G.R. No.
177131 June 7, 2011 Under the above definition, the BSP is neither a unit of the Government; a
BOY SCOUTS OF THE PHILIPPINES, vs. COMMISSION ON AUDIT,
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 prohibition1 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. 99-0115 on August 19,
1999 ("the COA Resolution"), with the subject "Defining the Commission’s policy
with respect to the audit of the Boy Scouts of the Philippines." In its whereas
clauses, the COA Resolution stated that the BSP was created as a public
corporation under Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines
v. National Labor Relations Commission,6 the Supreme Court ruled that the BSP,
as constituted under its charter, was a "government-controlled corporation
within the meaning of Article IX(B)(2)(1) of the Constitution"; and that "the BSP
is appropriately regarded as a government instrumentality under the 1987
Administrative Code."7 The COA Resolution also cited its constitutional mandate
under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION
PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual
financial audit of the Boy Scouts of the Philippines in accordance with generally
accepted auditing standards, and express an opinion on whether the financial
statements which include the Balance Sheet, the Income Statement and the
Statement of Cash Flows present fairly its financial position and results of
operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the
Boy Scouts of the Philippines shall be classified among the government
corporations belonging to the Educational, Social, Scientific, Civic and Research
Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary
corporations, by employing the team audit approach.8 (Emphases supplied.)
The BSP sought reconsideration of the COA Resolution in a letter9 dated
November 26, 1999 signed by the BSP National President Jejomar C. Binay, who
is now the Vice President of the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the
Commission’s jurisdiction on the following grounds:
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs.
National Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP
as a government-controlled corporation is anchored on the "substantial
Government participation" in the National Executive Board of the BSP. It is to be
noted that the case was decided when the BSP Charter is defined by
Commonwealth Act No. 111 as amended by Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which amended
the BSP’s charter after the cited case was decided. The most salient of all
amendments in RA No. 7278 is the alteration of the composition of the National
Executive Board of the BSP.
The said RA virtually eliminated the "substantial government participation" in
the National Executive Board by removing: (i) the President of the Philippines
and executive secretaries, with the exception of the Secretary of Education, as
members thereof; and (ii) the appointment and confirmation power of the
President of the Philippines, as Chief Scout, over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278. Thereby
weakening the case’s conclusion that the BSP is a government-controlled
corporation (sic). The 1987 Administrative Code itself, of which the BSP vs.
NLRC relied on for some terms, defines government-owned and controlled
corporations as agencies organized as stock or non-stock corporations which the
BSP, under its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in the
BSP. What RA 7278 only provides is that the Government or any of its
subdivisions, branches, offices, agencies and instrumentalities can from time to
time donate and contribute funds to the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not "appropriately regarded as
a government instrumentality under the 1987 Administrative Code" as stated in
the COA resolution. As defined by Section 2(10) of the said code, instrumentality
refers to "any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter."
The BSP is not an entity administering special funds. It is not even included in
the DECS National Budget. x x x
It may be argued also that the BSP is not an "agency" of the Government. The
1987 Administrative Code, merely referred the BSP as an "attached agency" of
the DECS as distinguished from an actual line agency of departments that are
included in the National Budget. The BSP believes that an "attached agency" is
different from an "agency." Agency, as defined in Section 2(4) of the
Administrative Code, is defined as any of the various units of the Government
including a department, bureau, office, instrumentality, government-owned or
controlled corporation or local government or distinct unit therein.
department which refers to an executive department as created by law (Section
2[7] of the Administrative Code); nor a bureau which refers to any principal
subdivision or unit of any department (Section 2[8], Administrative Code).10
Subsequently, requests for reconsideration of the COA Resolution were also
made separately by Robert P. Valdellon, Regional Scout Director, Western
Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of
Calbayog City.11
In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit
Officer (CAO) I of the COA, furnished the BSP with a copy of the Memorandum13
dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In
said Memorandum, the COA General Counsel opined that Republic Act No. 7278
did not supersede the Court’s ruling in Boy Scouts of the Philippines v. National
Labor Relations Commission, even though said law eliminated the substantial
government participation in the selection of members of the National Executive
Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation
is only one (1) of the three (3) grounds relied upon by the Court in the
resolution of the case. Other considerations include the character of the BSP’s
purposes and functions which has a public aspect and the statutory designation
of the BSP as a "public corporation". These grounds have not been deleted by
R.A. No. 7278. On the contrary, these were strengthened as evidenced by the
amendment made relative to BSP’s purposes stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately regarded as "a government
instrumentality" and "agency" of the government, such has already been
answered and clarified. The Supreme Court has elucidated this matter in the BSP
case when it declared that BSP is regarded as, both a "government-controlled
corporation with an original charter" and as an "instrumentality" of the
Government. Likewise, it is not disputed that the Administrative Code of 1987
designated the BSP as one of the attached agencies of DECS. Being an attached
agency, however, it does not change its nature as a government-controlled
corporation with original charter and, necessarily, subject to COA audit
jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that
COA shall have the power, authority, and duty to examine, audit and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or pertaining to, the Government,
or any of its subdivisions, agencies or instrumentalities, including government-
owned or controlled corporations with original charters.14
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution
No. 99-011, we have to comply with the provisions of the latter, among which is
to conduct an annual financial audit of the Boy Scouts of the Philippines.15
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda,
CAO I, the COA informed the BSP that a preliminary survey of its organizational
structure, operations and accounting system/records shall be conducted on
November 21 to 22, 2000.16
Upon the BSP’s request, the audit was deferred for thirty (30) days. The BSP
then filed a Petition for Review with Prayer for Preliminary Injunction and/or
Temporary Restraining Order before the COA. This was denied by the COA in its
questioned Decision, which held that the BSP is under its audit jurisdiction. The
BSP moved for reconsideration but this was likewise denied under its
questioned Resolution.17
This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP
falls under the COA’s audit jurisdiction.
The Parties’ Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of
the COA as the issue therein was the jurisdiction of the National Labor Relations
Commission over a case for illegal dismissal and unfair labor practice filed by
certain BSP employees.18
While the BSP concedes that its functions do relate to those that the government
might otherwise completely assume on its own, it avers that this alone was not
determinative of the COA’s audit jurisdiction over it. The BSP further avers that
the Court in Boy Scouts of the Philippines v. National Labor Relations
Commission "simply stated x x x that in respect of functions, the BSP is akin to a
public corporation" but this was not synonymous to holding that the BSP is a
government corporation or entity subject to audit by the COA. 19
The BSP contends that Republic Act No. 7278 introduced crucial amendments to
its charter; hence, the findings of the Court in Boy Scouts of the Philippines v.
National Labor Relations Commission are no longer valid as the government has
ceased to play a controlling influence in it. The BSP claims that the
pronouncements of the Court therein must be taken only within the context of
that case; that the Court had categorically found that its assets were acquired
from the Boy Scouts of America and not from the Philippine government, and
that its operations are financed chiefly from membership dues of the Boy Scouts
themselves as well as from property rentals; and that "the BSP may correctly be
characterized as non-governmental, and hence, beyond the audit jurisdiction of
the COA." It further claims that the designation by the Court of the BSP as a
government agency or instrumentality is mere obiter dictum.20
The BSP maintains that the provisions of Republic Act No. 7278 suggest that
"governance of BSP has come to be overwhelmingly a private affair or nature,
with government participation restricted to the seat of the Secretary of
Education, Culture and Sports."21 It cites Philippine Airlines Inc. v. Commission
on Audit22 wherein the Court declared that, "PAL, having ceased to be a
government-owned or controlled corporation is no longer under the audit
jurisdiction of the COA."23 Claiming that the amendments introduced by
Republic Act No. 7278 constituted a supervening event that changed the BSP’s
corporate identity in the same way that the government’s privatization program
changed PAL’s, the BSP makes the case that the government no longer has
control over it; thus, the COA cannot use the Boy Scouts of the Philippines v.
National Labor Relations Commission as its basis for the exercise of its
jurisdiction and the issuance of COA Resolution No. 99-011.24 The BSP further
claims as follows:
It is not far-fetched, in fact, to concede that BSP’s funds and assets are private in
character. Unlike ordinary public corporations, such as provinces, cities, and
municipalities, or government-owned and controlled corporations, such as Land
Bank of the Philippines and the Development Bank of the Philippines, the assets
and funds of BSP are not derived from any government grant. For its operations,
BSP is not dependent in any way on any government appropriation; as a matter
of fact, it has not even been included in any appropriations for the government.
To be sure, COA has not alleged, in its Resolution No. 99-011 or in the
Memorandum of its General Counsel, that BSP received, receives or continues to
receive assets and funds from any agency of the government. The foregoing
simply point to the private nature of the funds and assets of petitioner BSP.
xxxx
As stated in petitioner’s third argument, BSP’s assets and funds were never
acquired from the government. Its operations are not in any way financed by the
government, as BSP has never been included in any appropriations act for the
government. Neither has the government invested funds with BSP. BSP, has not
been, at any time, a user of government property or funds; nor have properties
of the government been held in trust by BSP. This is precisely the reason why,
until this time, the COA has not attempted to subject BSP to its audit jurisdiction.
x x x.25
To summarize its other arguments, the BSP contends that it is not a government-
owned or controlled corporation; neither is it an instrumentality, agency, or
subdivision of the government.
In its Comment,26 the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111
dated October 31, 1936, and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general improvement of the moral
spirit and fiber of the youth. The manner of creation and the purpose for which
the BSP was created indubitably prove that it is a government agency.
2. Being a government agency, the funds and property owned or held in trust by
the BSP are subject to the audit authority of respondent Commission on Audit
pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government
instrumentality.27
The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues,
are undeniably sovereign functions enshrined under the Constitution and
discussed by the Court in Boy Scouts of the Philippines v. National Labor
Relations Commission. The COA contends that any attempt to classify the BSP as
a private corporation would be incomprehensible since no less than the law
which created it had designated it as a public corporation and its statutory
mandate embraces performance of sovereign functions.28
The COA claims that the only reason why the BSP employees fell within the
scope of the Civil Service Commission even before the 1987 Constitution was the
fact that it was a government-owned or controlled corporation; that as an
attached agency of the Department of Education, Culture and Sports (DECS), the
BSP is an agency of the government; and that the BSP is a chartered institution
under Section 1(12) of the Revised Administrative Code of 1987, embraced
under the term government instrumentality.29
The COA concludes that being a government agency, the funds and property
owned or held by the BSP are subject to the audit authority of the COA pursuant
to Section 2(1), Article IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the
Philippines (VFP) v. Reyes,30 wherein the Court held that among the reasons
why the VFP is a public corporation is that its charter, Republic Act No. 2640,
designates it as one. Furthermore, the COA quotes the Court as saying in that
case:
In several cases, we have dealt with the issue of whether certain specific
activities can be classified as sovereign functions. These cases, which deal with
activities not immediately apparent to be sovereign functions, upheld the public
sovereign nature of operations needed either to promote social justice or to
stimulate patriotic sentiments and love of country.
xxxx
Petitioner claims that its funds are not public funds because no budgetary
appropriations or government funds have been released to the VFP directly or
indirectly from the DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands reserved for the
VFP.
The fact that no budgetary appropriations have been released to the VFP does
not prove that it is a private corporation. The DBM indeed did not see it fit to
propose budgetary appropriations to the VFP, having itself believed that the VFP
is a private corporation. If the DBM, however, is mistaken as to its conclusion
regarding the nature of VFP's incorporation, its previous assertions will not
prevent future budgetary appropriations to the VFP. The erroneous application
of the law by public officers does not bar a subsequent correct application of the
law.31 (Citations omitted.)
The COA points out that the government is not precluded by law from extending
financial support to the BSP and adding to its funds, and that "as a government
instrumentality which continues to perform a vital function imbued with public
interest and reflective of the government’s policy to stimulate patriotic
sentiments and love of country, the BSP’s funds from whatever source are public
funds, and can be used solely for public purpose in pursuance of the provisions
of Republic Act No. [7278]."32
The COA claims that the fact that it has not yet audited the BSP’s funds may not
bar the subsequent exercise of its audit jurisdiction.
The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory
designation as a "public corporation" and the public character of its purpose and
functions are not determinative of the COA’s audit jurisdiction; reiterating its
stand that Boy Scouts of the Philippines v. National Labor Relations Commission
is not applicable anymore because the aspect of government ownership and
control has been removed by Republic Act No. 7278; and concluding that the
funds and property that it either owned or held in trust are not public funds and
are not subject to the COA’s audit jurisdiction.
Thereafter, considering the BSP’s claim that it is a private corporation, this
Court, in a Resolution34 dated July 20, 2010, required the parties to file, within a
period of twenty (20) days from receipt of said Resolution, their respective
comments on the issue of whether Commonwealth Act No. 111, as amended by
Republic Act No. 7278, is constitutional.
In compliance with the Court’s resolution, the parties filed their respective
Comments.
In its Comment35 dated October 22, 2010, the COA argues that the
constitutionality of Commonwealth Act No. 111, as amended, is not
determinative of the resolution of the present controversy on the COA’s audit
jurisdiction over petitioner, and in fact, the controversy may be resolved on
other grounds; thus, the requisites before a judicial inquiry may be made, as set
forth in Commissioner of Internal Revenue v. Court of Tax Appeals,36 have not
been fully met.37 Moreover, the COA maintains that behind every law lies the
presumption of constitutionality.38 The COA likewise argues that contrary to
the BSP’s position, repeal of a law by implication is not favored.39 Lastly, the
COA claims that there was no violation of Section 16, Article XII of the 1987
Constitution with the creation or declaration of the BSP as a government
corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit,40 the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or
private is found in the totality of the relation of the corporation to the State. If
the corporation is created by the State as the latter’s own agency or
instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. x x x.41
For its part, in its Comment42 filed on December 3, 2010, the BSP submits that
its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional as it does not violate Section 16, Article XII of the Constitution.
