FILIPINAS COMPAIA DE SEGUROS,

petitioner, vs. CHRISTERN

HUENEFELD an CO., INC.,
responent. G.R. No. L!""#$ Ma% "&,
'#&'
FACTS(
Christern Huenefeld Corporation bought
a fire insurance policy from Filipinas
Compania de Seguros to cover
merchandise contained in a building.
During the Japanese military
occupation, this same merchandise and
the building were burned, so Huenefeld
filed a claim under the policy.
However, Filipinas Compania de
Seguros refused to pay alleging that the
policy had ceased to be in force when
the United States declared war against
ermany. Filipinas Compania
contended that although organi!ed and
created under "hilippine laws,
Huenefeld is a erman sub#ect, and
hence, a public enemy, since ma#ority of
its stoc$holders are ermans. %n the
other hand, Filipinas Compania is under
&merican #urisdiction.
'he Director of (ureau of Financing,
"hilippine )*ecutive Commission
ordered Filipinas Compania to pay, so
Filipinas Compania did pay. 'he case at
bar is about the recovery of that sum
paid.
ISSUES(
+. ,hether or not Christern Huenefeld is
a erman sub#ect.
-. ,hether the fire insurance policy is
enforceable against an enemy state.
HELD(
+. 'here is no .uestion that ma#ority of
the stoc$holders of the respondent
corporation were erman sub#ects. 'his
being so, we have to rule that said
respondent became an enemy
corporation upon the outbrea$ of the war
between the United States and
ermany.
-. 'he "hilippine /nsurance 0aw 1&ct
2o. -3-4, as amended,5 in section 6,
provides that 7anyone e*cept a public
enemy may be insured.7 /t stands to
reason that an insurance policy ceases
to be allowable as soon as an insured
becomes a public enemy.
'he respondent having become an
enemy corporation on December +8,
+93+, the insurance policy issued in its
favor on %ctober +, +93+, by the
petitioner 1a "hilippine corporation5 had
ceased to be valid and enforcible, and
since the insured goods were burned
after December +8, +93+, and during the
war, the respondent was not entitled to
any indemnity under said policy from the
petitioner. However, elementary rules of
#ustice 1in the absence of specific
provision in the /nsurance 0aw5 re.uire
that the premium paid by the respondent
for the period covered by its policy from
December ++, +93+, should be returned
by the petitioner.
)i*son P. Ga+,oa v. Finan-e
Se-retar% Mar.arito Teves, et a*., G.R.
No. '/0&/#, 12ne "3, "4''
CARPIO, J.(
[Constitutional Law, Corporation]
'he term :capital; does not refer to both
preferred and common stoc$s treated as
the same class of shares regardless of
differences in voting rights and
privileges.
Consistent with the constitutional
mandate that the :State shall develop a
self<reliant and independent national
economy effectively controlled by
Filipinos,; the term 7capital7 means the
outstanding capital stoc$ entitled to vote
1voting stoc$5, coupled with beneficial
ownership, both of which results to
7effective control.7
7=ere legal title is insufficient to meet
the >8 percent Filipino owned :capital;
re.uired in the Constitution for certain
industries. Full beneficial ownership of
>8 percent of the outstanding capital
stoc$, coupled with >8 percent of the
voting rights, is re.uired.7 /n this case,
such twin re.uirements must apply
uniformly and across the board to all
classes of shares comprising the capital.
'hus, 7the >8<38 ownership re.uirement
in favor of Filipino citi!ens must apply
separately to each class of shares,
whether common, preferred non<voting,
preferred voting or any other class of
shares.7 'his guarantees that the
:controlling interest; in public utilities
always lies in the hands of Filipino
citi!ens.
I. THE FACTS
'his is a petition to nullify the
sale of shares of stoc$ of "hilippine
'elecommunications /nvestment
Corporation 1"'/C5 by the government
of the ?epublic of the "hilippines, acting
through the /nter<&gency "rivati!ation
Council 1/"C5, to =etro "acific &ssets
Holdings, /nc. 1="&H5, an affiliate of
First "acific Company 0imited 1First
"acific5, a Hong @ong<based investment
management and holding company and
a shareholder of the "hilippine 0ong
Distance 'elephone Company 1"0D'5.
