSO will not be acting alone, as the
respondents pretend. In fact, it cannot. PGMC is an indispensable co-
worker because it has the equipment and the technology and the
management skills that PCSO does not have at this time for the
operation of the lottery, PCSO cannot deny that it needs the
assistance of PGMC for this purpose, which was its reason for
entering into the contract in the first place.
And when PCSO does avail itself of such assistance, how will it be
operating the lottery? Undoubtedly, it will be doing so "in
collaboration, association or joint venture" with PGMC, which, let it be
added, will not be serving as a mere "hired help" of PCSO subject to
its control. PGMC will be functioning independently in the discharge of
its own assigned role as stipulated in detail under the contract. PGMC
is plainly a partner of PCSO in violation of law, no matter how
PGMC's assistance is called or the contract is denominated.
Even if it be conceded that the assistance partakes of a lease of
services, the undeniable fact is that PCSO would still be collaborating
or cooperating with PGMC in the operation of the lottery. What is even
worse is that PCSO and PGMC may be actually engaged in a joint
venture, considering that PGMC does not collect the usual fixed
rentals due an ordinary lessor but is entitled to a special "Rental Fee,"
as the contract calls it, "equal to four point nine percent (4.9%) of
gross receipts from ticket sales."
The flexibility of this amount is significant. As may be expected, it will
induce in PGMC an active interest and participation in the success of
PCSO that is not expected of an ordinary detached lessor who gets to
be paid his rentals not a rental fee whether the lessee's
business prospers or not. PGMC's share in the operation depends on
its own performance and the effectiveness of its collaboration with
PCSO. Although the contract pretends otherwise, PGMC is a co-
investor with PCSO in what is practically, if not in a strictly legal
sense, a joint venture.
Concerning the doctrine of locus standi, I cannot agree that out of the
sixty million Filipinos affected by the proposed lottery, not a single
solitary citizen can question the agreement. Locus standi is not such
an absolute rule that it cannot admit of exceptions under certain
conditions or circumstances like those attending this transaction. As I
remarked in my dissent in Guazon v. De Villa, 181 SCRA 623, "It is
not only the owner of the burning house who has the right to call the
firemen. Every one has the right and responsibility to prevent the fire
from spreading even if he lives in the other block."
What is especially galling is that the transaction in question would foist
upon our people an essentially immoral activity through the
instrumentality of a foreign corporation, which naturally does not have
the same concern for our interests as we ourselves have. I am
distressed that foreigners should be allowed to exploit the weakness
of some of us for instant gain without work, and with the active
collaboration and encouragement of our own government at that.
Feliciano, J., concurring
I agree with the conclusions reached by my distinguished brother in
the Court Davide, Jr., J., both in respect of the question of locus
standi and in respect of the merits of this case, that is, the issues of
legality and constitutionality of the Contract of Lease entered into
between the Philippine Charity Sweepstakes Office (PCSO) and the
Philippine Gaming Management Corporation (PGMC).
In this separate opinion, I propose to address only the question
of locus standi. It is with some hesitation that I do so, considering the
extensive separate opinions on this question written by my learned
brothers Melo, Puno and Vitug, JJ. I agree with the great deal of what
my brothers Melo, Puno and Vitug say about locus standi in their
separate opinions and there is no need to go over the ground that I
share with them. Because, however, I reach a different conclusion in
respect of the presence or absence of locus standi on the part of the
petitioners in the case before the Court, there is an internal need (a
need internal to myself) to articulate the considerations which led me
to that conclusion.
There is no dispute that the doctrine of locus standi reflects an
important constitutional principle, that is, the principle of separation of
powers which, among other things, mandates that each of the great
Departments of government is responsible for performance of its
constitutionally allotted tasks. Insofar as the Judicial Department is
concerned, the exercise of judicial power and carrying out of judicial
functions commonly take place within the context of actual cases or
controversies. This, in turn, reflects the basic notion of judicial power
as the power to resolve actual disputes and of the traditional business
of courts as the hearing and deciding of specific controversies brought
before them. In our own jurisdiction, and at least since the turn of the
present century, judicial power has always included the power of
judicial review, understood as the authority of courts (more specifically
the Supreme Court) to assay contested legislative and executive acts
in terms of their constitutionality or legality. Thus, the general
proposition has been that a petitioner who assails the legal or
constitutional quality of an executive or legislative act must be able to
show that he has locus standi. Otherwise, the petition becomes
vulnerable to prompt dismissal by the court.
There is, upon the other hand, little substantive dispute that the
possession of locus standi 1 is not, in each and every case, a rigid and
absolute requirement for access to the courts. Certainly that is the
case where great issues of public law are at stake, issues which
cannot be approached in the same way that a court approaches a suit
for the collection of a sum of money or a complaint for the recovery of
possession of a particular piece of land. The broad question is when,
or in what types of cases, the court should insist on a clear showing
of locus standiunderstood as a direct and personal interest in the
subject matter of the case at bar, and when the court may or should
relax that apparently stringent requirement and proceed to deal with
the legal or constitutional issues at stake in a particular case.
I submit, with respect, that it is not enough for the Court simply to
invoke "public interest" or even "paramount considerations of national
interest," and to say that the specific requirements of such public
interest can only be ascertained on a "case to case" basis. For one
thing, such an approach is not intellectually satisfying. For another,
such an answer appears to come too close to saying that locus
standi exists whenever at least a majority of the Members of this
Court participating in a case feel that an appropriate case for judicial
intervention has arisen.
This is not, however, to say that there is somewhere an over-arching
juridical principle or theory, waiting to be discovered, that permits a
ready answer to the question of when, or in what types of cases, the
need to show locus standi may be relaxed in greater or lesser degree.
To my knowledge, no satisfactory principle or theory has been
discovered and none has been crafted, whether in our jurisdiction or
in the United States. 2 I have neither the competence nor the
opportunity to try to craft such principle or formula. It might, however,
be useful to attempt to indicate the considerations of principle which,
in the present case, appear to me to require an affirmative answer to
the question of whether or not petitioners are properly regarded as
imbued with the standing necessary to bring and maintain the present
petition.
Firstly, the character of the funds or other assets involved in the case
is of major importance. In the case presently before the Court, the
funds involved are clearly public in nature. The funds to be generated
by the proposed lottery are to be raised from the population at large.
Should the proposed operation be as successful as its proponents
project, those funds will come from well-nigh every town and barrio of
Luzon. The funds here involved are public in another very real sense:
they will belong to the PCSO, a government owned or controlled
corporation and an instrumentality of the government and are
destined for utilization in social development projects which, at least in
principle, are designed to benefit the general public. My learned
brothers Melo, Puno and Vitug, JJ. concede that taxpayers' suits have
been recognized as an exception to the traditional requirement of
recognized as an exception to the traditional requirement of locus
standi. They insist, however, that because the funds here involved will
not have been generated by the exercise of the taxing power of the
Government, the present petition cannot be regarded as a taxpayer's
suit and therefore, must be dismissed by the Court. It is my respectful
submission that that constitutes much too narrow a conception of the
taxpayer's suit and of the public policy that it embodies. It is also to
overlook the fact that tax monies, strictly so called, constitute only one
(1) of the major categories of funds today raised and used for public
purposes. It is widely known that the principal sources of funding for
government operations today include, not just taxes and customs
duties, but also revenues derived from activities of the Philippine
Amusement Gaming Corporation (PAGCOR), as well as the proceeds
of privatization of government owned or controlled corporations and
other government owned assets. The interest of a private citizen in
seeing to it that public funds, from whatever source they may have
been derived, go only to the uses directed and permitted by law is as
real and personal and substantial as the interest of a private taxpayer
in seeing to it that tax monies are not intercepted on their way to the
public treasury or otherwise diverted from uses prescribed or allowed
by law. It is also pertinent to note that the 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.
A second factor of high relevance is the presence of a clear case of
disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government. A showing
that a constitutional or legal provision is patently being disregarded by
the agency or instrumentality whose act is being assailed, can
scarcely be disregarded by court. The concept of locus standi
which is part and parcel of the broader notion of ripeness of the case
"does not operate independently and is not alone decisive. . . . [I]t
is in substantial part a function of a judge's estimate of the merits of
the constitutional [or legal] issue." 3 The notion of locus standi and the
judge's conclusions about the merits of the case, in other words,
interact with each other. Where the Court perceives a serious issue of
violation of some constitutional or statutory limitation, it will be much
less difficult for the Court to find locus standi in the petitioner and to
confront the legal or constitutional issue. In the present case, the
majority of the Court considers that a very substantial showing has
been made that the Contract of Lease between the PCSO and the
PGMC flies in the face of legal limitations.
A third consideration of importance in the present case is the lack of
any other party with a more direct and specific interest in raising the
questions here being raised. Though a public bidding was held, no
losing or dissatisfied bidder has come before the Court. The Office of
the Ombudsman has not, to the knowledge of the Court, raised
questions about the legality or constitutionality of the Contract of
Lease here involved. The National Government itself, through the
Office of the Solicitor General, is defending the PCSO Contract
(though it had not participated in the drafting thereof). In a situation
like that here obtaining, the submission may be made that the
institution, so well known in corporation law and practice, of the
corporate stockholders' derivative suit furnishes an appropriate
analogy and that on the basis of such an analogy, a taxpayer's
derivative suit should be recognized as available.
The wide range of impact of the Contract of Lease here assailed and
of its implementation, constitutes still another consideration of
significance. In the case at bar, the agreement if implemented will be
practically nationwide in its scope and reach (the PCSO-PGMC
Contract is limited in its application to the Island of Luzon; but if the
PCSO Contracts with the other two [2] private "gaming management"
corporations in respect of the Visayas and Mindanao are substantially
similar to PCSO's Contract with PGMC, then the Contract before us
may be said to be national indeed in its implications and
consequences). Necessarily, the amounts of money expected to be
raised by the proposed activities of the PCSO and PGMC will be very
substantial, probably in the hundreds of millions of pesos. It is not
easy to conceive of a contract with greater and more far-reaching
consequences, literally speaking, for the country than the Contract of
Lease here involved. Thus, the subject matter of the petition is not
something that the Court may casually pass over as unimportant and
as not warranting the expenditure of significant judicial resources.
In the examination of the various features of this case, the above
considerations have appeared to me to be important and as pressing
for acceptance and exercise of jurisdiction on the part of this Court. It
is with these considerations in mind that I vote to grant due course to
the Petition and to hold that the Contract of Lease between the PCSO
and PGMC in its present form and content, and given the present
state of the law, is fatally defective.
PADILLA, J., concurring:
My views against gambling are a matter of judicial record. In Basco v.
PAGCOR, (G.R. No. 91649, 14 May 1991, 197 SCRA 52) I expressed
these views in a separate opinion where I was joined by that
outstanding lady jurist, Mme. Justice A. Melencio-Herrera whose
incisive approach to legal problems is today missed in this Court. I
reproduce here those views because they are highly persuasive to the
conclusions I reach in the present controversy:
I concur in the result of the learned decision penned by
my brother Mr. Justice Paras. This means that I agree
with the decision insofar as it holds that the prohibition,
control, and regulation of the entire activity known as
gambling properly pertain to "state policy." It is,
therefore, the political departments of government,
namely, the legislative and the executive that should
decide on what government should do in the entire
area of gambling, and assume full responsibility to the
people for such policy.
The courts, as the decision states, cannot inquire into
the wisdom, morality or expediency of policies adopted
by the political departments of government in areas
which fall within their authority, except only when such
policies pose a clear and present danger to the life,
liberty or property of the individual. This case does not
involve such a factual situation.
However, I hasten to make of record that I do not
subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and
eviscerates one's self-respect, which in the long run will
corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck
families and homes; it is an antithesis to individual
reliance and reliability as well as personal industry
which are the touchstones of real economic progress
and national development.
Gambling is reprehensible whether maintained by
government or privatized. The revenues realized by the
government out of "legalized" gambling will, in the long
run, be more than offset and negated by the irreparable
damage to the people's moral values.
Also, the moral standing of the government in its
repeated avowals against "illegal gambling" is fatally
flawed and becomes untenable when it itself engages
in the very activity it seeks to eradicate.
One can go through the Court's decision today and
mentally replace the activity referred to therein
as gambling, which is legal only because it is
authorized by law and run by the government, with the
activity known as prostitution. Would prostitution be
any less reprehensible were it to be authorized by law,
franchised, and "regulated" by the government, in
return for the substantial revenues it would yield the
government to carry out its laudable projects, such as
infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the
legislative department outlaws all forms of gambling, as
a fundamental state policy, and the sooner the
executive implements such policy, the better it will be
for the nation.
We presently have the sweepstakes lotteries; we already have the
PAGCOR's gambling casinos; the Filipino people will soon, if plans do
not miscarry, be initiated into an even more sophisticated and
encompassing nationwide gambling network known as the "on-line hi-
tech lotto system." To be sure, it is not wealth producing; it is not
export oriented. It will draw from existing wealth in the hands of
Filipinos and transfer it into the coffers of the PCSO and its foreign
partners at a price of further debasement of the moral standards of
the Filipino people, the bulk of whom are barely subsisting below the
poverty line.
1. It is said that petitioners 1 have no locus standi to
bring this suit even as they challenge the legality and
constitutionality of a contract of lease between the
PCSO, a government-owned corporation and the
PGMC, a private corporation with substantial (if not
controlling) foreign composition and content. Such
contract of lease contains the terms and conditions
under which an "on-line hi-tech lotto system" will
operate in the country.
As the ponente of the extended, unsigned en banc resolution
in Valmonte v. PCSO, (G.R. No. 78716 and G.R. No. 79084, 22
September 1987), I would be the last to downgrade the rule, therein
reiterated, that in order to maintain a suit challenging the
constitutionality and/or legality of a statute, order or regulation or
assailing a particular governmental action as done with grave abuse
of discretion or with lack of jurisdiction, the petitioner must show that
he has a clear personal or legal right that would be violated with the
enforcement of the challenged statute, order or regulation or the
implementation of the questioned governmental action. But, in my
considered view, this rule maybe (and should be) relaxed when the
issue involved or raised in the petition is of such paramount national
interest and importance as to dwarf the above procedural rule into a
barren technicality. As a unanimous Court en banc aptly put it in De
Guia vs. COMELEC, G.R. No. 104712, 6 May 1992, 208 SCRA 420.
Before addressing the crux of the controversy, the
Court observes that petitioner does not allege that he is
running for re-election, much less, that he is prejudiced
by the election, by district, in Paraaque. As such, he
does not appear to have locus standi, a standing in
law, a personal or substantial interest. (Sanidad vs.
COMELEC, G.R. No. L-4640, October 12, 1976. 73
SCRA 333; Municipality of Malabang vs. Benito, G.R.
No. L-28113, March 28, 1969, 27 SCRA 533) He does
not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear
to have any cause of action.
However, considering the importance of the issue
involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of
the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We
perceive the petition to be one of declaratory relief. We
so held similarly through Mr. Justice Edgardo L. Paras
in Osmea vs. Commission on Elections.
I view the present case as falling within the De Guia case doctrine.
For, when the contract of lease in question seeks to establish and
operate a nationwide gambling network with substantial if not
controlling foreign participation, then the issue is of paramount
national interest and importance as to justify and warrant a relaxation
of the above-mentioned procedural rule on locus standi.
2. The charter of the PCSO Republic Act No. 1169
as amended by BP No. 42 insofar as relevant,
reads:
Sec. 1. The Philippine Charity Sweepstakes Office.
The Philippine Charity Sweepstakes Office, hereinafter
designated the Office, shall be the principal
government agency for raising and providing for funds
for health programs, medical assistance and services
and charities of national character, and as such shall
have the general powers conferred in section thirteen
of Act Numbered One Thousand Four Hundred Fifty-
Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races,
lotteries and other similar activities, in such frequency
and manner, as shall be determined, and subject to
such rules and regulations as shall be promulgated by
the Board of Directors.
B. Subject to the approval of the Minister of Human
Settlements, to engage in health and welfare-related
 investments, programs, projects and activities which
may be profit-oriented, by itself or in collaboration,
association or joint venture with any person,
association, company or entity, whether domestic or
foreign, except for the activities mentioned in the
preceding paragraph (A), for the purpose of providing
for permanent and continuing sources of funds for
health programs, including the expansion of existing
ones, medical assistance and services, and/or
charitable grants: Provided, That such investments will
not compete with the private sector in areas where
investments are adequate as may be determined by
the National Economic and Development Authority.
It is at once clear from the foregoing legal provisions that, while the
PCSO charter allows the PCSO to itself engage in lotteries, it does
not however permit the PCSO to undertake or engage in lotteries in
"collaboration, association or joint venture" with others. The palpable
reason for this prohibition is, that PCSO should not and cannot be
made a vehicle for an otherwise prohibited foreign or domestic entity
to engage in lotteries (gambling activities) in the Philippines.
The core question then is whether the lease contract between PCSO
and PGMC is a device whereby PCSO will engage in lottery in
collaboration, association or joint venture with another, i.e. PGMC. I
need not go here into the details and different specific features of the
contract to show that it is a joint venture between PCSO and PGMC.
That has been taken care of in the opinion of Mr. Justice Davide to
which I fully subscribe.
On a slightly different plane and, perhaps simplified, I consider the
agreement or arrangement between the PCSO and PGMC a joint
venture because each party to the contract contributes its share in the
enterprise or project. PGMC contributes its facilities, equipment and
know-how (expertise). PCSO contributes (aside from its charter) the
market, directly or through dealers and this to me is most important
in the totality or mass of the Filipinogambling elements who will
invest in lotto tickets. PGMC will get its 4.9% of gross receipts (with
assumption of certain risks in the course of lotto operations); the
residue of the whole exercise will go to PCSO. To any person with a
minimum of business know-how, this is a joint venture between PCSO
and PGMC, plain and simple.
But assuming ex gratia argumenti that such arrangement between
PCSO and PGMC is not a joint venture between the two of them to
install and operate an "on-line hi-tech lotto system" in the country, it
can hardly be denied that it is, at the very least, an association or
collaboration between PCSO and PGMC. For one cannot do without
the other in the installation, operation and, most importantly,
marketing of the entire enterprise or project in this country.
Indeed, the contract of lease in question is a clear violation of
Republic Act No. 1169 as amended by BP No. 42 (the PCSO charter).
Having arrived at the conclusion that the contract of lease in question
between the PCSO and PGMC is illegal and, therefore, invalid, I find it
unnecessary to dwell on the other issues raised in the pleadings and
arguments of the parties.
I, therefore, vote to give DUE COURSE to the petition and to declare
the contract of lease in question between PCSO and PGMC, for the
reasons aforestated, of no force and effect.
MELO, J., dissenting:
I submit that the petition before the Court deserves no less than
outright dismissal for the reason that petitioners, as concerned
citizens and as taxpayers and as members of Congress, do not
possess the necessary legal standing to assail the validity of the
contract of lease entered into by the Philippine Charity Sweepstakes
Office and the Philippine Gaming Management Corporation relative to
the establishment and operation of an "On-line Hi-Tech Lottery
System" in the country.
As announced in Lamb vs. Phipps (22 Phil. [1912], 559), "[J]udicial
power in its nature, is the power to hear and decide causes pending
between parties who have the right to sue and be sued in the courts
of law and equity." Necessarily, this implies that a party must show a
personal stake in the outcome of the controversy or an injury to
himself that can be addressed by a favorable decision so as to
warrant his invocation of the court's jurisdiction and to justify the
court's remedial powers in his behalf (Warth vs. Seldin, 422 U.S. 490;
Guzman vs. Marrero, 180 U.S. 81; McMicken vs. United States, 97
U.S. 204). Here, we have yet to see any of petitioners acquiring a
personal stake in the outcome of the controversy or being placed in a
situation whereby injury may be sustained if the contract of lease in
question is implemented. It may be that the contract has somehow
evoked public interest which petitioners claim to represent. But the
alleged public interest which they pretend to represent is not only
broad and encompassing but also strikingly and veritably
indeterminate that one cannot truly say whether a handful of the
public, like herein petitioners, may lay a valid claim of representation
in behalf of the millions of citizens spread all over the land who may
have just as many varied reactions relative to the contract in question.