The BSP alleges that "while [it] is not a public corporation within the purview of
COA’s audit jurisdiction, neither is it a private corporation created by special law
falling within the ambit of the constitutional prohibition x x x."43 The BSP
further alleges:
Petitioner’s purpose is embodied in Section 3 of C.A. No. 111, as amended by
Section 1 of R.A. No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner was created to
advance the interest of the youth, specifically of young boys, and to mold them
into becoming good citizens. Ultimately, the creation of petitioner redounds to
the benefit, not only of those boys, but of the public good or welfare. Hence, it
can be said that petitioner’s purpose and functions are more of a public rather
than a private character. Petitioner caters to all boys who wish to join the
organization without any distinction. It does not limit its membership to a
particular class of boys. Petitioner’s members are trained in scoutcraft and
taught patriotism, civic consciousness and responsibility, courage, self-reliance,
discipline and kindred virtues, and moral values, preparing them to become
model citizens and outstanding leaders of the country.44
The BSP reiterates its stand that the public character of its purpose and
functions do not place it within the ambit of the audit jurisdiction of the COA as
it lacks the government ownership or control that the Constitution requires
before an entity may be subject of said jurisdiction.45 It avers that it merely
stated in its Reply that the withdrawal of government control is akin to
privatization, but it does not necessarily mean that petitioner is a private
corporation.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 BSP’s charter,49 as, (i) it was not created for
any pecuniary purpose; (ii) those who will primarily benefit from its creation
are not its officers but its entire membership consisting of boys being trained in
scoutcraft all over the country; (iii) it caters to all boys who wish to join the
organization without any distinction; and (iv) it does not limit its membership to
a particular class or group of boys. Thus, the enactment of its charter confers no
special privilege to particular individuals, families, or groups; nor does it bring
about the danger of granting undue favors to certain groups to the prejudice of
others or of the interest of the country, which are the evils sought to be
prevented by the constitutional provision involved.50
Finally, the BSP states that the presumption of constitutionality of a legislative
enactment prevails absent any clear showing of its repugnancy to the
Constitution.51
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully
studying the applicable laws and the arguments of both parties, we find that the
BSP is a public corporation and its funds are subject to the COA’s audit
jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
entitled "An Act to Create a Public Corporation to be Known as the Boy Scouts of
the Philippines, and to Define its Powers and Purposes" created the BSP as a
"public corporation" to serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through organization
and cooperation with other agencies, the ability of boys to do useful things for
themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance,
discipline and kindred virtues, and moral values, using the method which are in
common use by boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended
Commonwealth Act No. 111 and provided substantial changes in the BSP
organizational structure. Pertinent provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National Executive
Board composed of (a) the President of the Philippines or his representative; (b)
the charter and life members of the Boy Scouts of the Philippines; (c) the
Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the
Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of
Education and Culture, the Secretary of Social Welfare, the Secretary of National
Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth
and Sports, and the Secretary of Local Government and Community
Development; (f) an equal number of individuals from the private sector; (g) the
National President of the Girl Scouts of the Philippines; (h) one Scout of Senior
age from each Scout Region to represent the boy membership; and (i) three
representatives of the cultural minorities. Except for the Regional Chairman who
shall be elected by the Regional Scout Councils during their annual meetings,
and the Scouts of their respective regions, all members of the National Executive
Board shall be either by appointment or cooption, subject to ratification and
confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the
Executive Board shall be filled by a majority vote of the remaining members,
subject to ratification and confirmation by the Chief Scout. The by-laws may
prescribe the number of members of the National Executive Board necessary to
constitute a quorum of the board, which number may be less than a majority of
the whole number of the board. The National Executive Board shall have power
to make and to amend the by-laws, and, by a two-thirds vote of the whole board
at a meeting called for this purpose, may authorize and cause to be executed
mortgages and liens upon the property of the corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended
Commonwealth Act No. 111 "by strengthening the volunteer and democratic
character" of the BSP and reducing government representation in its governing
body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is
hereby amended to read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual succession, to
sue and be sued; to enter into contracts; to acquire, own, lease, convey and
dispose of such real and personal estate, land grants, rights and choses in action
as shall be necessary for corporate purposes, and to accept and receive funds,
real and personal property by gift, devise, bequest or other means, to conduct
fund-raising activities; to adopt and use a seal, and the same to alter and
destroy; to have offices and conduct its business and affairs in Metropolitan
Manila and in the regions, provinces, cities, municipalities, and barangays of the
Philippines, to make and adopt by-laws, rules and regulations not inconsistent
with this Act and the laws of the Philippines, and generally to do all such acts
and things, including the establishment of regulations for the election of
associates and successors, as may be necessary to carry into effect the
provisions of this Act and promote the purposes of said corporation: Provided,
That said corporation shall have no power to issue certificates of stock or to
declare or pay dividends, its objectives and purposes being solely of benevolent
character and not for pecuniary profit of its members.
"Sec. 3. The purpose of this corporation shall be to promote through
organization and cooperation with other agencies, the ability of boys to do useful
things for themselves and others, to train them in scoutcraft, and to inculcate in
them patriotism, civic consciousness and responsibility, courage, self-reliance,
discipline and kindred virtues, and moral values, using the method which are in
common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed
and in lieu thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy
Scouts of the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are
hereby amended to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of a National
Executive Board, the members of which shall be Filipino citizens of good moral
character. The Board shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be
elected by the members of the National Council at its meeting called for this
purpose;
"(b) The regional chairmen of the scout regions who shall be elected by the
representatives of all the local scout councils of the region during its meeting
called for this purpose: Provided, That a candidate for regional chairman need
not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be
elected by the senior scout delegates of the local scout councils to the scout
youth forums in their respective areas, in its meeting called for this purpose, to
represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the National
Council in its meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional members from
the private sector who shall be elected by the members of the National Executive
Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e)
and (f) at the organizational meeting of the newly reconstituted National
Executive Board which shall be held immediately after the meeting of the
National Council wherein the twelve (12) regular members and the one (1)
charter member were elected.
xxxx
"Sec. 8. Any donation or contribution which from time to time may be made to
the Boy Scouts of the Philippines by the Government or any of its subdivisions,
branches, offices, agencies or instrumentalities or by a foreign government or by
private, entities and individuals shall be expended by the National Executive
Board in pursuance of this Act.
The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and
the BSP, as presently constituted under Republic Act No. 7278, falls under the
second classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose
created by law; their personality begins as soon as they have been constituted
according to law;
(3) Corporations, partnerships and associations for private interest or purpose
to which the law grants a juridical personality, separate and distinct from that of
each shareholder, partner or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is
subject to the law creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by
the provisions of this Code concerning partnerships. (Emphasis and
underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was
created in order to implement a State policy declared in Article II, Section 13 of
the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES
Section 13. The State recognizes the vital role of the youth in nation-building and
shall promote and protect their physical, moral, spiritual, intellectual, and social
well-being. It shall inculcate in the youth patriotism and nationalism, and
encourage their involvement in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose
in pursuit of a constitutional mandate, comes within the class of "public
corporations" defined by paragraph 2, Article 44 of the Civil Code and governed
by the law which creates it, pursuant to Article 45 of the same Code.
The BSP’s Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact
that, along with the Girl Scouts of the Philippines, it is classified as an attached
agency of the DECS under Executive Order No. 292, or the Administrative Code
of 1987, which states:
TITLE VI – EDUCATION, CULTURE AND SPORTS
Chapter 8 – Attached Agencies
SEC. 20. Attached Agencies. – The following agencies are hereby attached to the
Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the department is
defined in the Administrative Code of 1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 – ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. – Unless otherwise expressly
stated in the Code or in other laws defining the special relationships of
particular agencies, administrative relationships shall be categorized and
defined as follows:
xxxx
(3) Attachment. – (a) This refers to the lateral relationship between the
department or its equivalent and the attached agency or corporation for
purposes of policy and program coordination. The coordination may be
accomplished by having the department represented in the governing board of
the attached agency or corporation, either as chairman or as a member, with or
without voting rights, if this is permitted by the charter; having the attached
corporation or agency comply with a system of periodic reporting which shall
reflect the progress of programs and projects; and having the department or its
equivalent provide general policies through its representative in the board,
which shall serve as the framework for the internal policies of the attached
corporation or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as long as policy
and program coordination is achieved by having at least one representative of
government in its governing board, which in the case of the BSP is the DECS
Secretary. In this sense, the BSP is not under government control or "supervision
and control." Still this characteristic does not make the attached chartered
agency a private corporation covered by the constitutional proscription in
question.
Art. XII, Sec. 16 of the Constitution refers to "private corporations" created by
government for proprietary or economic/business purposes
At the outset, it should be noted that the provision of Section 16 in issue is found
in Article XII of the Constitution, entitled "National Economy and Patrimony."
Section 1 of Article XII is quoted as follows:
SECTION 1. The goals of the national economy are a more equitable distribution
of opportunities, income, and wealth; a sustained increase in the amount of
goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially
the underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full
and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall
be encouraged to broaden the base of their ownership.
The scope and coverage of Section 16, Article XII of the Constitution can be seen
from the aforementioned declaration of state policies and goals which pertains
to national economy and patrimony and the interests of the people in economic
development.
Section 16, Article XII deals with "the formation, organization, or regulation of
private corporations,"52 which should be done through a general law enacted by
Congress, provides for an exception, that is: if the corporation is government
owned or controlled; its creation is in the interest of the common good; and it
meets the test of economic viability. The rationale behind Article XII, Section 16
of the 1987 Constitution was explained in Feliciano v. Commission on Audit,53
in the following manner:
The Constitution emphatically prohibits the creation of private corporations
except by a general law applicable to all citizens. The purpose of this
constitutional provision is to ban private corporations created by special
charters, which historically gave certain individuals, families or groups special
privileges denied to other citizens.54 (Emphasis added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of "private corporations" by special law. The said constitutional
provision should not be construed so as to prohibit the creation of public
corporations or a corporate agency or instrumentality of the government
intended to serve a public interest or purpose, which should not be measured on
the basis of economic viability, but according to the public interest or purpose it
serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the
pertinent provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not Subject to the Test of Government
Ownership or Control and Economic Viability
The BSP is a public corporation or a government agency or instrumentality with
juridical personality, which does not fall within the constitutional prohibition in
Article XII, Section 16, notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled, are ipso facto to
be considered private corporations as there exists another distinct class of
corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or
instrumentalities of the government which are not subject to the tests of
ownership or control and economic viability but to different criteria relating to
their public purposes/interests or constitutional policies and objectives and
their administrative relationship to the government or any of its Departments or
Offices.
Classification of Corporations Under Section 16, Article XII of the Constitution on
National Economy and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of
cases, insists that the Constitution recognizes only two classes of corporations:
private corporations under a general law, and government-owned or controlled
corporations created by special charters.
We strongly disagree. Section 16, Article XII should not be construed so as to
prohibit Congress from creating public corporations. In fact, Congress has
enacted numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article
XII, which relates to National Economy and Patrimony, could not have tied the
hands of Congress in creating public corporations to serve any of the
constitutional policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces "a totally
different species of corporation, which is neither a private corporation nor a
government owned or controlled corporation" and, in so doing, is missing the
fact that the BSP, "which was created as a non-stock, non-profit corporation, can
only be either a private corporation or a government owned or controlled
corporation."
Note that in Boy Scouts of the Philippines v. National Labor Relations
Commission, the BSP, under its former charter, was regarded as both a
government owned or controlled corporation with original charter and a "public
corporation." The said case pertinently stated:
While the BSP may be seen to be a mixed type of entity, combining aspects of
both public and private entities, we believe that considering the character of its
purposes and its functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the Government in the
selection of members of the National Executive Board of the BSP, the BSP, as
presently constituted under its charter, is a government-controlled corporation
within the meaning of Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative Code of
1987 designates the BSP as one of the attached agencies of the Department of
Education, Culture and Sports ("DECS"). An "agency of the Government" is
defined as referring to any of the various units of the Government including a
department, bureau, office, instrumentality, government-owned or -controlled
corporation, or local government or distinct unit therein. "Government
instrumentality" is in turn defined in the 1987 Administrative Code in the
following manner:
Instrumentality - refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy usually through
a charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.
The same Code describes a "chartered institution" in the following terms:
Chartered institution - refers to any agency organized or operating under a
special charter, and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the state universities
and colleges, and the monetary authority of the State.
We believe that the BSP is appropriately regarded as "a government
instrumentality" under the 1987 Administrative Code.
It thus appears that the BSP may be regarded as both a "government controlled
corporation with an original charter" and as an "instrumentality" of the
Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x
x.55 (Emphases supplied.)
The existence of public or government corporate or juridical entities or
chartered institutions by legislative fiat distinct from private corporations and
government owned or controlled corporation is best exemplified by the 1987
Administrative Code cited above, which we quote in part:
Sec. 2. General Terms Defined. – Unless the specific words of the text, or the
context as a whole, or a particular statute, shall require a different meaning:
xxxx
(10) "Instrumentality" refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered institutions
and government-owned or controlled corporations. 

xxxx
(12) "Chartered institution" refers to any agency organized or operating under a
special charter, and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the state universities
and colleges and the monetary authority of the State.
(13) "Government-owned or controlled corporation" refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) per cent of its capital stock: Provided, That government-owned or
controlled corporations may be further categorized by the Department of the
Budget, the Civil Service Commission, and the Commission on Audit for purposes
of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.
Assuming for the sake of argument that the BSP ceases to be owned or
controlled by the government because of reduction of the number of
representatives of the government in the BSP Board, it does not follow that it
also ceases to be a government instrumentality as it still retains all the
characteristics of the latter as an attached agency of the DECS under the
Administrative Code. Vesting corporate powers to an attached agency or
instrumentality of the government is not constitutionally prohibited and is
allowed by the above-mentioned provisions of the Civil Code and the 1987
Administrative Code.
Economic Viability and Ownership and Control Tests Inapplicable to Public
Corporations
As presently constituted, the BSP still remains an instrumentality of the national
government. It is a public corporation created by law for a public purpose,
attached to the DECS pursuant to its Charter and the Administrative Code of
1987. It is not a private corporation which is required to be owned or controlled
by the government and be economically viable to justify its existence under a
special law.
The dissent of Justice Carpio also submits that by recognizing "a new class of
public corporation(s)" created by special charter that will not be subject to the
test of economic viability, the constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional Convention reveals
the intent of the framers of the highest law of our land to distinguish between
government corporations performing governmental functions and corporations
involved in business or proprietary functions:
THE PRESIDENT. Commissioner Foz is recognized.
MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC
VIABILITY" as one of the grounds for organizing government corporations. x x x.
MR. OPLE. Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim
upon the taxpayers’ money through new equity infusions from the government
and what is always invoked is the common good. x x x
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the
"common good," this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. x x x.
xxxx
THE PRESIDENT. Commissioner Quesada is recognized.
MS. QUESADA. Madam President, may we be clarified by the committee on what
is meant by economic viability?
THE PRESIDENT. Please proceed.
MR. MONSOD. Economic viability normally is determined by cost-benefit ratio
that takes into consideration all benefits, including economic external as well as
internal benefits. These are what they call externalities in economics, so that
these are not strictly financial criteria. Economic viability involves what we call
economic returns or benefits of the country that are not quantifiable in financial
terms. x x x.
xxxx
MS. QUESADA. So, would this particular formulation now really limit the entry of
government corporations into activities engaged in by corporations?
