National Labor Relations Commission,[6] the Supreme Court ruled that the BSP, as constituted

EN BANC 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
BOY SCOUTS OF THE PHILIPPINES, G.R. No. 177131 constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
Petitioner,
Present: NOW THEREFORE, in consideration of the foregoing
premises, the COMMISSION PROPER HAS RESOLVED, AS IT DOES
CORONA, C.J., HEREBY RESOLVE, to conduct an annual financial audit of the Boy
CARPIO, Scouts of the Philippines in accordance with generally accepted
CARPIO MORALES, auditing standards, and express an opinion on whether the financial
VELASCO, JR., statements which include the Balance Sheet, the Income Statement and
NACHURA, the Statement of Cash Flows present fairly its financial position and
LEONARDO-DE CASTRO, results of operations.
BRION,
- versus - PERALTA, xxxx
BERSAMIN,
DEL CASTILLO, BE IT RESOLVED FURTHERMORE, that for purposes of
ABAD, audit supervision, the Boy Scouts of the Philippines shall be classified
VILLARAMA, JR., among the government corporations belonging to the Educational,
PEREZ, Social, Scientific, Civic and Research Sector under the Corporate Audit
MENDOZA, and Office I, to be audited, similar to the subsidiary corporations, by
SERENO, JJ. employing the team audit approach.[8] (Emphases supplied.)

COMMISSION ON AUDIT, Promulgated: The BSP sought reconsideration of the COA Resolution in a letter[9] dated November
Respondent. 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President
June 7, 2011 of the Republic, wherein he wrote:
x--------------------------------------------------x It is the position of the BSP, with all due respect, that it is not subject to the
DECISION Commissions jurisdiction on the following grounds:

1.
LEONARDO-DE CASTRO, J.:
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines
(BSP) is the subject matter of this controversy that reached us via petition for prohibition[1] filed
by the BSP under Rule 65 of the 1997 Rules of Court. In this petition, the BSP seeks that the
COA be prohibited from implementing its June 18, 2002 Decision,[2] its February 21,
2007 Resolution,[3] as well as all other issuances arising therefrom, and that all of the foregoing
be rendered null and void. [4]
Antecedent Facts and
Background of the Case
This case arose when the COA issued Resolution No. 99-011[5] on August 19, 1999
(the COA Resolution), with the subject Defining the Commissions policy with respect to the
audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA Resolution stated that
the BSP was created as a public corporation under Commonwealth Act No. 111, as amended by
Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v.
We reckon that the ruling in the case of Boy Scouts of the Philippines
vs. National Labor Relations Commission, et al. (G.R. No. 80767)
classifying the BSP as a government-controlled corporation is anchored
on the substantial Government participation in the National Executive
Board of the BSP. It is to be noted that the case was decided when the
BSP Charter is defined by Commonwealth Act No. 111 as amended by
Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which
amended the BSPs charter after the cited case was decided. The most
salient of all amendments in RA No. 7278 is the alteration of the
composition of the National Executive Board of the BSP.
The said RA virtually eliminated the substantial government
participation in the National Executive Board by removing: (i) the
President of the Philippines and executive secretaries, with the
exception of the Secretary of Education, as members thereof; and (ii)
 the appointment and confirmation power of the President of the
Philippines, as Chief Scout, over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278.
Thereby weakening the cases conclusion that the BSP is a government-
controlled corporation (sic). The 1987 Administrative Code itself, of
which the BSP vs. NLRC relied on for some terms, defines government-
owned and controlled corporations as agencies organized as stock or
non-stock corporations which the BSP, under its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds
invested in the BSP. What RA 7278 only provides is that the
Government or any of its subdivisions, branches, offices, agencies and
instrumentalities can from time to time donate and contribute funds to
the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not appropriately
regarded as a government instrumentality under the 1987
Administrative Code as stated in the COA resolution. As defined by
Section 2(10) of the said code, instrumentality refers to any agency of
the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter.
The BSP is not an entity administering special funds. It is not even
included in the DECS National Budget. x x x
It may be argued also that the BSP is not an agency of the Government.
The 1987 Administrative Code, merely referred the BSP as an attached
agency of the DECS as distinguished from an actual line agency of
departments that are included in the National Budget. The BSP believes
that an attached agency is different from an agency. Agency, as defined
in Section 2(4) of the Administrative Code, is defined as any of the
various units of the Government including a department, bureau, office,
instrumentality, government-owned or controlled corporation or local
government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government;
a department which refers to an executive department as created by law
(Section 2[7] of the Administrative Code); nor a bureau which refers to
any principal subdivision or unit of any department (Section 2[8],
Administrative Code).[10]
Subsequently, requests for reconsideration of the COA Resolution were also made
separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City
and Eugenio F. Capreso, Council Scout Executive of Calbayog City. [11]
In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit
Officer (CAO) I of the COA, furnished the BSP with a copy of the Memorandum[13] dated June
20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the
COA General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling
in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law
eliminated the substantial government participation in the selection of members of the National
Executive Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government
participation is only one (1) of the three (3) grounds relied upon by the
Court in the resolution of the case. Other considerations include the
character of the BSPs purposes and functions which has a public aspect
and the statutory designation of the BSP as a public corporation. These
grounds have not been deleted by R.A. No. 7278. On the contrary, these
were strengthened as evidenced by the amendment made relative to BSPs
purposes stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately regarded as a
government instrumentality and agency of the government, such has
already been answered and clarified. The Supreme Court has elucidated
this matter in the BSP case when it declared that BSP is regarded as, both
a government-controlled corporation with an original charter and as an
instrumentality of the Government. Likewise, it is not disputed that the
Administrative Code of 1987 designated the BSP as one of the attached
agencies of DECS. Being an attached agency, however, it does not change
its nature as a government-controlled corporation with original charter
and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1),
Article IX-D of the Constitution provides that COA shall have the power,
authority, and duty to examine, audit and settle all accounts pertaining to
the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or
any of its subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with original charters.[14]
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding
COA Resolution No. 99-011, we have to comply with the provisions of
the latter, among which is to conduct an annual financial audit of the Boy
Scouts of the Philippines.[15]
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO
I, the COA informed the BSP that a preliminary survey of its organizational structure, operations
and accounting system/records shall be conducted on November 21 to 22, 2000. [16]
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then
filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining
Order before the COA.This was denied by the COA in its questioned Decision, which held that
the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise
denied under its questioned Resolution.[17]
This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls
under the COAs audit jurisdiction.
The Parties Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of the COA as the
issue therein was the jurisdiction of the National Labor Relations Commission over a case for
illegal dismissal and unfair labor practice filed by certain BSP employees. [18]
While the BSP concedes that its functions do relate to those that the government
might otherwise completely assume on its own, it avers that this alone was not determinative of
the COAs audit jurisdiction over it. The BSP further avers that the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission simply stated x x x that in respect of
functions, the BSP is akin to a public corporation but this was not synonymous to holding that
the BSP is a government corporation or entity subject to audit by the COA. [19]
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its
charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor
Relations Commission are no longer valid as the government has ceased to play a controlling
influence in it. The BSP claims that the pronouncements of the Court therein must be taken only
within the context of that case; that the Court had categorically found that its assets were acquired
from the Boy Scouts of America and not from the Philippine government, and that its operations
are financed chiefly from membership dues of the Boy Scouts themselves as well as from
property rentals; and that the BSP may correctly be characterized as non-governmental, and
hence, beyond the audit jurisdiction of the COA. It further claims that the designation by the
Court of the BSP as a government agency or instrumentality is mere obiter dictum.[20]
The BSP maintains that the provisions of Republic Act No. 7278 suggest that
governance of BSP has come to be overwhelmingly a private affair or nature, with government
participation restricted to the seat of the Secretary of Education, Culture and Sports. [21] It
cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the Court declared that, PAL,
having ceased to be a government-owned or controlled corporation is no longer under the audit
jurisdiction of the COA.[23] Claiming that the amendments introduced by Republic Act No. 7278
constituted a supervening event that changed the BSPs corporate identity in the same way that
the governments privatization program changed PALs, the BSP makes the case that the
government no longer has control over it; thus, the COA cannot use the Boy Scouts of the
Philippines v. National Labor Relations Commission as its basis for the exercise of its
jurisdiction and the issuance of COA Resolution No. 99-011.[24] The BSP further claims as
follows:
It is not far-fetched, in fact, to concede that BSPs funds and assets
are private in character. Unlike ordinary public corporations, such as
provinces, cities, and municipalities, or government-owned and controlled
corporations, such as Land Bank of the Philippines and the Development Bank
of the Philippines, the assets and funds of BSP are not derived from any
government grant. For its operations, BSP is not dependent in any way on any
government appropriation; as a matter of fact, it has not even been included in
any appropriations for the government. To be sure, COA has not alleged, in its
Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP
received, receives or continues to receive assets and funds from any agency of
the government. The foregoing simply point to the private nature of the funds
and assets of petitioner BSP.
xxxx
As stated in petitioners third argument, BSPs assets and funds were
never acquired from the government. Its operations are not in any way financed
by the government, as BSP has never been included in any appropriations act
for the government. Neither has the government invested funds with BSP. BSP,
has not been, at any time, a user of government property or funds; nor have
properties of the government been held in trust by BSP. This is precisely the
reason why, until this time, the COA has not attempted to subject BSP to its
audit jurisdiction. x x x.[25]
To summarize its other arguments, the BSP contends that it is not a government-
owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the
government.
In its Comment,[26] the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act
No. 111 dated October 31, 1936, and whose functions relate to the
fostering of public virtues of citizenship and patriotism and the
general improvement of the moral spirit and fiber of the youth. The
manner of creation and the purpose for which the BSP was created
indubitably prove that it is a government agency.
2. Being a government agency, the funds and property owned or held
in trust by the BSP are subject to the audit authority of respondent
Commission on Audit pursuant to Section 2 (1), Article IX-D of the
1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government
instrumentality.[27]

The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably
sovereign functions enshrined under the Constitution and discussed by the Court in Boy Scouts
of the Philippines v. National Labor Relations Commission. The COA contends that any attempt
to classify the BSP as a private corporation would be incomprehensible since no less than the
law which created it had designated it as a public corporation and its statutory mandate embraces
performance of sovereign functions.[28]
The COA claims that the only reason why the BSP employees fell within the scope
of the Civil Service Commission even before the 1987 Constitution was the fact that it was a
government-owned or controlled corporation; that as an attached agency of the Department of
Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the
BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987,
embraced under the term government instrumentality.[29]
The COA concludes that being a government agency, the funds and property owned
or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article
IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the Philippines
(VFP) v. Reyes,[30] wherein the Court held that among the reasons why the VFP is a public
corporation is that its charter, Republic Act No. 2640, designates it as one. Furthermore, the
COA quotes the Court as saying in that case:
In several cases, we have dealt with the issue of whether certain
specific activities can be classified as sovereign functions. These cases, which
deal with activities not immediately apparent to be sovereign functions, upheld
the public sovereign nature of operations needed either to promote social
justice or to stimulate patriotic sentiments and love of country.
xxxx
Petitioner claims that its funds are not public funds because no
budgetary appropriations or government funds have been released to the VFP
directly or indirectly from the DBM, and because VFP funds come from
membership dues and lease rentals earned from administering government
lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the
VFP does not prove that it is a private corporation. The DBM indeed did not
see it fit to propose budgetary appropriations to the VFP, having itself believed
that the VFP is a private corporation. If the DBM, however, is mistaken as to
its conclusion regarding the nature of VFP's incorporation, its previous
assertions will not prevent future budgetary appropriations to the VFP. The
erroneous application of the law by public officers does not bar a subsequent
correct application of the law.[31] (Citations omitted.)
The COA points out that the government is not precluded by law from extending
financial support to the BSP and adding to its funds, and that as a government instrumentality
which continues to perform a vital function imbued with public interest and reflective of the
governments policy to stimulate patriotic sentiments and love of country, the BSPs funds from
whatever source are public funds, and can be used solely for public purpose in pursuance of the
provisions of Republic Act No. [7278].[32]
The COA claims that the fact that it has not yet audited the BSPs funds may not bar
the subsequent exercise of its audit jurisdiction.
The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory
designation as a public corporation and the public character of its purpose and functions are not
determinative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts of the
Philippines v. National Labor Relations Commission is not applicable anymore because the
aspect of government ownership and control has been removed by Republic Act No. 7278; and
concluding that the funds and property that it either owned or held in trust are not public funds
and are not subject to the COAs audit jurisdiction.
Thereafter, considering the BSPs claim that it is a private corporation, this Court, in
a Resolution[34] dated July 20, 2010, required the parties to file, within a period of twenty (20)
days from receipt of said Resolution, their respective comments on the issue of whether
Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional.
In compliance with the Courts resolution, the parties filed their respective Comments.
In its Comment[35] dated October 22, 2010, the COA argues that the constitutionality
of Commonwealth Act No. 111, as amended, is not determinative of the resolution of the present
controversy on the COAs audit jurisdiction over petitioner, and in fact, the controversy may be
resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth
in Commissioner of Internal Revenue v. Court of Tax Appeals,[36] have not been fully
met.[37] Moreover, the COA maintains that behind every law lies the presumption of
constitutionality.[38] The COA likewise argues that contrary to the BSPs position, repeal of a law
by implication is not favored.[39] Lastly, the COA claims that there was no violation of Section
16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a
government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a corporation is
public or private is found in the totality of the relation of the corporation to the
State. If the corporation is created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. x x x. [41]
For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that its
charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional
as it does not violate Section 16, Article XII of the Constitution. The BSP alleges that while [it]
is not a public corporation within the purview of COAs audit jurisdiction, neither is it a private
corporation created by special law falling within the ambit of the constitutional prohibition x x
x.[43] The BSP further alleges:

