Republic of the Philippines
On July 17, 2000,
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160093 July 31, 2007
MALARIA EMPLOYEES AND WORKERS ASSOCIATION
OF THE PHILIPPINES, INC. (MEWAP), represented by its
National President, DR. RAMON A. SULLA, and MEWAP
DOH Central Office Chapter President, DR. GRACELA
FIDELA MINA-RAMOS, and PRISCILLA CARILLO, and
HERMINIO JAVIER, petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY ALBERTO
ROMULO, (substituting the former Executive Secretary
Renato de Villa), THE HONORABLE SECRETARY OF
HEALTH MANUEL DAYRIT and THE HONORABLE
SECRETARY OF BUDGET AND MANAGEMENT EMILIA
T. BONCODIN, respondents.
DECISION
PUNO, CJ.:
At bar is a Petition for Review on Certiorari of the Decision of the
Court of Appeals in CA-G.R. SP No. 65475 dated September 12,
2003 which upheld the validity of Executive Order (E.O.) No.
102,1 the law Redirecting the Functions and Operations of the
Department of Health. Then President Joseph E. Estrada issued
E.O. No. 102 on May 24, 1999 pursuant to Section 20, Chapter 7,
Title I, Book III of E.O. No. 292, otherwise known as the
Administrative Code of 1987, and Sections 78 and 80 of Republic
Act (R.A.) No. 8522, also known as the General Appropriations
Act (GAA) of 1998. E.O. No. 102 provided for structural changes
and redirected the functions and operations of the Department of
Health.
On October 19, 1999, the President issued E.O. No. 165 "Directing
the Formulation of an Institutional Strengthening and Streamlining
Program for the Executive Branch" which created the Presidential
Committee on Executive Governance (PCEG) composed of the
Executive Secretary as chair and the Secretary of the Department
of Budget and Management (DBM) as co-chair.
The DBM, on July 8, 2000, issued the Notice of Organization,
Staffing and Compensation Action (NOSCA).
the PCEG likewise issued Memorandum Circular (M.C.) No. 62,
entitled "Implementing Executive Order No. 102, Series of 1999
Redirecting the Functions and Operations of the Department of
Health."2 M.C. No. 62 directed the rationalization and streamlining
of the said Department.
On July 24, 2000, the Secretary of Health issued Department
Memorandum No. 136, Series of 2000, ordering the
Undersecretary, Assistant Secretaries, Bureau or Service Directors
and Program Managers of the Department of Health to direct all
employees under their respective offices to accomplish and submit
the Personal Information Sheet due to the approval of the
Department of Health – Rationalization and Streamlining Plan.
On July 28, 2000, the Secretary of Health again issued Department
Circular No. 221, Series of 2000, stating that the Department will
start implementing the Rationalization and Streamlining Plan by a
process of selection, placement or matching of personnel to the
approved organizational chart and the list of the approved plantilla
items.3 The Secretary also issued Administrative Order (A.O.) No.
94, Series of 2000, which set the implementing guidelines for the
restructuring process on personnel selection and placement,
retirement and/or voluntary resignation. A.O. No. 94 outlined the
general guidelines for the selection and placement of employees
adopting the procedures and standards set forth in R.A. No. 66564
or the "Rules on Governmental Reorganization," Civil Service
Rules and Regulations, Sections 76 to 78 of the GAA for the Year
2000, and Section 42 of E.O. No. 292.
On August 29, 2000, the Secretary of Health issued Department
Memorandum No. 157, Series of 2000, viz.:
Pursuant to the Notice of Organization, Staffing and Compensation
Action (NOSCA) approved by the DBM on 8 July 2000 and
Memorandum Circular No. 62 issued by the Presidential
Committee on Effective Governance (PCEG) on 17 July 2000,
Implementing E.O. 102 dated 24 May 1999, the following
approved Placement List of DOH Personnel is hereby disseminated
for your information and guidance.
All personnel are hereby directed to report to their new
assignments on or before 2 October 2000 pending processing of
new appointments, required clearances and other pertinent
documents.
All Heads of Office/Unit in the Department of Health are hereby
directed to facilitate the implementation of E.O. 102, to include[,]
among others, the transfer or movement of personnel, properties,
records and documents to appropriate office/unit and device other
necessary means to minimize disruption of office functions and
delivery of health services.
Appeals, oversights, issues and concerns of personnel related to
this Placement List shall be made in writing using the Appeals
Form (available at the Administrative Service) addressed to the
Appeals Committee chaired by Dr. Gerardo Bayugo. All Appeals
Forms shall be submitted to the Re-Engineering Secretariat xxx not
later than 18 September 2000. 5
Petitioner Malaria Employees and Workers Association of the
Philippines, Inc. (MEWAP) is a union of affected employees in the
Malaria Control Service of the Department of Health. MEWAP
filed a complaint, docketed as Civil Case No. 00-98793, with the
Regional Trial Court of Manila seeking to nullify Department
Memorandum No. 157, the NOSCA and the Placement List of
Department of Health Personnel and other issuances implementing
E.O. No. 102.
On May 2, 2001, while the civil case was pending at the Regional
Trial Court of Manila, Branch 22, petitioners filed with this Court a
petition for certiorari under Rule 65 of the Rules of Court.
Petitioners sought to nullify E.O. No. 102 for being issued with
grave abuse of discretion amounting to lack or excess of
jurisdiction as it allegedly violates certain provisions of E.O. No.
292 and R.A. No. 8522. The petition was referred to the Court of
Appeals which dismissed the same in its assailed Decision. Hence,
this appeal where petitioners ask for a re-examination of the
pertinent pronouncements of this Court that uphold the authority of
the President to reorganize a department, bureau or office in the
executive department. Petitioners raise the following issues, viz.:
1. Whether Sections 78 and 80 of the General Provision of
Republic Act No. 8522, otherwise known as the General
Appropriation[s] Act of 1998[,] empower former President Joseph
E. Estrada to reorganize structurally and functionally the
Department of Health.
2. Whether Section 20, Chapter I, title i, Book III of the
Administrative Code of 1987 provides legal basis in reorganizing
the Department of Health.
(A) Whether Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, has been repealed.
3. Whether the President has authority under Section 17, Article
VIII of the Constitution to effect a reorganization of a department
under the executive branch.
4. Whether there has been abuse of discretion amounting to lack or
excess of jurisdiction on the part of former President Joseph E.
Estrada in issuing Executive Order No. 102, Redirecting the
functions and operations of the Department of Health.
5. Whether Executive Order No. 102 is null and void.6
We deny the petition.
The President has the authority to carry out a reorganization of the
Department of Health under the Constitution and statutory laws.
This authority is an adjunct of his power of control under Article
VII, Sections 1 and 17 of the 1987 Constitution, viz.:
Section 1. The executive power shall be vested in the President of
the Philippines.
Section 17. The President shall have control of all the executive
departments, bureaus and offices. He shall ensure that the laws be
faithfully executed.
In Canonizado v. Aguirre,7 we held that reorganization "involves
the reduction of personnel, consolidation of offices, or abolition
thereof by reason of economy or redundancy of functions." It alters
the existing structure of government offices or units therein,
including the lines of control, authority and responsibility between
them.8 While the power to abolish an office is generally lodged
with the legislature, the authority of the President to reorganize the
executive branch, which may include such abolition, is permissible
under our present laws, viz.:
The general rule has always been that the power to abolish a public
office is lodged with the legislature. This proceeds from the legal
precept that the power to create includes the power to destroy. A
public office is either created by the Constitution, by statute, or by
authority of law. Thus, except where the office was created by the
Constitution itself, it may be abolished by the same legislature that
brought it into existence.
The exception, however, is that as far as bureaus, agencies or
offices in the executive department are concerned, the President’s
power of control may justify him to inactivate the functions of a
particular office, or certain laws may grant him the broad authority
to carry out reorganization measures.9
The President’s power to reorganize the executive branch is also an
exercise of his residual powers under Section 20, Title I, Book III
of E.O. No. 292 which grants the President broad organization
powers to implement reorganization measures, viz.:
SEC. 20. Residual Powers. – Unless Congress provides otherwise,
the President shall exercise such other powers and functions
vested in the President which are provided for under the laws
and which are not specifically enumerated above, or which are not
delegated by the President in accordance with law.10
We explained the nature of the President’s residual powers under
this section in the case of Larin v. Executive Secretary, 11 viz.:
This provision speaks of such other powers vested in the President
under the law. What law then gives him the power to
reorganize? It is Presidential Decree No. 1772 which amended
Presidential Decree No. 1416. These decrees expressly grant the
President of the Philippines the continuing authority to
reorganize the national government, which includes the power
to group, consolidate bureaus and agencies, to abolish offices,
to transfer functions, to create and classify functions, services
and activities and to standardize salaries and materials. The
validity of these two decrees [is] unquestionable. The 1987
Constitution clearly provides that "all laws, decrees, executive
orders, proclamations, letters of instructions and other executive
issuances not inconsistent with this Constitution shall remain
operative until amended, repealed or revoked." So far, there is yet
no law amending or repealing said decrees.12
The pertinent provisions of Presidential Decree No. 1416, as
amended by Presidential Decree No. 1772, clearly support the
President’s continuing power to reorganize the executive branch,
viz.:
1. The President of the Philippines shall have continuing authority
to reorganize the National Government. In exercising this
authority, the President shall be guided by generally acceptable
principles of good government and responsive national
development, including but not limited to the following guidelines
for a more efficient, effective, economical and development-
oriented governmental framework:
xxx
b) Abolish departments, offices, agencies or functions which may
not be necessary, or create those which are necessary, for the
efficient conduct of government functions, services and activities;
c) Transfer functions, appropriations, equipment, properties,
records and personnel from one department, bureau, office, agency
or instrumentality to another;
d) Create, classify, combine, split, and abolish positions;
e) Standardize salaries, materials, and equipment;
f) Create, abolish, group, consolidate, merge, or integrate entities,
agencies, instrumentalities, and units of the National Government,
as well as expand, amend, change, or otherwise modify their
powers, functions, and authorities, including, with respect to
government-owned or controlled corporations, their corporate life,
capitalization, and other relevant aspects of their charters;
g) Take such other related actions as may be necessary to carry out
the purposes and objectives of this Decree.
Petitioners argue that the residual powers of the President under
Section 20, Title I, Book III of E.O. No. 292 refer only to the
Office of the President and not to the departments, bureaus or
offices within the executive branch. They invoke Section 31,
Chapter 10, Title III, Book III of the same law, viz.:
Section 31. Continuing Authority of the President to Reorganize
his Office. – The President, subject to the policy in the Executive
Office and in order to achieve simplicity, economy and efficiency,
shall have continuing authority to reorganize the administrative
structure of the Office of the President. x x x
The interpretation of petitioners is illogically restrictive and lacks
legal basis. The residual powers granted to the President under
Section 20, Title I, Book III are too broad to be construed as having
a sole application to the Office of the President. As correctly stated
by respondents, there is nothing in E.O. No. 292 which provides
that the continuing authority should apply only to the Office of the
President.13 If such was the intent of the law, the same should have
been expressly stated. To adopt the argument of petitioners would
result to two conflicting provisions in one statute. It is a basic
canon of statutory construction that in interpreting a statute, care
should be taken that every part thereof be given effect, on the
theory that it was enacted as an integrated measure and not as a
hodge-podge of conflicting provisions. The rule is that a
construction that would render a provision inoperative should be
avoided; instead, apparently inconsistent provisions should be
reconciled whenever possible as parts of a coordinated and
harmonious whole.14
In fact, as pointed out by respondents, the President’s power to
reorganize the executive department even finds further basis under
Sections 78 and 80 of R.A. No. 8522, viz.:15
Section 78. Organizational Changes – Unless otherwise provided
by law or directed by the President of the Philippines, no
organizational unit or changes in key positions in any department
or agency shall be authorized in their respective organizational
structure and funded from appropriations provided by this Act.
Section 80. Scaling Down and Phase-out of Activities of Agencies
within the Executive Branch – The heads of departments, bureaus,
offices and agencies are hereby directed to identify their respective
activities which are no longer essential in the delivery of public
services and which may be scaled down, phased-out or abolished
subject to Civil Service rules and regulations. Said activities shall
be reported to the Office of the President through the Department
of Budget and Management and to the Chairman, Committee on
Appropriations of the House of Representatives and the Chairman,
Committee on Finance of the Senate. Actual scaling down, phase-
out or abolition of the activities shall be effected pursuant to
Circulars or Orders issued for the purpose by the Office of the
President.
Petitioners contend that Section 78 refers only to changes in
"organizational units" or "key positions" in any department or
agency, while Section 80 refers merely to scaling down and
phasing out of "activities" within the executive department. They
argue that neither section authorizes reorganization. Thus, the
realignment of the appropriations to implement the reorganization
of the Department of Health under E.O. No. 102 is illegal.
Again, petitioners’ construction of the law is unduly restrictive.
This Court has consistently held in Larin16 and Buklod ng
Kawanihang EIIB v. Zamora17 that the corresponding pertinent
provisions in the GAA in these subject cases authorize the
President to effect organizational changes in the department or
agency concerned.
Be that as it may, the President must exercise good faith in carrying
out the reorganization of any branch or agency of the executive
department. Reorganization is effected in good faith if it is for the
purpose of economy or to make bureaucracy more efficient.18
R.A. No. 665619 provides for the circumstances which may be
considered as evidence of bad faith in the removal of civil service
employees made as a result of reorganization, to wit: (a) where
there is a significant increase in the number of positions in the new
staffing pattern of the department or agency concerned; (b) where
an office is abolished and another performing substantially the
same functions is created; (c) where incumbents are replaced by
those less qualified in terms of status of appointment, performance
and merit; (d) where there is a classification of offices in the
department or agency concerned and the reclassified offices
perform substantially the same functions as the original offices;
and (e) where the removal violates the order of separation.
We agree with the ruling of the Court of Appeals that the President
did not commit bad faith in the questioned reorganization, viz.:
In this particular case, there is no showing that the reorganization
undertaking in the [Department of Health] had violated this
requirement, nor [are] there adequate allegations to that effect. It is
only alleged that the petitioners were directly affected by the
reorganization ordered under E.O. [No.] 102. Absent is any
showing that bad faith attended the actual implementation of the
said presidential issuance.
IN VIEW WHEREOF, the petition is DENIED. The assailed
Decision of the Court of Appeals in CA-G.R. SP No. 65475 dated
September 12, 2003 is AFFIRMED.
Costs against petitioners.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna, Quisumbing, Garcia, JJ.,
concur.
Footnotes
1 Annex B; Rollo, 68-72.
2 Annex E, Petition; Id. at 145-146.
3 Annex F, Petition; Id. at 147-189.
4 An Act to Protect the Security of Tenure of Civil Service Officers
and Employees in the Implementation of Government
Reorganization. Approved on June 10, 1988; 84 Official Gazette
No. 24, p. S-1.
5 Annex G, Petition; Rollo, 190-248.
6 Petition, 8-9; id. at 16-17.
7 G.R. No. 133132, January 25, 2000, 323 SCRA 312.
8 See Buklod ng Kawanihang EIIB v. Zamora, G.R. Nos. 142801-
802, July 10, 2001, 360 SCRA 718, citing Martin, Philippine
Political Law, p. 276.
9 Ibid. Citations omitted.
10 Emphasis supplied.
11 G.R. No. 112745, October 16, 1997, 280 SCRA 713.
12 Ibid. Emphases supplied. Citations omitted.
13 Comment, 31; Rollo, 365.
14 Oil and Natural Gas Commission v. CA, G.R. No. 114323, July
23, 1998, 293 SCRA 26, citing JMM Promotions & Management,
Inc. v. NLRC, 228 SCRA 129, 134 (1993).
15 Sections 78 and 80 were reproduced in The General
Appropriations Act of 1999 and 2000.
16 Supra Note 11.
17 Supra Note 8.
18 Department of Trade and Industry v. The Chairman and
Commissioners of the Civil Service Commission, G.R. No. 96739,
October 13, 1993, 227 SCRA 198.
19 Supra Note 4.
Executive Order No. 292 [Introductory Provisions]
Signed on July 25, 1987
Introductory Provisions
SECTION 1. Title. — This Act shall be known as the
“Administrative Code of 1987.”
SECTION 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:
(1) Government of the Republic of the Philippines refers to the
corporate governmental entity through which the functions of
government are exercised throughout the Philippines, including,
save as the contrary appears from the context, the various arms
through which political authority is made effective in the
Philippines, whether pertaining to the autonomous regions, the
provincial, city, municipal or barangay subdivisions or other forms
of local government.
(2) National Government refers to the entire machinery of the
central government, as distinguished from the different forms of
local governments.
(3) Local Government refers to the political subdivisions
established by or in accordance with the Constitution.
(4) Agency of the Government refers to any of the various units of
the Government, including a department, bureau, office,
instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein.
(5) National Agency refers to a unit of the National Government.
(6) Local Agency refers to a local government or a distinct unit
therein.
(7) Department refers to an executive department created by law.
For purposes of Book IV, this shall include any instrumentality, as
herein defined, having or assigned the rank of a department,
regardless of its name or designation.
(8) Bureau refers to any principal subdivision or unit of any
department. For purposes of Book IV, this shall include any
principal subdivision or unit of any instrumentality given or
assigned the rank of a bureau, regardless of actual name or
designation, as in the case of department-wide regional offices.
(9) Office refers, within the framework of governmental
organization, to any major functional unit of a department or
bureau including regional offices. It may also refer to any position
held or occupied by individual persons, whose functions are
defined by law or regulation.
(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.
(11) Regulatory agency refers to any agency expressly vested with
jurisdiction to regulate, administer or adjudicate matters affecting
substantial rights and interest of private persons, the principal
powers of which are exercised by a collective body, such as a
commission, board or council.
(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.
(14) “Officer” as distinguished from “clerk” or “employee”, refers
to a person whose duties, not being of a clerical or manual nature,
involves the exercise of discretion in the performance of the
functions of the government. When used with reference to a person
having authority to do a particular act or perform a particular
function in the exercise of governmental power, “officer” includes
any government employee, agent or body having authority to do
the act or exercise that function.
(15) “Employee” when used with reference to a person in the
public service, includes any person in the service of the
government or any of its agencies, divisions, subdivisions or
instrumentalities.
Executive Order No. 292
ADMINISTRATIVE CODE OF 1987
EN BANC
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates
the Ninoy Aquino International Airport (NAIA) Complex in
Parañaque City under Executive Order No. 903, otherwise known
as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued
on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 9091 and 2982 amended the
MIAA Charter.
As operator of the international airport, MIAA administers the
land, improvements and equipment within the NAIA Complex. The
MIAA Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and
Buildings") then under the Bureau of Air Transportation.4 The
MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other E-016-01377
mode unless specifically approved by the President of the 1992-2001
Philippines.5 18,134,614.65
On 21 March 1997, the Office of the Government Corporate 11,065,188.59
Counsel (OGCC) issued Opinion No. 061. The OGCC opined that 29,199,803.24
the Local Government Code of 1991 withdrew the exemption from E-016-01378
real estate tax granted to MIAA under Section 21 of the MIAA 1992-2001
Charter. Thus, MIAA negotiated with respondent City of 111,107,950.40
Parañaque to pay the real estate tax imposed by the City. MIAA 67,794,681.59
then paid some of the real estate tax already due. 178,902,631.99
On 28 June 2001, MIAA received Final Notices of Real Estate Tax E-016-01379
Delinquency from the City of Parañaque for the taxable years 1992 1992-2001
to 2001. MIAA's real estate tax delinquency is broken down as 4,322,340.00
follows: 2,637,360.00
TAX DECLARATION 6,959,700.00
TAXABLE YEAR E-016-01380
TAX DUE 1992-2001
PENALTY 7,776,436.00
TOTAL 4,744,944.00
E-016-01370 12,521,380.00
1992-2001 *E-016-013-85
19,558,160.00 1998-2001
11,201,083.20 6,444,810.00
30,789,243.20 2,900,164.50
E-016-01374 9,344,974.50
1992-2001 *E-016-01387
111,689,424.90 1998-2001
68,149,479.59 34,876,800.00
179,838,904.49 5,694,560.00
E-016-01375 50,571,360.00
1992-2001 *E-016-01396
20,276,058.00 1998-2001
12,371,832.00 75,240.00
32,647,890.00 33,858.00
E-016-01376 109,098.00
1992-2001 GRAND TOTAL
58,144,028.00
35,477,712.00 P392,435,861.95
93,621,740.00 P232,070,863.47
P 624,506,725.42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102
for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands
and Buildings. The Mayor of the City of Parañaque threatened to
sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency. MIAA thus
sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying
OGCC Opinion No. 061. The OGCC pointed out that Section 206
of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that
Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an
original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition
sought to restrain the City of Parañaque from imposing real estate
tax on, levying against, and auctioning for public sale the Airport
Lands and Buildings. The petition was docketed as CA-G.R. SP
No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition
because MIAA filed it beyond the 60-day reglementary period. The
Court of Appeals also denied on 27 September 2002 MIAA's
motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the
present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices
of auction sale at the Barangay Halls of Barangays Vitalez, Sto.
Niño, and Tambo, Parañaque City; in the public market of
Barangay La Huerta; and in the main lobby of the Parañaque City
Hall. The City of Parañaque published the notices in the 3 and 10
January 2003 issues of the Philippine Daily Inquirer, a newspaper
of general circulation in the Philippines. The notices announced the
public auction sale of the Airport Lands and Buildings to the
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative
Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10
p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents — the City of
Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod
ng Parañaque, City Treasurer of Parañaque, and the City Assessor
of Parañaque ("respondents") — from auctioning the Airport Lands
and Buildings.
On 7 February 2003, this Court issued a temporary restraining
order (TRO) effective immediately. The Court ordered respondents
to cease and desist from selling at public auction the Airport Lands
and Buildings. Respondents received the TRO on the same day that
the Court issued it. However, respondents received the TRO only at
1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming
nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments.
In compliance with the directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor General
subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the
Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and Buildings
is the Republic of the Philippines. The MIAA Charter mandates
MIAA to devote the Airport Lands and Buildings for the benefit of
the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings
are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter
specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under
Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government
cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor is also the
tax creditor.
Respondents invoke Section 193 of the Local Government Code,
which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the
effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express
mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in
Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan
International Airport v. Marcos8 where we held that the Local
Government Code has withdrawn the exemption from real estate
tax granted to international airports. Respondents further argue that
since MIAA has already paid some of the real estate tax
assessments, it is now estopped from claiming that the Airport
Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport
Lands and Buildings of MIAA are exempt from real estate tax
under existing laws. If so exempt, then the real estate tax
assessments issued by the City of Parañaque, and all proceedings
taken pursuant to such assessments, are void. In such event, the
other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from
real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from
real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or
controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in
Section 234(e) of the Local Government Code withdrew the real
estate tax exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section 40(a) of the
1974 Real Property Tax Code enumerating the entities exempt
from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the Administrative Code of 1987
defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized
as a stock or non-stock corporation." MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. Section 10 of the MIAA Charter9
provides:
SECTION 10. Capital. — The capital of the Authority to be
contributed by the National Government shall be increased from
Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways
and equipment and such other properties, movable and
immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the
valuation of which shall be determined jointly with the Department
of Budget and Management and the Commission on Audit on the
date of such contribution or transfer after making due allowances
for depreciation and other deductions taking into account the loans
and other liabilities of the Authority at the time of the takeover of
the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted
share of the National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for in Section 11 of
E. O. No. 903 as amended, shall be converted into the equity of the
National Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be provided in the
General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as
one whose "capital stock is divided into shares and x x x authorized
to distribute to the holders of such shares dividends x x x." MIAA
has capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock
corporation.
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a non-stock
corporation as "one where no part of its income is distributable as
dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will
not make MIAA a non-stock corporation. Non-stock corporations
cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury.11 This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA
does not qualify as a government-owned or controlled corporation.
What then is the legal status of MIAA within the National
Government?
MIAA is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the
Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA
exercises the governmental powers of eminent domain,12 police
authority13 and the levying of fees and charges.14 At the same
time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with
the provisions of this Executive Order."15
Likewise, when the law makes a government instrumentality
operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body"16 will
make its operation more "financially viable."17
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or instrumentality
is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines and
Bangko Sentral ng Pilipinas. All these government
instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section
2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called
government corporate entities. However, they are not government-
owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities and local government units.
(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of
the powers of local governments, local governments may only
exercise such power "subject to such guidelines and limitations as
the Congress may provide."18
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any
doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants
an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared in
Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In
such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments cannot
tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that
no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the
Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of
the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer
intended for public use or for public service, shall form part of the
patrimonial property of the State.
No one can dispute that properties of public dominion mentioned
in Article 420 of the Civil Code, like "roads, canals, rivers, torrents,
ports and bridges constructed by the State," are owned by the State.
The term "ports" includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic travel
and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. The
operation by the government of a tollway does not change the
character of the road as one for public use. Someone must pay for
the maintenance of the road, either the public indirectly through the
taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using
the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character
of the property whether it is of public dominion or not. Article 420
of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees,
the road is still "intended for public use" if anyone can use the road
under the same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that can use
the road, the speed restrictions and other conditions for the use of
the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for
public use. Such fees are often termed user's tax. This means taxing
those among the public who actually use a public facility instead of
taxing all the public including those who never use the particular
public facility. A user's tax is more equitable — a principle of
taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls
the "principal airport of the Philippines for both international and
domestic air traffic,"22 are properties of public dominion because
they are intended for public use. As properties of public dominion,
they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public
use and thus are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties
of public dominion are outside the commerce of man. As early as
1915, this Court already ruled in Municipality of Cavite v. Rojas
that properties devoted to public use are outside the commerce of
man, thus:
According to article 344 of the Civil Code: "Property for public use
in provinces and in towns comprises the provincial and town roads,
the squares, streets, fountains, and public waters, the promenades,
and public works of general service supported by said towns or
provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude
from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said
plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by
executing a contract over a thing of which it could not dispose, nor
is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is
not outside the commerce of man may be the object of a contract,
and plazas and streets are outside of this commerce, as was decided
by the supreme court of Spain in its decision of February 12, 1895,
which says: "Communal things that cannot be sold because they
are by their very nature outside of commerce are those for public
use, such as the plazas, streets, common lands, rivers, fountains,
etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that
properties of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted
to public use and to be made available to the public in general.
They are outside the commerce of man and cannot be disposed of
or even leased by the municipality to private parties. While in case
of war or during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as was
tolerated by the Municipality of Pozorrubio, when the emergency
has ceased, said temporary occupation or use must also cease, and
the town officials should see to it that the town plazas should ever
be kept open to the public and free from encumbrances or illegal
private constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.25
Properties of public dominion, being for public use, are not subject
to levy, encumbrance or disposition through public or private sale.
Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public
policy. Essential public services will stop if properties of public
dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for
non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings,
the President must first withdraw from public use the Airport
Lands and Buildings. Sections 83 and 88 of the Public Land Law
or Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of
lands of the public domain other than timber and mineral lands,"27
provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any
of its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations
for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales,
public parks, public quarries, public fishponds, working men's
village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the
provisions of Section eighty-three shall be non-alienable and shall
not be subject to occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of this Act or by
proclamation of the President. (Emphasis and underscoring
supplied)
Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties
remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status
as properties of public dominion, they are not subject to levy on
execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain
for public use, and to withdraw such public use, is reiterated in
Section 14, Chapter 4, Title I, Book III of the Administrative Code
of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private
Domain of the Government. — (1) The President shall have the
power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in
trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to hold
title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized by law to
be conveyed, the deed of conveyance shall be executed in behalf of
the government by the following:
(1) For property belonging to and titled in the name of the Republic
of the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but
titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands
and Buildings is clearer because even its executive head cannot
sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to
the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate government agencies
shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any
portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the
Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets.
— All existing public airport facilities, runways, lands, buildings
and other property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and privileges
belonging to the Bureau of Air Transportation relating to airport
works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are
hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a
Division in the Bureau of Air Transportation and Transitory
Provisions. — The Manila International Airport including the
Manila Domestic Airport as a division under the Bureau of Air
Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to
MIAA without the Republic receiving cash, promissory notes or
even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for
the transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal
airport of the Philippines for both international and domestic air
traffic, is required to provide standards of airport accommodation
and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and
other facilities, have to be upgraded to meet the current and future
air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated
that the objectives of providing high standards of accommodation
and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is
given continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of
Air Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air
Transportation into a separate and autonomous body. The Republic
remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and
Buildings "shall not be disposed through sale or through any other
mode unless specifically approved by the President of the
Philippines." This only means that the Republic retained the
beneficial ownership of the Airport Lands and Buildings because
under Article 428 of the Civil Code, only the "owner has the right
to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport
Lands and Buildings.
At any time, the President can transfer back to the Republic title to
the Airport Lands and Buildings without the Republic paying
MIAA any consideration. Under Section 3 of the MIAA Charter,
the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms
that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real
estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of
the same Code, which prohibits local governments from imposing
"[t]axes, fees or charges of any kind on the National Government,
its agencies and 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. In Lung Center of the Philippines v.
Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate
tax because Section 193 of the Local Government Code of 1991
withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person.
The minority argues that since the Local Government Code
withdrew the tax exemption of all juridical persons, then MIAA is
not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government
Code that the withdrawn exemptions from realty tax cover not just
GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption
applies to all persons. The reference to or the inclusion of GOCCs
is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons.
Obviously, MIAA is not a natural person. Thus, the determinative
test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is
exempt from local taxation is its status — whether MIAA is a
juridical person or not. The minority also insists that "Sections 193
and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the
Local Government Code expressly withdrew the tax exemption of
all juridical persons "[u]nless otherwise provided in this Code."
Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments
are devoid of power to tax the national government, its agencies
and instrumentalities. The taxing powers of local governments do
not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as
stated in the saving clause of Section 133. The saving clause refers
to Section 234(a) on the exception to the exemption from real
estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section
193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons exempt
from local taxation are limited to the three classes of entities
specifically enumerated as exempt in Section 193. Thus, the
minority states:
x x x Under Section 193, the exemption is limited to (a) local water
districts; (b) cooperatives duly registered under Republic Act No.
6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA
does not fall within any of the exempt entities under Section 193.
(Emphasis supplied)
The minority's theory directly contradicts and completely negates
Section 133(o) of the Local Government Code. This theory will
result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local
governments since the national government is not included in the
enumeration of exempt entities in Section 193. Under this theory,
local governments can impose any kind of local tax, and not only
real estate tax, on the national government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be subject to
any kind of local tax, and not only real estate tax. Some of the
national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice
Research Institute,31 Laguna Lake
Development Authority,32 Fisheries Development Authority,33
Bases Conversion Development Authority,34 Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National
Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt
from local taxation is not whether MIAA is a juridical person, but
whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies
and instrumentalities.
Section 133 of the Local Government Code starts with the saving
clause "[u]nless otherwise provided in this Code." This means that
unless the Local Government Code grants an express authorization,
local governments have no power to tax the national government,
its agencies and instrumentalities. Clearly, the rule is local
governments have no power to tax the national government, its
agencies and instrumentalities. As an exception to this rule, local
governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so
provides.
The saving clause in Section 133 refers to the exception to the
exemption in Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the beneficial
use of its real properties to a taxable entity. Section 234(a) of the
Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is
exempt from real estate tax. The exception to this exemption is
when the government gives the beneficial use of the real property
to a taxable entity.
The exception to the exemption in Section 234(a) is the only
instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real
estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section
193 and 234 of the Local Government Code, the later provisions
prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193
and 234. Following an accepted rule of construction, in case of
conflict the subsequent provisions should prevail. Therefore,
MIAA, as a juridical person, is subject to real property taxes, the
general exemptions attaching to instrumentalities under Section
133(o) of the Local Government Code being qualified by Sections
193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict
between Section 133 on one hand, and Sections 193 and 234 on the
other. No one has urged that there is such a conflict, much less has
any one presenteda persuasive argument that there is such a
conflict. The minority's assumption of an irreconcilable conflict in
the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193
because Section 193 expressly admits its subordination to other
provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that
limit the exercise of the taxing power in Section 193. When a
provision of law grants a power but withholds such power on
certain matters, there is no conflict between the grant of power and
the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the
Taxing Powers of Local Government Units." Section 133 limits the
grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the
taxing powers of local governments "shall not extend to the levy"
of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing power
than this.
Since Section 133 prescribes the "common limitations" on the
taxing powers of local governments, Section 133 logically prevails
over Section 193 which grants local governments such taxing
powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise
of the taxing power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind of tax on
the national government, its agencies and instrumentalities — a
gross absurdity.
Local governments have no power to tax the national government,
its agencies and instrumentalities, except as otherwise provided in
the Local Government Code pursuant to the saving clause in
Section 133 stating "[u]nless otherwise provided in this Code."
This exception — which is an exception to the exemption of the
Republic from real estate tax imposed by local governments —
refers to Section 234(a) of the Code. The exception to the
exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its
agencies or instrumentalities, to real estate tax if the beneficial use
of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative
Code of the phrase "government-owned or controlled corporation"
is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its
definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of
the text, or the context as a whole, or a particular statute, shall
require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative
Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a
different meaning than that defined in the Administrative Code.
However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government
Code. Section 2 of the Administrative Code clearly states that
"unless the specific words x x x of a particular statute shall require
a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local
Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the
Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned
or controlled corporation." The Administrative Code, however,
expressly defines the phrase "government-owned or controlled
corporation." The inescapable conclusion is that the Administrative
Code definition of the phrase "government-owned or controlled
corporation" applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the
Code "incorporates in a unified document the major structural,
functional and procedural principles and rules of governance."
Thus, the Administrative Code is the governing law defining the
status and relationship of government departments, bureaus,
offices, agencies and instrumentalities. Unless a statute expressly
provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase "government-owned or
controlled corporation" should apply only to corporations
organized under the Corporation Code, the general incorporation
law, and not to corporations created by special charters. The
minority sees no reason why government corporations with special
charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and
organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs
without original charters.
xxxx
It might as well be worth pointing out that there is no point in
requiring a capital structure for GOCCs whose full ownership is
limited by its charter to the State or Republic. Such GOCCs are not
empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in
accord with the Constitution and existing legislations. It will also
result in gross absurdities.
First, the Administrative Code definition of the phrase
"government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation Code
or under a special charter. Where the law does not distinguish,
courts should not distinguish.
Second, Congress has created through special charters several
government-owned corporations organized as stock corporations.
Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the
Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank
shall be nine billion pesos, divided into seven hundred and eighty
million common shares with a par value of ten pesos each, which
shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the
Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital
stock of the Bank shall be Five Billion Pesos to be divided into
Fifty Million common shares with par value of P100 per share.
These shares are available for subscription by the National
Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which
shall be deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock
corporations under their special charters are the Philippine Crop
Insurance Corporation,42 Philippine International Trading
Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All
these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-
owned or controlled corporations because they are not registered
with the Securities and Exchange Commission would remove them
from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is
that the government-owned or controlled corporation must meet
the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
(Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other
words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to
government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for
the common good — meaning for economic development purposes
— these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities
need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate powers
but performing essential governmental or public functions.
Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public
services. However, when the legislature creates through special
charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic
viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-
owned or controlled corporations, which derive their income to
meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution
is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the purpose
of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really
that when the government creates a corporation, there is a sense in
which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers'
money through new equity infusions from the government and
what is always invoked is the common good. That is the reason
why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions
to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian
reform, to social services like health and education, to augment the
salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves from
the responsibility of meeting the market test so that they become
viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the
common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in
the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must
show capacity to function efficiently in business and that they
should not go into activities which the private sector can do better.
Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not
quantifiable in financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential
public services regardless of the economic viability of providing
such service. The non-economic viability of rendering such
essential public service does not excuse the State from withholding
such essential services from the public.
However, government-owned or controlled corporations with
special charters, organized essentially for economic or commercial
objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like
the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under
the definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because
the legislature did not create MIAA to compete in the market place.
MIAA does not compete in the market place because there is no
competing international airport operated by the private sector.
MIAA performs an essential public service as the primary domestic
and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the
following government agencies:
1. The Bureau of Immigration and Deportation, to document the
arrival and departure of passengers, screening out those without
visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the
ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce
health measures against the spread of infectious diseases into the
country;
4. The Department of Agriculture, to enforce measures against the
spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National
Police, to prevent the entry of terrorists and the escape of criminals,
as well as to secure the airport premises from terrorist attack or
seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway
and buildings — for the government personnel, passengers, and
airlines, and to manage the airport operations.
All these agencies of government perform government functions
essential to the operation of an international airport.
MIAA performs an essential public service that every modern State
must provide its citizens. MIAA derives its revenues principally
from the mandatory fees and charges MIAA imposes on passengers
and airlines. The terminal fees that MIAA charges every passenger
are regulatory or administrative fees47 and not income from
commercial transactions.
MIAA falls under the definition of a government instrumentality
under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x
(Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does
not make MIAA a government-owned or controlled corporation.
Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is
outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the
phrase "government-owned or controlled corporation" as merely
"clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-
owned or controlled corporations." The Administrative Code
defines what constitutes a "government-owned or controlled
corporation." To belittle this phrase as "clarificatory or illustrative"
is grave error.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of
the Administrative Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of
the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports
and seaports. The Airport Lands and Buildings of MIAA are
intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are
owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section
133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The
only exception is when MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands
and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject
to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the
assailed Resolutions of the Court of Appeals of 5 October 2001 and
27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of
Parañaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued
by the City of Parañaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its
effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-
Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr.,
Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.
x-------------------------------------------------------------------------------
x 1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2
DISSENTING OPINION
TINGA, J. :
The legally correct resolution of this petition would have had the
added benefit of an utterly fair and equitable result – a recognition
of the constitutional and statutory power of the City of Parañaque
to impose real property taxes on the Manila International Airport
Authority (MIAA), but at the same time, upholding a statutory
limitation that prevents the City of Parañaque from seizing and
conducting an execution sale over the real properties of MIAA. In
the end, all that the City of Parañaque would hold over the MIAA
is a limited lien, unenforceable as it is through the sale or
disposition of MIAA properties. Not only is this the legal effect of
all the relevant constitutional and statutory provisions applied to
this case, it also leaves the room for negotiation for a mutually
acceptable resolution between the City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today veers
wildly off-course, shattering statutes and judicial precedents left
and right in order to protect the precious Ming vase that is the
Manila International Airport Authority (MIAA). While the MIAA