MR. MONSOD. Yes, because it is also consistent with the economic philosophy
that this Commission approved – that there should be minimum government
participation and intervention in the economy.
MS. QUESDA. Sometimes this Commission would just refer to Congress to
provide the particular requirements when the government would get into
corporations. But this time around, we specifically mentioned economic
viability. x x x.
MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing
that amendment.
MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular
amendment jointly with Commissioner Foz. During the past three decades, there
had been a proliferation of government corporations, very few of which have
succeeded, and many of which are now earmarked by the Presidential
Reorganization Commission for liquidation because they failed the economic
test. x x x.
xxxx
MS. QUESADA. But would not the Commissioner say that the reason why many
of the government-owned or controlled corporations failed to come up with the
economic test is due to the management of these corporations, and not the idea
itself of government corporations? It is a problem of efficiency and effectiveness
of management of these corporations which could be remedied, not by
eliminating government corporations or the idea of getting into state-owned
corporations, but improving management which our technocrats should be able
to do, given the training and the experience.
MR. OPLE. That is part of the economic viability, Madam President.
MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit
more if these government-controlled corporations were given to private hands,
and that there will be more goods and services that will be affordable and within
the reach of the ordinary citizens?
MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the
formation of a government corporation in accordance with a special charter
given by Congress. However, we are raising the standard a little bit so that, in the
future, corporations established by the government will meet the test of the
common good but within that framework we should also build a certain
standard of economic viability.
xxxx
THE PRESIDENT. Commissioner Padilla is recognized.
MR. PADILLA. This is an inquiry to the committee. With regard to corporations
created by a special charter for government-owned or controlled corporations,
will these be in the pioneer fields or in places where the private enterprise does
not or cannot enter? Or is this so general that these government corporations
can compete with private corporations organized under a general law?
MR. MONSOD. Madam President, x x x. There are two types of government
corporations – those that are involved in performing governmental functions,
like garbage disposal, Manila waterworks, and so on; and those government
corporations that are involved in business functions. As we said earlier, there
are two criteria that should be followed for corporations that want to go into
business. First is for government corporations to first prove that they can be
efficient in the areas of their proper functions. This is one of the problems now
because they go into all kinds of activities but are not even efficient in their
proper functions. Secondly, they should not go into activities that the private
sector can do better.
MR. PADILLA. There is no question about corporations performing
governmental functions or functions that are impressed with public interest. But
the question is with regard to matters that are covered, perhaps not
exhaustively, by private enterprise. It seems that under this provision the only
qualification is economic viability and common good, but shall government,
through government-controlled corporations, compete with private enterprise?
MR. MONSOD. No, Madam President. As we said, the government should not
engage in activities that private enterprise is engaged in and can do better. x x
x.56 (Emphases supplied.)
Thus, the test of economic viability clearly does not apply to public corporations
dealing with governmental functions, to which category the BSP belongs. The
discussion above conveys the constitutional intent not to apply this
constitutional ban on the creation of public corporations where the economic
viability test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business function for the
government.
It is undisputed that the BSP performs functions that are impressed with public
interest. In fact, during the consideration of the Senate Bill that eventually
became Republic Act No. 7278, which amended the BSP Charter, one of the bill’s
sponsors, Senator Joey Lina, described the BSP as follows:
Senator Lina. Yes, I can only think of two organizations involving the masses of
our youth, Mr. President, that should be given this kind of a privilege – the Boy
Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these
two groups, I do not think there are other groups similarly situated.
The Boy Scouts of the Philippines has a long history of providing value formation
to our young, and considering how huge the population of the young people is, at
this point in time, and also considering the importance of having an organization
such as this that will inculcate moral uprightness among the young people, and
further considering that the development of these young people at that tender
age of seven to sixteen is vital in the development of the country producing good
citizens, I believe that we can make an exception of the Boy Scouting movement
of the Philippines from this general prohibition against providing tax exemption
and privileges.57
Furthermore, this Court cannot agree with the dissenting opinion which equates
the changes introduced by Republic Act No. 7278 to the BSP Charter as clear
manifestation of the intent of Congress "to return the BSP to the private sector."
It was not the intent of Congress in enacting Republic Act No. 7278 to give up all
interests in this basic youth organization, which has been its partner in forming
responsible citizens for decades.
In fact, as may be seen in the deliberation of the House Bills that eventually
resulted to Republic Act No. 7278, Congress worked closely with the BSP to
rejuvenate the organization, to bring it back to its former glory reached under its
original charter, Commonwealth Act No. 111, and to correct the perceived ills
introduced by the amendments to its Charter under Presidential Decree No. 460.
The BSP suffered from low morale and decrease in number because the
Secretaries of the different departments in government who were too busy to
attend the meetings of the BSP’s National Executive Board ("the Board") sent
representatives who, as it turned out, changed from meeting to meeting. Thus,
the Scouting Councils established in the provinces and cities were not in touch
with what was happening on the national level, but they were left to implement
what was decided by the Board.58
A portion of the legislators’ discussion is quoted below to clearly show their
intent:
HON. DEL MAR. x x x I need not mention to you the value and the tremendous
good that the Boy Scout Movement has done not only for the youth in particular
but for the country in general. And that is why, if we look around, our past and
present national leaders, prominent men in the various fields of endeavor, public
servants in government offices, and civic leaders in the communities all over the
land, and not only in our country but all over the world many if not most of them
have at one time or another been beneficiaries of the Scouting Movement. And
so, it is along this line, Mr. Chairman, that we would like to have the early
approval of this measure if only to pay back what we owe much to the Scouting
Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just –
the Scouting Movement was enacted into law in October 31, 1936 under
Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest
scouting organization in the world x x x. And to our mind, Mr. Chairman, this
erratic growth and this decrease in membership [number] is because of the bad
policy measures that were enunciated with the enactment or promulgation by
the President before of Presidential Decree No. 460 which we feel is the culprit
of the ills that is flagging the Boy Scout Movement today. And so, this is
specifically what we are attacking, Mr. Chairman, the disenfranchisement of the
National Council in the election of the national board. x x x. And so, this is what
we would like to be appraised of by the officers of the Boy [Scouts] of the
Philippines whom we are also confident, have the best interest of the Boy Scout
Movement at heart and it is in this spirit, Mr. Chairman, that we see no
impediment towards working together, the Boy Scout of the Philippines officers
working together with the House of Representatives in coming out with a
measure that will put back the vigor and enthusiasm of the Boy Scout
Movement. x x x.59 (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the
bill, in the Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws
that have created the Boy Scouts of the Philippines did not provide for any direct
government support by way of appropriation from the national budget to
support the activities of this organization. The point here is, and at the same
time they have been subjected to a governmental intervention, which to their
mind has been inimical to the objectives and to the institution per se, that is why
they are seeking legislative fiat to restore back the original mandate that they
had under Commonwealth Act 111. Such having been the experience in the
hands of government, meaning, there has been negative interference on their
part and inasmuch as their mandate is coming from a legislative fiat, then
shouldn’t it be, this rhetorical question, shouldn’t it be better for this
organization to seek a mandate from, let’s say, the government the Corporation
Code of the Philippines and register with the SEC as non-profit non-stock
corporation so that government intervention could be very very minimal. Maybe
that’s a rhetorical question, they may or they may not answer, ano. I don’t know
what would be the benefit of a charter or a mandate being provided for by way
of legislation versus a registration with the SEC under the Corporation Code of
the Philippines inasmuch as they don’t get anything from the government
anyway insofar as direct funding. In fact, the only thing that they got from
government was intervention in their affairs. Maybe we can solicit some
commentary comments from the resource persons. Incidentally, don’t take that
as an objection, I’m not objecting. I’m all for the objectives of these two bills. It
just occurred to me that since you have had very bad experience in the hands of
government and you will always be open to such possible intervention even in
the future as long as you have a legislative mandate or your mandate or your
charter coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of
the Philippines will be required to register with the SEC. If we are registered
with the SEC, there could be a danger of proliferation of scout organization.
Anybody can organize and then register with the SEC. If there will be a
proliferation of this, then the organization will lose control of the entire
organization. Another disadvantage, Mr. Chairman, anybody can file a complaint
in the SEC against the Boy Scouts of the Philippines and the SEC may suspend
the operation or freeze the assets of the organization and hamper the operation
of the organization. I don’t know, Mr. Chairman, how you look at it but there
could be a danger for anybody filing a complaint against the organization in the
SEC and the SEC might suspend the registration permit of the organization and
we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to
corporations registered with the SEC because even if you are government
corporation, court action may be taken against you in other judicial bodies
because the SEC is simply another quasi-judicial body. But, I think, the first point
would be very interesting, the first point that you raised. In effect, what you are
saying is that with the legislative mandate creating your charter, in effect, you
have been given some sort of a franchise with this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, that’s very well taken so I will proceed with other issues,
Mr. Chairman. x x x.60 (Emphases added.)
Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly
promote the BSP’s objectives, which were not supported under Presidential
Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with
the public purpose of the promotion of the well-being of the youth, the future
leaders of the country. The amendments were not done with the view of
changing the character of the BSP into a privatized corporation. The BSP
remains an agency attached to a department of the government, the DECS, and it
was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation
like the BSP. To reiterate, the relationship of the BSP, an attached agency, to the
government, through the DECS, is defined in the Revised Administrative Code of
1987. The BSP meets the minimum statutory requirement of an attached
government agency as the DECS Secretary sits at the BSP Board ex officio, thus
facilitating the policy and program coordination between the BSP and the DECS.
Requisites for Declaration of Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of
unconstitutionality of certain provisions of the BSP Charter. Even if the parties
were asked to Comment on the validity of the BSP charter by the Court, this
alone does not comply with the requisites for judicial review, which were clearly
set forth in a recent case:
When questions of constitutional significance are raised, the Court can exercise
its power of judicial review only if the following requisites are present: (1) the
existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the constitutional question;
(3) recourse to judicial review is made at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case.61 (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the
constitutional issue should be the very lis mota, or threshold issue, of the case,
and that it should be raised by either of the parties. These requirements would
be ignored under the dissent’s rather overreaching view of how this case should
have been decided. True, it was the Court that asked the parties to comment, but
the Court cannot be the one to raise a constitutional issue. Thus, the Court
chooses to once more exhibit restraint in the exercise of its power to pass upon
the validity of a law.
Re: the COA’s Jurisdiction
Regarding the COA’s jurisdiction over the BSP, Section 8 of its amended charter
allows the BSP to receive contributions or donations from the government.
Section 8 reads:
Section 8. Any donation or contribution which from time to time may be made to
the Boy Scouts of the Philippines by the Government or any of its subdivisions,
branches, offices, agencies or instrumentalities shall be expended by the
Executive Board in pursuance of this Act.lawph!1
The sources of funds to maintain the BSP were identified before the House
Committee on Government Enterprises while the bill was being deliberated, and
the pertinent portion of the discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the
organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not
receive annual allotment from the government. The organization has to raise its
own funds through fund drives and fund campaigns or fund raising activities.
Aside from this, we have some revenue producing projects in the organization
that gives us funds to support the operation. x x x From time to time, Mr.
Chairman, when we have special activities we request for assistance or financial
assistance from government agencies, from private business and corporations,
but this is only during special activities that the Boy Scouts of the Philippines
would conduct during the year. Otherwise, we have to raise our own funds to
support the organization.62
The nature of the funds of the BSP and the COA’s audit jurisdiction were likewise
brought up in said congressional deliberations, to wit:
HON. AQUINO: x x x Insofar as this organization being a government created
organization, in fact, a government corporation classified as such, are your funds
or your finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We don’t
fall under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was
written by then Secretary Jorge Vargas and before and up to the middle of the
Martial Law years, the BSP was receiving a subsidy in the form of an annual… a
one draw from the Sweepstakes. And, this was the case also with the Girl Scouts
at the Anti-TB, but then this was… and the Boy Scouts then because of this
funding partly from government was being subjected to audit in the
contributions being made in the part of the Sweepstakes. But this was removed
later during the Martial Law years with the creation of the Human Settlements
Commission. So the situation right now is that the Boy Scouts does not receive
any funding from government, but then in the case of the local councils and this
legislative charter, so to speak, enables the local councils even the national
headquarters in view of the provisions in the existing law to receive donations
from the government or any of its instrumentalities, which would be difficult if
the Boy Scouts is registered as a private corporation with the Securities and
Exchange Commission. Government bodies would be estopped from making
donations to the Boy Scouts, which at present is not the case because there is the
Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because there’s no money put
in the organization, but how about donated funds to this organization? What are
the remedies of the donors of how will they know how their money are being
spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and
by the charter we are required to submit a financial report at the end of each
year to the National Executive Board. So all the funds donated or otherwise is
accounted for at the end of the year by our external auditor. In this case the
SGV.63
Historically, therefore, the BSP had been subjected to government audit in so far
as public funds had been infused thereto. However, this practice should not
preclude the exercise of the audit jurisdiction of COA, clearly set forth under the
Constitution, which pertinently provides:
Section 2. (1) The Commission on Audit shall have the power, authority, and
duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations
with original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations with original charters and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the Government, which are
required by law of the granting institution to submit to such audit as a condition
of subsidy or equity. x x x. 64
Since the BSP, under its amended charter, continues to be a public corporation
or a government instrumentality, we come to the inevitable conclusion that it is
subject to the exercise by the COA of its audit jurisdiction in the manner
consistent with the provisions of the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition is
DISMISSED.
SO ORDERED.
G.R. No. 175352 (2009)
DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, vs.
RICHARD J. GORDON,
The Case
This is a petition to declare Senator Richard J. Gordon (respondent) as having
forfeited his seat in the Senate.
The Facts
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari
(petitioners) filed with this Court a Petition to Declare Richard J. Gordon as
Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of
Directors of the Quezon City Red Cross Chapter while respondent is Chairman of
the Philippine National Red Cross (PNRC) Board of Governors.
During respondent’s incumbency as a member of the Senate of the Philippines,1
he was elected Chairman of the PNRC during the 23 February 2006 meeting of
the PNRC Board of Governors. Petitioners allege that by accepting the
chairmanship of the PNRC Board of Governors, respondent has ceased to be a
member of the Senate as provided in Section 13, Article VI of the Constitution,
which reads:
SEC. 13. No Senator or Member of the House of Representatives may hold any
other office or employment in the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without forfeiting his seat.
Neither shall he be appointed to any office which may have been created or the
emoluments thereof increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,2 which held that the PNRC is a
government-owned or controlled corporation. Petitioners claim that in
accepting and holding the position of Chairman of the PNRC Board of Governors,
respondent has automatically forfeited his seat in the Senate, pursuant to Flores
v. Drilon,3 which held that incumbent national legislators lose their elective
posts upon their appointment to another government office.