Any effort to infuse personality on petitioners by considering the
present case as a "taxpayer's suit" could not cure the lack of locus
standi on the part of petitioners. As understood in this jurisdiction, a
"taxpayer's suit" refers to a case where the act complained of directly
involves the illegal disbursement of public funds derived from taxation
(Pascual vs. Secretary of Public Works, 110 Phil. [1960] 331; Maceda
vs. Macaraig, 197 SCRA [1991]; Lozada vs. COMELEC, 120 SCRA
[1983] 337; Dumlao vs. COMELEC, 95 SCRA [1980] 392; Gonzales
vs. Marcos, 65 SCRA [1975] 624). It cannot be overstressed that no
public fund raised by taxation is involved in this case. In fact, it is even
doubtful if the rentals which the PCSO will pay to the lessor for its
operation of the lottery system may be regarded as "public fund". The
PCSO is not a revenue- collecting arm of the government. Income or
money realized by it from its operations will not and need not be
turned over to the National Treasury. Rather, this will constitute
corporate funds which will remain with the corporation to finance its
various activities as authorized in its charter. And if ever some
semblance of "public character" may be said to attach to its earnings,
it is simply because PCSO is a government-owned or controlled entity
and not a purely private enterprise.
It must be conceded though that a "taxpayer's suit" had been allowed
in a number of instances in this jurisdiction. For sure, after the trial
was blazed by Pascual vs. Secretary of Public Works, supra, several
more followed. It is to be noted, however, that in those occasions
where this Court allowed such a suit, the case invariably involved
either the constitutionality of a statute or the legality of the
disbursement of public funds through the enforcement of what was
perceived to be an invalid or unconstitutional statute or legislation
(Pascual, supra; Philippine Constitution Association, Inc. vs. Jimenez,
15 SCRA [1965] 479; Philippine Constitution Association, Inc. vs.
Mathay, 18 SCRA [1966] 300; Tolentino vs. COMELEC, 41 SCRA
[1971] 702; Pelaez vs. Auditor General, 15 SCRA [1965] 569; Iloilo
Palay and Corn Planters Association vs. Feliciano, 13 SCRA [1965]
377).
The case before us is not a challenge to the validity of a statute or an
attempt to restrain expenditure of public funds pursuant to an alleged
invalid congressional enactment. What petitioners ask us to do is to
nullify a simple contract of lease entered into by a government-owned
corporation with a private entity. That contract, as earlier pointed out,
does not involve the disbursement of public funds but of strictly
corporate money. If every taxpayer, claiming to have interest in the
contract, no matter how remote, could come to this Court and seek
nullification of said contract, the day may come when the activities of
government corporate entities will ground to a standstill on account of
nuisance suits filed against them by persons whose supposed interest
in the contract is as remote and as obscure as the interest of any man
in the street. The dangers attendant thereto are not hard to discern
and this Court must not allow them to come to pass.
One final observation must be emphasized. When the petition at
bench was filed, the Court decided to hear the case on oral argument
on the initial perception that a constitutional issue could be involved.
However, it now appears that no question of constitutional dimension
is at stake as indeed the majority barely touches on such an issue,
concentrating as it does on its interpretation of the contract between
the Philippine Charity Sweepstakes Office and the Philippine Gaming
Management Corporation.
I, therefore, vote to dismiss the petition.
PUNO, J., dissenting:
At the outset, let me state that my religious faith and family upbringing
compel me to regard gambling, regardless of its garb, with hostile
eyes. Such antagonism tempts me to view the case at bench as a
struggle between good and evil, a fight between the forces of light
against the forces of darkness. I will not, however, yield to that
temptation for we are not judges of the Old Testament type who were
not only arbiters of law but were also high priests of morality.
I will therefore strictly confine the peregrinations of my mind to
the legal issues for resolution: (1) whether or not the petitioners have
the Locus standi to file the petition at bench; and (2) assuming
their locus standi, whether or not the Contract of Lease between
PCSO and PGMC is null and void considering: (a) section 1 of R.A.
No. 1169, as amended by B.P. Blg. 42 (Charter of PCSO) which
prohibits PCSO from holding and conducting lotteries "in
collaboration, association or joint venture with any person,
association, company or entity"; (b) Act No. 3836 which requires a
congressional franchise before any person or entity can establish and
operate a telecommunication system; (c) section 11, Art. XII of the
Constitution, which requires that for a corporation to operate a public
utility, at least 60% of its capital must be owned by Filipino citizens;
and (d) R.A. No. 7042, otherwise known as the "Foreign Investments
Act", which includes all forms of gambling in its "negative list."
While the legal issues abound, I deferentially submit that the threshold
issue is the locus standi, or standing to sue, of petitioners. The
petition describes petitioner Kilosbayan, Inc., as a non-stock
corporation composed of "civic spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and
national renewal." 1 Petitioners Jovito R. Salonga, Cirilo A. Rigos,
Ernie Camba, Emilio C. Capulong, Jr., Jose Abcede, Christine Tan,
Felipe L. Gozon, Rafael G. Fernando, Raoul V. Victorino, Jose
Cunanan, and Quintin S. Doromal joined the petition in their capacity
as trustees of Kilosbayan, Inc., and as taxpayers and concerned
citizens. 2 Petitioners Freddie Webb and Wigberto Taada joined the
petition as senators, taxpayers and concerned citizens. 3 Petitioner
Joker P. Arroyo joined the petition as a member of the House of
Representative, a taxpayer and a concerned citizen. 4
With due respect to the majority opinion, I wish to focus on the
interstices of locus standi, a concept described by Prof. Paul Freund
as "among the most amorphous in the entire domain of public law."
The requirement of standing to sue inheres from the definition of
judicial power. It is not merely a technical rule of procedure which we
are at liberty to disregard. Section 1, Article VIII of the Constitution
provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice
to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
Government. (Italics supplied)
The phrase "actual controversies involving rights which are legally
demandable and enforceable" has acquired a cultivated meaning
given by courts. It spells out the requirements that must be satisfied
before one can come to court to litigate a constitutional issue. Our
distinguished colleague, Mr. Justice Isagani A. Cruz, gives a
shorthand summary of these requirements when he states that no
constitutional question will be heard and decided by courts unless
there is a showing of the following: . . . (1) there must be an actual
case or controversy; (2) the question of constitutionality must be
raised by the proper party; (3) the constitutional question must be
raised at the earliest possible opportunity; and (4) the decision of the
constitutional question must be necessary to the determination of the
case itself. 5
The complexion of the rule on locus standi has been undergoing a
change. Mr. Justice Cruz has observed the continuing relaxation of
the rule on
standing, 6 thus:
xxx xxx xxx
A proper party is one who has sustained or is in
immediate danger of sustaining an injury as a result of
the act complained of. Until and unless such actual or
potential injury is established, the complainant cannot
have the legal personality to raise the constitutional
question.
In Tileson v. Ullmann, a physician questioned the
constitutionality of a law prohibiting the use of
contraceptives, upon the ground that it might prove
dangerous to the life or health of some of his patients
whose physical condition would not enable them to
bear the rigors of childbirth. The court dismissed the
challenge, holding that the patients of the physician
and not the physician himself were the proper parties.
In Cuyegkeng v. Cruz, the petitioner challenged in
a quo warranto proceeding the title of the respondent
who, he claimed, had been appointed to the board of
medical examiners in violation of the provisions of the
Medical Act of 1959. The Supreme Court dismissed the
petition, holding that Cuyegkeng had not made a claim
to the position held by Cruz and therefore could not be
regarded as a proper party who had sustained an injury
as a result of the questioned act.
In People v. Vera, it was held that the Government of
the Philippines was a proper party to challenge the
constitutionality of the Probation Act because, more
than any other, it was the government itself that should
be concerned over the validity of its own laws.
In Ex Parte Levitt, the petitioner, an American taxpayer
and member of the bar, filed a motion for leave to
question the qualifications of Justice Black who, he
averred, had been appointed to the U.S. Supreme
Court in violation of the Constitution of the United
States. The Court dismissed the petition, holding that
Levitt was not a proper party since he was not claiming
the position held by Justice Black.
The rule before was that an ordinary taxpayer did not
have the proper party personality to question the
legality of an appropriation law since his interest in the
sum appropriated was not substantial enough. Thus,
in Custodio v. Senate President, a challenge by an
ordinary taxpayer to the validity of a law granting back
pay to government officials, including members of
Congress, during the period corresponding to the
Japanese Occupation was dismissed as having been
commenced by one who was not a proper party.
Since the first Emergency Powers Cases, however, the
rule has been changed and it is now permissible for an
ordinary taxpayer, or a group of taxpayers, to raise the
question of the validity of an appropriation law. As the
Supreme Court then put it. "The transcendental
importance to the public of these cases demands that
they be settled promptly and definitely, brushing aside,
if we must, technicalities of procedure."
In Tolentino v. Commission on Elections, it was held
that a senator had the proper party personality to seek
the prohibition of a plebiscite for the ratification of a
proposed constitutional amendment. In PHILCONSA v.
Jimenez, an organization of taxpayers and citizens was
held to be a proper party to question the
constitutionality of a law providing for special retirement
benefits for members of the legislature.
In Sanidad v. Commission on Elections, the Supreme
Court upheld the petitioners as proper parties, thus
As a preliminary resolution, We rule that
the petitioners in L-44640 (Pablo C.
Sanidad and Pablito V. Sanidad)
possess locus standi to challenge the
constitutional premise of Presidential
Decree Nos. 991, 1031, and 1033. It is
now an ancient rule that the valid source
of a statute Presidential Decrees are
of such nature may be contested by
one who will sustain a direct injury as a
result of its enforcement. At the instance
of taxpayers, laws providing for the
disbursement of public funds may be
enjoined, upon the theory that the
expenditure of public funds by an officer
of the State for the purpose of executing
an unconstitutional act constitutes a
misapplication of such funds. The
breadth of Presidential Decree No. 991
carries an appropriation of Five Million
Pesos for the effective implementation
of its purposes. Presidential Decree No.
1031 appropriates the sum of Eight
Million Pesos to carry out its provisions.
The interest of the aforenamed
petitioners as taxpayers in the lawful
expenditure of these amounts of public
 money sufficiently clothes them with that
personality to litigate the validity of the
Decrees appropriating said funds.
Moreover, as regard taxpayer's suits,
this Court enjoys that open discretion to
entertain the same or not. For the
present case, We deem it sound to
exercise that discretion affirmatively so
that the authority upon which the
disputed Decrees are predicated may
be inquired into.
In Lozada v. Commission on Elections, however, the
petitioners were held without legal standing to demand
the filling of vacancies in the legislature because they
had only "a generalized interest' shared with the rest of
the citizenry."
Last July 30, 1993, we further relaxed the rule on standing in Oposa,
et al. v. Hon. Fulgencio S. Factoran, Jr., 7where we recognized
the locus standi of minors representing themselves as well as
generations unborn to protect their constitutional right to a balanced
and healthful ecology.
I am perfectly at peace with the drift of our decisions liberalizing the
rule on locus standi. The once stubborn disinclination to decide
constitutional issues due to lack of locus standi is incompatible with
the expansion of judicial power mandated in section 1 of Article VIII of
the Constitution, i.e., "to determine whether or not there has been a
grave abuse of discretion, amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the government." As we
held thru the ground breaking ponencia of Mr. Justice Cruz in Daza v.
Singson, 8 this provision no longer precludes the Court from resolving
political questions in proper cases. But even perusing this provision as
a constitutional warrant for the court to enter the once forbidden
political thicket, it is clear that the requirement of locus standi has not
been jettisoned by the Constitution for it still commands courts in no
uncertain terms to settle only "actual controversies involving rights
which are legally demandable and enforceable." Stated otherwise,
courts are neither free to decide all kinds of cases dumped into their
laps nor are they free to open their doors to all parties or entities
claiming a grievance. The rationale for this constitutional requirement
of locus standi is by no means trifle. It is intended "to assure a
vigorous adversary presentation of the case, and, perhaps more
importantly to warrant the judiciary's overruling the determination of a
coordinate, democratically elected organ of government." 9 It thus
goes to the very essence of representative democracies. As Mr.
Justice Powell carefully explained in U.S. v.
Richardson, 10 viz:
Relaxation of standing requirements is directly related
to the expansion of judicial power. It seems to me
inescapable that allowing unrestricted taxpayer or
citizen standing would significantly alter the allocation
of power at the national level, with a shift away from a
democratic form of government. I also believe that
repeated and essentially head-on confrontations
between the life-tenured branch and the representative
branches of government will not, in the long run, be
beneficial to either. The public confidence essential to
the former and the vitality critical to the latter may well
erode if we do not exercise self- restraint in the
utilization of our power to negative the actions of the
other branches. We should be ever mindful of the
contradictions that would arise if a democracy were to
permit at large oversight of the elected branches of
government by a non-representative, and in large
measure insulated, judicial branch. Moreover, the
argument that the Court should allow unrestricted
taxpayer or citizen standing underestimates the ability
of the representative branches of the Federal
Government to respond to the citizen pressure that has
been responsible in large measure for the current drift
toward expanded standing. Indeed, taxpayer or citizen
advocacy, given its potentially broad base, is precisely
the type of leverage that in a democracy ought to be
employed against the branches that were intended to
be responsive to public attitudes about the appropriate
operation of government. "We must as judges recall
that, as Mr. Justice Holmes wisely observed, the other
branches of Government are ultimate guardians of the
liberties and welfare of the people in quite as great a
degree as the courts."
 Unrestrained standing in federal taxpayer or citizen
suits would create a remarkably illogical system of
judicial supervision of the coordinate branches of the
Federal Government. Randolph's proposed Council of
Revision, which was repeatedly rejected by the
Framers, at least had the virtue of being systematic;
every law passed by the legislature automatically
would have been previewed by the judiciary before the
law could take effect. On the other hand, since the
judiciary cannot select the taxpayers or citizens who
bring suit or the nature of the suits, the allowance of
public actions would produce uneven and sporadic
review, the quality of which would be influenced by the
resources and skill of the particular plaintiff. And issues
would be presented in abstract form, contrary to the
Court's recognition that "judicial review is effective
largely because it is not available simply at the behest
of a partisan faction, but is exercised only to remedy a
particular, concrete injury." Sierra Club v. Morton, 405
U.S. 727, 740-741, n. 16 (1972).
A lesser but not insignificant reason for screening the standing of
persons who desire to litigate constitutional issues is economic in
character. Given the sparseness of our resources, the capacity of
courts to render efficient judicial service to our people is severely
limited. For courts to indiscriminately open their doors to all types of
suits and suitors is for them to unduly overburden their dockets, and
ultimately render themselves ineffective dispensers of justice. To be
sure, this is an evil that clearly confronts our judiciary today.
Prescinding from these premises, and with great reluctance, I am not
prepared to concede the standing to sue of petitioners. On a personal
level, they have not shown that elemental injury in fact which will
endow them with a standing to sue. It must be stressed that
petitioners are in the main, seeking the nullity not of a law but of a
Contract of Lease. Not one of the petitioners is a party to the Contract
of Lease executed between PCSO and PGMC. None of the
petitioners participated in the bidding, and hence they are not losing
bidders. They are complete strangers to the contract. They stand
neither to gain nor to lose economically by its enforcement. It seems
to me unusual that an unaffected third party to a contract could be
allowed to question its validity. Petitioner Kilosbayan cannot justify this
officious interference on the ground of its commitment to "truth, justice
and national renewal." Such commitment to truth, justice and national
renewal, however noble it may be, cannot give Kilosbayan a roving
commission to check the validity of contracts entered into by the
government and its agencies. Kilosbayan is not a private commission
on audit.
Neither can I perceive how the other petitioners can be personally
injured by the Contract of Lease between PCSO and PGMC even if
petitioner Salonga assails as unmitigated fraud the statistical
probability of winning the lotto as he compared it to the probability of
being struck twice by lightning. The reason is obvious: none of the
petitioners will be exposed to this alleged fraud for all of them profess
to abjure playing the lotto. It is self-evident that lotto cannot physically
or spiritually injure him who does not indulge in it.
Petitioners also contend they have locus standi as taxpayers. But the
case at bench does not involve any expenditure of public money on
the part of PCSO. In fact, paragraph 2 of the Contract of Lease
provides that it is PGMC that shall build, furnish, and maintain at its
own expense and risk the facilities for the On-Line Lottery System of
PCSO and shall bear all maintenance and other costs. Thus, PGMC
alleged it has already spent P245M in equipment and fixtures and
would be investing close to P1 billion to supply adequately the
technology and other requirements of PCSO. 11 If no tax money is
being illegally deflected in the Contract of Lease between PCSO and
PGMC, petitioners have no standing to impugn its validity as
taxpayers. Our ruling in Dumlao v. Comelec, 12 settled this issue well
enough, viz:
However, the statutory provisions questioned in this
case, namely, sec. 7, BP Blg. 51, and sections 4, 1,
and 5 BP Blg. 52, do not directly involve the
disbursement of public funds. While, concededly, the
elections to be held involve the expenditure of public
moneys, nowhere in their Petition do said petitioners
allege that their tax money is "being extracted and
spent in violation of specific constitutional protections
against abuses of legislative power" (Flast v. Cohen,
392 U.S. 83 [1960]), or that there is a misapplication of
such funds by respondent COMELEC (see Pascual vs.
Secretary of Public Works, 110 Phil. 331 [1960]), or
 that public money is being deflected to any improper
purpose. Neither do petitioners seek to restrain
respondent from wasting public funds through the
enforcement of an invalid or unconstitutional law.
(Philippine Constitution Association vs. Mathay, 18
SCRA 300 [1966]), citing Philippine Constitution
Association vs. Gimenez, 15 SCRA 479 [1965]).
Besides, the institution of a taxpayer's suit, per se, is
no assurance of judicial review. As held by this Court
in Yan vs. Macapagal(43 SCRA 677 [1972]), speaking
through our present Chief Justice, this Court is vested
with discretion as to whether or not a taxpayer's suit
should be entertained.
Next, petitioners plead their standing as "concerned citizens." As
citizens, petitioners are pleading that they be allowed to advocate the
constitutional rights of other persons who are not before the court and
whose protection is allegedly their concern. A citizen qua citizen suit
urges a greater relaxation of the rule on locus standi. I feel no
aversion to the further relaxation of the rule on standing to
accommodate what in other jurisdictions is known as an assertion
of jus tertii in constitutional litigation provided the claimant can
demonstrate: (1) an injury in fact to himself, and (2) the need to
prevent the erosion of a preferred constitutional right of a third person.
As stressed before, the first requirement of injury in fact cannot be
abandoned for it is an essential element for the exercise of judicial
power. Again, as stressed by Mr. Justice Powell, viz: 13
The revolution in standing doctrine that has occurred,
particularly in the 12 years since Baker v. Carr,
supra, has not meant, however, that standing barriers
have disappeared altogether. As the Court noted in
Sierra Club, "broadening the categories of injury that
may be alleged in support of standing is a different
matter from abandoning the requirement that the party
seeking review must himself have suffered an injury."
405 U.S., at 738 . . . Indeed, despite the diminution of
standing requirements in the last decade, the Court
has not broken with the traditional requirement that, in
the absence of a specific statutory grant of the right of
review, a plaintiff must allege some particularized injury
that sets him apart from the man on the street.
I recognize that the Court's allegiance to a requirement
of particularized injury has on occasion required a
reading of the concept that threatens to transform it
beyond recognition. E.G., Baker v. Carr, supra; Flast v.
Cohen, supra. But despite such occasional
digressions, the requirement remains, and I think it
does so for the reasons outlined above. In recognition
of those considerations, we should refuse to go the last
mile towards abolition of standing requirements that is
implicit in broadening the "precarious opening" for
federal taxpayers created by Flast, see 392 U.S., at
116 (Mr. Justice Fortas, concurring) or in allowing a
citizen qua citizen to invoke the power of the federal
courts to negative unconstitutional acts of the Federal
Government.