'he petitioner .uestioned the
sale on the ground that it also involved
an indirect sale of +- million shares 1or
about >.A percent of the outstanding
common shares5 of "0D' owned by
"'/C to First "acific. ,ith the this sale,
First "acificBs common shareholdings in
"0D' increased from A8.4 percent to A4
percent, thereby increasing the total
common shareholdings of foreigners in
"0D' to about 6+.34C. 'his, according
to the petitioner, violates Section ++,
&rticle D// of the +964 "hilippine
Constitution which limits foreign
ownership of the capital of a public utility
to not more than 38C, thusE
Section ++. No 5ran-6ise,
-erti5i-ate, or an% ot6er 5or+ o5
a2t6ori7ation 5or t6e operation o5 a
p2,*i- 2ti*it% s6a** ,e .rante e8-ept
to -iti7ens o5 t6e P6i*ippines or to
-orporations or asso-iations
or.ani7e 2ner t6e *a9s o5 t6e
P6i*ippines, at *east si8t% per -ent2+
o5 96ose -apita* is o9ne ,% s2-6
-iti7ensF nor shall such franchise,
certificate, or authori!ation be e*clusive
in character or for a longer period than
fifty years. 2either shall any such
franchise or right be granted e*cept
under the condition that it shall be
sub#ect to amendment, alteration, or
repeal by the Congress when the
common good so re.uires. 'he State
shall encourage e.uity participation in
public utilities by the general public. 'he
participation of foreign investors in the
governing body of any public utility
enterprise shall be limited to their
proportionate share in its capital, and all
the e*ecutive and managing officers of
such corporation or association must be
citi!ens of the "hilippines. 1)mphasis
supplied5
II. THE ISSUE
Does the term :capital; in
Section ++, &rticle D// of the Constitution
refer to the total common shares only, or
to the total outstanding capital stoc$
1combined total of common and non<
voting preferred shares5 of "0D', a
public utilityG
III. THE RULING
[The Court partly granted the
petition and held that the term capital
in Section 11, Article X o! the
Constitution re!ers only to shares o!
stoc" entitled to #ote in the election o!
directors o! a pu$lic utility, i%e%, to the
total common shares in &L'T%]
Considering that common shares
have voting rights which translate to
control, as opposed to preferred shares
which usually have no voting rights, the
term :capital; in Section ++, &rticle D// of
the Constitution refers only to common
shares. However, if the preferred shares
also have the right to vote in the election
of directors, then the term :capital; shall
include such preferred shares because
the right to participate in the control or
management of the corporation is
e*ercised through the right to vote in the
election of directors. /n short, t6e ter+
:-apita*; in Se-tion '', Arti-*e <II o5
t6e Constit2tion re5ers on*% to s6ares
o5 sto-= t6at -an vote in t6e e*e-tion
o5 ire-tors.

'o construe broadly the term
:capital; as the total outstanding capital
stoc$, including both common and non(
#oting preferred shares, grossly
contravenes the intent and letter of the
Constitution that the :State shall develop
a self<reliant and independent national
economy e!!ecti#ely controlled by
Filipinos.; & broad definition un#ustifiably
disregards who owns the all<important
voting stoc$, which necessarily e.uates
to control of the public utility.

Holders of "0D' preferred
shares are e*plicitly denied of the right
to vote in the election of directors.
"0D'Bs &rticles of /ncorporation
e*pressly state that :t6e 6o*ers o5
Seria* Pre5erre Sto-= s6a** not ,e
entit*e to vote at an% +eetin. o5 t6e
sto-=6o*ers 5or t6e e*e-tion o5
ire-tors or 5or an% ot6er p2rpose or
otherwise participate in any action ta$en
by the corporation or its stoc$holders, or
to receive notice of any meeting of
stoc$holders.; %n the other hand,
holders of common shares are granted
the e*clusive right to vote in the election
of directors. "0D'Bs &rticles of
/ncorporation state that :each holder of
Common Capital Stoc$ shall have one
vote in respect of each share of such
stoc$ held by him on all matters voted
upon by the stoc$holders, and t6e
6o*ers o5 Co++on Capita* Sto-=
s6a** 6ave t6e e8-*2sive ri.6t to vote
5or t6e e*e-tion o5 ire-tors an 5or a**
ot6er p2rposes.;

/t must be stressed,
and respondents do not dispute, that
foreigners hold a ma#ority of the
common shares of "0D'. /n fact, based
on "0D'Bs -8+8 eneral /nformation
Sheet 1/S5, which is a document
re.uired to be submitted annually to the
Securities and )*change
Commission, foreigners hold
+-8,83>,>98 common shares of "0D'
whereas Filipinos hold only >>,4H8,>--
common shares. /n other words,
foreigners hold >3.-4C of the total
number of "0D'Bs common shares,
while Filipinos hold only AH.4AC. Since
holding a ma#ority of the common shares
e.uates to control, it is clear that
foreigners e*ercise control over "0D'.