In his Comment, respondent asserts that petitioners have no standing to file this
petition which appears to be an action for quo warranto, since the petition
alleges that respondent committed an act which, by provision of law, constitutes
a ground for forfeiture of his public office. Petitioners do not claim to be entitled
to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil
Procedure, only a person claiming to be entitled to a public office usurped or
unlawfully held by another may bring an action for quo warranto in his own
name. If the petition is one for quo warranto, it is already barred by prescription
since under Section 11, Rule 66 of the Rules of Civil Procedure, the action should
be commenced within one year after the cause of the public officer’s forfeiture of
office. In this case, respondent has been working as a Red Cross volunteer for the
past 40 years. Respondent was already Chairman of the PNRC Board of
Governors when he was elected Senator in May 2004, having been elected
Chairman in 2003 and re-elected in 2005.
Respondent contends that even if the present petition is treated as a taxpayer’s
suit, petitioners cannot be allowed to raise a constitutional question in the
absence of any claim that they suffered some actual damage or threatened injury
as a result of the allegedly illegal act of respondent. Furthermore, taxpayers are
allowed to sue only when there is a claim of illegal disbursement of public funds,
or that public money is being diverted to any improper purpose, or where
petitioners seek to restrain respondent from enforcing an invalid law that
results in wastage of public funds.
Respondent also maintains that if the petition is treated as one for declaratory
relief, this Court would have no jurisdiction since original jurisdiction for
declaratory relief lies with the Regional Trial Court.
Respondent further insists that the PNRC is not a government-owned or
controlled corporation and that the prohibition under Section 13, Article VI of
the Constitution does not apply in the present case since volunteer service to the
PNRC is neither an office nor an employment.
In their Reply, petitioners claim that their petition is neither an action for quo
warranto nor an action for declaratory relief. Petitioners maintain that the
present petition is a taxpayer’s suit questioning the unlawful disbursement of
funds, considering that respondent has been drawing his salaries and other
compensation as a Senator even if he is no longer entitled to his office.
Petitioners point out that this Court has jurisdiction over this petition since it
involves a legal or constitutional issue which is of transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a government- owned or
controlled corporation;
2. Whether Section 13, Article VI of the Philippine Constitution applies to the
case of respondent who is Chairman of the PNRC and at the same time a Member
of the Senate;
3. Whether respondent should be automatically removed as a Senator pursuant
to Section 13, Article VI of the Philippine Constitution; and
4. Whether petitioners may legally institute this petition against respondent.4
The substantial issue boils down to whether the office of the PNRC Chairman is a
government office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the Constitution.
The Court’s Ruling
We find the petition without merit.
Petitioners Have No Standing to File this Petition
A careful reading of the petition reveals that it is an action for quo warranto.
Section 1, Rule 66 of the Rules of Court provides:
Section 1. Action by Government against individuals. – An action for the
usurpation of a public office, position or franchise may be commenced by a
verified petition brought in the name of the Republic of the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public
office, position or franchise;
(b) A public officer who does or suffers an act which by provision of law,
constitutes a ground for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without
being legally incorporated or without lawful authority so to act. (Emphasis
supplied)
Petitioners allege in their petition that:
4. Respondent became the Chairman of the PNRC when he was elected as such
during the First Regular Luncheon-Meeting of the Board of Governors of the
PNRC held on February 23, 2006, the minutes of which is hereto attached and
made integral part hereof as Annex "A."
5. Respondent was elected as Chairman of the PNRC Board of Governors, during
his incumbency as a Member of the House of Senate of the Congress of the
Philippines, having been elected as such during the national elections last May
2004.
6. Since his election as Chairman of the PNRC Board of Governors, which
position he duly accepted, respondent has been exercising the powers and
discharging the functions and duties of said office, despite the fact that he is still
a senator.
7. It is the respectful submission of the petitioner[s] that by accepting the
chairmanship of the Board of Governors of the PNRC, respondent has ceased to
be a Member of the House of Senate as provided in Section 13, Article VI of the
Philippine Constitution, x x x
xxxx
10. It is respectfully submitted that in accepting the position of Chairman of the
Board of Governors of the PNRC on February 23, 2006, respondent has
automatically forfeited his seat in the House of Senate and, therefore, has long
ceased to be a Senator, pursuant to the ruling of this Honorable Court in the case
of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x
11. Despite the fact that he is no longer a senator, respondent continues to act as
such and still performs the powers, functions and duties of a senator, contrary to
the constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and
represent himself as a senator or member of the House of Senate, collecting the
salaries, emoluments and other compensations, benefits and privileges
appertaining and due only to the legitimate senators, to the damage, great and
irreparable injury of the Government and the Filipino people.5 (Emphasis
supplied)
Thus, petitioners are alleging that by accepting the position of Chairman of the
PNRC Board of Governors, respondent has automatically forfeited his seat in the
Senate. In short, petitioners filed an action for usurpation of public office against
respondent, a public officer who allegedly committed an act which constitutes a
ground for the forfeiture of his public office. Clearly, such an action is for quo
warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.
Quo warranto is generally commenced by the Government as the proper party
plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual
may commence such an action if he claims to be entitled to the public office
allegedly usurped by another, in which case he can bring the action in his own
name. The person instituting quo warranto proceedings in his own behalf must
claim and be able to show that he is entitled to the office in dispute, otherwise
the action may be dismissed at any stage.6 In the present case, petitioners do not
claim to be entitled to the Senate office of respondent. Clearly, petitioners have
no standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a
taxpayer’s suit, the petition would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,7
otherwise known as the PNRC Charter. The PNRC is a non-profit, donor-funded,
voluntary, humanitarian organization, whose mission is to bring timely,
effective, and compassionate humanitarian assistance for the most vulnerable
without consideration of nationality, race, religion, gender, social status, or
political affiliation.8 The PNRC provides six major services: Blood Services,
Disaster Management, Safety Services, Community Health and Nursing, Social
Services and Voluntary Service.9
The Republic of the Philippines, adhering to the Geneva Conventions,
established the PNRC as a voluntary organization for the purpose contemplated
in the Geneva Convention of 27 July 1929.10 The Whereas clauses of the PNRC
Charter read:
WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a
convention by which the nations of the world were invited to join together in
diminishing, so far lies within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to the
subsequent revision of said convention, namely the "Convention of Geneva of
July 29 [sic], 1929 for the Amelioration of the Condition of the Wounded and
Sick of Armies in the Field" (referred to in this Charter as the Geneva Red Cross
Convention);
WHEREAS, the Geneva Red Cross Convention envisages the establishment in
each country of a voluntary organization to assist in caring for the wounded and
sick of the armed forces and to furnish supplies for that purpose;
WHEREAS, the Republic of the Philippines became an independent nation on
July 4, 1946 and proclaimed its adherence to the Geneva Red Cross Convention
on February 14, 1947, and by that action indicated its desire to participate with
the nations of the world in mitigating the suffering caused by war and to
establish in the Philippines a voluntary organization for that purpose as
contemplated by the Geneva Red Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American
National Red Cross which must be terminated in view of the independence of the
Philippines; and
WHEREAS, the volunteer organizations established in the other countries which
have ratified or adhered to the Geneva Red Cross Convention assist in promoting
the health and welfare of their people in peace and in war, and through their
mutual assistance and cooperation directly and through their international
organizations promote better understanding and sympathy among the peoples
of the world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red
Crescent Movement (Movement), which is composed of the International
Committee of the Red Cross (ICRC), the International Federation of Red Cross
and Red Crescent Societies (International Federation), and the National Red
Cross and Red Crescent Societies (National Societies). The Movement is united
and guided by its seven Fundamental Principles:
1. HUMANITY – The International Red Cross and Red Crescent Movement, born
of a desire to bring assistance without discrimination to the wounded on the
battlefield, endeavors, in its international and national capacity, to prevent and
alleviate human suffering wherever it may be found. Its purpose is to protect life
and health and to ensure respect for the human being. It promotes mutual
understanding, friendship, cooperation and lasting peace amongst all peoples.
2. IMPARTIALITY – It makes no discrimination as to nationality, race, religious
beliefs, class or political opinions. It endeavors to relieve the suffering of
individuals, being guided solely by their needs, and to give priority to the most
urgent cases of distress.
3. NEUTRALITY – In order to continue to enjoy the confidence of all, the
Movement may not take sides in hostilities or engage at any time in
controversies of a political, racial, religious or ideological nature.
4. INDEPENDENCE – The Movement is independent. The National Societies,
while auxiliaries in the humanitarian services of their governments and subject
to the laws of their respective countries, must always maintain their autonomy
so that they may be able at all times to act in accordance with the principles of
the Movement.
5. VOLUNTARY SERVICE – It is a voluntary relief movement not prompted in any
manner by desire for gain.
6. UNITY – There can be only one Red Cross or one Red Crescent Society in any
one country. It must be open to all. It must carry on its humanitarian work
throughout its territory.
7. UNIVERSALITY – The International Red Cross and Red Crescent Movement, in
which all Societies have equal status and share equal responsibilities and duties
in helping each other, is worldwide. (Emphasis supplied)
The Fundamental Principles provide a universal standard of reference for all
members of the Movement. The PNRC, as a member National Society of the
Movement, has the duty to uphold the Fundamental Principles and ideals of the
Movement. In order to be recognized as a National Society, the PNRC has to be
autonomous and must operate in conformity with the Fundamental Principles of
the Movement.11
The reason for this autonomy is fundamental. To be accepted by warring
belligerents as neutral workers during international or internal armed conflicts,
the PNRC volunteers must not be seen as belonging to any side of the armed
conflict. In the Philippines where there is a communist insurgency and a Muslim
separatist rebellion, the PNRC cannot be seen as government-owned or
controlled, and neither can the PNRC volunteers be identified as government
personnel or as instruments of government policy. Otherwise, the insurgents or
separatists will treat PNRC volunteers as enemies when the volunteers tend to
the wounded in the battlefield or the displaced civilians in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be, autonomous,
neutral and independent in order to conduct its activities in accordance with the
Fundamental Principles. The PNRC must not appear to be an instrument or
agency that implements government policy; otherwise, it cannot merit the trust
of all and cannot effectively carry out its mission as a National Red Cross
Society.12 It is imperative that the PNRC must be autonomous, neutral, and
independent in relation to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. Indeed, the Philippine
government does not own the PNRC. The PNRC does not have government
assets and does not receive any appropriation from the Philippine Congress.13
The PNRC is financed primarily by contributions from private individuals and
private entities obtained through solicitation campaigns organized by its Board
of Governors, as provided under Section 11 of the PNRC Charter:
SECTION 11. As a national voluntary organization, the Philippine National Red
Cross shall be financed primarily by contributions obtained through solicitation
campaigns throughout the year which shall be organized by the Board of
Governors and conducted by the Chapters in their respective jurisdictions.
These fund raising campaigns shall be conducted independently of other fund
drives by other organizations. (Emphasis supplied)
The government does not control the PNRC. Under the PNRC Charter, as
amended, only six of the thirty members of the PNRC Board of Governors are
appointed by the President of the Philippines. Thus, twenty-four members, or
four-fifths (4/5), of the PNRC Board of Governors are not appointed by the
President. Section 6 of the PNRC Charter, as amended, provides:
SECTION 6. The governing powers and authority shall be vested in a Board of
Governors composed of thirty members, six of whom shall be appointed by the
President of the Philippines, eighteen shall be elected by chapter delegates in
biennial conventions and the remaining six shall be selected by the twenty-four
members of the Board already chosen. x x x.
Thus, of the twenty-four members of the PNRC Board, eighteen are elected by
the chapter delegates of the PNRC, and six are elected by the twenty-four
members already chosen — a select group where the private sector members
have three-fourths majority. Clearly, an overwhelming majority of four-fifths of
the PNRC Board are elected or chosen by the private sector members of the
PNRC.
The PNRC Board of Governors, which exercises all corporate powers of the
PNRC, elects the PNRC Chairman and all other officers of the PNRC. The
incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all
PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-
fifths of whom are private sector members of the PNRC. The PNRC Chairman is
not appointed by the President or by any subordinate government official.
Under Section 16, Article VII of the Constitution,14 the President appoints all
officials and employees in the Executive branch whose appointments are vested
in the President by the Constitution or by law. The President also appoints those
whose appointments are not otherwise provided by law. Under this Section 16,
the law may also authorize the "heads of departments, agencies, commissions, or
boards" to appoint officers lower in rank than such heads of departments,
agencies, commissions or boards.15 In Rufino v. Endriga,16 the Court explained
appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the President appoints
three groups of officers. The first group refers to the heads of the Executive
departments, ambassadors, other public ministers and consuls, officers of the
armed forces from the rank of colonel or naval captain, and other officers whose
appointments are vested in the President by the Constitution. The second group
refers to those whom the President may be authorized by law to appoint. The
third group refers to all other officers of the Government whose appointments
are not otherwise provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers
whose appointments Congress may by law vest in the heads of departments,
agencies, commissions, or boards. x x x
xxx
In a department in the Executive branch, the head is the Secretary. The law may
not authorize the Undersecretary, acting as such Undersecretary, to appoint
lower-ranked officers in the Executive department. In an agency, the power is
vested in the head of the agency for it would be preposterous to vest it in the
agency itself. In a commission, the head is the chairperson of the commission. In
a board, the head is also the chairperson of the board. In the last three situations,
the law may not also authorize officers other than the heads of the agency,
commission, or board to appoint lower-ranked officers.
xxx
The Constitution authorizes Congress to vest the power to appoint lower-ranked
officers specifically in the "heads" of the specified offices, and in no other person.
The word "heads" refers to the chairpersons of the commissions or boards and
not to their members, for several reasons.
The President does not appoint the Chairman of the PNRC. Neither does the
head of any department, agency, commission or board appoint the PNRC
Chairman. Thus, the PNRC Chairman is not an official or employee of the
Executive branch since his appointment does not fall under Section 16, Article
VII of the Constitution. Certainly, the PNRC Chairman is not an official or
employee of the Judiciary or Legislature. This leads us to the obvious conclusion
that the PNRC Chairman is not an official or employee of the Philippine
Government. Not being a government official or employee, the PNRC Chairman,
as such, does not hold a government office or employment.
Under Section 17, Article VII of the Constitution,17 the President exercises
control over all government offices in the Executive branch. If an office is legally
not under the control of the President, then such office is not part of the
Executive branch. In Rufino v. Endriga,18 the Court explained the President’s
power of control over all government offices as follows:
Every government office, entity, or agency must fall under the Executive,
Legislative, or Judicial branches, or must belong to one of the independent
constitutional bodies, or must be a quasi-judicial body or local government unit.