In sum, I believe we should limit the expansion of
federal taxpayer and citizen standing in the absence of
specific statutory authorization to an outer boundary
drawn by the results in Flast and Baker v. Carr. I think
we should face up to the fact that all such suits are an
effort "to employ a federal court as a forum in which to
air . . . generalized grievances about the conduct of
government or the allocation of power in the Federal
System." Flast v. Cohen, 392 U.S., at 106. The Court
should explicitly reaffirm traditional prudential barriers
against such public actions. My reasons for this view
are rooted in respect for democratic processes and in
the conviction that "[t]he powers of the federal judiciary
will be adequate for the great burdens placed upon
them only if they are employed prudently, with
recognition of the strengths as well as the hazards that
go with our kind of representative government." Id.,
at 131
The second requirement recognizes society's right in the protection of
certain preferred rights in the Constitution even when the rightholders
are not before the court. The theory is that their dilution has a
substantial fall out detriment to the rights of others, hence the latter
can vindicate them.
In the case at bench, it is difficult to see how petitioners can satisfy
these two requirements to maintain a jus tertiiclaim. They claim
violation of two constitutional provisions, to wit:
Section 1, Article XIII. The Congress shall give
highest priority to the enactment of measures that
protect and enhance the right of all the people to
human dignity, reduce social, economic, and political
inequalities, and remove cultural inequities by equitably
diffusing wealth and political power for the common
good.
To this end, the State shall regulate the acquisition,
ownership, use, and disposition of property and its
increments.
and
Section 11, Article XII. - 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 authorizations 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
citizen of the Philippines.
Section 1, Article XIII of the Constitution cannot be the matrix of
petitioners' jus tertii claim for it expresses no more than a policy
direction to the legislative in the discharge of its ordained duty to
give highest priority to the enactment of measures that protect and
enhance the right of all the people to human dignity, reduce social,
economic, and political inequalities and remove cultural inequities by
equitably diffusing wealth and political power for the common good.
Whether the act of the legislature in amending the charter of PCSO by
giving it the authority to conduct lotto and whether the Contract of
Lease entered into between PCSO and PGMC are incongruent to the
policy direction of this constitutional provision is a highly debatable
proposition and can be endlessly argued. Respondents steadfastly
insist that the operation of lotto will increase the revenue base of
PCSO and enable government to provide a wider range of social
services to the people. They also allege that the operation of high-
tech lotto will eradicate illegal jueteng. Petitioners are scandalized by
this submission. They dismiss gambling as evilper se and castigate
government for attempting to correct a wrong by committing another
wrong. In any event, the proper forum for this debate, however
cerebrally exciting it may be, is not this court but congress. So we
held in PCSO v. Inopiquez, to wit: 14
By bringing their suit in the lower court, the private
respondents in G.R. No. 79084 do not question the
power of PCSO to conduct the Instant Sweepstakes
game. Rather, they assail the wisdom of embarking
upon this project because of their fear of the
"pernicious repercussions" which may be brought
about by the Instant Sweepstakes Game which they
have labelled as "the worst form of gambling" which
thus "affects the moral values" of the people.
The Court, as held in several cases, does not pass
upon questions of wisdom, justice, or expediency of
legislation and executive acts. It is not the province of
the courts to supervise legislation or executive orders
as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even
exclusively a concern of the political departments of the
government; otherwise, there will be a violation of the
principle of separation of powers. (Italics supplied)
I am not also convinced that petitioners can justify their locus standi to
advocate the rights of hypothetical third parties not before the court by
invoking the need to keep inviolate section 11, Article XII of the
Constitution which imposes a nationality requirement on operators of
a public utility. For even assuming arguendo that PGMC is a public
utility, still, the records do not at the moment bear out the claim of
petitioners that PGMC is a foreign owned and controlled corporation.
This factual issue remains unsettled and is still the subject of litigation
by the parties in the Securities and Exchange Commission. We are
not at liberty to anticipate the verdict on this contested factual issue.
But over and above this consideration, I respectfully submit that this
constitutional provision does not confer on third parties any right of a
preferred status comparable to the Bill of Rights whose dilution will
justify petitioners to vindicate them in behalf of its rightholders. The
legal right of hypothetical third parties they profess to advocate is to
my mind too impersonal, too unsubstantial, too indirect, too
amorphous to justify their access to this Court and the further lowering
of the constitutional barrier of locus standi.
Again, with regret, I do not agree that the distinguished status of some
of the petitioners as lawmakers gives them the appropriate locus
standi. I cannot perceive how their constitutional rights and
prerogatives as legislators can be adversely affected by the contract
in question. Their right to enact laws for the general conduct of our
society remains unimpaired and undiminished. 15 Their status as
legislators, notwithstanding, they have to demonstrate that the said
contract has caused them to suffer a personal, direct, and substantial
injury in fact. They cannot simply advance a generic grievance in
common with the people in general.
I am not unaware of our ruling in De Guia v. Comelec, 16 viz:
Before addressing the crux of the controversy, the
Court observes that petitioner does not allege that he is
running for reelection, much less, that he is prejudiced
by the election, by district, in Paraaque. As such, he
does not appear to have locus standi, a standing in
law, a personal or substantial interest. (Sanidad vs.
COMELEC, G.R. No. L-44640, October 12, 1976, 73
SCRA 333; Municipality of Malabang vs. Benito, G.R.
No. L-28113, March 28, 1969, 27 SCRA 533). He does
not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear
to have any cause of action.
However, considering the importance of the issue
involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of
the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We
perceive the petition to be one of declaratory relief. We
so held similarly through Mr. Justice Edgardo L. Paras
in Osmena vs. Commission on Elections.
It is my respectful submission, however, that we should re-examine de
Guia. It treated the rule on locus standi as a mere procedural rule. It is
not a plain procedural rule but a constitutional requirement derived
from section 1, Article VIII of the Constitution which mandates courts
of justice to settle only "actual controversies involving rights which are
legally demandable and enforceable." The phrase has been
construed since time immemorial to mean that a party in a
constitutional litigation must demonstrate a standing to sue. By
downgrading the requirement on locus standi as a procedural rule
which can be discarded in the name of public interest, we are in effect
amending the Constitution by judicial fiat.
De Guia would also brush aside the rule on locus standi if a case
raises an important issue. In this regard, I join the learned observation
of Mr. Justice Feliciano: "that it is not enough for the Court simply to
invoke 'public interest' or even 'paramount considerations of national
interest,' and to say that the specific requirements of such public
interest can only be ascertained on a 'case to case' basis. For one
thing, such an approach is not intellectually satisfying. For another,
such an answer appears to come too close to saying that locus
standi exists whenever at least a majority of the Members of this
Court participating in a case feel that an appropriate case for judicial
intervention has arisen."
I also submit that de Guia failed to perceive that the rule on locus
standi has little to do with the issue posed in a case, however,
important it may be. As well pointed out in Flast v. Cohen: 17
The fundamental aspect of standing is that it focuses
on the party seeking to get his complaint before a
federal court and not on the issues he wishes to have
adjudicated. The "gist of the question of standing" is
 whether the party seeking relief has "alleged such a
personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely
depends for illumination of difficult constitutional
questions." Baker v. Carr,369 U.S. 186, 204 (1962). In
other words, when standing is placed in issue in a
case, the question is whether the person whose
standing is challenged is a proper party to request an
adjudication of a particular issue and not whether the
issue itself is justiciable. Thus, a party may have
standing in a particular case, but the federal court may
nevertheless decline to pass on the merits of the case
because, for example, it presents a political question. A
proper party is demanded so that federal courts will not
be asked to decide "ill-defined controversies over
constitutional issues," United public Workers v.
Mitchell, 330 U.S. 75, 90 (1947), or a case which is of
"a hypothetical or abstract character," Aetna Life
Insurance Co. v. Haworth, 300 U.S. 227, 240 (1937).
It is plain to see that in de Guia, the court took an unorthodox posture,
to say the least. It held there was no proper party before it, and yet it
resolved the issues posed by the petition. As there was no proper
party before the court, its decision is vulnerable to be criticized as an
advisory opinion.
With due respect, the majority decision appears to have set a
dangerous precedent by unduly trivializing the rule on locus standi. By
its decision, the majority has entertained a public action to annul a
private contract. In so doing, the majority may have given sixty (60)
million Filipinos the standing to assail contracts of government and its
agencies. This is an invitation for chaos to visit our law on contract,
and certainly will not sit well with prospective foreign investors.
Indeed, it is difficult to tread the path of the majority on this significant
issue. The majority granted locus standi to petitioners because of lack
of any other party with more direct and specific interest. But one has
standing because he has standing on his own and standing cannot be
acquired because others with standing have refused to come to court.
The thesis is also floated that petitioners have standing as they can
be considered taxpayers with right to file derivative suit like a
stockholder's derivative suit in private corporations. The fact,
however, is that PCSO is not a private but a quasi-public corporation.
Our law on private corporation categorically sanctions stockholder's
derivative suit. In contrast, our law on public corporation does not
recognize this so-called taxpayer's derivative suit. Hence, the idea of
a taxpayer's derivative suit, while alluring, has no legal warrant.
Our brethren in the majority have also taken the unprecedented step
of striking down a contrast at the importunings of strangers thereto,
but without justifying the interposition of judicial power on any felt
need to prevent violation of an important constitutional provision. The
contract in question was voided on the sole ground that it violated an
ordinary statute, section 1 of R.A. 1169, as amended by B.P. Blg. 42.
If there is no provision of the Constitution that is involved in the case
at bench, it boggles the mind how the majority can invoke
considerations of national interest to justify its abandonment of the
rule on locus standi. The volume of noise created by the case cannot
magically convert it to a case of paramount national importance. By its
ruling, the majority has pushed the Court in unchartered water bereft
of any compass, and it may have foisted the false hope that it is the
repository of all remedies.
If I pay an unwavering reverence to the rule of locus standi, it is
because I consider it as a touchstone in maintaining the proper
balance of power among the three branches of our government. The
survival of our democracy rests in a large measure on our ability to
maintain this delicate equipoise of powers. For this reason, I look at
judicial review from a distinct prism. I see it both as a power and a
duty. It is a power because it enables the judiciary to check excesses
of the Executive and the Legislative. But, it is also a duty because its
requirement of locus standi, among others, Executive and the
Legislative. But, it is also a duty because its requirement of locus
standi, among others, keeps the judiciary from overreaching the
powers of the other branches of government. By balancing this
duality, we are able to breathe life to the principle of separation of
powers and prevent tyranny. To be sure, it is our eternal concern to
prevent tyranny but that includes tyranny by ourselves. The
Constitution did not install a government by the judiciary, nay, not a
government by the unelected. In offering this submission, I reject the
sublimal fear that an unyielding insistence on the rule on locus
standi will weaken the judiciary vis-a-vis the other branches of
government. The hindsight of history ought to tell us that it is not
power per se that strengthens. Power unused is preferable than
power misused. We contribute to constitutionalism both by the use of
our power to decide and its non use. As well said, the cases we
decide are as significant as the cases we do not decide. Real power
belongs to him who has power over power.
IN VIEW WHEREOF, and strictly on the ground of lack of locus
standi on the part of petitioners, I vote to DENY the petition.
VITUG, J., dissenting:
Judicial power encompasses both an authority and duty to resolve
"actual controversies involving rights which are legally demandable
and enforceable" (Article VIII, Section 1, 1987 Constitution). As early
as the case of Lamb vs. Phipps, 1 this Court ruled: "Judicial power, in
its nature, is the power to hear and decide causes pending between
parties who have the right to sue in the courts of law and equity." 2 An
essential part of, and corollary to, this principle is the locus standi of a
party litigant, referring to one who is directly affected by, and whose
interest is immediate and substantial in, the controversy. The rule
requires that a party must show a personal stake in the outcome of
the case or an injury to himself that can be redressed by a favorable
decision so as to warrant his invocation of the court's jurisdiction and
to justify the exercise of the court's remedial powers in his behalf. 3 If it
were otherwise, the exercise of that power can easily become too
unwieldy by its sheer magnitude and scope to a point that may, in no
small degree, adversely affect its intended essentiality, stability and
consequentiality.
Locus standi, nevertheless, admits of the so-called "taxpayer's suit."
Taxpayer's suits are actions or proceedings initiated by one or more
taxpayers in their own behalf or, conjunctively, in representation of
others similarly situated for the purpose of declaring illegal or
unauthorized certain acts of public officials which are claimed to be
injurious to their common interests as such taxpayers (Cf. 71 Am Jur
2d., 179-180). The principle is predicated upon the theory that
taxpayers are, in equity, the cestui que trust of tax funds, and any
illegal diminution thereof by public officials constitutes a breach of
trust even as it may result in an increased burden on taxpayers
(Haddock vs. Board of Public Education, 86 A 2d 157; Henderson vs.
McCormick, 17 ALR 2d 470).
Justice Brandeis of the United States Supreme Court, in his
concurring opinion in Ashwander vs. Tennessee Valley Authority (297
U.S. 288), said:
. . . . The Court will not pass upon the validity of a
statute upon complaint of one who fails to show that he
is injured by its operation. Tyler v. The Judges, 179
U.S. 405; Hendrick v. Maryland, 234 U.S. 610, 621.
Among the many applications of this rule, none is more
striking than the denial of the right of challenge to one
who lacks a personal or property right. Thus, the
challenge by a public official interested only in the
performance of his official duty will not be
entertained. Columbus & Greenville Ry. v. Miller, 283
U.S. 96, 99-100. In Fairchild v. Hughes, 258 U.S. 126,
the Court affirmed the dismissal of a suit brought by a
citizen who sought to have the Nineteenth Amendment
declared unconstitutional. InMassachusetts v.
Mellon, 262 U.S. 447, the challenge of the federal
Maternity Act was not entertained although made by
the Commonwealth on behalf of all its citizens."
Justice Brandeis' view, shared by Justice Frankfurter in Joint Anti-
Fascist Refugee Commission vs. McGrath (351 U.S. 123), was
adopted by the U.S. Supreme Court in Flast vs. Cohen (392 U.S. 83)
which held that it is only when a litigant is able to show such a
personal stake in the controversy as to assure a concrete
adverseness in the issues submitted that legal standing can attach.
A "taxpayer's suit," enough to confer locus standi to a party, we have
held before, is understood to be a case where the act complained
of directly involves the illegal disbursement of public funds derived
from taxation.4 It is not enough that the dispute concerns public funds.
A contrary rule could easily lead to a limitless application of the term
"taxpayer's suit," already by itself a broad concept, since a questioned
act of government would almost so invariably entail, as a practical
matter, a financial burden of some kind.
To be sure, serious doubts have even been raised on the propriety
and feasibility of unqualifiedly recognizing the "taxpayer's suit" as an
exception from the standard rule of requiring a party who invokes the
exercise of judicial power to have a real and personal interest or a
direct injury in the outcome of a controversy. This Court has
heretofore spoken on the matter, at times even venturing beyond the
usual understanding of its applicability in the name of national or
public interest. It is remarkable, nevertheless, that the accepted
connotation of locus standi has still managed to be the rule,
sanctioning, by way of exception, the so-called "taxpayer's suit" which
courts accept on valid and compelling reasons.
A provision which has been introduced by the 1987 Constitution is a
definition, for the first time in our fundamental law, of the term "judicial
power," as such authority and duty of courts of justice "to settle actual
controversies involving rights which are legally demandable and
enforceable and to determine whether or not there has been a grave
abuse of discretion, amounting to lack or excess of jurisdiction, on the
part of any branch or instrumentality of the Government" (Article VIII,
Section 1, Constitution). I take it that the provision has not been
intended to unduly mutate, let alone to disregard, the long established
rules on locus standi. Neither has it been meant, I most respectfully
submit, to do away with the principle of separation of powers and its
essential incidents such as by, in effect, conferring omnipotence on,
or allowing an intrusion by, the courts in respect to purely political
decisions, the exercise of which is explicitly vested elsewhere, and
subordinate, to that of their own, the will of either the Legislative
Department or the Executive Department both co- equal,
independent and coordinate branches, along with the Judiciary, in our
system of government. Again, if it were otherwise, there indeed would
be truth to the charge, in the words of some constitutionalists, that
"judicial tyranny" has been institutionalized by the 1987 Constitution,
an apprehension which should, I submit, rather be held far from truth
and reality.
In sum, while any act of government, be it executive in nature or
legislative in character, may be struck down and declared a nullity
either because it contravenes an express provision of the Constitution
or because it is perceived and found to be attended by or the result of
grave abuse of discretion, amounting to lack or excess of jurisdiction,
that issue, however, must first be raised in a proper judicial
controversy. The Court's authority to look into and grant relief in such
cases would necessitate locus standi on the part of party litigants.
This requirement, in my considered view, is not merely procedural or
technical but goes into the essence of jurisdiction and the competence
of courts to take cognizance of justiciable disputes.
In Bugnay Construction and Development Corporation vs.
Laron, 5 this Court ruled:
. . . . Considering the importance to the public of a suit
assailing the constitutionality of a tax law, and in
keeping with the Court's duty, specially explicated in
the 1987 Constitution, to determine whether or not the
other branches of the Government have kept
themselves within the limits of the Constitution and the
laws and that they have not abused the discretion
given to them, the Supreme Court may brush aside
technicalities of procedure and take cognizance of the
suit. (Citing Kapatiran vs. Tan, G.R. No. 81311, June
30, 1988.)
However, for the above rule to apply, it is exigent that
the taxpayer-plaintiff sufficiently show that he would be
benefited or injured by the judgment or entitled to the
avails of the suit as a real party in interest. (Citing
Estate of George Litton vs. Mendoza, G.R. No. 49120,
June 30, 1988.) Before he can invoke the power of
judicial review, he must specifically prove that he has
sufficient interest in preventing the illegal expenditure
of money raised by taxation (citing 11 Am. Jur. 761;
Dumlao, et al. vs. Commission on Elections, 95 SCRA
392) and that he will sustain a direct injury as a result
of the enforcement of the questioned statute or
contract. (Citing Sanidad, et al. vs. Commission on
Elections, et al., 73 SCRA 333.) It is not sufficient that
he has merely a general interest common to all
members of the public. (Citing Ex Parte Levitt, 302 U.S.
633, cited in 15 SCRA 497, Annotation.)
As so well pointed out by Mr. Justice Camilo D. Quiason during the
Court's deliberations, "due respect and proper regard for the rule
on locus standi would preclude the rendition of advisory opinions and
other forms of pronouncement on abstract issues, avoid an undue
interference on matters which are not justiciable in nature and spare
the Court from getting itself involved in political imbroglio."
The words of Senate President Edgardo J. Angara, carry wisdom; we
quote:
 The powers of the political branches of our government
over economic policies is rather clear: the Congress is
to set in broad but definite strokes the legal framework
and structures for economic development, while the
Executive provides the implementing details for
realizing the economic ends identified by Congress and
executes the same.
xxx xxx xxx
If each economic decision made by the political
branches of government, particularly by the executive,
are fully open to re-examination by the judicial branch,
then very little, if any, reliance can be placed by private
economic actors on those decisions. Investors would
always have to factor in possible costs arising from
judicially-determined changes affecting their immediate
business, notwithstanding assurances by executive
authorities.
Judicial decisions are, in addition, inflexible and can
never substitute for sound decision-making at the level
of those who are assigned to execute the laws of the
land. Since judicial power cannot be exercised unless
an actual controversy is brought before the courts for
resolution, decisions cannot be properly modified
unless another appropriate controversy arises." (Sen.
Edgardo J. Angara, "The Supreme Court in Economic
Policy Making," Policy Review A Quarterly Journal
of Policy Studies, Vol. 1, No. 1, January-March 1994,
published by the Senate Policy Studies Group, pp. 2-
3.)
A further set-back in entertaining the petition is that it unfortunately
likewise strikes at factual issues. The allegations to the effect that
irregularities have been committed in the processing and evaluation of
the bids to favor respondent PGMC; that the Malacaang Special
Review Committee did not verify warranties embodied in the contract;
that the operation of telecommunication facilities is indispensable in
the operation of the lottery system; the involvement of multi-national
corporations in the operation of the on-line "hi-tech" lottery system,
and the like, require the submission of evidence. This Court is not a
trier of facts, and it cannot, at this time, resolve the above issues. Just
recently, the Court has noted petitioners' manifestation of its petition
with the Securities and Exchange Commission "for the nullification of
the General Information Sheets of PGMC" in respect particularly to
the nationality holdings in the corporation. The doctrine of primary
jurisdiction would not justify a disregard of the jurisdiction of, nor
would it permit us to now preempt, said Commission on the matter.