Petitioners purpose is embodied in Section 3 of C.A. No. 111, as
amended by Section 1 of R.A. No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner was created
to advance the interest of the youth, specifically of young boys, and to mold
them into becoming good citizens. Ultimately, the creation of petitioner
redounds to the benefit, not only of those boys, but of the public good or
welfare. Hence, it can be said that petitioners purpose and functions are more
of a public rather than a private character. Petitioner caters to all boys who
wish to join the organization without any distinction. It does not limit its
membership to a particular class of boys. Petitioners members are trained in
scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values,
preparing them to become model citizens and outstanding leaders of the
country.[44]
The BSP reiterates its stand that the public character of its purpose and functions do
not place it within the ambit of the audit jurisdiction of the COA as it lacks the government
ownership or control that the Constitution requires before an entity may be subject of said
jurisdiction.[45] It avers that it merely stated in its Reply that the withdrawal of government
control is akin to privatization, but it does not necessarily mean that petitioner is a private
corporation.[46] The BSP claims that it has a unique characteristic which neither classifies it as a
purely public nor a purely private corporation; [47] that it is not a quasi-public corporation; and
that it may belong to a different class altogether.[48]
The BSP claims that assuming arguendo that it is a private corporation, its creation
is not contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil
sought to be avoided by said provision is inexistent in the enactment of the BSPs charter, [49] as,
(i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit from its
creation are not its officers but its entire membership consisting of boys being trained in
scoutcraft all over the country; (iii) it caters to all boys who wish to join the organization without
any distinction; and (iv) it does not limit its membership to a particular class or group of
boys. Thus, the enactment of its charter confers no special privilege to particular individuals,
families, or groups; nor does it bring about the danger of granting undue favors to certain groups
to the prejudice of others or of the interest of the country, which are the evils sought to be
prevented by the constitutional provision involved.[50]
Finally, the BSP states that the presumption of constitutionality of a legislative
enactment prevails absent any clear showing of its repugnancy to the Constitution. [51]
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying
the applicable laws and the arguments of both parties, we find that the BSP is a public corporation
and its funds are subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines,
and to Define its Powers and Purposes created the BSP as a public corporation to serve the
following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote
through organization and cooperation with other agencies, the ability of
boys to do useful things for themselves and others, to train them in
scoutcraft, and to inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred virtues, and
moral values, using the method which are in common use by boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth
Act No. 111 and provided substantial changes in the BSP organizational structure. Pertinent
provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as
follows:
The governing body of the said corporation shall consist of a
National Executive Board composed of (a) the President of the
Philippines or his representative; (b) the charter and life members of the
Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees
of the Philippine Scouting Foundation; (d) the Regional Chairman of the
Scout Regions of the Philippines; (e) the Secretary of Education and
Culture, the Secretary of Social Welfare, the Secretary of National
Defense, the Secretary of Labor, the Secretary of Finance, the Secretary
of Youth and Sports, and the Secretary of Local Government and
Community Development; (f) an equal number of individuals from the
private sector; (g) the National President of the Girl Scouts of the
Philippines; (h) one Scout of Senior age from each Scout Region to
represent the boy membership; and (i) three representatives of the cultural
minorities. Except for the Regional Chairman who shall be elected by the
Regional Scout Councils during their annual meetings, and the Scouts of
their respective regions, all members of the National Executive Board
shall be either by appointment or cooption, subject to ratification and
confirmation by the Chief Scout, who shall be the Head of State.
Vacancies in the Executive Board shall be filled by a majority vote of the
remaining members, subject to ratification and confirmation by the Chief
Scout. The by-laws may prescribe the number of members of the National
Executive Board necessary to constitute a quorum of the board, which
number may be less than a majority of the whole number of the board.
The National Executive Board shall have power to make and to amend the
by-laws, and, by a two-thirds vote of the whole board at a meeting called
for this purpose, may authorize and cause to be executed mortgages and
liens upon the property of the corporation.
 Subsequently, on March 24, 1992, Republic Act No. 7278 further amended
Commonwealth Act No. 111 by strengthening the volunteer and democratic character of the BSP
and reducing government representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111,
as amended, is hereby amended to read as follows:
"Sec. 2. The said corporation shall have the powers of
perpetual succession, to sue and be sued; to enter into contracts; to
acquire, own, lease, convey and dispose of such real and personal estate,
land grants, rights and choses in action as shall be necessary for corporate
purposes, and to accept and receive funds, real and personal property by
gift, devise, bequest or other means, to conduct fund-raising activities; to
adopt and use a seal, and the same to alter and destroy; to have offices and
conduct its business and affairs in Metropolitan Manila and in the regions,
provinces, cities, municipalities, and barangays of the Philippines, to
make and adopt by-laws, rules and regulations not inconsistent with this
Act and the laws of the Philippines, and generally to do all such acts and
things, including the establishment of regulations for the election of
associates and successors, as may be necessary to carry into effect the
provisions of this Act and promote the purposes of said corporation:
Provided, That said corporation shall have no power to issue certificates
of stock or to declare or pay dividends, its objectives and purposes being
solely of benevolent character and not for pecuniary profit of its members.
"Sec. 3. The purpose of this corporation shall be to
promote through organization and cooperation with other agencies,
the ability of boys to do useful things for themselves and others, to
train them in scoutcraft, and to inculcate in them patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline
and kindred virtues, and moral values, using the method which are
in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended,
is hereby repealed and in lieu thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief
Scout of the Boy Scouts of the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111,
as amended, are hereby amended to read as follows:
"Sec. 5. The governing body of the said corporation shall
consist of a National Executive Board, the members of which shall be
Filipino citizens of good moral character. The Board shall be composed
of the following:
"(a) One (1) charter member of the Boy Scouts of the
Philippines who shall be elected by the members of the National Council
at its meeting called for this purpose;
"(b) The regional chairmen of the scout regions who shall be
elected by the representatives of all the local scout councils of the region
during its meeting called for this purpose: Provided, That a candidate for
regional chairman need not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the
Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and
Mindanao areas, to be elected by the senior scout delegates of the local
scout councils to the scout youth forums in their respective areas, in its
meeting called for this purpose, to represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the
members of the National Council in its meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional
members from the private sector who shall be elected by the members of
the National Executive Board referred to in the immediately preceding
paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the
newly reconstituted National Executive Board which shall be held
immediately after the meeting of the National Council wherein the twelve
(12) regular members and the one (1) charter member were elected.
xxxx
"Sec. 8. Any donation or contribution which from time to time
may be made to the Boy Scouts of the Philippines by the Government or
any of its subdivisions, branches, offices, agencies or instrumentalities or
by a foreign government or by private, entities and individuals shall be
expended by the National Executive Board in pursuance of this Act.
The BSP as a Public Corporation
under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the
BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public
interest or purpose created by law; their personality begins as soon
as they have been constituted according to law;
 (3) Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or member.
(Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to
the law creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the
preceding article are governed by the laws creating or recognizing
them.
Private corporations are regulated by laws of general
application on the subject.
Partnerships and associations for private interest or purpose
are governed by the provisions of this Code concerning partnerships.
(Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in
order to implement a State policy declared in Article II, Section 13 of the Constitution, which
reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE
POLICIES
Section 13. The State recognizes the vital role of the youth in
nation-building and shall promote and protect their physical, moral,
spiritual, intellectual, and social well-being. It shall inculcate in the youth
patriotism and nationalism, and encourage their involvement in public and
civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in
pursuit of a constitutional mandate, comes within the class of public corporations defined by
paragraph 2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to
Article 45 of the same Code.
The BSPs Classification Under
the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that,
along with the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS
under Executive Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies are
hereby attached to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the department is defined in
the Administrative Code of 1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. Unless
otherwise expressly stated in the Code or in other laws defining the special
relationships of particular agencies, administrative relationships shall be
categorized and defined as follows:
xxxx
(3) Attachment. (a) This refers to the lateral relationship
between the department or its equivalent and the attached agency or
corporation for purposes of policy and program coordination. The
coordination may be accomplished by having the department
represented in the governing board of the attached agency or
corporation, either as chairman or as a member, with or without
voting rights, if this is permitted by the charter; having the attached
corporation or agency comply with a system of periodic reporting which
shall reflect the progress of programs and projects; and having the
department or its equivalent provide general policies through its
representative in the board, which shall serve as the framework for the
internal policies of the attached corporation or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as long as policy and program
coordination is achieved by having at least one representative of government in its governing
board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not under
government control or supervision and control. Still this characteristic does not make the
attached chartered agency a private corporation covered by the constitutional proscription in
question.
Art. XII, Sec. 16 of the Constitution
refers to private corporations created
by government for proprietary or
economic/business purposes
 At the outset, it should be noted that the provision of Section 16 in issue is found
in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of
Article XII is quoted as follows:
SECTION 1. The goals of the national economy are a more
equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for
the benefit of the people; and an expanding productivity as the key to
raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment
based on sound agricultural development and agrarian reform, through
industries that make full and efficient use of human and natural resources,
and which are competitive in both domestic and foreign markets.
However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all
regions of the country shall be given optimum opportunity to develop.
Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of their
ownership.
The scope and coverage of Section 16, Article XII of the Constitution can be seen
from the aforementioned declaration of state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic development.
Section 16, Article XII deals with the formation, organization, or regulation of
private corporations,[52] which should be done through a general law enacted by Congress,
provides for an exception, that is: if the corporation is government owned or controlled; its
creation is in the interest of the common good; and it meets the test of economic viability. The
rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v.
Commission on Audit,[53] in the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The
purpose of this constitutional provision is to ban private corporations
created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other
citizens.[54] (Emphasis added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of private corporations by special law. The said constitutional provision should not be
construed so as to prohibit the creation of public corporations or a corporate agency or
instrumentality of the government intended to serve a public interest or purpose, which should
not be measured on the basis of economic viability, but according to the public interest or purpose
it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent
provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not
Subject to the Test of Government
Ownership or Control and Economic
Viability
The BSP is a public corporation or a government agency or instrumentality with
juridical personality, which does not fall within the constitutional prohibition in Article XII,
Section 16, notwithstanding the amendments to its charter. Not all corporations, which
are not government owned or controlled, are ipso facto to be considered private corporations as
there exists another distinct class of corporations or chartered institutions which are otherwise
known as public corporations. These corporations are treated by law as agencies or
instrumentalities of the government which are not subject to the tests of ownership or control
and economic viability but to different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative relationship to the government or
any of its Departments or Offices.
Classification of Corporations Under
Section 16, Article XII of the
Constitution on National Economy
and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that
the Constitution recognizes only two classes of corporations: private corporations under
a general law, and government-owned or controlled corporations created by special charters.
We strongly disagree. Section 16, Article XII should not be construed so as to
prohibit Congress from creating public corporations. In fact, Congress has enacted numerous
laws creating public corporations or government agencies or instrumentalities vested with
corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and
Patrimony, could not have tied the hands of Congress in creating public corporations to serve
any of the constitutional policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces a totally different
species of corporation, which is neither a private corporation nor a government owned or
controlled corporation and, in so doing, is missing the fact that the BSP, which was created as a
non-stock, non-profit corporation, can only be either a private corporation or a government
owned or controlled corporation.
Note that in Boy Scouts of the Philippines v. National Labor Relations
Commission, the BSP, under its former charter, was regarded as both a government owned or
controlled corporation with original charter and a public corporation. The said case pertinently
stated:
While the BSP may be seen to be a mixed type of entity,
combining aspects of both public and private entities, we believe that
considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial
participation of the Government in the selection of members of the
National Executive Board of the BSP, the BSP, as presently constituted
 under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution. xxxx