Otherwise, such government office, entity, or agency has no legal and
constitutional basis for its existence.
The CCP does not fall under the Legislative or Judicial branches of government.
The CCP is also not one of the independent constitutional bodies. Neither is the
CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall
under the Executive branch. Under the Revised Administrative Code of 1987,
any agency "not placed by law or order creating them under any specific
department" falls "under the Office of the President."
Since the President exercises control over "all the executive departments,
bureaus, and offices," the President necessarily exercises control over the CCP
which is an office in the Executive branch. In mandating that the President "shall
have control of all executive . . . offices," Section 17, Article VII of the 1987
Constitution does not exempt any executive office — one performing executive
functions outside of the independent constitutional bodies — from the
President’s power of control. There is no dispute that the CCP performs
executive, and not legislative, judicial, or quasi-judicial functions.
The President’s power of control applies to the acts or decisions of all officers in
the Executive branch. This is true whether such officers are appointed by the
President or by heads of departments, agencies, commissions, or boards. The
power of control means the power to revise or reverse the acts or decisions of a
subordinate officer involving the exercise of discretion.
In short, the President sits at the apex of the Executive branch, and exercises
"control of all the executive departments, bureaus, and offices." There can be no
instance under the Constitution where an officer of the Executive branch is
outside the control of the President. The Executive branch is unitary since there
is only one President vested with executive power exercising control over the
entire Executive branch. Any office in the Executive branch that is not under the
control of the President is a lost command whose existence is without any legal
or constitutional basis. (Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are private sector
individuals elected to the PNRC Board by the private sector members of the
PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is
controlled by private sector individuals. Decisions or actions of the PNRC Board
are not reviewable by the President. The President cannot reverse or modify the
decisions or actions of the PNRC Board. Neither can the President reverse or
modify the decisions or actions of the PNRC Chairman. It is the PNRC Board that
can review, reverse or modify the decisions or actions of the PNRC Chairman.
This proves again that the office of the PNRC Chairman is a private office, not a
government office.1avvphi1
Although the State is often represented in the governing bodies of a National
Society, this can be justified by the need for proper coordination with the public
authorities, and the government representatives may take part in decision-
making within a National Society. However, the freely-elected representatives of
a National Society’s active members must remain in a large majority in a
National Society’s governing bodies.19
The PNRC is not government-owned but privately owned. The vast majority of
the thousands of PNRC members are private individuals, including students.
Under the PNRC Charter, those who contribute to the annual fund campaign of
the PNRC are entitled to membership in the PNRC for one year. Thus, any one
between 6 and 65 years of age can be a PNRC member for one year upon
contributing P35, P100, P300, P500 or P1,000 for the year.20 Even foreigners,
whether residents or not, can be members of the PNRC. Section 5 of the PNRC
Charter, as amended by Presidential Decree No. 1264,21 reads:
SEC. 5. Membership in the Philippine National Red Cross shall be open to the
entire population in the Philippines regardless of citizenship. Any contribution
to the Philippine National Red Cross Annual Fund Campaign shall entitle the
contributor to membership for one year and said contribution shall be
deductible in full for taxation purposes.
Thus, the PNRC is a privately owned, privately funded, and privately run
charitable organization. The PNRC is not a government-owned or controlled
corporation.
Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,22
which ruled that the PNRC is a government-owned or controlled corporation. In
ruling that the PNRC is a government-owned or controlled corporation, the
simple test used was whether the corporation was created by its own special
charter for the exercise of a public function or by incorporation under the
general corporation law. Since the PNRC was created under a special charter, the
Court then ruled that it is a government corporation. However, the
Camporedondo ruling failed to consider the definition of a government-owned
or controlled corporation as provided under Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987:
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: 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.(Boldfacing and underscoring
supplied)
A government-owned or controlled corporation must be owned by the
government, and in the case of a stock corporation, at least a majority of its
capital stock must be owned by the government. In the case of a non-stock
corporation, by analogy at least a majority of the members must be government
officials holding such membership by appointment or designation by the
government. Under this criterion, and as discussed earlier, the government does
not own or control PNRC.
The PNRC Charter is Violative of the Constitutional Proscription against the
Creation of Private Corporations by Special Law
The 1935 Constitution, as amended, was in force when the PNRC was created by
special charter on 22 March 1947. Section 7, Article XIV of the 1935
Constitution, as amended, reads:
SEC. 7. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are
owned or controlled by the Government or any subdivision or instrumentality
thereof.
The subsequent 1973 and 1987 Constitutions contain similar provisions
prohibiting Congress from creating private corporations except by general law.
Section 1 of the PNRC Charter, as amended, creates the PNRC as a "body
corporate and politic," thus:
SECTION 1. There is hereby created in the Republic of the Philippines a body
corporate and politic to be the voluntary organization officially designated to
assist the Republic of the Philippines in discharging the obligations set forth in
the Geneva Conventions and to perform such other duties as are inherent upon a
National Red Cross Society. The national headquarters of this Corporation shall
be located in Metropolitan Manila. (Emphasis supplied)
In Feliciano v. Commission on Audit,23 the Court explained the constitutional
provision prohibiting Congress from creating private corporations in this wise:
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 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.
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, the general law is the Corporation Code, except that the Cooperative Code
governs the incorporation of cooperatives.
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.24 (Emphasis supplied)
In Feliciano, the Court held that the Local Water Districts are government-
owned or controlled corporations since they exist by virtue of Presidential
Decree No. 198, which constitutes their special charter. The seed capital assets
of the Local Water Districts, such as waterworks and sewerage facilities, were
public property which were managed, operated by or under the control of the
city, municipality or province before the assets were transferred to the Local
Water Districts. The Local Water Districts also receive subsidies and loans from
the Local Water Utilities Administration (LWUA). In fact, under the 2009 General
Appropriations Act,25 the LWUA has a budget amounting to P400,000,000 for
its subsidy requirements.26 There is no private capital invested in the Local
Water Districts. The capital assets and operating funds of the Local Water
Districts all come from the government, either through transfer of assets, loans,
subsidies or the income from such assets or funds.
The government also controls the Local Water Districts because the municipal or
city mayor, or the provincial governor, appoints all the board directors of the
Local Water Districts. Furthermore, the board directors and other personnel of
the Local Water Districts are government employees subject to civil service laws
and anti-graft laws. Clearly, the Local Water Districts are considered
government-owned or controlled corporations not only because of their
creation by special charter but also because the government in fact owns and
controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special
charter. However, unlike the Local Water Districts, the elements of government
ownership and control are clearly lacking in the PNRC. Thus, although the PNRC
is created by a special charter, it cannot be considered a government-owned or
controlled corporation in the absence of the essential elements of ownership
and control by the government. In creating the PNRC as a corporate entity,
Congress was in fact creating a private corporation. However, the constitutional
prohibition against the creation of private corporations by special charters
provides no exception even for non-profit or charitable corporations.
Consequently, the PNRC Charter, insofar as it creates the PNRC as a private
corporation and grants it corporate powers,27 is void for being unconstitutional.
Thus, Sections 1,28 2,29 3,30 4(a),31 5,32 6,33 7,34 8,35 9,36 10,37 11,38 12,39
and 1340 of the PNRC Charter, as amended, are void.
The other provisions41 of the PNRC Charter remain valid as they can be
considered as a recognition by the State that the unincorporated PNRC is the
local National Society of the International Red Cross and Red Crescent
Movement, and thus entitled to the benefits, exemptions and privileges set forth
in the PNRC Charter. The other provisions of the PNRC Charter implement the
Philippine Government’s treaty obligations under Article 4(5) of the Statutes of
the International Red Cross and Red Crescent Movement, which provides that to
be recognized as a National Society, the Society must be "duly recognized by the
legal government of its country on the basis of the Geneva Conventions and of
the national legislation as a voluntary aid society, auxiliary to the public
authorities in the humanitarian field."
In sum, we hold that the office of the PNRC Chairman is not a government office
or an office in a government-owned or controlled corporation for purposes of
the prohibition in Section 13, Article VI of the 1987 Constitution. However, since
the PNRC Charter is void insofar as it creates the PNRC as a private corporation,
the PNRC should incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private corporation.
WHEREFORE, we declare that the office of the Chairman of the Philippine
National Red Cross is not a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5,
6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross,
or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643,
are VOID because they create the PNRC as a private corporation or grant it
corporate powers.
SO ORDERED.
G. R. No. 175352 January 18, 2011
DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI, vs.
RICHARD J. GORDON,
PHILIPPINE NATIONAL RED CROSS, Intervenor.
This resolves the Motion for Clarification and/or for Reconsideration1 filed on
August 10, 2009 by respondent Richard J. Gordon (respondent) of the Decision
promulgated by this Court on July 15, 2009 (the Decision), the Motion for Partial
Reconsideration2 filed on August 27, 2009 by movant-intervenor Philippine
National Red Cross (PNRC), and the latter’s Manifestation and Motion to Admit
Attached Position Paper3 filed on December 23, 2009.
In the Decision,4 the Court held that respondent did not forfeit his seat in the
Senate when he accepted the chairmanship of the PNRC Board of Governors, as
"the office of the PNRC Chairman is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution."5 The Decision, however, further
declared void the PNRC Charter "insofar as it creates the PNRC as a private
corporation" and consequently ruled that "the PNRC should incorporate under
the Corporation Code and register with the Securities and Exchange Commission
if it wants to be a private corporation."6 The dispositive portion of the Decision
reads as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine
National Red Cross is not a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5,
6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross,
or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643,
are VOID because they create the PNRC as a private corporation or grant it
corporate powers.7
In his Motion for Clarification and/or for Reconsideration, respondent raises the
following grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No.
95 was not raised by the parties, the Court went beyond the case in deciding
such issue; and (2) as the Court decided that Petitioners did not have standing to
file the instant Petition, the pronouncement of the Court on the validity of R.A.
No. 95 should be considered obiter.8
Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it
was unnecessary for the Court to decide on that question. Respondent cites
Laurel v. Garcia,9 wherein the Court said that it "will not pass upon a
constitutional question although properly presented by the record if the case
can be disposed of on some other ground" and goes on to claim that since this
Court, in the Decision, disposed of the petition on some other ground, i.e., lack of
standing of petitioners, there was no need for it to delve into the validity of R.A.
No. 95, and the rest of the judgment should be deemed obiter.
In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the
constitutionality of its Charter on the following grounds:
A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT
NO. 95 AS AMENDED DEPRIVED INTERVENOR PNRC OF ITS CONSTITUTIONAL
RIGHT TO DUE PROCESS.
1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY.
2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS
NEVER AN ISSUE IN THIS CASE.
B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND
NOT REPUBLIC ACT NO. 95. PRESIDENTIAL DECREE NO. 1264 WAS NOT A
CREATION OF CONGRESS.
C. PNRC’S STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS
PERFORMING HUMANITARIAN FUNCTIONS AS AN AUXILIARY TO
GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF
GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS STRICTLY PRIVATE IN
CHARACTER.
In his Comment and Manifestation10 filed on November 9, 2009, respondent
manifests: (1) that he agrees with the position taken by the PNRC in its Motion
for Partial Reconsideration dated August 27, 2009; and (2) as of the writing of
said Comment and Manifestation, there was pending before the Congress of the
Philippines a proposed bill entitled "An Act Recognizing the PNRC as an
Independent, Autonomous, Non-Governmental Organization Auxiliary to the
Authorities of the Republic of the Philippines in the Humanitarian Field, to be
Known as The Philippine Red Cross."11
After a thorough study of the arguments and points raised by the respondent as
well as those of movant-intervenor in their respective motions, we have
reconsidered our pronouncements in our Decision dated July 15, 2009 with
regard to the nature of the PNRC and the constitutionality of some provisions of
the PNRC Charter, R.A. No. 95, as amended.
As correctly pointed out in respondent’s Motion, the issue of constitutionality of
R.A. No. 95 was not raised by the parties, and was not among the issues defined
in the body of the Decision; thus, it was not the very lis mota of the case. We
have reiterated the rule as to when the Court will consider the issue of
constitutionality in Alvarez v. PICOP Resources, Inc.,12 thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis
mota. It is a well-established rule that a court should not pass upon a
constitutional question and decide a law to be unconstitutional or invalid, unless
such question is raised by the parties and that when it is raised, if the record also
presents some other ground upon which the court may [rest] its judgment, that
course will be adopted and the constitutional question will be left for
consideration until such question will be unavoidable.13
Under the rule quoted above, therefore, this Court should not have declared void
certain sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos.
1264 and 1643, the PNRC Charter. Instead, the Court should have exercised
judicial restraint on this matter, especially since there was some other ground
upon which the Court could have based its judgment. Furthermore, the PNRC,
the entity most adversely affected by this declaration of unconstitutionality,
which was not even originally a party to this case, was being compelled, as a
consequence of the Decision, to suddenly reorganize and incorporate under the
Corporation Code, after more than sixty (60) years of existence in this country.
Its existence as a chartered corporation remained unchallenged on ground of
unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22,
1947 during the effectivity of the 1935 Constitution, which provided for a
proscription against the creation of private corporations by special law, to wit:
SEC. 7. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are
owned and controlled by the Government or any subdivision or instrumentality
thereof. (Art. XIV, 1935 Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution
and Article XII, Section 16 of the 1987 Constitution. The latter reads:
SECTION 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of economic
viability.
Since its enactment, the PNRC Charter was amended several times, particularly
on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by
virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643,
respectively. The passage of several laws relating to the PNRC’s corporate
existence notwithstanding the effectivity of the constitutional proscription on
the creation of private corporations by law, is a recognition that the PNRC is not
strictly in the nature of a private corporation contemplated by the aforesaid
constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it not
just in terms of structure, but also in terms of history, public service and official
status accorded to it by the State and the international community. There is
merit in PNRC’s contention that its structure is sui generis.