Petitioners strongly assert, in an attempt to get the Court's
concurrence in accepting the petition, that since lottery is a game of
chance, the "lotto" system would itself be a "crime against morals"
defined by Articles 195-199 6 of the Revised Penal Code.
Being immoral and a criminal offense under the Revised Penal Code,
petitioners contend, any special law authorizing gambling must, by all
canons of statutory constructions, be interpreted strictly against the
grantee. Citing previous decisions of this Court, they maintain that
lottery is gambling, pure and simple, 7 and that this Court has
consistently condemned the immorality and illegality of gambling to be
a "national offense and not a minor transgression;" 8 "that it is a social
scourge which must be stamped out;" 9 and, "that it is pernicious to
the body politic and detrimental to the nation and its citizens."10
I most certainly will not renounce this Court's above concerns.
Nevertheless, the Court must recognize the limitations of its own
authority. Courts neither legislate nor ignore legal mandates. Republic
Act No. 1169, as amended, explicitly gives public respondent
PCSO the authority and power "to hold and conduct sweepstakes
races, lotteries, and other similar activities." In addition, it is
authorized:
c. To undertake any other activity that will enhance its
funds generation, operations and funds management
capabilities, subject to the same limitations provided for
in the preceding paragraph.
It shall have a Board of Directors, hereinafter
designated the Board, composed of five members who
shall be appointed, and whose compensation and term
of office shall be fixed, by the President.
 xxx xxx xxx
Sec.9. Powers and functions of the Board of Directors.
The Board of Directors of the Office shall have the
following powers and functions.
(a) To adopt or amend such rules and regulations to
implement the provisions of this Act.
xxx xxx xxx
(d) To promulgate rules and regulations for the
operation of the Office and to do such act or acts as
may be necessary for the attainment of its purposes
and objectives. (Emphasis supplied).
In People vs. Dionisio, 11 cited by the petitioners themselves, we
remarked: "What evils should be corrected as pernicious to the body
politic, and how correction should be done, is a matter primarily
addressed to the discretion of the legislative department, not of the
courts . . . ." In Valmonte vs. PCSO, 12 we also said:
The Court, as held in several cases, does not pass
upon questions of wisdom, justice or expediency of
legislation and executive acts. It is not the province of
the courts to supervise legislation or executive orders
as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even
exclusively a concern of the political departments of the
government; otherwise, there will be a violation of the
principle of separation of powers.
The constraints on judicial power are clear. I feel, the Court must thus
beg off, albeit not without reluctance, from giving due course to the
instant petition.
Accordingly, I vote for the dismissal of the petition.
KAPUNAN, J., dissenting:
I regret that I am unable to join my colleagues in the majority in spite
of my own personal distaste for gambling and other gaming
operations. Such considerations aside, I feel there are compelling
reasons why the instant petition should be dismissed. I shall forthwith
state the reasons why.
Petitioners anchor their principal objections against the contract
entered into between the Philippine Charity Sweepstakes Office
(PCSO) and the PGMC on the ground that the contract entered into
by the PCSO with the PGMC violates the PCSO Charter (R.A. No.
1169 as amended by B.P. Blg 427, specifically section 1 thereof which
bars the said body from holding conducting lotteries "in collaboration,
association or joint venture with any person association, company or
entity."). However, a perusal of the petition reveals that the compelling
reasons behind it, while based on apparently legal questions involving
the contract between the PCSO and the PGMC, are prompted by the
petitioners' moral objections against the whole idea of gambling
operations operated by the government through the PCSO. The whole
point of the petition, in essence, is a fight between good and evil,
between the morality or amorality of lottery operations conducted on a
wide scale involving millions of individuals and affecting millions of
lives. Their media of opposition are the above stated defects in the
said contract which they assail to be fatally defective. They come to
this Court, as taxpayers and civic spirted citizens, asserting a right of
standing on a transcendental issue which they assert to be of
paramount public interest.
Moral or legal questions aside, I believe that there are unfortunately
certain standards1 that have to be followed in the exercise of this
Court's awesome power of review before this Court could even begin
to assay the validity of the contract between the PCSO and the
PGMC. This, in spite of the apparent expansion of judicial power
granted by Section 1 of Article VIII of the 1987 Constitution. It is
fundamental that such standards be complied with before this Court
could even begin to explore the substantive issues raised by any
controversy brought before it, for no issue brought before this court
could possibly be so fundamental and paramount as to warrant a
relaxation of the requisite rules for judicial review developed by settled
jurisprudence inorder to avoid entangling this court in controversies
which properly belong to the legislative or executive branches of our
government. The potential harm to our system of government,
premised on the concept of separation of powers, by the Court eager
to exercise its powers and prerogatives at every turn, cannot be
gainsaid. The Constitution does not mandate this Court to wield the
power of judicial review with excessive vigor and alacrity in every area
or at every turn, except in appropriate cases and controversies which
meet established requirements for constitutional adjudication. Article
VIII Sec. 1 of the Constitution notwithstanding, there are questions
which I believe are still beyond the pale of judicial power. Moreover, it
is my considered opinion that the instant petition does not meet the
requirements set by this court for a valid exercise of judicial review.
Our Constitution expressly defines judicial power as including "the
duty to settle actual cases and controversies involving rights which
are legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to a lack or
excess of jurisdiction on the part of any branch or instrumentality of
the government." 2 This constitutional requirement for an actual case
and controversy limits this Court's power of review to precisely those
suits between adversary litigants with real interests at stake2 thus
preventing it from making all sorts of hypothetical pronouncements on
abstract, contingent and amorphous issues. The Court will therefore
not pass upon the validity of an act of government or a statute passed
by a legislative body without a requisite showing of injury. 3 A personal
stake is essential, which absence renders our pronouncements
gratuitous and certainly violative of the constitutional requirement for
actual cases and controversies.
The requirement for standing based on personal injury may of course
be bypassed, as the petitioners in this case attempt to do, by
considering the case as a "taxpayer suit" which would thereby clothe
them with the personality they would lack under ordinary
circumstances. However, the act assailed by the petitioners on the
whole involves the generation rather than disbursement of public
funds. In a line of cases starting from Pascual v. Secretary of Public
Works 4 "taxpayer suits" have been understood to refer only to those
cases where the act or statute assailed involves the illegal or
unconstitutional disbursement of public funds derived from taxation.
The main premise behind the "taxpayer suit" is that the pecuniary
interest of the taxpayer is involved whenever there is an illegal or
wasteful use of public funds which grants them the right to question
the appropriation or disbursement on the basis of their contribution to
government funds. 5 Since it has not been alleged that an illegal
appropriation or disbursement of a fund derived from taxation would
be made in the instant case, I fail to see how the petitioners in this
case would be able to satisfy the locus standi requirement on the
basis of a "taxpayer's suit". This alone should inhibit this Court from
proceeding with the case at bench. The interest alleged and the
potential injury asserted are far too general and hypothetical for us to
rush into a judicial determination of what to me appears to be
judgment better left to executive branch of our government.
This brings me to one more important point: The idea that a norm of
constitutional adjudication could be lightly brushed aside on the mere
supposition that an issue before the Court is of paramount public
concern does great harm to a democratic system which espouses a
delicate balance between three separate but co-equal branches of
government. It is equally of paramount public concern, certainly
paramount to the survival of our democracy, that acts of the other
branches of government are accorded due respect by this Court.
Such acts, done within their sphere of competence, have been and
should always be accorded with a presumption of regularity. When
such acts are assailed as illegal or unconstitutional, the burden falls
upon those who assail these acts to prove that they satisfy the
essential norms of constitutional adjudication, because when we
finally proceed to declare an act of the executive or legislative branch
of our government unconstitutional or illegal, what we actually
accomplish is the thwarting of the will of the elected representatives of
the people in the executive or legislative branches
government.6 Notwithstanding Article VIII, Section 1 of the
Constitution, since the exercise of the power of judicial review by this
Court is inherently antidemocratic, this Court should exercise a
becoming modesty in acting as a revisor of an act of the executive or
legislative branch. The tendency of a frequent and easy resort to the
function of judicial review, particularly in areas of economic policy has
become lamentably too common as to dwarf the political capacity of
the people expressed through their representatives in the policy
making branches of government and to deaden their sense of moral
responsibility. 7
This court has been accused, of late, of an officious tendency to delve
into areas better left to the political branches of government. 8 This
tendency, if exercised by a court running riot over the other co-equal
branches of government, poses a greater danger to our democratic
system than the perceived danger real or imagined of an
executive branch espousing economic or social policies of doubtful
moral worth. Moreover economic policy decisions in the current
milieu- including the act challenged in the instant case-involve
complex factors requiring flexibility and a wide range of discretion on
the part of our economic managers which this Court should respect
because our power of review, under the constitution, is a power to
check, not to supplant those acts or decisions of the elected
representatives of the people.
Finally, the instant petition was brought to this Court on the
assumption that the issue at bench raises primarily constitutional
issues. As it has ultimately turned out, the core foundation of the
petitioners' objections to the LOTTO operations was based on the
validity of the contract between the PCSO and the PGMC in the light
of Section 1 of R.A. 1169 as amended by B.P. Blg. 427. It might have
been much more appropriate for the issue to have taken its normal
course in the courts below.
I vote to deny the petition.
# Separate Opinions
CRUZ, J., concurring:
I am happy to join Mr. Justice Hilario G. Davide, Jr. in his
excellent ponencia. I will add the following personal observations only
for emphasis as it is not necessary to supplement his thorough
exposition.
The respondents take great pains to cite specific provisions of the
contract to show that it is PCSO that is actually operating the on-line
lottery, but they have not succeeded in disproving the obvious, to wit,
that the document was intentionally so crafted to make it appear that
the operation is not a joint undertaking of PCSO and PGMC but a
mere lease of services. It is a clever instrument, to be sure, but we
are, gratifyingly, not deluded. Lawyers have a special talent to
disguise the real intention of the parties in a contract to make it come
ostensibly within the provisions of a law although the real if furtive
purpose is to violate it. That talent has been exercised in this case,
but not convincingly enough.
It should be quite clear, from the adroit way the contract has been
drafted, that the primary objective was to avoid the conclusion that
PCSO will be operating a lottery "in association, collaboration or joint
venture with any person, association, company or entity," which is
prohibited by Section 1 of Rep. Act No. 1169 as amended by B.P. Blg.
42. Citing the self-serving provisions of the contract, the respondents
would have us believe that the contract is perfectly lawful because all
it does is provide for the lease to PCSO of the technical know-how
and equipment of PGMC, with PCSO acting as "the sole and
individual operator" of the lottery. I am glad we are not succumbing to
this sophistry.
Despite the artfulness of the contract (authorship of which was
pointedly denied by both counsel for the government and the private
respondent during the oral argument on this case), a careful study will
reveal telling stipulations that it is PGMC and not PCSO that will
actually be operating the lottery. Thus, it is provided inter alia that
PGMC shall furnish all capital equipment and other facilities needed
for the operation; bear all expenses relating to the operation, including
those for the salaries and wages of the administrative and technical
personnel; undertake a positive advertising and promotion campaign
for public support of the lottery; establish a radio communications
network throughout the country as part of the operation; and assume
all risks if the revenues from ticket sales are insufficient to pay the
entire prize money. Most significantly, to show that it is only after eight
years from the effectivity of the contract that PCSO will actually
operate the lottery, Par. 6.7 of the agreement provides that PGMC
shall:
6.7. Upon effectivity of this Contract, commence the
training of PCSO and other local personnel and the
transfer of technology and expertise, such that at the
end of the term of this Contract, PCSO will be able to
effectively take-over the Facilities and efficiently
operate the On-Line Lottery System. (Emphasis
supplied).
In the meantime, that is to say during the entire 8-year term of the
contract, it will be PGMC that will be operating the lottery. Only "at the
end of the term of this Contract" will PCSO "be able to effectively
take-over the Facilities and efficiently operate the On-Line Lottery
System."
Even on the assumption that it is PCSO that will be operating the
lottery at the very start, the authority granted to PGMC by the
agreement will readily show that PCSO will not be acting alone, as the
respondents pretend. In fact, it cannot. PGMC is an indispensable co-
worker because it has the equipment and the technology and the
management skills that PCSO does not have at this time for the
operation of the lottery, PCSO cannot deny that it needs the
assistance of PGMC for this purpose, which was its reason for
entering into the contract in the first place.
And when PCSO does avail itself of such assistance, how will it be
operating the lottery? Undoubtedly, it will be doing so "in
collaboration, association or joint venture" with PGMC, which, let it be
added, will not be serving as a mere "hired help" of PCSO subject to
its control. PGMC will be functioning independently in the discharge of
its own assigned role as stipulated in detail under the contract. PGMC
is plainly a partner of PCSO in violation of law, no matter how
PGMC's assistance is called or the contract is denominated.
Even if it be conceded that the assistance partakes of a lease of
services, the undeniable fact is that PCSO would still be collaborating
or cooperating with PGMC in the operation of the lottery. What is even
worse is that PCSO and PGMC may be actually engaged in a joint
venture, considering that PGMC does not collect the usual fixed
rentals due an ordinary lessor but is entitled to a special "Rental Fee,"
as the contract calls it, "equal to four point nine percent (4.9%) of
gross receipts from ticket sales."
The flexibility of this amount is significant. As may be expected, it will
induce in PGMC an active interest and participation in the success of
PCSO that is not expected of an ordinary detached lessor who gets to
be paid his rentals not a rental fee whether the lessee's
business prospers or not. PGMC's share in the operation depends on
its own performance and the effectiveness of its collaboration with
PCSO. Although the contract pretends otherwise, PGMC is a co-
investor with PCSO in what is practically, if not in a strictly legal
sense, a joint venture.
Concerning the doctrine of locus standi, I cannot agree that out of the
sixty million Filipinos affected by the proposed lottery, not a single
solitary citizen can question the agreement. Locus standi is not such
an absolute rule that it cannot admit of exceptions under certain
conditions or circumstances like those attending this transaction. As I
remarked in my dissent in Guazon v. De Villa, 181 SCRA 623, "It is
not only the owner of the burning house who has the right to call the
firemen. Every one has the right and responsibility to prevent the fire
from spreading even if he lives in the other block."
What is especially galling is that the transaction in question would foist
upon our people an essentially immoral activity through the
instrumentality of a foreign corporation, which naturally does not have
the same concern for our interests as we ourselves have. I am
distressed that foreigners should be allowed to exploit the weakness
of some of us for instant gain without work, and with the active
collaboration and encouragement of our own government at that.
Feliciano, J., concurring
I agree with the conclusions reached by my distinguished brother in
the Court Davide, Jr., J., both in respect of the question of locus
standi and in respect of the merits of this case, that is, the issues of
legality and constitutionality of the Contract of Lease entered into
between the Philippine Charity Sweepstakes Office (PCSO) and the
Philippine Gaming Management Corporation (PGMC).
In this separate opinion, I propose to address only the question
of locus standi. It is with some hesitation that I do so, considering the
extensive separate opinions on this question written by my learned
brothers Melo, Puno and Vitug, JJ. I agree with the great deal of what
my brothers Melo, Puno and Vitug say about locus standi in their
separate opinions and there is no need to go over the ground that I
share with them. Because, however, I reach a different conclusion in
respect of the presence or absence of locus standi on the part of the
petitioners in the case before the Court, there is an internal need (a
need internal to myself) to articulate the considerations which led me
to that conclusion.
There is no dispute that the doctrine of locus standi reflects an
important constitutional principle, that is, the principle of separation of
powers which, among other things, mandates that each of the great
Departments of government is responsible for performance of its
constitutionally allotted tasks. Insofar as the Judicial Department is
concerned, the exercise of judicial power and carrying out of judicial
functions commonly take place within the context of actual cases or
controversies. This, in turn, reflects the basic notion of judicial power
as the power to resolve actual disputes and of the traditional business
of courts as the hearing and deciding of specific controversies brought
before them. In our own jurisdiction, and at least since the turn of the
present century, judicial power has always included the power of
judicial review, understood as the authority of courts (more specifically
the Supreme Court) to assay contested legislative and executive acts
in terms of their constitutionality or legality. Thus, the general
proposition has been that a petitioner who assails the legal or
constitutional quality of an executive or legislative act must be able to
show that he has locus standi. Otherwise, the petition becomes
vulnerable to prompt dismissal by the court.
There is, upon the other hand, little substantive dispute that the
possession of locus standi 1 is not, in each and every case, a rigid and
absolute requirement for access to the courts. Certainly that is the
case where great issues of public law are at stake, issues which
cannot be approached in the same way that a court approaches a suit
for the collection of a sum of money or a complaint for the recovery of
possession of a particular piece of land. The broad question is when,
or in what types of cases, the court should insist on a clear showing
of locus standiunderstood as a direct and personal interest in the
subject matter of the case at bar, and when the court may or should
relax that apparently stringent requirement and proceed to deal with
the legal or constitutional issues at stake in a particular case.
I submit, with respect, that it is not enough for the Court simply to
invoke "public interest" or even "paramount considerations of national
interest," and to say that the specific requirements of such public
interest can only be ascertained on a "case to case" basis. For one
thing, such an approach is not intellectually satisfying. For another,
such an answer appears to come too close to saying that locus
standi exists whenever at least a majority of the Members of this
Court participating in a case feel that an appropriate case for judicial
intervention has arisen.
This is not, however, to say that there is somewhere an over-arching
juridical principle or theory, waiting to be discovered, that permits a
ready answer to the question of when, or in what types of cases, the
need to show locus standi may be relaxed in greater or lesser degree.
To my knowledge, no satisfactory principle or theory has been
discovered and none has been crafted, whether in our jurisdiction or
in the United States. 2 I have neither the competence nor the
opportunity to try to craft such principle or formula. It might, however,
be useful to attempt to indicate the considerations of principle which,
in the present case, appear to me to require an affirmative answer to
the question of whether or not petitioners are properly regarded as
imbued with the standing necessary to bring and maintain the present
petition.
Firstly, the character of the funds or other assets involved in the case
is of major importance. In the case presently before the Court, the
funds involved are clearly public in nature. The funds to be generated
by the proposed lottery are to be raised from the population at large.
Should the proposed operation be as successful as its proponents
project, those funds will come from well-nigh every town and barrio of
Luzon. The funds here involved are public in another very real sense:
they will belong to the PCSO, a government owned or controlled
corporation and an instrumentality of the government and are
destined for utilization in social development projects which, at least in
principle, are designed to benefit the general public. My learned
brothers Melo, Puno and Vitug, JJ. concede that taxpayers' suits have
been recognized as an exception to the traditional requirement of
recognized as an exception to the traditional requirement of locus
standi. They insist, however, that because the funds here involved will
not have been generated by the exercise of the taxing power of the
Government, the present petition cannot be regarded as a taxpayer's
suit and therefore, must be dismissed by the Court. It is my respectful
submission that that constitutes much too narrow a conception of the
taxpayer's suit and of the public policy that it embodies. It is also to
overlook the fact that tax monies, strictly so called, constitute only one
(1) of the major categories of funds today raised and used for public
purposes. It is widely known that the principal sources of funding for
government operations today include, not just taxes and customs
duties, but also revenues derived from activities of the Philippine
Amusement Gaming Corporation (PAGCOR), as well as the proceeds
of privatization of government owned or controlled corporations and
other government owned assets. The interest of a private citizen in
seeing to it that public funds, from whatever source they may have
been derived, go only to the uses directed and permitted by law is as
real and personal and substantial as the interest of a private taxpayer
in seeing to it that tax monies are not intercepted on their way to the
public treasury or otherwise diverted from uses prescribed or allowed
by law. It is also pertinent to note that the 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.
A second factor of high relevance is the presence of a clear case of
disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government. A showing
that a constitutional or legal provision is patently being disregarded by
the agency or instrumentality whose act is being assailed, can
scarcely be disregarded by court. The concept of locus standi
which is part and parcel of the broader notion of ripeness of the case
"does not operate independently and is not alone decisive. . . . [I]t
is in substantial part a function of a judge's estimate of the merits of
the constitutional [or legal] issue." 3 The notion of locus standi and the
judge's conclusions about the merits of the case, in other words,
interact with each other. Where the Court perceives a serious issue of
violation of some constitutional or statutory limitation, it will be much
less difficult for the Court to find locus standi in the petitioner and to
confront the legal or constitutional issue. In the present case, the
majority of the Court considers that a very substantial showing has
been made that the Contract of Lease between the PCSO and the
PGMC flies in the face of legal limitations.