We are fortified in this conclusion when we note that the (10) "Instrumentality" refers to any agency of the National
Administrative Code of 1987 designates the BSP as one of the attached Government, not integrated within the department framework, vested
agencies of the Department of Education, Culture and Sports ("DECS"). with special functions or jurisdiction by law, endowed with some if not
An "agency of the Government" is defined as referring to any of the all corporate powers, administering special funds, and enjoying
various units of the Government including a department, bureau, office, operational autonomy, usually through a charter. This term includes
instrumentality, government-owned or -controlled corporation, or local regulatory agencies, chartered institutions and government-owned or
government or distinct unit therein. "Government instrumentality" is in controlled corporations.
turn defined in the 1987 Administrative Code in the following manner:
xxxx
Instrumentality - refers to any agency
of the National Government, not integrated within
(12) "Chartered institution" refers to any agency organized
the department framework, vested with special
or operating under a special charter, and vested by law with
functions or jurisdiction by law, endowed with
functions relating to specific constitutional policies or objectives. This
some if not all corporate powers, administering
term includes the state universities and colleges and the monetary
special funds, and enjoying operational autonomy
authority of the State.
usually through a charter. This term includes
regulatory agencies, chartered institutions and
(13) "Government-owned or controlled corporation" refers
government-owned or controlled corporations.
to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary
The same Code describes a "chartered institution" in the
in nature, and owned by the Government directly or through its
following terms:
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
Chartered institution - refers to
stock: Provided, That government-owned or controlled corporations
any agency organized or operating under a
may be further categorized by the Department of the Budget, the
special charter, and vested by law with functions
Civil Service Commission, and the Commission on Audit for purposes
relating to specific constitutional policies or
of the exercise and discharge of their respective powers, functions and
objectives. This term includes the state universities
responsibilities with respect to such corporations.
and colleges, and the monetary authority of the
State.
Assuming for the sake of argument that the BSP ceases to be owned or controlled by
We believe that the BSP is appropriately regarded as "a
the government because of reduction of the number of representatives of the government in the
government instrumentality" under the 1987 Administrative Code.
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
It thus appears that the BSP may be regarded as both a
Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the
"government controlled corporation with an original charter" and as
government is not constitutionally prohibited and is allowed by the above-mentioned provisions
an "instrumentality" of the Government within the meaning of
of the Civil Code and the 1987 Administrative Code.
Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases supplied.)
Economic Viability and Ownership
and Control Tests Inapplicable to
The existence of public or government corporate or juridical entities or chartered
Public Corporations
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:
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
Sec. 2. General Terms Defined. Unless the specific words of
pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which
the text, or the context as a whole, or a particular statute, shall require a
is required to be owned or controlled by the government and be economically viable to justify
different meaning:
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 aretwo
criteria that should be followed for corporations that want to go into
business. First is for government corporations to first prove that they can
be efficient in the areas of their proper functions. This is one of the
problems now because they go into all kinds of activities but are not even
efficient in their proper functions. Secondly, they should not go into
activities that the private sector can do better.
MR. PADILLA. There is no question about corporations
performing governmental functions or functions that are impressed
with public interest. But the question is with regard to matters that
are covered, perhaps not exhaustively, by private enterprise. It seems
that under this provision the only qualification is economic viability and
common good, but shall government, through government-controlled
corporations, compete with private enterprise?
MR. MONSOD. No, Madam President. As we said, the
government should not engage in activities that private enterprise is
engaged in and can do better. x x x.[56] (Emphases supplied.)
Thus, the test of economic viability clearly does not apply to public corporations dealing with
governmental functions, to which category the BSP belongs. The discussion above conveys the
constitutional intent not to apply this constitutional ban on the creation of public corporations
where the economic viability test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business function for the government.
It is undisputed that the BSP performs functions that are impressed with public interest. In fact,
during the consideration of the Senate Bill that eventually became Republic Act No. 7278, which
amended the BSP Charter, one of the bills sponsors, Senator Joey Lina, described the BSP as
follows:
Senator Lina. Yes, I can only think of two organizations
involving the masses of our youth, Mr. President, that should be given this
kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts
of the Philippines. Outside of these two groups, I do not think there are
other groups similarly situated.
The Boy Scouts of the Philippines has a long history of
providing value formation to our young, and considering how huge
the population of the young people is, at this point in time, and also
considering the importance of having an organization such as this
that will inculcate moral uprightness among the young people, and
further considering that the development of these young people at
that tender age of seven to sixteen is vital in the development of the
country producing good citizens, I believe that we can make an
exception of the Boy Scouting movement of the Philippines from this
general prohibition against providing tax exemption and privileges.[57]
Furthermore, this Court cannot agree with the dissenting opinion which equates the changes
introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of
Congress to return the BSP to the private sector. It was not the intent of Congress in enacting
Republic Act No. 7278 to give up all interests in this basic youth organization, which has been
its partner in forming responsible citizens for decades.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic
Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it
back to its former glory reached under its original charter, Commonwealth Act No. 111, and to
correct the perceived ills introduced by the amendments to its Charter under Presidential Decree
No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of
the different departments in government who were too busy to attend the meetings of the BSPs
National Executive Board (the Board) sent representatives who, as it turned out, changed from
meeting to meeting. Thus, the Scouting Councils established in the provinces and cities were not
in touch with what was happening on the national level, but they were left to implement what
was decided by the Board.[58]
A portion of the legislators discussion is quoted below to clearly show their intent:
HON. DEL MAR. x x x I need not mention to you the value
and the tremendous good that the Boy Scout Movement has done not
only for the youth in particular but for the country in general. And
that is why, if we look around, our past and present national leaders,
prominent men in the various fields of endeavor, public servants in
government offices, and civic leaders in the communities all over the
land, and not only in our country but all over the world many if not
most of them have at one time or another been beneficiaries of the
Scouting Movement. And so, it is along this line, Mr. Chairman, that we
would like to have the early approval of this measure if only to pay back
what we owe much to the Scouting Movement. Now, going to the meat
of the matter, Mr. Chairman, if I may just the Scouting Movement was
enacted into law in October 31, 1936 under Commonwealth Act No. 111.
 x x x [W]e were acknowledged as the third biggest scouting organization
in the world x x x. And to our mind, Mr. Chairman, this erratic growth
and this decrease in membership [number] is because of the bad policy
measures that were enunciated with the enactment or promulgation by the
President before of Presidential Decree No. 460 which we feel is the
culprit of the ills that is flagging the Boy Scout Movement today. And so,
this is specifically what we are attacking, Mr. Chairman, the
disenfranchisement of the National Council in the election of the national
board. x x x. And so, this is what we would like to be appraised of by the
officers of the Boy [Scouts] of the Philippines whom we are also
confident, have the best interest of the Boy Scout Movement at heart and
it is in this spirit, Mr. Chairman, that we see no impediment towards
working together, the Boy Scout of the Philippines officers working
together with the House of Representatives in coming out with a measure
that will put back the vigor and enthusiasm of the Boy Scout Movement.
x x x.[59] (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill,
in the Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well
as the previous laws that have created the Boy Scouts of the Philippines
did not provide for any direct government support by way of appropriation
from the national budget to support the activities of this organization. The
point here is, and at the same time they have been subjected to a
governmental intervention, which to their mind has been inimical to the
objectives and to the institution per se, that is why they are seeking
legislative fiat to restore back the original mandate that they had under
Commonwealth Act 111. Such having been the experience in the hands
of government, meaning, there has been negative interference on
their part and inasmuch as their mandate is coming from a legislative
fiat, then shouldnt it be, this rhetorical question, shouldnt it be better
for this organization to seek a mandate from, lets say, the government
the Corporation Code of the Philippines and register with the SEC as
non-profit non-stock corporation so that government intervention
could be very very minimal. Maybe thats a rhetorical question, they may
or they may not answer, ano. I dont know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a
registration with the SEC under the Corporation Code of the Philippines
inasmuch as they dont get anything from the government anyway insofar
as direct funding. In fact, the only thing that they got from government
was intervention in their affairs. Maybe we can solicit some commentary
comments from the resource persons. Incidentally, dont take that as an
objection, Im not objecting. Im all for the objectives of these two bills. It
just occurred to me that since you have had very bad experience in the
hands of government and you will always be open to such possible
intervention even in the future as long as you have a legislative mandate
or your mandate or your charter coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a
disadvantage if the Boy Scouts of the Philippines will be required to
register with the SEC. If we are registered with the SEC, there could be
a danger of proliferation of scout organization. Anybody can organize and
then register with the SEC. If there will be a proliferation of this, then the
organization will lose control of the entire organization. Another
disadvantage, Mr. Chairman, anybody can file a complaint in the SEC
against the Boy Scouts of the Philippines and the SEC may suspend the
operation or freeze the assets of the organization and hamper the operation
of the organization. I dont know, Mr. Chairman, how you look at it but
there could be a danger for anybody filing a complaint against the
organization in the SEC and the SEC might suspend the registration
permit of the organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that
will not be exclusive to corporations registered with the SEC because even
if you are government corporation, court action may be taken against you
in other judicial bodies because the SEC is simply another quasi-judicial
body. But, I think, the first point would be very interesting, the first
point that you raised. In effect, what you are saying is that with the
legislative mandate creating your charter, in effect, you have been
given some sort of a franchise with this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, thats very well taken so I will proceed with
other issues, Mr. Chairman. x x x.[60] (Emphases added.)
Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly promote the BSPs
objectives, which were not supported under Presidential Decree No. 460. The BSP objectives,
as pointed out earlier, are consistent with the public purpose of the promotion of the well-being
of the youth, the future leaders of the country. The amendments were not done with the view of
changing the character of the BSP into a privatized corporation. The BSP remains an agency
attached to a department of the government, the DECS, and it was not at all stripped of its public
character.
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To
reiterate, the relationship of the BSP, an attached agency, to the government, through the DECS,
is defined in the Revised Administrative Code of 1987. The BSP meets the minimum statutory
requirement of an attached government agency as the DECS Secretary sits at the BSP Board ex
officio, thus facilitating the policy and program coordination between the BSP and the DECS.
Requisites for Declaration of
Unconstitutionality Not Met in this
Case
The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of
certain provisions of the BSP Charter. Even if the parties were asked to Comment on the validity
of the BSP charter by the Court, this alone does not comply with the requisites for judicial
review, which were clearly set forth in a recent case:
When questions of constitutional significance are raised, the
Court can exercise its power of judicial review only if the following
requisites are present: (1) the existence of an actual and appropriate
case; (2) the existence of personal and substantial interest on the part
of the party raising the constitutional question; (3) recourse to
judicial review is made at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case.[61] (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the constitutional issue
should be the very lis mota, or threshold issue, of the case, and that it should be raised by either
of the parties. These requirements would be ignored under the dissents rather overreaching view
of how this case should have been decided. True, it was the Court that asked the parties to
comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses
to once more exhibit restraint in the exercise of its power to pass upon the validity of a law.
Re: the COAs Jurisdiction
Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter
allows the BSP to receive contributions or donations from the government. Section 8 reads:
Section 8. Any donation or contribution which from time
to time may be made to the Boy Scouts of the Philippines by the
Government or any of its subdivisions, branches, offices, agencies or
instrumentalities shall be expended by the Executive Board in
pursuance of this Act.
The sources of funds to maintain the BSP were identified before the House
Committee on Government Enterprises while the bill was being deliberated, and the pertinent
portion of the discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the
sources of funds of the organization. First, Mr. Chairman, the Boy Scouts
of the Philippines do not receive annual allotment from the government.
The organization has to raise its own funds through fund drives and fund
campaigns or fund raising activities. Aside from this, we have some
revenue producing projects in the organization that gives us funds to
support the operation. x x x From time to time, Mr. Chairman, when we
have special activities we request for assistance or financial assistance
from government agencies, from private business and corporations, but
this is only during special activities that the Boy Scouts of the Philippines
would conduct during the year. Otherwise, we have to raise our own funds
to support the organization.[62]
The nature of the funds of the BSP and the COAs audit jurisdiction were likewise
brought up in said congressional deliberations, to wit:
HON. AQUINO: x x x Insofar as this organization being a government
created organization, in fact, a government corporation classified as such,
are your funds or your finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected.
We dont fall under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111
was written by then Secretary Jorge Vargas and before and up to the
middle of the Martial Law years, the BSP was receiving a subsidy in the
form of an annual a one draw from the Sweepstakes. And, this was the
case also with the Girl Scouts at the Anti-TB, but then this was and the
Boy Scouts then because of this funding partly from government was
being subjected to audit in the contributions being made in the part
of the Sweepstakes. But this was removed later during the Martial Law
years with the creation of the Human Settlements Commission. So the
situation right now is that the Boy Scouts does not receive any funding
from government, but then in the case of the local councils and this
legislative charter, so to speak, enables the local councils even the national
headquarters in view of the provisions in the existing law to receive
donations from the government or any of its instrumentalities, which
would be difficult if the Boy Scouts is registered as a private corporation
with the Securities and Exchange Commission. Government bodies would
be estopped from making donations to the Boy Scouts, which at present
is not the case because there is the Boy Scouts charter, this
Commonwealth Act 111 as amended by PD 463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because theres
no money put in the organization, but how about donated funds to this
organization? What are the remedies of the donors of how will they know
how their money are being spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an
external auditor and by the charter we are required to submit a financial
report at the end of each year to the National Executive Board. So all the
funds donated or otherwise is accounted for at the end of the year by our
external auditor. In this case the SGV.[63]
 Historically, therefore, the BSP had been subjected to government audit in so far as
public funds had been infused thereto. However, this practice should not preclude the exercise
of the audit jurisdiction of COA, clearly set forth under the Constitution, which pertinently
provides:

Section 2. (1) The Commission on Audit shall have the

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

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

WHEREFORE, premises considered, the instant petition for prohibition

is DISMISSED.

SO ORDERED.
 Republic of the Philippines The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act
Supreme Court No. 1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the
Manila time it was created, was composed of animal aficionados and animal propagandists. The objects
of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty
EN BANC inflicted upon animals or the protection of animals in the Philippine Islands, and generally, to do
and perform all things which may tend in any way to alleviate the suffering of animals and
promote their welfare.[3]
PHILIPPINE SOCIETY FOR G.R. No. 169752
THE PREVENTION OF At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was
CRUELTY TO ANIMALS, not yet in existence. Act No. 1285 antedated both the Corporation Law and the constitution of
Petitioners, Members: the Securities and Exchange Commission. Important to note is that the nature of the petitioner
as a corporate entity is distinguished from the sociedad anonimas under the Spanish Code of
PUNO, C.J. Commerce.
QUISUMBING,
YNARES-SANTIAGO, For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the
SANDOVAL-GUTIERREZ, protection of animals, the petitioner was initially imbued under its charter with the power to
CARPIO, apprehend violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2)
AUSTRIA-MARTINEZ, of the fines imposed and collected through its efforts for violations of the laws related thereto. As
CORONA, originally worded, Sections 4 and 5 of Act No. 1285 provide:
- versus - CARPIO-MORALES,
AZCUNA, SEC. 4. The said society is authorized to appoint not to exceed
TINGA, five agents in the City of Manila, and not to exceed two in each of the
CHICO-NAZARIO, provinces of the Philippine Islands who shall have all the power and
GARCIA, authority of a police officer to make arrests for violation of the
VELASCO, JR., laws enacted for the prevention of cruelty to animals and the protection of
NACHURA, and animals, and to serve any process in connection with the execution of such
REYES, JJ. laws; and in addition thereto, all the police force of the Philippine Islands,
COMMISSION ON AUDIT, wherever organized, shall, as occasion requires, assist said society, its
DIR. RODULFO J. ARIESGA members or agents, in the enforcement of all such laws.
(in his official capacity as Director
of the Commission on Audit), MS. SEC. 5. One-half of all the fines imposed and collected
MERLE M. VALENTIN and MS. through the efforts of said society, its members or its agents, for violations
SUSAN GUARDIAN (in their official of the laws enacted for the prevention of cruelty to animals and for their
capacities as Team Leader and Team protection, shall belong to said society and shall be used to promote its
Member, respectively, of the audit objects.
Team of the Commission on Audit), Promulgated:
Respondents. September 25, 2007 (emphasis supplied)
x-----------------------------------------------------------x
DECISION Subsequently, however, the power to make arrests as well as the privilege to retain a portion of
the fines collected for violation of animal-related laws were recalled by virtue of Commonwealth
AUSTRIA-MARTINEZ, J.: Act (C.A.) No. 148,[4] which reads, in its entirety, thus:

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

It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner
to arrest offenders of animal welfare laws and the power to serve processes in connection
therewith.