The PNRC succeeded the chapter of the American Red Cross which was in
existence in the Philippines since 1917. It was created by an Act of Congress
after the Republic of the Philippines became an independent nation on July 6,
1946 and proclaimed on February 14, 1947 its adherence to the Convention of
Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded
and Sick of Armies in the Field (the "Geneva Red Cross Convention"). By that
action the Philippines indicated its desire to participate with the nations of the
world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose and like other volunteer
organizations established in other countries which have ratified the Geneva
Conventions, to promote the health and welfare of the people in peace and in
war.14
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and
further amended by P.D. Nos. 1264 and 1643, show the historical background
and legal basis of the creation of the PNRC by legislative fiat, as a voluntary
organization impressed with public interest. Pertinently R.A. No. 95, as amended
by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the
nations of the world unanimously agreed to diminish within their power the
evils inherent in war;
WHEREAS, more than one hundred forty nations of the world have ratified or
adhered to the Geneva Conventions of August 12, 1949 for the Amelioration of
the Condition of the Wounded and Sick of Armed Forces in the Field and at Sea,
The Prisoners of War, and The Civilian Population in Time of War referred to in
this Charter as the Geneva Conventions;
WHEREAS, the Republic of the Philippines became an independent nation on
July 4, 1946, and proclaimed on February 14, 1947 its adherence to the Geneva
Conventions of 1929, and by the action, indicated its desire to participate with
the nations of the world in mitigating the suffering caused by war and to
establish in the Philippines a voluntary organization for that purpose as
contemplated by the Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a chapter of the American
National Red Cross which was terminated in view of the independence of the
Philippines; and
WHEREAS, the volunteer organizations established in other countries which
have ratified or adhered to the Geneva Conventions assist in promoting the
health and welfare of their people in peace and in war, and through their mutual
assistance and cooperation directly and through their international
organizations promote better understanding and sympathy among the people of
the world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by
virtue of the powers vested in me by the Constitution as Commander-in-Chief of
all the Armed Forces of the Philippines and pursuant to Proclamation No. 1081
dated September 21, 1972, and General Order No. 1 dated September 22, 1972,
do hereby decree and order that Republic Act No. 95, Charter of the Philippine
National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be
further amended as follows:
Section 1. There is hereby created in the Republic of the Philippines a body
corporate and politic to be the voluntary organization officially designated to
assist the Republic of the Philippines in discharging the obligations set forth in
the Geneva Conventions and to perform such other duties as are inherent upon a
national Red Cross Society. The national headquarters of this Corporation shall
be located in Metropolitan Manila. (Emphasis supplied.)
The significant public service rendered by the PNRC can be gleaned from Section
3 of its Charter, which provides:
Section 3. That the purposes of this Corporation shall be as follows:
(a) To provide volunteer aid to the sick and wounded of armed forces in time of
war, in accordance with the spirit of and under the conditions prescribed by the
Geneva Conventions to which the Republic of the Philippines proclaimed its
adherence;
(b) For the purposes mentioned in the preceding sub-section, to perform all
duties devolving upon the Corporation as a result of the adherence of the
Republic of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in accordance with the authorities of
the armed forces as a medium of communication between people of the Republic
of the Philippines and their Armed Forces, in time of peace and in time of war,
and to act in such matters between similar national societies of other
governments and the Governments and people and the Armed Forces of the
Republic of the Philippines;
(d) To establish and maintain a system of national and international relief in
time of peace and in time of war and apply the same in meeting and emergency
needs caused by typhoons, flood, fires, earthquakes, and other natural disasters
and to devise and carry on measures for minimizing the suffering caused by such
disasters;
(e) To devise and promote such other services in time of peace and in time of
war as may be found desirable in improving the health, safety and welfare of the
Filipino people;
(f) To devise such means as to make every citizen and/or resident of the
Philippines a member of the Red Cross.
The PNRC is one of the National Red Cross and Red Crescent Societies, which,
together with the International Committee of the Red Cross (ICRC) and the IFRC
and RCS, make up the International Red Cross and Red Crescent Movement (the
Movement). They constitute a worldwide humanitarian movement, whose
mission is:
[T]o prevent and alleviate human suffering wherever it may be found, to protect
life and health and ensure respect for the human being, in particular in times of
armed conflict and other emergencies, to work for the prevention of disease and
for the promotion of health and social welfare, to encourage voluntary service
and a constant readiness to give help by the members of the Movement, and a
universal sense of solidarity towards all those in need of its protection and
assistance.15
The PNRC works closely with the ICRC and has been involved in humanitarian
activities in the Philippines since 1982. Among others, these activities in the
country include:
1. Giving protection and assistance to civilians displaced or otherwise affected
by armed clashes between the government and armed opposition groups,
primarily in Mindanao;
2. Working to minimize the effects of armed hostilities and violence on the
population;
3. Visiting detainees; and
4. Promoting awareness of international humanitarian law in the public and
private sectors.16
National Societies such as the PNRC act as auxiliaries to the public authorities of
their own countries in the humanitarian field and provide a range of services
including disaster relief and health and social programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies
(RCS) Position Paper,17 submitted by the PNRC, is instructive with regard to the
elements of the specific nature of the National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross and its sister Red
Cross and Red Crescent Societies, have certain specificities deriving from the
1949 Geneva Convention and the Statutes of the International Red Cross and
Red Crescent Movement (the Movement). They are also guided by the seven
Fundamental Principles of the Red Cross and Red Crescent Movement:
Humanity, Impartiality, Neutrality, Independence, Voluntary Service, Unity and
Universality.
A National Society partakes of a sui generis character. It is a protected
component of the Red Cross movement under Articles 24 and 26 of the First
Geneva Convention, especially in times of armed conflict. These provisions
require that the staff of a National Society shall be respected and protected in all
circumstances. Such protection is not ordinarily afforded by an international
treaty to ordinary private entities or even non-governmental organisations
(NGOs). This sui generis character is also emphasized by the Fourth Geneva
Convention which holds that an Occupying Power cannot require any change in
the personnel or structure of a National Society. National societies are therefore
organizations that are directly regulated by international humanitarian law, in
contrast to other ordinary private entities, including NGOs.
xxxx
In addition, National Societies are not only officially recognized by their public
authorities as voluntary aid societies, auxiliary to the public authorities in the
humanitarian field, but also benefit from recognition at the International level.
This is considered to be an element distinguishing National Societies from other
organisations (mainly NGOs) and other forms of humanitarian response.
x x x. No other organisation belongs to a world-wide Movement in which all
Societies have equal status and share equal responsibilities and duties in helping
each other. This is considered to be the essence of the Fundamental Principle of
Universality.
Furthermore, the National Societies are considered to be auxiliaries to the public
authorities in the humanitarian field. x x x.
The auxiliary status of [a] Red Cross Society means that it is at one and the same
time a private institution and a public service organization because the very
nature of its work implies cooperation with the authorities, a link with the State.
In carrying out their major functions, Red Cross Societies give their
humanitarian support to official bodies, in general having larger resources than
the Societies, working towards comparable ends in a given sector.
x x x No other organization has a duty to be its government’s humanitarian
partner while remaining independent.18 (Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has
remained valid and effective from the time of its enactment in March 22, 1947
under the 1935 Constitution and during the effectivity of the 1973 Constitution
and the 1987 Constitution.
The PNRC Charter and its amendatory laws have not been questioned or
challenged on constitutional grounds, not even in this case before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on Audit,19 explained
that the purpose of the constitutional provision prohibiting Congress from
creating private corporations was to prevent the granting of special privileges to
certain individuals, families, or groups, which were denied to other groups.
Based on the above discussion, it can be seen that the PNRC Charter does not
come within the spirit of this constitutional provision, as it does not grant
special privileges to a particular individual, family, or group, but creates an
entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of
the 1987 Constitution will hinder the State in adopting measures that will serve
the public good or national interest. It should be noted that a special law, R.A.
No. 9520, the Philippine Cooperative Code of 2008, and not the general
corporation code, vests corporate power and capacities upon cooperatives
which are private corporations, in order to implement the State’s avowed policy.
In the Decision of July 15, 2009, the Court recognized the public service
rendered by the PNRC as the government’s partner in the observance of its
international commitments, to wit:
The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization,
whose mission is to bring timely, effective, and compassionate humanitarian
assistance for the most vulnerable without consideration of nationality, race,
religion, gender, social status, or political affiliation. The PNRC provides six
major services: Blood Services, Disaster Management, Safety Services,
Community Health and Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the Geneva Conventions,
established the PNRC as a voluntary organization for the purpose contemplated
in the Geneva Convention of 27 July 1929. x x x.20 (Citations omitted.)
So must this Court recognize too the country’s adherence to the Geneva
Convention and respect the unique status of the PNRC in consonance with its
treaty obligations. The Geneva Convention has the force and effect of law.21
Under the Constitution, the Philippines adopts the generally accepted principles
of international law as part of the law of the land.22 This constitutional
provision must be reconciled and harmonized with Article XII, Section 16 of the
Constitution, instead of using the latter to negate the former.
By requiring the PNRC to organize under the Corporation Code just like any
other private corporation, the Decision of July 15, 2009 lost sight of the PNRC’s
special status under international humanitarian law and as an auxiliary of the
State, designated to assist it in discharging its obligations under the Geneva
Conventions. Although the PNRC is called to be independent under its
Fundamental Principles, it interprets such independence as inclusive of its duty
to be the government’s humanitarian partner. To be recognized in the
International Committee, the PNRC must have an autonomous status, and carry
out its humanitarian mission in a neutral and impartial manner.
However, in accordance with the Fundamental Principle of Voluntary Service of
National Societies of the Movement, the PNRC must be distinguished from
private and profit-making entities. It is the main characteristic of National
Societies that they "are not inspired by the desire for financial gain but by
individual commitment and devotion to a humanitarian purpose freely chosen
or accepted as part of the service that National Societies through its volunteers
and/or members render to the Community."23
The PNRC, as a National Society of the International Red Cross and Red Crescent
Movement, can neither "be classified as an instrumentality of the State, so as not
to lose its character of neutrality" as well as its independence, nor strictly as a
private corporation since it is regulated by international humanitarian law and
is treated as an auxiliary of the State.24
Based on the above, the sui generis status of the PNRC is now sufficiently
established.1âwphi1 Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -controlled
corporation or a subsidiary thereof, as succinctly explained in the Decision of
July 15, 2009, so much so that respondent, under the Decision, was correctly
allowed to hold his position as Chairman thereof concurrently while he served
as a Senator, such a conclusion does not ipso facto imply that the PNRC is a
"private corporation" within the contemplation of the provision of the
Constitution, that must be organized under the Corporation Code. As correctly
mentioned by Justice Roberto A. Abad, the sui generis character of PNRC
requires us to approach controversies involving the PNRC on a case-to-case
basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the
government in the humanitarian field in accordance with its commitments
under international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter
was never raised by the parties. It bears emphasizing that the PNRC has
responded to almost all national disasters since 1947, and is widely known to
provide a substantial portion of the country’s blood requirements. Its
humanitarian work is unparalleled. The Court should not shake its existence to
the core in an untimely and drastic manner that would not only have negative
consequences to those who depend on it in times of disaster and armed
hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared
void must therefore stay.
WHEREFORE, premises considered, respondent Richard J. Gordon’s Motion for
Clarification and/or for Reconsideration and movant-intervenor PNRC’s Motion
for Partial Reconsideration of the Decision in G.R. No. 175352 dated July 15,
2009 are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter
of the Philippine National Red Cross, was not raised by the parties as an issue
and should not have been passed upon by this Court. The structure of the PNRC
is sui generis¸ being neither strictly private nor public in nature. R.A. No. 95
remains valid and constitutional in its entirety. The dispositive portion of the
Decision should therefore be MODIFIED by deleting the second sentence, to now
read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine
National Red Cross is not a government office or an office in a government-
owned or controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution.
SO ORDERED.
G.R. No. 136374 February 9, 2000
FRANCISCA S. BALUYOT, vs. PAUL E. HOLGANZA and the OFFICE OF THE
OMBUDSMAN (VISAYAS) represented by its Deputy Ombudsman for the
Visayas ARTURO C. MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and
Graft Investigation Officer I ANNA MARIE P. MILITANTE
Before us is a special civil action for certiorari, seeking the reversal of the Orders
dated August 21, 1998 and October 28, 1998 issued by the Office of the
Ombudsman, which denied petitioner's motion to dismiss and motion for
reconsideration, respectively.
The facts are:
During a spot audit conducted on March 21, 1977 by a team of auditors from the
Philippine National Red Cross (PNRC) headquarters, a cash shortage of
P154,350.13 was discovered in the funds of its Bohol chapter. The chapter
administrator, petitioner Francisca S. Baluyot, was held accountable for the
shortage. Thereafter, on January 8, 1998, private respondent Paul E. Holganza, in
his capacity as a member of the board of directors of the Bohol chapter, filed an
affidavit-complaint1 before the Office of the Ombudsman charging petitioner of
malversation under Article 217 of the Revised Penal Code. The complaint was
docketed as OMB-VIS-CRIM-98-0022. However, upon recommendation by
respondent Anna Marie P. Militante, Graft Investigation Officer I, an
administrative docket for dishonesty was also opened against petitioner; hence,
OMB-VIS-ADM-98-0063.2
On February 6, 1998, public respondent issued an Order3 requiring petitioner to
file her counter-affidavit to the charges of malversation and dishonesty within
ten days from notice, with a warning that her failure to comply would be
construed as a waiver on her part to refute the charges, and that the case would
be resolved based on the evidence on record. On March 14, 1998, petitioner filed
her counter-affidavit,4 raising principally the defense that public respondent
had no jurisdiction over the controversy. She argued that the Ombudsman had
authority only over government-owned or controlled corporations, which the
PNRC was not, or so she claimed.
On August 21, 1998, public respondent issued the first assailed Order5 denying
petitioner's motion to dismiss. It further scheduled a clarificatory hearing on the
criminal aspect of the complaint and a preliminary conference on its
administrative aspect on September 2, 1998. Petitioner received the order on
August 26, 1998 and she filed a motion for reconsideration6 the next day.
On October 28, 1998, public respondent issued the second assailed Order7
denying petitioner's motion for reconsideration. Hence, this recourse.
We dismiss the petition.
Petitioner contends that the Ombudsman has no jurisdiction over the subject
matter of the controversy since the PNRC is allegedly a private voluntary
organization. The following circumstances, she insists, are indicative of the
private character of the organization: (1) the PNRC does not receive any
budgetary support from the government, and that all money given to it by the
latter and its instrumentalities become private funds of the organization; (2)
funds for the payment of personnel's salaries and other emoluments come from
yearly fund campaigns, private contributions and rentals from its properties;
and (3) it is not audited by the Commission on Audit. Petitioner states that the
PNRC falls under the International Federation of Red Cross, a Switzerland-based
organization, and that the power to discipline employees accused of misconduct,
malfeasance, or immorality belongs to the PNRC Secretary General by virtue of
Section "G", Article IX of its by-laws.8 She threatens that "to classify the PNRC as
a government-owned or controlled corporation would create a dangerous
precedent as it would lose its neutrality, independence and impartiality . . . .9
Practically the same issue was addressed in Camporedondo v. National Labor
Relations Commission, et. al.,10 where an almost identical set of facts obtained.