A third consideration of importance in the present case is the lack of
any other party with a more direct and specific interest in raising the
questions here being raised. Though a public bidding was held, no
losing or dissatisfied bidder has come before the Court. The Office of
the Ombudsman has not, to the knowledge of the Court, raised
questions about the legality or constitutionality of the Contract of
Lease here involved. The National Government itself, through the
Office of the Solicitor General, is defending the PCSO Contract
(though it had not participated in the drafting thereof). In a situation
like that here obtaining, the submission may be made that the
institution, so well known in corporation law and practice, of the
corporate stockholders' derivative suit furnishes an appropriate
analogy and that on the basis of such an analogy, a taxpayer's
derivative suit should be recognized as available.
The wide range of impact of the Contract of Lease here assailed and
of its implementation, constitutes still another consideration of
significance. In the case at bar, the agreement if implemented will be
practically nationwide in its scope and reach (the PCSO-PGMC
Contract is limited in its application to the Island of Luzon; but if the
PCSO Contracts with the other two [2] private "gaming management"
corporations in respect of the Visayas and Mindanao are substantially
similar to PCSO's Contract with PGMC, then the Contract before us
may be said to be national indeed in its implications and
consequences). Necessarily, the amounts of money expected to be
raised by the proposed activities of the PCSO and PGMC will be very
substantial, probably in the hundreds of millions of pesos. It is not
easy to conceive of a contract with greater and more far-reaching
consequences, literally speaking, for the country than the Contract of
Lease here involved. Thus, the subject matter of the petition is not
something that the Court may casually pass over as unimportant and
as not warranting the expenditure of significant judicial resources.
In the examination of the various features of this case, the above
considerations have appeared to me to be important and as pressing
for acceptance and exercise of jurisdiction on the part of this Court. It
is with these considerations in mind that I vote to grant due course to
the Petition and to hold that the Contract of Lease between the PCSO
and PGMC in its present form and content, and given the present
state of the law, is fatally defective.
PADILLA, J., concurring:
My views against gambling are a matter of judicial record. In Basco v.
PAGCOR, (G.R. No. 91649, 14 May 1991, 197 SCRA 52) I expressed
these views in a separate opinion where I was joined by that
outstanding lady jurist, Mme. Justice A. Melencio-Herrera whose
incisive approach to legal problems is today missed in this Court. I
reproduce here those views because they are highly persuasive to the
conclusions I reach in the present controversy:
I concur in the result of the learned decision penned by
my brother Mr. Justice Paras. This means that I agree
with the decision insofar as it holds that the prohibition,
control, and regulation of the entire activity known as
gambling properly pertain to "state policy." It is,
therefore, the political departments of government,
namely, the legislative and the executive that should
decide on what government should do in the entire
area of gambling, and assume full responsibility to the
people for such policy.
The courts, as the decision states, cannot inquire into
the wisdom, morality or expediency of policies adopted
by the political departments of government in areas
which fall within their authority, except only when such
policies pose a clear and present danger to the life,
liberty or property of the individual. This case does not
involve such a factual situation.
However, I hasten to make of record that I do not
subscribe to gambling in any form. It demeans the
human personality, destroys self-confidence and
eviscerates one's self-respect, which in the long run will
corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck
families and homes; it is an antithesis to individual
reliance and reliability as well as personal industry
which are the touchstones of real economic progress
and national development.
Gambling is reprehensible whether maintained by
government or privatized. The revenues realized by the
government out of "legalized" gambling will, in the long
run, be more than offset and negated by the irreparable
damage to the people's moral values.
Also, the moral standing of the government in its
repeated avowals against "illegal gambling" is fatally
flawed and becomes untenable when it itself engages
in the very activity it seeks to eradicate.
One can go through the Court's decision today and
mentally replace the activity referred to therein
as gambling, which is legal only because it is
authorized by law and run by the government, with the
activity known as prostitution. Would prostitution be
any less reprehensible were it to be authorized by law,
franchised, and "regulated" by the government, in
return for the substantial revenues it would yield the
government to carry out its laudable projects, such as
infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the
legislative department outlaws all forms of gambling, as
a fundamental state policy, and the sooner the
executive implements such policy, the better it will be
for the nation.
We presently have the sweepstakes lotteries; we already have the
PAGCOR's gambling casinos; the Filipino people will soon, if plans do
not miscarry, be initiated into an even more sophisticated and
encompassing nationwide gambling network known as the "on-line hi-
tech lotto system." To be sure, it is not wealth producing; it is not
export oriented. It will draw from existing wealth in the hands of
Filipinos and transfer it into the coffers of the PCSO and its foreign
partners at a price of further debasement of the moral standards of
the Filipino people, the bulk of whom are barely subsisting below the
poverty line.
1. It is said that petitioners 1 have no locus standi to
bring this suit even as they challenge the legality and
constitutionality of a contract of lease between the
PCSO, a government-owned corporation and the
PGMC, a private corporation with substantial (if not
controlling) foreign composition and content. Such
contract of lease contains the terms and conditions
under which an "on-line hi-tech lotto system" will
operate in the country.
As the ponente of the extended, unsigned en banc resolution
in Valmonte v. PCSO, (G.R. No. 78716 and G.R. No. 79084, 22
September 1987), I would be the last to downgrade the rule, therein
reiterated, that in order to maintain a suit challenging the
constitutionality and/or legality of a statute, order or regulation or
assailing a particular governmental action as done with grave abuse
of discretion or with lack of jurisdiction, the petitioner must show that
he has a clear personal or legal right that would be violated with the
enforcement of the challenged statute, order or regulation or the
implementation of the questioned governmental action. But, in my
considered view, this rule maybe (and should be) relaxed when the
issue involved or raised in the petition is of such paramount national
interest and importance as to dwarf the above procedural rule into a
barren technicality. As a unanimous Court en banc aptly put it in De
Guia vs. COMELEC, G.R. No. 104712, 6 May 1992, 208 SCRA 420.
Before addressing the crux of the controversy, the
Court observes that petitioner does not allege that he is
running for re-election, much less, that he is prejudiced
by the election, by district, in Paraaque. As such, he
does not appear to have locus standi, a standing in
law, a personal or substantial interest. (Sanidad vs.
COMELEC, G.R. No. L-4640, October 12, 1976. 73
SCRA 333; Municipality of Malabang vs. Benito, G.R.
No. L-28113, March 28, 1969, 27 SCRA 533) He does
not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear
to have any cause of action.
However, considering the importance of the issue
involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of
the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We
perceive the petition to be one of declaratory relief. We
so held similarly through Mr. Justice Edgardo L. Paras
in Osmea vs. Commission on Elections.
I view the present case as falling within the De Guia case doctrine.
For, when the contract of lease in question seeks to establish and
operate a nationwide gambling network with substantial if not
controlling foreign participation, then the issue is of paramount
national interest and importance as to justify and warrant a relaxation
of the above-mentioned procedural rule on locus standi.
2. The charter of the PCSO Republic Act No. 1169
as amended by BP No. 42 insofar as relevant,
reads:
Sec. 1. The Philippine Charity Sweepstakes Office.
The Philippine Charity Sweepstakes Office, hereinafter
designated the Office, shall be the principal
government agency for raising and providing for funds
for health programs, medical assistance and services
and charities of national character, and as such shall
have the general powers conferred in section thirteen
of Act Numbered One Thousand Four Hundred Fifty-
Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races,
lotteries and other similar activities, in such frequency
and manner, as shall be determined, and subject to
such rules and regulations as shall be promulgated by
the Board of Directors.
B. Subject to the approval of the Minister of Human
Settlements, to engage in health and welfare-related
investments, programs, projects and activities which
may be profit-oriented, by itself or in collaboration,
association or joint venture with any person,
association, company or entity, whether domestic or
foreign, except for the activities mentioned in the
preceding paragraph (A), for the purpose of providing
for permanent and continuing sources of funds for
health programs, including the expansion of existing
ones, medical assistance and services, and/or
charitable grants: Provided, That such investments will
not compete with the private sector in areas where
investments are adequate as may be determined by
the National Economic and Development Authority.
It is at once clear from the foregoing legal provisions that, while the
PCSO charter allows the PCSO to itself engage in lotteries, it does
not however permit the PCSO to undertake or engage in lotteries in
"collaboration, association or joint venture" with others. The palpable
reason for this prohibition is, that PCSO should not and cannot be
made a vehicle for an otherwise prohibited foreign or domestic entity
to engage in lotteries (gambling activities) in the Philippines.
The core question then is whether the lease contract between PCSO
and PGMC is a device whereby PCSO will engage in lottery in
collaboration, association or joint venture with another, i.e. PGMC. I
need not go here into the details and different specific features of the
contract to show that it is a joint venture between PCSO and PGMC.
That has been taken care of in the opinion of Mr. Justice Davide to
which I fully subscribe.
On a slightly different plane and, perhaps simplified, I consider the
agreement or arrangement between the PCSO and PGMC a joint
venture because each party to the contract contributes its share in the
enterprise or project. PGMC contributes its facilities, equipment and
know-how (expertise). PCSO contributes (aside from its charter) the
market, directly or through dealers and this to me is most important
in the totality or mass of the Filipinogambling elements who will
invest in lotto tickets. PGMC will get its 4.9% of gross receipts (with
assumption of certain risks in the course of lotto operations); the
residue of the whole exercise will go to PCSO. To any person with a
minimum of business know-how, this is a joint venture between PCSO
and PGMC, plain and simple.
But assuming ex gratia argumenti that such arrangement between
PCSO and PGMC is not a joint venture between the two of them to
install and operate an "on-line hi-tech lotto system" in the country, it
can hardly be denied that it is, at the very least, an association or
collaboration between PCSO and PGMC. For one cannot do without
the other in the installation, operation and, most importantly,
marketing of the entire enterprise or project in this country.
Indeed, the contract of lease in question is a clear violation of
Republic Act No. 1169 as amended by BP No. 42 (the PCSO charter).
Having arrived at the conclusion that the contract of lease in question
between the PCSO and PGMC is illegal and, therefore, invalid, I find it
unnecessary to dwell on the other issues raised in the pleadings and
arguments of the parties.
I, therefore, vote to give DUE COURSE to the petition and to declare
the contract of lease in question between PCSO and PGMC, for the
reasons aforestated, of no force and effect.
MELO, J., dissenting:
I submit that the petition before the Court deserves no less than
outright dismissal for the reason that petitioners, as concerned
citizens and as taxpayers and as members of Congress, do not
possess the necessary legal standing to assail the validity of the
contract of lease entered into by the Philippine Charity Sweepstakes
Office and the Philippine Gaming Management Corporation relative to
the establishment and operation of an "On-line Hi-Tech Lottery
System" in the country.
As announced in Lamb vs. Phipps (22 Phil. [1912], 559), "[J]udicial
power in its nature, is the power to hear and decide causes pending
between parties who have the right to sue and be sued in the courts
of law and equity." Necessarily, this implies that a party must show a
personal stake in the outcome of the controversy or an injury to
himself that can be addressed by a favorable decision so as to
warrant his invocation of the court's jurisdiction and to justify the
court's remedial powers in his behalf (Warth vs. Seldin, 422 U.S. 490;
Guzman vs. Marrero, 180 U.S. 81; McMicken vs. United States, 97
U.S. 204). Here, we have yet to see any of petitioners acquiring a
personal stake in the outcome of the controversy or being placed in a
situation whereby injury may be sustained if the contract of lease in
question is implemented. It may be that the contract has somehow
evoked public interest which petitioners claim to represent. But the
alleged public interest which they pretend to represent is not only
broad and encompassing but also strikingly and veritably
indeterminate that one cannot truly say whether a handful of the
public, like herein petitioners, may lay a valid claim of representation
in behalf of the millions of citizens spread all over the land who may
have just as many varied reactions relative to the contract in question.
Any effort to infuse personality on petitioners by considering the
present case as a "taxpayer's suit" could not cure the lack of locus
standi on the part of petitioners. As understood in this jurisdiction, a
"taxpayer's suit" refers to a case where the act complained of directly
involves the illegal disbursement of public funds derived from taxation
(Pascual vs. Secretary of Public Works, 110 Phil. [1960] 331; Maceda
vs. Macaraig, 197 SCRA [1991]; Lozada vs. COMELEC, 120 SCRA
[1983] 337; Dumlao vs. COMELEC, 95 SCRA [1980] 392; Gonzales
vs. Marcos, 65 SCRA [1975] 624). It cannot be overstressed that no
public fund raised by taxation is involved in this case. In fact, it is even
doubtful if the rentals which the PCSO will pay to the lessor for its
operation of the lottery system may be regarded as "public fund". The
PCSO is not a revenue- collecting arm of the government. Income or
money realized by it from its operations will not and need not be
turned over to the National Treasury. Rather, this will constitute
corporate funds which will remain with the corporation to finance its
various activities as authorized in its charter. And if ever some
semblance of "public character" may be said to attach to its earnings,
it is simply because PCSO is a government-owned or controlled entity
and not a purely private enterprise.
It must be conceded though that a "taxpayer's suit" had been allowed
in a number of instances in this jurisdiction. For sure, after the trial
was blazed by Pascual vs. Secretary of Public Works, supra, several
more followed. It is to be noted, however, that in those occasions
where this Court allowed such a suit, the case invariably involved
either the constitutionality of a statute or the legality of the
disbursement of public funds through the enforcement of what was
perceived to be an invalid or unconstitutional statute or legislation
(Pascual, supra; Philippine Constitution Association, Inc. vs. Jimenez,
15 SCRA [1965] 479; Philippine Constitution Association, Inc. vs.
Mathay, 18 SCRA [1966] 300; Tolentino vs. COMELEC, 41 SCRA
[1971] 702; Pelaez vs. Auditor General, 15 SCRA [1965] 569; Iloilo
Palay and Corn Planters Association vs. Feliciano, 13 SCRA [1965]
377).
The case before us is not a challenge to the validity of a statute or an
attempt to restrain expenditure of public funds pursuant to an alleged
invalid congressional enactment. What petitioners ask us to do is to
nullify a simple contract of lease entered into by a government-owned
corporation with a private entity. That contract, as earlier pointed out,
does not involve the disbursement of public funds but of strictly
corporate money. If every taxpayer, claiming to have interest in the
contract, no matter how remote, could come to this Court and seek
nullification of said contract, the day may come when the activities of
government corporate entities will ground to a standstill on account of
nuisance suits filed against them by persons whose supposed interest
in the contract is as remote and as obscure as the interest of any man
in the street. The dangers attendant thereto are not hard to discern
and this Court must not allow them to come to pass.
One final observation must be emphasized. When the petition at
bench was filed, the Court decided to hear the case on oral argument
on the initial perception that a constitutional issue could be involved.
However, it now appears that no question of constitutional dimension
is at stake as indeed the majority barely touches on such an issue,
concentrating as it does on its interpretation of the contract between
the Philippine Charity Sweepstakes Office and the Philippine Gaming
Management Corporation.
I, therefore, vote to dismiss the petition.
PUNO, J., dissenting:
At the outset, let me state that my religious faith and family upbringing
compel me to regard gambling, regardless of its garb, with hostile
eyes. Such antagonism tempts me to view the case at bench as a
struggle between good and evil, a fight between the forces of light
against the forces of darkness. I will not, however, yield to that
temptation for we are not judges of the Old Testament type who were
not only arbiters of law but were also high priests of morality.
I will therefore strictly confine the peregrinations of my mind to
the legal issues for resolution: (1) whether or not the petitioners have
the Locus standi to file the petition at bench; and (2) assuming
their locus standi, whether or not the Contract of Lease between
PCSO and PGMC is null and void considering: (a) section 1 of R.A.
No. 1169, as amended by B.P. Blg. 42 (Charter of PCSO) which
prohibits PCSO from holding and conducting lotteries "in
collaboration, association or joint venture with any person,
association, company or entity"; (b) Act No. 3836 which requires a
congressional franchise before any person or entity can establish and
operate a telecommunication system; (c) section 11, Art. XII of the
Constitution, which requires that for a corporation to operate a public
utility, at least 60% of its capital must be owned by Filipino citizens;
and (d) R.A. No. 7042, otherwise known as the "Foreign Investments
Act", which includes all forms of gambling in its "negative list."
While the legal issues abound, I deferentially submit that the threshold
issue is the locus standi, or standing to sue, of petitioners. The
petition describes petitioner Kilosbayan, Inc., as a non-stock
corporation composed of "civic spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and
national renewal." 1 Petitioners Jovito R. Salonga, Cirilo A. Rigos,
Ernie Camba, Emilio C. Capulong, Jr., Jose Abcede, Christine Tan,
Felipe L. Gozon, Rafael G. Fernando, Raoul V. Victorino, Jose
Cunanan, and Quintin S. Doromal joined the petition in their capacity
as trustees of Kilosbayan, Inc., and as taxpayers and concerned
citizens. 2 Petitioners Freddie Webb and Wigberto Taada joined the
petition as senators, taxpayers and concerned citizens. 3 Petitioner
Joker P. Arroyo joined the petition as a member of the House of
Representative, a taxpayer and a concerned citizen. 4
With due respect to the majority opinion, I wish to focus on the
interstices of locus standi, a concept described by Prof. Paul Freund
as "among the most amorphous in the entire domain of public law."
The requirement of standing to sue inheres from the definition of
judicial power. It is not merely a technical rule of procedure which we
are at liberty to disregard. Section 1, Article VIII of the Constitution
provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice
to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
Government. (Italics supplied)
The phrase "actual controversies involving rights which are legally
demandable and enforceable" has acquired a cultivated meaning
given by courts. It spells out the requirements that must be satisfied
before one can come to court to litigate a constitutional issue. Our
distinguished colleague, Mr. Justice Isagani A. Cruz, gives a
shorthand summary of these requirements when he states that no
constitutional question will be heard and decided by courts unless
there is a showing of the following: . . . (1) there must be an actual
case or controversy; (2) the question of constitutionality must be
raised by the proper party; (3) the constitutional question must be
raised at the earliest possible opportunity; and (4) the decision of the
constitutional question must be necessary to the determination of the
case itself. 5
The complexion of the rule on locus standi has been undergoing a
change. Mr. Justice Cruz has observed the continuing relaxation of
the rule on
standing, 6 thus:
xxx xxx xxx
A proper party is one who has sustained or is in
immediate danger of sustaining an injury as a result of
the act complained of. Until and unless such actual or
potential injury is established, the complainant cannot
have the legal personality to raise the constitutional
question.
In Tileson v. Ullmann, a physician questioned the
constitutionality of a law prohibiting the use of
contraceptives, upon the ground that it might prove
dangerous to the life or health of some of his patients
whose physical condition would not enable them to
bear the rigors of childbirth. The court dismissed the
challenge, holding that the patients of the physician
and not the physician himself were the proper parties.
In Cuyegkeng v. Cruz, the petitioner challenged in
a quo warranto proceeding the title of the respondent
who, he claimed, had been appointed to the board of
medical examiners in violation of the provisions of the
Medical Act of 1959. The Supreme Court dismissed the
petition, holding that Cuyegkeng had not made a claim
to the position held by Cruz and therefore could not be
regarded as a proper party who had sustained an injury
as a result of the questioned act.
In People v. Vera, it was held that the Government of
the Philippines was a proper party to challenge the
constitutionality of the Probation Act because, more
than any other, it was the government itself that should
be concerned over the validity of its own laws.
In Ex Parte Levitt, the petitioner, an American taxpayer
and member of the bar, filed a motion for leave to
question the qualifications of Justice Black who, he
averred, had been appointed to the U.S. Supreme
Court in violation of the Constitution of the United
States. The Court dismissed the petition, holding that
Levitt was not a proper party since he was not claiming
the position held by Justice Black.
The rule before was that an ordinary taxpayer did not
have the proper party personality to question the
legality of an appropriation law since his interest in the
sum appropriated was not substantial enough. Thus,
in Custodio v. Senate President, a challenge by an
ordinary taxpayer to the validity of a law granting back
pay to government officials, including members of
Congress, during the period corresponding to the
Japanese Occupation was dismissed as having been
commenced by one who was not a proper party.