Fifth. The respondents argue that since the charter of the petitioner requires the latter to render
periodic reports to the Civil Governor, whose functions have been inherited by the President, the
petitioner is, therefore, a government instrumentality.

This contention is inconclusive. By virtue of the fiction that all corporations owe their very
existence and powers to the State, the reportorial requirement is applicable to all corporations of
whatever nature, whether they are public, quasi-public, or private corporationsas creatures of the
State, there is a reserved right in the legislature to investigate the activities of a corporation to
determine whether it acted within its powers. In other words, the reportorial requirement is the
principal means by which the State may see to it that its creature acted according to the powers
and functions conferred upon it. These principles were extensively discussed in Bataan Shipyard
& Engineering Co., Inc. v. Presidential Commission on Good Government.[26] Here, the Court,
in holding that the subject corporation could not invoke the right against self-incrimination
whenever the State demanded the production of its corporate books and papers, extensively
discussed the purpose of reportorial requirements, viz:

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

incorporated for the benefit of the public. It received certain special
privileges and franchises, and holds them subject to the laws of the state
and the limitations of its charter. Its powers are limited by law. It can make
no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There
is a reserve[d] right in the legislature to investigate its contracts and find
out whether it has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty, inquire how these
franchises had been employed, and whether they had been abused, and
demand the production of the corporate books and papers for that
purpose. The defense amounts to this, that an officer of the corporation
which is charged with a criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its books. To state
this proposition is to answer it. While an individual may lawfully refuse to
answer incriminating questions unless protected by an immunity statute,
it does not follow that a corporation vested with special privileges and
franchises may refuse to show its hand when charged with an abuse of
such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)[27]
G.R. No. 193462 February 4, 2014
DENNIS A.B. FUNA, Petitioner,
vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON
AUDIT, Respondents.
DECISION
PEREZ, J.:
This is a petition for mandamus1 to compel:
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila
Economic and Cultural Office (MECO), and
2.) the MECO to submit to such audit and examination.
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a
stalemate espousing competing assertions of sovereignty.3 On one hand is the communist
Peoples 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 countrys
legitimate government. Even after its relocation to Taiwan, the ROC used to enjoy diplomatic
recognition from a majority of the worlds states, partly due to being a founding member of the
United Nations (UN).5 The number of states partial to the PROCs 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
Communiqu of the Government of the Republic of the Philippines and the Government of the
Peoples Republic of China (Joint Communiqu).8
Under the Joint Communiqu, the Philippines categorically stated its adherence to the One China
policy of the PROC. The pertinent portion of the Joint Communiqu reads:9
The Philippine Government recognizes the Government of the Peoples 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 communiqu. (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 Communiqu,
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.15To 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
Petitioners letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following
day.
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 MECOs 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

On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum20 referring the

3. The MECO is under the operational and policy supervision of the DTI. The MECO
petitioners request to COA Assistant Commissioner Emma M. Espina for "further disposition."
was placed under the operational supervision of the DTI by EO No. 328, s. of 2004,
In this memorandum, however, Assistant Commissioner Naranjo revealed that the MECO was
and again under the policy supervision of the same department by EO No. 426, s.
"not among the agencies audited by any of the three Clusters of the Corporate Government
2005.30
Sector."21

To further bolster his position that the accounts of the MECO ought to be audited by the COA,
On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its
the petitioner calls attention to the practice, allegedly prevailing in the United States of America,
contents.
wherein the American Institute in Taiwan (AIT)the counterpart entity of the MECO in the
United Statesis supposedly audited by that countrys Comptroller General.31 Petitioner claims
Mandamus Petition 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
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 The Position of the MECO
member of the Philippine Bar and law book author."22 He impleaded both the COA and the
MECO.
The MECO prays for the dismissal of the mandamus petition on procedural and substantial
grounds.
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
On procedure, the MECO argues that the mandamus petition was prematurely filed. 33
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 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.34The MECO claims that there was, in this case, no
According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an
such refusal either on its part or on the COAs because the petitioner never made any demand
instrumentality under the Executive Order No. (EO) 292, s. 1987 or the Administrative Code: it
for it to submit to an audit by the COA or for the COA to perform such an audit, prior to filing
is a non-stock corporation vested with governmental functions relating to public needs; it is
the instant mandamus petition.35 The MECO further points out that the only "demand" that the
controlled by the government thru a board of directors appointed by the President of the
petitioner made was his request to the COA for a copy of the MECOs latest financial and audit
Philippines; and while not integrated within the executive departmental framework, it is
report which request was not even finally disposed of by the time the instant petition was
filed.36
On the petitions merits, the MECO denies the petitioners claim that it is a GOCC or a
government instrumentality.37While 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
corporations 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
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

2. The government merely has policy supervision over it. Policy supervision is a OUR RULING
lesser form of supervision wherein the governments oversight is limited only to
ensuring that the corporations activities are in tune with the countrys commitments
We grant the petition in part. We declare that the MECO is a non-governmental entity. However,
under the One China policy of the PROC. 43 The day-to-day operations of the
under existing laws, the accounts of the MECO pertaining to the "verification fees" it collects on
corporation, however, remain to be controlled by its duly elected board of directors.44
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
The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can and should be audited by the COA.
potentially violate the countrys 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
I
Wood decision regarding the alleged auditability of the AIT in the United States. 46

We begin with the preliminary issues.

The Position of the COA

Mootness of Petition
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 first preliminary issue relates to the alleged mootness of the instant mandamus petition,
occasioned by the COAs issuance of Office Order No. 2011-698. The COA claims that by
The COA argues that the mandamus petition suffers from the following procedural defects:
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
1. The petitioner lacks locus standi to bring the suit. The COA claims that the instant petition be dismissed for being moot and academic.59
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
We decline to dismiss the mandamus petition on the ground of mootness.

2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA
A case is deemed moot and academic when, by reason of the occurrence of a supervening event,
faults the filing of the instant mandamus petition directly with this Court, when such
it ceases to present any justiciable controversy.60 Since they lack an actual controversy otherwise
petition could have very well been presented, at the first instance, before the Court of
cognizable by courts, moot cases are, as a rule, dismissible.61
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
The rule that requires dismissal of moot cases, however, is not absolute. It is subject to
exceptions. In David v. Macapagal-Arroyo,62 this Court comprehensively captured these
exceptions scattered throughout our jurisprudence:
The "moot and academic" principle is not a magical formula that can automatically dissuade the
courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there
is a grave violation of the Constitution;63second, the exceptional character of the situation and
the paramount public interest is involved;64 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public;65and 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 MECOwhether it may be considered as a government agency or nothas a direct
bearing on the countrys 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 MECOs 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 petitioners 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 3. GOCCs without original charters;
infringes upon their prerogatives as legislators.
4. Constitutional bodies, commissions and offices that have been granted fiscal
We rule that the instant petition raises issues of transcendental importance, involved as they are autonomy under the Constitution; and
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
5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from
mandamus petition.
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
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,
The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue,"
emanates from the Constitution and law, which explicitly require, or "demand," that it perform
"receipts," "expenditures" and "uses of funds and property" of the foregoing entities. 79
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. 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
Principle of Hierarchy of Courts
entities:

The last preliminary issue is concerned with the petitions 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;
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 Philippines directly or through its instrumentalities either wholly or, where applicable as in the
Government Instrumentality case of stock corporations, to the extent of at least a majority of its outstanding capital stock: x
x x.
We start with the petitioners contention.
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
Petitioner claims that the accounts of the MECO ought to be audited by the COA because the
definition, three attributes thus make an entity a GOCC: first, its organization as stock or non-
former is a GOCC or government instrumentality. Petitioner points out that the MECO is a non-
stock corporation;94 second, the public character of its function; and third, government
stock corporation "vested with governmental functions relating to public needs"; it is "controlled
ownership over the same.
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 Possession of all three attributes is necessary to deem an entity a GOCC.
characteristics of a bona fide GOCC and government instrumentality. 87
In this case, there is not much dispute that the MECO possesses the first and second attributes.
We take exception to petitioners characterization of the MECO as a GOCC or government It is the third attribute, which the MECO lacks.
instrumentality. The MECO is not a GOCC or government instrumentality.
The MECO Is Organized as a Non-Stock Corporation
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"
The organization of the MECO as a non-stock corporation cannot at all be denied. Records
and are "not integrated within the department framework."88 Subsumed under the rubric
disclose that the MECO was incorporated as a non-stock corporation under the Corporation Code
"government instrumentality" are the following entities:89
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
1. regulatory agencies, corporations original members and directors.96

2. chartered institutions, The purposes for which the MECO was organized also establishes its non-profit character, to
wit:97
3. government corporate entities or government instrumentalities with corporate
powers (GCE/GICP),90 and 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;
4. GOCCs

2. To receive and accept grants and subsidies that are reasonably necessary in
The Administrative Code defines a GOCC:91
carrying out the corporate purposes provided they are not subject to conditions
defeatist for or incompatible with said purpose;
(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
3. To acquire by purchase, lease or by any gratuitous title real and personal properties
proprietary in nature, and owned by the Government directly or through its instrumentalities
as may be necessary for the use and need of the corporation, and in like manner when
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
they are
fifty-one (51) per cent of its capital stock: x x x.

4. To do and perform any and all acts which are deemed reasonably necessary to carry
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the
out the purposes. (Emphasis supplied)
GOCC Governance Act of 2011, to wit:92

The purposes for which the MECO was organized are somewhat analogous to those of a trade,
(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as
business or industry chamber,98 but only on a much larger scale i.e., instead of furthering the
a stock or non-stock corporation, vested with functions relating to public needs whether
interests of a particular line of business or industry within a local sphere, the MECO seeks to
governmental or proprietary in nature, and owned by the Government of the Republic of the
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.99The 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 latters 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
governments 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 corporations 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 corporations 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 corporations 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 petitionerif such letters even exist outside of the case of Mr. Basilioare, 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 was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are likewise subject to the
definition, creatures of the law.110 The MECO cannot be any other instrumentality because it audit jurisdiction of the COA.
was, as mentioned earlier, merely incorporated under the Corporation Code.
Verification Fees Collected by the MECO
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
In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share
with for purposes of this case.
in the "verification fees" for overseas employment documents it collects on behalf of the DOLE.

For whatever it is worth, however, and without justifying anything, it is easy enough for this
The "verification fees" mentioned here refers to the "service fee for the verification of overseas
Court to understand the rationale, or necessity even, of the executive branch placing the MECO
employment contracts, recruitment agreement or special powers of attorney" that the DOLE was
under the policy supervision of one of its agencies.
authorized to collect under Section 7 of EO No. 1022,118 which was issued by President
Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE from
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was the foreign employers of OFWs and are intended to be used for "the promotion of overseas
not intended to operate as any other ordinary corporation. And it is not. Despite its private employment and for welfare services to Filipino workers within the area of jurisdiction of
origins, and perhaps deliberately so, the MECO was "entrusted"111 by the government with the [concerned] foreign missions under the administration of the [DOLE]."119
"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
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the
involved in such undertaking is the possibility that, at any given time in fulfilling the purposes
Department of Finance and the COA in an effort to implement Section 7 of Executive Order No.
for which it was incorporated, the MECO may find itself engaged in dealings or activities that
1022.120 Thus, under Joint Circular 3-99, the following officials have been tasked to be the
can directly contradict the Philippines commitment to the One China policy of the PROC. Such
"Verification Fee Collecting Officer" on behalf of the DOLE:121
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.
1. The labor attach or duly authorized overseas labor officer at a given foreign post,
as duly designated by the DOLE Secretary;
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 2. In foreign posts where there is no labor attach or duly authorized overseas labor
operationsall the while maintaining its legal status as a non-governmental entitythe MECO officer, the finance officer or collecting officer of the DFA duly deputized by the
is, for all intents and purposes, sui generis. DOLE Secretary as approved by the DFA Secretary;

Certain Accounts of the MECO May 3. In the absence of such finance officer or collecting officer, the alternate duly
Be Audited By the COA. designated by the head of the foreign post.