Petitioner therein was the administrator of the Surigao del Norte chapter of the
PNRC. An audit conducted by a field auditor revealed a shortage in the chapter
funds in the sum of P109,000.00. When required to restitute the amount of
P135,927.78, petitioner therein instead applied for early retirement, which was
denied by the Secretary General of the PNRC. Subsequently, the petitioner filed a
complaint for illegal dismissal and damages against PNRC before the National
Labor Relations Commission. In turn, PNRC moved to dismiss the complaint on
the ground of lack of jurisdiction, averring that PNRC was a government
corporation whose employees are embraced by civil service regulation. The
labor arbiter dismissed the complaint, and the Commission sustained his order.
The petitioner assailed the dismissal of his complaint via a petition for certiorari,
contending that the PNRC is a private organization and not a government-owned
or controlled corporation. In dismissing the petition, we ruled thus:
Resolving the issue set out in the opening paragraph of this opinion, we rule that
the Philippine National Red Cross (PNRC) is a government owned and controlled
corporation, with an original charter under Republic Act No. 95, as amended.
The test to determine whether a corporation is government owned or
controlled, or private in nature is simple. Is it created by its own charter for the
exercise of a public function, or by incorporation under the general corporation
law? Those with special charters are government corporations subject to its
provisions, and its employees are under the jurisdiction of the Civil Service
Commission, and are compulsory members of the Government Service Insurance
System. The PNRC was not "impliedly converted to a private corporation" simply
because its charter was amended to vest in it the authority to secure loans, be
exempted from payment of all duties, taxes, fees and other charges of all kinds
on all importations and purchases for its exclusive use, on donations for its
disaster relief work and other services and in its benefits and fund raising
drives, and be allotted one lottery draw a year by the Philippine Charity
Sweepstakes Office for the support of its disaster relief operation in addition to
its existing lottery draws for blood program.
Clearly then, public respondent has jurisdiction over the matter, pursuant to
Section 13, of Republic Act No. 6770, otherwise known as "The Ombudsman Act
of 1989", to wit:
Sec. 13. Mandate. — The Ombudsman and his Deputies, as protectors of the
people, shall act promptly on complaints filed in any form or manner against
officers or employees of the Government, or of any subdivision, agency or
instrumentality thereof, including government-owned or controlled
corporations, and enforce their administrative, civil and criminal liability in ever
case where the evidence warrants in order to promote efficient service by the
Government to the people.11
WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against
petitioner.
G. R. No. 155027 February 28, 2006
THE VETERANS FEDERATION OF THE PHILIPPINES represented by
Esmeraldo R. Acorda, vs. Hon. ANGELO T. REYES in his capacity as
Secretary of National Defense; and Hon. EDGARDO E. BATENGA in his
capacity as Undersecretary for Civil Relations and Administration of the
Department of National Defense,
This is a Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules
of Civil Procedure, with a prayer to declare as void Department Circular No. 04
of the Department of National Defense (DND), dated 10 June 2002.
Petitioner in this case is the Veterans Federation of the Philippines (VFP), a
corporate body organized under Republic Act No. 2640, dated 18 June 1960, as
amended, and duly registered with the Securities and Exchange Commission.
Respondent Angelo T. Reyes was the Secretary of National Defense (DND
Secretary) who issued the assailed Department Circular No. 04, dated 10 June
2002. Respondent Edgardo E. Batenga was the DND Undersecretary for Civil
Relations and Administration who was tasked by the respondent DND Secretary
to conduct an extensive management audit of the records of petitioner.
The factual and procedural antecedents of this case are as follows:
Petitioner VFP was created under Rep. Act No. 2640,1 a statute approved on 18
June 1960.
On 15 April 2002, petitioner’s incumbent president received a letter dated 13
April 2002 which reads:
Col. Emmanuel V. De Ocampo (Ret.)
President
Veterans Federation of the Philippines
Makati, Metro Manila
Dear Col. De Ocampo:
Please be informed that during the preparation of my briefing before the Cabinet
and the President last March 9, 2002, we came across some legal bases which
tended to show that there is an organizational and management relationship
between Veterans Federation of the Philippines and the Philippine Veterans
Bank which for many years have been inadvertently overlooked.
I refer to Republic Act 2640 creating the body corporate known as the VFP and
Republic Act 3518 creating the Phil. Vets [sic] Bank.
1. RA 2640 dated 18 June 60 Section 1 ... "hereby created a body corporate,
under the control and supervision of the Secretary of National Defense."
2. RA 2640 Section 12 ... "On or before the last day of the month following the
end of each fiscal year, the Federation shall make and transmit to the President
of the Philippines or to the Secretary of National Defense, a report of its
proceedings for the past year, including a full, complete and itemized report of
receipts and expenditures of whatever kind."
3. Republic Act 3518 dated 18 June 1963 (An Act Creating the Philippine
Veterans Bank, and for Other Purposes) provides in Section 6 that ... "the affairs
and business of the Philippine Veterans Bank shall be directed and its property
managed, controlled and preserved, unless otherwise provided in this Act, by a
Board of Directors consisting of eleven (11) members to be composed of three
ex officio members to wit: the Philippine Veterans Administrator, the President
of the Veteran’s Federation of the Philippines and the Secretary of National
Defense x x x.
It is therefore in the context of clarification and rectification of what should have
been done by the DND (Department of National Defense) for and about the VFP
and PVB that I am requesting appropriate information and report about these
two corporate bodies.
Therefore it may become necessary that a conference with your staffs in these
two bodies be set.
Thank you and anticipating your action on this request.
Very truly yours,
(SGD) ANGELO T. REYES
[DND] Secretary
On 10 June 2002, respondent DND Secretary issued the assailed DND
Department Circular No. 04 entitled, "Further Implementing the Provisions of
Sections 12 and 23 of Republic Act No. 2640," the full text of which appears as
follows:
Department of National Defense
Department Circular No. 04
Subject: Further Implementing the Provisions of Sections 1 & 2 of
Republic Act No. 2640
Authority: Republic Act No. 2640
Executive Order No. 292 dated July 25, 1987
Section 1
These rules shall govern and apply to the management and operations of the
Veterans Federation of the Philippines (VFP) within the context provided by EO
292 s-1987.
Section 2 – DEFINITION OF TERMS – for the purpose of these rules, the terms,
phrases or words used herein shall, unless the context indicates otherwise,
mean or be understood as follows:
Supervision and Control – it shall include authority to act directly whenever a
specific function is entrusted by law or regulation to a subordinate; direct the
performance of a duty; restrain the commission of acts; approve, reverse or
modify acts and decisions of subordinate officials or units; determine priorities
in the execution of plans and programs; and prescribe standards, guidelines,
plans and programs.
Power of Control – power to alter, modify, nullify or set aside what a
subordinate officer had done in the performance of his duties and to substitute
the judgment of the former to that of the latter.
Supervision – means overseeing or the power of an officer to see to it that their
subordinate officers perform their duties; it does not allow the superior to annul
the acts of the subordinate.
Administrative Process – embraces matter concerning the procedure in the
disposition of both routine and contested matters, and the matter in which
determinations are made, enforced or reviewed.
Government Agency – as defined under PD 1445, a government agency or
agency of government or "agency" refers to any department, bureau or office of
the national government, or any of its branches or instrumentalities, of any
political subdivision, as well as any government owned or controlled
corporation, including its subsidiaries, or other self-governing board or
commission of the government.
Government Owned and Controlled Corporation (GOCC) – refer to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
government directly or through its instrumentalities wholly or, where applicable
as in the case of stock corporations, to the extent of at least 50% of its capital
stock.
Fund – sum of money or other resources set aside for the purpose of carrying
out specific activities or attaining certain objectives in accordance with special
regulations, restrictions or limitations and constitutes an independent, fiscal and
accounting entity.
Government Fund – includes public monies of every sort and other resources
pertaining to any agency of the government.
Veteran – any person who rendered military service in the land, sea or air forces
of the Philippines during the revolution against Spain, the Philippine American
War, World War II, including Filipino citizens who served in Allied Forces in the
Philippine territory and foreign nationals who served in Philippine forces; the
Korean campaign, the Vietnam campaign, the Anti-dissidence campaign, or other
wars or military campaigns; or who rendered military service in the Armed
Forces of the Philippines and has been honorably discharged or separated after
at least six (6) years total cumulative active service or sooner separated due to
the death or disability arising from a wound or injury received or sickness or
disease incurred in line of duty while in the active service.
Section 3 – Relationship Between the DND and the VFP
3.1 Sec 1 of RA 3140 provides "... the following persons (heads of various
veterans associations and organizations in the Philippines) and their associates
and successors are hereby created a body corporate, under the control and
supervision of the Secretary of National Defense, under the name, style and title
of "Veterans Federation of the Philippines ..."
The Secretary of National Defense shall be charged with the duty of supervising
the veterans and allied program under the jurisdiction of the Department. It
shall also have the responsibility of overseeing and ensuring the judicious and
effective implementation of veterans assistance, benefits, and utilization of VFP
assets.
3.2 To effectively supervise and control the corporate affairs of the Federation
and to safeguard the interests and welfare of the veterans who are also wards of
the State entrusted under the protection of the DND, the Secretary may
personally or through a designated representative, require the submission of
reports, documents and other papers regarding any or all of the Federation’s
business transactions particularly those relating to the VFP functions under
Section 2 of RA 2640.
The Secretary or his representative may attend conferences of the supreme
council of the VFP and such other activities he may deem relevant.
3.3 The Secretary shall from time to time issue guidelines, directives and other
orders governing vital government activities including, but not limited to, the
conduct of elections; the acquisition, management and dispositions of
properties, the accounting of funds, financial interests, stocks and bonds,
corporate investments, etc. and such other transactions which may affect the
interests of the veterans.
3.4 Financial transactions of the Federation shall follow the provisions of the
government auditing code (PD 1445) i.e. government funds shall be spent or
used for public purposes; trust funds shall be available and may be spent only
for the specific purpose for which the trust was created or the funds received;
fiscal responsibility shall, to the greatest extent, be shared by all those exercising
authority over the financial affairs, transactions, and operations of the
federation; disbursements or dispositions of government funds or property shall
invariably bear the approval of the proper officials.
Section 4 – Records of the FEDERATION
As a corporate body and in accordance with appropriate laws, it shall keep and
carefully preserve records of all business transactions, minutes of meetings of
stockholders/members of the board of directors reflecting all details about such
activity.
All such records and minutes shall be open to directors, trustees, stockholders,
and other members for inspection and copies of which may be requested.
As a body corporate, it shall submit the following: annual report; proceedings of
council meetings; report of operations together with financial statement of its
assets and liabilities and fund balance per year; statement of revenues and
expenses per year; statement of cash flows per year as certified by the
accountant; and other documents/reports as may be necessary or required by
the SND.
Section 5 – Submission of Annual and Periodic Report
As mandated under appropriate laws, the following reports shall be submitted
to the SND, to wit:
a. Annual Report to be submitted not later than every January 31 of the
following year. Said report shall consist of the following:
1. Financial Report of the Federation, signed by the Treasurer General and
Auditor General;
2. Roster of Members of the Supreme Council;
3. Roster of Members of the Executive Board and National Officers; and
4. Current listing of officers and management of VFP.
b. Report on the proceedings of each Supreme Council Meeting to be submitted
not later than one month after the meeting;
c. Report of the VFP President as may be required by SND or as may be found
necessary by the President of the Federation;
d. Resolutions passed by the Executive Board and the Supreme Council for
confirmation to be submitted not later than one month after the approval of the
resolution;
e. After Operation/Activity Reports to be submitted not later than one month
after such operation or activity;
Section 6 – Penal Sanctions
As an attached agency to a regular department of the government, the VFP and
all its instrumentalities, officials and personnel shall be subject to the penal
provisions of such laws, rules and regulations applicable to the attached
agencies of the government.
In a letter dated 6 August 2002 addressed to the President of petitioner,
respondent DND Secretary reiterated his instructions in his earlier letter of 13
April 2002.
Thereafter, petitioner’s President received a letter dated 23 August 2002 from
respondent Undersecretary, informing him that Department Order No. 129
dated 23 August 2002 directed "the conduct of a Management Audit of the
Veterans Federation of the Philippines."4 The letter went on to state that
respondent DND Secretary "believes that the mandate given by said law can be
meaningfully exercised if this department can better appreciate the functions,
responsibilities and situation on the ground and this can be done by undertaking
a thorough study of the organization."5
Respondent Undersecretary also requested both for a briefing and for
documents on personnel, ongoing projects and petitioner’s financial condition.
The letter ended by stating that, after the briefing, the support staff of the Audit
Committee would begin their work to meet the one-month target within which
to submit a report.
A letter dated 28 August 2003 informed petitioner’s President that the
Management Audit Group headed by the Undersecretary would be paying
petitioner a visit on 30 August 2002 for an update on VFP’s different affiliates
and the financial statement of the Federation.
Subsequently, the Secretary General of the VFP sent an undated letter to
respondent DND Secretary, with notice to respondent Undersecretary for Civil
Relations and Administration, complaining about the alleged broadness of the
scope of the management audit and requesting the suspension thereof until such
time that specific areas of the audit shall have been agreed upon.
The request was, however, denied by the Undersecretary in a letter dated 4
September 2002 on the ground that a specific timeframe had been set for the
activity.
Petitioner thus filed this Petition for Certiorari with Prohibition under Rule 65 of
the 1997 Rules of Civil Procedure, praying for the following reliefs:
1. For this Court to issue a temporary restraining order and a writ of preliminary
prohibitory and mandatory injunction to enjoin respondent Secretary and all
those acting under his discretion and authority from: (a) implementing DND
Department Circular No. 04; and (b) continuing with the ongoing management
audit of petitioner’s books of account;
2. After hearing the issues on notice –
a. Declare DND Department Circular No. 04 as null and void for being ultra vires;
b. Convert the writ of prohibition, preliminary prohibitory and mandatory
injunction into a permanent one.6
GIVING DUE COURSE TO THE PETITION
Petitioner asserts that, although cases which question the constitutionality or
validity of administrative issuances are ordinarily filed with the lower courts,
the urgency and substantive importance of the question on hand and the public
interest attendant to the subject matter of the petition justify its being filed with
this Court directly as an original action.7
It is settled that the Regional Trial Court and the Court of Appeals also exercise
original jurisdiction over petitions for certiorari and prohibition. As we have
held in numerous occasions, however, such concurrence of original jurisdiction
does not mean that the party seeking extraordinary writs has the absolute
freedom to file his petition in the court of his choice.8 Thus, in Commissioner of
Internal Revenue v. Leal,9 we held that:
Such concurrence of original jurisdiction among the Regional Trial Court, the
Court of Appeals and this Court, however, does not mean that the party seeking
any of the extraordinary writs has the absolute freedom to file his petition in the
court of his choice. The hierarchy of courts in our judicial system determines the
appropriate forum for these petitions. Thus, petitions for the issuance of the said
writs against the first level (inferior) courts must be filed with the Regional Trial
Court and those against the latter, with the Court of Appeals. A direct invocation
of this Court’s original jurisdiction to issue these writs should be allowed only
where there are special and important reasons therefor, specifically and
sufficiently set forth in the petition. This is the established policy to prevent
inordinate demands upon the Court’s time and attention, which are better
devoted to matters within its exclusive jurisdiction, and to prevent further over-
crowding of the Court’s docket. Thus, it was proper for petitioner to institute the
special civil action for certiorari with the Court of Appeals assailing the RTC
order denying his motion to dismiss based on lack of jurisdiction.