is left unscathed, it is surrounded by the wreckage that once was
the constitutional policy, duly enacted into law, that was local
autonomy. Make no mistake, the majority has virtually declared
war on the seventy nine (79) provinces, one hundred seventeen
(117) cities, and one thousand five hundred (1,500) municipalities
of the Philippines.1
The icing on this inedible cake is the strained and purposely vague
rationale used to justify the majority opinion. Decisions of the
Supreme Court are expected to provide clarity to the parties and to
students of jurisprudence, as to what the law of the case is,
especially when the doctrines of long standing are modified or
clarified. With all due respect, the decision in this case is plainly
so, so wrong on many levels. More egregious, in the majority's
resolve to spare the Manila International Airport Authority (MIAA)
from liability for real estate taxes, no clear-cut rule emerges on the
important question of the power of local government units (LGUs)
to tax government corporations, instrumentalities or agencies.
The majority would overturn sub silencio, among others, at least
one dozen precedents enumerated below:
the leading case penned in 1997 by recently retired Chief Justice
Davide, which held that the express withdrawal by the Local
Government Code of previously granted exemptions from realty
taxes applied to instrumentalities and government-owned or
controlled corporations (GOCCs) such as the Mactan-Cebu
International Airport Authority (MCIAA). The majority invokes
the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan,
and a vanguard of a doctrine so noxious to the concept of local
government rule that the Local Government Code was drafted
precisely to counter such philosophy. The efficacy of several
rulings that expressly rely on Mactan, such as PHILRECA v. DILG
Secretary,4 City Government of San Pablo v. Hon. Reyes5 is now
put in question.
2) The rulings in National Power Corporation v. City of
Cabanatuan,6 wherein the Court, through Justice Puno, declared
that the National Power Corporation, a GOCC, is liable for
franchise taxes under the Local Government Code, and succeeding
cases that have relied on it such as Batangas Power Corp. v.
Batangas City7 The majority now states that deems
instrumentalities as defined under the Administrative Code of 1987
as purportedly beyond the reach of any form of taxation by LGUs,
stating "[l]ocal governments are devoid of power to tax the national
government, its agencies and instrumentalities."8 Unfortunately,
using the definition employed by the majority, as provided by
Section 2(d) of the Administrative Code, GOCCs are also
considered as instrumentalities, thus leading to the astounding
conclusion that GOCCs may not be taxed by LGUs under the
Local Government Code.
3) Lung Center of the Philippines v. Quezon City,9 wherein a
unanimous en banc Court held that the Lung Center of the
Philippines may be liable for real property taxes. Using the
majority's reasoning, the Lung Center would be properly classified
as an instrumentality which the majority now holds as exempt from
all forms of local taxation.10
4) City of Davao v. RTC,11 where the Court held that the
Government Service Insurance System (GSIS) was liable for real
property taxes for the years 1992 to 1994, its previous exemption
having been withdrawn by the enactment of the Local Government
Code.12 This decision, which expressly relied on Mactan, would
be directly though silently overruled by the majority.
5) The common essence of the Court's rulings in the two Philippine
Ports Authority v. City of Iloilo,13 cases penned by Justices Callejo
and Azcuna respectively, which relied in part on Mactan in holding
the Philippine Ports Authority (PPA) liable for realty taxes,
notwithstanding the fact that it is a GOCC. Based on the reasoning
of the majority, the PPA cannot be considered a GOCC. The
reliance of these cases on Mactan, and its rationale for holding
governmental entities like the PPA liable for local government
taxation is mooted by the majority.
6) The 1963 precedent of Social Security System Employees
Association v. Soriano,14 which declared the Social Security
Commission (SSC) as a GOCC performing proprietary functions.
Based on the rationale employed by the majority, the Social
Security System is not a GOCC. Or perhaps more accurately, "no
longer" a GOCC.
7) The decision penned by Justice (now Chief Justice) Panganiban,
Light Rail Transit Authority v. Central Board of Assessment.15 The
characterization therein of the Light Rail Transit Authority (LRTA)
as a "service-oriented commercial endeavor" whose patrimonial
property is subject to local taxation is now rendered
inconsequential, owing to the majority's thinking that an entity
such as the LRTA is itself exempt from local government
taxation16, irrespective of the functions it performs. Moreover,
based on the majority's criteria, LRTA is not a GOCC.
8) The cases of Teodoro v. National Airports Corporation17 and
Civil Aeronautics Administration v. Court of Appeals.18 wherein
the Court held that the predecessor agency of the MIAA, which
was similarly engaged in the operation, administration and
management of the Manila International Agency, was engaged in
the exercise of proprietary, as opposed to sovereign functions. The
majority would hold otherwise that the property maintained by
MIAA is actually patrimonial, thus implying that MIAA is actually
engaged in sovereign functions.
9) My own majority in Phividec Industrial Authority v. Capitol
Steel,19 wherein the Court held that the Phividec Industrial
Authority, a GOCC, was required to secure the services of the
Office of the Government Corporate Counsel for legal
representation.20 Based on the reasoning of the majority, Phividec
would not be a GOCC, and the mandate of the Office of the
Government Corporate Counsel extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June
2006), National Power Corporation v. Province of Isabela21 and
GSIS v. City Assessor of Iloilo City.22 In the former, the Court
pronounced that "[a]lthough as a general rule, LGUs cannot impose
taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, this rule admits of an exception,
i.e., when specific provisions of the LGC authorize the LGUs to
impose taxes, fees or charges on the aforementioned entities." Yet
the majority now rules that the exceptions in the LGC no longer
hold, since "local governments are devoid of power to tax the
national government, its agencies and instrumentalities."23 The
ruling in the latter case, which held the GSIS as liable for real
property taxes, is now put in jeopardy by the majority's ruling.
There are certainly many other precedents affected, perhaps all
previous jurisprudence regarding local government taxation vis-a-
vis government entities, as well as any previous definitions of
GOCCs, and previous distinctions between the exercise of
governmental and proprietary functions (a distinction laid down by
this Court as far back as 191624). What is the reason offered by the
majority for overturning or modifying all these precedents and
doctrines? None is given, for the majority takes comfort instead in
the pretense that these precedents never existed. Only children
should be permitted to subscribe to the theory that something bad
will go away if you pretend hard enough that it does not exist.
I.
Case Should Have Been Decided
Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to the City
of Parañaque for real property taxes under the Local Government
Code, has already been decided by this Court in the Mactan case,
and should have been resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-Cebu
International Airport Authority (MCIAA) claimed that it was
exempt from payment of real property taxes to the City of Cebu,
invoking the specific exemption granted in Section 14 of its
charter, Republic Act No. 6958, and its status as an instrumentality
of the government performing governmental functions.25
Particularly, MCIAA invoked Section 133 of the Local
Government Code, precisely the same provision utilized by the
majority as the basis for MIAA's exemption. Section 133 reads:
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:
xxx
(o) Taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities and local government units.
(emphasis and underscoring supplied).
However, the Court in Mactan noted that Section 133 qualified the
exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless
otherwise provided herein." It then considered the other relevant
provisions of the Local Government Code, particularly the
following:
SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless
otherwise provided in this Code, tax exemption or incentives
granted to, or enjoyed by all persons, whether natural or juridical,
including government-owned and 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.26
SECTION 232. Power to Levy Real Property Tax. – A province or
city or a municipality within the Metropolitan Manila area may
levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvements not hereafter
specifically exempted.27
SECTION 234. Exemptions from Real Property Tax. -- The
following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person:
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements actually, directly, and
exclusively used for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned
and controlled corporations engaged in the distribution of water
and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-
owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.28
Clearly, Section 133 was not intended to be so absolute a
prohibition on the power of LGUs to tax the National Government,
its agencies and instrumentalities, as evidenced by these cited
provisions which "otherwise provided." But what was the extent of
the limitation under Section 133? This is how the Court, correctly
to my mind, defined the parameters in Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on
the taxing powers of local government units and the exceptions to
such limitations; and (b) the rule on tax exemptions and the
exceptions thereto. The use of exceptions or provisos in these
sections, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of
Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section
234
initially hampers a ready understanding of the sections. Note, too,
that the aforementioned clause in Section 133 seems to be
inaccurately worded. Instead of the clause "unless otherwise
provided herein," with the "herein" to mean, of course, the section,
it should have used the clause "unless otherwise provided in this
Code." The former results in absurdity since the section itself
enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the
exceptions are explicitly indicated in the next. For instance, in item
(a) which excepts income taxes "when levied on banks and other
financial institutions"; item (d) which excepts "wharfage on
wharves constructed and maintained by the local government unit
concerned"; and item (1) which excepts taxes, fees and charges for
the registration and issuance of licenses or permits for the driving
of "tricycles." It may also be observed that within the body itself of
the section, there are exceptions which can be found only in other
parts of the LGC, but the section interchangeably uses therein the
clause, "except as otherwise provided herein" as in items (c) and
(i), or the clause "except as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere surplusages
if the opening clause of the section were "Unless otherwise
provided in this Code" instead of "Unless otherwise provided
herein." In any event, even if the latter is used, since under Section
232 local government units have the power to levy real property
tax, except those exempted therefrom under Section 234, then
Section 232 must be deemed to qualify Section 133.
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 powers of local government units 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 item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed
by natural or judicial persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the
LGC, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234
which enumerates the properties exempt from real property tax.
But the last paragraph of Section 234 further qualifies the retention
of the exemption insofar as real property taxes are concerned by
limiting the retention only to those enumerated therein; all others
not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as to real property owned
by the Republic of the Philippines or any of its political
subdivisions covered by item (a) of the first paragraph of Section
234, the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or
otherwise.
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. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as
it now asserts, since, as shown above, the said section is qualified
by Sections 232 and 234.29
The Court in Mactan acknowledged that under Section 133,
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 LGUs 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, 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 234.30
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the petitioners in Mactan also raised the Court's ruling in
Basco v. PAGCOR,31 decided before the enactment of the Local
Government Code. The Court in Basco declared the PAGCOR as
exempt from local taxes, justifying the exemption in this wise:
Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869. All of its
shares of stocks are owned by the National Government. In
addition to its corporate powers (Sec. 3, Title II, PD 1869) it also
exercises regulatory powers xxx
PAGCOR has a dual role, to operate and to 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." (McCulloch v. Marland,
4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that
no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activates or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the
"power to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it.32
Basco is as strident a reiteration of the old guard view that frowned
on the principle of local autonomy, especially as it interfered with
the prerogatives and privileges of the national government. Also
consider the following citation from Maceda v. Macaraig,33
decided the same year as Basco. Discussing the rule of construction
of tax exemptions on government instrumentalities, the sentiments
are of a similar vein.
Moreover, it is a recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory
provisions granting tax exemptions or deductions, even more
obvious than with reference to the affirmative or levying provisions
of tax statutes, is to minimize differential treatment and foster
impartiality, fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In
such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.
In the case of property owned by the state or a city or other public
corporations, the express exemption should not be construed with
the same degree of strictness that applies to exemptions contrary to
the policy of the state, since as to such property "exemption is the
rule and taxation the exception."34
Strikingly, the majority cites these two very cases and the stodgy
rationale provided therein. This evinces the perspective from which
the majority is coming from. It is admittedly a viewpoint once
shared by this Court, and en vogue prior to the enactment of the
Local Government Code of 1991.
However, the Local Government Code of 1991 ushered in a new
ethos on how the art of governance should be practiced in the
Philippines, conceding greater powers once held in the private
reserve of the national government to LGUs. The majority might
have private qualms about the wisdom of the policy of local
autonomy, but the members of the Court are not expected to
substitute their personal biases for the legislative will, especially
when the 1987 Constitution itself promotes the principle of local
autonomy.
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local
autonomy.
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.
xxx
Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments.
xxx
The Court in Mactan recognized that a new day had dawned with
the enactment of the 1987 Constitution and the Local Government
Code of 1991. Thus, it expressly rejected the contention of the
MCIAA that Basco was applicable to them. In doing so, the
language of the Court was dramatic, if only to emphasize how
monumental the shift in philosophy was with the enactment of the
Local Government Code:
Accordingly, the position taken by the [MCIAA] is untenable.
Reliance on Basco v. Philippine Amusement and Gaming
Corporation is unavailing since it was decided before the
effectivity of the [Local Government Code]. 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.35 (emphasis supplied)
The Court Has Repeatedly
Reaffirmed Mactan Over the
Precedents Now Relied Upon
By the Majority
Since then and until today, the Court has been emphatic in
declaring the Basco doctrine as dead. The notion that
instrumentalities may be subjected to local taxation by LGUs was
again affirmed in National Power Corporation v. City of
Cabanatuan,36 which was penned by Justice Puno. NPC or
Napocor, invoking its continued exemption from payment of
franchise taxes to the City of Cabanatuan, alleged that it was an
instrumentality of the National Government which could not be
taxed by a city government. To that end, Basco was cited by NPC.
The Court had this to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming
Corporation 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, nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing
governmental functions may be subject to tax. 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.37
In the 2003 case of Philippine Ports Authority v. City of Iloilo,38
the Court, in the able ponencia of Justice Azcuna, affirmed the levy
of realty taxes on the PPA. Although the taxes were assessed under
the old Real Property Tax Code and not the Local Government
Code, the Court again cited Mactan to refute PPA's invocation of
Basco as the basis of its exemption.
[Basco] did not absolutely prohibit local governments from taxing
government instrumentalities. In fact we stated therein:
The power of local government to "impose taxes and fees" is
always subject to "limitations" which Congress may provide by
law. Since P.D. 1869 remains an "operative" law until "amended,
repealed or revoked". . . its "exemption clause" remains an
exemption to the exercise of the power of local governments to
impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International
Airport Authority v. Marcos, where the Basco case was similarly
invoked for tax exemption, we stated: "[N]othing 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." The
fact that tax exemptions of government-owned or controlled
corporations have been expressly withdrawn by the present Local
Government Code clearly attests against petitioner's claim of
absolute exemption of government instrumentalities from local
taxation.39
Just last month, the Court in National Power Corporation v.
Province of Isabela40 again rejected Basco in emphatic terms.
Held the Court, through Justice Callejo, Sr.:
Thus, the doctrine laid down in the Basco case is no longer true. In
the Cabanatuan case, the Court noted primarily that 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. It further explained that in
enacting the LGC, Congress empowered the LGUs to impose
certain taxes even on instrumentalities of the National
Government.41
The taxability of the PPA recently came to fore in Philippine Ports
Authority v. City of Iloilo42 case, a decision also penned by Justice
Callejo, Sr., wherein the Court affirmed the sale of PPA's properties
at public auction for failure to pay realty taxes. The Court again
reiterated that "it was the intention of Congress to withdraw the tax
exemptions granted to or presently enjoyed by all persons,
including government-owned or controlled corporations, upon the
effectivity" of the Code.43 The Court in the second Public Ports
Authority case likewise cited Mactan as providing the "raison
d'etre for the withdrawal of the exemption," namely, "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. . . . "44
Last year, the Court, in City of Davao v. RTC,45 affirmed that the
legislated exemption from real property taxes of the Government
Service Insurance System (GSIS) was removed under the Local
Government Code. Again, Mactan was relied upon as the
governing precedent. The removal of the tax exemption stood even
though the then GSIS law46 prohibited the removal of GSIS' tax
exemptions unless the exemption was specifically repealed, "and a
provision is enacted to substitute the declared policy of exemption
from any and all taxes as an essential factor for the solvency of the
fund."47 The Court, citing established doctrines in statutory
construction and Duarte v. Dade48 ruled that such proscription on
future legislation was itself prohibited, as "the legislature cannot
bind a future legislature to a particular mode of repeal."49
And most recently, just less than one month ago, the Court, through
Justice Corona in Government Service Insurance System v. City
Assessor of Iloilo50 again affirmed that the Local Government
Code removed the previous exemption from real property taxes of
the GSIS. Again Mactan was cited as having "expressly withdrawn
the [tax] exemption of the [GOCC].51
Clearly then, Mactan is not a stray or unique precedent, but the
basis of a jurisprudential rule employed by the Court since its
adoption, the doctrine therein consistent with the Local
Government Code. Corollarily, Basco, the polar opposite of
Mactan has been emphatically rejected and declared inconsistent
with the Local Government Code.
II.
Majority, in Effectively Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite Mactan, other
than an incidental reference that it is relied upon by the
respondents.52 However, 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 Court's
jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief
comment is necessitated on the majority's studied murkiness vis-à-
vis the Mactan precedent. 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.
However, the majority does not bother to explain why Mactan is
wrong. The interpretation in Mactan of the relevant provisions of
the Local Government Code is elegant and rational, yet the
majority refuses to explain why this reasoning of the Court in
Mactan is erroneous. In fact, the majority does not even engage
Mactan in any meaningful way. If the majority believes that
Mactan may still stand despite this ruling, it remains silent as to the
viable distinctions between these two cases.
The majority's silence on Mactan is baffling, considering how
different this new ruling is with the ostensible precedent. Perhaps
the majority does not simply know how to dispense with the ruling
in Mactan. If Mactan truly deserves to be discarded as precedent, it
deserves a more honorable end than death by amnesia or
ignonominous disregard. The majority could have devoted its
discussion in explaining why it thinks Mactan is wrong, instead of
pretending that Mactan never existed at all. Such an approach
might not have won the votes of the minority, but at least it would
provide some degree of intellectual clarity for the parties, LGUs
and the national government, students of jurisprudence and
practitioners. A more meaningful debate on the matter would have
been possible, enriching the study of law and the intellectual
dynamic of this Court.
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.53 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.54 Both of them are
not empowered to obtain loans or encumber their properties
without prior approval the prior approval of the President.55
III.
Instrumentalities, Agencies
And GOCCs Generally
Liable for Real Property Tax
I shall now proceed to demonstrate the errors in reasoning of the
majority. A bulwark of my position lies with Mactan, which will
further demonstrate why the majority has found it inconvenient to
even grapple with the precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national
government, its agencies and instrumentalities under Section 133 is
qualified by Section 232 and Section 234, and accordingly, the
only relevant exemption now applicable to these bodies is as
provided under Section 234(o), or on "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."
It should be noted that the express withdrawal of previously
granted exemptions by the Local Government Code do not even
make any distinction as to whether the exempt person is a
governmental entity or not. As Sections 193 and 234 both state, the
withdrawal applies to "all persons, including [GOCCs]", thus
encompassing the two classes of persons recognized under our
laws, natural persons56 and juridical persons.57
The fact that the Local Government Code mandates the withdrawal
of previously granted exemptions evinces certain key points. If an
entity was previously granted an express exemption from real
property taxes in the first place, the obvious conclusion would be
that such entity would ordinarily be liable for such taxes without
the exemption. If such entities were already deemed exempt due to
some overarching principle of law, then it would be a redundancy
or surplusage to grant an exemption to an already exempt entity.
This fact militates against the claim that MIAA is preternaturally
exempt from realty taxes, since it required the enactment of an
express exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan
and asserts that government instrumentalities are not taxable
persons unless they lease their properties to a taxable person. The
general rule laid down in Section 232 is given short shrift. In
arriving at this conclusion, several leaps in reasoning are
committed.
Majority's Flawed Definition
of GOCCs.
The majority takes pains to assert that the MIAA is not a GOCC,
but rather an instrumentality. However, and quite grievously, the
supposed foundation of this assertion is an adulteration.
The majority gives the impression that a government
instrumentality is a distinct concept from a government
corporation.58 Most tellingly, the majority selectively cites a
portion of Section 2(10) of the Administrative Code of 1987, as
follows:
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. xxx59 (emphasis
omitted)
However, Section 2(10) of the Administrative Code, when read in
full, makes an important clarification which the majority does not
show. The portions omitted by the majority are highlighted below:
(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.60
Since Section 2(10) makes reference to "agency of the National
Government," Section 2(4) is also worth citing in full:
(4) Agency of the Government refers to any of the various units of
the Government, including a department, bureau, office,
instrumentality, or government-owned or controlled corporation, or
a local government or a distinct unit therein. (emphasis supplied)61
Clearly then, based on the Administrative Code, a GOCC may be
an instrumentality or an agency of the National Government. Thus,
there actually is no point in the majority's assertion that MIAA is
not a GOCC, since based on the majority's premise of Section 133
as the key provision, the material question is whether MIAA is
either an instrumentality, an agency, or the National Government
itself. The very provisions of the Administrative Code provide that
a GOCC can be either an instrumentality or an agency, so why
even bother to extensively discuss whether or not MIAA is a
GOCC?
Indeed as far back as the 1927 case of Government of the
Philippine Islands v. Springer,62 the Supreme Court already noted
that a corporation of which the government is the majority
stockholder "remains an agency or instrumentality of
government."63
Ordinarily, the inconsequential verbiage stewing in judicial
opinions deserve little rebuttal. However, the entire discussion of
the majority on the definition of a GOCC, obiter as it may
ultimately be, deserves emphatic refutation. The views of the
majority on this matter are very dangerous, and would lead to
absurdities, perhaps unforeseen by the majority. For in fact, the
majority effectively declassifies many entities created and
recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters
as to the definition of these entities.
Majority Ignores the Power
Of Congress to Legislate and
Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the
Administrative Code, a GOCC must be "organized as a stock or
non-stock corporation," as defined under the Corporation Code. To
insist on this as an absolute rule fails on bare theory. Congress has
the undeniable power to create a corporation by legislative charter,
and has been doing so throughout legislative history. There is no
constitutional prohibition on Congress as to what structure these
chartered corporations should take on. Clearly, Congress has the
prerogative to create a corporation in whatever form it chooses,
and it is not bound by any traditional format. Even if there is a
definition of what a corporation is under the Corporation Code or
the Administrative Code, these laws are by no means sacrosanct. It
should be remembered that these two statutes fall within the same
level of hierarchy as a congressional charter, since they all are
legislative enactments. Certainly, Congress can choose to disregard
either the Corporation Code or the Administrative Code in defining
the corporate structure of a GOCC, utilizing the same extent of
legislative powers similarly vesting it the putative ability to amend
or abolish the Corporation Code or the Administrative Code.
These principles are actually recognized by both the Administrative
Code and the Corporation Code. The definition of GOCCs,
agencies and instrumentalities under the Administrative Code are
laid down in the section entitled "General Terms Defined," which
qualifies:
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: (emphasis supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which
provides:
SEC. 4. Corporations created by special laws or charters.—
Corporations created by special laws or charters shall be governed
primarily by the provisions of the special law or charter creating
them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable. (emphasis supplied)
Thus, the clear doctrine emerges – the law that governs the
definition of a corporation or entity created by Congress is its
legislative charter. If the legislative enactment defines an entity as a
corporation, then it is a corporation, no matter if the Corporation
Code or the Administrative Code seemingly provides otherwise. In
case of conflict between the legislative charter of a government
corporation, on one hand, and the Corporate Code and the
Administrative Code, on the other, the former always prevails.
Majority, in Ignoring the
Legislative Charters, Effectively
Classifies Duly Established GOCCs,
With Disastrous and Far Reaching
Legal Consequences
Second, the majority claims that MIAA does not qualify either as a
stock or non-stock corporation, as defined under the Corporation
Code. It explains that the MIAA is not a stock corporation because
it does not have any capital stock divided into shares. Neither can it
be considered as a non-stock corporation because it has no
members, and under Section 87, a non-stock corporation is one
where no part of its income is distributable as dividends to its
members, trustees or officers.
This formulation of course ignores Section 4 of the Corporation
Code, which again provides that corporations created by special
laws or charters shall be governed primarily by the provisions of
the special law or charter, and not the Corporation Code.
That the MIAA cannot be considered a stock corporation if only
because it does not have a stock structure is hardly a plausible
proposition. Indeed, there is no point in requiring a capital stock
structure for GOCCs whose full ownership is limited by its charter
to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.
Admittedly, there are GOCCs established in such a manner, such as
the National Power Corporation (NPC), which is provided with
authorized capital stock wholly subscribed and paid for by the
Government of the Philippines, divided into shares but at the same
time, is prohibited from transferring, negotiating, pledging,
mortgaging or otherwise giving these shares as security for
payment of any obligation.64 However, based on the Corporation
Code definition relied upon by the majority, even the NPC cannot
be considered as a stock corporation. Under Section 3 of the
Corporation Code, stock corporations are defined as being
"authorized to distribute to the holders of its shares dividends or
allotments of the surplus profits on the basis of the shares held."65
On the other hand, Section 13 of the NPC's charter states that "the
Corporation shall be non-profit and shall devote all its returns from
its capital investment, as well as excess revenues from its
operation, for expansion."66 Can the holder of the shares of NPC,
the National Government, receive its surplus profits on the basis of
its shares held? It cannot, according to the NPC charter, and hence,
following Section 3 of the Corporation Code, the NPC is not a
stock corporation, if the majority is to be believed.
The majority likewise claims that corporations without members
cannot be deemed non-stock corporations. This would seemingly
exclude entities such as the NPC, which like MIAA, has no
ostensible members. Moreover, non-stock corporations cannot
distribute any part of its income as dividends to its members,
trustees or officers. The majority faults MIAA for remitting 20% of
its gross operating income to the national government. How about
the Philippine Health Insurance Corporation, created with the
"status of a tax-exempt government corporation attached to the
Department of Health" under Rep. Act No. 7875.67 It too cannot
be considered as a stock corporation because it has no capital stock
structure. But using the criteria of the majority, it is doubtful if it
would pass muster as a non-stock corporation, since the PHIC or
Philhealth, as it is commonly known, is expressly empowered "to
collect, deposit, invest, administer and disburse" the National
Health Insurance Fund.68 Or how about the Social Security
System, which under its revised charter, Republic Act No. 8282, is
denominated as a "corporate body."69 The SSS has no capital stock
structure, but has capital comprised of contributions by its
members, which are eventually remitted back to its members. Does
this disqualify the SSS from classification as a GOCC,
notwithstanding this Court's previous pronouncement in Social
Security System Employees Association v. Soriano?70
In fact, Republic Act No. 7656, enacted in 1993, requires that all
GOCCs, whether stock or non-stock,71 declare and remit at least
fifty percent (50%) of their annual net earnings as cash, stock or
property dividends to the National Government.72 But according
to the majority, non-stock corporations are prohibited from
declaring any part of its income as dividends. But if Republic Act
No. 7656 requires even non-stock corporations to declare dividends
from income, should it not follow that the prohibition against
declaration of dividends by non-stock corporations under the
Corporation Code does not apply to government-owned or
controlled corporations? For if not, and the majority's illogic is
pursued, Republic Act No. 7656, passed in 1993, would be fatally
flawed, as it would contravene the Administrative Code of 1987
and the Corporation Code.
In fact, the ruinous effects of the majority's hypothesis on the
nature of GOCCs can be illustrated by Republic Act No. 7656.
Following the majority's definition of a GOCC and in accordance
with Republic Act No. 7656, here are but a few entities which are
not obliged to remit fifty (50%) of its annual net earnings to the
National Government as they are excluded from the scope of
Republic Act No. 7656:
1) Philippine Ports Authority73 – has no capital stock74, no
members, and obliged to apply the balance of its income or
revenue at the end of each year in a general reserve.75
2) Bases Conversion Development Authority76 - has no capital
stock,77 no members.
3) Philippine Economic Zone Authority78 - no capital stock,79 no
members.
4) Light Rail Transit Authority80 - no capital stock,81 no members.
5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members,
required to remit fifty percent (50%) of its net profits to the
National Treasury.84
6) National Power Corporation85 - has capital stock but is
prohibited from "distributing to the holders of its shares dividends
or allotments of the surplus profits on the basis of the shares
held;"86 no members.
7) Manila International Airport Authority – no capital stock87, no
members88, mandated to remit twenty percent (20%) of its annual
gross operating income to the National Treasury.89
Thus, for the majority, the MIAA, among many others, cannot be
considered as within the coverage of Republic Act No. 7656.
Apparently, President Fidel V. Ramos disagreed. How else then
could Executive Order No. 483, signed in 1998 by President
Ramos, be explained? The issuance provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides that:
"Section 1. Declaration of Policy. - It is hereby declared the policy
of the State that in order for the National Government to realize
additional revenues, government-owned and/or controlled
corporations, without impairing their viability and the purposes for
which they have been established, shall share a substantial amount
of their net earnings to the National Government."
WHEREAS, to support the viability and mandate of government-
owned and/or controlled corporations [GOCCs], the liquidity,
retained earnings position and medium-term plans and programs of
these GOCCs were considered in the determination of the
reasonable dividend rates of such corporations on their 1997 net
earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of
Finance recommended the adjustment on the percentage of annual
net earnings that shall be declared by the Manila International
Airport Authority [MIAA] and Phividec Industrial Authority [PIA]
in the interest of national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the
Philippines, by virtue of the powers vested in me by law, do hereby
order:
SECTION 1. The percentage of net earnings to be declared and
remitted by the MIAA and PIA as dividends to the National
Government as provided for under Section 3 of Republic Act No.
7656 is adjusted from at least fifty percent [50%] to the rates
specified hereunder:
1. Manila International Airport Authority - 35% [cash]
2. Phividec Industrial Authority - 25% [cash]
SECTION 2. The adjusted dividend rates provided for under
Section 1 are only applicable on 1997 net earnings of the
concerned government-owned and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary
of Finance that MIAA is a GOCC, for how else could it have come
under the coverage of Republic Act No. 7656, a law applicable
only to GOCCs? But, the majority apparently disagrees, and
resultantly holds that MIAA is not obliged to remit even the
reduced rate of thirty five percent (35%) of its net earnings to the
national government, since it cannot be covered by Republic Act
No. 7656.
All this mischief because the majority would declare the
Administrative Code of 1987 and the Corporation Code as the sole
sources of law defining what a government corporation is. As I
stated earlier, I find it illogical that chartered corporations are
compelled to comply with the templates of the Corporation Code,
especially when the Corporation Code itself states that these
corporations are to be governed by their own charters. This is
especially true considering that the very provision cited by the
majority, Section 87 of the Corporation Code, expressly says that
the definition provided therein is laid down "for the purposes of
this [Corporation] Code." Read in conjunction with Section 4 of
the Corporation Code which mandates that corporations created by
charter be governed by the law creating them, it is clear that
contrary to the majority, MIAA is not disqualified from
classification as a non-stock corporation by reason of Section 87,
the provision not being applicable to corporations created by
special laws or charters. In fact, I see no real impediment why the
MIAA and similarly situated corporations such as the PHIC, the
SSS, the Philippine Deposit Insurance Commission, or maybe even
the NPC could at the very least, be deemed as no stock
corporations (as differentiated from non-stock corporations).
The point, stripped to bare simplicity, is that entity created by
legislative enactment is a corporation if the legislature says so.
After all, it is the legislature that dictates what a corporation is in
the first place. This is better illustrated by another set of entities
created before martial law. These include the Mindanao
Development Authority,90 the Northern Samar Development
Authority,91 the Ilocos Sur Development Authority,92 the
Southeastern Samar Development Authority93 and the Mountain
Province Development Authority.94 An examination of the first
section of the statutes creating these entities reveal that they were
established "to foster accelerated and balanced growth" of their
respective regions, and towards such end, the charters commonly
provide that "it is recognized that a government corporation should
be created for the purpose," and accordingly, these charters "hereby
created a body corporate."95 However, these corporations do not
have capital stock nor members, and are obliged to return the
unexpended balances of their appropriations and earnings to a
revolving fund in the National Treasury. The majority effectively
declassifies these entities as GOCCs, never mind the fact that their
very charters declare them to be GOCCs.
I mention these entities not to bring an element of obscurantism
into the fray. I cite them as examples to emphasize my fundamental
point—that it is the legislative charters of these entities, and not the
Administrative Code, which define the class of personality of these
entities created by Congress. To adopt the view of the majority
would be, in effect, to sanction an implied repeal of numerous
congressional charters for the purpose of declassifying GOCCs.
Certainly, this could not have been the intent of the crafters of the
Administrative Code when they drafted the "Definition of Terms"
incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters of government corporations, there are two
kinds of GOCCs, namely: GOCCs which are stock corporations
and GOCCs which are no stock corporations (as distinguished
from non-stock corporation). Stock GOCCs are simply those which
have capital stock while no stock GOCCs are those which have no
capital stock. Obviously these definitions are different from the
definitions of the terms in the Corporation Code. Verily, GOCCs
which are not incorporated with the Securities and Exchange
Commission are not governed by the Corporation Code but by their
respective charters.
For the MIAA's part, its charter is replete with provisions that
indubitably classify it as a GOCC. Observe the following
provisions from MIAA's charter:
SECTION 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; Provided, That any subsidiary that may be
organized shall have the prior approval of the President.
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate government agencies
shall undertake an actual survey of the area transferred within one
year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any
portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the
Philippines.
xxx
SECTION 5. Functions, Powers, and Duties. — The Authority
shall have the following functions, powers and duties:
xxx
(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;
xxx
(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.
xxx
SECTION 16. Borrowing Power. — The Authority may, after
consultation with the Minister of Finance and with the approval of
the President of the Philippines, as recommended by the Minister
of Transportation and Communications, raise funds, either from
local or international sources, by way of loans, credits 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.
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 assets or property of the Authority.
Except as expressly authorized by the President of the Philippines
the total outstanding indebtedness of the Authority in the principal
amount, in local and foreign currency, shall not at any time exceed
the net worth of the Authority at any given time.
xxx
The President or his duly authorized representative after
consultation with the Minister of Finance may guarantee, in the
name and on behalf of the Republic of the Philippines, the payment
of the loans or other indebtedness of the Authority up to the
amount herein authorized.
These cited provisions establish the fitness of MIAA to be the
subject of legal relations.96 MIAA under its charter may acquire
and possess property, incur obligations, and bring civil or criminal
actions. It has the power to contract in its own name, and to acquire
title to real or personal property. It likewise may exercise a panoply
of corporate powers and possesses all the trappings of corporate
personality, such as a corporate name, a corporate seal and by-laws.
All these are contained in MIAA's charter which, as conceded by
the Corporation Code and even the Administrative Code, is the
primary law that governs the definition and organization of the
MIAA.
In fact, MIAA itself believes that it is a GOCC represents itself as
such. It said so itself in the very first paragraph of the present
petition before this Court.97 So does, apparently, the Department
of Budget and Management, which classifies MIAA as a
"government owned & controlled corporation" on its internet
website.98 There is also the matter of Executive Order No. 483,
which evinces the belief of the then-president of the Philippines
that MIAA is a GOCC. And the Court before had similarly
characterized MIAA as a government-owned and controlled
corporation in the earlier MIAA case, Manila International Airport
Authority v. Commission on Audit.99
Why then the hesitance to declare MIAA a GOCC? As the majority
repeatedly asserts, it is because MIAA is actually an
instrumentality. But the very definition relied upon by the majority
of an instrumentality under the Administrative Code clearly states
that a GOCC is likewise an instrumentality or an agency. The
question of whether MIAA is a GOCC might not even be
determinative of this Petition, but the effect of the majority's
disquisition on that matter may even be more destructive than the
ruling that MIAA is exempt from realty taxes. Is the majority ready
to live up to the momentous consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
One last point on this matter on whether MIAA is a GOCC. The
majority triumphantly points to Section 16, Article XII of the 1987
Constitution, which mandates that the creation of GOCCs through
special charters be "in the interest of the common good and subject
to the test of economic viability." For the majority, the test of
economic viability does not apply to government entities vested
with corporate powers and performing essential public services.
But this test of "economic viability" is new to the constitutional
framework. No such test was imposed in previous Constitutions,
including the 1973 Constitution which was the fundamental law in
force when the MIAA was created. How then could the MIAA, or
any GOCC created before 1987 be expected to meet this new
precondition to the creation of a GOCC? Does the dissent seriously
suggest that GOCCs created before 1987 may be declassified on
account of their failure to meet this "economic viability test"?
Instrumentalities and Agencies
Also Generally Liable For
Real Property Taxes
Next, the majority, having bludgeoned its way into asserting that
MIAA is not a GOCC, then argues that MIAA is an instrumentality.
It cites incompletely, as earlier stated, the provision of Section
2(10) of the Administrative Code. A more convincing view offered
during deliberations, but which was not adopted by the ponencia,
argued that MIAA is not an instrumentality but an agency,
considering the fact that under the Administrative Code, the MIAA
is attached within the department framework of the Department of
Transportation and Communications.100 Interestingly, Executive
Order No. 341, enacted by President Arroyo in 2004, similarly
calls MIAA an agency. Since instrumentalities are expressly
defined as "an agency not integrated within the department
framework," that view concluded that MIAA cannot be deemed an
instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as stated
earlier, the Administrative Code considers GOCCs as agencies,101
so the fact that MIAA is an agency does not exclude it from
classification as a GOCC. On the other hand, the majority justifies
MIAA's purported exemption on Section 133 of the Local
Government Code, which similarly situates "agencies and
instrumentalities" as generally exempt from the taxation powers of
LGUs. And on this point, the majority again evades Mactan and
somehow concludes that Section 133 is the general rule,
notwithstanding Sections 232 and 234(a) of the Local Government
Code. And the majority's ultimate conclusion? "By express
mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities
like the MIAA. Local governments are devoid of power to tax the
national government, its agencies and instrumentalities."102
The Court's interpretation of the Local Government Code in
Mactan renders the law integrally harmonious and gives due
accord to the respective prerogatives of the national government
and LGUs. Sections 133 and 234(a) ensure that the Republic of the
Philippines or its political subdivisions shall not be subjected to
any form of local government taxation, except realty taxes if the
beneficial use of the property owned has been granted for
consideration to a taxable entity or person. On the other hand,
Section 133 likewise assures that government instrumentalities
such as GOCCs may not be arbitrarily taxed by LGUs, since they
could be subjected to local taxation if there is a specific proviso
thereon in the Code. One such proviso is Section 137, which as the
Court found in National Power Corporation,103 permits the
imposition of a franchise tax on businesses enjoying a franchise,
even if it be a GOCC such as NPC. And, as the Court
acknowledged in Mactan, Section 232 provides another exception
on the taxability of instrumentalities.
The majority abjectly refuses to engage Section 232 of the Local
Government Code although it provides the indubitable general rule
that LGUs "may levy an annual ad valorem tax on real property
such as land, building, machinery, and other improvements not
hereafter specifically exempted." The specific exemptions are
provided by Section 234. Section 232 comes sequentially after
Section 133(o),104 and even if the sequencing is irrelevant, Section
232 would fall under the qualifying phrase of Section 133, "Unless
otherwise provided herein." It is sad, but not surprising that the
majority is not willing to consider or even discuss the general rule,
but only the exemptions under Section 133 and Section 234. After
all, if the majority is dead set in ruling for MIAA no matter what
the law says, why bother citing what the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This blithe disregard of precedents, almost all of them unanimously
decided, is nowhere more evident than in the succeeding discussion
of the majority, which asserts that the power of local governments
to tax national government instrumentalities be construed strictly
against local governments. The Maceda case, decided before the
Local Government Code, is cited, as is Basco. This section of the
majority employs deliberate pretense that the Code never existed,
or that the fundamentals of local autonomy are of limited effect in
our country. Why is it that the Local Government Code is barely
mentioned in this section of the majority? Because Section 5 of the
Code, purposely omitted by the majority provides for a different
rule of interpretation than that asserted:
Section 5. Rules of Interpretation. – In the interpretation of the
provisions of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question
thereon shall be resolved in favor of devolution of powers and of
the lower local government unit. Any fair and reasonable doubt as
to the existence of the power shall be interpreted in favor of the
local government unit concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be
construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer. Any tax exemption, incentive or
relief granted by any local government unit pursuant to the
provisions of this Code shall be construed strictly against the
person claiming it; xxx
Yet the majority insists that "there is 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."105 I wonder whether the Constitution satisfies
the majority's desire for "a sound and compelling policy." To
repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local
autonomy.
xxx
Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and
charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governments.
Or how about the Local Government Code, presumably an
expression of sound and compelling policy considering that it was
enacted by the legislature, that veritable source of all statutes:
SEC. 129. Power to Create Sources of Revenue. - Each local
government unit shall exercise its power to create its own sources
of revenue and to levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to
the local government units.
Justice Puno, in National Power Corporation v. City of
Cabanatuan,106 provides a more "sound and compelling policy
considerations" that would warrant sustaining the taxability of
government-owned entities by local government units under the
Local Government Code.
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."
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.107
I dare not improve on Justice Puno's exhaustive disquisition on the
statutory and jurisprudential shift brought about the acceptance of
the principles of local autonomy:
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. 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 charges 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, 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, the Local Autonomy Act of
1959, the Decentralization Act of 1967 and the Local Government
Code of 1983. 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.
Considered as the most revolutionary piece of legislation on local
autonomy, 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.108
And the Court's ruling through Justice Azcuna in Philippine Ports
Authority v. City of Iloilo109, provides especially clear and
emphatic rationale:
In closing, we reiterate that in taxing government-owned or
controlled corporations, the State ultimately suffers no loss. In
National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we
elucidated:
Actually, the State has no reason to decry the taxation of NPC's
properties, as and by way of real property taxes. Real property
taxes, after all, form part and parcel of the financing apparatus of
the Government in development and nation-building, particularly
in the local government level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds taken by
the State with one hand and given to the other. In no measure can
the government be said to have lost anything.
Finally, we find it appropriate to restate that the primary reason for
the withdrawal of tax exemption privileges granted to government-
owned and controlled corporations and all other units of
government was that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated
enterprises, hence resulting in the need for these entities to share in
the requirements of development, fiscal or otherwise, by paying the
taxes and other charges due from them.110
How does the majority counter these seemingly valid rationales
which establish the soundness of a policy consideration subjecting
national instrumentalities to local taxation? Again, by simply
ignoring that these doctrines exist. It is unfortunate if the majority
deems these cases or the principles of devolution and local
autonomy as simply too inconvenient, and relies instead on
discredited precedents. Of course, if the majority faces the issues
squarely, and expressly discusses why Basco was right and Mactan
was wrong, then this entire endeavor of the Court would be more
intellectually satisfying. But, this is not a game the majority wants
to play.
Mischaracterization of My
Views on the Tax Exemption
Enjoyed by the National Government
Instead, the majority engages in an extended attack pertaining to
Section 193, mischaracterizing my views on that provision as if I
had been interpreting the provision as making "the national
government, which itself is a juridical person, subject to tax by
local governments since the national government is not included in
the enumeration of exempt entities in Section 193."111
Nothing is farther from the truth. I have never advanced any theory
of the sort imputed in the majority. My main thesis on the matter
merely echoes the explicit provision of Section 193 that unless
otherwise provided in the Local Government Code (LGC) all tax
exemptions enjoyed by all persons, whether natural or juridical,
including GOCCs, were withdrawn upon the effectivity of the
Code. Since the provision speaks of withdrawal of tax exemptions
of persons, it follows that the exemptions theretofore enjoyed by
MIAA which is definitely a person are deemed withdrawn upon the
advent of the Code.
On the other hand, the provision does not address the question of
who are beyond the reach of the taxing power of LGUs. In fine, the
grant of tax exemption or the withdrawal thereof assumes that the
person or entity involved is subject to tax. Thus, Section 193 does
not apply to entities which were never given any tax exemption.
This would include the national government and its political
subdivisions which, as a general rule, are not subjected to tax in the
first place.112 Corollarily, the national government and its political