We now come to the COAs contention. 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
formers collecting agent with respect to the "verification fees" that may be due from Taiwanese
The COA argues that, despite being a non-governmental entity, the MECO may still be audited
employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement between
with respect to the "verification fees" for overseas employment documents that the latter collects
DOLE and the MECO, the "verification fees" to be collected by the latter are to be allocated as
from Taiwanese employers on behalf of the DOLE.114 The COA claims that, under Joint Circular
follows: (a) US$ 10 to be retained by the MECO as administrative fee, (b) US $10 to be remitted
No. 3-99, the MECO is mandated to remit to the national government a portion of such
to the DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO and DOLE. 123
"verification fees."115 The COA, therefore, classifies the MECO as a non-governmental entity
"required to pay xxx government share" per the Audit Code. 116
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.
We agree that the accounts of the MECO pertaining to its collection of "verification fees" is
subject to the audit jurisdiction of the COA. However, We digress from the view that such
accounts are the only ones that ought to be audited by the COA. Upon careful evaluation of the Consular Fees Collected by the MECO
information made available by the records vis--vis the spirit and the letter of the laws and
executive issuances applicable, We find that the accounts of the MECO pertaining to the fees it
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 functionsfunctions
it performs by and only through special authority from the government. There was never any
doubt that the visas, passports and other documents that the MECO issues pursuant to its
authorized functions still emanate from the Philippine government itself.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under
EO No. 15, s. 2001. They must be reasonable as the authorization requires. It is the government
that has ultimate control over the disposition of the "consular fees," which control the
government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001 that such funds
may be kept by the MECO "to defray the cost of its operations."
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be
Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non-
governmental entities "required to pay xxx or have government share" but only with respect to
"funds xxx coming from or through the government." This provision of law perfectly fits the
MECO:
First. The MECO receives the "verification fees" by reason of being the collection agent of the
DOLEa government agency. Out of its collections, the MECO is required, by agreement, to
remit a portion thereof to the DOLE. Hence, the MECO is accountable to the government for its
collections of such "verification fees" and, for that purpose, may be audited by the COA.
Second. Like the "verification fees," the "consular fees" are also received by the MECO through
the government, having been derived from the exercise of consular functions entrusted to the
MECO by the government. Hence, the MECO remains accountable to the government for its
collections of "consular fees" and, for that purpose, may be audited by the COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the
MECO and Section 2(6) of EO No. 15, s. 2001, vis--vis, respectively, the "verification fees"
and the "consular fees," grant and at the same time limit the authority of the MECO to collect
such fees. That grant and limit require the audit by the COA of the collections thereby generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity
especially entrusted by the government with the facilitation of unofficial relations with the
people in Taiwan without jeopardizing the countrys faithful commitment to the One China
policy of the PROC. However, despite its non-governmental character, the MECO handles
government funds in the form of the "verification fees" it collects on behalf of the DOLE and
the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001. Hence, under existing
laws, the accounts of the MECO pertaining to its collection of such "verification fees" and
"consular fees" should be audited by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila
Economic and Cultural Office is hereby declared a non-governmental entity. However, the
accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former
collects on behalf of the Department of Labor and Employment, and the fees it was authorized
to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001, are subject to the
audit jurisdiction of the COA.
No costs.
SO ORDERED.
 Republic of the Philippines
Supreme Court Antecedents
Manila
THIRD DIVISION Roberto S. Benedicto (Benedicto) was a stockholder of RPN, a private corporation
duly registered with the Securities and Exchange Commission (SEC).[6] In March 1986, the
Government ordered the sequestration of RPNs properties, assets, and business. On November
ANTONIO M. CARANDANG, G.R. No. 148076 3, 1990, the Presidential Commission on Good Government (PCGG) entered into a compromise
Petitioner, agreement with Benedicto, whereby he ceded to the Government, through the PCGG, all his
shares of stock in RPN. Consequently, upon motion of the PCGG, the Sandiganbayan (Second
Division) directed the president and corporate secretary of RPN to transfer to the PCGG
-versus - Benedictos shares representing 72.4% of the total issued and outstanding capital stock of RPN.

However, Benedicto moved for a reconsideration, contending that his RPN shares
HONORABLE ANIANO A. DESIERTO, ceded to the Government, through the PCGG, represented only 32.4% of RPNs outstanding
OFFICE OF THE OMBUDSMAN, capital stock, not 72.4%. Benedictos motion for reconsideration has remained unresolved to this
Respondent. date.[7]
x-----------------------------------------x
ANTONIO M. CARANDANG, G.R. No. 153161 Administrative Complaint for Grave Misconduct
Petitioner,
Present: On July 28, 1998, Carandang assumed office as general manager and chief operating
officer of RPN.[8]
-versus- CARPIO MORALES, Chairperson,
BRION, On April 19, 1999, Carandang and other RPN officials were charged with grave
BERSAMIN, misconduct before the Ombudsman. The charge alleged that Carandang, in his capacity as the
VILLARAMA, JR., and general manager of RPN, had entered into a contract with AF Broadcasting Incorporated despite
SERENO, JJ. his being an incorporator, director, and stockholder of that corporation; that he had thus held
SANDIGANBAYAN (FIFTH DIVISION), financial and material interest in a contract that had required the approval of his office; and that
Respondent. Promulgated: the transaction was prohibited under Section 7 (a) and Section 9 of Republic Act No. 6713 (Code
of Conduct and Ethical Standards for Public Officials and Employees), thereby rendering him
January 12, 2011 administratively liable for grave misconduct.
x----------------------------------------------------------------------------------------x Carandang sought the dismissal of the administrative charge on the ground that the
Ombudsman had no jurisdiction over him because RPN was not a government-owned or -
DECISION controlled corporation.[9]

BERSAMIN, J.:
Petitioner Antonio M. Carandang (Carandang) challenges the jurisdiction over him
of the Ombudsman and of the Sandiganbayan on the ground that he was being held to account
for acts committed while he was serving as general manager and chief operating officer of Radio
Philippines Network, Inc. (RPN), which was not a government-owned or -controlled
corporation; hence, he was not a public official or employee.
In G.R. No. 148076, Carandang seeks the reversal of the decision [1] and
resolution[2] promulgated by the Court of Appeals (CA) affirming the decision [3] of the
Ombudsman dismissing him from the service for grave misconduct.
In G.R. No. 153161, Carandang assails on certiorari the resolutions dated October
17, 2001[4] and March 14, 2002[5] of the Sandiganbayan (Fifth Division) that sustained the
Sandiganbayans jurisdiction over the criminal complaint charging him with violation of
Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act).
On May 7, 1999, the Ombudsman suspended Carandang from his positions in RPN.
On September 8, 1999, Carandang manifested that he was no longer interested and
had no further claim to his positions in RPN. He was subsequently replaced by Edgar San Luis. [10]
In its decision dated January 26, 2000,[11] the Ombudsman found Carandang guilty of
grave misconduct and ordered his dismissal from the service.
Carandang moved for reconsideration on two grounds: (a) that the Ombudsman had
no jurisdiction over him because RPN was not a government-owned or -controlled corporation;
and (b) that he had no financial and material interest in the contract that required the approval of
his office.[12]
The Ombudsman denied Carandangs motion for reconsideration on March 15,
2000.[13]
 On appeal (CA G.R. SP No. 58204),[14] the CA affirmed the decision of the
Ombudsman on February 12, 2001, stating:
The threshold question to be resolved in the present case is
whether or not the Office of the Ombudsman has jurisdiction over the
herein petitioner.
It is therefore of paramount importance to consider the definitions
of the following basic terms, to wit: A public office 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
state to be exercised by him for the benefit of the public. (San Andres,
Catanduanes vs. Court of Appeals, 284 SCRA 276: Chapter I, Section 1,
Mechem, A Treatise on Law of Public Offices and Officers). The
individual so invested is called the public officer which includes elective
and appointive officials and employees, permanent or temporary, whether
in the classified or unclassified or exemption service receiving
compensation, even nominal, from the government as defined in xxx [Sec.
2 (a) of Republic Act No. 3019 as amended]. (Sec. 2 (b) of Republic Act
No. 3019 as amended. Unless the powers conferred are of this nature, the
individual is not a public officer.
With these time-honored definitions and the substantial findings
of the Ombudsman, We are constrained to conclude that, indeed, the
herein petitioner (Antonio M. Carandang) is a public officer. Precisely,
since he (Antonio M. Carandang) was appointed by then President Joseph
Ejercito Estrada as general manager and chief operating officer of RPN-9
(page 127 of the Rollo). As a presidential appointee, the petitioner derives
his authority from the Philippine Government. It is luce clarius that the
function of the herein petitioner (as a presidential appointee), relates to
public duty, i.e., to represent the interest of the Philippine Government in
RPN-9 and not purely personal matter, thus, the matter transcends the
petitioners personal pique or pride.
xxx
Having declared earlier that the herein petitioner is a public
officer, it follows therefore that, that jurisdiction over him is lodged in the
Office of the Ombudsman.
It is worth remembering that as protector of the people, the
Ombudsman has the power, function and duty to 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 every case where the
evidence warrants in order to promote efficient service by the
Government to the people. (Section 13 of Republic Act No. 6770).
xxx
Accordingly, the Office of the Ombudsman is, therefore, clothed
with the proper armor when it assumed jurisdiction over the case filed
against the herein petitioner. x x x
xxx
It appears that RPN-9 is a private corporation established to
install, operate and manage radio broadcasting and/or television stations
in the Philippines (pages 59-79 of the Rollo). On March 2, 1986, when
RPN-9 was sequestered by the Government on ground that the same was
considered as an illegally obtained property (page 3 of the Petition for
Review; page 2 of the Respondents Comment; pages 10 and 302 of the
Rollo), RPN-9 has shed-off its private status. In other words, there can be
no gainsaying that as of the date of its sequestration by the Government,
RPN-9, while retaining its own corporate existence, became a
government-owned or controlled corporation within the Constitutional
precept.
Be it noted that a 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 government 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 Budget, the Civil Service, and
the Commission on Audit for purposes of the exercise and discharge of
their respective powers, functions and responsibilities with respect to such
corporations. (Section 2 [13], Executive Order No. 292).
Contrary to the claim of the petitioner, this Court is of the view
and so holds that RPN-9 perfectly falls under the foregoing definition. For
one, the governments interest to RPN-9 amounts to 72.4% of RPNs capital
stock with an uncontested portion of 32.4% and a contested or litigated
portion of 40%. (page 3 of the Petition for Review; pages 8-9 of the
Respondents Comment). On this score, it ought to be pointed out that
while the forty percent (40%) of the seventy two point four percent
(72.4%) is still contested and litigated, until the matter becomes formally
settled, the government, for all interests and purposes still has the right
over said portion, for the law is on its side. Hence, We can safely say that
for the moment, RPN-9 is a government owned and controlled
corporation. Another thing, RPN 9, though predominantly tackles
proprietary functionsthose intended for private advantage and benefit,
still, it is irrefutable that RPN-9 also performs governmental roles in the
interest of health, safety and for the advancement of public good and
welfare, affecting the public in general.
 xxx
Coming now to the last assignment of error- While it may be
considered in substance that the latest GIS clearly shows that petitioner
was no longer a stockholder of record of AF Broadcasting Corporation at
the time of his assumption of Office in RPN 9 x x x (Petitioners Reply [to
Comment]; page 317 of the Rollo), still severing ties from AF
Broadcasting Corporation does not convince this Court fully well to
reverse the finding of the Ombudsman that Antonio Carandang appears to
be liable for Grave Misconduct (page 10 of the Assailed Decision; page
36 of the Rollo). Note that, as a former stockholder of AF Broadcasting
Corporation, it is improbable that the herein petitioner was completely
oblivious of the developments therein and unaware of the contracts it (AF
Broadcasting Corporation) entered into. By reason of his past (Antonio
Carandang) association with the officers of the AF Broadcasting
Corporation, it is unbelievable that herein petitioner could simply have
ignored the contract entered into between RPN-9 and AF Broadcasting
Corporation and not at all felt to reap the benefits thereof. Technically, it
is true that herein petitioner did not directly act on behalf of AF
Broadcasting Corporation, however, We doubt that he (herein petitioner)
had no financial and/or material interest in that particular transaction
requiring the approval of his officea fact that could not have eluded Our
attention.
xxx
WHEREFORE, premises considered and pursuant to applicable
laws and jurisprudence on the matter, the present Petition for Review is
hereby DENIED for lack of merit. The assailed decision (dated January
26, 2000) of the Office of the Ombudsman in OMB-ADM-0-99-0349 is
hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.[15]
After the denial of his motion for reconsideration,[16] Carandang commenced G.R.
No. 148076.
Violation of Section 3 (g), Republic Act No. 3019
On January 17, 2000, the Ombudsman formally charged Carandang in the
Sandiganbayan with a violation of Section 3 (g) of RA 3019 by alleging in the following
information, [17] viz:
That sometime on September 8, 1998 or thereabouts, in Quezon
City, Philippines and within the jurisdiction of this Honorable Court,
accused ANTONIO M. CARANDANG, a high ranking officer (HRO)
being then the General Manager of Radio Philippines Network, Inc.
(RPN-9), then a government owned and controlled corporation, did then
and there willfully, unlawfully and criminally give unwarranted benefits
to On Target Media Concept, Inc. (OTMCI) through manifest partiality
and gross inexcusable negligence and caused the government undue
injury, by pre-terminating the existing block time contract between RPN
9 and OTMCI for the telecast of Isumbong Mo Kay Tulfo which assured
the government an income of Sixty Four Thousand and Nine Pesos (P
64,009.00) per telecast and substituting the same with a more onerous co-
production agreement without any prior study as to the profitability
thereof, by which agreement RPN-9 assumed the additional obligation of
taking part in the promotions, sales and proper marketing of the program,
with the end result in that in a period of five (5) months RPN-9 was able
to realize an income of only Seventy One Thousand One Hundred Eighty
Five Pesos (P 71,185.00), and further, by waiving RPN-9s collectible
from OTMCI for August 1-30, 1998 in the amount of Three Hundred
Twenty Thousand and Forty Five Pesos (P 320,045.00).
Carandang moved to quash the information,[18] arguing that Sandiganbayan had no
jurisdiction because he was not a public official due to RPN not being a government-owned or -
controlled corporation.
The Sandiganbayan denied Carandangs motion to quash on October 17, 2001.[19]
After the denial by the Sandiganbayan of his motion for
reconsideration,[20] Carandang initiated G.R. No. 153161.[21]
On May 27, 2002, Carandang moved to defer his arraignment and pre-trial, citing the
pendency of G.R. No. 153161.[22]
On July 29, 2002, the Court directed the parties in G.R. No. 153161 to maintain
the status quo until further orders.[23]
On November 20, 2006, G.R. No. 148076 was consolidated with G.R. No. 153161. [24]
Issue
Carandang insists that he was not a public official considering that RPN was not a
government-owned or -controlled corporation; and that, consequently, the Ombudsman and the
Sandiganbayan had no jurisdiction over him. He prays that the administrative and criminal
complaints filed against him should be dismissed. Accordingly, decisive is whether or not RPN
was a government-owned or -controlled corporation.
Ruling
We find the petitions to be meritorious.
It is not disputed that the Ombudsman has jurisdiction over administrative cases
involving grave misconduct committed by the officials and employees of government-owned or
-controlled corporations; and that the Sandiganbayan has jurisdiction to try and decide criminal
actions involving violations of R.A. 3019 committed by public officials and employees,
including presidents, directors and managers of government-owned or -controlled corporations.
The respective jurisdictions of the respondents are expressly defined and delineated by the
law.[25]