Since the first Emergency Powers Cases, however, the
rule has been changed and it is now permissible for an
ordinary taxpayer, or a group of taxpayers, to raise the
question of the validity of an appropriation law. As the
Supreme Court then put it. "The transcendental
importance to the public of these cases demands that
they be settled promptly and definitely, brushing aside,
if we must, technicalities of procedure."
In Tolentino v. Commission on Elections, it was held
that a senator had the proper party personality to seek
the prohibition of a plebiscite for the ratification of a
proposed constitutional amendment. In PHILCONSA v.
Jimenez, an organization of taxpayers and citizens was
held to be a proper party to question the
constitutionality of a law providing for special retirement
benefits for members of the legislature.
In Sanidad v. Commission on Elections, the Supreme
Court upheld the petitioners as proper parties, thus
As a preliminary resolution, We rule that
the petitioners in L-44640 (Pablo C.
Sanidad and Pablito V. Sanidad)
possess locus standi to challenge the
constitutional premise of Presidential
Decree Nos. 991, 1031, and 1033. It is
now an ancient rule that the valid source
of a statute Presidential Decrees are
of such nature may be contested by
one who will sustain a direct injury as a
result of its enforcement. At the instance
of taxpayers, laws providing for the
disbursement of public funds may be
enjoined, upon the theory that the
expenditure of public funds by an officer
of the State for the purpose of executing
an unconstitutional act constitutes a
misapplication of such funds. The
breadth of Presidential Decree No. 991
carries an appropriation of Five Million
Pesos for the effective implementation
of its purposes. Presidential Decree No.
1031 appropriates the sum of Eight
Million Pesos to carry out its provisions.
The interest of the aforenamed
petitioners as taxpayers in the lawful
expenditure of these amounts of public
money sufficiently clothes them with that
personality to litigate the validity of the
Decrees appropriating said funds.
Moreover, as regard taxpayer's suits,
this Court enjoys that open discretion to
entertain the same or not. For the
present case, We deem it sound to
exercise that discretion affirmatively so
that the authority upon which the
disputed Decrees are predicated may
be inquired into.
In Lozada v. Commission on Elections, however, the
petitioners were held without legal standing to demand
the filling of vacancies in the legislature because they
had only "a generalized interest' shared with the rest of
the citizenry."
Last July 30, 1993, we further relaxed the rule on standing in Oposa,
et al. v. Hon. Fulgencio S. Factoran, Jr., 7where we recognized
the locus standi of minors representing themselves as well as
generations unborn to protect their constitutional right to a balanced
and healthful ecology.
I am perfectly at peace with the drift of our decisions liberalizing the
rule on locus standi. The once stubborn disinclination to decide
constitutional issues due to lack of locus standi is incompatible with
the expansion of judicial power mandated in section 1 of Article VIII of
the Constitution, i.e., "to determine whether or not there has been a
grave abuse of discretion, amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the government." As we
held thru the ground breaking ponencia of Mr. Justice Cruz in Daza v.
Singson, 8 this provision no longer precludes the Court from resolving
political questions in proper cases. But even perusing this provision as
a constitutional warrant for the court to enter the once forbidden
political thicket, it is clear that the requirement of locus standi has not
been jettisoned by the Constitution for it still commands courts in no
uncertain terms to settle only "actual controversies involving rights
which are legally demandable and enforceable." Stated otherwise,
courts are neither free to decide all kinds of cases dumped into their
laps nor are they free to open their doors to all parties or entities
claiming a grievance. The rationale for this constitutional requirement
of locus standi is by no means trifle. It is intended "to assure a
vigorous adversary presentation of the case, and, perhaps more
importantly to warrant the judiciary's overruling the determination of a
coordinate, democratically elected organ of government." 9 It thus
goes to the very essence of representative democracies. As Mr.
Justice Powell carefully explained in U.S. v.
Richardson, 10 viz:
Relaxation of standing requirements is directly related
to the expansion of judicial power. It seems to me
inescapable that allowing unrestricted taxpayer or
citizen standing would significantly alter the allocation
of power at the national level, with a shift away from a
democratic form of government. I also believe that
repeated and essentially head-on confrontations
between the life-tenured branch and the representative
branches of government will not, in the long run, be
beneficial to either. The public confidence essential to
the former and the vitality critical to the latter may well
erode if we do not exercise self- restraint in the
utilization of our power to negative the actions of the
other branches. We should be ever mindful of the
contradictions that would arise if a democracy were to
permit at large oversight of the elected branches of
government by a non-representative, and in large
measure insulated, judicial branch. Moreover, the
argument that the Court should allow unrestricted
taxpayer or citizen standing underestimates the ability
of the representative branches of the Federal
Government to respond to the citizen pressure that has
been responsible in large measure for the current drift
toward expanded standing. Indeed, taxpayer or citizen
advocacy, given its potentially broad base, is precisely
the type of leverage that in a democracy ought to be
employed against the branches that were intended to
be responsive to public attitudes about the appropriate
operation of government. "We must as judges recall
that, as Mr. Justice Holmes wisely observed, the other
branches of Government are ultimate guardians of the
liberties and welfare of the people in quite as great a
degree as the courts."
Unrestrained standing in federal taxpayer or citizen
suits would create a remarkably illogical system of
judicial supervision of the coordinate branches of the
Federal Government. Randolph's proposed Council of
Revision, which was repeatedly rejected by the
Framers, at least had the virtue of being systematic;
every law passed by the legislature automatically
would have been previewed by the judiciary before the
law could take effect. On the other hand, since the
judiciary cannot select the taxpayers or citizens who
bring suit or the nature of the suits, the allowance of
public actions would produce uneven and sporadic
review, the quality of which would be influenced by the
resources and skill of the particular plaintiff. And issues
would be presented in abstract form, contrary to the
Court's recognition that "judicial review is effective
largely because it is not available simply at the behest
of a partisan faction, but is exercised only to remedy a
particular, concrete injury." Sierra Club v. Morton, 405
U.S. 727, 740-741, n. 16 (1972).
A lesser but not insignificant reason for screening the standing of
persons who desire to litigate constitutional issues is economic in
character. Given the sparseness of our resources, the capacity of
courts to render efficient judicial service to our people is severely
limited. For courts to indiscriminately open their doors to all types of
suits and suitors is for them to unduly overburden their dockets, and
ultimately render themselves ineffective dispensers of justice. To be
sure, this is an evil that clearly confronts our judiciary today.
Prescinding from these premises, and with great reluctance, I am not
prepared to concede the standing to sue of petitioners. On a personal
level, they have not shown that elemental injury in fact which will
endow them with a standing to sue. It must be stressed that
petitioners are in the main, seeking the nullity not of a law but of a
Contract of Lease. Not one of the petitioners is a party to the Contract
of Lease executed between PCSO and PGMC. None of the
petitioners participated in the bidding, and hence they are not losing
bidders. They are complete strangers to the contract. They stand
neither to gain nor to lose economically by its enforcement. It seems
to me unusual that an unaffected third party to a contract could be
allowed to question its validity. Petitioner Kilosbayan cannot justify this
officious interference on the ground of its commitment to "truth, justice
and national renewal." Such commitment to truth, justice and national
renewal, however noble it may be, cannot give Kilosbayan a roving
commission to check the validity of contracts entered into by the
government and its agencies. Kilosbayan is not a private commission
on audit.
Neither can I perceive how the other petitioners can be personally
injured by the Contract of Lease between PCSO and PGMC even if
petitioner Salonga assails as unmitigated fraud the statistical
probability of winning the lotto as he compared it to the probability of
being struck twice by lightning. The reason is obvious: none of the
petitioners will be exposed to this alleged fraud for all of them profess
to abjure playing the lotto. It is self-evident that lotto cannot physically
or spiritually injure him who does not indulge in it.
Petitioners also contend they have locus standi as taxpayers. But the
case at bench does not involve any expenditure of public money on
the part of PCSO. In fact, paragraph 2 of the Contract of Lease
provides that it is PGMC that shall build, furnish, and maintain at its
own expense and risk the facilities for the On-Line Lottery System of
PCSO and shall bear all maintenance and other costs. Thus, PGMC
alleged it has already spent P245M in equipment and fixtures and
would be investing close to P1 billion to supply adequately the
technology and other requirements of PCSO. 11 If no tax money is
being illegally deflected in the Contract of Lease between PCSO and
PGMC, petitioners have no standing to impugn its validity as
taxpayers. Our ruling in Dumlao v. Comelec, 12 settled this issue well
enough, viz:
However, the statutory provisions questioned in this
case, namely, sec. 7, BP Blg. 51, and sections 4, 1,
and 5 BP Blg. 52, do not directly involve the
disbursement of public funds. While, concededly, the
elections to be held involve the expenditure of public
moneys, nowhere in their Petition do said petitioners
allege that their tax money is "being extracted and
spent in violation of specific constitutional protections
against abuses of legislative power" (Flast v. Cohen,
392 U.S. 83 [1960]), or that there is a misapplication of
such funds by respondent COMELEC (see Pascual vs.
Secretary of Public Works, 110 Phil. 331 [1960]), or
that public money is being deflected to any improper
purpose. Neither do petitioners seek to restrain
respondent from wasting public funds through the
enforcement of an invalid or unconstitutional law.
(Philippine Constitution Association vs. Mathay, 18
SCRA 300 [1966]), citing Philippine Constitution
Association vs. Gimenez, 15 SCRA 479 [1965]).
Besides, the institution of a taxpayer's suit, per se, is
no assurance of judicial review. As held by this Court
in Yan vs. Macapagal(43 SCRA 677 [1972]), speaking
through our present Chief Justice, this Court is vested
with discretion as to whether or not a taxpayer's suit
should be entertained.
Next, petitioners plead their standing as "concerned citizens." As
citizens, petitioners are pleading that they be allowed to advocate the
constitutional rights of other persons who are not before the court and
whose protection is allegedly their concern. A citizen qua citizen suit
urges a greater relaxation of the rule on locus standi. I feel no
aversion to the further relaxation of the rule on standing to
accommodate what in other jurisdictions is known as an assertion
of jus tertii in constitutional litigation provided the claimant can
demonstrate: (1) an injury in fact to himself, and (2) the need to
prevent the erosion of a preferred constitutional right of a third person.
As stressed before, the first requirement of injury in fact cannot be
abandoned for it is an essential element for the exercise of judicial
power. Again, as stressed by Mr. Justice Powell, viz: 13
The revolution in standing doctrine that has occurred,
particularly in the 12 years since Baker v. Carr,
supra, has not meant, however, that standing barriers
have disappeared altogether. As the Court noted in
Sierra Club, "broadening the categories of injury that
may be alleged in support of standing is a different
matter from abandoning the requirement that the party
seeking review must himself have suffered an injury."
405 U.S., at 738 . . . Indeed, despite the diminution of
standing requirements in the last decade, the Court
has not broken with the traditional requirement that, in
the absence of a specific statutory grant of the right of
review, a plaintiff must allege some particularized injury
that sets him apart from the man on the street.
I recognize that the Court's allegiance to a requirement
of particularized injury has on occasion required a
reading of the concept that threatens to transform it
beyond recognition. E.G., Baker v. Carr, supra; Flast v.
Cohen, supra. But despite such occasional
digressions, the requirement remains, and I think it
does so for the reasons outlined above. In recognition
of those considerations, we should refuse to go the last
mile towards abolition of standing requirements that is
implicit in broadening the "precarious opening" for
federal taxpayers created by Flast, see 392 U.S., at
116 (Mr. Justice Fortas, concurring) or in allowing a
citizen qua citizen to invoke the power of the federal
courts to negative unconstitutional acts of the Federal
Government.
In sum, I believe we should limit the expansion of
federal taxpayer and citizen standing in the absence of
specific statutory authorization to an outer boundary
drawn by the results in Flast and Baker v. Carr. I think
we should face up to the fact that all such suits are an
effort "to employ a federal court as a forum in which to
air . . . generalized grievances about the conduct of
government or the allocation of power in the Federal
System." Flast v. Cohen, 392 U.S., at 106. The Court
should explicitly reaffirm traditional prudential barriers
against such public actions. My reasons for this view
are rooted in respect for democratic processes and in
the conviction that "[t]he powers of the federal judiciary
will be adequate for the great burdens placed upon
them only if they are employed prudently, with
recognition of the strengths as well as the hazards that
go with our kind of representative government." Id.,
at 131
The second requirement recognizes society's right in the protection of
certain preferred rights in the Constitution even when the rightholders
are not before the court. The theory is that their dilution has a
substantial fall out detriment to the rights of others, hence the latter
can vindicate them.
In the case at bench, it is difficult to see how petitioners can satisfy
these two requirements to maintain a jus tertiiclaim. They claim
violation of two constitutional provisions, to wit:
Section 1, Article XIII. The Congress shall give
highest priority to the enactment of measures that
protect and enhance the right of all the people to
human dignity, reduce social, economic, and political
inequalities, and remove cultural inequities by equitably
diffusing wealth and political power for the common
good.
To this end, the State shall regulate the acquisition,
ownership, use, and disposition of property and its
increments.
and
Section 11, Article XII. - 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 authorizations 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
citizen of the Philippines.
Section 1, Article XIII of the Constitution cannot be the matrix of
petitioners' jus tertii claim for it expresses no more than a policy
direction to the legislative in the discharge of its ordained duty to
give highest priority to the enactment of measures that protect and
enhance the right of all the people to human dignity, reduce social,
economic, and political inequalities and remove cultural inequities by
equitably diffusing wealth and political power for the common good.
Whether the act of the legislature in amending the charter of PCSO by
giving it the authority to conduct lotto and whether the Contract of
Lease entered into between PCSO and PGMC are incongruent to the
policy direction of this constitutional provision is a highly debatable
proposition and can be endlessly argued. Respondents steadfastly
insist that the operation of lotto will increase the revenue base of
PCSO and enable government to provide a wider range of social
services to the people. They also allege that the operation of high-
tech lotto will eradicate illegal jueteng. Petitioners are scandalized by
this submission. They dismiss gambling as evilper se and castigate
government for attempting to correct a wrong by committing another
wrong. In any event, the proper forum for this debate, however
cerebrally exciting it may be, is not this court but congress. So we
held in PCSO v. Inopiquez, to wit: 14
By bringing their suit in the lower court, the private
respondents in G.R. No. 79084 do not question the
power of PCSO to conduct the Instant Sweepstakes
game. Rather, they assail the wisdom of embarking
upon this project because of their fear of the
"pernicious repercussions" which may be brought
about by the Instant Sweepstakes Game which they
have labelled as "the worst form of gambling" which
thus "affects the moral values" of the people.
The Court, as held in several cases, does not pass
upon questions of wisdom, justice, or expediency of
legislation and executive acts. It is not the province of
the courts to supervise legislation or executive orders
as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even
exclusively a concern of the political departments of the
government; otherwise, there will be a violation of the
principle of separation of powers. (Italics supplied)
I am not also convinced that petitioners can justify their locus standi to
advocate the rights of hypothetical third parties not before the court by
invoking the need to keep inviolate section 11, Article XII of the
Constitution which imposes a nationality requirement on operators of
a public utility. For even assuming arguendo that PGMC is a public
utility, still, the records do not at the moment bear out the claim of
petitioners that PGMC is a foreign owned and controlled corporation.
This factual issue remains unsettled and is still the subject of litigation
by the parties in the Securities and Exchange Commission. We are
not at liberty to anticipate the verdict on this contested factual issue.
But over and above this consideration, I respectfully submit that this
constitutional provision does not confer on third parties any right of a
preferred status comparable to the Bill of Rights whose dilution will
justify petitioners to vindicate them in behalf of its rightholders. The
legal right of hypothetical third parties they profess to advocate is to
my mind too impersonal, too unsubstantial, too indirect, too
amorphous to justify their access to this Court and the further lowering
of the constitutional barrier of locus standi.
Again, with regret, I do not agree that the distinguished status of some
of the petitioners as lawmakers gives them the appropriate locus
standi. I cannot perceive how their constitutional rights and
prerogatives as legislators can be adversely affected by the contract
in question. Their right to enact laws for the general conduct of our
society remains unimpaired and undiminished. 15 Their status as
legislators, notwithstanding, they have to demonstrate that the said
contract has caused them to suffer a personal, direct, and substantial
injury in fact. They cannot simply advance a generic grievance in
common with the people in general.
I am not unaware of our ruling in De Guia v. Comelec, 16 viz:
Before addressing the crux of the controversy, the
Court observes that petitioner does not allege that he is
 running for reelection, much less, that he is prejudiced
by the election, by district, in Paraaque. As such, he
does not appear to have locus standi, a standing in
law, a personal or substantial interest. (Sanidad vs.
COMELEC, G.R. No. L-44640, October 12, 1976, 73
SCRA 333; Municipality of Malabang vs. Benito, G.R.
No. L-28113, March 28, 1969, 27 SCRA 533). He does
not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear
to have any cause of action.
However, considering the importance of the issue
involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and
petitioner alleging abuse of discretion and violation of
the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We
perceive the petition to be one of declaratory relief. We
so held similarly through Mr. Justice Edgardo L. Paras
in Osmena vs. Commission on Elections.
It is my respectful submission, however, that we should re-examine de
Guia. It treated the rule on locus standi as a mere procedural rule. It is
not a plain procedural rule but a constitutional requirement derived
from section 1, Article VIII of the Constitution which mandates courts
of justice to settle only "actual controversies involving rights which are
legally demandable and enforceable." The phrase has been
construed since time immemorial to mean that a party in a
constitutional litigation must demonstrate a standing to sue. By
downgrading the requirement on locus standi as a procedural rule
which can be discarded in the name of public interest, we are in effect
amending the Constitution by judicial fiat.
De Guia would also brush aside the rule on locus standi if a case
raises an important issue. In this regard, I join the learned observation
of Mr. Justice Feliciano: "that it is not enough for the Court simply to
invoke 'public interest' or even 'paramount considerations of national
interest,' and to say that the specific requirements of such public
interest can only be ascertained on a 'case to case' basis. For one
thing, such an approach is not intellectually satisfying. For another,
such an answer appears to come too close to saying that locus
standi exists whenever at least a majority of the Members of this
Court participating in a case feel that an appropriate case for judicial
intervention has arisen."
I also submit that de Guia failed to perceive that the rule on locus
standi has little to do with the issue posed in a case, however,
important it may be. As well pointed out in Flast v. Cohen: 17
The fundamental aspect of standing is that it focuses
on the party seeking to get his complaint before a
federal court and not on the issues he wishes to have
adjudicated. The "gist of the question of standing" is
whether the party seeking relief has "alleged such a
personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely
depends for illumination of difficult constitutional
questions." Baker v. Carr,369 U.S. 186, 204 (1962). In
other words, when standing is placed in issue in a
case, the question is whether the person whose
standing is challenged is a proper party to request an
adjudication of a particular issue and not whether the
issue itself is justiciable. Thus, a party may have
standing in a particular case, but the federal court may
nevertheless decline to pass on the merits of the case
because, for example, it presents a political question. A
proper party is demanded so that federal courts will not
be asked to decide "ill-defined controversies over
constitutional issues," United public Workers v.
Mitchell, 330 U.S. 75, 90 (1947), or a case which is of
"a hypothetical or abstract character," Aetna Life
Insurance Co. v. Haworth, 300 U.S. 227, 240 (1937).
It is plain to see that in de Guia, the court took an unorthodox posture,
to say the least. It held there was no proper party before it, and yet it
resolved the issues posed by the petition. As there was no proper
party before the court, its decision is vulnerable to be criticized as an
advisory opinion.
With due respect, the majority decision appears to have set a
dangerous precedent by unduly trivializing the rule on locus standi. By
its decision, the majority has entertained a public action to annul a
private contract. In so doing, the majority may have given sixty (60)
million Filipinos the standing to assail contracts of government and its
agencies. This is an invitation for chaos to visit our law on contract,
and certainly will not sit well with prospective foreign investors.
Indeed, it is difficult to tread the path of the majority on this significant
issue. The majority granted locus standi to petitioners because of lack
of any other party with more direct and specific interest. But one has
standing because he has standing on his own and standing cannot be
acquired because others with standing have refused to come to court.