subdivisions do not need tax exemptions. And Section 193 which
ordains the withdrawal of tax exemptions is obviously irrelevant to
them.
Section 193 is in point for the disposition of this case as it
forecloses dependence for the grant of tax exemption to MIAA on
Section 21 of its charter. Even the majority should concede that the
charter section is now ineffectual, as Section 193 withdraws the tax
exemptions previously enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax exemptions
granted to all persons upon the effectivity of the LGC, for MIAA to
continue enjoying exemption from realty tax, it will have to rely on
a basis other than Section 21 of its charter.
Lung Center of the Philippines v. Quezon City113 provides another
illustrative example of the jurisprudential havoc wrought about by
the majority. Pursuant to its charter, the Lung Center was organized
as a trust administered by an eponymous GOCC organized with the
SEC.114 There is no doubt it is a GOCC, even by the majority's
reckoning. Applying the Administrative Code, it is also considered
as an agency, the term encompassing even GOCCs. Yet since the
Administrative Code definition of "instrumentalities" encompasses
agencies, especially those not attached to a line department such as
the Lung Center, it also follows that the Lung Center is an
instrumentality, which for the majority is exempt from all local
government taxes, especially real estate taxes. Yet just in 2004, the
Court unanimously held that the Lung Center was not exempt from
real property taxes. Can the majority and Lung Center be
reconciled? I do not see how, and no attempt is made to
demonstrate otherwise.
Another key point. The last paragraph of Section 234 specifically
asserts that any previous exemptions from realty taxes granted to or
enjoyed by all persons, including all GOCCs, are thereby
withdrawn. The majority's interpretation of Sections 133 and
234(a) however necessarily implies that all instrumentalities,
including GOCCs, can never be subjected to real property taxation
under the Code. If that is so, what then is the sense of the last
paragraph specifically withdrawing previous tax exemptions to all
persons, including GOCCs when juridical persons such as MIAA
are anyway, to his view, already exempt from such taxes under
Section 133? The majority's interpretation would effectively render
the express and emphatic withdrawal of previous exemptions to
GOCCs inutile. Ut magis valeat quam pereat. Hence, where a
statute is susceptible of more than one interpretation, the court
should adopt such reasonable and beneficial construction which
will render the provision thereof operative and effective, as well as
harmonious with each other.115
But, the majority seems content rendering as absurd the Local
Government Code, since it does not have much use anyway for the
Code's general philosophy of fiscal autonomy, as evidently seen by
the continued reliance on Basco or Maceda. Local government rule
has never been a grant of emancipation from the national
government. This is the favorite bugaboo of the opponents of local
autonomy—the fallacy that autonomy equates to independence.
Thus, the conclusion of the majority is that under Section 133(o),
MIAA as a government instrumentality is beyond the reach of local
taxation because it is not subject to taxes, fees or charges of any
kind. Moreover, the taxation of national instrumentalities and
agencies by LGUs should be strictly construed against the LGUs,
citing Maceda and Basco. No mention is made of the subsequent
rejection of these cases in jurisprudence following the Local
Government Code, including Mactan. The majority is similarly
silent on the general rule under Section 232 on real property
taxation or Section 5 on the rules of construction of the Local
Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly provides that
there are exceptions to the general rule on rule property taxation, as
"hereafter specifically exempted." Section 234, certainly
"hereafter," provides indubitable basis for exempting entities from
real property taxation. It provides the most viable legal support for
any claim that an governmental entity such as the MIAA is exempt
from real property taxes. To repeat:
SECTION 234. Exemptions from Real Property Tax. -- The
following are exempted from payment of the real property tax:
xxx
(f) 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:
The majority asserts that the properties owned by MIAA are owned
by the Republic of the Philippines, thus placing them under the
exemption under Section 234. To arrive at this conclusion, the
majority employs four main arguments.
MIAA Property Is Patrimonial
And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings are
property of public dominion as defined by the Civil Code, and
therefore owned by the State or the Republic of the Philippines.
But as pointed out by Justice Azcuna in the first PPA case, if indeed
a property is considered part of the public dominion, such property
is "owned by the general public and cannot be declared to be
owned by a public corporation, such as [the PPA]."
Relevant on this point are the following provisions of the MIAA
charter:
Section 3. Creation of the Manila International Airport Authority. –
xxx
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any.
xxx Any portion thereof shall not be disposed through sale or
through any other mode unless specifically approved by the
President of the Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets. –
All existing public airport facilities, runways, lands, buildings and
other property, movable or immovable, belonging to the Airport,
and all assets, powers rights, interests and privileges belonging to
the Bureau of Air Transportation relating to airport works or air
operations, including all equipment which are necessary for the
operation of crash fire and rescue facilities, are hereby transferred
to the Authority.
Clearly, it is the MIAA, and not either the State, the Republic of
the Philippines or the national government that asserts legal title
over the Airport Lands and Buildings. There was an express
transfer of ownership between the MIAA and the national
government. If the distinction is to be blurred, as the majority does,
between the State/Republic/Government and a body corporate such
as the MIAA, then the MIAA charter showcases the remarkable
absurdity of an entity transferring property to itself.
Nothing in the Civil Code or the Constitution prohibits the State
from transferring ownership over property of public dominion to
an entity that it similarly owns. It is just like a family transferring
ownership over the properties its members own into a family
corporation. The family exercises effective control over the
administration and disposition of these properties. Yet for several
purposes under the law, such as taxation, it is the corporation that is
deemed to own those properties. A similar situation obtains with
MIAA, the State, and the Airport Lands and Buildings.
The second Public Ports Authority case, penned by Justice Callejo,
likewise lays down useful doctrines in this regard. The Court
refuted the claim that the properties of the PPA were owned by the
Republic of the Philippines, noting that PPA's charter expressly
transferred ownership over these properties to the PPA, a situation
which similarly obtains with MIAA. The Court even went as far as
saying that the fact that the PPA "had not been issued any torrens
title over the port and port facilities and appurtenances is of no
legal consequence. A torrens title does not, by itself, vest
ownership; it is merely an evidence of title over properties. xxx It
has never been recognized as a mode of acquiring ownership over
real properties."116
The Court further added:
xxx The bare fact that the port and its facilities and appurtenances
are accessible to the general public does not exempt it from the
payment of real property taxes. It must be stressed that the said
port facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of
the port and its facilities and the administration of its buildings are
in the nature of ordinary business. The petitioner is clothed, under
P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests xxx The petitioner is even
empowered to invest its funds in such government securities
approved by the Board of Directors, and derives its income from
rates, charges or fees for the use by vessels of the port premises,
appliances or equipment. xxx Clearly then, the petitioner is a
profit-earning corporation; hence, its patrimonial properties are
subject to tax.117
There is no doubt that the properties of the MIAA, as with the PPA,
are in a sense, for public use. A similar argument was propounded
by the Light Rail Transit Authority in Light Rail Transit Authority
v. Central Board of Assessment,118 which was cited in Philippine
Ports Authority and deserves renewed emphasis. The Light Rail
Transit Authority (LRTA), a body corporate, "provides valuable
transportation facilities to the paying public."119 It claimed that its
carriage-ways and terminal stations are immovably attached to
government-owned national roads, and to impose real property
taxes thereupon would be to impose taxes on public roads. This
view did not persuade the Court, whose decision was penned by
Justice (now Chief Justice) Panganiban. It was noted:
Though the creation of the LRTA was impelled by public service
— to provide mass transportation to alleviate the traffic and
transportation situation in Metro Manila — its operation
undeniably partakes of ordinary business. Petitioner is clothed with
corporate status and corporate powers in the furtherance of its
proprietary objectives. Indeed, it operates much like any private
corporation engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations are patrimonial property subject
to tax, notwithstanding its claim of being a government-owned or
controlled corporation.
xxx
Petitioner argues that it merely operates and maintains the LRT
system, and that the actual users of the carriageways and terminal
stations are the commuting public. It adds that the public use
character of the LRT is not negated by the fact that revenue is
obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by
everyone, the LRT is accessible only to those who pay the required
fare. It is thus apparent that petitioner does not exist solely for
public service, and that the LRT carriageways and terminal stations
are not exclusively for public use. Although petitioner is a public
utility, it is nonetheless profit-earning. It actually uses those
carriageways and terminal stations in its public utility business and
earns money therefrom.120
xxx
Even granting that the national government indeed owns the
carriageways and terminal stations, the exemption would not apply
because their beneficial use has been granted to petitioner, a
taxable entity.121
There is no substantial distinction between the properties held by
the PPA, the LRTA, and the MIAA. These three entities are in the
business of operating facilities that promote public transportation.
The majority further asserts that MIAA's properties, being part of
the public dominion, are outside the commerce of man. But if this
is so, then why does Section 3 of MIAA's charter authorize the
President of the Philippines to approve the sale of any of these
properties? In fact, why does MIAA's charter in the first place
authorize the transfer of these airport properties, assuming that
indeed these are beyond the commerce of man?
No Trust Has Been Created
Over MIAA Properties For
The Benefit of the Republic
The majority posits that while MIAA might be holding title over
the Airport Lands and Buildings, it is holding it in trust for the
Republic. A provision of the Administrative Code is cited, but said
provision does not expressly provide that the property is held in
trust. Trusts are either express or implied, and only those situations
enumerated under the Civil Code would constitute an implied trust.
MIAA does not fall within this enumeration, and neither is there a
provision in MIAA's charter expressly stating that these properties
are being held in trust. In fact, under its charter, MIAA is obligated
to retain up to eighty percent (80%) of its gross operating income,
not an inconsequential sum assuming that the beneficial owner of
MIAA's properties is actually the Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA remains
with the government and not MIAA is ultimately irrelevant.
Section 234(a) of the Local Government Code provides among
those exempted from paying real property taxes are "[r]eal property
owned by the [Republic]… except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person." In the context of Section 234(a), the identity of the
beneficial owner over the properties is not determinative as to
whether the exemption avails. It is the identity of the beneficial
user of the property owned by the Republic or its political
subdivisions that is crucial, for if said beneficial user is a taxable
person, then the exemption does not lie.
I fear the majority confuses the notion of what might be construed
as "beneficial ownership" of the Republic over the properties of
MIAA as nothing more than what arises as a consequence of the
fact that the capital of MIAA is contributed by the National
Government.122 If so, then there is no difference between the
State's ownership rights over MIAA properties than those of a
majority stockholder over the properties of a corporation. Even if
such shareholder effectively owns the corporation and controls the
disposition of its assets, the personality of the stockholder remains
separately distinct from that of the corporation. A brief recall of the
entrenched rule in corporate law is in order:
The first consequence of the doctrine of legal entity regarding the
separate identity of the corporation and its stockholders insofar as
their obligations and liabilities are concerned, is spelled out in this
general rule deeply entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or
statutory provisions, or by the charter, or by special agreement of
the stockholders, stockholders are not personally liable for debts of
the corporation either at law or equity. The reason is that the
corporation is a legal entity or artificial person, distinct from the
members who compose it, in their individual capacity; and when it
contracts a debt, it is the debt of the legal entity or artificial person
– the corporation – and not the debt of the individual members.
(13A Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights and remedies of a
corporation itself and its individual stockholders have been given
definite recognition for a long time. Applying said principle, the
Supreme Court declared that a corporation may not be made to
answer for acts or liabilities of its stockholders or those of legal
entities to which it may be connected, or vice versa. (Palay Inc. v.
Clave et. al. 124 SCRA 638) It was likewise declared in a similar
case that a bonafide corporation should alone be liable for
corporate acts duly authorized by its officers and directors. (Caram
Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)123
It bears repeating that MIAA under its charter, is expressly
conferred the right to exercise all the powers of a corporation under
the Corporation Law, including the right to corporate succession,
and the right to sue and be sued in its corporate name.124 The
national government made a particular choice to divest ownership
and operation of the Manila International Airport and transfer the
same to such an empowered entity due to perceived advantages.
Yet such transfer cannot be deemed consequence free merely
because it was the State which contributed the operating capital of
this body corporate.
The majority claims that the transfer the assets of MIAA was
meant merely to effect a reorganization. The imputed rationale for
such transfer does not serve to militate against the legal
consequences of such assignment. Certainly, if it was intended that
the transfer should be free of consequence, then why was it
effected to a body corporate, with a distinct legal personality from
that of the State or Republic? The stated aims of the MIAA could
have very well been accomplished by creating an agency without
independent juridical personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by the
Republic of the Philippines or its political subdivisions from realty
taxation. The obvious question is what comprises "the Republic of
the Philippines." I think the key to understanding the scope of "the
Republic" is the phrase "political subdivisions." Under the
Constitution, political subdivisions are defined as "the provinces,
cities, municipalities and barangays."125 In correlation, the
Administrative Code of 1987 defines "local government" as
referring to "the political subdivisions established by or in
accordance with the Constitution."
Clearly then, these political subdivisions are engaged in the
exercise of sovereign functions and are accordingly exempt. The
same could be said generally of the national government, which
would be similarly exempt. After all, even with the principle of
local autonomy, it is inherently noxious and self-defeatist for local
taxation to interfere with the sovereign exercise of functions.
However, the exercise of proprietary functions is a different matter
altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign or constituent functions are those which constitute the
very bonds of society and are compulsory in nature, while
ministrant or proprietary functions are those undertaken by way of
advancing the general interests of society and are merely
optional.126 An exhaustive discussion on the matter was provided
by the Court in Bacani v. NACOCO:127
xxx This institution, when referring to the national government, has
reference to what our Constitution has established composed of
three great departments, the legislative, executive, and the judicial,
through which the powers and functions of government are
exercised. These functions are twofold: constituent and ministrant.
The former are those which constitute the very bonds of society
and are compulsory in nature; the latter are those that are
undertaken only by way of advancing the general interests of
society, and are merely optional. President Wilson enumerates the
constituent functions as follows:
"'(1) The keeping of order and providing for the protection of
persons and property from violence and robbery.
'(2) The fixing of the legal relations between man and wife and
between parents and children.
'(3) The regulation of the holding, transmission, and interchange of
property, and the determination of its liabilities for debt or for
crime.
'(4) The determination of contract rights between individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination of the political duties, privileges, and
relations of citizens.
'(8) Dealings of the state with foreign powers: the preservation of
the state from external danger or encroachment and the
advancement of its international interests.'" (Malcolm, The
Government of the Philippine Islands, p. 19.)
The most important of the ministrant functions are: public works,
public education, public charity, health and safety regulations, and
regulations of trade and industry. The principles determining
whether or not a government shall exercise certain of these
optional functions are: (1) that a government should do for the
public welfare those things which private capital would not
naturally undertake and (2) that a government should do these
things which by its very nature it is better equipped to administer
for the public welfare than is any private individual or group of
individuals. (Malcolm, The Government of the Philippine Islands,
pp. 19-20.)
From the above we may infer that, strictly speaking, there are
functions which our government is required to exercise to promote
its objectives as expressed in our Constitution and which are
exercised by it as an attribute of sovereignty, and those which it
may exercise to promote merely the welfare, progress and
prosperity of the people. To this latter class belongs the
organization of those corporations owned or controlled by the
government to promote certain aspects of the economic life of our
people such as the National Coconut Corporation. These are what
we call government-owned or controlled corporations which may
take on the form of a private enterprise or one organized with
powers and formal characteristics of a private corporations under
the Corporation Law.128
The Court in Bacani rejected the proposition that the National
Coconut Corporation exercised sovereign functions:
Does the fact that these corporations perform certain functions of
government make them a part of the Government of the
Philippines?
The answer is simple: they do not acquire that status for the simple
reason that they do not come under the classification of municipal
or public corporation. Take for instance the National Coconut
Corporation. While it was organized with the purpose of "adjusting
the coconut industry to a position independent of trade preferences
in the United States" and of providing "Facilities for the better
curing of copra products and the proper utilization of coconut by-
products," a function which our government has chosen to exercise
to promote the coconut industry, however, it was given a corporate
power separate and distinct from our government, for it was made
subject to the provisions of our Corporation Law in so far as its
corporate existence and the powers that it may exercise are
concerned (sections 2 and 4, Commonwealth Act No. 518). It may
sue and be sued in the same manner as any other private
corporations, and in this sense it is an entity different from our
government. As this Court has aptly said, "The mere fact that the
Government happens to be a majority stockholder does not make it
a public corporation" (National Coal Co. vs. Collector of Internal
Revenue, 46 Phil., 586-587). "By becoming a stockholder in the
National Coal Company, the Government divested itself of its
sovereign character so far as respects the transactions of the
corporation. . . . Unlike the Government, the corporation may be
sued without its consent, and is subject to taxation. Yet the National
Coal Company remains an agency or instrumentality of
government." (Government of the Philippine Islands vs. Springer,
50 Phil., 288.)
The following restatement of the entrenched rule by former SEC
Chairperson Rosario Lopez bears noting:
The fact that government corporations are instrumentalities of the
State does not divest them with immunity from suit. (Malong v.
PNR, 138 SCRA p. 63) It is settled that when the government
engages in a particular business through the instrumentality of a
corporation, it divests itself pro hoc vice of its sovereign character
so as to subject itself to the rules governing private corporations,
(PNB v. Pabolan 82 SCRA 595) and is to be treated like any other
corporation. (PNR v. Union de Maquinistas Fogonero y Motormen,
84 SCRA 223)
In the same vein, when the government becomes a stockholder in a
corporation, it does not exercise sovereignty as such. It acts merely
as a corporator and exercises no other power in the management of
the affairs of the corporation than are expressly given by the
incorporating act. Nor does the fact that the government may own
all or a majority of the capital stock take from the corporation its
character as such, or make the government the real party in interest.
(Amtorg Trading Corp. v. US 71 F2d 524, 528)129
MIAA Performs Proprietary
Functions No Matter How
Vital to the Public Interest
The simple truth is that, based on these accepted doctrinal tests,
MIAA performs proprietary functions. The operation of an airport
facility by the State may be imbued with public interest, but it is by
no means indispensable or obligatory on the national government.
In fact, as demonstrated in other countries, it makes a lot of
economic sense to leave the operation of airports to the private
sector.
The majority tries to becloud this issue by pointing out that the
MIAA does not compete in the marketplace as there is no
competing international airport operated by the private sector; and
that MIAA performs an essential public service as the primary
domestic and international airport of the Philippines. This premise
is false, for one. On a local scale, MIAA competes with other
international airports situated in the Philippines, such as Davao
International Airport and MCIAA. More pertinently, MIAA also
competes with other international airports in Asia, at least.
International airlines take into account the quality and conditions
of various international airports in determining the number of
flights it would assign to a particular airport, or even in choosing a
hub through which destinations necessitating connecting flights
would pass through.
Even if it could be conceded that MIAA does not compete in the
market place, the example of the Philippine National Railways
should be taken into account. The PNR does not compete in the
marketplace, and performs an essential public service as the
operator of the railway system in the Philippines. Is the PNR
engaged in sovereign functions? The Court, in Malong v.
Philippine National Railways,130 held that it was not.131
Even more relevant to this particular case is Teodoro v. National
Airports Corporation,132 concerning the proper appreciation of the
functions performed by the Civil Aeronautics Administration
(CAA), which had succeeded the defunction National Airports
Corporation. The CAA claimed that as an unincorporated agency
of the Republic of the Philippines, it was incapable of suing and
being sued. The Court noted:
Among the general powers of the Civil Aeronautics Administration
are, under Section 3, to execute contracts of any kind, to purchase
property, and to grant concession rights, and under Section 4, to
charge landing fees, royalties on sales to aircraft of aviation
gasoline, accessories and supplies, and rentals for the use of any
property under its management.
These provisions confer upon the Civil Aeronautics
Administration, in our opinion, the power to sue and be sued. The
power to sue and be sued is implied from the power to transact
private business. And if it has the power to sue and be sued on its
behalf, the Civil Aeronautics Administration with greater reason
should have the power to prosecute and defend suits for and
against the National Airports Corporation, having acquired all the
properties, funds and choses in action and assumed all the
liabilities of the latter. To deny the National Airports Corporation's
creditors access to the courts of justice against the Civil
Aeronautics Administration is to say that the government could
impair the obligation of its corporations by the simple expedient of
converting them into unincorporated agencies. 133
xxx
Eventually, the charter of the CAA was revised, and it among its
expanded functions was "[t]o administer, operate, manage, control,
maintain and develop the Manila International Airport."134
Notwithstanding this expansion, in the 1988 case of CAA v. Court
of Appeals135 the Court reaffirmed the ruling that the CAA was
engaged in "private or non-governmental functions."136 Thus, the
Court had already ruled that the predecessor agency of MIAA, the
CAA was engaged in private or non-governmental functions. These
are more precedents ignored by the majority. The following
observation from the Teodoro case very well applies to MIAA.
The Civil Aeronautics Administration comes under the category of
a private entity. Although not a body corporate it was created, like
the National Airports Corporation, not to maintain a necessary
function of government, but to run what is essentially a business,
even if revenues be not its prime objective but rather the promotion
of travel and the convenience of the traveling public. It is engaged
in an enterprise which, far from being the exclusive prerogative of
state, may, more than the construction of public roads, be
undertaken by private concerns.137
If the determinative point in distinguishing between sovereign
functions and proprietary functions is the vitality of the public
service being performed, then it should be noted that there is no
more important public service performed than that engaged in by
public utilities. But notably, the Constitution itself authorizes
private persons to exercise these functions as it allows them to
operate public utilities in this country138 If indeed such functions
are actually sovereign and belonging properly to the government,
shouldn't it follow that the exercise of these tasks remain within the
exclusive preserve of the State?
There really is no prohibition against the government taxing
itself,139 and nothing obscene with allowing government entities
exercising proprietary functions to be taxed for the purpose of
raising the coffers of LGUs. On the other hand, it would be an even
more noxious proposition that the government or the
instrumentalities that it owns are above the law and may refuse to
pay a validly imposed tax. MIAA, or any similar entity engaged in
the exercise of proprietary, and not sovereign functions, cannot
avoid the adverse-effects of tax evasion simply on the claim that it
is imbued with some of the attributes of government.
VII.
MIAA Property Not Subject to
Execution Sale Without Consent
Of the President.
Despite the fact that the City of Parañaque ineluctably has the
power to impose real property taxes over the MIAA, there is an
equally relevant statutory limitation on this power that must be
fully upheld. Section 3 of the MIAA charter states that "[a]ny
portion [of the [lands transferred, conveyed and assigned to the
ownership and administration of the MIAA] shall not be disposed
through sale or through any other mode unless specifically
approved by the President of the Philippines."140
Nothing in the Local Government Code, even with its wide grant
of powers to LGUs, can be deemed as repealing this prohibition
under Section 3, even if it effectively forecloses one possible
remedy of the LGU in the collection of delinquent real property
taxes. While the Local Government Code withdrew all previous
local tax exemptions of the MIAA and other natural and juridical
persons, it did not similarly withdraw any previously enacted
prohibitions on properties owned by GOCCs, agencies or
instrumentalities. Moreover, the resulting legal effect, subjecting
on one hand the MIAA to local taxes but on the other hand
shielding its properties from any form of sale or disposition, is not
contradictory or paradoxical, onerous as its effect may be on the
LGU. It simply means that the LGU has to find another way to
collect the taxes due from MIAA, thus paving the way for a
mutually acceptable negotiated solution.141
There are several other reasons this statutory limitation should be
upheld and applied to this case. It is at this juncture that the
importance of the Manila Airport to our national life and commerce
may be accorded proper consideration. The closure of the airport,
even by reason of MIAA's legal omission to pay its taxes, will have
an injurious effect to our national economy, which is ever reliant on
air travel and traffic. The same effect would obtain if ownership
and administration of the airport were to be transferred to an LGU
or some other entity which were not specifically chartered or
tasked to perform such vital function. It is for this reason that the
MIAA charter specifically forbids the sale or disposition of MIAA
properties without the consent of the President. The prohibition
prevents the peremptory closure of the MIAA or the hampering of
its operations on account of the demands of its creditors. The
airport is important enough to be sheltered by legislation from
ordinary legal processes.
Section 3 of the MIAA charter may also be appreciated as within
the proper exercise of executive control by the President over the
MIAA, a GOCC which despite its separate legal personality, is still
subsumed within the executive branch of government. The power
of executive control by the President should be upheld so long as
such exercise does not contravene the Constitution or the law, the
President having the corollary duty to faithfully execute the
Constitution and the laws of the land.142 In this case, the exercise
of executive control is precisely recognized and authorized by the
legislature, and it should be upheld even if it comes at the expense
of limiting the power of local government units to collect real
property taxes.
Had this petition been denied instead with Mactan as basis, but
with the caveat that the MIAA properties could not be subject of
execution sale without the consent of the President, I suspect that
the parties would feel little distress. Through such action, both the
Local Government Code and the MIAA charter would have been
upheld. The prerogatives of LGUs in real property taxation, as
guaranteed by the Local Government Code, would have been
preserved, yet the concerns about the ruinous effects of having to
close the Manila International Airport would have been averted.
The parties would then be compelled to try harder at working out a
compromise, a task, if I might add, they are all too willing to
engage in.143 Unfortunately, the majority will cause precisely the
opposite result of unremitting hostility, not only to the City of
Parañaque, but to the thousands of LGUs in the country.
VIII.
Summary of Points
My points may be summarized as follows:
1) Mactan and a long line of succeeding cases have already settled
the rule that under the Local Government Code, enacted pursuant
to the constitutional mandate of local autonomy, all natural and
juridical persons, even those 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 Local Government Code
itself, or those enacted through subsequent legislation.
2) Under the Local Government Code, particularly Section 232,
instrumentalities, agencies and GOCCs are generally liable for real
property taxes. The only exemptions therefrom under the same
Code are provided in Section 234, which include real property
owned by the Republic of the Philippines or any of its political
subdivisions.
3) The subject properties are owned by MIAA, a GOCC, holding
title in its own name. MIAA, a separate legal entity from the
Republic of the Philippines, is the legal owner of the properties,
and is thus liable for real property taxes, as it does not fall within
the exemptions under Section 234 of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition of
MIAA properties. As a result, the City of Parañaque is prohibited
from seizing or selling these properties by public auction in order
to satisfy MIAA's tax liability. In the end, MIAA is encumbered
only by a limited lien possessed by the City of Parañaque.
On the other hand, the majority's flaws are summarized as follows:
1) The majority deliberately ignores all precedents which run
counter to its hypothesis, including Mactan. Instead, it relies and
directly cites those doctrines and precedents which were
overturned by Mactan. By imposing a different result than that
warranted by the precedents without explaining why Mactan or the
other precedents are wrong, the majority attempts to overturn all
these ruling sub silencio and without legal justification, in a
manner that is not sanctioned by the practices and traditions of this
Court.
2) The majority deliberately ignores the policy and philosophy of
local fiscal autonomy, as mandated by the Constitution, enacted
under the Local Government Code, and affirmed by precedents.
Instead, the majority asserts that there is no sound rationale for
local governments to tax national government instrumentalities,
despite the blunt existence of such rationales in the Constitution,
the Local Government Code, and precedents.
3) The majority, in a needless effort to justify itself, adopts an
extremely strained exaltation of the Administrative Code above and
beyond the Corporation Code and the various legislative charters,
in order to impose a wholly absurd definition of GOCCs that
effectively declassifies innumerable existing GOCCs, to
catastrophic legal consequences.
4) The majority asserts that by virtue of Section 133(o) of the
Local Government Code, all national government agencies and
instrumentalities are exempt from any form of local taxation, in
contravention of several precedents to the contrary and the proviso
under Section 133, "unless otherwise provided herein [the Local
Government Code]."
5) The majority erroneously argues that MIAA holds its properties
in trust for the Republic of the Philippines, and that such properties
are patrimonial in character. No express or implied trust has been
created to benefit the national government. The legal distinction
between sovereign and proprietary functions, as affirmed by
jurisprudence, likewise preclude the classification of MIAA
properties as patrimonial.
IX.
Epilogue
If my previous discussion still fails to convince on how wrong the
majority is, then the following points are well-worth considering.
The majority cites the Bangko Sentral ng Pilipinas (Bangko
Sentral) as a government instrumentality that exercises corporate
powers but not organized as a stock or non-stock corporation.
Correspondingly for the majority, the Bangko ng Sentral is exempt
from all forms of local taxation by LGUs by virtue of the Local
Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank Act,
states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be
exempt for a period of five (5) years from the approval of this Act
from all national, provincial, municipal and city taxes, fees,
charges and assessments.
The New Central Bank Act was promulgated after the Local
Government Code if the BSP is already preternaturally exempt
from local taxation owing to its personality as an "government
instrumentality," why then the need to make a new grant of
exemption, which if the majority is to be believed, is actually a
redundancy. But even more tellingly, does not this provision evince
a clear intent that after the lapse of five (5) years, that the Bangko
Sentral will be liable for provincial, municipal and city taxes? This
is the clear congressional intent, and it is Congress, not this Court
which dictates which entities are subject to taxation and which are
exempt.
Perhaps this notion will offend the majority, because the Bangko
Sentral is not even a government owned corporation, but a
government instrumentality, or perhaps "loosely", a "government
corporate entity." How could such an entity like the Bangko Sentral
, which is not even a government owned corporation, be subjected
to local taxation like any mere mortal? But then, see Section 1 of
the New Central Bank Act:
SECTION 1. Declaration of Policy. — The State shall maintain a
central monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In
line with this policy, and considering its unique functions and
responsibilities, the central monetary authority established under
this Act, while being a government-owned corporation, shall enjoy
fiscal and administrative autonomy.
Apparently, the clear legislative intent was to create a government
corporation known as the Bangko Sentral ng Pilipinas. But this
legislative intent, the sort that is evident from the text of the
provision and not the one that needs to be unearthed from the
bowels of the archival offices of the House and the Senate, is for
naught to the majority, as it contravenes the Administrative Code of
1987, which after all, is "the governing law defining the status and
relationship of government agencies and instrumentalities" and
thus superior to the legislative charter in determining the
personality of a chartered entity. Its like saying that the architect
who designed a school building is better equipped to teach than the
professor because at least the architect is familiar with the
geometry of the classroom.
Consider further the example of the Philippine Institute of
Traditional and Alternative Health Care (PITAHC), created by
Republic Act No. 8243 in 1997. It has similar characteristics as
MIAA in that it is established as a body corporate,144 and
empowered with the attributes of a corporation,145 including the
power to purchase or acquire real properties.146 However the
PITAHC has no capital stock and no members, thus following the
majority, it is not a GOCC.
The state policy that guides PITAHC is the development of
traditional and alternative health care,147 and its objectives include
the promotion and advocacy of alternative, preventive and curative
health care modalities that have been proven safe, effective and
cost effective.148 "Alternative health care modalities" include
"other forms of non-allophatic, occasionally non-indigenous or
imported healing methods" which include, among others
"reflexology, acupuncture, massage, acupressure" and
chiropractics.149
Given these premises, there is no impediment for the PITAHC to
purchase land and construct thereupon a massage parlor that would
provide a cheaper alternative to the opulent spas that have
proliferated around the metropolis. Such activity is in line with the
purpose of the PITAHC and with state policy. Is such massage
parlor exempt from realty taxes? For the majority, it is, for
PITAHC is an instrumentality or agency exempt from local
government taxation, which does not fall under the exceptions
under Section 234 of the Local Government Code. Hence, this
massage parlor would not just be a shelter for frazzled nerves, but
for taxes as well.
Ridiculous? One might say, certainly a decision of the Supreme
Court cannot be construed to promote an absurdity. But precisely
the majority, and the faulty reasoning it utilizes, opens itself up to
all sorts of mischief, and certainly, a tax-exempt massage parlor is
one of the lesser evils that could arise from the majority ruling.
This is indeed a very strange and very wrong decision.
I dissent.
DANTE O. TINGA
Associate Justice
Footnotes
1 Dated 16 September 1983.
2 Dated 26 July 1987. 27 Chavez v. Public Estates Authority, 433 Phil. 506 (2002).
3 Section 3, MIAA Charter. 28 Section 3, MIAA Charter.
4 Section 22, MIAA Charter. 29 G.R. No. 144104, 29 June 2004, 433 SCRA 119, 138.
5 Section 3, MIAA Charter. 30 Republic Act No. 7653, 14 June 1993, Sec. 5.
6 Rollo, pp. 22-23. 31 Executive Order No. 1061, 5 November 1985, Sec. 3(p).
7 Under Rule 45 of the 1997 Rules of Civil Procedure. 32 Republic Act No. 4850, 18 July 1966, Sec. 5.
8 330 Phil. 392 (1996). 33 Presidential Decree No. 977, 11 August 1976, Section 4(j).
9 MIAA Charter as amended by Executive Order No. 298. See note 34 Republic Act No. 7227, 13 March 1992, Sec. 3.
2. 35 Presidential Decree No. 857, 23 December 1975, Sec. 6(b)(xvi).
10 Batas Pambansa Blg. 68. 36 Republic Act No. 4663, 18 June 1966, Sec. 7(m).
11 Section 11 of the MIAA Charter provides: 37 Republic Act No. 4567, 19 June 1965, Sec. 7(m).
Contribution to the General Fund for the Maintenance and 38 Republic Act No. 7621, 26 June 1992, Sec. 7(m).
Operation of other Airports. – Within thirty (30) days after the 39 Republic Act No. 4156, 20 June 1964. Section 4(b).
close of each quarter, twenty percentum (20%) of the gross 40 Republic Act No. 3844, 8 August 1963, as amended by
operating income, excluding payments for utilities of tenants and Republic Act No. 7907, 23 February 1995.
concessionaires and terminal fee collections, shall be remitted to 41 Executive Order No. 81, 3 December 1986.
the General Fund in the National Treasury to be used for the 42 Republic Act No. 8175, 29 December 1995.
maintenance and operation of other international and domestic 43 Presidential Decree No. 252, 21 July 1973, as amended by
airports in the country. Adjustments in the amount paid by the Presidential Decree No. 1071, 25 January 1977 and Executive
Authority to the National Treasury under this Section shall be made Order No. 1067, 25 November 1985.
at the end of each year based on the audited financial statements of 44 Executive Order No. 80, 3 December 1986.
the Authority. 45 III Records, Constitutional Commission 63 (22 August 1986).
12 Section 5(j), MIAA Charter. 46 2003 ed., 1181.
13 Section 6, MIAA Charter. 47 Manila International Airport Authority v. Airspan Corporation,
14 Section 5(k), MIAA Charter. G.R. No. 157581, 1 December 2004, 445 SCRA 471.
15 Section 5(o), MIAA Charter. TINGA, J.
16 Third Whereas Clause, MIAA Charter. 1 Per Department of Interior and Local Government. See also
17 Id. "Summary" from the National Statistical Coordination Board,
18 Constitution, Art. X, Sec. 5. http://www.nscb.gov.ph/activestats
19 274 Phil. 1060, 1100 (1991) quoting C. Dallas Sands, 3 Statutes /psgc/NSCB_PSGC_SUMMARY_DEC04.pdf.
and Statutory Construction 207. 2 330 Phil. 392 (1996).
20 274 Phil. 323, 339-340 (1991). 3 G.R. No. 91649, 14 May 1991, 197 SCRA 52.
21 Constitution, Art. VI, Sec. 28(1). 4 451 Phil. 683, 698 (2003).
22 First Whereas Clause, MIAA Charter. 5 364 Phil. 843, 855 (1999).
23 30 Phil. 602, 606-607 (1915). 6 449 Phil. 233 (2003).
24 102 Phil. 866, 869-870 (1958). 7 G.R. No. 152675 & 152771, 28 April 2004.
25 PNB v. Puruganan, 130 Phil. 498 (1968). See also Martinez v. 8 Decision, p. 24.
CA, 155 Phil. 591 (1974). 9 G.R. No. 144104, 29 June 2004, 433 SCRA 119.
26 MIAA Charter, Sec.16. 10 Supra note 8.
11 G.R. No. 127383, 18 August 2005, 467 SCRA 280. Per the 45 Supra note 11.
author of this Dissenting Opinion. 46 P.D. No. 1981. See City of Davao v. RTC, supra note 40, at 289.
12 Nonetheless, the Court noted therein GSIS's exemption from 47 Id. at 287-288.
real property taxes was reenacted in 1997, and the GSIS at present 48 32 Phil. 36, 49; cited in City of Davao v. RTC, supra note 40 at
is exempt from such taxes under the GSIS Act of 1997. Id., at 299. 296-297.
13 G.R. No. 109791, 14 July 2003, 406 SCRA 88, and G.R. No. 49 Id.
143214, 11 November 2004, 442 SCRA 175, respectively. 50 Supra note 22.
14 118 Phil. 1354 (1963). 51 Id.
15 396 Phil. 860 (2000). 52 Decision, p. 6.
16 Supra note 8. 53 MIAA's Charter (E.O No. 903, as amended) provides:
17 91 Phil 203 (1952). Section 3. Creation of the Manila International Airport Authority. –
18 G.R. No. L-51806, 8 November 1988, 167 SCRA 28. xxx
19 G.R. No. 155692, 23 October 2003, 414 SCRA 327. The land where the Airport is presently located as well as the
20 Id. at 333, citing Section 10, Book IV, Title III, Chapter 3, surrounding land area of approximately six hundred hectares, are
Administrative Code of 1987. hereby transferred, conveyed and assigned to the ownership and
21 G.R. No. 165827, 16 June 2006. administration of the Authority, subject to existing rights, if any.
22 G.R. No. 147192, 27 June 2006. xxx Any portion thereof shall not be disposed through sale or
23 Supra note 8. through any other mode unless specifically approved by the
24 See Mendoza v. De Leon, 33 Phil. 508 (1916). President of the Philippines.
25 Mactan, supra note 2, at 397-398. Section 22. Transfer of Existing Facilities and Intangible Assets. –
26 Section 193, Rep. Act No. 7160. All existing public airport facilities, runways, lands, buildings and
27 Section 232, Rep. Act No. 7160. other property, movable or immovable, belonging to the Airport,
28 Section 234, Rep. Act No. 7160. Emphasis supplied. and all assets, powers rights, interests and privileges belonging to
29 Id. at 411-413. the Bureau of Air Transportation relating to airport works or air
30 See City of Davao v. RTC, supra note 11, at 293. operations, including all equipment which are necessary for the
31 Supra note 3. operation of crash fire and rescue facilities, are hereby transferred
32 Id. at 63-65. to the Authority.
33 G.R. No. 88921, 31 May 1991, 197 SCRA 771. On the other hand, MCIAA's charter (Rep. Act No. 6958) provides:
34 Id. at 799. Section 15. Transfer of Existing Facilities and Intangible Assets. –
35 Mactan, supra note 2, at 419-420. All existing public airport facilities, runways, lands, buildings and
36 Supra note 6. other properties, movable or immovable, belonging to or presently
37 Id. at 250-251. administered by the airports, and all assets, powers, rights, interest
38 G.R. No. 109791, 14 July 2003, 406 SCRA 88. and privileges relating to airport works or air operations, including
39 Id. at 99-100. all equipment which are necessary for the operation of air
40 Supra note 21. navigation, aerodrome control towers, crash, fire, and rescue
41 Id. facilities are hereby transferred to the Authority: Provided,
42 G.R. No. 143214, 11 November 2004, 442 SCRA 175. however, That the operational control of all equipment necessary
43 Id., at 184. for the operation of radio aids to air navigation, airways
44 Id. at 185-186, citing MCIAA v. Marcos, supra note 2. communication, the approach control office and the area control
center shall be retained by the Air Transportation Office. xxx
54 See Section 3, E.O. 903 (as amended), infra note 140; and
Section Section 4(c), Rep. Act No. 6958, which qualifies the power
of the MCIAA to sell its properties, providing 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."
55 See Section 16, E.O. 903 (as amended) and Section 13, Rep.
Act No. 6958.
56 See Articles 40 to 43, Civil Code.
57 See Articles 44 to 47, Civil Code.
58 This is apparent from such assertions as "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." See Decision, p. 9-10.
59 Decision, p. 9.
60 See Section 2(10), E.O. 292.
61 See Section 2(4), E.O No. 292.
62 50 Phil. 259 (1927).
63 Id., at 288.
64 See Sec. 5, Rep. Act No. 6395.
65 Section 3, Corporation Code.
66 See Section 13, Rep. Act No. 6395.
67 See Section 1, Rep. Act No. 7875.
68 See Section 16(i), Rep. Act No. 7875.
69 See Section 3, Rep. Act 8282.
70 Supra note 14.
71 See Section 2(b), Rep. Act No. 7656, which defines GOCCs as
"corporations organized as a stock or non-stock corporation xxx"
72 See Rep. Act No. 7656, the pertinent provisions of which read:
c. 3. Dividends.—All government-owned or -controlled
corporations shall declare and remit at least fifty percent (50%) of
their annual net earnings as cash, stock or property dividends to the
National Government. This section shall also apply to those
government-owned or -controlled corporations whose profit
distribution is provided by their respective charters or by special
law, but shall exclude those enumerated in Section 4 hereof:
Provided, That such dividends accruing to the National
Government shall be received by the National Treasury and
recorded as income of the General Fund.
Sec. 4. Exemptions.—The provisions of the preceding section
notwithstanding, government-owned or -controlled corporations
created or organized by law to administer real or personal
properties or funds held in trust for the use and the benefit of its
members, shall not be covered by this Act such as, but not limited
to: the Government Service Insurance System, the Home
Development Mutual Fund, the Employees Compensation
Commission, the Overseas Workers Welfare Administration, and
the Philippine Medical Care Commission.
73 See Pres. Decree No. 857 (as amended).
74 See Section 10, Pres. Decree No. 857.
75 See Section 11, Pres. Decree No. 857.
76 See Rep. Act No. 7227.
77 See Section 6, Rep. Act No. 7227.
78 See Rep. Act No. 7916.
79 See Section 47, Rep. Act No. 7916 in relation to Section 5, Pres.
Decree No. 66.
80 See Executive Order No. 603, as amended.
81 See Article 6, Section 15 of Executive Order No. 603, as
amended.
82 See Rep. Act No. 7653. If there is any doubt whether the BSP
was intended to be covered by Rep. Act No. 7656, see Section 2(b),
Rep. Act No. 7656, which states that "This term [GOCCs shall also
include financial institutions, owned or controlled by the National
Government, but shall exclude acquired asset corporations, as
defined in the next paragraphs, state universities, and colleges."
83 See Section 2, Rep. Act No. 7653.
84 See Sections 43 & 44, Rep. Act No. 7653.
85 See Rep. Act No. 6395.
86 Supra note 35.
87 See Decision, p. 10.
88 Id. at 10-11.
89 Id.
90 See Rep. Act No. 3034.
91 See Rep. Act No. 4132.
92 See Rep. Act No. 6070.
93 See Rep. Act No. 5920.
94 See Rep. Act No. 4071.
95 See e.g., Sections 1 & 2, Rep. Act No. 6070.
Section 1. Declaration of Policy. – It is hereby declared to be the
policy of the Congress to foster the accelerated and balanced
growth of the Province of Ilocos Sur, within the context of national
plans and policies for social and economic development, through
the leadership, guidance, and support of the government. To
achieve this end, it is recognized that a government corporation
should be created for the purpose of drawing up the necessary
plans of provincial development; xxx
Sec. 2. Ilocos Sur Development Authority created. – There is
hereby created a body corporate to be known as the Ilocos Sur
Development Authority xxx. The Authority shall execute the
powers and functions herein vested and conferred upon it in such
manner as will in its judgment, aid to the fullest possible extent in
carrying out the aims and purposes set forth below."
96 See Art. 37, Civil Code, which provides in part, "Juridical
capacity, which is the fitness to be the subject of legal relations…"
97 See rollo, p. 18. "Petitioner [MIAA] is a government-owned and
controlled corporation with original charter as it was created by
virtue of Executive Order No. 903 issued by then President
Ferdinand E. Marcos on July 21, 1983, as amended by Executive
Order No. 298 issued by President Corazon C. Aquino on July 26,
1987, and with office address at the MIAA Administration Bldg
Complex, MIAA Road, Pasay City." (emphasis supplied).
98 See "Department of Budget and Management – Web Linkages,"
http://www.dbm. gov.ph/web_linkages.htm (Last visited 25
February 2005).
99 G.R. No. 104217, 5 December 1994, 238 SCRA 714; per
Quiazon, J.. "Petitioner MIAA is a government-owned and
controlled corporation for the purpose, among others, of
encouraging and promoting 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".
Id. at 716.
100 See Section 23, Chapter 6, Title XV, Book IV, Administrative
Code of 1987.
101 Supra note 60.
102 Supra note 8.
103 Supra note 6.
104 Assuming that there is conflict between Section 133(o),
Section 193, Section 232 and Section 234 of the Local Government
Code, the rule in statutory construction is, "If there be no such
ground for choice between inharmonious provisions or sections,
the latter provision or section, being the last expression of the
legislative will, must, in construction, vacate the former to the
extent of the repugnancy. It has been held that in case of
irreconcilable conflict between two provisions of the same statute,
the last in order of position is frequently held to prevail, unless it
clearly appears that the intent of the legislature is otherwise." R.
Agpalo, Statutory Construction (3rd ed., 1995), p. 201; citing
Lichauco & Co. v. Apostol, 44 Phil. 138 (1922); Cuyegkeng v.
Cruz, 108 Phil. 1147 (1960); Montenegro v. Castañeda, 91 Phil.
882 (1952).
105 Decision, p. 12.
106 Supra note 6.
107 Id. at 261-262.
108 Id., at 248-250.
109 Supra note 38.
110 Id, at 102; citing National Power Corp. v. Presiding Judge,
RTC, Br. XXV, 190 SCRA 477 (1990).
111 Decision, p. 25.
112 "Unless otherwise expressed in the tax law, the government
and its political subdivisions are exempt therefrom." J. Vitug and E.
Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 36.
113 Supra note 9.
114 See P.D. No. 1423.
115 R. Agpalo, Statutory Construction (3rd ed., 1995), at 199;
citing Javellana v. Tayo, G.R. No. 18919, 29 December 1982, 6
SCRA 1042 (1962); Radiola-Toshiba Phil., Inc. v. IAC, 199 SCRA
373 (1991).
116 PPA v. City of Iloilo, supra note 42.
117 Id., at 186-187.
118 Supra note 15.
119 Id. at 869.
120 Id. at 871.
121 Id. at 872.
122 See Section 10, E.O. No. 903.
123 R. Lopez, I The Corporation Code of the Philippines
Annotated, pp. 15-16 (1994).
124 See Section 5, E.O. No. 903.
125 See Section 1, Article X of the Constitution, which reads: "The
territorial and political subdivisions of the Republic of the
Philippines are the provinces, cities, municipalities and barangays
xxx"
126 Romualdez-Yap v. CSC, G.R. No. 104226, 12 August 1993,
225 SCRA 285, 294.
127 100 Phil. 468. (1956)
128 Id., at 471-473.
129 Lopez, supra note 123 at 67.
130 G.R. No. L-49930, 7 August 1985, 138 SCRA 63.
131 "Did the State act in a sovereign capacity or in a corporate
capacity when it organized the PNR for the purpose of engaging in
transportation? Did it act differently when it organized the PNR as
successor of the Manila Railroad Company? xxx We hold that in
the instant case the State divested itself of its sovereign capacity
when it organized the PNR which is no different from its
predecessor, the Manila Railroad Company." Id, at 66.
132 Supra note 17.
133 Id., at 206.
134 Section 32(24), Rep. Act No. 776. See CAA v. Court of
Appeals, supra note 18, at 36.
135 Supra note 18.
136 Id., at 36.
137 Teodoro v. National Airports Commission, supra note 17, at
207.
138 See Article XII, Section 11, Const.
139 Vitug & Acosta, supra note 112, at 35; citing Bisaya Land
Transportation Co., Inc. v. Collector of Internal Revenue, L-11812,
29 May 1959, 105 Phil. 1338.
140 See Section 3, E.O. 903, as amended.
141 Indeed, last 4 February 2005, the MIAA filed a Manifestation
before this Court stating that its new General Manager had been
conferring with the newly elected local government of Parañaque
with the end of settling the case at mutually acceptable terms. See
rollo, pp. 315-316. While this Manifestation was withdrawn a few
weeks later, see rollo, pp. 320-322, it still stands as proof that the
parties are nevertheless willing to explore an extrajudicial
settlement of this case.
142 See Section 17, Article VII, Constitution. "The President shall
have control of all the executive departments. He shall ensure that
the laws be faithfully executed."
143 See note 141.
144 See Section 5, Rep. Act No. 8423.
145 See Section 6(s), Rep. Act No. 8423.
146 See Section 6(r), Rep. Act No. 8423.
147 See Section 2, Rep. Act No. 8423.
148 See Section 3(b), Rep. Act No. 8423.
149 See Section 4(d), Rep. Act No. 8423.
The Lawphil Project - Arellano Law Foundation
EN BANC
G.R. No. 193462, February 04, 2014
DENNIS A.B. FUNA, Petitioner, v. MANILA ECONOMIC AND
CULTURAL OFFICE AND THE COMMISSION ON AUDIT,
Respondents.
DECISION
PEREZ, J.:
This is a petition for mandamus1 to compel:
1.)
the Commission on Audit (COA) to audit and examine the funds of
the Manila Economic and Cultural Office (MECO), and