Such amount of control unmista$ably
e*ceeds the allowable 38 percent limit
on foreign ownership of public utilities
e*pressly mandated in Section ++,
&rticle D// of the Constitution.
&s shown in "0D'Bs -8+8
/S, as submitted to the S)C, the par
value of "0D' common shares is "H.88
per share, whereas the par value of
preferred shares is "+8.88 per share. /n
other words, preferred shares have
twice the par value of common shares
but cannot elect directors and have only
+I48 of the dividends of common shares.
=oreover, 99.33C of the preferred
shares are owned by Filipinos while
foreigners own only a minuscule 8.H>C
of the preferred shares. ,orse,
preferred shares constitute 44.6HC of
the authori!ed capital stoc$ of "0D'
while common shares constitute only
--.+HC. 'his undeniably shows that
beneficial interest in "0D' is not with
the non<voting preferred shares but with
the common shares, blatantly violating
the constitutional re.uirement of >8
percent Filipino control and Filipino
beneficial ownership in a public utility.

/n short, Filipinos hold less than
>8 percent of the voting stoc$, and earn
less than >8 percent of the dividends, of
"0D'. 'his directly contravenes the
e*press command in Section ++, &rticle
D// of the Constitution that :JnKo
franchise, certificate, or any other form
of authori!ation for the operation of a
public utility shall be granted e*cept to *
* * corporations * * * organi!ed under
the laws of the "hilippines, at least si*ty
per centum of whose capital is owned by
such citi!ens * * *.;
'o repeat, 1+5 foreigners own
>3.-4C of the common shares of "0D',
which class of shares e*ercises
the sole right to vote in the election of
directors, and thus e*ercise control over
"0D'F 1-5 Filipinos own only AH.4AC of
"0D'Bs common shares, constituting a
minority of the voting stoc$, and thus do
not e*ercise control over "0D'F 1A5
preferred shares, 99.33C owned by
Filipinos, have no voting rightsF 135
preferred shares earn only +I48 of the
dividends that common shares earnF 1H5
preferred shares have twice the par
value of common sharesF and 1>5
preferred shares constitute 44.6HC of
the authori!ed capital stoc$ of "0D' and
common shares only --.+HC. 'his $ind
of ownership and control of a public
utility is a moc$ery of the Constitution.
J'hus, the ?espondent
Chairperson of the Securities and
)*change Commission
was DIRECTED by the Court to apply
the foregoing definition of the term
:capital; in determining the e*tent of
allowable foreign ownership in
respondent "hilippine 0ong Distance
'elephone Company, and if there is a
violation of Section ++, &rticle D// of the
Constitution, to impose the appropriate
sanctions under the law.K
NARRA NIC>EL MINING AND
DE?ELOPMENT CORP et. A* v.
Re+ont Conso*iate Mines Corp.
FACTS(
respondent ?edmont Consolidated
=ines Corp. 1?edmont5, a domestic
corporation organi!ed and e*isting
under "hilippine laws, too$ interest in
mining and e*ploring certain areas of
the province of "alawan.
&fter in.uiring with the Department of
)nvironment and 2atural ?esources
1D)2?5, it learned that the areas where
it wanted to underta$e e*ploration and
mining activities where already covered
by =ineral "roduction Sharing
&greement 1="S&5 applications of
petitioners 2arra, 'esoro and =c&rthur.