Similarly, the law defines what are government-owned or -controlled corporations.
For one, Section 2 of Presidential Decree No. 2029 (Defining Government Owned or Controlled
Corporations and Identifying Their Role in National Development) states:
Section 2. A government-owned or controlled corporation is a
stock or a non-stock corporation, whether performing governmental or
proprietary functions, which is directly chartered by a special law or if
organized under the general corporation law is owned or controlled by the
government directly, or indirectly through a parent corporation or
subsidiary corporation, to the extent of at least a majority of its
outstanding capital stock or of its outstanding voting capital stock.
Section 2 (13) of Executive Order No. 292 (Administrative Code of 1987)[26] renders a similar
definition of government-owned or -controlled corporations:
Section 2. General Terms Defined. Unless the specific words of
the text or the context as a whole or a particular statute, shall require a
different meaning:
xxx
(13) government-owned or controlled corporations 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 indirectly through its
instrumentalities either wholly, or where applicable as in the case of
stock corporations to the extent of at least 51% of its capital stock.
It is clear, therefore, that a corporation is considered a government-owned or -
controlled corporation only when the Government directly or indirectly owns or controls at least
a majority or 51% share of the capital stock. Applying this statutory criterion, the Court ruled
in Leyson, Jr. v. Office of the Ombudsman:[27]
But these jurisprudential rules invoked by petitioner in support of
his claim that the CIIF companies are government owned and/or
controlled corporations are incomplete without resorting to the definition
of government owned or controlled corporation contained in par. (13),
Sec.2, Introductory Provisions of the Administrative Code of
1987, i.e., 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 indirectly
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. The definition mentions three (3) requisites, namely,
first, any agency organized as a stock or non-stock corporation; second,
vested with functions relating to public needs whether governmental or
proprietary in nature; and, third, 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) of its
capital stock.
In the present case, all three (3) corporations comprising the CIIF
companies were organized as stock corporations. The UCPB-CIIF
owns 44.10% of the shares of LEGASPI OIL, xxx. Obviously, the
below 51% shares of stock in LEGASPI OIL removes this firm from
the definition of a government owned or controlled corporation. x x x
The Court thus concludes that the CIIF are, as found by public respondent,
private corporations not within the scope of its jurisdiction.[28]
Consequently, RPN was neither a government-owned nor a controlled corporation
because of the Governments total share in RPNs capital stock being only 32.4%.
Parenthetically, although it is true that the Sandiganbayan (Second Division) ordered
the transfer to the PCGG of Benedictos shares that represented 72.4% of the total issued and
outstanding capital stock of RPN, such quantification of Benedictos shareholding cannot be
controlling in view of Benedictos timely filing of a motion for reconsideration whereby
he clarified and insisted that the shares ceded to the PCGG had accounted for only 32.4%, not
72.4%, of RPNs outstanding capital stock. With the extent of Benedictos holdings in RPN
remaining unresolved with finality, concluding that the Government held the majority of RPNs
capital stock as to make RPN a government-owned or -controlled corporation would be bereft
of any factual and legal basis.
Even the PCGG and the Office of the President (OP) have recognized RPNs status as
being neither a government-owned nor -controlled corporation.
In its Opinion/Clarification dated August 18, 1999, the PCGG communicated to San
Luis as the president and general manager of RPN regarding a case involving RPN and
Carandang:[29]
MR. EDGAR S. SAN LUIS
President & General Manager
Radio Philippines Network, Inc.
Broadcast City, Capitol Hills
Diliman, Quezon City
Sir:
This refers to your letter dated August 4, 1999, seeking PCGGs
position on the following:
1. Whether RPN-9 is a GOCC x x x or a private corporation
outside the scope of OGCC and COAs control given 32% Government
ownership x x x.
xxx
 It appears that under the RP-Benedicto Compromise Agreement
dated November 3, 1990 validity of which has been sustained by the
Supreme Court in G.R. No. 96087, March 31, 1992, (Guingona, Jr. vs.
PCGG, 207 SCRA 659) Benedicto ceded all his rights, interest and/or
participation, if he has any, in RPN-9, among others, to the government
which rights, interest and/or participation per PCGGs understanding,
include 9,494,327.50 shares of stock, i.e, about 72.4% of the total issued
and outstanding capital stock of RPN-9.
Accordingly, the Sandiganbayan (Second Division), on motion
of the government through PCGG, ordered the president and corporate
secretary of the RPN-9 to effect the immediate cancellation and transfer
of the 9,494,327.50 shares corresponding to Benedictos proprietary
interest in RPN-9 to the Republic of the Philippines c/o PCGG
(Sandiganbayans Resolution of February 3, 1998 in Civil Case No.
0034, RP vs. Roberto Benedicto, et. al.) Benedicto, however, filed a
motion for reconsideration of said Resolution, contending that the number
of RPN-9 shares ceded by him embraces only his personal holdings and
those of his immediate family and nominees totaling 4,161,207.5
shares but excluding the RPN-9 shares in the name of Far East Managers
and Investors, Inc. (FEMIE), which is about 40%, as they are corporate
properties/assets of FEMIE and not his personal holdings. Said motion for
reconsideration is still pending resolution by the Sandiganbayan.
xxx
We agree with your x x x view that RPN-9 is not a government
owned or controlled corporation within the contemplation of the
Administrative Code of 1987, for admittedly, RPN-9 was organized
for private needs and profits, and not for public needs and was not
specifically vested with functions relating to public needs.
Neither could RPN-9 be considered a government-owned or
controlled corporation under Presidential Decree (PD) No. 2029
dated February 4, 1986, which defines said terms as follows:
Sec.2. Definition. A government owned- or controlled
corporation is a stock or non-stock corporation, whether
performing governmental or proprietary functions which is
directly chartered by special law or organized under the
general corporation law is owned or controlled by the
government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at
least a majority of its outstanding capital stock or of its
outstanding voting capital stock;
Provided, that a corporation organized under the
general corporation law under private ownership at least a
majority of the shares of stock of which were conveyed to
a government corporation in satisfaction of debts incurred
with a government financial institution, whether by
foreclosure or otherwise, or a subsidiary corporation of a
government corporation organized exclusively to own and
manage, or lease, or operate specific physical assets
acquired by a government financial institution in
satisfaction of debts incurred therewith, and which in any
case by enunciated policy of the government is required to
be disposed of to private ownership within a specified
period of time, shall not be considered a government-
owned or controlled corporation before such disposition
and even if the ownership or control thereof is subsequently
transferred to another government-owned or controlled
corporation.
A government-owned or controlled corporation is either parent
corporation, i.e., one created by special law (Sec. 3 (a), PD 2029) or a
subsidiary corporation, i.e, one created pursuant to law where at least a
majority of the outstanding voting capital stock of which is owned by
parent government corporation and/or other government-owned
subsidiaries. (Sec. 3 (b), PD 2029).
RPN-9 may not likewise be considered as an acquired asset
corporation which is one organized under the general corporation law (1)
under private ownership at least a majority of the shares of stock of which
were conveyed to a government corporation in satisfaction of debts
incurred with a government financial institution, whether by foreclosure
or otherwise, or (2) as a subsidiary corporation of a government
corporation organized exclusively to own and manage, or lease, or operate
specific physical assets acquired by a government financial institution in
satisfaction of debts incurred therewith, and which in any case by
enunciated policy of the government is required to be disposed of to
private ownership within a specified period of time (Sec 3 c, PD 2029),
for the following reasons:
1. as noted above, the uncontested (not litigated) RPN-9
shares of the government is only 32.4% (not a
majority) of its capital stock;
2. said 32.4% shares of stock, together with the
contested/litigated 40%, were not conveyed to a
government corporation or the government in
satisfaction of debts incurred with government
financial institution, whether by foreclosure or
otherwise;
3. RPN-9 was not organized as a subsidiary corporation of
a government corporation organized exclusively to
own and manage, or lease, or operate specific physical
assets acquired by a government financial institution
in satisfaction of debts incurred therewith.
 It should be parenthetically noted that the 32.4% or 72.4% shares
of stocks were turned over to the government by virtue of a compromise
agreement between the government and Benedicto in Civil Case No. 0034
which is a civil action against Defendants Roberto S. Benedicto,
Ferdinand E. Marcos, Imelda R. Marcos and others, to recover from them
ill-gotten wealth (Amended Complaint, Aug. 12, 1987, Civil Case No.
0034, p. 2.) As the case between the government and Benedicto, his family
and nominees was compromised, no judicial pronouncement was made as
to the character or nature of the assets and properties turned over by
Benedicto to the government whether they are ill-gotten wealth or not.[30]
The PCGGs Opinion/Clarification was affirmed by the OP itself on February 10,
2000: [31]
Considering that the construction of a statute given by administrative agencies
deserves respect,[35] the uniform administrative constructions of the relevant aforequoted laws
defining what are government-owned or -controlled corporations as applied to RPN is highly
persuasive.
Lastly, the conclusion that Carandang was a public official by virtue of his having
been appointed as general manager and chief operating officer of RPN by President Estrada
deserves no consideration. President Estradas intervention was merely to recommend
Carandangs designation as general manager and chief operating officer of RPN to the PCGG,
which then cast the vote in his favor vis--vis said positions.[36] Under the circumstances, it was
RPNs Board of Directors that appointed Carandang to his positions pursuant to RPNs By-
Laws.[37]

February 10, 2000 In fine, Carandang was correct in insisting that being a private individual he was not
subject to the administrative authority of the Ombudsman and to the criminal jurisdiction of the
Mr. Edgar S. San Luis Sandiganbayan.[38]
President and General Manager WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No. 153161.
Radio Philippines Network Inc.
Broadcasting City, Capitol Hills, Diliman We reverse and set aside the decision promulgated on February 12, 2001 by the Court
Quezon City of Appeals in C.A.-G.R. SP No. 58204, and dismiss the administrative charge for grave
misconduct against the petitioner.
Dear President San Luis,
xxx We annul and set aside the resolutions dated October 17, 2001 and March 14, 2002,
as well as the order dated March 15, 2002, all issued by the Sandiganbayan (Fifth Division) in
Relative thereto, please be informed that we affirm the PCGGs Criminal Case No. 25802, and dismiss Criminal Case No. 25802 as against the petitioner.
opinion that RPNI is not a government-owned and/or controlled SO ORDERED.
corporation (GOCC). Section 2 (13), Introductory Provisions of the
Administrative Code of 1987 defines a GOCC as an 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 indirectly through its instrumentalities either
wholly, or where applicable as in the case of stock corporations to the
extent of at least 51% of its capital stock. As government ownership
over RPNI is only 32.4% of its capital stock, pending the final judicial
determination of the true and legal ownership of RPNI, the
corporation is deemed private.[32]

Even earlier, a similar construction impelled the Ombudsman to dismiss a

criminal complaint for violation of R.A. 3019 filed against certain
RPN officials, as the Ombudsmans resolution dated December 15, 1997 indicates,[33] a pertinent
portion of which is quoted thus:

This is not to mention the fact that the other respondents, the RPN
officials, are outside the jurisdiction of this Office (Office of the
Ombudsman); they are employed by a private corporation registered with
the Securities and Exchange Commission, the RPN, which is not a
government owned or controlled corporation x x x[34]
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE
RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, on
pure questions of law, assailing the January 8, 2010 Order1 of the Regional Trial Court, Branch
195, Parafiaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA)
is a government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, .
not exempt from payment of real property taxes. The pertinent portion of the said order reads:
In view of the finding of this court that petitioner is not exempt from payment of real property
taxes, respondent Paraaque City Treasurer Liberato M. Carabeo did not act xxx without or in
excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit
Attached Supplemental Petition is denied and the supplemental petition attached thereto is not
admitted.
The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and
Functions, Providing Funds Therefor and For Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the government
with the object of maximizing their utilization and hastening their development consistent with
public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA
relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay, including those located in Paraaque City, and was issued Original Certificates of
Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT
Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Paraaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRAs reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Paraaque City based on the assessment for delinquent real property taxes
made by then Paraaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining
order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRAs petition for the
issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the public
auction of the subject reclaimed properties on April 7, 2003. In response, Carabeo sent a letter
stating that the public auction could not be deferred because the RTC had already denied PRAs
TRO application.
On April 25, 2003, the RTC denied PRAs prayer for the issuance of a writ of preliminary
injunction for being moot and academic considering that the auction sale of the subject properties
on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to arrive
at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached
Supplemental Petition which sought to declare as null and void the assessment for real property
taxes, the levy based on the said assessment, the public auction sale conducted on April 7, 2003,
and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRAs petition. In ruling that PRA
was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its name as shown by the certificates of
title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of
Republic Act (R.A.) No. 7160 Local Government Code (LGC) which was the prevailing law in
2001 and 2002 with respect to real property taxation. The RTC also ruled that the tax exemption
claimed by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and
that PRA failed to comply with the procedural requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
based on the following GROUNDS
I It explains that reclaimed lands are part of the public domain, owned by the State, thus, exempt
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO
PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL
GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL
PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR
THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL AIRPORT
AUTHORITY V. COURT OF APPEALS.
II
from the payment of real estate taxes. Reclaimed lands retain their inherent potential as areas for
public use or public service. While the subject reclaimed lands are still in its hands, these lands
remain public lands and form part of the public domain. Hence, the assessment of real property
taxes made on said lands, as well as the levy thereon, and the public sale thereof on April 7,
2003, including the issuance of the certificates of sale in favor of the respondent Paraaque City,
are invalid and of no force and effect.
On the other hand, the City of Paraaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRAs very own charter (P.D. No. 1084) declared
it to be a GOCC and that it has entered into several thousands of contracts where it represented
itself to be a GOCC. In fact, PRA admitted in its original and amended petitions and pre-trial
brief filed with the RTC of Paraaque City that it was a GOCC.

THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED Respondent further argues that PRA is a stock corporation with an authorized capital stock
LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL divided into 3 million no par value shares, out of which 2 million shares have been subscribed
PROPERTY TAX. and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges
granted to or presently enjoyed by all persons, whether natural or juridical, including GOCCs.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
Constitution because it is not required to meet the test of economic viability. Instead, PRA is a
government instrumentality vested with corporate powers and performing an essential public
THE COURTS RULING
service pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code.
Although it has a capital stock divided into shares, it is not authorized to distribute dividends and
allotment of surplus and profits to its stockholders. Therefore, it may not be classified as a stock The Court finds merit in the petition.
corporation because it lacks the second requisite of a stock corporation which is the distribution
of dividends and allotment of surplus and profits to the stockholders.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a GOCC
as follows:
It insists that it may not be classified as a non-stock corporation because it has no members and
it is not organized for charitable, religious, educational, professional, cultural, recreational,
SEC. 2. General Terms Defined. x x x x
fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers as provided in Section 88 of the Corporation Code.
(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
Moreover, PRA points out that it was not created to compete in the market place as there was no
proprietary in nature, and owned by the Government directly or through its instrumentalities
competing reclamation company operated by the private sector. Also, while PRA is vested with
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but
fifty-one
merely an incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does not make said
instrumentality a GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 (51) percent of its capital stock: x x x.
recognizes a scenario where a piece of land owned by the Republic is titled in the name of a
department, agency or instrumentality.
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government "instrumentality" as follows:
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real property is
granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local SEC. 2. General Terms Defined. x x x x
governments cannot tax the national government which delegate to local governments the power
to tax.
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when
the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department
framework.
No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus
allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members. A
non-stock corporation must have members.8 Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to
manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16,
Article XII of the 1987 Constitution provides as follows:

When the law vests in a government instrumentality corporate powers, the instrumentality does
Section 16. The Congress shall not, except by general law, provide for the formation,
not necessarily become a corporation. Unless the government instrumentality is organized as a
organization, or regulation of private corporations. Government-owned or controlled
stock or non-stock corporation, it remains a government instrumentality exercising not only
corporations may be created or established by special charters in the interest of the common good
governmental but also corporate powers.
and subject to the test of economic viability.

Many government instrumentalities are vested with corporate powers but they do not become
The fundamental provision above authorizes Congress to create GOCCs through special charters
stock or non-stock corporations, which is a necessary condition before an agency or
on two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority,
must meet the test of economic viability. In this case, PRA may have passed the first condition
the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng
of common good but failed the second one - economic viability. Undoubtedly, the purpose
Pilipinas. All these government instrumentalities exercise corporate powers but they are not
behind the creation of PRA was not for economic or commercial activities. Neither was it created
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
to compete in the market place considering that there were no other competing reclamation
Provisions of the Administrative Code. These government instrumentalities are sometimes
companies being operated by the private sector. As mentioned earlier, PRA was created
loosely called government corporate entities. They are not, however, GOCCs in the strict sense
essentially to perform a public service considering that it was primarily responsible for a
as understood under the Administrative Code, which is the governing law defining the legal
coordinated, economical and efficient reclamation, administration and operation of lands
relationship and status of government entities.2
belonging to the government with the object of maximizing their utilization and hastening their
development consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose follows:
"capital stock is divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no
Section 2. Declaration of policy. It is the declared policy of the State to provide for a coordinated,
part of its income is distributable as dividends to its members, trustees or officers." Further,
economical and efficient reclamation of lands, and the administration and operation of lands
Section 88 provides that non-stock corporations are "organized for charitable, religious,
belonging to, managed and/or operated by the government, with the object of maximizing their
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
utilization and hastening their development consistent with the public interest.
or similar purposes, like trade, industry, agriculture and like chambers."

Section 4. Purposes. The Authority is hereby created for the following purposes:
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that
it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be (a) To reclaim land, including foreshore and submerged areas, by dredging, filling or
properly classified as a stock corporation. As for non-stock corporations, they must have other means, or to acquire reclaimed land;
members and must not distribute any part of their income to said members.3
(b) To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. sell any and all kinds of lands, buildings, estates and other forms of real property,
It cannot be considered as a stock corporation because although it has a capital stock divided into owned, managed, controlled and/or operated by the government.
no par value shares as provided in Section 74 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. There is no provision whatsoever in P.D.
(c) To provide for, operate or administer such services as may be necessary for the
No. 1084 or in any of the subsequent executive issuances pertaining to PRA, particularly, E.O.
efficient, economical and beneficial utilization of the above properties.
The twin requirement of common good and economic viability was lengthily discussed in the
case of Manila International Airport Authority v. Court of Appeals, 9 the pertinent portion of
which reads:
Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled corporation must be established
for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common good and subject to the
test of economic viability.
The Constitution expressly authorizes the legislature to create "government-owned or controlled
corporations" through special charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of economic
viability applies only to government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good meaning for economic development purposes
these government-owned or controlled corporations with special charters are usually organized
as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not
the "government-owned or controlled corporations" referred to in Section 16, Article XII of the
1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as "government-owned or
controlled corporations" must meet the test of economic viability because they compete in
the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their
incometo meet operating expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers' money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common
good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they become viable. And so, Madam
President, I reiterate, for the committee's consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR
THE ECONOMIC TEST," together with the common good.1wphi1
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase "in the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but also includes capability
to make profit and generate benefits not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The non-
economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution.
The facts, the evidence on record and jurisprudence on the issue support the position that PRA
was not organized either as a stock or a non-stock corporation. Neither was it created by Congress
to operate commercially and compete in the private market. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an
incorporated government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by
PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts
PRA from paying realty taxes and protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the beneficial use thereof has been granted to
a taxable person. In this case, there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either that PRA leased the
subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits
local governments from imposing "taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality
of the national government. This happens when the title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption, unless "the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained in the case of the Manila
International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."
When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person, article
or activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its operations.
For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the
Code, local governments cannot tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision
can regulate a federal instrumentality in such a way as to prevent it from consummating its
federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as
"a tool for regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain,
owned by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose
capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and conditions
as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of waterpower, beneficial use may be the measure
and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and form part of the public
domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal Development
Corporation,12 the Court held that foreshore and submerged areas irrefutably belonged to the
public domain and were inalienable unless reclaimed, classified as alienable lands open to
disposition and further declared no longer needed for public service. The fact that alienable lands
of the public domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEAs name did not automatically make such lands private. This Court also
held therein that reclaimed lands retained their inherent potential as areas for public use or public
service.
As the central implementing agency tasked to undertake reclamation projects nationwide, with
authority to sell reclaimed lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being
leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but alienable lands of the public domain.
Only when qualified private parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to dispose of alienable of disposable
lands of the public domain, these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public domain" as
well as "any and all kinds of lands." PEA can hold both lands of the public domain and private
lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's name does not
automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the Government.-
(1)The President shall have the power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation.

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are
properties of public dominion. The ownership of such lands remains with the State unless they
are withdrawn by law or presidential proclamation from public use.

Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the "lands of the public domain, waters x x x and other natural resources"
and consequently "owned by the State." As such, foreshore and submerged areas "shall not be
alienated," unless they are classified as "agricultural lands" of the public domain. The mere
reclamation of these areas by PEA does not convert these inalienable natural resources of the
State into alienable or disposable lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
foreclosure sale.14Thus, the assessment, levy and foreclosure made on the subject reclaimed
lands by respondent, as well as the issuances of certificates of title in favor of respondent, are
without basis.

WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial
Court, Branch 195, Paraaque City, is REVERSED and SET ASIDE. All reclaimed properties
owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate
taxes. All real estate tax assessments, including the final notices of real estate tax delinquencies,
issued by the City of Paraaque on the subject reclaimed properties; the assailed auction sale,
dated April 7, 2003; and the Certificates of Sale subsequently issued by the Paraaque City
Treasurer in favor of the City of Paraaque, are all declared VOID.