2.)
the MECO to submit to such audit and examination.
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China
with two (2) governments in a stalemate espousing competing
assertions of sovereignty.3 On one hand is the communist People’s
Republic of China (PROC) which controls the mainland territories,
and on the other hand is the nationalist Republic of China (ROC)
which controls the island of Taiwan. For a better part of the past
century, both the PROC and ROC adhered to a policy of “One
China” i.e., the view that there is only one legitimate government
in China, but differed in their respective interpretation as to which
that government is.4
With the existence of two governments having conflicting claims
of sovereignty over one country, came the question as to which of
the two is deserving of recognition as that country’s legitimate
government. Even after its relocation to Taiwan, the ROC used to
enjoy diplomatic recognition from a majority of the world’s states,
partly due to being a founding member of the United Nations
(UN).5 The number of states partial to the PROC’s version of the
One China policy, however, gradually increased in the 1960s and
70s, most notably after the UN General Assembly adopted the
monumental Resolution 2758 in 1971.6 Since then, almost all of
the states that had erstwhile recognized the ROC as the legitimate
government of China, terminated their official relations with the
said government, in favor of establishing diplomatic relations with
the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations
with the government in Taiwan on 9 June 1975, when the country
and the PROC expressed mutual recognition thru the Joint
Communiqué of the Government of the Republic of the Philippines
and the Government of the People’s Republic of China (Joint
Communiqué).8
Under the Joint Communiqué, the Philippines categorically stated
its adherence to the One China policy of the PROC. The pertinent
portion of the Joint Communiqué reads:9
The Philippine Government recognizes the Government of the
People’s Republic of China as the sole legal government of China,
fully understands and respects the position of the Chinese
Government that there is but one China and that Taiwan is an
integral part of Chinese territory, and decides to remove all its
official representations from Taiwan within one month from the
date of signature of this communiqué. (Emphasis supplied)
The Philippines’ commitment to the One China policy of the
PROC, however, did not preclude the country from keeping
unofficial relations with Taiwan on a “people–to–people” basis.10
Maintaining ties with Taiwan that is permissible by the terms of the
Joint Communiqué, however, necessarily required the Philippines,
and Taiwan, to course any such relations thru offices outside of the
official or governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan
and of the Philippines maintained an unofficial relationship
facilitated by the offices of the Taipei Economic and Cultural
Office, for the former, and the MECO, for the latter.11
The MECO12 was organized on 16 December 1997 as a non–
stock, non–profit corporation under Batas Pambansa Blg. 68 or the
Corporation Code.13 The purposes underlying the incorporation of
MECO, as stated in its articles of incorporation,14 are as follows:
1 To establish and develop the commercial and industrial interests
of Filipino nationals here and abroad, and assist on all measures
designed to promote and maintain the trade relations of the country
with the citizens of other foreign countries;
2 To receive and accept grants and subsidies that are reasonably
necessary in carrying out the corporate purposes provided they are
not subject to conditions defeatist for or incompatible with said
purpose;
3
4 To acquire by purchase, lease or by any gratuitous title real and
personal properties as may be necessary for the use and need of the
corporation, and to dispose of the same in like manner when they
are no longer needed or useful; and
5
6 To do and perform any and all acts which are deemed reasonably
necessary to carry out the purposes. (Emphasis supplied)
From the moment it was incorporated, the MECO became the
corporate entity “entrusted” by the Philippine government with the
responsibility of fostering “friendly” and “unofficial” relations with
the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational
exchanges.15 To enable it to carry out such responsibility, the
MECO was “authorized” by the government to perform certain
“consular and other functions” that relates to the promotion,
protection and facilitation of Philippine interests in Taiwan.16
At present, it is the MECO that oversees the rights and interests of
Overseas Filipino Workers (OFWs) in Taiwan; promotes the
Philippines as a tourist and investment destination for the
Taiwanese; and facilitates the travel of Filipinos and Taiwanese
from Taiwan to the Philippines, and vice versa.17
Facts Leading to the Mandamus Petition
On 23 August 2010, petitioner sent a letter18 to the COA
requesting for a “copy of the latest financial and audit report” of
the MECO invoking, for that purpose, his “constitutional right to
information on matters of public concern.” The petitioner made the
request on the belief that the MECO, being under the “operational
supervision” of the Department of Trade and Industry (DTI), is a
government owned and controlled corporation (GOCC) and thus
subject to the audit jurisdiction of the COA.19
Petitioner’s letter was received by COA Assistant Commissioner
Jaime P. Naranjo, the following day.
On 25 August 2010, Assistant Commissioner Naranjo issued a
memorandum20 referring the petitioner’s request to COA Assistant
Commissioner Emma M. Espina for “further disposition.” In this
memorandum, however, Assistant Commissioner Naranjo revealed
that the MECO was “not among the agencies audited by any of the
three Clusters of the Corporate Government Sector.”21
On 7 September 2010, petitioner learned about the 25 August 2010
memorandum and its contents.
Mandamus Petition
Taking the 25 August 2010 memorandum as an admission that the
COA had never audited and examined the accounts of the MECO,
the petitioner filed the instant petition for mandamus on 8
September 2010. Petitioner filed the suit in his capacities as
“taxpayer, concerned citizen, a member of the Philippine Bar and
law book author.”22 He impleaded both the COA and the MECO.
Petitioner posits that by failing to audit the accounts of the MECO,
the COA is neglecting its duty under Section 2(1), Article IX–D of
the Constitution to audit the accounts of an otherwise bona fide
GOCC or government instrumentality. It is the adamant claim of
the petitioner that the MECO is a GOCC without an original
charter or, at least, a government instrumentality, the funds of
which partake the nature of public funds.23
According to petitioner, the MECO possesses all the essential
characteristics of a GOCC and an instrumentality under the
Executive Order No. (EO) 292, s. 1987 or the Administrative
Code: it is a non–stock corporation vested with governmental
functions relating to public needs; it is controlled by the
government thru a board of directors appointed by the President of
the Philippines; and while not integrated within the executive
departmental framework, it is nonetheless under the operational
and policy supervision of the DTI.24 As petitioner substantiates:
1 The MECO is vested with government functions. It performs
functions that are equivalent to those of an embassy or a consulate
of the Philippine government.25 A reading of the authorized
functions of the MECO as found in EO No. 15, s. 2001, reveals
that they are substantially the same functions performed by the
Department of Foreign Affairs (DFA), through its diplomatic and
consular missions, per the Administrative Code.26]
2 The MECO is controlled by the government. It is the President of
the Philippines that actually appoints the directors of the MECO,
albeit indirectly, by way of “desire letters” addressed to the
MECO’s board of directors.27 An illustration of this exercise is the
assumption by Mr. Antonio Basilio as chairman of the board of
directors of the MECO in 2001, which was accomplished when
former President Gloria Macapagal–Arroyo, through a
memorandum28 dated 20 February 2001, expressed her “desire” to
the board of directors of the MECO for the election of Mr. Basilio
as chairman.29]
3 The MECO is under the operational and policy supervision of the
DTI. The MECO was placed under the operational supervision of
the DTI by EO No. 328, s. of 2004, and again under the policy
supervision of the same department by EO No. 426, s. 2005.30
To further bolster his position that the accounts of the MECO ought
to be audited by the COA, the petitioner calls attention to the
practice, allegedly prevailing in the United States of America,
wherein the American Institute in Taiwan (AIT)—the counterpart
entity of the MECO in the United States—is supposedly audited by
that country’s Comptroller General.31 Petitioner claims that this
practice had been confirmed in a decision of the United States
Court of Appeals for the District of Columbia Circuit, in the case
of Wood, Jr., ex rel. United States of America v. The American
Institute in Taiwan, et al.32
The Position of the MECO
The MECO prays for the dismissal of the mandamus petition on
procedural and substantial grounds.
On procedure, the MECO argues that the mandamus petition was
prematurely filed.33
The MECO posits that a cause of action for mandamus to compel
the performance of a ministerial duty required by law only ripens
once there has been a refusal by the tribunal, board or officer
concerned to perform such a duty.34 The MECO claims that there
was, in this case, no such refusal either on its part or on the COA’s
because the petitioner never made any demand for it to submit to
an audit by the COA or for the COA to perform such an audit, prior
to filing the instant mandamus petition.35 The MECO further
points out that the only “demand” that the petitioner made was his
request to the COA for a copy of the MECO’s latest financial and
audit report—which request was not even finally disposed of by
the time the instant petition was filed.36
On the petition’s merits, the MECO denies the petitioner’s claim
that it is a GOCC or a government instrumentality.37 While
performing public functions, the MECO maintains that it is not
owned or controlled by the government, and its funds are private
funds.38 The MECO explains:
1 It is not owned or controlled by the government. Contrary to the
allegations of the petitioner, the President of the Philippines does
not appoint its board of directors.39 The “desire letter” that the
President transmits is merely recommendatory and not binding on
the corporation.40 As a corporation organized under the
Corporation Code, matters relating to the election of its directors
and officers, as well as its membership, are governed by the
appropriate provisions of the said code, its articles of incorporation
and its by–laws.41 Thus, it is the directors who elect the
corporation’s officers; the members who elect the directors; and the
directors who admit the members by way of a unanimous
resolution. All of its officers, directors, and members are private
individuals and are not government officials.42]
2 The government merely has policy supervision over it. Policy
supervision is a lesser form of supervision wherein the
government’s oversight is limited only to ensuring that the
corporation’s activities are in tune with the country’s commitments
under the One China policy of the PROC.43 The day–to–day
operations of the corporation, however, remain to be controlled by
its duly elected board of directors.44
The MECO emphasizes that categorizing it as a GOCC or a
government instrumentality can potentially violate the country’s
commitment to the One China policy of the PROC.45 Thus, the
MECO cautions against applying to the present mandamus petition
the pronouncement in the Wood decision regarding the alleged
auditability of the AIT in the United States.46
The Position of the COA
The COA, on the other hand, advances that the mandamus petition
ought to be dismissed on procedural grounds and on the ground of
mootness.
The COA argues that the mandamus petition suffers from the
following procedural defects:
1 The petitioner lacks locus standi to bring the suit. The COA
claims that the petitioner has not shown, at least in a concrete
manner, that he had been aggrieved or prejudiced by its failure to
audit the accounts of the MECO.47]
2 The petition was filed in violation of the doctrine of hierarchy of
courts. The COA faults the filing of the instant mandamus petition
directly with this Court, when such petition could have very well
been presented, at the first instance, before the Court of Appeals or
any Regional Trial Court.48 The COA claims that the petitioner
was not able to provide compelling reasons to justify a direct resort
to the Supreme Court.49
At any rate, the COA argues that the instant petition already
became moot when COA Chairperson Maria Gracia M. Pulido–Tan
(Pulido–Tan) issued Office Order No. 2011–69850 on 6 October
2011.51 The COA notes that under Office Order No. 2011–698,
Chairperson Pulido–Tan already directed a team of auditors to
proceed to Taiwan, specifically for the purpose of auditing the
accounts of, among other government agencies based therein, the
MECO.52
In conceding that it has audit jurisdiction over the accounts of the
MECO, however, the COA clarifies that it does not consider the
former as a GOCC or a government instrumentality. On the
contrary, the COA maintains that the MECO is a non–
governmental entity.53
The COA argues that, despite being a non–governmental entity, the
MECO may still be audited with respect to the “verification fees”
for overseas employment documents that it collects from
Taiwanese employers on behalf of the DOLE.54 The COA claims
that, under Joint Circular No. 3–99,55 the MECO is mandated to
remit to the Department of Labor and Employment (DOLE) a
portion of such “verification fees.”56 The COA, therefore,
classifies the MECO as a non–governmental entity “required to
pay xxx government share” subject to a partial audit of its accounts
under Section 26 of the Presidential Decree No. 1445 or the State
Audit Code of the Philippines (Audit Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non–
governmental entity. However, under existing laws, the accounts of
the MECO pertaining to the “verification fees” it collects on behalf
of the DOLE as well as the fees it was authorized to collect under
Section 2(6) of EO No. 15, s. 2001, are subject to the audit
jurisdiction of the COA. Such fees pertain to the government and
should be audited by the COA.
I substantial issues presupposing the commission of a grave
We begin with the preliminary issues.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the
instant mandamus petition, occasioned by the COA’s issuance of
Office Order No. 2011–698. The COA claims that by issuing
Office Order No. 2011–698, it had already conceded its jurisdiction
over the accounts of the MECO and so fulfilled the objective of the
instant petition.58 The COA thus urges that the instant petition be
dismissed for being moot and academic.59
We decline to dismiss the mandamus petition on the ground of
mootness.
A case is deemed moot and academic when, by reason of the
occurrence of a supervening event, it ceases to present any
justiciable controversy.60 Since they lack an actual controversy
otherwise cognizable by courts, moot cases are, as a rule,
dismissible.61
The rule that requires dismissal of moot cases, however, is not
absolute. It is subject to exceptions. In David v. Macapagal–
Arroyo,62 this Court comprehensively captured these exceptions
scattered throughout our jurisprudence:
The “moot and academic” principle is not a magical formula that
can automatically dissuade the courts in resolving a case. Courts
will decide cases, otherwise moot and academic, if: first, there is a
grave violation of the Constitution;63second, the exceptional
character of the situation and the paramount public interest is
involved;64third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar,
and the public;65 and fourth, the case is capable of repetition yet
evading review.66
In this case, We find that the issuance by the COA of Office Order
No. 2011–698 indeed qualifies as a supervening event that
effectively renders moot and academic the main prayer of the
instant mandamus petition. A writ of mandamus to compel the
COA to audit the accounts of the MECO would certainly be a mere
superfluity, when the former had already obliged itself to do the
same.
Be that as it may, this Court refrains from dismissing outright the
petition. We believe that the mandamus petition was able to craft
violation of the Constitution and involving paramount public
interest, which need to be resolved nonetheless:
First. The petition makes a serious allegation that the COA had
been remiss in its constitutional or legal duty to audit and examine
the accounts of an otherwise auditable entity in the MECO.
Second. There is paramount public interest in the resolution of the
issue concerning the failure of the COA to audit the accounts of the
MECO. The propriety or impropriety of such a refusal is
determinative of whether the COA was able to faithfully fulfill its
constitutional role as the guardian of the public treasury, in which
any citizen has an interest.
Third. There is also paramount public interest in the resolution of
the issue regarding the legal status of the MECO; a novelty insofar
as our jurisprudence is concerned. We find that the status of the
MECO—whether it may be considered as a government agency or
not—has a direct bearing on the country’s commitment to the One
China policy of the PROC.67
An allegation as serious as a violation of a constitutional or legal
duty, coupled with the pressing public interest in the resolution of
all related issues, prompts this Court to pursue a definitive ruling
thereon, if not for the proper guidance of the government or agency
concerned, then for the formulation of controlling principles for the
education of the bench, bar and the public in general.68 For this
purpose, the Court invokes its symbolic function.69
If the foregoing reasons are not enough to convince, We still add
another:
Assuming that the allegations of neglect on the part of the COA
were true, Office Order No. 2011–698 does not offer the strongest
certainty that they would not be replicated in the future. In the first
place, Office Order No. 2011–698 did not state any legal
justification as to why, after decades of not auditing the accounts of
the MECO, the COA suddenly decided to do so. Neither does it
state any determination regarding the true status of the MECO. The
justifications provided by the COA, in fact, only appears in the
memorandum70 it submitted to this Court for purposes of this case.
Thus, the inclusion of the MECO in Office Order No. 2011–698
appears to be entirely dependent upon the judgment of the
incumbent chairperson of the COA; susceptible of being undone,
with or without reason, by her or even her successor. Hence, the
case now before this Court is dangerously capable of being
repeated yet evading review.
Verily, this Court should not dismiss the mandamus petition on the
ground of mootness.
Standing of Petitioner
The second preliminary issue is concerned with the standing of the
petitioner to file the instant mandamus petition. The COA claims
that petitioner has none, for the latter was not able to concretely
establish that he had been aggrieved or prejudiced by its failure to
audit the accounts of the MECO.71
Related to the issue of lack of standing is the MECO’s contention
that petitioner has no cause of action to file the instant mandamus
petition. The MECO faults petitioner for not making any demand
for it to submit to an audit by the COA or for the COA to perform
such an audit, prior to filing the instant petition.72
We sustain petitioner’s standing, as a concerned citizen, to file the
instant petition.
The rules regarding legal standing in bringing public suits, or locus
standi, are already well–defined in our case law. Again, We cite
David, which summarizes jurisprudence on this point:73
By way of summary, the following rules may be culled from the
cases decided by this Court. Taxpayers, voters, concerned citizens,
and legislators may be accorded standing to sue, provided that the
following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of
public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the
validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled
early; and
(5) for legislators, there must be a claim that the official action
complained of infringes upon their prerogatives as legislators.
We rule that the instant petition raises issues of transcendental
importance, involved as they are with the performance of a
constitutional duty, allegedly neglected, by the COA. Hence, We
hold that the petitioner, as a concerned citizen, has the requisite
legal standing to file the instant mandamus petition.
To be sure, petitioner does not need to make any prior demand on
the MECO or the COA in order to maintain the instant petition.
The duty of the COA sought to be compelled by mandamus,
emanates from the Constitution and law, which explicitly require,
or “demand,” that it perform the said duty. To the mind of this
Court, petitioner already established his cause of action against the
COA when he alleged that the COA had neglected its duty in
violation of the Constitution and the law.
Principle of Hierarchy of Courts
The last preliminary issue is concerned with the petition’s non–
observance of the principle of hierarchy of courts. The COA assails
the filing of the instant mandamus petition directly with this Court,
when such petition could have very well been presented, at the first
instance, before the Court of Appeals or any Regional Trial
Court.74 The COA claims that the petitioner was not able to
provide compelling reasons to justify a direct resort to the Supreme
Court.75
In view of the transcendental importance of the issues raised in the
mandamus petition, as earlier mentioned, this Court waives this
last procedural issue in favor of a resolution on the merits.76
II
To the merits of this petition, then.
The single most crucial question asked by this case is whether the
COA is, under prevailing law, mandated to audit the accounts of
the MECO. Conversely, are the accounts of the MECO subject to
the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are
subject to the audit jurisdiction of the COA.
Under Section 2(1) of Article IX–D of the Constitution,77 the COA
was vested with the “power, authority and duty” to “examine, audit
and settle” the “accounts” of the following entities:
1 The government, or any of its subdivisions, agencies and
instrumentalities;
2 Both petitioner and the COA claim that the accounts of the MECO
3 GOCCs with original charters;
4 of the audit and on what type of auditable entity the MECO is. The
5 GOCCs without original charters;
6 latter is a bona fide GOCC or government instrumentality.84 On
7 Constitutional bodies, commissions and offices that have been
granted fiscal autonomy under the Constitution; and
8 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 the COA for audit as
a condition of subsidy or equity.78
The term “accounts” mentioned in the subject constitutional
provision pertains to the “revenue,” “receipts,” “expenditures” and
“uses of funds and property” of the foregoing entities.79
Complementing the constitutional power of the COA to audit
accounts of “non–governmental entities receiving subsidy or equity
xxx from or through the government” is Section 29(1)80 of the
Audit Code, which grants the COA visitorial authority over the
following non–governmental entities:
1 Non–governmental entities “subsidized by the government”;
2
3 Non–governmental entities “required to pay levy or government
share”;
4
5 Non–governmental entities that have “received counterpart funds
from the government”; and
6
7 Non–governmental entities “partly funded by donations through
the government.”
Section 29(1) of the Audit Code, however, limits the audit of the
foregoing non–governmental entities only to “funds xxx coming
from or through the government.”81 This section of the Audit Code
is, in turn, substantially reproduced in Section 14(1), Book V of the
Administrative Code.82
In addition to the foregoing, the Administrative Code also
empowers the COA to examine and audit “the books, records and
accounts” of public utilities “in connection with the fixing of rates
of every nature, or in relation to the proceedings of the proper
regulatory agencies, for purposes of determining franchise tax.”83
are within the audit jurisdiction of the COA, but vary on the extent
petitioner posits that all accounts of the MECO are auditable as the
the other hand, the COA argues that only the accounts of the
MECO that pertain to the “verification fees” it collects on behalf of
the DOLE are auditable because the former is merely a non–
governmental entity “required to pay xxx government share” per
the Audit Code.85
We examine both contentions.
The MECO Is Not a GOCC or
Government Instrumentality
We start with the petitioner’s contention.
Petitioner claims that the accounts of the MECO ought to be
audited by the COA because the former is a GOCC or government
instrumentality. Petitioner points out that the MECO is a non–stock
corporation “vested with governmental functions relating to public
needs”; it is “controlled by the government thru a board of
directors appointed by the President of the Philippines”; and it
operates “outside of the departmental framework,” subject only to
the “operational and policy supervision of the DTI.”86 The MECO
thus possesses, petitioner argues, the essential characteristics of a
bona fide GOCC and government instrumentality.87
We take exception to petitioner’s characterization of the MECO as
a GOCC or government instrumentality. The MECO is not a
GOCC or government instrumentality.
Government instrumentalities are agencies of the national
government that, by reason of some “special function or
jurisdiction” they perform or exercise, are allotted “operational
autonomy” and are “not integrated within the department
framework.”88 Subsumed under the rubric “government
instrumentality” are the following entities:89
1 regulatory agencies,
2 chartered institutions,
3 government corporate entities or government instrumentalities
with corporate powers (GCE/GICP),90 and
4 GOCCs
The Administrative Code defines a GOCC:91
(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: x x x.
The above definition is, in turn, replicated in the more recent
Republic Act No. 10149 or the GOCC Governance Act of 2011, to
wit:92
(o) Government–Owned or –Controlled Corporation (GOCC)
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 of the Republic of the Philippines directly or through
its instrumentalities either wholly or, where applicable as in the
case of stock corporations, to the extent of at least a majority of its
outstanding capital stock: x x x.
GOCCs, therefore, are “stock or non–stock” corporations “vested
with functions relating to public needs” that are “owned by the
Government directly or through its instrumentalities.”93 By
definition, three attributes thus make an entity a GOCC: first, its
organization as stock or non–stock corporation;94second, the
public character of its function; and third, government ownership
over the same.
Possession of all three attributes is necessary to deem an entity a
GOCC.
In this case, there is not much dispute that the MECO possesses the
first and second attributes. It is the third attribute, which the
MECO lacks.
The MECO Is Organized as a Non–Stock Corporation
The organization of the MECO as a non–stock corporation cannot
at all be denied. Records disclose that the MECO was incorporated
as a non–stock corporation under the Corporation Code on 16
December 1977.95 The incorporators of the MECO were Simeon
R. Roxas, Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and
Eduardo B. Ledesma, who also served as the corporation’s original
members and directors.96
The purposes for which the MECO was organized also establishes
its non–profit character, to wit:97
1 To establish and develop the commercial and industrial interests
of Filipino nationals here and abroad and assist on all measures
designed to promote and maintain the trade relations of the country
with the citizens of other foreign countries;
2 To receive and accept grants and subsidies that are reasonably
necessary in carrying out the corporate purposes provided they are
not subject to conditions defeatist for or incompatible with said
purpose;
3
4 To acquire by purchase, lease or by any gratuitous title real and
personal properties as may be necessary for the use and need of the
corporation, and in like manner when they are
5
6 To do and perform any and all acts which are deemed reasonably
necessary to carry out the purposes. (Emphasis supplied)
The purposes for which the MECO was organized are somewhat
analogous to those of a trade, business or industry chamber,98 but
only on a much larger scale i.e., instead of furthering the interests
of a particular line of business or industry within a local sphere, the
MECO seeks to promote the general interests of the Filipino people
in a foreign land.
Finally, it is not disputed that none of the income derived by the
MECO is distributable as dividends to any of its members,
directors or officers.
Verily, the MECO is organized as a non–stock corporation.
The MECO Performs Functions with a Public Aspect.
The public character of the functions vested in the MECO cannot
be doubted either. Indeed, to a certain degree, the functions of the
MECO can even be said to partake of the nature of governmental
functions. As earlier intimated, it is the MECO that, on behalf of
the people of the Philippines, currently facilitates unofficial
relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was
“authorized” by the Philippine government to perform certain
“consular and other functions” relating to the promotion, protection
and facilitation of Philippine interests in Taiwan.99 The full extent
of such authorized functions are presently detailed in Sections 1
and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject to
the conditions stated in Section 3 hereof, MECO is hereby
authorized to assist in the performance of the following functions:
1. Formulation and implementation of a program to attract and
promote investments from Taiwan to Philippine industries and
businesses, especially in manufacturing, tourism, construction and
other preferred areas of investments;
2. Promotion of the export of Philippine products and Filipino
manpower services, including Philippine management services, to
Taiwan;
3. Negotiation and/or assistance in the negotiation and conclusion
of agreements or other arrangements concerning trade, investment,
economic cooperation, technology transfer, banking and finance,
scientific, cultural, educational and other modes of cooperative
endeavors between the Philippines and Taiwan, on a people–to–
people basis, in accordance with established rules and regulations;
4. Reporting on, and identification of, employment and business
opportunities in Taiwan for the promotion of Philippine exports,
manpower and management services, and tourism;
5. Dissemination in Taiwan of information on the Philippines,
especially in the fields of trade, tourism, labor, economic
cooperation, and cultural, educational and scientific endeavors;
6. Conduct of periodic assessment of market conditions in Taiwan,
including submission of trade statistics and commercial reports for
use of Philippine industries and businesses; and
7. Facilitation, fostering and cultivation of cultural, sports, social,
and educational exchanges between the peoples of the Philippines
and Taiwan.
SECTION 2. In addition to the above–mentioned authority and
subject to the conditions stated in Section 3 hereof, MECO,
through its branch offices in Taiwan, is hereby authorized to
perform the following functions:
1. Issuance of temporary visitors’ visas and transit and crew list
visas, and such other visa services as may be authorized by the
Department of Foreign Affairs;
2. Issuance, renewal, extension or amendment of passports of
Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under
the circumstances;
3. Certification or affirmation of the authenticity of documents
submitted for authentication;
4. Providing translation services;
5. Assistance and protection to Filipino nationals and other
legal/juridical persons working or residing in Taiwan, including
making representations to the extent allowed by local and
international law on their behalf before civil and juridical
authorities of Taiwan; and
6. Collection of reasonable fees on the first four (4) functions
enumerated above to defray the cost of its operations.
A perusal of the above functions of the MECO reveals its uncanny
similarity to some of the functions typically performed by the DFA
itself, through the latter’s diplomatic and consular missions.100
The functions of the MECO, in other words, are of the kind that
would otherwise be performed by the Philippines’ own diplomatic
and consular organs, if not only for the government’s acquiescence
that they instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a
public aspect.
The MECO Is Not Owned or Controlled by the Government
Organization as a non–stock corporation and the mere performance
of functions with a public aspect, however, are not by themselves
sufficient to consider the MECO as a GOCC. In order to qualify as
a GOCC, a corporation must also, if not more importantly, be
owned by the government.
The government owns a stock or non–stock corporation if it has
controlling interest in the corporation. In a stock corporation, the
controlling interest of the government is assured by its ownership
of at least fifty–one percent (51%) of the corporate capital
stock.101 In a non–stock corporation, like the MECO,
jurisprudence teaches that the controlling interest of the
government is affirmed when “at least majority of the members are
government officials holding such membership by appointment or
designation”102 or there is otherwise “substantial participation of
the government in the selection” of the corporation’s governing
board.103
In this case, the petitioner argues that the government has
controlling interest in the MECO because it is the President of the
Philippines that indirectly appoints the directors of the
corporation.104 The petitioner claims that the President appoints
directors of the MECO thru “desire letters” addressed to the
corporation’s board.105 As evidence, the petitioner cites the
assumption of one Mr. Antonio Basilio as chairman of the board of
directors of the MECO in 2001, which was allegedly accomplished
when former President Macapagal–Arroyo, through a
memorandum dated 20 February 2001, expressed her “desire” to
the board of directors of the MECO for the election of Mr. Basilio
as chairman.106
The MECO, however, counters that the “desire letters” that the
President transmits are merely recommendatory and not binding on
it.107 The MECO maintains that, as a corporation organized under
the Corporation Code, matters relating to the election of its
directors and officers, as well as its membership, are ultimately
governed by the appropriate provisions of the said code, its articles
of incorporation and its by–laws.108
As between the contrasting arguments, We find the contention of
the MECO to be the one more consistent with the law.
The fact of the incorporation of the MECO under the Corporation
Code is key. The MECO was correct in postulating that, as a
corporation organized under the Corporation Code, it is governed
by the appropriate provisions of the said code, its articles of
incorporation and its by–laws. In this case, it is the by–laws109 of
the MECO that stipulates that its directors are elected by its
members; its officers are elected by its directors; and its members,
other than the original incorporators, are admitted by way of a
unanimous board resolution, to wit:
SECTION II. MEMBERSHIP
Article 2. Members shall be classified as (a) Regular and (b)
Honorary.
(a) Regular members – shall consist of the original incorporators
and such other members who, upon application for membership,
are unanimously admitted by the Board of Directors.
(b) Honorary member – A person of distinction in business who as
sympathizer of the objectives of the corporation, is invited by the
Board to be an honorary member.
SECTION III. BOARD OF DIRECTORS
Article 3. At the first meeting of the regular members, they shall
organize and constitute themselves as a Board composed of five (5)
members, including its Chairman, each of whom as to serve until
such time as his own successor shall have been elected by the
regular members in an election called for the purpose. The number
of members of the Board shall be increased to seven (7) when
circumstances so warrant and by means of a majority vote of the
Board members and appropriate application to and approval by the
Securities and Exchange Commission. Unless otherwise provided
herein or by law, a majority vote of all Board members present
shall be necessary to carry out all Board resolutions.
During the same meeting, the Board shall also elect its own
officers, including the designation of the principal officer who shall
be the Chairman. In line with this, the Chairman shall also carry
the title Chief Executive Officer. The officer who shall head the
branch or office for the agency that may be established abroad shall
have the title of Director and Resident Representative. He will also
be the Vice–Chairman. All other members of the Board shall have
the title of Director.
xxxx
SECTION IV. EXECUTIVE COMMITTEE
Article 5. There shall be established an Executive Committee
composed of at least three (3) members of the Board. The members
of the Executive Committee shall be elected by the members of the
Board among themselves.
xxxx
SECTION VI. OFFICERS: DUTIES, COMPENSATION
Article 8. The officers of the corporation shall consist of a
Chairman of the Board, Vice–Chairman, Chief Finance Officer,
and a Secretary. Except for the Secretary, who is appointed by the
Chairman of the Board, other officers and employees of the
corporation shall be appointed by the Board.
The Deputy Representative and other officials and employees of a
branch office or agency abroad are appointed solely by the Vice
Chairman and Resident Representative concerned. All such
appointments however are subject to ratification by the Board.
It is significant to note that none of the original incorporators of the
MECO were shown to be government officials at the time of the
corporation’s organization. Indeed, none of the members, officers
or board of directors of the MECO, from its incorporation up to the
present day, were established as government appointees or public
officers designated by reason of their office. There is, in fact, no
law or executive order that authorizes such an appointment or
designation. Hence, from a strictly legal perspective, it appears that
the presidential “desire letters” pointed out by petitioner—if such
letters even exist outside of the case of Mr. Basilio—are, no matter
how strong its persuasive effect may be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui
Generis Entity.
The categorical exclusion of the MECO from a GOCC makes it
easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the
regulatory agencies, chartered institutions and GCE/GICP are all,
by explicit or implicit definition, creatures of the law.110 The
MECO cannot be any other instrumentality because it was, as
mentioned earlier, merely incorporated under the Corporation
Code.
Hence, unless its legality is questioned, and in this case it was not,
the fact that the MECO is operating under the policy supervision of
the DTI is no longer a relevant issue to be reckoned with for
purposes of this case.
For whatever it is worth, however, and without justifying anything,
it is easy enough for this Court to understand the rationale, or
necessity even, of the executive branch placing the MECO under
the policy supervision of one of its agencies.
It is evident, from the peculiar circumstances surrounding its
incorporation, that the MECO was not intended to operate as any
other ordinary corporation. And it is not. Despite its private origins,
and perhaps deliberately so, the MECO was “entrusted”111 by the
government with the “delicate and precarious”112 responsibility of
pursuing “unofficial”113 relations with the people of a foreign land
whose government the Philippines is bound not to recognize. The
intricacy involved in such undertaking is the possibility that, at any
given time in fulfilling the purposes for which it was incorporated,
the MECO may find itself engaged in dealings or activities that can
directly contradict the Philippines’ commitment to the One China
policy of the PROC. Such a scenario can only truly be avoided if
the executive department exercises some form of oversight, no
matter how limited, over the operations of this otherwise private
entity.
Indeed, from hindsight, it is clear that the MECO is uniquely
situated as compared with other private corporations. From its
over–reaching corporate objectives, its special duty and authority
to exercise certain consular functions, up to the oversight by the
executive department over its operations—all the while
maintaining its legal status as a non–governmental entity—the
MECO is, for all intents and purposes, sui generis.
Certain Accounts of the MECO May
Be Audited By the COA.
We now come to the COA’s contention.
The COA argues that, despite being a non–governmental entity, the
MECO may still be audited with respect to the “verification fees”
for overseas employment documents that the latter collects from
Taiwanese employers on behalf of the DOLE.114 The COA claims
that, under Joint Circular No. 3–99, the MECO is mandated to
remit to the national government a portion of such “verification
fees.”115 The COA, therefore, classifies the MECO as a non–
governmental entity “required to pay xxx government share” per
the Audit Code.116
We agree that the accounts of the MECO pertaining to its
collection of “verification fees” is subject to the audit jurisdiction
of the COA. However, We digress from the view that such
accounts are the only ones that ought to be audited by the COA.
Upon careful evaluation of the information made available by the
records vis–à–vis the spirit and the letter of the laws and executive
issuances applicable, We find that the accounts of the MECO
pertaining to the fees it was authorized to collect under Section
2(6) of EO No. 15, s. 2001, are likewise subject to the audit
jurisdiction of the COA.
Verification Fees Collected by the MECO
In its comment,117 the MECO admitted that roughly 9% of its
income is derived from its share in the “verification fees” for
overseas employment documents it collects on behalf of the
DOLE.
The “verification fees” mentioned here refers to the “service fee for
the verification of overseas employment contracts, recruitment
agreement or special powers of attorney” that the DOLE was
authorized to collect under Section 7 of EO No. 1022,118 which
was issued by President Ferdinand E. Marcos on 1 May 1985.
These fees are supposed to be collected by the DOLE from the
foreign employers of OFWs and are intended to be used for “the
promotion of overseas employment and for welfare services to
Filipino workers within the area of jurisdiction of [concerned]
foreign missions under the administration of the [DOLE].”119
Joint Circular 3–99 was issued by the DOLE, DFA, the Department
of Budget Management, the Department of Finance and the COA
in an effort to implement Section 7 of Executive Order No.
1022.120 Thus, under Joint Circular 3–99, the following officials
have been tasked to be the “Verification Fee Collecting Officer” on
behalf of the DOLE:121
1 The labor attaché or duly authorized overseas labor officer at a
given foreign post, as duly designated by the DOLE Secretary;
2 5 Certification or affirmation of the authenticity of documents
3 n foreign posts where there is no labor attaché or duly authorized
overseas labor officer, the finance officer or collecting officer of
the DFA duly deputized by the DOLE Secretary as approved by the
DFA Secretary;
4
5 In the absence of such finance officer or collecting officer, the
alternate duly designated by the head of the foreign post.
Since the Philippines does not maintain an official post in Taiwan,
however, the DOLE entered into a “series” of Memorandum of
Agreements with the MECO, which made the latter the former’s
collecting agent with respect to the “verification fees” that may be
due from Taiwanese employers of OFWs.122 Under the 27
February 2004 Memorandum of Agreement between DOLE and
the MECO, the “verification fees” to be collected by the latter are
to be allocated as follows: (a) US$ 10 to be retained by the MECO
as administrative fee, (b) US $10 to be remitted to the DOLE, and
(c) US$ 10 to be constituted as a common fund of the MECO and
DOLE.123
Evidently, the entire “verification fees” being collected by the
MECO are receivables of the DOLE.124 Such receipts pertain to
the DOLE by virtue of Section 7 of EO No. 1022.
Consular Fees Collected by the MECO
Aside from the DOLE “verification fees,” however, the MECO
also collects “consular fees,” or fees it collects from the exercise of
its delegated consular functions.
The authority behind “consular fees” is Section 2(6) of EO No. 15,
s. 2001. The said section authorizes the MECO to collect
“reasonable fees” for its performance of the following consular
functions:
1 Issuance of temporary visitors’ visas and transit and crew list
visas, and such other visa services as may be authorized by the
DFA;
2
3 Issuance, renewal, extension or amendment of passports of
Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under
the circumstances;
4
submitted for authentication; and
6 Providing translation services.
Evidently, and just like the peculiarity that attends the DOLE
“verification fees,” there is no consular office for the collection of
the “consular fees.” Thus, the authority for the MECO to collect
the “reasonable fees,” vested unto it by the executive order.
The “consular fees,” although held and expended by the MECO by
virtue of EO No. 15, s. 2001, are, without question, derived from
the exercise by the MECO of consular functions—functions it
performs by and only through special authority from the
government. There was never any doubt that the visas, passports
and other documents that the MECO issues pursuant to its
authorized functions still emanate from the Philippine government
itself.
Such fees, therefore, are received by the MECO to be used strictly
for the purpose set out under EO No. 15, s. 2001. They must be
reasonable as the authorization requires. It is the government that
has ultimate control over the disposition of the “consular fees,”
which control the government did exercise when it provided in
Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by
the MECO “to defray the cost of its operations.”
The Accounts of the MECO Pertaining to the Verification Fees and
Consular Fees May Be Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the
COA to audit accounts of non–governmental entities “required to
pay xxx or have government share” but only with respect to “funds
xxx coming from or through the government.” This provision of
law perfectly fits the MECO:
First. The MECO receives the “verification fees” by reason of
being the collection agent of the DOLE—a government agency.
Out of its collections, the MECO is required, by agreement, to
remit a portion thereof to the DOLE. Hence, the MECO is
accountable to the government for its collections of such
“verification fees” and, for that purpose, may be audited by the
COA.
Second. Like the “verification fees,” the “consular fees” are also
received by the MECO through the government, having been
derived from the exercise of consular functions entrusted to the
MECO by the government. Hence, the MECO remains accountable
to the government for its collections of “consular fees” and, for that
purpose, may be audited by the COA.
Tersely put, the 27 February 2008 Memorandum of Agreement
between the DOLE and the MECO and Section 2(6) of EO No. 15,
s. 2001, vis–à–vis, respectively, the “verification fees” and the
“consular fees,” grant and at the same time limit the authority of
the MECO to collect such fees. That grant and limit require the
audit by the COA of the collections thereby generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a
sui generis private entity especially entrusted by the government
with the facilitation of unofficial relations with the people in
Taiwan without jeopardizing the country’s faithful commitment to
the One China policy of the PROC. However, despite its non–
governmental character, the MECO handles government funds in
the form of the “verification fees” it collects on behalf of the
DOLE and the “consular fees” it collects under Section 2(6) of EO
No. 15, s. 2001. Hence, under existing laws, the accounts of the
MECO pertaining to its collection of such “verification fees” and
“consular fees” should be audited by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Manila Economic and Cultural Office is hereby
declared a non–governmental entity. However, the accounts of the
Manila Economic and Cultural Office pertaining to: the
verification fees contemplated by Section 7 of Executive Order No.
1022 issued 1 May 1985, that the former collects on behalf of the
Department of Labor and Employment, and the fees it was
authorized to collect under Section 2(6) of Executive Order No. 15
issued 16 May 2001, are subject to the audit jurisdiction of the
COA.
No costs.
SO ORDERED.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo–De Castro, Brion,
Peralta, Bersamin, Del Castillo, Abad, Villarama, Jr., Mendoza,
Reyes, Perlas–Bernabe, and Leonen, JJ., concur.
Endnotes:
1 Under Rule 65 of the Rules of Court; rollo, pp. 3–89.
2 Refers to the war fought between the forces loyal to the
government of the Republic of China (ROC) and the Communist
Party of China (CPC), from 1927 to 1936 and 1946 to 1949. The
war reached its defining point in 1949, when the CPC—buoyed by
significant military victories—was able to wrest control of the
mainland territories from the ROC. On 1 October 1949, Mao Whereas clause of Executive Order No. 490, s 1998; Third
Zedong, leader of the CPC, proclaimed the birth of a new Chinese Whereas clause of Executive Order No. 15, s. 2001.
state, the People’s Republic of China (PROC). On the other hand, 11 Third Whereas clause of Executive Order No. 15, s. 2001.
the remaining loyalists of the ROC government, led by Chiang Kai 12 Originally known as Asian Exchange Center, Incorporated
Shek and the Kuomintang party, escaped the mainland and (AECI). On 1 January 1993, AECI amended its articles of
relocated to the island of Taiwan. In December 1949, Chiang Kai incorporation and adopted the name Manila Economic and Cultural
Shek declared the continued sovereignty of the ROC over China Office (MECO).
and designated the city of Taipei in Taiwan as its temporary capital. 13See Fourth Whereas clause of Executive Order No. 490, s. 1998.
Subsequently, in 1955, the ROC and the United States of America 14 Rollo, pp. 100–102.
entered into the Sino–American Mutual Defense Treaty that 15See First, Sixth and Seventh Whereas clause of Executive Order
essentially deterred the CPC from launching any significant No. 931, s. 1984; First Whereas clause of Executive Order No.
attempt of seizing Taiwan from the ROC. A cessation of hostilities 490, s. 1998; Fifth Whereas clause of Executive Order No. 15, s.
between the CPC and ROC forces then followed, and eventually 2001.
prevailed, although an official agreement ending the civil war 16 Executive Order No. 15 s. 2001.
between the two belligerents had never been forged. 17 Id.
3 D’ Amato, Anthony, Purposeful Ambiguity as International Legal 18 Rollo, p. 90.
Strategy: The Two China Problem, 2010; 19 Id.
(http://scholarlycommons.law.northwestern.edu/facultyworkingpap 20 Id. at 91.
ers/94). 21 Id.
4 Benson, Brett V. and Niou, Emerson M.S., Comprehending 22 Petition for Mandamus; id. at 7.
Strategic Ambiguity: US Security Commitment to Taiwan, 2001. 23 Id. at 23–46.
5 Jumamil–Mercado, Gloria, Philippine–Taiwan Relations in a One 24 Id.
China Policy: An Analysis of the Changing Relational Pattern, 25 Id. at 38–43.
2007. 26 Id.
6 On 25 October 1971, the UN General Assembly passed 27 Id. at 34–37.
Resolution 2758 expelling the “representatives of Chiang Kai 28 Id. at 129.
Shek” from the UN and giving recognition to the representatives of 29 Id. at 34–37.
the PROC as the “only legitimate representatives of China.” In 30 Id. at 37–38.
passing such resolution, the UN General Assembly, in substance, 31 Id. at 69–85.
considered the PROC as the lawful successor state of the 32 286 F.3d 526 (D.C. Cir. 2002).
ROC.chanrobleslaw 33 Memorandum of the MECO; rollo, pp. 730–738.
7 Jumamil–Mercado, Gloria, Philippine–Taiwan Relations in a One 34 Id.
China Policy: An Analysis of the Changing Relational Pattern, 35 Id.
2007. 36 Id.
8 A copy of the document may be accessed in the Department of 37 Id. at 739–764.
Foreign Affairs official website under the link: 38 Id.
https://www.dfa.gov.ph/treaty/scanneddocs/580.pdf. 39 Id. at 744–753.
9 Id. 40 Id.
10 Third Whereas clause of Executive Order No. 4, s. 1998; Third 41 Id.
42 Id.
43 Id. at 743–754.
44 Id.
45 Id. at 768.
46 Id. at 763–765.
47 Memorandum of the COA; id. at 830–837.
48 Id. at 841–844.
49 Id.
50 Id. at 688–689.
51 Manifestation in lieu of Memorandum of the COA; id. at 684–
687.
52 Id.
53 Memorandum of the COA; id. at 844–863.
54 Id. at 863–867.
55 Issued on 28 September 1999 by the Department of Labor and
Employment, Department of Foreign Affairs, Department of
Budget and Management, Department of Finance and the
Commission on Audit; id. at 914–926.
56 Memorandum of the COA; id. at 863–867.
57 Id. Section 26 of Presidential Decree No. 1445 reads:
Section 26. General jurisdiction. The authority and powers of the
Commission shall extend to and comprehend all matters relating to
auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers
pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all
persons respecting funds or property received or held by them in an
accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to
the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government–
owned or controlled corporations, including their subsidiaries, and
other self– governing boards, commissions, or agencies of the
Government, and as herein prescribed, including non–
governmental entities subsidized by the government, those funded
by donation through the government, those required to pay levies
or government share, and those for which the government has put
up a counterpart fund or those partly funded by the government.
58 Manifestation in lieu of Memorandum of the COA; id. at 684–
687.
59 Id.
60 David v. Macapagal–Arroyo, 522 Phil. 705, 753 (2006).
61 Id. at 754.
62 Supra note 60.
63 Id., citing Province of Batangas v. Romulo, 473 Phil. 806, 827
(2004).
64 Id., citing Lacson v. Perez, 410 Phil. 78, 118 (2001).
65 Supra note 63, at 827.
66 Id., citing Albaña v. Comelec, 478 Phil. 941, 949 (2004); Acop
v. Guingona, Jr., 433 Phil. 62, 68 (2002); SANLAKAS v. Reyes,
466 Phil. 482, 506 (2004).
67 We take as cue the letter dated 24 May 2011 of DFA Secretary
Albert Del Rosario addressed to several members of Congress and
the Senate (rollo, pp. 546–551) involved in the deliberations of
House Bill No. 4067 and Senate Bill No. 2640—the precursors of
Republic Act No. 10149. As it was, both House Bill No. 4067 and
Senate Bill No. 2640 included the MECO in the definition of a
Government Corporate Entity or Government Instrumentality with
Corporate Powers. Secretary Del Rosario wrote the letter to
express his department’s objection to such inclusion, explaining
that: “classifying MECO as a GICP, xxx will effectively accord
MECO official status that will contravene the purpose for which it
was originally created.” Hence, Secretary Del Rosario vouched for
the exclusion of the MECO from R.A. No. 10149 “so as not to
adversely affect our bilateral relations with both China and
Taiwan.”
68David v. Macapagal–Arroyo, supra note 60, at 754–755.
69 The symbolic function of the Supreme Court has been described
as its “duty to formulate guiding and controlling principles,
precepts, doctrines, or rules.” See Salonga v. Hon. Paño, 219 Phil.
402, 429–430 (1985).
70 Rollo, pp. 823–869.
71 Memorandum of the COA; rollo, pp. 830–837.
72 Memorandum of the MECO; id. at 730–738.
73 Supra note 60, at 760.
74 Memorandum of the COA; rollo, pp. 841–844.
75 Id.
76Chavez v. Public Estates Authority, 433 Phil. 506, 524 (2002).
77 Constitution, Article IX–D, Section 2(1) reads:
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: (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 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.
78 The Constitution provides that the entities covered by items 1
and 2 above, are subject to the plenary auditing power of the COA,
including pre–audits; whereas the entities covered by items 3, 4
and 5 are, generally, only subject to post–audit by the COA. See
Constitution, Article IX–D, Section 2(1).
79 Section 2(1), Article IX–D of the Constitution.
80 Section 29(1) of Presidential Decree No. 1445 provides:
Visitorial authority. (1) The Commission shall have visitorial
authority over non–government entities subsidized by the
government, those required to pay levies or government share,
those which have received counterpart funds from the government
or are partly funded by donations through the government, the said
authority however pertaining only to the audit of those funds or
subsidies coming from or through the government.
81 Id.
82 Section 14(1), Chapter Four, Subtitle B, Book V of the
Administrative Code (1987) provides:
Visitorial authority. (1) The Commission shall have visitorial
authority over non–government entities subsidized by the
government, those required to pay levies or have government
share, those which have received counterpart funds from the
government or are partly funded by donations through the
government. This authority, however, shall pertain only to the audit
of these funds or subsidies coming from or through the
government;
83 Administrative Code (1987), Book V, Subtitle B, Chapter Four,
Section 22(1).
84 Petition for Mandamus; rollo, p. 23–46.
85 Memorandum of the COA; id. at 863–867.
86 Petition for Mandamus; id. at 23–46.
87 Id.
88 Section 2(10), Introductory Provisions of the Administrative
Code (1987) reads:
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:
xxx
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework
vested within 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.
xxx
89 Id.
90 Republic Act No. 10149, Section 3(n). See also Manila
International Airport Authority v. Court of Appeals, 528 Phil. 181,
237 (2006).
91 Administrative Code (1987), Introductory Provisions, Section
2(13).
92 Republic Act No. 10149, Section 3(o).
93 Administrative Code (1987), Introductory Provisions, Section
2(13); Republic Act No. 10149, Section 3(o).
94Manila International Airport Authority v. Court of Appeals,
supra note 89, at 210. 119 Item 7 of Executive Order No. 1022, s. 1985.
95See Fourth Whereas clause of Executive Order No. 490, s. 1998. 120 DOLE, DFA, DBM, DOF and the COA Joint Circular No. 3–
96 Rollo, pp. 100–102. 99, Section 1.0.
97 Id. 121 DOLE, DFA, DBM, DOF and the COA Joint Circular No. 3–
98 See Corporation Code, Section 88. 99, Section 3.4.
99 Executive Order No. 15 issued on 16 May 2001. 122 Items 49 of the COA Annual Audit Report dated 4 September
100See Administrative Code (1987), Book IV, Chapter 7, Sections 2009, on the audit of the Department of Labor and Employment;
20–21. rollo, p. 890.
101 Administrative Code (1987), Introductory Provisions, Section 123 Items 56 of the COA Annual Audit Report dated 4 September
2(13); Republic Act No. 10149, Section 3(o). 2009, on the audit of the Department of Labor and Employment;
102 Liban v. Gordon, G.R. No. 175352, 15 July 2009, 593 SCRA id. at 892.
68, 88. 124 Notably, Section 4.1.1 of Joint Circular No. 3–99 of the
103Boy Scouts of the Philippines v. NLRC, G.R. No. 80767, 22 DOLE, DFA, DBM, DOF and the COA provides that the
April 1991, 196 SCRA 176, 186. verification fee collections of all posts shall be “recorded as
104 Petition for Mandamus; rollo, p. 34–37. income in the DOLE–[Central Office] books under the Special
105 Id. Account in the General Fund (Fund 151).”
106 Id.
107 Memorandum of the MECO; id. at 744–753.
108 Id.
109 Id. at 296–304. Back to Home | Back to Main
110See Administrative Code (1987), Introductory Provisions,
Section 2(11) and (12). See also Republic Act No. 10149, Section QUICK SEARCH
3(o). A GCE/GICP is, under the case of Manila International
Airport Authority v. Court of Appeals (G.R. No. 155650, 20 July 1901
2006), described as a government instrumentality exercising 1902
corporate powers but is not organized as a stock or non–stock 1903
corporation. Necessarily, a GCE/GICP must be created by law. 1904
111 Sixth Whereas clause of Executive Order No. 931, s. 1984. 1905
112 Id. The duty of the MECO was described in the Sixth Whereas 1906
clause of Executive Order No. 490, s. 1998 and the Fifth Whereas 1907
clause of Executive Order No. 15, s. 2001 as “important and 1908
sensitive.” 1909
113 Seventh Whereas clause of Executive Order No. 931, s. 1984. 1910
114 Memorandum of the COA; rollo, pp. 863–867. 1911
115 Id. 1912
116 Id. 1913
117 Comment of the MECO; id. at 190–231, 221. 1914
118 Entitled On Strengthening the Administrative and Operational 1915
Capabilities of the Overseas Employment Program. 1916
1917 1956
1918 1957
1919 1958
1920 1959
1921 1960
1922 1961
1923 1962
1924 1963
1925 1964
1926 1965
1927 1966
1928 1967
1929 1968
1930 1969
1931 1970
1932 1971
1933 1972
1934 1973
1935 1974
1936 1975
1937 1976
1938 1977
1939 1978
1940 1979
1941 1980
1942 1981
1943 1982
1944 1983
1945 1984
1946 1985
1947 1986
1948 1987
1949 1988
1950 1989
1951 1990
1952 1991
1953 1992
1954 1993
1955 1994
1995 Petitioner,
1996 Present:
1997
1998 CORONA, C.J.,
1999 CARPIO,
2000 CARPIO
2001 MORALES,
2002 VELASCO, JR.,
2003 NACHURA,
2004 LEONARDO-
2005 - versus - DE CASTRO,
2006 BRION,
2007 PERALTA,
2008 BERSAMIN,
2009 DEL
2010 CASTILLO,
2011 ABAD,
2012 VILLARAMA,
2013 JR.,
2014 PEREZ,
2015 COMMISSION ON MENDOZA,
2016 AUDIT, and
2017 Respondent. SERENO, JJ.
2018