The thesis is also floated that petitioners have standing as they can
be considered taxpayers with right to file derivative suit like a
stockholder's derivative suit in private corporations. The fact,
however, is that PCSO is not a private but a quasi-public corporation.
Our law on private corporation categorically sanctions stockholder's
derivative suit. In contrast, our law on public corporation does not
recognize this so-called taxpayer's derivative suit. Hence, the idea of
a taxpayer's derivative suit, while alluring, has no legal warrant.
Our brethren in the majority have also taken the unprecedented step
of striking down a contrast at the importunings of strangers thereto,
but without justifying the interposition of judicial power on any felt
need to prevent violation of an important constitutional provision. The
contract in question was voided on the sole ground that it violated an
ordinary statute, section 1 of R.A. 1169, as amended by B.P. Blg. 42.
If there is no provision of the Constitution that is involved in the case
at bench, it boggles the mind how the majority can invoke
considerations of national interest to justify its abandonment of the
rule on locus standi. The volume of noise created by the case cannot
magically convert it to a case of paramount national importance. By its
ruling, the majority has pushed the Court in unchartered water bereft
of any compass, and it may have foisted the false hope that it is the
repository of all remedies.
If I pay an unwavering reverence to the rule of locus standi, it is
because I consider it as a touchstone in maintaining the proper
balance of power among the three branches of our government. The
survival of our democracy rests in a large measure on our ability to
maintain this delicate equipoise of powers. For this reason, I look at
judicial review from a distinct prism. I see it both as a power and a
duty. It is a power because it enables the judiciary to check excesses
of the Executive and the Legislative. But, it is also a duty because its
requirement of locus standi, among others, Executive and the
Legislative. But, it is also a duty because its requirement of locus
standi, among others, keeps the judiciary from overreaching the
powers of the other branches of government. By balancing this
duality, we are able to breathe life to the principle of separation of
powers and prevent tyranny. To be sure, it is our eternal concern to
prevent tyranny but that includes tyranny by ourselves. The
Constitution did not install a government by the judiciary, nay, not a
government by the unelected. In offering this submission, I reject the
sublimal fear that an unyielding insistence on the rule on locus
standi will weaken the judiciary vis-a-vis the other branches of
government. The hindsight of history ought to tell us that it is not
power per se that strengthens. Power unused is preferable than
power misused. We contribute to constitutionalism both by the use of
our power to decide and its non use. As well said, the cases we
decide are as significant as the cases we do not decide. Real power
belongs to him who has power over power.
IN VIEW WHEREOF, and strictly on the ground of lack of locus
standi on the part of petitioners, I vote to DENY the petition.
VITUG, J., dissenting:
Judicial power encompasses both an authority and duty to resolve
"actual controversies involving rights which are legally demandable
and enforceable" (Article VIII, Section 1, 1987 Constitution). As early
as the case of Lamb vs. Phipps, 1 this Court ruled: "Judicial power, in
its nature, is the power to hear and decide causes pending between
parties who have the right to sue in the courts of law and equity." 2 An
essential part of, and corollary to, this principle is the locus standi of a
party litigant, referring to one who is directly affected by, and whose
interest is immediate and substantial in, the controversy. The rule
requires that a party must show a personal stake in the outcome of
the case or an injury to himself that can be redressed by a favorable
decision so as to warrant his invocation of the court's jurisdiction and
to justify the exercise of the court's remedial powers in his behalf. 3 If it
were otherwise, the exercise of that power can easily become too
unwieldy by its sheer magnitude and scope to a point that may, in no
small degree, adversely affect its intended essentiality, stability and
consequentiality.
Locus standi, nevertheless, admits of the so-called "taxpayer's suit."
Taxpayer's suits are actions or proceedings initiated by one or more
taxpayers in their own behalf or, conjunctively, in representation of
others similarly situated for the purpose of declaring illegal or
unauthorized certain acts of public officials which are claimed to be
injurious to their common interests as such taxpayers (Cf. 71 Am Jur
2d., 179-180). The principle is predicated upon the theory that
taxpayers are, in equity, the cestui que trust of tax funds, and any
illegal diminution thereof by public officials constitutes a breach of
trust even as it may result in an increased burden on taxpayers
(Haddock vs. Board of Public Education, 86 A 2d 157; Henderson vs.
McCormick, 17 ALR 2d 470).
Justice Brandeis of the United States Supreme Court, in his
concurring opinion in Ashwander vs. Tennessee Valley Authority (297
U.S. 288), said:
. . . . The Court will not pass upon the validity of a
statute upon complaint of one who fails to show that he
is injured by its operation. Tyler v. The Judges, 179
U.S. 405; Hendrick v. Maryland, 234 U.S. 610, 621.
Among the many applications of this rule, none is more
striking than the denial of the right of challenge to one
who lacks a personal or property right. Thus, the
challenge by a public official interested only in the
performance of his official duty will not be
entertained. Columbus & Greenville Ry. v. Miller, 283
U.S. 96, 99-100. In Fairchild v. Hughes, 258 U.S. 126,
the Court affirmed the dismissal of a suit brought by a
citizen who sought to have the Nineteenth Amendment
declared unconstitutional. InMassachusetts v.
Mellon, 262 U.S. 447, the challenge of the federal
Maternity Act was not entertained although made by
the Commonwealth on behalf of all its citizens."
Justice Brandeis' view, shared by Justice Frankfurter in Joint Anti-
Fascist Refugee Commission vs. McGrath (351 U.S. 123), was
adopted by the U.S. Supreme Court in Flast vs. Cohen (392 U.S. 83)
which held that it is only when a litigant is able to show such a
personal stake in the controversy as to assure a concrete
adverseness in the issues submitted that legal standing can attach.
A "taxpayer's suit," enough to confer locus standi to a party, we have
held before, is understood to be a case where the act complained
of directly involves the illegal disbursement of public funds derived
from taxation.4 It is not enough that the dispute concerns public funds.
A contrary rule could easily lead to a limitless application of the term
"taxpayer's suit," already by itself a broad concept, since a questioned
act of government would almost so invariably entail, as a practical
matter, a financial burden of some kind.
To be sure, serious doubts have even been raised on the propriety
and feasibility of unqualifiedly recognizing the "taxpayer's suit" as an
exception from the standard rule of requiring a party who invokes the
exercise of judicial power to have a real and personal interest or a
direct injury in the outcome of a controversy. This Court has
heretofore spoken on the matter, at times even venturing beyond the
usual understanding of its applicability in the name of national or
public interest. It is remarkable, nevertheless, that the accepted
connotation of locus standi has still managed to be the rule,
sanctioning, by way of exception, the so-called "taxpayer's suit" which
courts accept on valid and compelling reasons.
A provision which has been introduced by the 1987 Constitution is a
definition, for the first time in our fundamental law, of the term "judicial
power," as such authority and duty of courts of justice "to settle actual
controversies involving rights which are legally demandable and
enforceable and to determine whether or not there has been a grave
abuse of discretion, amounting to lack or excess of jurisdiction, on the
part of any branch or instrumentality of the Government" (Article VIII,
Section 1, Constitution). I take it that the provision has not been
intended to unduly mutate, let alone to disregard, the long established
rules on locus standi. Neither has it been meant, I most respectfully
submit, to do away with the principle of separation of powers and its
essential incidents such as by, in effect, conferring omnipotence on,
or allowing an intrusion by, the courts in respect to purely political
decisions, the exercise of which is explicitly vested elsewhere, and
subordinate, to that of their own, the will of either the Legislative
Department or the Executive Department both co- equal,
independent and coordinate branches, along with the Judiciary, in our
system of government. Again, if it were otherwise, there indeed would
be truth to the charge, in the words of some constitutionalists, that
"judicial tyranny" has been institutionalized by the 1987 Constitution,
an apprehension which should, I submit, rather be held far from truth
and reality.
In sum, while any act of government, be it executive in nature or
legislative in character, may be struck down and declared a nullity
either because it contravenes an express provision of the Constitution
or because it is perceived and found to be attended by or the result of
grave abuse of discretion, amounting to lack or excess of jurisdiction,
that issue, however, must first be raised in a proper judicial
controversy. The Court's authority to look into and grant relief in such
cases would necessitate locus standi on the part of party litigants.
This requirement, in my considered view, is not merely procedural or
technical but goes into the essence of jurisdiction and the competence
of courts to take cognizance of justiciable disputes.
In Bugnay Construction and Development Corporation vs.
Laron, 5 this Court ruled:
. . . . Considering the importance to the public of a suit
assailing the constitutionality of a tax law, and in
keeping with the Court's duty, specially explicated in
the 1987 Constitution, to determine whether or not the
other branches of the Government have kept
themselves within the limits of the Constitution and the
laws and that they have not abused the discretion
given to them, the Supreme Court may brush aside
technicalities of procedure and take cognizance of the
suit. (Citing Kapatiran vs. Tan, G.R. No. 81311, June
30, 1988.)
However, for the above rule to apply, it is exigent that
the taxpayer-plaintiff sufficiently show that he would be
benefited or injured by the judgment or entitled to the
avails of the suit as a real party in interest. (Citing
Estate of George Litton vs. Mendoza, G.R. No. 49120,
June 30, 1988.) Before he can invoke the power of
judicial review, he must specifically prove that he has
sufficient interest in preventing the illegal expenditure
of money raised by taxation (citing 11 Am. Jur. 761;
Dumlao, et al. vs. Commission on Elections, 95 SCRA
392) and that he will sustain a direct injury as a result
of the enforcement of the questioned statute or
contract. (Citing Sanidad, et al. vs. Commission on
Elections, et al., 73 SCRA 333.) It is not sufficient that
he has merely a general interest common to all
members of the public. (Citing Ex Parte Levitt, 302 U.S.
633, cited in 15 SCRA 497, Annotation.)
As so well pointed out by Mr. Justice Camilo D. Quiason during the
Court's deliberations, "due respect and proper regard for the rule
on locus standi would preclude the rendition of advisory opinions and
other forms of pronouncement on abstract issues, avoid an undue
interference on matters which are not justiciable in nature and spare
the Court from getting itself involved in political imbroglio."
The words of Senate President Edgardo J. Angara, carry wisdom; we
quote:
The powers of the political branches of our government
over economic policies is rather clear: the Congress is
to set in broad but definite strokes the legal framework
and structures for economic development, while the
Executive provides the implementing details for
realizing the economic ends identified by Congress and
executes the same.
xxx xxx xxx
If each economic decision made by the political
branches of government, particularly by the executive,
are fully open to re-examination by the judicial branch,
then very little, if any, reliance can be placed by private
economic actors on those decisions. Investors would
always have to factor in possible costs arising from
judicially-determined changes affecting their immediate
business, notwithstanding assurances by executive
authorities.
Judicial decisions are, in addition, inflexible and can
never substitute for sound decision-making at the level
of those who are assigned to execute the laws of the
land. Since judicial power cannot be exercised unless
an actual controversy is brought before the courts for
resolution, decisions cannot be properly modified
unless another appropriate controversy arises." (Sen.
Edgardo J. Angara, "The Supreme Court in Economic
Policy Making," Policy Review A Quarterly Journal
 of Policy Studies, Vol. 1, No. 1, January-March 1994, PCSO the authority and power "to hold and conduct sweepstakes
published by the Senate Policy Studies Group, pp. 2- races, lotteries, and other similar activities." In addition, it is
3.) authorized:

A further set-back in entertaining the petition is that it unfortunately c. To undertake any other activity that will enhance its
likewise strikes at factual issues. The allegations to the effect that funds generation, operations and funds management
irregularities have been committed in the processing and evaluation of capabilities, subject to the same limitations provided for
the bids to favor respondent PGMC; that the Malacaang Special in the preceding paragraph.
Review Committee did not verify warranties embodied in the contract;
that the operation of telecommunication facilities is indispensable in It shall have a Board of Directors, hereinafter
the operation of the lottery system; the involvement of multi-national designated the Board, composed of five members who
corporations in the operation of the on-line "hi-tech" lottery system, shall be appointed, and whose compensation and term
and the like, require the submission of evidence. This Court is not a of office shall be fixed, by the President.
trier of facts, and it cannot, at this time, resolve the above issues. Just
recently, the Court has noted petitioners' manifestation of its petition xxx xxx xxx
with the Securities and Exchange Commission "for the nullification of
the General Information Sheets of PGMC" in respect particularly to Sec.9. Powers and functions of the Board of Directors.
the nationality holdings in the corporation. The doctrine of primary The Board of Directors of the Office shall have the
jurisdiction would not justify a disregard of the jurisdiction of, nor following powers and functions.
would it permit us to now preempt, said Commission on the matter.
(a) To adopt or amend such rules and regulations to
Petitioners strongly assert, in an attempt to get the Court's implement the provisions of this Act.
concurrence in accepting the petition, that since lottery is a game of
chance, the "lotto" system would itself be a "crime against morals" xxx xxx xxx
defined by Articles 195-199 6 of the Revised Penal Code.
(d) To promulgate rules and regulations for the
Being immoral and a criminal offense under the Revised Penal Code, operation of the Office and to do such act or acts as
petitioners contend, any special law authorizing gambling must, by all may be necessary for the attainment of its purposes
canons of statutory constructions, be interpreted strictly against the and objectives. (Emphasis supplied).
grantee. Citing previous decisions of this Court, they maintain that
lottery is gambling, pure and simple, 7 and that this Court has
In People vs. Dionisio, 11 cited by the petitioners themselves, we
consistently condemned the immorality and illegality of gambling to be
remarked: "What evils should be corrected as pernicious to the body
a "national offense and not a minor transgression;" 8 "that it is a social
politic, and how correction should be done, is a matter primarily
scourge which must be stamped out;" 9 and, "that it is pernicious to
addressed to the discretion of the legislative department, not of the
the body politic and detrimental to the nation and its citizens."10
courts . . . ." In Valmonte vs. PCSO, 12 we also said:
I most certainly will not renounce this Court's above concerns.
The Court, as held in several cases, does not pass
Nevertheless, the Court must recognize the limitations of its own
upon questions of wisdom, justice or expediency of
authority. Courts neither legislate nor ignore legal mandates. Republic
legislation and executive acts. It is not the province of
Act No. 1169, as amended, explicitly gives public respondent
the courts to supervise legislation or executive orders
as to keep them within the bounds of propriety, moral
 values and common sense. That is primarily and even
exclusively a concern of the political departments of the
government; otherwise, there will be a violation of the
principle of separation of powers.
The constraints on judicial power are clear. I feel, the Court must thus
beg off, albeit not without reluctance, from giving due course to the
instant petition.
Accordingly, I vote for the dismissal of the petition.
KAPUNAN, J., dissenting:
I regret that I am unable to join my colleagues in the majority in spite
of my own personal distaste for gambling and other gaming
operations. Such considerations aside, I feel there are compelling
reasons why the instant petition should be dismissed. I shall forthwith
state the reasons why.
Petitioners anchor their principal objections against the contract
entered into between the Philippine Charity Sweepstakes Office
(PCSO) and the PGMC on the ground that the contract entered into
by the PCSO with the PGMC violates the PCSO Charter (R.A. No.
1169 as amended by B.P. Blg 427, specifically section 1 thereof which
bars the said body from holding conducting lotteries "in collaboration,
association or joint venture with any person association, company or
entity."). However, a perusal of the petition reveals that the compelling
reasons behind it, while based on apparently legal questions involving
the contract between the PCSO and the PGMC, are prompted by the
petitioners' moral objections against the whole idea of gambling
operations operated by the government through the PCSO. The whole
point of the petition, in essence, is a fight between good and evil,
between the morality or amorality of lottery operations conducted on a
wide scale involving millions of individuals and affecting millions of
lives. Their media of opposition are the above stated defects in the
said contract which they assail to be fatally defective. They come to
this Court, as taxpayers and civic spirted citizens, asserting a right of
standing on a transcendental issue which they assert to be of
paramount public interest.
Moral or legal questions aside, I believe that there are unfortunately
certain standards1 that have to be followed in the exercise of this
Court's awesome power of review before this Court could even begin
to assay the validity of the contract between the PCSO and the
PGMC. This, in spite of the apparent expansion of judicial power
granted by Section 1 of Article VIII of the 1987 Constitution. It is
fundamental that such standards be complied with before this Court
could even begin to explore the substantive issues raised by any
controversy brought before it, for no issue brought before this court
could possibly be so fundamental and paramount as to warrant a
relaxation of the requisite rules for judicial review developed by settled
jurisprudence inorder to avoid entangling this court in controversies
which properly belong to the legislative or executive branches of our
government. The potential harm to our system of government,
premised on the concept of separation of powers, by the Court eager
to exercise its powers and prerogatives at every turn, cannot be
gainsaid. The Constitution does not mandate this Court to wield the
power of judicial review with excessive vigor and alacrity in every area
or at every turn, except in appropriate cases and controversies which
meet established requirements for constitutional adjudication. Article
VIII Sec. 1 of the Constitution notwithstanding, there are questions
which I believe are still beyond the pale of judicial power. Moreover, it
is my considered opinion that the instant petition does not meet the
requirements set by this court for a valid exercise of judicial review.
Our Constitution expressly defines judicial power as including "the
duty to settle actual cases and controversies involving rights which
are legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to a lack or
excess of jurisdiction on the part of any branch or instrumentality of
the government." 2 This constitutional requirement for an actual case
and controversy limits this Court's power of review to precisely those
suits between adversary litigants with real interests at stake2 thus
preventing it from making all sorts of hypothetical pronouncements on
abstract, contingent and amorphous issues. The Court will therefore
not pass upon the validity of an act of government or a statute passed
by a legislative body without a requisite showing of injury. 3 A personal
stake is essential, which absence renders our pronouncements
gratuitous and certainly violative of the constitutional requirement for
actual cases and controversies.
The requirement for standing based on personal injury may of course
be bypassed, as the petitioners in this case attempt to do, by
considering the case as a "taxpayer suit" which would thereby clothe
them with the personality they would lack under ordinary
circumstances. However, the act assailed by the petitioners on the
whole involves the generation rather than disbursement of public
funds. In a line of cases starting from Pascual v. Secretary of Public
Works 4 "taxpayer suits" have been understood to refer only to those
cases where the act or statute assailed involves the illegal or
unconstitutional disbursement of public funds derived from taxation.
The main premise behind the "taxpayer suit" is that the pecuniary
interest of the taxpayer is involved whenever there is an illegal or
wasteful use of public funds which grants them the right to question
the appropriation or disbursement on the basis of their contribution to
government funds. 5 Since it has not been alleged that an illegal
appropriation or disbursement of a fund derived from taxation would
be made in the instant case, I fail to see how the petitioners in this
case would be able to satisfy the locus standi requirement on the
basis of a "taxpayer's suit". This alone should inhibit this Court from
proceeding with the case at bench. The interest alleged and the
potential injury asserted are far too general and hypothetical for us to
rush into a judicial determination of what to me appears to be
judgment better left to executive branch of our government.
This brings me to one more important point: The idea that a norm of
constitutional adjudication could be lightly brushed aside on the mere
supposition that an issue before the Court is of paramount public
concern does great harm to a democratic system which espouses a
delicate balance between three separate but co-equal branches of
government. It is equally of paramount public concern, certainly
paramount to the survival of our democracy, that acts of the other
branches of government are accorded due respect by this Court.
Such acts, done within their sphere of competence, have been and
should always be accorded with a presumption of regularity. When
such acts are assailed as illegal or unconstitutional, the burden falls
upon those who assail these acts to prove that they satisfy the
essential norms of constitutional adjudication, because when we
finally proceed to declare an act of the executive or legislative branch
of our government unconstitutional or illegal, what we actually
accomplish is the thwarting of the will of the elected representatives of
the people in the executive or legislative branches
government.6 Notwithstanding Article VIII, Section 1 of the
Constitution, since the exercise of the power of judicial review by this
Court is inherently antidemocratic, this Court should exercise a
becoming modesty in acting as a revisor of an act of the executive or
legislative branch. The tendency of a frequent and easy resort to the
function of judicial review, particularly in areas of economic policy has
become lamentably too common as to dwarf the political capacity of
the people expressed through their representatives in the policy
making branches of government and to deaden their sense of moral
responsibility. 7
This court has been accused, of late, of an officious tendency to delve
into areas better left to the political branches of government. 8 This
tendency, if exercised by a court running riot over the other co-equal
branches of government, poses a greater danger to our democratic
system than the perceived danger real or imagined of an
executive branch espousing economic or social policies of doubtful
moral worth. Moreover economic policy decisions in the current
milieu- including the act challenged in the instant case-involve
complex factors requiring flexibility and a wide range of discretion on
the part of our economic managers which this Court should respect
because our power of review, under the constitution, is a power to
check, not to supplant those acts or decisions of the elected
representatives of the people.