SO ORDERED.
 United States Supreme Court
VILAS v. CITY OF MANILA, (1911)
No. 53
Argued: Decided: April 3, 1911
[220 U.S. 345, 346] Messrs. Frederic R. Coudert, Howard Thayer Kingsbury, Paul Fuller, and
Harry Weston Van Dyke for plaintiffs in error and appellants.
[220 U.S. 345, 349] Messrs. Paul Charlton andIsaac Adams for appellee.
[220 U.S. 345, 351]
Mr. Justice Lurton delivered the opinion of the court:
The plaintiffs in error, who were plaintiffs below, are creditors of the city of Manila as it existed
before the cession of the Philippine Islands to the United States by the treaty of Paris, December
10, 1898 [30 Stat. at L. 1754]. Upon the theory that the city, under its present charter from the
government of the Philippine Islands, is the same juristic person and liable upon the obligations
of the old city, these actions were brought against it. The supreme court of the Philippine Islands
denied relief, holding that the present municipality is a totally different corporate entity, and in
no way liable for the debts of the Spanish municipality. [220 U.S. 345, 352] The fundamental
question is whether, notwithstanding the cession of the Philippine Islands to the United States,
followed by a reincorporation of the city, the present municipality is liable for the obligations of
the city incurred prior to the cession to the United States.
We shall confine ourselves to the question whether the plaintiffs in error are entitled to judgments
against the city upon their several claims. Whether there is a remedy adequate to the collection
when reduced to judgment is not presented by the record. But whether there is or is not a remedy
affords no reason why the plaintiffs in error may not reduce their claims to judgment. Mt.
Pleasant v. Beckwith, 100 U.S. 514, 530 , 25 S. L. ed. 699, 703. The city confessedly may be
sued under its existing charter, and that implies at least a right to judgment if they establish their
demands.
The city as now incorporated has succeeded to all of the property rights of the old city and to the
right to enforce all of its causes of action. There is identity of purpose between the Spanish and
American charters and substantial identity of municipal powers. The area and the inhabitants
incorporated are substantially the same. But for the change of sovereignty which has occurred
under the treaty of Paris, the question of the liability of the city under its new charter for the
debts of the old city would seem to be of easy solution. The principal question would therefore
seem to be the legal consequence of the cession referred to upon the property rights and civil
obligations of the city incurred before the cession. And so the question was made to turn in the
court below upon the consequence of a change in sovereignty and a reincorporation of the city
by the substituted sovereignty.
This disposes of the question of the jurisdiction of this court, grounded upon the absence from
the petition of the plaintiffs of any distinct claim under the treaty of Paris, since, under 10 of the
Philippine organic act [220 U.S. 345, 353] of July 1, 1902 [32 Stat. at L. 695, chap. 1369, U. S.
Comp. Stat. Supp. 1909, p. 226], this court is given jurisdiction to review any final decree or
judgment of the supreme court of the Philippine Islands where any treaty of the United States 'is
involved.' That treaty was necessarily 'involved,' since neither the court below nor this court can
determine the continuity of the municipality nor the liability of the city as it now exists for the
obligation of the old city, without considering the effect of the change of sovereignty resulting
from that treaty. See Reavis v. Fianza, 215 U.S. 16, 22 , 54 S. L. ed. 72, 75, 30 Sup. Ct. rep. 1.
The historical continuity of a municipality embracing the inhabitants of the territory now
occupied by the city of Manila is impressive. Before the conquest of the Philippine Islands by
Spain, Manila existed. The Spaniards found on the spot now occupied a populous and fortified
community of Moros. In 1571 they occupied what was then and is now known as Manila, and
established it as a municipal corporation. In 1574 there was conferred upon it the title of
'Illustrious and ever loyal city of Manila.' From time to time there occurred amendments, and,
on January 19, 1894, there was a reorganization of the city government under a royal decree of
that date. Under that charter there was power to incur debts for municipal purposes and power
to sue and be sued. The obligations here in suit were incurred under the charter referred to, and
are obviously obligations strictly within the provision of the municipal power. To pay judgments
upon such debts it was the duty of the ayuntamiento of Manila, which was the corporate name
of the old city, to make provision in its budget.
The contention that the liability of the city upon such obligations was destroyed by a mere change
of sovereignty is obviously one which is without a shadow of moral force, and, if true, must
result from settled principles of rigid law. While the contracts from which the claims in suit
resulted were in progress, war between the United [220 U.S. 345, 354] States and Spain ensued.
On August 13, 1898, the city was occupied by the forces of this government, and its affairs
conducted by military authority. On July 31, 1901, the present incorporating act was passed, and
the city since that time has been an autonomous municipality. The charter in force is act 183 of
the Philippine Commission, and now may be found as chapters 68 to 75 of the compiled acts of
the Philippine Commission. The 1st section of the charter of 1901 reads as follows:
'The inhabitants of the city of Manila, residing within the territory described in 2 of this act, are
hereby constituted a municipality, which shall be known as the city of Manila, and by that name
shall have perpetual succession, and shall possess all the rights of property herein granted or
heretofore enjoyed and possessed by the city of Manila as organized under Spanish sovereignty.'
The boundaries described in 2 include substantially the area and inhabitants which had
theretofore constituted the old city.
By 4 of the same act, the government of the city was invested in a municipal board.
Section 16 grants certain legislative powers to the board, and provides that it shall 'take
possession of all lands, buildings, offices, books, papers, records, moneys, credits, securities,
assets, accounts, or other property or rights belonging to the former city of Manila, or pertaining
to the business or interests thereof, and, subject to the provisions herein set forth, shall have
control of all its property except the building known as the ayuntamiento, provision for the
occupation and control of which is made in 15 of this act; shall collect taxes and other revenues,
and apply the same in accordance with appropriations, as hereinbefore provided, to the payment
of the municipal expenses; shall supervise and control the discharge of official duties by
subordinates; shall institute judicial proceedings to recover property and [220 U.S. 345,
355] funds of the city wherever found, or otherwise to protect the interests of the city, and shall
defend all suits against the city,' etc.
Section 69 of the charter expressly preserved 'all city ordinances and orders in force at the time
of the passage of this act, and not inconsistent herewith,' until modified or repealed by ordinances
passed under this act.
Section 72 is the repealing clause, and provides for the repeal of 'all acts, orders, and regulations'
which are inconsistent with the provisions of the act.
The charter contains no reference to the obligations or contracts of the old city.
If we understand the argument against the liability here asserted, it proceeds mainly upon the
theory that inasmuch as the predecessor of the present city, the ayuntamiento of Manila, was a
corporate entity created by the Spanish government, when the sovereignty of Spain in the islands
was terminated by the treaty of cession, if not by the capitulation of August 13, 1898, the
municipality ipso facto disappeared for all purposes. This conclusion is reached upon the
supposed analogy to the doctrine of principal and agent, the death of the principal ending the
agency. So complete is the supposed death and annihilation of a municipal entity by extinction
of sovereignty of the creating state that it was said in one of the opinions below that all of the
public property of Manila passed to the United States, 'for a consideration, which was paid,' and
that the United States was therefore justified in creating an absolutely new municipality, and
endowing it with all of the assets of the defunct city, free from any obligation to the creditors of
that city. And so the matter was dismissed in the Trigas Case by the court of first instance, by
the suggestion that 'the plaintiff may have a claim against the Crown of Spain, which has received
from the United States payment for that done by the plaintiff.' [220 U.S. 345, 356] We are
unable to agree with the argument. It loses sight of the dual character of municipal corporations.
They exercise powers which are governmental and powers which are of a private or business
character. In the one character a municipal corporation is a governmental subdivision, and for
that purpose exercises by delegation a part of the sovereignty of the state. In the other character
it is a mere legal entity or juristic person. In the latter character it stands for the community in
the administration of local affairs wholly beyond the sphere of the public purposes for which its
governmental powers are conferred.
The distinction is observed in South Carolina v. United States, 199 U.S. 437, 461 , 50 S. L. ed.
261, 269, 26 Sup. Ct. Rep. 110, 4 A. & E. Ann. Cas. 737, where Lloyd v. New York, 5 N. Y.
369, 374, 55 Am. Dec. 347, and Western Sav. Fund Soc. v. Philadelphia, 31 Pa. 175, 72 Am.
Dec. 730, are cited and approved. In Lloyd v. New York, supra, it is said:
'The corporation of the city of New York possesses two kinds of powers: one governmental and
public, and to the extent they are held and exercised, is clothed with sovereignty; the other
private, and to the extent they are held and exercised, is a legal individual. The former are given
and used for public purposes, the latter for private purposes. While in the exercise of the former,
the corporation is a municipal government; and while in the exercise of the latter, is a corporate
legal individual.'
See also Dill. Mun. Corp. 4th ed. 66; Petersburg v. Applegarth, 28 Gratt. 321, 343, 26 Am. Rep.
357, and Oliver v. Worcester, 102 Mass. 489, 3 Am. Rep. 485.
In view of the dual character of municipal corporations there is no public reason for presuming
their total dissolution as a mere consequence of military occupation or territorial cession. The
suspension of such governmental functions as are obviously incompatible with the new political
relations thus brought about may be presumed. [220 U.S. 345, 357] But no such implication
may be reasonably indulged beyond that result.
Such a conclusion is in harmony with the settled principles of public law as declared by this and
other courts and expounded by the text-books upon the laws of war and international law. Taylor,
International Pub. Law , 578.
That there is a total abrogation of the former political relations of the inhabitants of the ceded
region is obvious. That all laws theretofore in force which are in confiict with the political
character, constitution, or institutions of the substituted sovereign, lose their force, is also plain.
Alvarez y Sanchez v. United States, 216 U.S. 167 , 54 L. ed. 432, 30 Sup. Ct. Rep. 367. But it is
equally settled in the same public law that that great body of municipal law which regulates
private and domestic rights continues in force until abrogated or changed by the new ruler. In
Chicago, R. I. & P. R. Co. v. McGlinn, 114 U.S. 542, 546 , 29 S. L. ed. 270, 271, 5 Sup. Ct. Rep.
1005, it was said:
'It is a general rule of public law, recognized and acted upon by the United States, that whenever
political jurisdiction and legislative power over any territory are transferred from one nation or
sovereign to another, the municipal laws of the country, that is, laws which are intended for the
protection of private rights, continue in force until abrogated or changed by the new government
or sovereign. By the cession, public property passes from one government to the other, but
private property remains as before, and with it those municipal laws which are designed to secure
its peaceful use and enjoyment. As a matter of course, all laws, ordinances, and regulations in
conflict with the political character, institutions, and constitution of the new government are at
once displaced. Thus, upon a cession of political jurisdiction and legislative power-and the latter
is involved in the former-to the United States, the laws of the country in support of an established
religion, or abridging the freedom of the [220 U.S. 345, 358] press, or authorizing cruel and
unusual punishments, and the like, would at once cease to be of obligatory force without any
declaration to that effect; and the laws of the country on other subjects would necessarily be
superseded by existing laws of the new government upon the same matters. But with respect to
other laws affecting the possession, use, and transfer of property, and designed to secure good
order and peace in the community, and promote its health and prosperity, which are strictly of a
municipal character, the rule is general, that a change of government leaves them in force until,
by direct action of the new government, they are altered or repealed.'
The above language was quoted with approval in Downes v. Bidwell, 182 U.S. 244, 298 , 45 S.
L. ed. 1088, 1110, 21 Sup. Ct. Rep. 770.
That the United States might, by virtue of its situation under a treaty ceding full title, have utterly
extinguished every municipality which it found in existence in the Philippine Islands, may be
conceded. That it did so, in view of the practice of nations to the contrary, is not to be presumed,
and can only be established by cogent evidence.
That during military occupation the affairs of the city were in a large part administered by
officials put in place by military order did not operate to dissolve the corporation, or relieve it
from liability upon obligations incurred before the occupation, nor those created for municipal
purposes by the administrators of its affairs while its old officials were displaced. New Orleans
v. New York Mail S. S. Co. 20 Wall. 387, 394, 22 L. ed. 354, 358. During that occupation and
military administration the business of the city was carried on as usual. Taxes were assessed and
taxes collected and expended for local purposes, and many of the officials carrying on the
government were those found in office when the city was occupied. The continuity of the
corporate city was not inconsistent with military occupation or the constitution or institutions of
the occupying power. This [220 U.S. 345, 359] is made evident by the occurrences at the time
of capitulation. Thus, the articles of capitulation concluded in these words: 'This city, its
inhabitants, . . . and its private property of all descriptions, are placed under the special safeguard
of the faith and honor of the American Army.' This was quoted in President McKinley's
instructions of April 7, 1900, to the Philippine Commission, and touching this he said: 'I believe
that this pledge has been faithfully kept.' And the commission was directed to labor for the full
performance of this obligation. This instruction was in line with and in fulfilment of the 8th
article of the treaty of Paris of December 10, 1898. Under the 3d article of that treaty the
archipelago known as the Philippine Islands was ceded to the United States, the latter agreeing
to pay to Spain the sum of $20,000,000. Under the first paragraph of the 8th article, Spain
relinquished to the United States 'all the buildings, wharves, barracks, forts, structures, public
highways, and other immovable property which, in conformity with law, belong to the public
domain, and as such belong to the Crown of Spain.' It is under this clause, in connection with the
clause agreeing to pay to Spain $20,000,000 for the cession of the Philippine group, that the
contention that all of the public rights of the city of Manila were acquired by the United States,
which country was therefore justified, as absolute owner, in granting the property rights so
acquired to what is called the 'absolutely new corporation' created thereafter. But the qualifying
words touching property rights relinquished by Spain limit the relinquishment to 'property which,
in conformity with law, belonging to the public domain, and as such belong to the Crown of
Spain.' It did not affect property which did not, in 'conformity with law, belong to the Crown of
Spain.' That it was not intended to apply to property which, 'in conformity with law,' belonged
to the city of Manila as a municipal cor- [220 U.S. 345, 360] poration, is clear. This is
demonstrated by the second paragraph of the same article, which reads: 'And it is hereby declared
that the relinquishment or cession, as the case may be, to which the preceding paragraph refers,
cannot in any respect impair the property or rights which by law belong to the peaceful
possession of property of all kinds, of provinces, municipalities, public or private establishments
. . . having legal capacity to acquire and possess property in the aforesaid territories renounced
or ceded, or of private individuals.' Thus, the property and property rights of municipal
corporations were protected and safeguarded precisely as were the property and property rights
of individuals.
That the cession did not operate as an extinction or dissolution of corporations is herein
recognized, for the stipulation against impairment of their property rights has this plain
significance.
The conclusion we reach, that the legal entity survived both the military occupation and the
cession which followed, finds support in the cases which hold that the Pueblos of San Francisco
and Los Angeles, which existed as municipal organizations prior to the cession of California by
Mexico, continued to exist with their community and property rights intact. Cohas v. Raisin, 3
Cal. 443; Hart v. Burnett, 15 Cal. 530; Townsend v. Greeley, 5 Wall. 326, 18 L. ed. 547;
Merryman v. Bourne, 9 Wall. 592, 602, 19 L. ed. 683, 686; Moore v. Steinbach, 127 U.S. 70 ,
32 L. ed. 51, 8 Sup. Ct. Rep. 1067; Los Angeles Farming & Mill. Co. v. Los Angeles, 217 U.S.
217 , 54 L. ed. 736, 30 Sup. Ct. Rep. 452.
Were corporate identity and corporate liability extinguished as a necessary legal result of the
new charter granted in 1901 by the Philippine Commission? The inhabitants of the old city are
the incorporators of the new. There is substantially identity of area. There are some changes in
the form of government and some changes in corporate powers and methods of administration.
the new corporation is endowed with all of the property and[220 U.S. 345, 361] property rights
of the old. It has the same power to sue and be sued which the former corporation had. There is
not the slightest suggestion that the new corporation shall not succeed to the contracts and
obligations of the old corporation. Laying out of view any question of the constitutional guaranty
against impairment of the obligation of contracts, there is, in the absence of express legislative
declaration of a contrary purpose, no reason for supposing that the reincorporation of an old
municipality is intended to permit an escape from the obligations of the old, to whose property
and rights it has succeeded. The juristic identity of the corporation has been in no wise affected,
and, in law, the present city is, in every legal sense, the successor of the old. As such it is entitled
to the property and property rights of the predecessor corporation, and is, in law, subject to all
of its liabilities. Broughton v. Pensacola 93 U.S. 266 , 23 L. ed. 896; Mt. Pleasant v.
Beckwith,100 U.S. 520 , 25 L. ed. 699; Mobile v. Watson, 116 U.S. 289 , 29 L. ed. 620, 6 Sup.
Ct. Rep. 398; Shapleigh v. San Angelo, 167 U.S. 646, 655 , 42 S. L. ed. 310, 313, 17 Sup. Ct.
Rep. 957; O'Connor v. Memphis, 6 Lea, 730; Colchester v. Seaber, 3 Burr. 1866, 1870, in which
case, when a municipality became disabled to act and obtained a new charter, in an action upon
an obligation of the old corporation, there was judgment for the creditor, Lord Mansfield saying:
'Many corporations, for want of legal magistrates, have lost their activity, and obtained new
charters. Maidstone, Radnor, Carmarthen, and many more are in the same case with Colchester.
And yet it has never been disputed but that the new charters revive and give activity to the old
corporation; except, perhaps, in that case in Levinz, where the corporation had a new name; and
even there the court made no doubt. Where the question has arisen upon any remarkable
metamorphosis, it has always been determined 'that they remain the same as to debts and rights."
Morris v. State, 62 Tex. 728, 730. [220 U.S. 345, 362] In Shapleigh v. San Angelo, supra, this
court said in a similar case:
'The state's plenary power over its municipal corporations to change their organization, to modify
their method of internal government, or to abolish them altogether, is not restricted by contracts
entered into by the municipality with its creditors or with private parties. An absolute repeal of
a municipal charter is therefor effectual so far as it abolishes the old corporate organization; but
when the same or substantially the same inhabitants are erected into a new corporation, whether
with extended or restricted territorial limits, such new corporation is treated as in law the
successor of the old one, entitled to its property rights, and subject to its liabilities.'
The cases of Trigas and Vilas went off upon demurrers, and no question of remedy arises here.
The appeal of Aguado is from a decree upon a final hearing denying him all relief.
That all three of the plaintiffs in error are entitled to proceed to judgment when they shall
establish their several claims is obvious from what we have said. But in the Aguado Case it is
sought to establish his claim as a charge against certain property and funds held by the city as
trustee, known as the Carriedo fund. In 1734 one Don Francisco Carriedo y Perodo bequeathed
to the city a fund for the establishment of waterworks, to be kept as a separate fund and devoted
to the erection and maintenance of the works. This fund was loyally kept and greatly increased,
and was enlarged by a special tax upon meat, devoted to that purpose. The works were finally
completed in 1878, and have been since operated by the city, the income and special tax going
to maintenance. Certain securities belonging to the fund are now held by the city, the income
being applied to the operation of the works. Aguado took a contract to supply coal for the use of
the [220 U.S. 345, 363] Carriedo works, and made a deposit to guarantee the contract. When
the city was occupied by the American Army it was indebted to him for coal so supplied, as well
as for the deposit so made. That the coal was bought for and used in the operation of the Carriedo
works is not denied. But there is no evidence that the credit was given to the Carriedo fund so
held in trust under the will of Carriedo. The contract was made with the ayuntamiento of Manila,
just as all other contracts for city supplies or works were made. The contract not having been
made with special reference to the liability of the fund held in trust by the city, but apparently
upon the general credit of the city, we are not disposed to reverse the judgment of the court
below, holding that the claim of Aguado did not constitute a charge upon the Carriedo fund.

Aguado is, nevertheless, entitled to a judgment. The designation of the city in the petition as
trustee may be regarded as descriptive. The debt having been incurred by the city, it must be
regarded as a city liability. Taylor v. Davis (Taylor v. Mayo), 110 U.S. 330, 336 , 28 S. L. ed.
163, 165, 4 Sup. Ct. Rep. 147.

Our conclusion is that the decree in the Aguado Case must be reversed and the case remanded,
with direction to render judgment and such other relief as may seem in conformity with law. The
judgments in the Trigas and Vilas Cases will be reversed and the cases remanded, with direction
to overrule the respective demurrers, and for such other action as may be consistent with law,
and consistent with this opinion.