Promulgated:

June 7, 2011
x---------------------------------------------
-----x

DECISION
EN BANC

LEONARDO-DE CASTRO, J.:

BOY SCOUTS OF G.R. No.
THE PHILIPPINES, 177131
The jurisdiction of the Commission on Audit (COA) over the Boy
Scouts of the Philippines (BSP) is the subject matter of this
controversy that reached us via petition for prohibition[1] filed by
the BSP under Rule 65 of the 1997 Rules of Court. In this
petition, the BSP seeks that the COA be prohibited from
implementing its June 18, 2002 Decision,[2] its February 21,
2007 Resolution,[3] as well as all other issuances arising
therefrom, and that all of the foregoing be rendered null and
void. [4]
Antecedent Facts and Background of the Case
This case arose when the COA issued Resolution No. 99-011[5] on
August 19, 1999 (the COA Resolution), with the subject Defining
the Commissions policy with respect to the audit of the Boy Scouts
of the Philippines. In its whereas clauses, the COA Resolution
stated that the BSP was created as a public corporation under
Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that in Boy Scouts
of the Philippines v. National Labor Relations Commission,[6] the
Supreme Court ruled that the BSP, as constituted under its
charter, was a government-controlled corporation within the
meaning of Article IX(B)(2)(1) of the Constitution; and that the
BSP is appropriately regarded as a government instrumentality
under the 1987 Administrative Code.[7] The COA Resolution
also cited its constitutional mandate under Section 2(1), Article
IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises,
the COMMISSION PROPER HAS RESOLVED, AS IT DOES
HEREBY RESOLVE, to conduct an annual financial audit of
the Boy Scouts of the Philippines in accordance with generally
accepted auditing standards, and express an opinion on whether
the financial statements which include the Balance Sheet, the
Income Statement and the Statement of Cash Flows present fairly
its financial position and results of operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit
supervision, the Boy Scouts of the Philippines shall be classified
among the government corporations belonging to the
Educational, Social, Scientific, Civic and Research Sector under
the Corporate Audit Office I, to be audited, similar to the
subsidiary corporations, by employing the team audit approach.[8]
(Emphases supplied.)
The BSP sought reconsideration of the COA Resolution in a
letter[9] dated November 26, 1999 signed by the BSP National
President Jejomar C. Binay, who is now the Vice President of the
Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not
subject to the 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 agency of the DECS under Executive
Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies are hereby
attached to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the
department is defined in the Administrative Code of 1987 as
follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. Unless
otherwise expressly stated in the Code or in other laws defining the
special relationships of particular agencies, administrative
relationships shall be categorized and defined as follows:
xxxx
(3) Attachment. (a) This refers to the lateral relationship between
the department or its equivalent and the attached agency or
corporation for purposes of policy and program coordination.
The coordination may be accomplished by having the
department represented in the governing board of the attached
agency or corporation, either as chairman or as a member, with
or without voting rights, if this is permitted by the charter;
having the attached corporation or agency comply with a system of
periodic reporting which shall reflect the progress of programs and
projects; and having the department or its equivalent provide
general policies through its representative in the board, which shall
serve as the framework for the internal policies of the attached
corporation or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as
long as policy and program coordination is achieved by having at
least one representative of government in its governing board,
which in the case of the BSP is the DECS Secretary. In this sense,
the BSP is not under government control or supervision and
control. Still this characteristic does not make the attached
chartered agency a private corporation covered by the
constitutional proscription in question.
Art. XII, Sec. 16 of the Constitution refers to private
corporations created by government for proprietary or
economic/business purposes
At the outset, it should be noted that the provision of Section 16 in
issue is found in Article XII of the Constitution, entitled National
Economy and Patrimony. Section 1 of Article XII is quoted as
follows:
SECTION 1. The goals of the national economy are a
more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the
people; and an expanding productivity as the key to
raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full
employment based on sound agricultural development
and agrarian reform, through industries that make full
and efficient use of human and natural resources, and
which are competitive in both domestic and foreign
markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade
practices.
In the pursuit of these goals, all sectors of the economy
and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of
their ownership.
The scope and coverage of Section 16, Article XII of the
Constitution can be seen from the aforementioned declaration of
state policies and goals which pertains to national economy and
patrimony and the interests of the people in economic
development.
Section 16, Article XII deals with the formation, organization, or
regulation of private corporations,[52] which should be done
through a general law enacted by Congress, provides for an
exception, that is: if the corporation is government owned or
controlled; its creation is in the interest of the common good; and it
meets the test of economic viability. The rationale behind Article
XII, Section 16 of the 1987 Constitution was explained in
Feliciano v. Commission on Audit,[53] in the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private
corporations created by special charters, which historically
gave certain individuals, families or groups special privileges
denied to other citizens.[54] (Emphasis added.)
It may be gleaned from the above discussion that Article XII,
Section 16 bans the creation of private corporations by special
law. The said constitutional provision should not be construed
so as to prohibit the creation of public corporations or a
corporate agency or instrumentality of the government
intended to serve a public interest or purpose, which should not
be measured on the basis of economic viability, but according
to the public interest or purpose it serves as envisioned by
paragraph (2), of Article 44 of the Civil Code and the pertinent
provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not Subject to the Test of
Government Ownership or Control and Economic Viability
The BSP is a public corporation or a government agency or
instrumentality with juridical personality, which does not fall
within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled,
are ipso facto to be considered private corporations as there
exists another distinct class of corporations or chartered
institutions which are otherwise known as public corporations.
These corporations are treated by law as agencies or
instrumentalities of the government which are not subject to
the tests of ownership or control and economic viability but to
different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative
relationship to the government or any of its Departments or
Offices.
Classification of Corporations Under Section 16, Article XII of
the Constitution on National Economy and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio,
citing a line of cases, insists that the Constitution recognizes
only two classes of corporations: private corporations under a
general law, and government-owned or controlled corporations
created by special charters.
We strongly disagree. Section 16, Article XII should not be
construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws
creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover,
Section 16, Article XII, which relates to National Economy and
Patrimony, could not have tied the hands of Congress in
creating public corporations to serve any of the constitutional
policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces
a totally different species of corporation, which is neither a private
corporation nor a government owned or controlled corporation and,
in so doing, is missing the fact that the BSP, which was created as a
non-stock, non-profit corporation, can only be either a private
corporation or a government owned or controlled corporation.
Note that in Boy Scouts of the Philippines v. National Labor
Relations Commission, the BSP, under its former charter, was
regarded as both a government owned or controlled corporation
with original charter and a public corporation. The said case
pertinently stated:
While the BSP may be seen to be a mixed type of entity,
combining aspects of both public and private entities, we
believe that considering the character of its purposes and its
functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the Government
in the selection of members of the National Executive Board of the
BSP, the BSP, as presently constituted under its charter, is a
government-controlled corporation within the meaning of
Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the
Administrative Code of 1987 designates the BSP as one of the
attached agencies of the Department of Education, Culture and
Sports ("DECS"). An "agency of the Government" is defined as
referring to any of the various units of the Government including a
department, bureau, office, instrumentality, government-owned or
-controlled corporation, or local government or distinct unit
therein. "Government instrumentality" is in turn defined in the
1987 Administrative Code in the following manner:
Instrumentality - refers to any agency of the National Government,
not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying
operational autonomy usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned
or controlled corporations.
The same Code describes a "chartered institution" in the
following terms:
Chartered institution - refers to any agency organized or
operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives.
This term includes the state universities and colleges, and the
monetary authority of the State.
We believe that the BSP is appropriately regarded as "a
government instrumentality" under the 1987
Administrative Code.
It thus appears that the BSP may be regarded as both a
"government controlled corporation with an original charter"
and as an "instrumentality" of the Government within the
meaning of Article IX (B) (2) (1) of the Constitution. x x x.[55]
(Emphases supplied.)
The existence of public or government corporate or juridical
entities or chartered institutions by legislative fiat distinct
from private corporations and government owned or
controlled corporation is best exemplified by the 1987
Administrative Code cited above, which we quote in part:
Sec. 2. General Terms Defined. Unless the specific words of the
text, or the context as a whole, or a particular statute, shall require
a different meaning:
xxxx
(10) "Instrumentality" refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter.
This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.
xxxx
(12) "Chartered institution" refers to any agency organized or
operating under a special charter, and vested by law with functions
relating to specific constitutional policies or objectives. This
term includes the state universities and colleges and the monetary
authority of the State.
(13) "Government-owned or controlled corporation" refers to
any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) per cent of its capital stock: Provided, That government-
owned or controlled corporations may be further categorized
by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the
exercise and discharge of their respective powers, functions
and responsibilities with respect to such corporations.
Assuming for the sake of argument that the BSP ceases to be
owned or controlled by the government because of reduction of the
number of representatives of the government in the BSP Board, it
does not follow that it also ceases to be a government
instrumentality as it still retains all the characteristics of the latter
as an attached agency of the DECS under the Administrative Code.
Vesting corporate powers to an attached agency or
instrumentality of the government is not constitutionally
prohibited and is allowed by the above-mentioned provisions of
the Civil Code and the 1987 Administrative Code.
Economic Viability and Ownership and Control Tests
Inapplicable to Public Corporations
As presently constituted, the BSP still remains an instrumentality
of the national government. It is a public corporation created by
law for a public purpose, attached to the DECS pursuant to its
Charter and the Administrative Code of 1987. It is not a
private corporation which is required to be owned or
controlled by the government and be economically viable to
justify its existence under a special law.
The dissent of Justice Carpio also submits that by recognizing a
new class of public corporation(s) created by special charter that
will not be subject to the test of economic viability, the
constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional
Convention reveals the intent of the framers of the highest law of
our land to distinguish between government corporations
performing governmental functions and corporations involved
in business or proprietary functions:
THE PRESIDENT. Commissioner Foz is recognized.
MR. FOZ. Madam President, I support the proposal to
insert ECONOMIC VIABILITY as one of the grounds
for organizing government corporations. x x x.
MR. OPLE. Madam President, the reason for this
concern is really that when the government creates a
corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance.
We know what happened in the past. If a government
corporation loses, then it makes its claim upon the
taxpayers money through new equity infusions from the
government and what is always invoked is the common
good. x x x
Therefore, when we insert the phrase ECONOMIC
VIABILITY together with the common good, this
becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility
of meeting the market test so that they become viable. x
x x.
xxxx
THE PRESIDENT. Commissioner Quesada is
recognized.
MS. QUESADA. Madam President, may we be clarified
by the committee on what is meant by economic
viability?
THE PRESIDENT. Please proceed.
MR. MONSOD. Economic viability normally is
determined by cost-benefit ratio that takes into
consideration all benefits, including economic external as
well as internal benefits. These are what they call
externalities in economics, so that these are not strictly
financial criteria. Economic viability involves what we
call economic returns or benefits of the country that are
not quantifiable in financial terms. x x x.
xxxx
MS. QUESADA. So, would this particular formulation
now really limit the entry of government corporations
into activities engaged in by corporations?
MR. MONSOD. Yes, because it is also consistent with the
economic philosophy that this Commission approved that there
should be minimum government participation and intervention
in the economy.
MS. QUESDA. Sometimes this Commission would just
refer to Congress to provide the particular requirements
when the government would get into corporations. But
this time around, we specifically mentioned economic
viability. x x x.
MR. VILLEGAS. Commissioner Ople will restate the
reason for his introducing that amendment.
MR. OPLE. I am obliged to repeat what I said earlier in
 moving for this particular amendment jointly with
Commissioner Foz. During the past three decades, there
had been a proliferation of government corporations,
very few of which have succeeded, and many of which
are now earmarked by the Presidential Reorganization
Commission for liquidation because they failed the
economic test. x x x.
xxxx
MS. QUESADA. But would not the Commissioner say
that the reason why many of the government-owned or
controlled corporations failed to come up with the
economic test is due to the management of these
corporations, and not the idea itself of government
corporations? It is a problem of efficiency and
effectiveness of management of these corporations which
could be remedied, not by eliminating government
corporations or the idea of getting into state-owned
corporations, but improving management which our
technocrats should be able to do, given the training and
the experience.
MR. OPLE. That is part of the economic viability,
Madam President.
MS. QUESADA. So, is the Commissioner saying then
that the Filipinos will benefit more if these government-
controlled corporations were given to private hands, and
that there will be more goods and services that will be
affordable and within the reach of the ordinary citizens?
MR. OPLE. Yes. There is nothing here, Madam President, that
will prevent the formation of a government corporation in
accordance with a special charter given by Congress. However,
we are raising the standard a little bit so that, in the future,
corporations established by the government will meet the test
of the common good but within that framework we should also
build a certain standard of economic viability.
xxxx
THE PRESIDENT. Commissioner Padilla is recognized.
MR. PADILLA. This is an inquiry to the committee.
With regard to corporations created by a special charter
for government-owned or controlled corporations, will
these be in the pioneer fields or in places where the
private enterprise does not or cannot enter? Or is this so
general that these government corporations can compete
with private corporations organized under a general law?
MR. MONSOD. Madam President, x x x. There are two types of
government corporations those that are involved in performing
governmental functions, like garbage disposal, Manila
waterworks, and so on; and those government corporations that are
involved in business functions. As we said earlier, there are two
criteria that should be followed for corporations that want to
go into business. First is for government corporations to first
prove that they can be efficient in the areas of their proper
functions. This is one of the problems now because they go into all
kinds of activities but are not even efficient in their proper
functions. Secondly, they should not go into activities that the
private sector can do better.
MR. PADILLA. There is no question about corporations
performing governmental functions or functions that are
impressed with public interest. But the question is with regard
to matters that are covered, perhaps not exhaustively, by
private enterprise. It seems that under this provision the only
qualification is economic viability and common good, but shall
government, through government-controlled corporations, compete
with private enterprise?
MR. MONSOD. No, Madam President. As we said, the
government should not engage in activities that private enterprise is
engaged in and can do better. x x x.[56] (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public
corporations dealing with governmental functions, to which
category the BSP belongs. The discussion above conveys the
constitutional intent not to apply this constitutional ban on the
creation of public corporations where the economic viability
test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business
function for the government.
It is undisputed that the BSP performs functions that are impressed
with public interest. In fact, during the consideration of the
Senate Bill that eventually became Republic Act No. 7278,
which amended the BSP Charter, one of the 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 SO ORDERED.
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 TERESITA J. LEONARDO-DE CASTRO
audit in so far as public funds had been infused thereto. However, Associate Justice
this practice should not preclude the exercise of the audit
jurisdiction of COA, clearly set forth under the Constitution,
which pertinently provides:
WE CONCUR:

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 RENATO C. CORONA
pertaining to, the Government, or any of its subdivisions, Chief Justice
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 See Dissenting I join J. Carpios dissent
subsidiaries; and (d) such non-governmental entities receiving Opinion CONCHITA CARPIO
subsidy or equity, directly or indirectly, from or through the ANTONIO T. MORALES
Government, which are required by law of the granting institution CARPIO Associate Justice
to submit to such audit as a condition of subsidy or equity. x x x. Associate Justice
[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.
PRESBITERO J. ANTONIO
VELASCO, JR. EDUARDO B.
Associate Justice NACHURA
Associate Justice

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

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

I join the dissent of J.

Carpio
JOSE PORTUGAL JOSE CATRAL
PEREZ MENDOZA
Associate Justice Associate Justice