Finally, the instant petition was brought to this Court on the
assumption that the issue at bench raises primarily constitutional
issues. As it has ultimately turned out, the core foundation of the
petitioners' objections to the LOTTO operations was based on the
validity of the contract between the PCSO and the PGMC in the light
of Section 1 of R.A. 1169 as amended by B.P. Blg. 427. It might have
been much more appropriate for the issue to have taken its normal
course in the courts below.
I vote to deny the petition.

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:
xxx xxx xxx
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:
xxx xxx xxx
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
Ascertained from a consideration of the whole statute, PD 198 is a
service and expenses for fuel or energy for pumping
special law applicable only to the different water districts created
during the preceding fiscal year.
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
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:
xxx xxx xxx
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.
xxx xxx xxx
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).
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.
G.R. No. 72807 September 9, 1991
MARILAO WATER CONSUMERS ASSOCIATION, INC., petitioners,
vs.
INTERMEDIATE APPELLATE COURT, MUNICIPALITY OF
MARILAO, BULACAN, SANGGUNIANG BAYAN, MARILAO,
BULACAN, and MARILAO WATER DISTRICT, respondents.
Magtanggol C. Gunigundo for petitioner.
Prospero A. Crescini for Marilao Water District.
NARVASA, J.:p
Involved in this appeal is the determination of which triburial has
jurisdiction over the dissolution of a water district organized and
operating as a quasi-public corporation under the provisions of
Presidential Decree No. 198, as amended;1 the Regional Trial Court,
or the Securities & Exchange Commission.
PD 198 authorizes the formation, lays down the powers and functions,
and governs the operation of water districts throughout the country; it
is "the source of authorization and power to form and maintain a
(water) district." Once formed, it says, a district is subject to its
provisions and is not under the jurisdiction of any political
subdivision.2
Under PD 198, water districts may be created by the different local
legislative bodies by the passage of a resolution to this effect, subject
to the terms of the decree. The primary function of these water
districts is to sell water to residents within their territory, under such
schedules of rates and charges as may be determined by their
boards.3They shall manage, administer, operate and maintain all
watersheds within their territorial boundaries, safeguard and protect
the use of the waters therein, supervise and control structures within
their service areas, and prohibit any person from selling or otherwise
disposing of water for public purposes within their service areas where
district facilities are available to provide such service.4
The decree specifies the terms under which water districts may be
formed and operate. It prescribes, particularly
a) the name by which a water district shad be known, which shall be
contained in the enabling resolution, and shall include the name of the
city, municipality, or province, or region thereof, served by said
system, followed by the words, 'Water District;'5
b) the number and qualifications of the members of the boards of
directors, with the date of expiration of term of office for each;6 the
manner of their selection and initial appointment by the head of the
local political subdivision;7their terms of office (which shall be in
staggered periods of two, four and six years);8 the manner of filling up
vacancies in the board;9 the compensation and liabilities of members
of the board.10 The resolution shall contain a "statement that the
district may only be dissolved on the grounds and under the
conditions set forth in Section 44" of the law, but nothing in the
resolution of formation, the decree adds, "shall state or infer that the
local legislative body has the power to dissolve, alter or affect the
district beyond that specifically provided for in this Act."11
The juridical entities thus created and organized under PD 198 are
considered quasi-public corporations, performing public services and
supplying public wants. They are authorized not only to "exercise all
the powers which are expressly granted" by said decree, and those
"which are necessarily implied from or incidental to" said powers, but
also "the power of eminent domain, the exercise .. (of which) shall
however be subject to review by the Administration" (LWUA). In
addition to the powers granted in, and subject to such restrictions
imposed under, the Act, they may also exercise the powers, rights
and privileges given to private corporations under existing laws.12
The decree also established a government corporation attached to the
Office of the President, known as the Local Water Utilities
Administration (LWUA)13 to function primarily as "a specialized lending
institution for the promotion development and financing of local water
utilities." It has the following specific powers and duties;14
(1) prescribe minimum standards and regulations in order to
assure acceptable standards of construction materials and
supplies, maintenance, operation, personnel training,
accounting and fiscal practices for local water utilities;
 (2) furnish technical assistance and personnel training
programs for local water utilities;
(3) monitor and evaluate local water standards; and
(4) effect systems integration, joint investment and operations,
district annexation and deannexation whenever economically
warranted.
It was pursuant to the foregoing rules and norms that the Marilao
Water District was formed by Resolution of the Sangguniang Bayan of
the Municipality of Marilao dated September 18, 1982, which
resolution was thereafter forwarded to the LWUA and "duly filed" by it
on October 4, 1982 after ascertaining that it conformed to the
requirements of the law.15
The claim was thereafter made that the creation of the Marilao Water
District in the manner aforestated was defective and illegal. The claim
was made by a non-stock, non-profit corporation known as the
Marilao Water Consumers Association, Inc., in a petition dated
December 12, 1983 filed with the Regional Trial Court at Malolos,
Bulacan. Impleaded as respondents were the Marilao Water District,
as well as the Municipality of Marilao, Bulacan; its Sangguniang
Bayan; and Mayor Nicanor V. GUILLERMO. The petition prayed for
the dissolution of the water district on the basis chiefly of the following
allegations, to wit:
1) there had been no real, but only a "farcical" public hearing prior to
the creation of the Water District;
2) not only was the waterworks system turned over to the Water
District without compensation. but a subsidy was illegally authorized
for it;
3) the Water District was being run with "negligence, apathy,
indifference and mismanagement," and was not providing adequate
and efficient service to the community, but this notwithstanding, the
consumers were being billed in full and threatened with disconnection
for failure to pay bills on time; in fact, one of the consumers who
complained had his water service cut off;
4) the consumers were consequently "forced to organize themselves
into a corporation last October 3, 1983 ... for the purpose of
demanding adequate and sufficient supply of water and efficient
management of the waterworks in Marilao, Bulacan.16
Acting on the complaint, particularly on the application for temporary
restraining order and preliminary injunction set out therein, the Trial
Court issued an Order on December 22, 1983 setting the application
for preliminary hearing, requiring the respondents to answer the
petition and restraining them until further orders from collecting any
water bill, disconnecting any water service, transferring any property
of the waterworks, or disbursing any amount in favor of any person.
The order was modified on January 6, 1984 to allow the respondents
to pay the district's outstanding obligations to Meralco, by way of
exception to the restraining order.
On January 13, 1984 the Marilao Water District filed its Answer with
Compulsory Counterclaim, denying the material allegations of the
petition and asserting as affirmative defenses (a) the Court's lack of
jurisdiction of the subject matter, and (b) the failure of the petition to
state a cause of action. The answer alleged that the matter of the
water district's dissolution fell under the original and exclusive
jurisdiction of the Securities & Exchange Commission (SEC); and the
matter of the propriety of water rates, within the primary administrative
jurisdiction of the LWUA and the quasi-judicial jurisdiction of the
National Water Resources Council. On the same date, Marilao Water
District filed a motion for admission of its third-party complaint against
the officers and directors of the petitioner corporation, it being claimed
that they had instigated the filing of the petition simply because one of
them was a political adversary of the respondent Mayor.
The other respondents also filed their answer through the Provincial
Fiscal of Bulacan, setting up the same affirmative defense of lack of
jurisdiction on the part of the Trial Court; and failure of the petition to
state a cause of action since it admitted that it was by resolution of the
Marilao Sangguniang Bayan that the Marilao Water District was
constituted.
The petitioner the Marilao Consumers Association filed a reply, and
an answer to the counterclaim, on January 26, 1984. It averred that
since the Marilao Water District had not been organized under the
Corporation Code, the SEC had no jurisdiction over a proceeding for
its dissolution; and that under Section 45 of PD 198, the proceeding to
determine if the dissolution of the water district is for the best interest
of the people, is within the competence of a regular court of justice,
and neither the LWUA nor the National Water Resources Council is
competent to take cognizance of the matter of dissolution of the water
district and recovery of its waterworks system, or the exorbitant rates
imposed by it. The Consumers Association also opposed admission of
the third-party complaint on the ground that its individual officers are
not personally amenable to suit for acts of the corporation,17 which
has a personality distinct from theirs.
The Trial Court found for the respondents. It dismissed the
Consumers Association's suit by Order handed down on June 8, 1984
which pertinently reads as follows:
After a consideration of the arguments raised by the herein
parties, the Court is more inclined to take the position of the
respondents that the Securities and Exchange Commission
has the exclusive and original jurisdiction over this case.
WHEREFORE, the instant petition, the third-party complaint,
and the compulsory counterclaim filed herein are hereby
DISMISSED, for lack of jurisdiction.
Its motion for reconsideration having been denied, by Order dated
September 20, 1984, the Consumers Association filed with this Court
a petition for review on certiorari, which was docketed as G.R. No.
68742. The case was however referred to the Intermediate Appellate
Court by this Court's Second Division, in a Resolution dated
November 19, 1984, where it was docketed as AC-G.R. S.P. No.
04862.
But there in the Intermediate Appellate Court, the Consumers
Association's cause also met with failure. The Appellate Court, in its
Decision promulgated on September 10, 1985, ruled that its cause
could not prosper because
1) it had availed of the wrong remedy, i.e., the special civil action of
certiorari; the Order of June 8, 1984 being a final order in the sense
that it "left nothing else to be done in the case the proper remedy was
appeal under Rule 41 of the Rules of Court and not a certiorari suit
under Rule 65; and
2) even if the certiorari action be treated as an appeal, it was 14
unerringly clear that the controversy ... falls within the competence of
the SEC in virtue of P.D. 902-A18 Which provides that said agency
"shall have original and exclusive jurisdiction to hear and decide
cases involving:
a) xxx xxx xxx
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such
entity ...
The Appellate Court subsequently denied the petitioner's motion for
reconsideration, by Resolution dated November 4, 1985. Hence, the
petition for review on certiorari at bar, in which reversal of the
Appellate Tribunal's decision is sought, the petitioner insisting that the
remedy resorted to by it was correct but misunderstood by the I.A.C.
and that the law does indeed vest exclusive jurisdiction over the
subject matter of the case in the Regional Trial Court, not the
Securities and Exchange Commission.
Turning first to the adjective issue, it is quite evident that the Order of
the Trial Court of June 8, 1984, dismissing the action of the
Consumers Association, is really a final order; it finally disposed of the
proceeding and left nothing more to be done by the Court on the
merits. Now, the firmly settled principle is that the remedy against
such a finalorder is the ordinary remedy of an appeal, either solely on
questions of law in which case the appeal may be taken only to the
Supreme Court or questions of fact and law in which event the
appeal should be brought to the Court of Appeals. The extraordinary
remedy of a special civil action of certiorari or prohibition is not the
appropriate recourse because precisely, one of the conditions for
availing of it is that there should be "no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law.19 A resort to the
latter instead of the former would ordinarily be fatal, unless it should
appear in a given case that appeal would otherwise be an
inefficacious or inadequate remedy.20
In holding that Marilao Water District had resorted to the wrong
remedy against the Trial Court's order dismissing its suit, i.e., the
special civil action of certiorari, instead of an appeal, the Intermediate
Appellate Court quite overlooked the fact, not seriously disputed by
the Marilao Water District and its co-respondents, that the former had
in fact availed of the remedy of appeal by certiorari under Rule 45 of
the Rules of Court, as required by paragraph 25 of the Interim Rules &
Guidelines of this Court, implementing Batas Pambansa Bilang 129;
that before doing so, it had first asked for and been granted an
extension of thirty (30) days within which to file a petition for review on
certiorari; but that subsequently, by Resolution of this Court's Second
Division dated November 19, 1984, the case was referred to the
Intermediate Appellate Court, evidently because it was felt that certain
factual issues had yet to be determined. In any case, all things
considered, the Court is not prepared to have the case at bar finally
determined on this procedural issue.
The juridical entities known as water districts created by PD 198,
although considered as quasi-public corporations and authorized to
exercise the powers, rights and privileges given to private
corporations under existing laws21 are entirely distinct from
corporations organized under the Corporation Code, PD 902-A, as
amended. The Corporation Code has nothing whatever to do with
their formation and organization, all the terms and conditions for their
organization and operation being particularly spelled out in PD 198.
The resolutions creating them, their charters, in other words, are filed
not with the Securities and Exchange Commission but with the LWUA.
It is these resolutions qua charters, and not articles of incorporation
drawn up under the Corporation Code, which set forth the name of the
water districts, the number of their directors, the manner of their
selection and replacement, their powers, etc. The SEC which is
charged with enforcement of the Corporation Code as regards
corporations, partnerships and associations formed or operating
under its provisions, has no power of supervision or control over the
activities of water districts. More particularly, the SEC has no power of
oversight over such activities of water districts as selling water, fuling
the rates and charges therefor22 or the management,
administration, operation and maintenance of watersheds within
their territorial boundaries, or the safeguarding and protection of
the use of the waters therein, or the supervision and control of
structures within the service areas of the district, and the
prohibition of any person from selling or otherwise disposing of
water for public purposes within their service areas where
district facilities are available to provide such service.23 That
function of supervision or control over water districts is
entrusted to the Local Water Utilities
Administration.24 Consequently, as regards the activities of water
districts just mentioned, the SEC obviously can have no claim to
any expertise.
The "Provincial Water Utilities Act of 1973" has a specific
provision governing dissolution of water districts created
thereunder This is Section 45 of PD 19825 reading as follows:
SEC. 45. Dissolution. A district may be dissolved by
resolution of its board of directors filed in the manner of
filing the resolution forming the district: Provided,
however, That prior to the adoption of any such
resolution: (1) another public entity has acquired the
assets of the district and has assumed all obligations and
liabilities attached thereto; (2) all bondholders and other
creditors have been notified and they consent to said
transfer and dissolution; and (3) a court of competent
jurisdiction has found that said transfer and dissolution
are in the best interest of the public.
Under this provision, it is the LWUA which is the administrative
body involved in the voluntary dissolution of a water district; it is
with it that the resolution of dissolution is filed, not the
Securities and Exchange Commission. And this provision is
evidently quite distinct and different from those on dissolution of
corporations "formed or organized under the provisions of xx
(the Corporation) Code" set out in Sections 117 to 121, inclusive,
of said Code, under which dissolution may be voluntary (by vote
of the stockholders or members), generally effected by the filing
of the corresponding resolution with the Securities and
Exchange Commission, or involuntary, commenced by the filing
of a verified complaint also with the SEC.
All these argue against conceding jurisdiction in the Securities
and Exchange Commission over proceedings for the dissolution
of water districts. For although described as quasipublic
corporations, and granted the same powers as private
corporations, water districts are not really corporations. They
have no incorporators, stockholders or members, who have the
right to vote for directors, or amend the articles of incorporation
or by-laws, or pass resolutions, or otherwise perform such other
acts as are authorized to stockholders or members of
corporations by the Corporation Code. In a word, there can be no
such thing as a relation of corporation and stockholders or
members in a water district for the simple reason that in the
latter there are no stockholders or members. Between the water
district and those who are recipients of its water services there
exists not the relationship of corporation-and-stockholder, but
that of a service agency and users or customers. There can
therefore be no such thing in a water district as "intra-corporate
or partnership relations, between and among stockholders,
members or associates (or) between any or all of them and the
corporation, partnership or association of which they are
stockholders, members or associates, respectively," within the
contemplation of Section 5 of the Corporation Code so as to
bring controversies involving them within the competence and
cognizance of the SEC.
There can be even less debate about the fact that the SEC has no
jurisdiction over the co-respondents of the Marilao Water District
the Municipality of Marilao, its Sangguniang Bayan and its
Mayor who are accused of a "conspiracy" with the water
district in respect of the anomalies described in the Consumer
Associations' petition.26
The controversy, therefore, between the Consumers Association,
on the one hand, and Marilao District and its co-respondents, on
the other, is not within the jurisdiction of the SEC.
In their answer with counterclaim in the proceedings a quo, the
respondents advocated the theory that the case falls within the
jurisdiction of the LWUA and/or the National Water Resources
Council.
The LWUA does not appear to have any adjudicatory functions. It
is, as already pointed out, "primarily a specialized lending
institution for the promotion, development and financing of local
water utilities,27 with power to prescribe minimum standards and
regulations regarding maintenance, operation, personnel
training, accounting and fiscal practices for local water utilities,
to furnish technical assistance and personnel training programs
therefor; monitor and evaluate local water standards; and effect
systems integration, joint investment and operations, district
annexation and deannexation whenever economically
warranted.28 The LWUA has quasi-judicial power only as regards
rates or charges fixed by water districts, which it may review to
establish compliance with the provisions of PD 198, without
prejudice to appeal being taken therefrom by a water
concessionaire to the National Water Resources Council whose
decision thereon shall be appealable to the Office of the
President.29 The rates or charges established by respondent
Marilao Water District do not appear to be at issue in the
controversy at bar.
The National Water Resources Council, on the other hand, is
conferred "original jurisdiction over all disputes relating to
appropriation, utilization, exploitation, development, control,
conservation and protection of waters within the meaning and
context of the provisions of ..." (the Code by which said Council
was created, Presidential Decree No. 1067, otherwise known as
the Water Code of the Philippines);30 and its decision on water
rights controversies may be appealed to the Court of First
Instance of the province where the subject matter of the
controversy is situated.31 It also has authority to review
questions of annexations and deannexations (addition to or
exclusion from the district of territory). Again it does not appear
that the case at bar is a water rights controversy or one involving
annexation or deannexation.
What essentially is sought by the Consumers Association is the
dissolution of the Marilao Water District, on the ground that its
formation was illegal and invalid; the waterworks system had
been turned over to it without compensation and a subsidy
illegally authorized for it; and the Water District was being run
with "negligence, apathy, indifference and mismanagement," and
was not providing adequate and efficient service to the
community.32
Now, as already above stated, the dissolution of a water district is
governed by Section 45 of PD 198, as amended, stating that it "may
be dissolved by resolution of its board of directors filed in the manner
of filing the resolution forming the district," subject to enumerated pre-
requisites.33 The procedure for dissolution thus consists of the
following steps:
1) the initiation by the board of directors of the water
district motu proprio or at the relation of an interested party, of
proceedings for the dissolution of the water district, including:
a) the ascertainment by said board that
WHEREFORE, the Decision of the Intermediate Appellate Court
of September 10, 1985 affirming that of the Regional Trial
Court of June 8, 1984 is REVERSED and SET ASIDE, and the
case is remanded to the Regional Trial Court for further
proceedings and adjudication in accordance with law. No costs.
SO ORDERED.

1) another public entity has acquired the assets of the district

and has assumed all obligations and liabilities attached thereto;
and

2) all bondholders and other creditors have been notified and

consent to said transfer and dissolution;

b) the commencement by the water district in a court of

competent jurisdiction of a proceeding to obtain a declaration
that "said transfer and dissolution are in the best interest of the
public;

2) after compliance with the foregoing requisites, the adoption by

the board of directors of the water district of a resolution
dissolving the water district and its submission to the
Sangguniang Bayan concerned for approval;

3) submission of the resolution of the Sangguniang Bayan

dissolving the water district to the head of the local government
concerned for approval, and ultimately to the LWUA for final
approval and filing.

The Consumer Association's action therefore is, in fine, in the

nature of a mandamus suit, seeking to compel the board of
directors of the Marilao Water District, and its alleged co-
conspirators, the Sangguniang Bayan and the Mayor of Marilao
to go through the process above described for the dissolution of
the water district. In this sense, and indeed, taking account of the
nature of the proceedings for dissolution just described, it
seems plain that the case does not fall within the limited
jurisdiction of the SEC., but within the general jurisdiction of
Regional Trial Courts.