The petition itself, in this case, does not specifically and sufficiently set forth the
special and important reasons why the Court should give due course to this
petition in the first instance, hereby failing to fulfill the conditions set forth in
Commissioner of Internal Revenue v. Leal.10 While we reiterate the policies set
forth in Leal and allied cases and continue to abhor the propensity of a number
of litigants to disregard the principle of hierarchy of courts in our judicial
system, we, however, resolve to take judicial notice of the fact that the persons
who stand to lose in a possible protracted litigation in this case are war
veterans, many of whom have precious little time left to enjoy the benefits that
can be conferred by petitioner corporation. This bickering for the power over
petitioner corporation, an entity created to represent and defend the interests of
Filipino veterans, should be resolved as soon as possible in order for it to once
and for all direct its resources to its rightful beneficiaries all over the country. All
these said, we hereby resolve to give due course to this petition.
ISSUES
Petitioner mainly alleges that the rules and guidelines laid down in the assailed
Department Circular No. 04 expanded the scope of "control and supervision"
beyond what has been laid down in Rep. Act No. 2640.11 Petitioner further
submits the following issues to this Court:
1. Was the challenged department circular passed in the valid exercise of the
respondent Secretary’s "control and supervision"?
2. Could the challenged department circular validly lay standards classifying the
VFP, an essentially civilian organization, within the ambit of statutes only
applying to government entities?
3. Does the department circular, which grants respondent direct management
control on the VFP, unduly encroach on the prerogatives of VFP’s governing
body?
At the heart of all these issues and all of petitioner’s prayers and assertions in
this case is petitioner’s claim that it is a private non-government corporation.
CENTRAL ISSUE:
IS THE VFP A PRIVATE CORPORATION?
Petitioner claims that it is not a public nor a governmental entity but a private
organization, and advances this claim to prove that the issuance of DND
Department Circular No. 04 is an invalid exercise of respondent Secretary’s
control and supervision.12
This Court has defined the power of control as "the power of an officer to alter
or modify or nullify or set aside what a subordinate has done in the performance
of his duties and to substitute the judgment of the former to that of the latter."13
The power of supervision, on the other hand, means "overseeing, or the power
or authority of an officer to see that subordinate officers perform their duties. If
the latter fail or neglect to fulfill them, the former may take such action or step
as prescribed by law to make them perform their duties."14 These definitions
are synonymous with the definitions in the assailed Department Circular No. 04,
while the other provisions of the assailed department circular are mere
consequences of control and supervision as defined.
Thus, in order for petitioner’s premise to be able to support its conclusion,
petitioners should be deemed to imply either of the following: (1) that it is
unconstitutional/impermissible for the law (Rep. Act No. 2640) to grant control
and/or supervision to the Secretary of National Defense over a private
organization, or (2) that the control and/or supervision that can be granted to
the Secretary of National Defense over a private organization is limited, and is
not as strong as they are defined above.
The following provision of the 1935 Constitution, the organic act controlling at
the time of the creation of the VFP in 1960, is relevant:
Section 7. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such
corporations are owned and controlled by the Government or any subdivision or
instrumentality thereof.15
On the other hand, its counterparts in the 1973 and 1987 constitutions are the
following:
Section 4. The National Assembly shall not, except by general law, provide for
the formation, organization, or regulation of private corporations, unless such
corporations are owned or controlled by the government or any subdivision or
instrumentality thereof.16
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned and
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.17
From the foregoing, it is crystal clear that our constitutions explicitly prohibit
the regulation by special laws of private corporations, with the exception of
government-owned or controlled corporations (GOCCs). Hence, it would be
impermissible for the law to grant control of the VFP to a public official if it were
neither a public corporation, an unincorporated governmental entity, nor a
GOCC.18 Said constitutional provisions can even be read to prohibit the creation
itself of the VFP if it were neither of the three mentioned above, but we cannot
go into that in this case since there is no challenge to the creation of the VFP in
the petition as to permit this Court from considering its nullity.
Petitioner vigorously argues that the VFP is a private non-government
organization, pressing on the following contentions:
1. The VFP does not possess the elements which would qualify it as a public
office, particularly the possession/delegation of a portion of sovereign power of
government to be exercised for the benefit of the public;
2. VFP funds are not public funds because –
a) No budgetary appropriations or government funds have been released to the
VFP directly or indirectly from the Department of Budget and Management
(DBM);
b) VFP funds come from membership dues;
c) The lease rentals raised from the use of government lands reserved for the
VFP are private in character and do not belong to the government. Said rentals
are fruits of VFP’s labor and efforts in managing and administering the lands for
VFP purposes and objectives. A close analogy would be any Filipino citizen
settling on government land and who tills the land for his livelihood and
sustenance. The fruits of his labor belong to him and not to the owner of the
land. Such fruits are not public funds.
3. Although the juridical personality of the VFP emanates from a statutory
charter, the VFP retains its essential character as a private, civilian federation of
veterans voluntarily formed by the veterans themselves to attain a unity of
effort, purpose and objectives, e.g. –
a. The members of the VFP are individual members and retirees from the public
and military service;
b. Membership in the VFP is voluntary, not compulsory;
c. The VFP is governed, not by the Civil Service Law, the Articles of War nor the
GSIS Law, but by the Labor Code and the SSS Law;
d. The VFP has its own Constitution and By-Laws and is governed by a Supreme
Council who are elected from and by the members themselves;
4. The Administrative Code of 1987 does not provide that the VFP is an attached
agency, nor does it provide that it is an entity under the control and supervision
of the DND in the context of the provisions of said code.
5. The DBM declared that the VFP is a non-government organization and issued
a certificate that the VFP has not been a direct recipient of any funds released by
the DBM.
These arguments of petitioner notwithstanding, we are constrained to rule that
petitioner is in fact a public corporation. Before responding to petitioner’s
allegations one by one, here are the more evident reasons why the VFP is a
public corporation:
(1) Rep. Act No. 2640 is entitled "An Act to Create a Public Corporation to be
Known as the Veterans Federation of the Philippines, Defining its Powers, and
for Other Purposes."
(2) Any action or decision of the Federation or of the Supreme Council shall be
subject to the approval of the Secretary of Defense.19
(3) The VFP is required to submit annual reports of its proceedings for the past
year, including a full, complete and itemized report of receipts and expenditures
of whatever kind, to the President of the Philippines or to the Secretary of
National Defense.20
(4) Under Executive Order No. 37 dated 2 December 1992, the VFP was listed as
among the government-owned and controlled corporations that will not be
privatized.
(5) In Ang Bagong Bayani – OFW Labor Party v. COMELEC,21 this Court held in a
minute resolution that the "VFP [Veterans Federation Party] is an adjunct of the
government, as it is merely an incarnation of the Veterans Federation of the
Philippines.
And now to answer petitioner’s reasons for insisting that it is a private
corporation:
1. Petitioner claims that the VFP does not possess the elements which would
qualify it as a public office, particularly the possession/delegation of a portion of
sovereign power of government to be exercised for the benefit of the public;
In Laurel v. Desierto,22 we adopted the definition of Mechem of a public office,
that it is "the right, authority and duty, created and conferred by law, by which,
for a given period, either fixed by law or enduring at the pleasure of the creating
power, an individual is invested with some portion of the sovereign functions of
the government, to be exercised by him for the benefit of the public."
In the same case, we went on to adopt Mechem’s view that the delegation to the
individual of some of the sovereign functions of government is "[t]he most
important characteristic" in determining whether a position is a public office or
not.23 Such portion of the sovereignty of the country, either legislative,
executive or judicial, must attach to the office for the time being, to be exercised
for the public benefit. Unless the powers conferred are of this nature, the
individual is not a public officer. The most important characteristic which
distinguishes an office from an employment or contract is that the creation and
conferring of an office involves a delegation to the individual of some of the
sovereign functions of government, to be exercised by him for the benefit of the
public; – that some portion of the sovereignty of the country, either legislative,
executive or judicial, attaches, for the time being, to be exercised for the public
benefit. Unless the powers conferred are of this nature, the individual is not a
public officer.24 The issue, therefore, is whether the VFA’s officers have been
delegated some portion of the sovereignty of the country, to be exercised for the
public benefit.
In several cases, we have dealt with the issue of whether certain specific
activities can be classified as sovereign functions. These cases, which deal with
activities not immediately apparent to be sovereign functions, upheld the public
sovereign nature of operations needed either to promote social 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.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY,
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.
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 mode unless
specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code of
1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of
Parañaque to pay the real estate tax imposed by the City. MIAA then paid some
of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency
from the City of Parañaque for the taxable years 1992 to 2001. MIAA's real
estate tax delinquency is broken down as follows:
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.
G.R. No. 193462 February 4, 2014
DENNIS A.B. FUNA, vs. MANILA ECONOMIC AND CULTURAL OFFICE and the
COMMISSION ON AUDIT,
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. 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
4. 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
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;63 second, the exceptional character of the situation and the
paramount public interest is involved;64 third, 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 substantial issues
presupposing the commission of a grave 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.1a\^/phi1 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. GOCCs with original charters;
3. GOCCs without original charters;
4. Constitutional bodies, commissions and offices that have been granted fiscal
autonomy under the Constitution; and
5. 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. Non-governmental entities "required to pay levy or government share";
3. Non-governmental entities that have "received counterpart funds from the
government"; and
4. 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
Both petitioner and the COA claim that the accounts of the MECO are within the
audit jurisdiction of the COA, but vary on the extent of the audit and on what
type of auditable entity the MECO is. The petitioner posits that all accounts of the
MECO are auditable as the latter is a bona fide GOCC or government
instrumentality.84 On 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;94 second, 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. 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
4. 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 Section 14(1), Book V of the Administrative Code authorizes the COA to audit
still be audited with respect to the "verification fees" for overseas employment accounts of non-governmental entities "required to pay xxx or have government
documents that the latter collects from Taiwanese employers on behalf of the share" but only with respect to "funds xxx coming from or through the
DOLE.114 The COA claims that, under Joint Circular No. 3-99, the MECO is government." This provision of law perfectly fits the MECO:
mandated to remit to the national government a portion of such "verification First. The MECO receives the "verification fees" by reason of being the collection
fees."115 The COA, therefore, classifies the MECO as a non-governmental entity agent of the DOLE—a government agency. Out of its collections, the MECO is
"required to pay xxx government share" per the Audit Code.116 required, by agreement, to remit a portion thereof to the DOLE. Hence, the MECO
We agree that the accounts of the MECO pertaining to its collection of is accountable to the government for its collections of such "verification fees"
"verification fees" is subject to the audit jurisdiction of the COA. However, We and, for that purpose, may be audited by the COA.
digress from the view that such accounts are the only ones that ought to be Second. Like the "verification fees," the "consular fees" are also received by the
audited by the COA. Upon careful evaluation of the information made available MECO through the government, having been derived from the exercise of
by the records vis-à-vis the spirit and the letter of the laws and executive consular functions entrusted to the MECO by the government. Hence, the MECO
issuances applicable, We find that the accounts of the MECO pertaining to the remains accountable to the government for its collections of "consular fees" and,
fees it was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are for that purpose, may be audited by the COA.
likewise subject to the audit jurisdiction of the COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the
Verification Fees Collected by the MECO DOLE and the MECO and Section 2(6) of EO No. 15, s. 2001, vis-à-vis,
In its comment,117 the MECO admitted that roughly 9% of its income is derived respectively, the "verification fees" and the "consular fees," grant and at the
from its share in the "verification fees" for overseas employment documents it same time limit the authority of the MECO to collect such fees. That grant and
collects on behalf of the DOLE. limit require the audit by the COA of the collections thereby generated.
The "verification fees" mentioned here refers to the "service fee for the Conclusion
verification of overseas employment contracts, recruitment agreement or The MECO is not a GOCC or government instrumentality. It is a sui generis
special powers of attorney" that the DOLE was authorized to collect under private entity especially entrusted by the government with the facilitation of
Section 7 of EO No. 1022,118 which was issued by President Ferdinand E. unofficial relations with the people in Taiwan without jeopardizing the country’s
Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE faithful commitment to the One China policy of the PROC. However, despite its
from the foreign employers of OFWs and are intended to be used for "the non-governmental character, the MECO handles government funds in the form
promotion of overseas employment and for welfare services to Filipino workers of the "verification fees" it collects on behalf of the DOLE and the "consular fees"
within the area of jurisdiction of [concerned] foreign missions under the it collects under Section 2(6) of EO No. 15, s. 2001. Hence, under existing laws,
administration of the [DOLE]."119 the accounts of the MECO pertaining to its collection of such "verification fees"
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget and "consular fees" should be audited by the COA.
Management, the Department of Finance and the COA in an effort to implement WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The
Section 7 of Executive Order No. 1022.120 Thus, under Joint Circular 3-99, the Manila Economic and Cultural Office is hereby declared a non-governmental
following officials have been tasked to be the "Verification Fee Collecting Officer" entity. However, the accounts of the Manila Economic and Cultural Office
on behalf of the DOLE:121 pertaining to: the verification fees contemplated by Section 7 of Executive Order
1. The labor attaché or duly authorized overseas labor officer at a given foreign No. 1022 issued 1 May 1985, that the former collects on behalf of the
post, as duly designated by the DOLE Secretary; Department of Labor and Employment, and the fees it was authorized to collect
2. In foreign posts where there is no labor attaché or duly authorized overseas under Section 2(6) of Executive Order No. 15 issued 16 May 2001, are subject to
labor officer, the finance officer or collecting officer of the DFA duly deputized by the audit jurisdiction of the COA.
the DOLE Secretary as approved by the DFA Secretary; No costs.
3. In the absence of such finance officer or collecting officer, the alternate duly SO ORDERED.
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. 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; and
4. 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.