LUCAS P. MARIANO C. DEL

BERSAMIN CASTILLO
Associate Justice Associate Justice
 [6] G.R. No. 80767, April 22, 1991, 196 SCRA 176.
[7] Rollo, p. 42.
[8] Id. at 42-43.
[9] Id. at 44-46.
[10] Id. at 44-46.
[11] Id. at 8.
[12] Id. at 47.
I join the dissent of J. Carpio
[13] Id. at 48-50.
MARIA LOURDES P. A. SERENO
[14] Id. at 49-50.
Associate Justice
[15] Id. at 47.
[16] Id. at 51.
[17] Id. at 9.
C E RT I FI CAT I O N
[18] Id. at 11.
[19] Id. at 13.
[20] Id. at 15-16.
Pursuant to Section 13, Article VIII of the Constitution, I certify
[21] Id. at 18.
that the conclusions in the above Resolution had been reached in
[22] 314 Phil. 896 (1995).
consultation before the case was assigned to the writer of the
[23] Id at 903.
opinion of the Court.
[24] Rollo, pp. 19-20.
[25] Id. at 21-22.
[26] Id. at 61-82.
[27] Id. at 67.
[28] Id. at 70-71.
RENATO C. [29] Id. at 72-73.
CORONA [30] G.R. No. 155027, February 28, 2006, 483 SCRA 426.
Chief Justice [31] Id. at 553-556.
[32] Rollo, p. 76.
[33] Id. at 86-104.
[34] Id. at 129-130.
[35] Id. at 143-159.
[36] G.R. No. 44007, March 20, 1991, 195 SCRA 444.
[37] Rollo, pp. 147-148.
[38] Id. at 149.
[1] With prayer for preliminary injunction and/or temporary [39] Id. at 152.
restraining order. [40] G.R. No. 169752, September 25, 2007, 534 SCRA 112.
[2] Rollo, pp. 35-38; COA Decision No. 2002-107. [41] Id. at 132.
[3] Id. at 39-41; COA Decision No. 2007-008. [42] The BSPs Comment, filed on December 3, 2010, has yet to be
[4] Id. at 29. incorporated in the rollo.
[5] Id. at 42-43. [43] Id. at 2.
[44] Id. at 3.
[45] Id. at 4. EN BANC
[46] Id. at 6. G. R. No. 155027 February 28, 2006
[47] Id. at 7. THE VETERANS FEDERATION OF THE PHILIPPINES
[48] Id. at 8. represented by Esmeraldo R. Acorda, Petitioner,
[49] Id. vs.
[50] Id. at 9. Hon. ANGELO T. REYES in his capacity as Secretary of National
[51] Id. at 13, citing 16 Am Jur 2d 645 and 647. Defense; and Hon. EDGARDO E. BATENGA in his capacity as
[52] Record of the 1986 Constitutional Commission, Vol. 3, August Undersecretary for Civil Relations and Administration of the
13, 1986, p. 260. Department of National Defense, Respondents.
[53] 464 Phil. 439 (2004). DECISION
[54] Id. at 454, citing Bernas, The 1987 Constitution of the CHICO-NAZARIO, J.:
Republic of the Philippines: A Commentary 1181 (2003). This is a Petition for Certiorari with Prohibition under Rule 65 of
[55] Boy Scouts of the Philippines v. National Labor Relations the 1997 Rules of Civil Procedure, with a prayer to declare as void
Commission, supra note 6 at 186-187. Department Circular No. 04 of the Department of National Defense
[56] Record of the 1986 Constitutional Commission, Vol. 3, August (DND), dated 10 June 2002.
22, 1986, pp. 623-626. Petitioner in this case is the Veterans Federation of the Philippines
[57] Record of the Senate, Monday, November 5, 1990, p. 1533. (VFP), a corporate body organized under Republic Act No. 2640,
[58] Committee on Government Enterprises, February 13, 1991, dated 18 June 1960, as amended, and duly registered with the
pp. 8-11. Securities and Exchange Commission. Respondent Angelo T.
[59] Id. at 5-8. Reyes was the Secretary of National Defense (DND Secretary)
[60] Id. at 35-37. who issued the assailed Department Circular No. 04, dated 10 June
[61] Hon. Luis Mario M. General v. Hon. Alejandro S. Urro, G.R. 2002. Respondent Edgardo E. Batenga was the DND
No. 191560, March 29, 2011, citing Integrated Bar of the Undersecretary for Civil Relations and Administration who was
Philippines v. Zamora, 392 Phil. 618, 632 (2000). tasked by the respondent DND Secretary to conduct an extensive
[62] Committee on Government Enterprises, February 13, 1991, p. management audit of the records of petitioner.
16. The factual and procedural antecedents of this case are as follows:
[63] Id. at 37-39. Petitioner VFP was created under Rep. Act No. 2640,1 a statute
approved on 18 June 1960.
[64] 1987 Constitution, Article IX (D). On 15 April 2002, petitioner’s incumbent president received a
letter dated 13 April 2002 which reads:
Col. Emmanuel V. De Ocampo (Ret.)
President
Veterans Federation of the Philippines
Makati, Metro Manila
Dear Col. De Ocampo:
Please be informed that during the preparation of my briefing
before the Cabinet and the President last March 9, 2002, we came
across some legal bases which tended to show that there is an
organizational and management relationship between Veterans
Federation of the Philippines and the Philippine Veterans Bank
which for many years have been inadvertently overlooked.
I refer to Republic Act 2640 creating the body corporate known as
the VFP and Republic Act 3518 creating the Phil. Vets [sic] Bank.
1. RA 2640 dated 18 June 60 Section 1 ... "hereby created a body
corporate, under the control and supervision of the Secretary of
National Defense."
2. RA 2640 Section 12 ... "On or before the last day of the month
following the end of each fiscal year, the Federation shall make and
transmit to the President of the Philippines or to the Secretary of
National Defense, a report of its proceedings for the past year,
including a full, complete and itemized report of receipts and
expenditures of whatever kind."
3. Republic Act 3518 dated 18 June 1963 (An Act Creating the
Philippine Veterans Bank, and for Other Purposes) provides in
Section 6 that ... "the affairs and business of the Philippine
Veterans Bank shall be directed and its property managed,
controlled and preserved, unless otherwise provided in this Act, by
a Board of Directors consisting of eleven (11) members to be
composed of three ex officio members to wit: the Philippine
Veterans Administrator, the President of the Veteran’s Federation of
the Philippines and the Secretary of National Defense x x x.
It is therefore in the context of clarification and rectification of
what should have been done by the DND (Department of National
Defense) for and about the VFP and PVB that I am requesting
appropriate information and report about these two corporate
bodies.
Therefore it may become necessary that a conference with your
staffs in these two bodies be set.
Thank you and anticipating your action on this request.
Very truly yours,
(SGD) ANGELO T. REYES
[DND] Secretary
On 10 June 2002, respondent DND Secretary issued the assailed
DND Department Circular No. 04 entitled, "Further Implementing
the Provisions of Sections 12 and 23 of Republic Act No. 2640,"
the full text of which appears as follows:
Department of National Defense
Department Circular No. 04
Subject: Further Implementing the Provisions of Sections 1 & 2 of
Republic Act No. 2640
Authority: Republic Act No. 2640
Executive Order No. 292 dated July 25, 1987
Section 1
These rules shall govern and apply to the management and
operations of the Veterans Federation of the Philippines (VFP)
within the context provided by EO 292 s-1987.
Section 2 – DEFINITION OF TERMS – for the purpose of these
rules, the terms, phrases or words used herein shall, unless the
context indicates otherwise, mean or be understood as follows:
Supervision and Control – it shall include authority to act directly
whenever a specific function is entrusted by law or regulation to a
subordinate; direct the performance of a duty; restrain the
commission of acts; approve, reverse or modify acts and decisions
of subordinate officials or units; determine priorities in the
execution of plans and programs; and prescribe standards,
guidelines, plans and programs.
Power of Control – power to alter, modify, nullify or set aside what
a subordinate officer had done in the performance of his duties and
to substitute the judgment of the former to that of the latter.
Supervision – means overseeing or the power of an officer to see to
it that their subordinate officers perform their duties; it does not
allow the superior to annul the acts of the subordinate.
Administrative Process – embraces matter concerning the
procedure in the disposition of both routine and contested matters,
and the matter in which determinations are made, enforced or
reviewed.
Government Agency – as defined under PD 1445, a government
agency or agency of government or "agency" refers to any
department, bureau or office of the national government, or any of
its branches or instrumentalities, of any political subdivision, as
well as any government owned or controlled corporation, including
its subsidiaries, or other self-governing board or commission of the
government.
Government Owned and Controlled Corporation (GOCC) – refer to
any agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the government directly or
through its instrumentalities wholly or, where applicable as in the
case of stock corporations, to the extent of at least 50% of its
capital stock.
Fund – sum of money or other resources set aside for the purpose
of carrying out specific activities or attaining certain objectives in
accordance with special regulations, restrictions or limitations and
constitutes an independent, fiscal and accounting entity.
Government Fund – includes public monies of every sort and other
resources pertaining to any agency of the government.
Veteran – any person who rendered military service in the land, sea
or air forces of the Philippines during the revolution against Spain,
the Philippine American War, World War II, including Filipino
citizens who served in Allied Forces in the Philippine territory and
foreign nationals who served in Philippine forces; the Korean
campaign, the Vietnam campaign, the Anti-dissidence campaign, or
other wars or military campaigns; or who rendered military service
in the Armed Forces of the Philippines and has been honorably
discharged or separated after at least six (6) years total cumulative
active service or sooner separated due to the death or disability
arising from a wound or injury received or sickness or disease
incurred in line of duty while in the active service.
Section 3 – Relationship Between the DND and the VFP
3.1 Sec 1 of RA 3140 provides "... the following persons (heads of
various veterans associations and organizations in the Philippines)
and their associates and successors are hereby created a body
corporate, under the control and supervision of the Secretary of
National Defense, under the name, style and title of "Veterans
Federation of the Philippines ..."
The Secretary of National Defense shall be charged with the duty
of supervising the veterans and allied program under the
jurisdiction of the Department. It shall also have the responsibility
of overseeing and ensuring the judicious and effective
implementation of veterans assistance, benefits, and utilization of
VFP assets.
3.2 To effectively supervise and control the corporate affairs of the
Federation and to safeguard the interests and welfare of the
veterans who are also wards of the State entrusted under the
protection of the DND, the Secretary may personally or through a
designated representative, require the submission of reports,
documents and other papers regarding any or all of the Federation’s
business transactions particularly those relating to the VFP
functions under Section 2 of RA 2640.
The Secretary or his representative may attend conferences of the
supreme council of the VFP and such other activities he may deem
relevant.
3.3 The Secretary shall from time to time issue guidelines,
directives and other orders governing vital government activities
including, but not limited to, the conduct of elections; the
acquisition, management and dispositions of properties, the
accounting of funds, financial interests, stocks and bonds,
corporate investments, etc. and such other transactions which may
affect the interests of the veterans.
3.4 Financial transactions of the Federation shall follow the
provisions of the government auditing code (PD 1445) i.e.
government funds shall be spent or used for public purposes; trust
funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received; fiscal
responsibility shall, to the greatest extent, be shared by all those
exercising authority over the financial affairs, transactions, and
operations of the federation; disbursements or dispositions of
government funds or property shall invariably bear the approval of
the proper officials.
Section 4 – Records of the FEDERATION
As a corporate body and in accordance with appropriate laws, it
shall keep and carefully preserve records of all business
transactions, minutes of meetings of stockholders/members of the
board of directors reflecting all details about such activity.
All such records and minutes shall be open to directors, trustees,
stockholders, and other members for inspection and copies of
which may be requested.
As a body corporate, it shall submit the following: annual report;
proceedings of council meetings; report of operations together with
financial statement of its assets and liabilities and fund balance per
year; statement of revenues and expenses per year; statement of
cash flows per year as certified by the accountant; and other
documents/reports as may be necessary or required by the SND.
Section 5 – Submission of Annual and Periodic Report
As mandated under appropriate laws, the following reports shall be
submitted to the SND, to wit:
a. Annual Report to be submitted not later than every January 31 of
the following year. Said report shall consist of the following:
1. Financial Report of the Federation, signed by the Treasurer
General and Auditor General;
2. Roster of Members of the Supreme Council;
3. Roster of Members of the Executive Board and National
Officers; and
4. Current listing of officers and management of VFP.
b. Report on the proceedings of each Supreme Council Meeting to
be submitted not later than one month after the meeting;
c. Report of the VFP President as may be required by SND or as
may be found necessary by the President of the Federation;
d. Resolutions passed by the Executive Board and the Supreme
Council for confirmation to be submitted not later than one month
after the approval of the resolution;
e. After Operation/Activity Reports to be submitted not later than
one month after such operation or activity;
Section 6 – Penal Sanctions
As an attached agency to a regular department of the government,
the VFP and all its instrumentalities, officials and personnel shall
be subject to the penal provisions of such laws, rules and
regulations applicable to the attached agencies of the government.
In a letter dated 6 August 2002 addressed to the President of
petitioner, respondent DND Secretary reiterated his instructions in
his earlier letter of 13 April 2002.
Thereafter, petitioner’s President received a letter dated 23 August
2002 from respondent Undersecretary, informing him that
Department Order No. 129 dated 23 August 2002 directed "the
conduct of a Management Audit of the Veterans Federation of the
Philippines."4 The letter went on to state that respondent DND
Secretary "believes that the mandate given by said law can be
meaningfully exercised if this department can better appreciate the
functions, responsibilities and situation on the ground and this can
be done by undertaking a thorough study of the organization."5
Respondent Undersecretary also requested both for a briefing and
for documents on personnel, ongoing projects and petitioner’s
financial condition. The letter ended by stating that, after the
briefing, the support staff of the Audit Committee would begin
their work to meet the one-month target within which to submit a
report.
A letter dated 28 August 2003 informed petitioner’s President that
the Management Audit Group headed by the Undersecretary would
be paying petitioner a visit on 30 August 2002 for an update on
VFP’s different affiliates and the financial statement of the
Federation.
Subsequently, the Secretary General of the VFP sent an undated
letter to respondent DND Secretary, with notice to respondent
Undersecretary for Civil Relations and Administration,
complaining about the alleged broadness of the scope of the
management audit and requesting the suspension thereof until such
time that specific areas of the audit shall have been agreed upon.
The request was, however, denied by the Undersecretary in a letter
dated 4 September 2002 on the ground that a specific timeframe
had been set for the activity.
Petitioner thus filed this Petition for Certiorari with Prohibition
under Rule 65 of the 1997 Rules of Civil Procedure, praying for
the following reliefs:
1. For this Court to issue a temporary restraining order and a writ
of preliminary prohibitory and mandatory injunction to enjoin
respondent Secretary and all those acting under his discretion and
authority from: (a) implementing DND Department Circular No.
04; and (b) continuing with the ongoing management audit of
petitioner’s books of account;
2. After hearing the issues on notice –
a. Declare DND Department Circular No. 04 as null and void for
being ultra vires;
b. Convert the writ of prohibition, preliminary prohibitory and
mandatory injunction into a permanent one.6
GIVING DUE COURSE TO THE PETITION
Petitioner asserts that, although cases which question the
constitutionality or validity of administrative issuances are
ordinarily filed with the lower courts, the urgency and substantive
importance of the question on hand and the public interest
attendant to the subject matter of the petition justify its being filed
with this Court directly as an original action.7
It is settled that the Regional Trial Court and the Court of Appeals
also exercise original jurisdiction over petitions for certiorari and
prohibition. As we have held in numerous occasions, however,
such concurrence of original jurisdiction does not mean that the
party seeking extraordinary writs has the absolute freedom to file
his petition in the court of his choice.8 Thus, in Commissioner of
Internal Revenue v. Leal,9 we held that:
Such concurrence of original jurisdiction among the Regional Trial
Court, the Court of Appeals and this Court, however, does not
mean that the party seeking any of the extraordinary writs has the
absolute freedom to file his petition in the court of his choice. The
hierarchy of courts in our judicial system determines the
appropriate forum for these petitions. Thus, petitions for the
issuance of the said writs against the first level (inferior) courts
must be filed with the Regional Trial Court and those against the
latter, with the Court of Appeals. A direct invocation of this Court’s
original jurisdiction to issue these writs should be allowed only
where there are special and important reasons therefor, specifically
and sufficiently set forth in the petition. This is the established
policy to prevent inordinate demands upon the Court’s time and
attention, which are better devoted to matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Court’s
docket. Thus, it was proper for petitioner to institute the special
civil action for certiorari with the Court of Appeals assailing the
RTC order denying his motion to dismiss based on lack of
jurisdiction.
The petition itself, in this case, does not specifically and
sufficiently set forth the special and important reasons why the
Court should give due course to this petition in the first instance,
hereby failing to fulfill the conditions set forth in Commissioner of
Internal Revenue v. Leal.10 While we reiterate the policies set forth
in Leal and allied cases and continue to abhor the propensity of a
number of litigants to disregard the principle of hierarchy of courts
in our judicial system, we, however, resolve to take judicial notice
of the fact that the persons who stand to lose in a possible
protracted litigation in this case are war veterans, many of whom
have precious little time left to enjoy the benefits that can be
conferred by petitioner corporation. This bickering for the power
over petitioner corporation, an entity created to represent and
defend the interests of Filipino veterans, should be resolved as
soon as possible in order for it to once and for all direct its
resources to its rightful beneficiaries all over the country. All these
said, we hereby resolve to give due course to this petition.
ISSUES
Petitioner mainly alleges that the rules and guidelines laid down in
the assailed Department Circular No. 04 expanded the scope of
"control and supervision" beyond what has been laid down in Rep.
Act No. 2640.11 Petitioner further submits the following issues to
this Court:
1. Was the challenged department circular passed in the valid
exercise of the respondent Secretary’s "control and supervision"?
2. Could the challenged department circular validly lay standards
classifying the VFP, an essentially civilian organization, within the
ambit of statutes only applying to government entities?
3. Does the department circular, which grants respondent direct
management control on the VFP, unduly encroach on the
prerogatives of VFP’s governing body?
At the heart of all these issues and all of petitioner’s prayers and
assertions in this case is petitioner’s claim that it is a private non-
government corporation.
CENTRAL ISSUE:
IS THE VFP A PRIVATE CORPORATION?
Petitioner claims that it is not a public nor a governmental entity
but a private organization, and advances this claim to prove that the
issuance of DND Department Circular No. 04 is an invalid exercise
of respondent Secretary’s control and supervision.12
This Court has defined the power of control as "the power of an
officer to alter or modify or nullify or set aside what a subordinate
has done in the performance of his duties and to substitute the
judgment of the former to that of the latter."13 The power of
supervision, on the other hand, means "overseeing, or the power or
authority of an officer to see that subordinate officers perform their
duties. If the latter fail or neglect to fulfill them, the former may
take such action or step as prescribed by law to make them perform
their duties."14 These definitions are synonymous with the
definitions in the assailed Department Circular No. 04, while the
other provisions of the assailed department circular are mere
consequences of control and supervision as defined.
Thus, in order for petitioner’s premise to be able to support its
conclusion, petitioners should be deemed to imply either of the
following: (1) that it is unconstitutional/impermissible for the law
(Rep. Act No. 2640) to grant control and/or supervision to the
Secretary of National Defense over a private organization, or (2)
that the control and/or supervision that can be granted to the
Secretary of National Defense over a private organization is
limited, and is not as strong as they are defined above.
The following provision of the 1935 Constitution, the organic act
controlling at the time of the creation of the VFP in 1960, is
relevant:
Section 7. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations, unless such corporations are owned and controlled by
the Government or any subdivision or instrumentality thereof.15
On the other hand, its counterparts in the 1973 and 1987
constitutions are the following:
Section 4. The National Assembly shall not, except by general law,
provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by
the government or any subdivision or instrumentality thereof.16
Sec. 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned and controlled corporations may be created or
established by special charters in the interest of the common good
and subject to the test of economic viability.17
From the foregoing, it is crystal clear that our constitutions
explicitly prohibit the regulation by special laws of private
corporations, with the exception of government-owned or
controlled corporations (GOCCs). Hence, it would be
impermissible for the law to grant control of the VFP to a public
official if it were neither a public corporation, an unincorporated
governmental entity, nor a GOCC.18 Said constitutional provisions
can even be read to prohibit the creation itself of the VFP if it were
neither of the three mentioned above, but we cannot go into that in
this case since there is no challenge to the creation of the VFP in
the petition as to permit this Court from considering its nullity.
Petitioner vigorously argues that the VFP is a private non-
government organization, pressing on the following contentions:
1. The VFP does not possess the elements which would qualify it
as a public office, particularly the possession/delegation of a
portion of sovereign power of government to be exercised for the
benefit of the public;
2. VFP funds are not public funds because –
a) No budgetary appropriations or government funds have been
released to the VFP directly or indirectly from the Department of
Budget and Management (DBM);
b) VFP funds come from membership dues;
c) The lease rentals raised from the use of government lands
reserved for the VFP are private in character and do not belong to
the government. Said rentals are fruits of VFP’s labor and efforts in
managing and administering the lands for VFP purposes and
objectives. A close analogy would be any Filipino citizen settling
on government land and who tills the land for his livelihood and
sustenance. The fruits of his labor belong to him and not to the
owner of the land. Such fruits are not public funds.
3. Although the juridical personality of the VFP emanates from a
statutory charter, the VFP retains its essential character as a private,
civilian federation of veterans voluntarily formed by the veterans
themselves to attain a unity of effort, purpose and objectives, e.g. –
a. The members of the VFP are individual members and retirees
from the public and military service;
b. Membership in the VFP is voluntary, not compulsory;
c. The VFP is governed, not by the Civil Service Law, the Articles
of War nor the GSIS Law, but by the Labor Code and the SSS Law;
d. The VFP has its own Constitution and By-Laws and is governed
by a Supreme Council who are elected from and by the members
themselves;
4. The Administrative Code of 1987 does not provide that the VFP
is an attached agency, nor does it provide that it is an entity under
the control and supervision of the DND in the context of the
provisions of said code.
5. The DBM declared that the VFP is a non-government
organization and issued a certificate that the VFP has not been a
direct recipient of any funds released by the DBM.
These arguments of petitioner notwithstanding, we are constrained
to rule that petitioner is in fact a public corporation. Before
responding to petitioner’s allegations one by one, here are the more
evident reasons why the VFP is a public corporation:
(1) Rep. Act No. 2640 is entitled "An Act to Create a Public
Corporation to be Known as the Veterans Federation of the
Philippines, Defining its Powers, and for Other Purposes."
(2) Any action or decision of the Federation or of the Supreme
Council shall be subject to the approval of the Secretary of
Defense.19
(3) The VFP is required to submit annual reports of its proceedings
for the past year, including a full, complete and itemized report of
receipts and expenditures of whatever kind, to the President of the
Philippines or to the Secretary of National Defense.20
(4) Under Executive Order No. 37 dated 2 December 1992, the
VFP was listed as among the government-owned and controlled
corporations that will not be privatized.
(5) In Ang Bagong Bayani – OFW Labor Party v. COMELEC,21
this Court held in a minute resolution that the "VFP [Veterans
Federation Party] is an adjunct of the government, as it is merely
an incarnation of the Veterans Federation of the Philippines.
And now to answer petitioner’s reasons for insisting that it is a
private corporation:
1. Petitioner claims that the VFP does not possess the elements
which would qualify it as a public office, particularly the
possession/delegation of a portion of sovereign power of
government to be exercised for the benefit of the public;
In Laurel v. Desierto,22 we adopted the definition of Mechem of a
public office, that it is "the right, authority and duty, created and
conferred by law, by which, for a given period, either fixed by law
or enduring at the pleasure of the creating power, an individual is
invested with some portion of the sovereign functions of the
government, to be exercised by him for the benefit of the public."
In the same case, we went on to adopt Mechem’s view that the
delegation to the individual of some of the sovereign functions of
government is "[t]he most important characteristic" in determining
whether a position is a public office or not.23 Such portion of the
sovereignty of the country, either legislative, executive or judicial,
must attach to the office for the time being, to be exercised for the
public benefit. Unless the powers conferred are of this nature, the
individual is not a public officer. The most important characteristic
which distinguishes an office from an employment or contract is
that the creation and conferring of an office involves a delegation
to the individual of some of the sovereign functions of government,
to be exercised by him for the benefit of the public; – that some
portion of the sovereignty of the country, either legislative,
executive or judicial, attaches, for the time being, to be exercised
for the public benefit. Unless the powers conferred are of this
nature, the individual is not a public officer.24 The issue, therefore,
is whether the VFA’s officers have been delegated some portion of
the sovereignty of the country, to be exercised for the public
benefit.
In several cases, we have dealt with the issue of whether certain
specific activities can be classified as sovereign functions. These
cases, which deal with activities not immediately apparent to be
sovereign functions, upheld the public sovereign nature of
operations needed either to promote social justice25 or to stimulate
patriotic sentiments and love of country.26
As regards the promotion of social justice as a sovereign function,
we held in Agricultural Credit and Cooperative Financing
Administration (ACCFA) v. Confederation of Unions in
Government Corporations and Offices (CUGCO),27 that the
compelling urgency with which the Constitution speaks of social
justice does not leave any doubt that land reform is not an optional
but a compulsory function of sovereignty. The same reason was
used in our declaration that socialized housing is likewise a
sovereign function.28 Highly significant here is the observation of
former Chief Justice Querube Makalintal:
The growing complexities of modern society, however, have
rendered this traditional classification of the functions of
government [into constituent and ministrant functions] quite
unrealistic, not to say obsolete. The areas which used to be left to
private enterprise and initiative and which the government was
called upon to enter optionally, and only "because it was better
equipped to administer for the public welfare than is any private
individual or group of individuals," continue to lose their well-
defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times. Here[,] as almost
everywhere else[,] the tendency is undoubtedly towards a greater
socialization of economic forces. Here, of course, this development
was envisioned, indeed adopted as a national policy, by the
Constitution itself in its declaration of principle concerning the
promotion of social justice.29 (Emphasis supplied.)
It was, on the other hand, the fact that the National Centennial
Celebrations was calculated to arouse and stimulate patriotic
sentiments and love of country that it was considered as a
sovereign function in Laurel v. Desierto.30 In Laurel, the Court
then took its cue from a similar case in the United States involving
a Fourth of July fireworks display. The holding of the Centennial
Celebrations was held to be an executive function, as it was
intended to enforce Article XIV of the Constitution which provides
for the conservation, promotion and popularization of the nation’s
historical and cultural heritage and resources, and artistic relations.
In the case at bar, the functions of petitioner corporation enshrined
in Section 4 of Rep. Act No. 264031 should most certainly fall
within the category of sovereign functions. The protection of the
interests of war veterans is not only meant to promote social
justice, but is also intended to reward patriotism. All of the
functions in Section 4 concern the well-being of war veterans, our
countrymen who risked their lives and lost their limbs in fighting
for and defending our nation. It would be injustice of catastrophic
proportions to say that it is beyond sovereignty’s power to reward
the people who defended her.
Like the holding of the National Centennial Celebrations, the
functions of the VFP are executive functions, designed to
implement not just the provisions of Rep. Act No. 2640, but also,
and more importantly, the Constitutional mandate for the State to
provide immediate and adequate care, benefits and other forms of
assistance to war veterans and veterans of military campaigns, their
surviving spouses and orphans.32
2. Petitioner claims that VFP funds are not public funds.
Petitioner claims that its funds are not public funds because no
budgetary appropriations or government funds have been released
to the VFP directly or indirectly from the DBM, and because VFP
funds come from membership dues and lease rentals earned from
administering government lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the
VFP does not prove that it is a private corporation. The DBM
indeed did not see it fit to propose budgetary appropriations to the
VFP, having itself believed that the VFP is a private corporation.33
If the DBM, however, is mistaken as to its conclusion regarding the
nature of VFP’s incorporation, its previous assertions will not
prevent future budgetary appropriations to the VFP. The erroneous
application of the law by public officers does not bar a subsequent
correct application of the law.34
Nevertheless, funds in the hands of the VFP from whatever source
are public funds, and can be used only for public purposes. This is
mandated by the following provisions of Rep. Act No. 2640:
(1) Section 2 provides that the VFP can only "invest its funds for
the exclusive benefit of the Veterans of the Philippines;"
(2) Section 2 likewise provides that "(a)ny action or decision of the
Federation or of the Supreme Council shall be subject to the
approval of the Secretary of National Defense." Hence, all
activities of the VFP to which the Supreme Council can apply its
funds are subject to the approval of the Secretary of National
Defense;
(3) Section 4 provides that "the Federation shall exist solely for the
purposes of a benevolent character, and not for the pecuniary
benefit of its members;"1avvphil.net
(4) Section 6 provides that all funds of the VFP in excess of
operating expenses are "reserved for disbursement, as the Supreme
Council may authorize, for the purposes stated in Section two of
this Act;"
(5) Section 10 provides that "(a)ny donation or contribution which
from time to time may be made to the Federation by the
Government of the Philippines or any of its subdivisions, branches,
offices, agencies or instrumentalities shall be expended by the
Supreme Council only for the purposes mentioned in this Act.";
and finally,
(6) Section 12 requires the submission of annual reports of VFP
proceedings for the past year, including a full, complete and
itemized report of receipts and expenditures of whatever kind, to
the President of the Philippines or to the Secretary of National
Defense.
It is important to note here that the membership dues collected
from the individual members of VFP’s affiliate organizations do
not become public funds while they are still funds of the affiliate
organizations. A close reading of Section 135 of Rep. Act No. 2640
reveals that what has been created as a body corporate is not the
individual membership of the affiliate organizations, but merely the
aggregation of the heads of the affiliate organizations. Thus, only
the money remitted by the affiliate organizations to the VFP
partake in the public nature of the VFP funds.
In Republic v. COCOFED,36 we held that the Coconut Levy Funds
are public funds because, inter alia, (1) they were meant to be for
the benefit of the coconut industry, one of the major industries
supporting the national economy, and its farmers; and (2) the very
laws governing coconut levies recognize their public character. The
same is true with regard to the VFP funds. No less public is the use
for the VFP funds, as such use is limited to the purposes of the VFP
which we have ruled to be sovereign functions. Likewise, the law
governing VFP funds (Rep. Act No. 2640) recognizes the public
character of the funds as shown in the enumerated provisions
above.
We also observed in the same COCOFED case that "(e)ven if the
money is allocated for a special purpose and raised by special
means, it is still public in character."37 In the case at bar, some of
the funds were raised by even more special means, as the
contributions from affiliate organizations of the VFP can hardly be
regarded as enforced contributions as to be considered taxes. They
are more in the nature of donations which have always been
recognized as a source of public funding. Affiliate organizations of
the VFP cannot complain of their contributions becoming public
funds upon the receipt by the VFP, since they are presumed aware
of the provisions of Rep. Act No. 2640 which not only specifies the
exclusive purposes for which VFP funds can be used, but also
provides for the regulation of such funds by the national
government through the Secretary of National Defense. There is
nothing wrong, whether legally or morally, from raising revenues
through non-traditional methods. As remarked by Justice
Florentino Feliciano in his concurring opinion in Kilosbayan,
Incorporated v. Guingona, Jr.38 where he explained that the funds
raised by the On-line Lottery System were also public in nature,
thus:
x x x [T]he more successful the government is in raising revenues
by non-traditional methods such as PAGCOR operations and
privatization measures, the lesser will be the pressure upon the
traditional sources of public revenues, i.e., the pocket books of
individual taxpayers and importers.
Petitioner additionally harps on the inapplicability of the case of
Laurel v. Desierto39 which was cited by Respondents. Petitioner
claims that among the reasons National Centennial Commission
Chair Salvador Laurel was considered a public officer was the fact
that his compensation was derived from public funds. Having ruled
that VFP funds from whatever source are public funds, we can
safely conclude that the Supreme Council’s compensation, taken as
they are from VFP funds under the term "operating expenses" in
Section 6 of Rep. Act No. 2640, are derived from public funds. The
particular nomenclature of the compensation taken from VFP funds
is not even of relevance here. As we said in Laurel concerning
compensation as an element of public office:
Under particular circumstances, "compensation" has been held to
include allowance for personal expenses, commissions, expenses,
fees, an honorarium, mileage or traveling expenses, payments for
services, restitution or a balancing of accounts, salary, and
wages.40
3. Petitioner argues that it is a civilian federation where
membership is voluntary.
Petitioner claims that the Secretary of National Defense
"historically did not indulge in the direct or ‘micromanagement’ of
the VFP precisely because it is essentially a civilian organization
where membership is voluntary."41 This reliance of petitioner on
what has "historically" been done is erroneous, since laws are not
repealed by disuse, custom, or practice to the contrary.42
Furthermore, as earlier stated, the erroneous application of the law
by public officers does not bar a subsequent correct application of
the law.43
Neither is the civilian nature of VFP relevant in this case. The
Constitution does not contain any prohibition, express or implied,
against the grant of control and/or supervision to the Secretary of
National Defense over a civilian organization. The Office of the
Secretary of National Defense is itself a civilian office, its occupant
being an alter ego of the civilian Commander-in-Chief. This set-up
is the manifestation of the constitutional principle that civilian
authority is, at all times, supreme over the military.44 There being
no such constitutional prohibition, the creation of a civilian public
organization by Rep. Act No. 2640 is not rendered invalid by its
being placed under the control and supervision of the Secretary of
National Defense.
Petitioner’s stand that the VFP is a private corporation because
membership thereto is voluntary is likewise erroneous. As stated
above, the membership of the VFP is not the individual
membership of the affiliate organizations, but merely the
aggregation of the heads of such affiliate organizations. These
heads forming the VFP then elect the Supreme Council and the
other officers,45 of this public corporation.
4. Petitioner claims that the Administrative Code of 1987 does not
provide that the VFP is an attached agency, and nor does it provide
that it is an entity under the control and supervision of the DND in
the context of the provisions of said code.
The Administrative Code, by giving definitions of the various
entities covered by it, acknowledges that its enumeration is not
exclusive. The Administrative Code could not be said to have
repealed nor enormously modified Rep. Act No. 2640 by
implication, as such repeal or enormous modification by
implication is not favored in statutory construction.46
5. Petitioner offers as evidence the DBM opinion that the VFP is a
non-government organization in its certification that the VFP "has
not been a direct recipient of any funds released by the DBM."
Respondents claim that the supposed declaration of the DBM that
petitioner is a non-government organization is not persuasive, since
DBM is not a quasi-judicial agency. They aver that what we have
said of the Bureau of Local Government Finance (BLGF) in
Philippine Long Distance Telephone Company (PLDT) v. City of
Davao47 can be applied to DBM:
In any case, it is contended, the ruling of the Bureau of Local
Government Finance (BLGF) that petitioner’s exemption from
local taxes has been restored is a contemporaneous construction of
Section 23 [of R.A. No. 7925 and, as such, is entitled to great
weight.
The ruling of the BLGF has been considered in this case. But
unlike the Court of Tax Appeals, which is a special court created
for the purpose of reviewing tax cases, the BLGF was created
merely to provide consultative services and technical assistance to
local governments and the general public on local taxation and
other related matters. Thus, the rule that the "Court will not set
aside conclusions rendered by the CTA, which is, by the very
nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or
improvident exercise of authority" cannot apply in the case of the
BLGF.
On this score, though, we disagree with respondents and hold that
the DBM’s appraisal is considered persuasive. Respondents
misread the PLDT case in asserting that only quasi-judicial
agencies’ determination can be considered persuasive. What the
PLDT case points out is that, for an administrative agency’s
opinion to be persuasive, the administrative agency involved
(whether it has quasi-judicial powers or not) must be an expert in
the field they are giving their opinion on.
The DBM is indeed an expert on determining what the various
government agencies and corporations are. This determination is
necessary for the DBM to fulfill its mandate:
Sec. 2. Mandate. - The Department shall be responsible for the
formulation and implementation of the National Budget with the
goal of attaining our national socio-economic plans and objectives.
The Department shall be responsible for the efficient and sound
utilization of government funds and revenues to effectively achieve
our country's development objectives.48
The persuasiveness of the DBM opinion has, however, been
overcome by all the previous explanations we have laid so far. It
has also been eclipsed by another similarly persuasive opinion, that
of the Department of National Defense embodied in Department
Circular No. 04. The DND is clearly more of an expert with respect
to the determination of the entities under it, and its Administrative
Rules and Regulations are entitled to great respect and have in their
favor the presumption of legality.49
The DBM opinion furthermore suffers from its lack of explanation
and justification in the "certification of non-receipt" where said
opinion was given. The DBM has not furnished, in said
certification or elsewhere, an explanation for its opinion that VFP
is a non-government organization.
THE FATE OF DEPARTMENT CIRCULAR NO. 04
Our ruling that petitioner is a public corporation is determinative of
whether or not we should grant petitioner’s prayer to declare
Department Circular No. 04 void.
Petitioner assails Department Circular No. 04 on the ground that it
expanded the scope of control and supervision beyond what has
been laid down in Rep. Act No. 2640. Petitioner alleges that "(t)he
equation of the meaning of `control’ and `supervision’ of the
Administrative Code of 1987 as the same `control and supervision’
under Rep. Act No. 2640, takes out the context of the original
legislative intent from the peculiar surrounding circumstances and
conditions that brought about the creation of the VFP."50 Petitioner
claims that the VFP "was intended as a self-governing autonomous
body with a Supreme Council as governing authority," and that the
assailed circular "pre-empts VFP’s original self-governance and
autonomy (in) representing veterans organizations, and substitutes
government discretion and decisions to that of the veterans’ own
determination."51 Petitioner says that the circular’s provisions
practically render the Supreme Council inutile, despite its being the
statutory governing body of the VFP.52
As previously mentioned, this Court has defined the power of
control as "the power of an officer to alter or modify or nullify or
set aside what a subordinate has done in the performance of his
duties and to substitute the judgment of the former to that of the
latter."53 The power of supervision, on the other hand, means
"overseeing, or the power or authority of an officer to see that
subordinate officers perform their duties."54 Under the
Administrative Code of 1987:55
Supervision and control shall include the authority to act directly
whenever a specific function is entrusted by law or regulation to a
subordinate; direct the performance of duty; restrain the
commission of acts; review, approve, reverse or modify acts and
decisions of subordinate officials or units; determine priorities in
the execution of plans and programs; and prescribe standards,
guidelines, plans and programs. x x x
The definition of the power of control and supervision under
Section 2 of the assailed Department Circular are synonymous with
the foregoing definitions. Consequently, and considering that
petitioner is a public corporation, the provisions of the assailed
Department Circular No. 04 did not supplant nor modify the
provisions of Republic Act No. 2640, thus not violating the settled
rule that "all such (administrative) issuances must not override, but
must remain consistent and in harmony with the law they seek to
apply or implement. Administrative rules and regulations are
intended to carry out, neither to supplant nor to modify, the law."56
Section 3.2 of the assailed department circular, which authorizes
the Secretary of National Defense to "x x x personally or through a
designated representative, require the submission of reports,
documents and other papers regarding any or all of the Federation’s
business functions, x x x."
as well as Section 3.3 which allows the Secretary of DND to
x x x [F]rom time to time issue guidelines, directives and other
orders governing vital government activities including, but not
limited to, the conduct of elections, the acquisition, management
and dispositions of properties, the accounting of funds, financial
interests, stocks and bonds, corporate investments, etc. and such
other transactions which may affect the interests of the veterans.
are merely consequences of both the power of control and
supervision granted by Rep. Act No. 2640. The power to alter or
modify or nullify or set aside what a subordinate has done in the
performance of his duties, or to see to it that subordinate officers
perform their duties in accordance with law, necessarily requires
the ability of the superior officer to monitor, as closely as it desires,
the acts of the subordinate.
The same is true with respect to Sections 4 and 5 of the assailed
Department Circular No. 04, which requires the preservation of the
records of the Federation and the submission to the Secretary of
National Defense of annual and periodic reports.
Petitioner likewise claims that the assailed DND Department
Circular No. 04 was never published, and hence void.57
Respondents deny such non-publication.58
We have put forth both the rule and the exception on the
publication of administrative rules and regulations in the case of
Tañada v. Tuvera:59
x x x Administrative rules and regulations must also be published if
their purpose is to enforce or implement existing law pursuant also
to a valid delegation.
Interpretative regulations and those merely internal in nature, that
is, regulating only the personnel of the administrative agency and
not the public, need not be published. Neither is publication
required of the so-called letters of instructions issued by
administrative superiors concerning the rules on guidelines to be
followed by their subordinates in the performance of their duties.
Even assuming that the assailed circular was not published, its
validity is not affected by such non-publication for the reason that
its provisions fall under two of the exceptions enumerated in
Tañada.
Department Circular No. 04 is an internal regulation. As we have
ruled, they are meant to regulate a public corporation under the
control of DND, and not the public in general. As likewise
discussed above, what has been created as a body corporate by
Rep. Act No. 2640 is not the individual membership of the affiliate
organizations of the VFP, but merely the aggregation of the heads
of the affiliate organizations. Consequently, the individual
members of the affiliate organizations, who are not public officers,
are beyond the regulation of the circular.
Sections 2, 3 and 6 of the assailed circular are additionally merely
interpretative in nature. They add nothing to the law. They do not
affect the substantial rights of any person, whether party to the case
at bar or not. In Sections 2 and 3, control and supervision are
defined, mentioning actions that can be performed as consequences
of such control and supervision, but without specifying the
particular actions that shall be rendered to control and supervise the
VFP. Section 6, in the same vein, merely state what the drafters of
the circular perceived to be consequences of being an attached
agency to a regular department of the government, enumerating
sanctions and remedies provided by law that may be availed of
whenever desired.
Petitioner then objects to the implementation of Sec. 3.4 of the
assailed Department Circular, which provides that –
3.4 Financial transactions of the Federation shall follow the
provisions of the government auditing code (PD 1445) i.e.
government funds shall be spent or used for public purposes; trust
funds shall be available and may be spent only for the specific
purpose for which the trust was created or the funds received;
fiscal responsibility shall, to the greatest extent, be shared by all
those exercising authority over the financial affairs, transactions,
and operations of the federation; disbursements or dispositions of
government funds or property shall invariably bear the approval of
the proper officials.
Since we have also previously determined that VFP funds are
public funds, there is likewise no reason to declare this provision
invalid. Section 3.4 is correct in requiring the VFP funds to be used
for public purposes, but only insofar the term "public purposes" is
construed to mean "public purposes enumerated in Rep. Act No.
2640."
Having in their possession public funds, the officers of the VFP,
especially its fiscal officers, must indeed share in the fiscal
responsibility to the greatest extent.
As to petitioner’s allegation that VFP was intended as a self-
governing autonomous body with a Supreme Council as governing
authority, we find that the provisions of Rep. Act No. 2640
concerning the control and supervision of the Secretary of National
Defense clearly withholds from the VFP complete autonomy. To
say, however, that such provisions render the VFP inutile is an
exaggeration. An office is not rendered inutile by the fact that it is
placed under the control of a higher office. These subordinate
offices, such as the executive offices under the control of the
President, exercise discretion at the first instance. While their acts
can be altered or even set aside by the superior, these acts are
effective and are deemed the acts of the superior until they are
modified. Surely, we cannot say that the offices of all the
Department Secretaries are worthless positions.
In sum, the assailed DND Department Circular No. 04 does not
supplant nor modify and is, on the contrary, perfectly in
consonance with Rep. Act No. 2640. Petitioner VFP is a public
corporation. As such, it can be placed under the control and
supervision of the Secretary of National Defense, who
consequently has the power to conduct an extensive management
audit of petitioner corporation.
WHEREFORE, the Petition is hereby DISMISSED for lack of
merit. The validity of the Department of National Defense
Department Circular No. 04 is AFFIRMED.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
REYNATO S. PUNO of the AFP Retired Veterans Association (AFREVA); Lorenzo B.
Associate Justice Cabrera of the Confederation of the Filipino Veterans
LEONARDO A. QUISUMBING (CONVETS); Teodoro V. Kalaw of the Defenders of Bataan and
Asscociate Justice Corregidor; Fausto S. Alberto of the ECLGA Veterans Association;
CONSUELO YNARES-SANTIAGO Enrique C. Rimando of the FAIT Veterans Legion; Francisco L.
Associate Justice Gonzales of the Filipino Disabled Veterans Association; Basilia M.
ANGELINA SANDOVAL-GUTIERREZ Baja of the Gold Star Mothers and United War Widows and
Asscociate Justice Orphans Association of the Philippines; Simeon C. Medalla of the
ANTONIO T. CARPIO Hunters ROTC Association; Antonio F. Garcia of the Magsaysay
Associate Justice Veterans Legion; Dionisio V. Ojeda Guaof the PEFTOK Veterans
MA. ALICIA AUSTRIA-MARTINEZ Association; Primitivo Lovina of the Philippine National Guard
Asscociate Justice Veterans Legion; Jose V. Andrada of the Philippine Naval Veterans
RENATO C. CORONA Legion; Jaime Piopongco of the Philippine Veterans Legion; Sofia
Associate Justice L. Prudenciado of the Philippine Association of War Widows,
CONCHITA CARPIO MORALES Parents, and Orphans; Eugenio B. Recto of the United Disabled
Asscociate Justice Veterans Association of the Philippines; and Gaudencio Antonino
ROMEO J. CALLEJO, SR. of the USAFIP NL and their associates and successors are hereby
Associate Justice created a body corporate, under the control and supervision of the
ADOLFO S. AZCUNA Secretary of National Defense, under the name, style and title of
Asscociate Justice "Veterans Federation of the Philippines," hereinafter referred to as
DANTE O. TINGA the Federation. The principal office of the Federation shall be in the
Associate Justice City of Manila, Philippines.
CANCIO C. GARCIA 3 Sec. 2. The said Federation shall have perpetual succession, with
Asscociate Justice power to sue and be sued; to hold such real and personal property
C E R T I F I CAT I O N as shall be necessary for its purposes, and to receive real and
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby personal property by gift, devise or bequest; to invest its funds for
certified that the conclusions in the above Decision were reached in the exclusive benefit of the veterans of the Philippines; to extend,
consultation before the case was assigned to the writer of the within its capabilities, all necessary assistance, and operate such
opinion of the Court. enterprises as may further the material or moral well-being of
ARTEMIO V. PANGANIBAN veterans; to adopt a seal, and to alter or destroy the same at
Chief Justice pleasure; to have offices and conduct its business and affairs in the
City of Manila and/or provinces, cities, municipalities and barrios
Footnotes of the Philippines and to amend said laws, regulations and rules; to
1 REPUBLIC ACT No. 2640: AN ACT TO CREATE A PUBLIC establish and operate branches of its office anywhere in the
CORPORATION TO BE KNOWN AS THE VETERANS Philippines; to publish a magazine and/or other publications; and
FEDERATION OF THE PHILIPPINES, DEFINING ITS generally, to do all such acts and things as may be necessary to
POWERS, AND FOR OTHER PURPOSES. carry into effect the provisions of this Act and to promote the
2 Sec. 1. The following persons, to wit: Emilio Aguinaldo, of purposes of said Federation.
Associacion de los Veteranos de la Revolucion; Margarito Torralba Any action or decision of the Federation or of the Supreme Council
shall be subject to the approval of the Secretary of National
Defense.
4 Rollo, p. 53.
5 Id.
6 Id., p. 31.
7 Id., p. 74.
8 Commissioner of Internal Revenue v. Leal, 440 Phil. 477, 484
(2002); People v. Court of Appeals, 361 Phil. 492, 497 (1999);
Pearson v. Intermediate Appellate Court, 356 Phil. 341, 355 (1998);
People v. Cuaresma, G.R. No. 67787, 18 April 1989, 172 SCRA
415, 424.
9 Id., pp. 484-485.
10 Id.
11 Rollo, p. 84.
12 Id., p. 85.
13 Mondano v. Silvosa, 97 Phil. 143, 148 (1955).
14 Id.
15 CONSTITUTION (1935), Art. XIII, Sec. 7.
16 CONSTITUTION (1973), Art. XIV, Sec. 4.
17 CONSTITUTION, Art. XII, Sec. 16.
18 "Control" being the "power of an officer to alter or modify or
nullify or set aside what a subordinate has done in the performance
of his duties and to substitute the judgment of the former to that of
the latter" should not be confused with the "control" in the term
"government-owned or controlled corporation" (GOCC). Cf. E.O.
No. 292 (Administrative Code) Introductory Provisions, Section
2(13) where "control" is considered to be the ownership of "at least
fifty-one (51) per cent of its capital stock."
19 REPUBLIC ACT No. 2640, Section 2, par. 2.
20 REPUBLIC ACT No. 2640, Section 2.
21 G.R. No. 147589, 10 April 2002.
22 430 Phil. 658, 672 (2002).
23 Id.
24 Id.
25 Agricultural Credit and Cooperative Financing Administration
(ACCFA) v. Confederation of Unions in Government Corporations
and Offices (CUGCO), 141 Phil. 334, 349 (1969); People’s
Homesite and Housing Corporation v. Court of Industrial
Relations, G.R. No. L-31890, 29 May 1987, 150 SCRA 296, 310.
26 Laurel v. Desierto, supra note 22, p. 678.
27 Supra note 25.
28 People’s Homesite and Housing Corporation v. Court of
Industrial Relations, supra note 25.
29 Agricultural Credit and Cooperative Financing Administration
(ACCFA) v. Confederation of Unions in Government Corporations
and Offices (CUGCO), supra note 25, p. 349.
30 Laurel v. Desierto, supra note 22.
31 Sec. 4. The purposes of the Federation shall be to uphold and
defend the democratic way of life as envisioned in the Constitution
of the Republic of the Philippines; to represent and to defend the
interests of all Filipino veterans; to coordinate the efforts of all
different veterans of the Philippines in behalf of the interests of
respective members; to promote mutual help among former
comrades-in-arms; to perpetuate their common experiences in war;
to undertake acts of charity and relief work; to preserve peace and
order; to foster love of country and things Filipino and inculcate
individual civic consciousness. In general, the Federation shall
exist solely for purposes of a benevolent character, and not for
pecuniary profit of its members.
32 Constitution, Art. XVI, Sec. 7.
33 Department of Budget and Management’s certification of non-
receipt in favor of Petitioner Corporation, Annex O of the Petition.
34 Manila Jockey Club v. Court of Appeals, 360 Phil. 367, 383
(1998).
35 Sec. 1. The following persons, to wit: Emilio Aguinaldo, of
Associacion de los Veteranos de la Revolucion; Margarito Torralba
of the AFP Retired Veterans Association (AFREVA); Lorenzo B.
Cabrera of the Confederation of the Filipino Veterans
(CONVETS); Teodoro V. Kalaw of the Defenders of Bataan and
Corregidor; Fausto S. Alberto of the ECLGA Veterans Association;
Enrique C. Rimando of the FAIT Veterans Legion; Francisco L.
Gonzales of the Filipino Disabled Veterans Association; Basilia M.
Baja of the Gold Star Mothers and United War Widows and
Orphans Association of the Philippines; Simeon C. Medalla of the
Hunters ROTC Association; Antonio F. Garcia of the Magsaysay
Veterans Legion; Dionisio V. Ojeda Guaof the PEFTOK Veterans
Association; Primitivo Lovina of the Philippine National Guard
Veterans Legion; Jose V. Andrada of the Philippine Naval Veterans
Legion; Jaime Piopongco of the Philippine Veterans Legion; Sofia 59 G.R. No. L-63915, 29 December 1986, 146 SCRA 446, 454.
L. Prudenciado of the Philippine Association of War Widows,
Parents, and Orphans; Eugenio B. Recto of the United Disabled
Veterans Association of the Philippines; and Gaudencio Antonino
of the USAFIP NL and their associates and successors are hereby
created a body corporate, under the control and supervision of the
Secretary of National Defense, under the name, style and title of
"Veterans Federation of the Philippines," hereinafter referred to as
the Federation. The principal office of the Federation shall be in the
City of Manila, Philippines.
36 423 Phil. 735, 762-763 (2001).
37 Id. THIRD DIVISION
38 G.R. No. 113375, 5 May 1994, 232 SCRA 110, 156.
39 Supra note 22.
40 Id., citing 15 C.J.S. Compensation, p. 654. PHILIPPINE FISHERIES G.R. No. 169836
41 Rollo, p. 76. DEVELOPMENT AUTHORITY,
42 Cf. Civil Code, Article 7, par. 1: "Laws are repealed only by Petitioner, Present:
subsequent ones, and their violation or nonobservance shall not be
excused by disuse, custom, or practice to the contrary." Ynares-Santiago, J. (Chairperson),
43 Manila Jockey Club v. Court of Appeals, supra note 34. - versus - Austria-Martinez,
44 Constitution, Art. 2, Sec. 3. Chico-Nazario, and
45 Republic Act No. 2640, Sec. 7. Nachura, JJ.
46 See United States v. Palacio, 33 Phil. 208, 216 (1916); Lichauco COURT OF APPEALS, OFFICE OF
v. Apostol, 44 Phil. 138, 149 (1922). THE PRESIDENT, DEPARTMENT
47 447 Phil. 571, 587-588 (2003). OF FINANCE and the CITY OF Promulgated:
48 Executive Order No. 292, Administrative Code of 1987, Title ILOILO,
XVII, Chapter 1, Sec. 2. Respondents. July 31, 2007
49 Gonzales v. Land Bank of the Phils., G.R. No. 76759, 22 March
1990, 183 SCRA 520, 526. x
50 Rollo, p. 81. ---------------------------------------------------------------------------------
51 Id., pp. 81-82. ------- x
52 Id., p. 89.
53 Mondano v. Silvosa, supra note 13. DECISION
54 Id.
55 E.O. No. 292, Book 4, Chapter 7, Section 38 (1). YNARES-SANTIAGO, J.:
56 Commissioner of Internal Revenue v. Court of Appeals, 310
Phil. 392, 397 (1995).
57 Rollo, p. 244. Assailed in this petition for review is the June 21, 2005 Decision[1]
58 Respondents’ Comment, 18 November 2003. of the Court of Appeals in CA-G.R. SP No. 81228, which held that
petitioner Philippine Fisheries Development Authority (hereafter
referred to as Authority) is liable to pay real property taxes on the
land and buildings of the Iloilo Fishing Port Complex (IFPC)
which are owned by the Republic of the Philippines but operated
and governed by the Authority.
The facts are not disputed.
On August 11, 1976, then President Ferdinand E. Marcos issued
Presidential Decree No. 977 (PD 977) creating the Authority and
placing it under the direct control and supervision of the Secretary
of Natural Resources. On February 8, 1982, Executive Order No.
772 (EO 772) was issued amending PD 977, and renaming the
Authority as the now Philippine Fisheries Development Authority,
and attaching said agency to the Ministry of Natural Resources.
Upon the effectivity of the Administrative Code (EO 292), the
Authority became an attached agency of the Department of
Agriculture.[2]
Meanwhile, beginning October 31, 1981, the then Ministry of
Public Works and Highways reclaimed from the sea a 21-hectare
parcel of land in Barangay Tanza, Iloilo City, and constructed
thereon the IFPC, consisting of breakwater, a landing quay, a
refrigeration building, a market hall, a municipal shed, an
administration building, a water and fuel oil supply system and
other port related facilities and machineries. Upon its completion,
the Ministry of Public Works and Highways turned over IFPC
to the Authority, pursuant to Section 11 of PD 977, which
places fishing port complexes and related facilities under the
governance and operation of the Authority. Notwithstanding
said turn over, title to the land and buildings of the IFPC
remained with the Republic.
The Authority thereafter leased portions of IFPC to private firms
and individuals engaged in fishing related businesses.
Sometime in May 1988, the City of Iloilo assessed the entire IFPC
for real property taxes. The assessment remained unpaid until
the alleged total tax delinquency of the Authority for the fiscal
years 1988 and 1989 amounted to P5,057,349.67, inclusive of
penalties and interests. To satisfy the tax delinquency, the City
of Iloilo scheduled on August 30, 1990, the sale at public
auction of the IFPC.
The Authority filed an injunction case with the Regional Trial
Court. At the pre-trial, the parties agreed to avail of administrative
proceedings, i.e., for the Authority to file a claim for tax exemption
with the Iloilo City Assessors Office. The latter, however, denied
the claim for exemption, hence, the Authority elevated the case
to the Department of Finance (DOF).
In its letter-decision[3] dated March 6, 1992, the DOF ruled that
the Authority is liable to pay real property taxes to the City of
Iloilo because it enjoys the beneficial use of the IFPC. The DOF
added, however, that in satisfying the amount of the unpaid
real property taxes, the property that is owned by the
Authority shall be auctioned, and not the IFPC, which is a
property of the Republic.[4]
The Authority filed a petition before the Office of the President but
it was dismissed.[5] It also denied the motion for
reconsideration filed by the Authority.[6]
On petition with the Court of Appeals, the latter affirmed the
decision of the Office of the President. It opined, however, that
the IFPC may be sold at public auction to satisfy the tax
delinquency of the Authority.[7] The dispositive portion
thereof, reads:
WHEREFORE, premises considered, the instant Petition for
Review is DENIED, and accordingly the June 30, 2003 Decision
and December 3, 2003 Order of the Office of the President are
hereby AFFIRMED.
SO ORDERED.[8]
Hence, this petition.
The issues are as follows: Is the Authority liable to pay real
property tax to the City of Iloilo? If the answer is in the
affirmative, may the IFPC be sold at public auction to satisfy
the tax delinquency?
To resolve said issues, the Court has to determine (1) whether the
Authority is a government owned or controlled corporation
(GOCC) or an instrumentality of the national government; and (2)
whether the IFPC is a property of public dominion.
The Court rules that the Authority is not a GOCC but an
instrumentality of the national government which is generally
exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the
Authority leased to private entities. With respect to these
properties, the Authority is liable to pay real property tax.
Nonetheless, the IFPC, being a property of public dominion
cannot be sold at public auction to satisfy the tax delinquency.
In Manila International Airport Authority (MIAA) v. Court of
Appeals,[9] the Court made a distinction between a GOCC and an
instrumentality. Thus:
Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined. x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x (Emphasis supplied)
A government-owned or controlled corporation must be organized
as a stock or non-stock corporation. MIAA is not organized as a
stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares.
xxxx
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.
[10] (Emphasis supplied)
Thus, for an entity to be considered as a GOCC, it must either be
organized as a stock or non-stock corporation. Two requisites
must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into
shares, and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one
requisite is present, it cannot be properly classified as a stock
corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to
said members.[11]
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. Thus
Some of the national government instrumentalities vested by
law with juridical personalities are: Bangko Sentral ng Pilipinas,
Philippine Rice Research Institute, Laguna Lake Development
Authority, Fisheries Development Authority, Bases Conversion
Development Authority, Philippine Ports Authority, Cagayan de
Oro Port Authority, San Fernando Port Authority, Cebu Port
Authority, and Philippine National Railways.
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.[12] Also, it has no stockholders or
voting shares. Hence, it is not a stock corporation. Neither it is
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.[13] 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,[14] and the power to levy fees and
charges.[15] At the same time, the Authority exercises the
general corporate powers conferred by laws upon private and
government-owned or controlled corporations.[16]
The MIAA case held[17] that unlike GOCCs, instrumentalities of
the national government, like MIAA, are exempt from local taxes
pursuant to Section 133(o) of the Local Government Code. This
exemption, however, admits of an exception with respect to real
property taxes. Applying Section 234(a) of the Local
Government Code, the Court ruled that when an
instrumentality of the national government grants to a taxable
person the beneficial use of a real property owned by the
Republic, said instrumentality becomes liable to pay real
property tax. Thus, while MIAA was held to be an
instrumentality of the national government which is generally
exempt from local taxes, it was at the same time declared liable
to pay real property taxes on the airport lands and buildings
which it leased to private persons. It was held that the real
property tax assessments and notices of delinquencies issued by
the City of Pasay to MIAA are void except those pertaining to
portions of the airport which are leased to private parties.
Pertinent portions of the decision, reads:
Section 193 of the Local Government Code expressly withdrew the
tax exemption of all juridical persons [u]nless otherwise provided
in this Code. Now, Section 133(o) of the Local Government Code
expressly provides otherwise, specifically prohibiting local
governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units.
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments
are devoid of power to tax the national government, its
agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies
and instrumentalities, [u]nless otherwise provided in this Code as
stated in the saving clause of Section 133. x x x
xxxx
The saving clause in Section 133 refers to the exception to the
exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a
taxable person.
x x x[18] (Emphasis supplied)
WHEREFORE, we GRANT the petition. We SET ASIDE the
assailed Resolutions of the Court of Appeals of 5 October 2001 and
27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City
of Paraaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued
by the City of Paraaque on the Airport Lands and Buildings of the
Manila International Airport Authority, except for the portions that
the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its
effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.
x x x x.[19] (Emphasis added)
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.[20]
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. In Chavez v. Public
Estates Authority it was held that reclaimed lands are lands of
the public domain and cannot, without Congressional fiat, be
subject of a sale, public or private, thus:[21]
The salient provisions of CA No. 141, on government
reclaimed, foreshore and marshy lands of the public
domain, are as follows:
Sec. 59. The lands disposable under this title shall be classified as
follows:
(a) Lands reclaimed by the Government by dredging, filling, or
other means;
(b) Foreshore;
(c) Marshy lands or lands covered with water bordering upon the
shores or banks of navigable lakes or rivers;
(d) Lands not included in any of the foregoing classes.
xxxx
Sec. 61. The lands comprised in classes (a), (b), and (c) of section
fifty-nine shall be disposed of to private parties by lease only and
not otherwise, as soon as the President, upon recommendation by
the Secretary of Agriculture, shall declare that the same are not
necessary for the public service and are open to disposition under
this chapter. The lands included in class (d) may be disposed of by
sale or lease under the provisions of this Act. (Emphasis supplied)
xxxx
Since then and until now, the only way the government can sell to
private parties government reclaimed and marshy disposable lands
of the public domain is for the legislature to pass a law authorizing
such sale. CA No. 141 does not authorize the President to
reclassify government reclaimed and marshy lands into other non-
agricultural lands under Section 59 (d). Lands classified under
Section 59 (d) are the only alienable or disposable lands for non-
agricultural purposes that the government could sell to private
parties. (Emphasis supplied)
In the same vein, the port built by the State in the Iloilo fishing
complex is a property of the public dominion and cannot therefore
be sold at public auction. Article 420 of the Civil Code, provides:
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development
of the national wealth.
The Iloilo fishing port which was constructed by the State for
public use and/or public service falls within the term port in the
aforecited provision. Being a property of public dominion the
same cannot be subject to execution or foreclosure sale.[22] In
like manner, the reclaimed land on which the IFPC is built
cannot be the object of a private or public sale without
Congressional authorization. Whether there are improvements
in the fishing port complex that should not be construed to be
embraced within the term port, involves evidentiary matters
that cannot be addressed in the present case. As for now,
considering that the Authority is a national government
instrumentality, any doubt on whether the entire IFPC may be
levied upon to satisfy the tax delinquency should be resolved
against the City of Iloilo.
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.
WHEREFORE, the petition is GRANTED and the June 21, 2005 I attest that the conclusions in the above decision were reached in
Decision of the Court of Appeals in CA-G.R. SP No. 81228 is SET consultation before the case was assigned to the writer of the
ASIDE. The real property tax assessments issued by the City opinion of the Courts Division.
Iloilo on the land and buildings of the Iloilo Fishing Port
Complex, is declared VOID EXCEPT those pertaining to the
portions leased to private parties. The City of Iloilo is
DIRECTED to refrain from levying on the Iloilo Fishing Port CONSUELO YNARES-SANTIAGO
Complex to satisfy the payment of the real property tax Associate Justice
delinquency. Chairperson, Third Division

No costs.

SO ORDERED. CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the

CONSUELO YNARES-SANTIAGO Division Chairpersons Attestation, it is hereby certified that the
Associate Justice conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the
Courts Division.

WE CONCUR:

REYNATO S. PUNO
Chief Justice
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

[1] Rollo, pp. 47-55. Penned by Associate Justice Rosmari D.

Carandang and concurred in by Associate Justices Remedios A.
MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. Salazar-Fernando and Monina Arevalo-Zenarosa.
NACHURA [2] Book IV, Title IV, Chapter 6, Section 47, Executive Order No.
Associate Justice Associate Justice 292 (1987).
[3] Rollo, pp. 128-131.
[4] Id. at 131.
[5] Id. at 87-89.
[6] Id. at 90.
ATTESTATION [7] Id. at 54.
[8] Id. at 55. Petitioner filed a motion for reconsideration but was
denied (Rollo, pp. 57-58).
[9] G.R. No. 155650, July 20, 2006, 495 SCRA 591, 615. The
decision became final and executory on November 3, 2006.
[10] Id. at 615-617.
[11]Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, vol. 3, 1998 edition, pp. 54-
55.
[12] Sec. 5. Capitalization; Sinking Fund. The Authority shall have
an authorized capital stock of Five Hundred Million Pesos
(P500,000,000.00) which shall be fully subscribed by the Republic
of the Philippines, and the following amounts shall be paid in:
(a) The net assets of the Authority, including the Navotas fishing
port complex, the valuation of which shall be determined jointly
with the Office of Budget and Management and the Commission
on Audit;
(b) The amount corresponding to the balance of the programmed
appropriations for the Authority for calendar year 1981; and
(c) The amount corresponding to the programmed appropriations
for the Authority for the calendar year 1982.
The Authority is authorized to establish a sinking fund necessary to
meet such obligations as may be incurred by the Authority. The
annual contributions to the sinking fund shall come from the
revenues derived from its fishing port complexes and, where such
revenues are deficient, from such other corporate funds not
otherwise intended for any specific purpose as may be designated
by the Board. Unless otherwise directed by the Board, the sinking
fund shall be placed under the custody of any government bank
which shall invest the same in such manner as may be
advantageous to the Authority.
[13] Section 2(10) of the Introductory Provisions of the
Administrative Code.
[14] Section 4 (k) of PD 977, as amended by EO 772.
[15] Section 4 (e) of PD 977, as amended by EO 772.
[16] Section 4 (j) of PD 977, as amended by EO 772.
[17] Supra note 9 at 645.
[18] Id. at 631-634.
[19] Id. at 646.
[20] Id. at 619.
[21] Chavez v. Public Estates Authority, G.R. No. 133250, July 9,
2002, 384 SCRA 152, 202-203.
[22] Manila International Airport Authority (MIAA) v. Court of
Appeals, supra note 9 at 646; Laurel v. Garcia, G.R. Nos. 92013 &
92047, July 25, 1990, 187 SCRA 797, 808-809.
EN BANC
[G.R. No. 147402. January 14, 2004]
ENGR. RANULFO C. FELICIANO, in his capacity as General
Manager of the Leyte Metropolitan Water District (LMWD),
Tacloban City, petitioner, vs. COMMISSION ON AUDIT,
Chairman CELSO D. GANGAN, Commissioners RAUL C.
FLORES and EMMANUEL M. DALMAN, and Regional
Director of COA Region VIII, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the Commission on
Audits (COA) Resolution dated 3 January 2000 and the Decision
dated 30 January 2001 denying the Motion for Reconsideration.
The COA denied petitioner Ranulfo C. Felicianos request for COA
to cease all audit services, and to stop charging auditing fees, to
Leyte Metropolitan Water District (LMWD). The COA also denied
petitioners request for COA to refund all auditing fees previously
paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited
the accounts of LMWD. Subsequently, LMWD received a letter
from COA dated 19 July 1999 requesting payment of auditing fees.
As General Manager of LMWD, petitioner sent a reply dated 12
October 1999 informing COAs Regional Director that the water
district could not pay the auditing fees. Petitioner cited as basis for
his action Sections 6 and 20 of Presidential Decree 198 (PD 198)
[2], as well as Section 18 of Republic Act No. 6758 (RA 6758).
The Regional Director referred petitioners reply to the COA
Chairman on 18 October 1999.
On 19 October 1999, petitioner wrote COA through the Regional
Director asking for refund of all auditing fees LMWD previously
paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D.
Gangans Resolution dated 3 January 2000 denying his requests.
Petitioner filed a motion for reconsideration on 31 March 2000,
which COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to
the petition were resolutions of the Visayas Association of Water
Districts (VAWD) and the Philippine Association of Water Districts
(PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit
jurisdiction over local water districts in Davao City Water
District v. Civil Service Commission and Commission on Audit,
[3] as follows:
The above-quoted provision [referring to Section 3(b) PD 198]
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 members of the Board of Directors
belong to the local executives of the local subdivision unit where
such districts are located. In contrast, the members of the Board of
Directors or the trustees of a private corporation are elected from
among members or stockholders thereof. It would not be amiss at
this point to emphasize 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 who will compose the governing body
of their corporation. But this is not the case here and this clearly
indicates that petitioners are not private corporations.
The COA also denied petitioners request for COA to stop charging
auditing fees as well as petitioners request for COA to refund all
auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of
discretion amounting to lack or excess of jurisdiction by
auditing LMWD and requiring it to pay auditing fees.
Petitioner raises the following issues for resolution:
1. Whether a Local Water District (LWD) created under PD 198, as
amended, is a government-owned or controlled corporation subject
to the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COAs
certified public accountants from auditing local water districts; and
3. Whether Section 18 of RA 6758 prohibits the COA from
charging government-owned and controlled corporations auditing
fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws[4] mandate COA to audit
all government agencies, including government-owned and
controlled corporations (GOCCs) with original charters. An
LWD is a GOCC with an original charter. Section 2(1), Article
IX-D of the Constitution provides for COAs audit jurisdiction,
as follows:
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 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)
The COAs audit jurisdiction extends not only to government
agencies or instrumentalities, but also to government-owned and
controlled corporations with original charters as well as other
government-owned or controlled corporations without original
charters.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a
re-examination of a doctrine backed by a long line of cases
culminating in Davao City Water District v. Civil Service
Commission[5] and just recently reiterated in De Jesus v.
Commission on Audit.[6] Petitioner maintains that LWDs are not
government-owned and controlled corporations with original
charters. Petitioner even argues that LWDs are private
corporations. Petitioner asks the Court to consider certain
interpretations of the applicable laws, which would give a new
perspective to the issue of the true character of water districts.[7]
Petitioner theorizes that what PD 198 created was the Local Waters
Utilities Administration (LWUA) and not the LWDs. Petitioner
claims that LWDs are created pursuant to and not created directly
by PD 198. Thus, petitioner concludes that PD 198 is not an
original charter that would place LWDs within the audit
jurisdiction of COA as defined in Section 2(1), Article IX-D of the
Constitution. Petitioner elaborates that PD 198 does not create
LWDs since it does not expressly direct the creation of such
entities, but only provides for their formation on an optional or
voluntary basis.[8] Petitioner adds that the operative act that
creates an LWD is the approval of the Sanggunian Resolution as
specified in PD 198.
Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the
fundamental law. The Constitution recognizes two classes of
corporations. The first refers to private corporations created
under a general law. The second refers to government-owned
or controlled corporations created by special charters. Section
16, Article XII of the 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.
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens.[9]
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.[10]
In short, Congress cannot enact a law creating a private corporation
with a special charter. Such legislation would be unconstitutional.
Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law.
Stated differently, only corporations created under a general law
can qualify as private corporations. Under existing laws, that
general law is the Corporation Code,[11] except that the
Cooperative Code governs the incorporation of cooperatives.[12]
The Constitution authorizes Congress to create government-owned
or controlled corporations through special charters. Since private
corporations cannot have special charters, it follows that Congress
can create corporations with special charters only if such
corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are
not created under the Corporation Code. LWDs are not
registered with the Securities and Exchange Commission.
Section 14 of the Corporation Code states that [A]ll
corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation
x x x. LWDs have no articles of incorporation, no incorporators
and no stockholders or members. There are no stockholders or
members to elect the board directors of LWDs as in the case of
all corporations registered with the Securities and Exchange
Commission. The local mayor or the provincial governor
appoints the directors of LWDs for a fixed term of office. This
Court has ruled that LWDs are not created under the
Corporation Code, thus:
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.[13] (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special
charter. Since under the Constitution only government-owned or
controlled corporations may have special charters, LWDs can
validly exist only if they are government-owned or controlled. To
claim that LWDs are private corporations with a special charter is
to admit that their existence is constitutionally infirm.
Unlike private corporations, which derive their legal existence
and power from the Corporation Code, LWDs derive their
legal existence and power from PD 198. Sections 6 and 25 of PD
198[14] provide:
Section 6. Formation of District. This Act is the source of
authorization and power to form and maintain a district. For
purposes of this Act, a district shall be considered as a quasi-
public corporation performing public service and supplying
public wants. As such, a district shall exercise the powers,
rights and privileges given to private corporations under
existing laws, in addition to the powers granted in, and subject
to such restrictions imposed, under this Act.
(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.
(b) A description of the boundary of the district. In the case of a
city or municipality, such boundary may include all lands within
the city or municipality. A district may include one or more
municipalities, cities or provinces, or portions thereof.
(c) A statement completely transferring any and all waterworks
and/or sewerage facilities managed, operated by or under the
control of such city, municipality or province to such district upon
the filing of resolution forming the district.
(d) A statement identifying the purpose for which the district is
formed, which shall include those purposes outlined in Section 5
above.
(e) The names of the initial directors of the district with the date of
expiration of term of office for each.
(f) A statement that the district may only be dissolved on the
grounds and under the conditions set forth in Section 44 of this
Title.
(g) A statement acknowledging the powers, rights and obligations
as set forth in Section 36 of this Title.
Nothing in the resolution of formation 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.
If two or more cities, municipalities or provinces, or any
combination thereof, desire to form a single district, a similar
resolution shall be adopted in each city, municipality and province.
xxx
Sec. 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. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198,
which expressly confers on LWDs corporate powers. Section 6
of PD 198 provides that LWDs shall exercise the powers, rights
and privileges given to private corporations under existing laws.
Without PD 198, LWDs would have no corporate powers. Thus,
PD 198 constitutes the special enabling charter of LWDs. The
ineluctable conclusion is that LWDs are government-owned and
controlled corporations with a special charter.
The phrase government-owned and controlled corporations
with original charters means GOCCs created under special
laws and not under the general incorporation law. There is no
difference between the term original charters and special
charters. The Court clarified this in National Service
Corporation v. NLRC[15] by citing the deliberations in the
Constitutional Commission, as follows:
THE PRESIDING OFFICER (Mr. Trenas). The session is
resumed.
Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my
original proposed amendment to now read as follows: including
government-owned or controlled corporations WITH ORIGINAL
CHARTERS. The purpose of this amendment is to indicate that
government corporations such as the GSIS and SSS, which have
original charters, fall within the ambit of the civil service.
However, corporations which are subsidiaries of these chartered
agencies such as the Philippine Airlines, Manila Hotel and Hyatt
are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the
Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the
term original charters, what exactly do we mean?
MR. ROMULO. We mean that they were created by law, by an
act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the
Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the
general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,
[16] the Court reiterated the meaning of the phrase
government-owned and controlled corporations with original
charters in this wise:
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 the 1986 Constitutional Commission in
respect of the intent and meaning of the new phrase with
original charter, 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 Corporation Code. In NASECO, the company
involved had been organized under the general incorporation
statute and was a subsidiary 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)
Petitioners contention that the Sangguniang Bayan resolution
creates the LWDs assumes that the Sangguniang Bayan has the
power to create corporations. This is a patently baseless
assumption. The Local Government Code[17] does not vest in
the Sangguniang Bayan the power to create corporations.[18]
What the Local Government Code empowers the Sangguniang
Bayan to do is to provide for the establishment of a waterworks
system subject to existing laws. Thus, Section 447(5)(vii) of the
Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. (a)
The sangguniang bayan, as the legislative body of the municipality,
shall enact ordinances, approve resolutions and appropriate funds
for the general welfare of the municipality and its inhabitants
pursuant to Section 16 of this Code and in the proper exercise of
the corporate powers of the municipality as provided for under
Section 22 of this Code, and shall:
xxx
(vii) Subject to existing laws, provide for the establishment,
operation, maintenance, and repair of an efficient waterworks
system to supply water for the inhabitants; regulate the
construction, maintenance, repair and use of hydrants, pumps,
cisterns and reservoirs; protect the purity and quantity of the water
supply of the municipality and, for this purpose, extend the
coverage of appropriate ordinances over all territory within the
drainage area of said water supply and within one hundred (100)
meters of the reservoir, conduit, canal, aqueduct, pumping station,
or watershed used in connection with the water service; and
regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system
only in accordance with the provisions of PD 198. The
Sangguniang Bayan has no power to create a corporate entity
that will operate its waterworks system. However, the
Sangguniang Bayan may avail of existing enabling laws, like
PD 198, to form and incorporate a water district. Besides, even
assuming for the sake of argument that the Sangguniang Bayan
has the power to create corporations, the LWDs would remain
government-owned or controlled corporations subject to COAs
audit jurisdiction. The resolution of the Sangguniang Bayan
would constitute an LWDs special charter, making the LWD a
government-owned and controlled corporation with an original
charter. In any event, the Court has already ruled in Baguio
Water District v. Trajano[19] that the Sangguniang Bayan
resolution is not the special charter of LWDs, thus:
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.
Petitioner further contends that a law must create directly and
explicitly a GOCC in order that it may have an original charter. In
short, petitioner argues that one special law cannot serve as
enabling law for several GOCCs but only for one GOCC. Section
16, Article XII of the Constitution mandates that Congress shall
not, except by general law,[20] provide for the creation of private
corporations. Thus, the Constitution prohibits one special law to
create one private corporation, requiring instead a general law to
create private corporations. In contrast, the same Section 16 states
that Government-owned or controlled corporations may be created
or established by special charters. Thus, the Constitution permits
Congress to create a GOCC with a special charter. There is,
however, no prohibition on Congress to create several GOCCs of
the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having
special charters does not apply to GOCCs. There is no danger of
creating special privileges to certain individuals, families or groups
if there is one special law creating each GOCC. Certainly, such
danger will not exist whether one special law creates one GOCC,
or one special enabling law creates several GOCCs. Thus,
Congress may create GOCCs either by special charters specific to
each GOCC, or by one special enabling charter applicable to a
class of GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations
because Section 6 of PD 198[21] declares that LWDs shall be
considered quasi-public in nature. Petitioners rationale is that only
private corporations may be deemed quasi-public and not public
corporations. Put differently, petitioner rationalizes that a public
corporation cannot be deemed quasi-public because such
corporation is already public. Petitioner concludes that the term
quasi-public can only apply to private corporations. Petitioners
argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of
COAs audit jurisdiction depends on the governments ownership or
control of a corporation. The nature of the corporation, whether it
is private, quasi-public, or public is immaterial.
The Constitution vests in the COA audit jurisdiction over
government-owned and controlled corporations with original
charters, as well as government-owned or controlled corporations
without original charters. GOCCs with original charters are subject
to COA pre-audit, while GOCCs without original charters are
subject to COA post-audit. GOCCs without original charters refer
to corporations created under the Corporation Code but are owned
or controlled by the government. The nature or purpose of the
corporation is not material in determining COAs audit jurisdiction.
Neither is the manner of creation of a corporation, whether under a
general or special law.
The determining factor of COAs audit jurisdiction is
government ownership or control of the corporation. In
Philippine Veterans Bank Employees Union-NUBE v. Philippine
Veterans Bank,[22] the Court even ruled that the criterion of
ownership and control is more important than the issue of
original charter, thus:
This point is important because the Constitution provides in its
Article IX-B, Section 2(1) that the Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of the
Government, including government-owned or controlled
corporations with original charters. As the Bank is not owned or
controlled by the Government although it does have an original
charter in the form of R.A. No. 3518,[23] it clearly does not fall
under the Civil Service and should be regarded as an ordinary
commercial corporation. Section 28 of the said law so provides.
The consequence is that the relations of the Bank with its
employees should be governed by the labor laws, under which in
fact they have already been paid some of their claims. (Emphasis
supplied)
Certainly, the government owns and controls LWDs. The
government organizes LWDs in accordance with a specific law, PD
198. There is no private party involved as co-owner in the creation
of an LWD. Just prior to the creation of LWDs, the national or
local government owns and controls all their assets. The
government controls LWDs because under PD 198 the municipal
or city mayor, or the provincial governor, appoints all the board
directors of an LWD for a fixed term of six years.[24] The board
directors of LWDs are not co-owners of the LWDs. LWDs have no
private stockholders or members. The board directors and other
personnel of LWDs are government employees subject to civil
service laws[25] and anti-graft laws.[26]
While Section 8 of PD 198 states that [N]o public official shall
serve as director of an LWD, it only means that the appointees to
the board of directors of LWDs shall come from the private sector.
Once such private sector representatives assume office as directors,
they become public officials governed by the civil service law and
anti-graft laws. Otherwise, Section 8 of PD 198 would contravene
Section 2(1), Article IX-B of the Constitution declaring that the
civil service includes government-owned or controlled
corporations with original charters.
If LWDs are neither GOCCs with original charters nor GOCCs
without original charters, then they would fall under the term
agencies or instrumentalities of the government and thus still
subject to COAs audit jurisdiction. However, the stark and
undeniable fact is that the government owns LWDs. Section 45[27]
of PD 198 recognizes government ownership of LWDs when
Section 45 states that the board of directors may dissolve an LWD
only on the condition that another public entity has acquired the
assets of the district and has assumed all obligations and liabilities
attached thereto. The implication is clear that an LWD is a public
and not a private entity.
Petitioner does not allege that some entity other than the
government owns or controls LWDs. Instead, petitioner advances
the theory that the Water Districts owner is the District itself.[28]
Assuming for the sake of argument that an LWD is self-owned,[29]
as petitioner describes an LWD, the government in any event
controls all LWDs. First, government officials appoint all LWD
directors to a fixed term of office. Second, any per diem of LWD
directors in excess of P50 is subject to the approval of the Local
Water Utilities Administration, and directors can receive no other
compensation for their services to the LWD.[30] Third, the Local
Water Utilities Administration can require LWDs to merge or
consolidate their facilities or operations.[31] This element of
government control subjects LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs
became private entities through the transfer of ownership of water
facilities from local government units to their respective water
districts as mandated by PD 198. Petitioner is grasping at straws.
Privatization involves the transfer of government assets to a private
entity. Petitioner concedes that the owner of the assets transferred
under Section 6 (c) of PD 198 is no other than the LWD itself.[32]
The transfer of assets mandated by PD 198 is a transfer of the
water systems facilities managed, operated by or under the control
of such city, municipality or province to such (water) district.[33]
In short, the transfer is from one government entity to another
government entity. PD 198 is bereft of any indication that the
transfer is to privatize the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the
government owns and controls LWDs, Section 20 of PD 198
prevents COA from auditing LWDs. [34] Section 20 of PD 198
provides:
Sec. 20. System of Business Administration. The Board shall, as
soon as practicable, prescribe and define by resolution a system of
business administration and accounting for the district, which shall
be patterned upon and conform to the standards established by the
Administration. Auditing shall be performed by a certified
public accountant not in the government service. The
Administration may, however, conduct annual audits of the fiscal
operations of the district to be performed by an auditor retained by
the Administration. Expenses incurred in connection therewith
shall be borne equally by the water district concerned and the
Administration.[35] (Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COA auditors, or
any government auditor for that matter, from auditing LWDs.
Petitioner asserts that this is the import of the second sentence of
Section 20 of PD 198 when it states that [A]uditing shall be
performed by a certified public accountant not in the government
service.[36]
PD 198 cannot prevail over the Constitution. No amount of
clever legislation can exclude GOCCs like LWDs from COAs
audit jurisdiction. Section 3, Article IX-C of the Constitution
outlaws any scheme or devise to escape COAs audit
jurisdiction, thus:
Sec. 3. No law shall be passed exempting any entity of the
Government or its subsidiary in any guise whatever, or any
investment of public funds, from the jurisdiction of the
Commission on Audit. (Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D
of the Constitution precisely to annul provisions of Presidential
Decrees, like that of Section 20 of PD 198, that exempt GOCCs
from COA audit. The following exchange in the deliberations
of the Constitutional Commission elucidates this intent of the
framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the
amended committee report which reads: NO LAW SHALL BE
PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT
OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY
INVESTMENTS OF PUBLIC FUNDS, FROM THE
JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took
advantage of the absence of a legislature in the past to obtain
presidential decrees exempting themselves from the
jurisdiction of the Commission on Audit, one notable example of
which is the Philippine National Oil Company which is really an
empty shell. It is a holding corporation by itself, and strictly on its
own account. Its funds were not very impressive in quantity but
underneath that shell there were billions of pesos in a multiplicity
of companies. The PNOC the empty shell under a presidential
decree was covered by the jurisdiction of the Commission on
Audit, but the billions of pesos invested in different corporations
underneath it were exempted from the coverage of the Commission
on Audit.
Another example is the United Coconut Planters Bank. The
Commission on Audit has determined that the coconut levy is a
form of taxation; and that, therefore, these funds attributed to the
shares of 1,400,000 coconut farmers are, in effect, public funds.
And that was, I think, the basis of the PCGG in undertaking that
last major sequestration of up to 94 percent of all the shares in the
United Coconut Planters Bank. The charter of the UCPB, through a
presidential decree, exempted it from the jurisdiction of the
Commission on Audit, it being a private organization.
So these are the fetuses of future abuse that we are slaying right
here with this additional section.
May I repeat the amendment, Madam President: NO LAW SHALL
BE PASSED EXEMPTING ANY ENTITY OF THE
GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE
WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS,
FROM THE JURISDICTION OF THE COMMISSION ON
AUDIT.
THE PRESIDENT: May we know the position of the Committee
on the proposed amendment of Commissioner Ople?
MR. JAMIR: If the honorable Commissioner will change the
number of the section to 4, we will accept the amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new
amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of
Commissioner Ople.
Is that not included in Section 2 (1) where it states: (c)
government-owned or controlled corporations and their
subsidiaries? So that if these government-owned and controlled
corporations and their subsidiaries are subjected to the audit of the
COA, any law exempting certain government corporations or
subsidiaries will be already unconstitutional.
So I believe, Madam President, that the proposed amendment is
unnecessary.
MR. MONSOD: Madam President, since this has been accepted,
we would like to reply to the point raised by Commissioner de
Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the
situation that happened in the past, because the same provision was
in the 1973 Constitution and yet somehow a law or a decree was
passed where certain institutions were exempted from audit. We are
just reaffirming, emphasizing, the role of the Commission on Audit
so that this problem will never arise in the future.[37]
There is an irreconcilable conflict between the second sentence of
Section 20 of PD 198 prohibiting COA auditors from auditing
LWDs and Sections 2(1) and 3, Article IX-D of the Constitution
vesting in COA the power to audit all GOCCs. We rule that the
second sentence of Section 20 of PD 198 is unconstitutional since
it violates Sections 2(1) and 3, Article IX-D of the Constitution.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for
audit services violate the prohibition in Section 18 of RA 6758,
[38] which states:
Sec. 18. Additional Compensation of Commission on Audit
Personnel and of other Agencies. In order to preserve the
independence and integrity of the Commission on Audit (COA), its
officials and employees are prohibited from receiving salaries,
honoraria, bonuses, allowances or other emoluments from any
government entity, local government unit, government-owned or
controlled corporations, and government financial institutions,
except those compensation paid directly by COA out of its
appropriations and contributions.
Government entities, including government-owned or controlled
corporations including financial institutions and local government
units are hereby prohibited from assessing or billing other
government entities, including government-owned or controlled
corporations including financial institutions or local government
units for services rendered by its officials and employees as part of
their regular functions for purposes of paying additional
compensation to said officials and employees. (Emphasis supplied)
Claiming that Section 18 is absolute and leaves no doubt,[39]
petitioner asks COA to discontinue its practice of charging auditing
fees to LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving
any kind of compensation from any government entity except
compensation paid directly by COA out of its appropriations
and contributions. Thus, RA 6758 itself recognizes an exception
to the statutory ban on COA personnel receiving compensation
from GOCCs. In Tejada v. Domingo,[40] the Court declared:
There can be no question that Section 18 of Republic Act No. 6758
is designed to strengthen further the policy x x x to preserve the
independence and integrity of the COA, by explicitly
PROHIBITING: (1) COA officials and employees from receiving
salaries, honoraria, bonuses, allowances or other emoluments from
any government entity, local government unit, GOCCs and
government financial institutions, except such compensation paid
directly by the COA out of its appropriations and
contributions, and (2) government entities, including GOCCs,
government financial institutions and local government units from
assessing or billing other government entities, GOCCs,
government financial institutions or local government units for
services rendered by the latters officials and employees as part of
their regular functions for purposes of paying additional
compensation to said officials and employees.
xxx
The first aspect of the strategy is directed to the COA itself, while
the second aspect is addressed directly against the GOCCs and
government financial institutions. Under the first, COA
personnel assigned to auditing units of GOCCs or government
financial institutions can receive only such salaries, allowances
or fringe benefits paid directly by the COA out of its
appropriations and contributions. The contributions referred
to are the cost of audit services earlier mentioned which cannot
include the extra emoluments or benefits now claimed by
petitioners. The COA is further barred from assessing or billing
GOCCs and government financial institutions for services rendered
by its personnel as part of their regular audit functions for purposes
of paying additional compensation to such personnel. x x x.
(Emphasis supplied)
In Tejada, the Court explained the meaning of the word
contributions in Section 18 of RA 6758, which allows COA to
charge GOCCs the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost of
audit services which are based on the actual cost of the audit
function in the corporation concerned plus a reasonable rate to
cover overhead expenses. The actual audit cost shall include
personnel services, maintenance and other operating expenses,
depreciation on capital and equipment and out-of-pocket expenses.
In respect to the allowances and fringe benefits granted by the
GOCCs to the COA personnel assigned to the formers auditing
units, the same shall be directly defrayed by COA from its own
appropriations x x x. [41]
COA may charge GOCCs actual audit cost but GOCCs must pay
the same directly to COA and not to COA auditors. Petitioner has
not alleged that COA charges LWDs auditing fees in excess of
COAs actual audit cost. Neither has petitioner alleged that the
auditing fees are paid by LWDs directly to individual COA
auditors. Thus, petitioners contention must fail.
WHEREFORE, the Resolution of the Commission on Audit
dated 3 January 2000 and the Decision dated 30 January 2001
denying petitioners Motion for Reconsideration are
AFFIRMED. The second sentence of Section 20 of Presidential
Decree No. 198 is declared VOID for being inconsistent with
Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-
Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-
Morales, Callejo, Sr., and Azcuna, and Tinga, JJ., concur.
[1] Under Rule 64 of the 1997 Revised Rules of Court.
[2] As amended by Presidential Decrees Nos. 768 and 1479.
[3] G.R. No. 95237-38, 13 September 1991, 201 SCRA 593.
[4] Section 26, Government Auditing Code of the Philippines.
[5] Supra note 3.
[6] G.R. No. 149154, 10 June 2003.
[7] Rollo, p. 7.
[8] Ibid., p. 29.
[9] See National Development Company v. Philippine Veterans
Bank, G.R. Nos. 84132-33, 10 December 1990, 192 SCRA 257.
[10] BERNAS, THE 1987 CONSTITUTION OF THE REPUBLIC
OF THE PHILIPPINES: A COMMENTARY 1181 (2003).
[11] Batas Pambansa Blg. 68.
[12] Republic Act. No. 6938. See also Republic Act No. 6939 or
the Cooperative Development Authority Law.
[13] Supra note 3.
[14] As amended by PD 1479.
[15] G.R. No. L-69870, 29 November 1988, 168 SCRA 122.
[16] Supra note 3.
[17] Republic Act No. 7160.
[18] See Section 447 of the Local Government Code on the powers
of the Sangguniang Bayan.
[19] 212 Phil. 674 (1984).
[20] Emphasis supplied.
[21] As amended by PD 1479.
[22] G.R. No. 67125, 24 August 1990, 189 SCRA 14.
[23] Under Section 3 of Republic Act No. 7169 which took effect
on 2 January 1992, the operations and changes in the capital
structure of the Veterans Bank, as well as other amendments to its
articles of incorporation and by-laws as prescribed under Republic
Act No. 3518, shall be in accordance with the Corporation Code,
the General Banking Act, and other related laws.
[24] Section 3 (b) of PD 198 provides:
(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 local water
districts are within the boundary of any city or municipality, the
appointing authority shall be the mayor of the 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 Republic of the Philippines
municipality established as a water district under this Decree is Supreme Court
operated and managed by the province, initial appointment shall be Manila
extended by the governor of the province. Subsequent
appointments shall be as specified as herein. THIRD DIVISION
If portions of more than one province are included within the
boundary of the district, and the appointing authority is to be the PHILIPPINE ECONOMIC ZONE AUTHORITY G.R. No.
governor, then the power to appoint shall rotate between the (PEZA) and PHILIPPINE ECONOMIC ZONE 168668
governors involved with the initial appointments made by the AUTHORITY BOARD, REPRESENTED BY ITS
governor in whose province the greatest number of service DIRECTOR GENERAL LILIA B. DE LIMA,
connections exists. Petitioners,
[25] Baguio Water District v. Trajano, supra note 20; Davao City
Water District v. Civil Service Commission, supra note 3.
[26] Morales v. People, G.R. No. 144047, 26 July 2002, 385 SCRA - versus -
259.
[27] As amended by PD 768.
[28] Rollo, p. 16. PEARL CITY MANUFACTURING
[29] Ibid. COROPORATION, BERNARDINO ABALA,
[30] Section 13, PD 198. ROGINA ABALA, JOVELYN ABELLANA,
[31] Section 43, PD 198. CATHERINE AGAPAY, JOSEPH AGAPAY,
[32] Rollo, p. 644. ROLANDO AGAPAY, VIVENCIA ALANGILAN,
[33] Section 6(c) of PD 198, as amended by PD 768. CONCHITA ALBARACIN, LEONOR AMODIA,
[34] Supra note 2. WILSON ARCILLA, JOAN AYING, MA.
[35] Section 20 of PD 198, as amended by PD 768. REBECCA BAYON, MARY ANN BESTEIS,
[36] Rollo, p. 9. MARIFI CABARDO, HAZEL CALA, CARMEN
[37] Record of the Constitutional Commission, Vol. I, pp. 606-607. CASTIL, LEONARD CASTIL, JICARDO CASTRO,
[38] Compensation and Position Classification Act of 1989. ESTHER CEBALLOS, EUSEBIO CENIZA,
[39] Rollo, p. 11. GEMMA CENIZA, MERCHU CHUA, LEONARDA
[40] G.R. No. 91860, 13 January 1992, 205 SCRA 138. CUEVA, VICTORIA DACAY, ESTRELLITA
[41] Ibid. DEIPARINE, DEXTER DEL CASTILLO,
MAURINO DEVIBAR, JOSEPHINE DIZON, IAN
DIZON, LORNA DUPIT, RIZZA DURANO,
LUCITA FERNANDEZ, GODOFREDO GAC-ANG,
THELMA GALLARDO, MA. LOURDES GIT-
GANO, SONNY GO, JULIET GUTIERREZ,
SAMUEL GUTIERREZ, MELBA HERMOSI-SIMA,
JUVANE INTO, JOSEFINA ISAGAN, LOUIE
ISAGAN, FE JARON, JUDY JARON, FLORENCIA
LABISTE, JOSEFINA LAMANILAO, JIMMY
LATONIO, MARIFI LAVINNA, JONJON LAYOS,
LOLIT LIBRES, RENFEL ALMEDA, RAUL
BARBOSA, ALFIE DURADO, NOEL GO, LORENA
LOMACTOD, SULPICIO MABUG-AT, RODRIGO
MALAZARTE, ROSALINA MANGUBAT, DARIO
MANSAY, ARLENE MARIOT, MELCHOR
MATOS, VERGENIA MATOS, PONSITO
MATURAN, ROBINSON MEJOS, GUADALUPE Promulg
MIAO, ADORACION OPONG, ROGER PAGAL, ated:
ZENA PANTONIAL, LIBRADA PAREJA, ARIEL
PATALINGHUG, TERESA PATALINGHUG, Decembe
EDESA PATIGAYON, LUCITA PAYAC, JONA r 16,
PEJANA, BENJAMIN PEPITO, JOSEPHINE 2009
PEPITO, FLORDELINA PERES, RAMEL Present: x---------------------------------------------
POGADO, ANASTACIA PONCE, YVES REYES, -----x
MA. DOLORES RIVERA, RUBELITA ROSACINA,
MICHELLE ROSAROSO, ELEUTERIO CARPI DECISION
SABERON, JR., ZENAIDA SAGUE, AIDA O, J.,*
SATIERRA, MA. SALOME SENOC, RHODELYN CORON
SENOC, MA. VICTORIA SUSUSCO, JIMMY SY, A, J., PERALTA, J.:
ISRAEL TEJERO, ROGER TEJERO, ALCIDE Chairper
TUICO, FRANKLIN TY, LARRY UY, RODINA son,
YBALANE AND VILMA ZAPANTA, VELAS This resolves the instant Petition for Review on Certiorari under
Respondents. CO, JR., Rule 45 of the Rules of Court praying for the reversal of the
PERALT Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No.
A, and 00352 dated June 22, 2005. The challenged Decision of the CA
DEL reversed and set aside the Decision[2] dated September 7, 2004 and
CASTIL Order[3] issued on January 20, 2005 of the Office of the President
LO,** (OP) in O.P. Case No. 04-G-324.
JJ.
The factual and procedural antecedents, as summarized by the CA,
are as follows:
Petitioner Corporation [herein respondent Pearl City
Manufacturing Corporation] is a PEZA-registered Ecozone Export
Enterprise located at the Mactan Economic Zone (MEZ) I in Lapu-
Lapu City, [province of Cebu] engaged in the business of recycling
and processing, for export, of used clothing into wool, fiber, cotton
fiber, polyester fiber, useable clothing and industrial rags.
Individual petitioners are the employees of the petitioner
Corporation.
Sometime in March 2004, petitioner Corporation, along with two
(2) other PEZA-registered companies importing used clothing, was
informed of a physical inventory to be conducted by the PEZA
officers in their respective zones on their businesses.
After the completion of the physical inventory on the petitioner
Corporation, PEZA officers discovered that it had an unaccounted
importation of 8,259,645 kilograms of used clothing for the period
of fifteen (15) months covering January 2003 up to March 2004.
Petitioner Corporation was then instructed to submit its explanation
regarding the said unaccounted shortage in its import-export
liquidation. After submitting the required explanation, petitioner
Corporation was subjected to a special audit conducted by PEZA to
determine the amount of wastage generated by the company.
On the basis of the results of the physical inventory and the special
audit conducted on the petitioner Corporation, respondent [herein
co-petitioner] PEZA Board passed a resolution [Resolution No. 04-
236] canceling the PEZA Registration of petitioner Corporation as
an Ecozone Export Enterprise at MEZ I.
An administrative appeal was filed by the petitioners to the Office
of the President from the resolution canceling its registration. The
case on appeal was docketed as O.P. Case No. 04-G-324. On
September 7, 2004, the Office of the President rendered a decision,
the dispositive portion of which reads as follows:
WHEREFORE premises considered, the Resolution sought to be
revoked on appeal is hereby AFFIRMED in toto.[4]
Herein respondent, Pearl City Manufacturing Corporation
(PCMC), filed a Motion for Reconsideration, but the OP denied it
in its Order dated January 20, 2005.
Aggrieved, PCMC filed a petition for review with the CA assailing
the above-mentioned Decision and Order of the OP.
On June 22, 2005, the CA rendered a Decision disposing as
follows:
WHEREFORE, in view of the foregoing premises, judgment is
hereby rendered by us GRANTING the petition filed in this case.
The Decision of the Office of the President dated September 7,
2004 in O.P. Case No. 04-G-324 and the Order dated January 20,
2005 are hereby REVERSED and SET ASIDE. The Board
Resolution No. 04-236 of the Philippine Economic Zone Authority
(PEZA) dated July 13, 2004 canceling petitioner corporation's
PEZA Registration as an Ecozone Export Enterprise at MEZ I is
hereby DECLARED NULL AND VOID.
The respondents are further ORDERED to REINSTATE all the
Ecozone privileges of the petitioner Corporation.
SO ORDERED.[5]
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT RESPONDENT PCMC WAS
AFFORDED DUE PROCESS.
2. WHETHER OR NOT THERE IS SUBSTANTIAL
EVIDENCE TO SUPPORT PEZA BOARD RESOLUTION NO.
04-236 AND THE OP DECISION AND ORDER.
3. WHETHER OR NOT THE CANCELLATION OF
RESPONDENT PCMC'S PEZA ACCREDITATION IS PROPER.
[6]
The Court finds the petition meritorious.
The Court agrees with petitioners' contention in the first issue
raised that respondent PCMC was afforded due process.
On May 11, 2004, Jimmy Sy, the General Manager of PCMC sent
a letter[7] to the Director General of PEZA explaining the
discrepancy in its import and export liquidation. Subsequently, on
May 25, 2004, Sy wrote to the Deputy Director General for
Operations of the PEZA explaining PCMC's unaccounted
shortage of imported used clothing which amounted to
8,259,645 kilograms between January 2003 and March 2004.[8]
Thereafter, Sy executed an Affidavit[9] dated May 26, 2004,
explaining the discrepancy and shortages in its import and export
accounts. This affidavit was submitted to the PEZA, the receipt of
which was duly acknowledged by the PEZA Deputy Director
General for Operations in her letter dated June 11, 2004 addressed
to Sy.
On June 14, 2003, Sy again wrote a letter[10] to the PEZA Deputy
Director General for Operations reiterating the explanations they
have earlier submitted and praying that their import permits be
approved pending investigation of their unaccounted imported
materials.
In a letter[11] dated July 5, 2004, the law firm representing PCMC
wrote a letter addressed to the Group Manager, Legal Services
Group of PEZA explaining in detail its supposed unaccounted
shortage in its business of recycling used clothing.
In the course of explaining its position, PCMC even secured letters,
[12] joint affidavits,[13] and certifications[14] from its plant
manager and various persons to show that the supposed
discrepancy in its import-export liquidations found by PEZA
investigators represented part of the waste materials generated
in its recycling business.
It is settled that in administrative proceedings, a fair and reasonable
opportunity to explain ones side suffices to meet the requirements
of due process.[15] The essence of procedural due process is
embodied in the basic requirement of notice and a real opportunity
to be heard.[16] In the recent case of Pagayanan R. Hadji-Sirad v.
Civil Service Commission,[17] the Court had the opportunity to
reiterate the following pronouncements, to wit:
In administrative proceedings, such as in the case at bar, procedural
due process simply means the opportunity to explain ones side or
the opportunity to seek a reconsideration of the action or ruling
complained of. To be heard does not mean only verbal arguments
in court; one may be heard also thru pleadings. Where opportunity
to be heard, either through oral arguments or pleadings, is
accorded, there is no denial of procedural due process.
In administrative proceedings, procedural due process has been
recognized to include the following: (1) the right to actual or
constructive notice of the institution of proceedings which may
affect a respondents legal rights; (2) a real opportunity to be heard
personally or with the assistance of counsel, to present witnesses
and evidence in ones favor, and to defend ones rights; (3) a tribunal
vested with competent jurisdiction and so constituted as to afford a
person charged administratively a reasonable guarantee of honesty
as well as impartiality; and (4) a finding by said tribunal which is
supported by substantial evidence submitted for consideration
during the hearing or contained in the records or made known to
the parties affected.[18]
In the present case, since PCMC was properly informed of the
supposed discrepancy in its import and export liquidations, that it
was given ample opportunity by the PEZA management to be
heard or to explain its side in relation to its unaccounted imported
materials and that it was subsequently informed of the decision of
the PEZA Board to cancel its registration on the basis of its
assessment of the evidence presented or lack thereof, petitioners
cannot claim that they were denied their right to due process of
law.
The Court cannot subscribe to the pronouncement of the CA that
there should have been interrogations or inquiries conducted by the
PEZA Board to give PCMC the opportunity to defend itself from
any charge directed against it.
The Court agrees with the petitioner's averment that the power and
authority to conduct inquiries is lodged with the PEZA Director
General and not with the PEZA Board. Thus, Section 14(g) of
Republic Act (R.A.) No. 7916 provides:
SEC. 14. Powers and Functions of the Director General. The
director general shall be the overall coordinator of the policies,
plans and programs of the ECOZONES. As such, he shall provide
overall supervision over and general direction to the development
and operations of these ECOZONES. He shall determine the
structure and the staffing pattern and personnel complement of the
PEZA and establish regional offices, when necessary, subject to the
approval of the PEZA Board.
In addition, he shall have the following specific powers and
responsibilities:
xxxx
g) To acquire jurisdiction, as he may deem proper, over the
protests, complaints and claims of the residents and enterprises in
the ECOZONE concerning administrative matters;
In consonance with the above-quoted authority, the PEZA Director
General is also empowered, under Section 14(h) of the same law, to
recommend to the PEZA Board the grant, approval, refusal,
amendment or termination of the ECOZONE franchises, licenses,
permits, contracts and agreements in accordance with the polices of
the said Board.
It necessarily follows from the foregoing that the primary authority
to conduct inquiries and fact-finding investigations is bestowed
upon the office of the PEZA Director General simply because no
complaint, protest or claim can be properly addressed, and neither
can any reasonable recommendation to the PEZA Board be made
by the PEZA Director General without conducting any such
inquiry or fact-finding. While nothing prohibits the PEZA Board to
conduct its own inquiry on matters brought before it, it does not
mean that the absence of such inquiry by the Board is a denial of
due process on the part of the entity being investigated. In the
present case, however, such inquiry, if conducted, would be a
superfluity considering that a physical inventory and a full-
blown audit was already made by a special team from the
PEZA Head Office and the MEZ between March 2004 and
June 2004. During the said inventory and audit, PCMC was
given sufficient opportunity to explain whether it really
incurred any shortage or whether the materials it imported
were properly disposed of or withdrawn from the MEZ. The
PEZA Board did not arbitrarily arrive at its decision to cancel
the registration of PCMC. The results of the inventory and
audit are precisely the bases upon which the cancellation was
made.
Stated differently, the audit and inventory conducted under the
direction and authority of the PEZA Director General are sufficient
for purposes of complying with the requirements of procedural due
process. Conversely, the absence of formal proceedings conducted
before the PEZA Board does not mean that the requirements of
procedural due process were not complied with.
The Court also finds it apropos to reiterate the well-settled rule that
in administrative proceedings, technical rules of procedure and
evidence are not strictly applied and administrative due process
cannot be fully equated with due process in its strict judicial sense.
[19] In fact, it is well settled that, in administrative cases, the
requirement of notice and hearing does not connote full adversarial
or trial type proceedings.[20]

Moreover, it is not legally objectionable for an administrative
agency to resolve a case based solely on position papers, affidavits
or documentary evidence submitted by the parties, as affidavits of
witnesses may take the place of their direct testimonies.[21] In the
present case, the various letters of explanation, as well as
certifications, joint affidavits and other documents, submitted
by the PCMC constitute evidence to support its contentions
and are sufficient bases for the PEZA Board to arrive at a
sound decision with respect to the present case.
In any event, the Court agrees with petitioners that any procedural
defect in the proceedings before the PEZA Board was cured when
the PCMC appealed PEZA Board Resolution No. 04-236 before
the OP. Petitioners were also able to move for the reconsideration
of the adverse ruling of the OP. In Autencio v. Maara,[22] the
Court ruled that where the party has the opportunity to appeal or
seek reconsideration of the action or ruling complained of, defects
in procedural due process may be cured. Likewise, in Gonzales v.
Civil Service Commission,[23] the Court ruled that any seeming
defect in the observance of due process is cured by the filing of a
motion for reconsideration and that denial of due process cannot be
successfully invoked by a party who has had the opportunity to be
heard thereon.
Respondents insist that the question of whether the PCMC was
denied its right to due process of law is a question of fact which is
not proper in a petition for review on certiorari.
It is already a well-settled rule that the jurisdiction of this Court in
cases brought before it from the Court of Appeals by virtue of Rule
45 of the Revised Rules of Court is limited to reviewing errors of
law. Findings of fact of the CA are conclusive upon this Court.
There are, however, recognized exceptions to the foregoing rule,
namely: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the interference
made is manifestly mistaken, absurd, or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when, in making its findings, the Court of Appeals
went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (7) when the
findings are contrary to those of the trial court; (8) when the
findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as
well as in the petitioners main and reply briefs are not disputed by
the respondent; and (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence
on record.[24]
The present case falls under the seventh exception considering that
the PEZA Board and the OP, on one hand, and the CA, on the
other, arrived at conflicting findings of fact. This necessitates a
review of the evidence on record which leads the Court to the
conclusion, as earlier discussed, that the OP did not err in ruling
that the PCMC was not denied its right to due process of law.
Anent the second issue raised, the Court agrees with the petitioners'
averment that the Resolution of the PEZA Board, which was
affirmed by the Decision of the OP, is supported by substantial
evidence.
Petitioners correctly argue that the CA erred in holding that the
PCMC was able to sufficiently explain the adverse findings of the
PEZA in the audit and physical inventory that the PEZA
conducted. The Court notes that the CA did not specify the reasons
why it made such pronouncement. On the other hand, it is clear
from the letter[25] dated June 11, 2004 of the PEZA Deputy
Director General for Operations addressed to Sy that the PEZA
finds Sy's explanation of PCMCs shortage as inadequate,
specifying therein the grounds for such finding. In the same
manner, the Group Manager of the Legal Services Group of
PEZA in a subsequent letter[26] to Sy dated June 17, 2004,
reiterated the findings of the PEZA Deputy Director General
for Operations. He also specified the reasons why the PEZA
Audit Team found the explanations of the PCMC's Plant
Manager as unsatisfactory. Despite these letters directing the
PCMC to submit all essential documents to substantiate its
claims, PCMC still failed to do so.
In this regard, the Court quotes with approval the disquisition made
by the OP in resolving petitioners' Motion for Reconsideration of
the Decision of the OP, dated September 7, 2004, to wit:
In answer to the many requests of PEZA to submit affidavits and
documents in support of its position, Petitioner submitted
inadequate explanations. Its statements attributing the
unaccountable shortages to an honest mistake [where the clerk
assigned to record its importations in kilograms vis-a-vis pounds
was new in his job and relatively inexperienced] and that it could
not produce the required importation records because these were
destroyed when heavy rains drenched their office, are at best, self-
serving. Thus, the failure on the part of Petitioner to account for the
importation shortages, as well as the proper disposal of waste,
constitutes prima facie proof that the goods or merchandise were
illegally sent out of the restricted areas.[27]
Settled is the rule that Courts will not interfere in matters which are
addressed to the sound discretion of the government agency
entrusted with the regulation of activities coming under the special
and technical training and knowledge of such agency.[28]
Administrative agencies are given wide latitude in the evaluation
of evidence and in the exercise of their adjudicative functions,
latitude which includes the authority to take judicial notice of facts
within their special competence.[29] Based on the foregoing
discussions, the Court finds that the PEZA Board and the OP
were correct in ruling that, based on the evidence presented, or
the insufficiency thereof, the PCMC failed to account for the
unexplained shortage in its imported materials between
January 2003 and March 2004.
Lastly, the Court agrees with petitioners that the cancellation of the
PCMC's registration as an ECOZONE enterprise is warranted by
the law. Section 8(c), Rule XXV, Part XI of the Rules and
Regulations to Implement R.A. No. 7916 provides, thus:
C. Cancellation/Revocation Registration, permit and/or franchise
of an ECOZONE enterprise may be canceled for any of the
following grounds:
a. Failure to maintain the qualifications of
registration/permit/franchise as required;
b. Violation of any pertinent provisions of the Act/Code and/or
Decree; and
c. Violation of any of these Rules and Regulations, the
corresponding implementing memoranda or circulars or any of
the general and specific terms and conditions of the
Registration Agreement between the PEZA and the ECOZONE
enterprise or violation of the terms and conditions of the
permit/franchise issued by PEZA. (emphasis supplied)
xxxx
In this respect, it is worthy to note that on May 18, 1999, the PEZA
Board issued Resolution No. 99-134 imposing a fine of
P377,890.00 on the PCMC for having illegally withdrawn from its
factory in MEZ 102 bales of used clothing, weighing
approximately 5,000 kilograms, in violation of the provisions and
implementing rules and regulations of R.A. No. 7916, otherwise
known as the Special Economic Zone Act of 1995. The Resolution
stated that the PCMC violated Section 3, Rule X, Part VI,[30] in
relation to Section 8, Rule XXV, Part XI of the Rules and
Regulations Implementing R.A. No. 7916. The Resolution also
contained a final warning to the company that a similar violation in
the future shall be dealt with most severely and shall constitute a
sufficient ground for the automatic cancellation of its
registration with [PEZA].
In the presently assailed PEZA Board Resolution, it is clearly
stated therein that the PCMC's PEZA registration was canceled due
to its failure to account for the shortage in its imported used
clothing; failure to secure the required permits for the
withdrawal of goods and merchandise from specified zones;
and noncompliance with various EPZA/PEZA rules,
procedures and guidelines on the disposition of scraps and/or
excess materials, which are in violation of Section 2, Rule XI,
Part VI[31] and, again, Section 3, Rule X, Part VI of the same
Implementing Rules and Regulations. ATTESTATION

WHEREFORE, the petition is GRANTED. The assailed Decision I attest that the conclusions in the above Decision had been reached
of the Court of Appeals is REVERSED and SET ASIDE. The in consultation before the case was assigned to the writer of the
Decision of the Office of the President, dated September 7, 2004, opinion of the Courts Division.
and its Order dated January 20, 2005 in O.P. Case No. 04-G-324,
as well as Board Resolution No. 04-236 of the Philippine
Economic Zone Authority, dated July 13, 2004, are hereby
REINSTATED. RENATO C. CORONA
Associate Justice
SO ORDERED. Third Division, Chairperson
CERTIFICATION

DIOSDADO M. PERALTA Pursuant to Section 13, Article VIII of the Constitution and the
Associate Justice Division Chairpersons Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the
WE CONCUR: case was assigned to the writer of the opinion of the Courts
Division.

ANTONIO T. CARPIO
Associate Justice REYNATO S. PUNO
Chief Justice

* Additional member in lieu of Associate Justice Antonio Eduardo

RENATO C. CORONA PRESBITERO J. VELASCO, JR. B. Nachura per raffle dated December 2, 2009.
Associate Justice Associate Justice ** Additional member per Special Order No. 805 dated December
Chairperson 4, 2009.
[1] Penned by Associate Justice Isaias P. Dicdican, with Associate
Justices Pampio A. Abarintos and Sesinando E. Villon, concurring;
rollo, pp. 60-68.
MARIANO C. DEL CASTILLO [2] Annex AA to Petition for Review on Certiorari, id. at 232-233.
Associate Justice [3] Annex CC to Petition for Review on Certiorari, id. at 293-297.
[4] Rollo, pp. 63-64.
[5] Annex A to Petition for Review on Certiorari, id. at 68.
[6] Rollo, p. 32.
[7] See Annex O to Petition for Review on Certiorari, id. at 129-
130.
[8] See Annex Q to Petition for Review on Certiorari, id. at 133-
134.
[9] See Annex R to Petition for Review on Certiorari, id. at 135-
137.
[10] Records, Folder No. 1, pp. 31-32.
[11] See Annex X to Petition for Review on Certiorari, rollo, pp.
156-164.
[12] See Annexes P, P-1 and T to Petition for Review on
Certiorari, id. at 131-132, 143.
[13] See Annex V to Petition for Review on Certiorari, id. at 146-
147.
[14] See Annexes U and U-1 to Petition for Review on Certiorari,
id. at 144-145.
[15] Department of Agrarian Reform v. Samson, G.R. Nos. 161910
and 161930, June 17, 2008, 554 SCRA 500, 509.
[16] Casimiro v. Tandog, G.R. No. 146137, June 8, 2005, 459
SCRA 624, 631.
[17] G.R. No. 182267, August 28, 2009.
[18] Id.
[19] Atty. Emmanuel Pontejos v. Hon. Aniano A. Desierto and
Restituto Aquino, G.R. No. 148600, July 7, 2009.
[20] Id.
[21] Bacsasar v. Civil Service Commission, G.R. No. 180853,
January 20, 2009, 576 SCRA 787, 794.
[22] G.R. No. 152752, January 19, 2005, 449 SCRA 46, 55-56.
[23] G.R. No. 156253, June 15, 2006, 490 SCRA 741, 746.
[24] Citibank, N.A. (Formerly First National City Bank) v.
Sabeniano, G.R. No. 156132, October 16, 2006, 504 SCRA 378,
409; Herbosa v. Court of Appeals, G.R. No. 119086, January 25,
2002, 374 SCRA 578, 591.
[25] See Annex S-1 to Petition for Review on Certiorari, rollo, p.
142.
[26] See Annex W-1 to Petition for Review on Cetiorari, id. at 155.
[27] See Order dated January 20, 2005, id. at 296.
[28] Department of Agrarian Reform v. Samson, supra note 15, at
510-511.
[29] Id. at 511.
[30] SEC. 3. Permits Merchandise or goods may be taken into or
brought out of the restricted areas of the ECOZONES only upon
prior approval or permit by the PEZA in accordance with its
documentation and security procedures. Permits to bring out of the
ECOZONES said merchandise or goods must be secured by the
Export or Free Trade Enterprise from the PEZA prior to loading or
before the release of said merchandise or goods from the factory
premises or warehouse of the enterprise. Merchandise or goods
brought out of the factory premises or warehouse of the Export or
Free Trade Enterprise without the required prior permit from the
PEZA shall be considered as a violation of this Section although
the said merchandise or goods are still within or inside the
restricted areas or boundaries of the ECOZONE.
[31] SEC. 2. Shortage and Overage In case of failure to account
for shortages on raw material, machineries, equipment, supplies or
goods for personal usage, imported tax and duty free pursuant to
the Act, the same shall constitute prima facie proof that such goods
or merchandise were illegally sent out of the restricted areas of the
ECOZONE and/or to the customs territory. In such case, the
enterprise concerned shall be imposed the corresponding fines,
taxes and duties in accordance with the applicable provisions of
these Rules, Customs and Internal Revenue Laws.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the
PHILIPPINE RECLAMATION AUTHORITY (PRA),
Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, on pure questions of law, assailing the
January 8, 2010 Order1 of the Regional Trial Court, Branch 195,
Parafiaque City (RTC), which ruled that petitioner Philippine
Reclamation Authority (PRA) is a government-owned and
controlled corporation (GOCC), a taxable entity, and, therefore, .
not exempt from payment of real property taxes. The pertinent
portion of the said order reads:
In view of the finding of this court that petitioner is not exempt
from payment of real property taxes, respondent Parañaque City
Treasurer Liberato M. Carabeo did not act xxx without or in excess
of jurisdiction, or with grave abuse of discretion amounting to lack
or in excess of jurisdiction in issuing the warrants of levy on the
subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for
Leave to File and Admit Attached Supplemental Petition is denied
and the supplemental petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation
created by virtue of Presidential Decree (P.D.) No. 1084 (Creating
the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took
effect on February 4,
1977 to provide a coordinated, economical and efficient
reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by, the government with the
object of maximizing their utilization and hastening their
development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525
issued by then President Ferdinand Marcos, PEA was designated as
the agency primarily responsible for integrating, directing and
coordinating all reclamation projects for and on behalf of the
National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo
issued E.O. No. 380 transforming PEA into PRA, which shall
perform all the powers and functions of the PEA relating to
reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the
foreshore and offshore areas of Manila Bay, including those located
in Parañaque City, and was issued Original Certificates of Title
(OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer
Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685,
and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M.
Carabeo (Carabeo) issued Warrants of Levy on PRA’s reclaimed
properties (Central Business Park and Barangay San Dionisio)
located in Parañaque City based on the assessment for delinquent
real property taxes made by then Parañaque City Assessor Soledad
Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with
prayer for temporary restraining order (TRO) and/or writ of
preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order
denying PRA’s petition for the issuance of a temporary restraining
order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter
not to proceed with the public auction of the subject reclaimed
properties on April 7, 2003. In response, Carabeo sent a letter
stating that the public auction could not be deferred because the
RTC had already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance
of a writ of preliminary injunction for being moot and academic
considering that the auction sale of the subject properties on April
7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the
failure of both parties to arrive at a compromise agreement, PRA
filed a Motion for Leave to File and Admit Attached Supplemental
Petition which sought to declare as null and void the assessment
for real property taxes, the levy based on the said assessment, the
public auction sale conducted on April 7, 2003, and the Certificates
of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing
PRA’s petition. In ruling that PRA was not exempt from payment
of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock
corporation because it had an authorized capital stock divided into
no par value shares. In fact, PRA admitted its corporate personality
and that said properties were registered in its name as shown by the
certificates of title. Therefore, as a GOCC, local tax exemption is
withdrawn by virtue of Section 193 of Republic Act (R.A.) No.
7160 Local Government Code (LGC) which was the prevailing law
in 2001 and 2002 with respect to real property taxation. The RTC
also ruled that the tax exemption claimed by PRA under E.O. No.
654 had already been expressly repealed by R.A. No. 7160 and that
PRA failed to comply with the procedural requirements in Section
206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing
the January 8, 2010 RTC Order based on the following GROUNDS
I make it a corporation but merely an incorporated instrumentality
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON
THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED
INSTRUMENTALITY OF THE NATIONAL GOVERNMENT
AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL
PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE
VIS-À-VIS MANILA INTERNATIONAL AIRPORT
AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO
CONSIDER THAT RECLAIMED LANDS ARE PART OF THE
PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the
Introductory Provisions of the Administrative Code. Neither is it a
GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability.
Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into
shares, it is not authorized to distribute dividends and allotment of
surplus and profits to its stockholders. Therefore, it may not be
classified as a stock corporation because it lacks the second
requisite of a stock corporation which is the distribution of
dividends and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation
because it has no members and it is not organized for charitable,
religious, educational, professional, cultural, recreational, fraternal,
literary, scientific, social, civil service, or similar purposes, like
trade, industry, agriculture and like chambers as provided in
Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the
market place as there was no competing reclamation company
operated by the private sector. Also, while PRA is vested with
corporate powers under P.D. No. 1084, such circumstance does not
and that the mere fact that an incorporated instrumentality of the
National Government holds title to real property does not make
said instrumentality a GOCC. Section 48, Chapter 12, Book I of
the Administrative Code of 1987 recognizes a scenario where a
piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the
National Government, it is exempt from payment of real property
tax except when the beneficial use of the real property is granted to
a taxable person. PRA claims that based on Section 133(o) of the
LGC, local governments cannot tax the national government which
delegate to local governments the power to tax.
It explains that reclaimed lands are part of the public domain,
owned by the State, thus, exempt from the payment of real estate
taxes. Reclaimed lands retain their inherent potential as areas for
public use or public service. While the subject reclaimed lands are
still in its hands, these lands remain public lands and form part of
the public domain. Hence, the assessment of real property taxes
made on said lands, as well as the levy thereon, and the public sale
thereof on April 7, 2003, including the issuance of the certificates
of sale in favor of the respondent Parañaque City, are invalid and of
no force and effect.
On the other hand, the City of Parañaque (respondent) argues that
PRA since its creation consistently represented itself to be a
GOCC. PRA’s very own charter (P.D. No. 1084) declared it to be a
GOCC and that it has entered into several thousands of contracts
where it represented itself to be a GOCC. In fact, PRA admitted in
its original and amended petitions and pre-trial brief filed with the
RTC of Parañaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an
authorized capital stock divided into 3 million no par value shares,
out of which 2 million shares have been subscribed and fully paid
up. Section 193 of the LGC of 1991 has withdrawn tax exemption
privileges granted to or presently enjoyed by all persons, whether
natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of
real property tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative
Code of 1987 defines a GOCC as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of
the Administrative Code defines a government "instrumentality" as
follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be
"organized as a stock or non-stock corporation" while an
instrumentality is vested by law with corporate powers. 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.
When the law vests in a government instrumentality corporate
powers, the instrumentality does not necessarily 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.
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 GOCC. 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. They are not, however, GOCCs in
the strict sense as understood under the Administrative Code,
which is the governing law defining the legal relationship and
status of government entities.2
Correlatively, 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." Section 87 thereof defines a non-stock corporation as "one
where no part of its income is distributable as dividends to its
members, trustees or officers." Further, Section 88 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."
Two requisites must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into
shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one
requisite is present, it cannot be properly classified as a stock
corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to said
members.3
In the case at bench, PRA is not a GOCC because it is neither a
stock nor a non-stock corporation. It cannot be considered as a
stock corporation because although it has a capital stock divided
into no par value shares as provided in Section 74 of P.D. No.
1084, it is not authorized to distribute dividends, surplus allotments
or profits to stockholders. There is no provision whatsoever in P.D.
No. 1084 or in any of the subsequent executive issuances
pertaining to PRA, particularly, E.O. No. 525,5 E.O. No. 6546 and
EO No. 7987 that authorizes PRA to distribute dividends, surplus
allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because
it does not have members. A non-stock corporation must have
members.8 Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it
was created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be
classified as a GOCC. Section 16, Article XII of the 1987
Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create
GOCCs through special charters on two conditions: 1) the GOCC
must be established for the common good; and 2) the GOCC must
meet the test of economic viability. In this case, PRA may have
passed the first condition of common good but failed the second
one - economic viability. Undoubtedly, the purpose behind the
creation of PRA was not for economic or commercial activities.
Neither was it created to compete in the market place considering
that there were no other competing reclamation companies being
operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it
was primarily responsible for a coordinated, economical and
efficient reclamation, administration and operation of lands
belonging to the government with the object of maximizing their
utilization and hastening their development consistent with the
public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the
State to provide for a coordinated, economical and efficient
reclamation of lands, and the administration and operation of lands
belonging to, managed and/or operated by the government, with
the object of maximizing their utilization and hastening their
development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the
following purposes:
(a) To reclaim land, including foreshore and submerged areas, by
dredging, filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide,
dispose, lease and sell any and all kinds of lands, buildings, estates
and other forms of real property, owned, managed, controlled
and/or operated by the government.
(c) To provide for, operate or administer such services as may be
necessary for the efficient, economical and beneficial utilization of
the above properties.
The twin requirement of common good and economic viability was
lengthily discussed in the case of Manila International Airport
Authority v. Court of Appeals,9 the pertinent portion of which
reads:
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled
corporation must be established for the common good. The second
condition is that the government-owned or controlled corporation
must meet the test of economic viability. Section 16, Article XII of
the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other
words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic
viability. The test of economic viability applies only to
government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for
the common good — meaning for economic development purposes
— these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities
need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in
Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate powers
but performing essential governmental or public functions.
Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public
services. However, when the legislature creates through special
charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic
viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-
owned or controlled corporations, which derive their incometo
meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution
is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the purpose
of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really
that when the government creates a corporation, there is a sense in
which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers'
money through new equity infusions from the government and
what is always invoked is the common good. That is the reason
why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions
to support a few government financial institutions. And this is all
taxpayers' money which could have been relocated to agrarian
reform, to social services like health and education, to augment the
salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves from
the responsibility of meeting the market test so that they become
viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the
common good.1âwphi1
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in
the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must
show capacity to function efficiently in business and that they
should not go into activities which the private sector can do better.
Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not
quantifiable in financial terms.
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential
public services regardless of the economic viability of providing
such service. The non-economic viability of rendering such
essential public service does not excuse the State from withholding
such essential services from the public.
However, government-owned or controlled corporations with
special charters, organized essentially for economic or commercial
objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like
the Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under
the definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under
Section 2(3) of the Introductory Provisions of the Administrative
Code or under Section 16, Article XII of the 1987 Constitution.
The facts, the evidence on record and jurisprudence on the issue
support the position that PRA was not organized either as a stock
or a non-stock corporation. Neither was it created by Congress to
operate commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate powers
and performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code.
Being an incorporated government instrumentality, it is exempt
from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject
reclaimed lands managed by PRA. On the other hand, Section
234(a) of the LGC, in relation to its Section 133(o), exempts PRA
from paying realty taxes and protects it from the taxing powers of
local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the
Republic of the Philippines (the Republic) is exempt from real
property tax unless the beneficial use thereof has been granted to a
taxable person. In this case, there is no proof that PRA granted the
beneficial use of the subject reclaimed lands to a taxable entity.
There is no showing on record either that PRA leased the subject
reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the
same Code, which prohibits local governments from imposing
"taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x." 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.
Indeed, the Republic grants the beneficial use of its real property to
an agency or instrumentality of the national government. This
happens when the 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, unless "the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained in the
case of the Manila International Airport Authority,11 to wit:
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. As this Court declared in
Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In
such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments cannot
tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that
no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool
for regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the
"power to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are
still part of the public domain, owned by the State and, therefore,
exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as
follows:
Section 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated.
The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The
State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements
with Filipino citizens, or corporations or associations at least 60
per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such
terms and conditions as may provided by law. In cases of water
rights for irrigation, water supply, fisheries, or industrial uses other
than the development of waterpower, beneficial use may be the
measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties
belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of
the national wealth. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of
the foreshore and offshore areas of Manila Bay. As such, these
lands remain public lands and form part of the public domain. In
the case of Chavez v. Public Estates Authority and AMARI Coastal
Development Corporation,12 the Court held that foreshore and
submerged areas irrefutably belonged to the public domain and
were inalienable unless reclaimed, classified as alienable lands
open to disposition and further declared no longer needed for
public service. The fact that alienable lands of the public domain
were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEA’s name did not automatically make such
lands private. This Court also held therein that reclaimed lands
retained their inherent potential as areas for public use or public
service.
As the central implementing agency tasked to undertake
reclamation projects nationwide, with authority to sell reclaimed
lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by PEA are not
private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private
parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to
dispose of alienable of disposable lands of the public domain, these
lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold
lands of the public domain" as well as "any and all kinds of lands."
PEA can hold both lands of the public domain and private lands.
Thus, the mere fact that alienable lands of the public domain like
the Freedom Islands are transferred to PEA and issued land patents
or certificates of title in PEA's name does not automatically make
such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I,
Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private
Dominion 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.
Reclaimed lands such as the subject lands in issue are reserved
lands for public use. They are properties of public dominion. The
ownership of such lands remains with the State unless they are
withdrawn by law or presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the
foreshore and submerged areas of Manila Bay are part of the "lands
of the public domain, waters x x x and other natural resources" and
consequently "owned by the State." As such, foreshore and
submerged areas "shall not be alienated," unless they are classified
as "agricultural lands" of the public domain. The mere reclamation
of these areas by PEA does not convert these inalienable natural
resources of the State into alienable or disposable lands of the
public domain. There must be a law or presidential proclamation
officially classifying these reclaimed lands as alienable or
disposable and open to disposition or concession. Moreover, these
reclaimed lands cannot be classified as alienable or disposable if I certify that the conclusions in the above Decision had been
the law has reserved them for some public or quasi-public use. reached in consultation before the case was assigned to the writer
As the Court has repeatedly ruled, properties of public dominion of the opinion of the Court's Division.
are not subject to execution or foreclosure sale.14 Thus, the
assessment, levy and foreclosure made on the subject reclaimed ANTONIO T. CARPIO
lands by respondent, as well as the issuances of certificates of title Senior Associate Justice
in favor of respondent, are without basis. (Per Section 12, R.A. No. 926, The Judiciary Act of 1948, as
WHEREFORE, the petition is GRANTED. The January 8, 2010 amended)
Order of the Regional Trial Court, Branch 195, Parañaque City, is
REVERSED and SET ASIDE. All reclaimed properties owned by Footnotes
the Philippine Reclamation Authority are hereby declared * Designated Additional Member in lieu of Associate Justice
EXEMPT from real estate taxes. All real estate tax assessments, Presbitero J. Velasco, Jr., per Raffle dated July 18, 2012.
including the final notices of real estate tax delinquencies, issued 1 Rollo, pp. 50-55.
by the City of Parañaque on the subject reclaimed properties; the 2 Manila International Airport Authority v. Court of Appeals, G.R.
assailed auction sale, dated April 7, 2003; and the Certificates of No. 155650, July 20, 2006, 495 SCRA 618-619.
Sale subsequently issued by the Parañaque City Treasurer in favor 3 Philippine Fisheries Development Authority v. Court of Appeals,
of the City of Parañaque, are all declared VOID. G.R. No. 169836, July 31, 2007, 528 SCRA 706, 712.
SO ORDERED. 4 Section 7. Capital Stock. The Authority shall have an authorized
JOSE CATRLA MENDOZA capital stock divided into THREE MILLION (3,000,000) no par
Associate justice value shares to be subscribed and paid for as follows:
WE CONCUR: (a) TWO MILLION (2,000,000) shares shall be originally
DIOSDADO M. PERALTA subscribed and paid for by the Republic of the Philippines by the
Associate justice transfer, conveyance and assignment of all the rights and interest of
Acting Chairperson the Republic of the Philippines in that contract executed by and
MARIANO C. ROBERTO between the Construction and Development Corporation of the
DEL CASTILLO* A. ABAD Philippines and the Bureau of Public Highways on November 20,
Associate Justice Associate 1973 the fair value of such rights and interests to be determined by
Justice the Board of Directors and approved by the President of the
ESTELA M. PERLAS-BERNABE Philippines and the amount of FIVE MILLION (₱ 5,000,000.00)
Associate justice PESOS in cash;
ATT E S TAT I O N (b) The remaining ONE MILLION (1,000,000) shares of stock
I attest that the conclusions in the above Decision had been reached may be subscribed and paid for by the Republic of the Philippines
in consultation before the case was assigned to the writer of the or by government financial institutions at values to be determined
opinion of the Court's Division. by the Board and approved by the President of the Philippines.
DIOSDADO M. PERALTA The fair value of the interests hereby transferred shall, for all
Associate justice intents and purposes, be considered as paid-up capital pertaining to
Acting Chairperson, Third Division the government of the Republic of the Philippines in the Authority.
C E R T I F I CAT I O N The voting power pertaining to the shares of stock subscribed by
the government of the Republic of the Philippines shall be vested
in the President of the Philippines or in such person or persons as
he may designate.
5 Entitled "Designating the Public Estates Authority as the Agency
primarily responsible for all Reclamation Projects" dated February
14, 1979.
6 Entitled "Further Defining Certain Functions and Powers of the
Public Estates Authority" dated February 26, 1981.
7 Entitled "Transferring the Philippine Reclamation Authority from
the Department of Public Works and Highways to the Department
of Environment and Natural Resources" dated May 14, 2009.
8 Manila International Airport Authority v. Court of Appeals, supra
note 2.
9 Id.
10 Local Government Code, Section 234(a).
11 Supra note 2.
12 433 Phil. 506, 589 (2002).
13 Id. at 584-585.
14 Manila International Airport Authority v. Court of Appeals,
supra note 2.