"etitioner =c&rthur, through its
predecessor<in<interest Sara =arie
=ining, /nc. 1S==/5, filed an application
for an ="S& and )*ploration "ermit
1)"5 with the =ines and eo<Sciences
(ureau 1=(5, ?egion /L<(, %ffice of
the Department of )nvironment and
2atural ?esources 1D)2?5.
Subse.uently, S==/ was issued ="S&<
&=&</L(<+HA covering an area of over
+,46- hectares in (arangay Sumbiling,
=unicipality of (atara!a, "rovince of
"alawan and )"&</L(<33 which
includes an area of A,4-8 hectares in
(arangay =alatagao, (atara!a,
"alawan. 'he ="S& and )" were then
transferred to =adride#os =ining
Corporation 1==C5 and, on 2ovember
>, -88>, assigned to petitioner
=c&rthur.-
"etitioner 2arra ac.uired its ="S& from
&lpha ?esources and Development
Corporation and "atricia 0ouise =ining
M Development Corporation 1"0=DC5
which previously filed an application for
an ="S& with the =(, ?egion /L<(,
D)2? on January >, +99-. 'hrough the
said application, the D)2? issued
="S&</L<+<+- covering an area of
A.-44 hectares in barangays Calategas
and San /sidro, =unicipality of 2arra,
"alawan. Subse.uently, "0=DC
conveyed, transferred andIor assigned
its rights and interests over the ="S&
application in favor of 2arra.
&nother ="S& application of S==/ was
filed with the D)2? ?egion /L<(,
labeled as ="S&<&=&</L(<+H3
1formerly )"&</L(<345 over A,38-
hectares in (arangays =alinao and
"rincesa Urdu#a, =unicipality of 2arra,
"rovince of "alawan. S==/
subse.uently conveyed, transferred and
assigned its rights and interest over the
said ="S& application to 'esoro.
%n January -, -884, ?edmont filed
before the "anel of &rbitrators 1"%&5 of
the D)2? three 1A5 separate petitions
for the denial of petitionersB applications
for ="S& designated as &=&</L(<+HA,
&=&</L(<+H3 and ="S& /L<+<+-.
/n the petitions, ?edmont alleged that at
least >8C of the capital stoc$ of
=c&rthur, 'esoro and 2arra are owned
and controlled by =(=/ ?esources, /nc.
1=(=/5, a +88C Canadian corporation.
?edmont reasoned that since =(=/ is a
considerable stoc$holder of petitioners,
it was the driving force behind
petitionersB filing of the ="S&s over the
areas covered by applications since it
$nows that it can only participate in
mining activities through corporations
which are deemed Filipino citi!ens.
?edmont argued that given that
petitionersB capital stoc$s were mostly
owned by =(=/, they were li$ewise
dis.ualified from engaging in mining
activities through ="S&s, which are
reserved only for Filipino citi!ens.
Gran5at6er test
ISSUE( in this case is centered on the
issue of petitionersB nationality, whether
Filipino or foreign. /n their previous
petitions, they had been adamant in
insisting that they were Filipino
corporations, until they submitted their
=anifestation and Submission dated
%ctober +9, -8+- where they stated the
alleged change of corporate ownership
to reflect their Filipino ownership. 'hus,
there is a need to determine the
nationality of petitioner corporations.
(asically, there are two ac$nowledged
tests in determining the nationality of a
corporationE the control test and the
grandfather rule. "aragraph 4 of D%J
%pinion 2o. 8-8, Series of -88H,
adopting the +9>4 S)C ?ules which
implemented the re.uirement of the
Constitution and other laws pertaining to
the controlling interests in enterprises
engaged in the e*ploitation of natural
resources owned by Filipino citi!ens,
providesE
Shares belonging to corporations or
partnerships at least >8C of the capital
of which is owned by Filipino citi!ens
shall be considered as of "hilippine
nationality, but if the percentage of
Filipino ownership in the corporation or
partnership is less than >8C, only the
number of shares corresponding to such
percentage shall be counted as of
"hilippine nationality. 'hus, if +88,888
shares are registered in the name of a
corporation or partnership at least >8C
of the capital stoc$ or capital,
respectively, of which belong to Filipino
citi!ens, all of the shares shall be
recorded as owned by Filipinos. (ut if
less than >8C, or say, H8C of the
capital stoc$ or capital of the corporation
or partnership, respectively, belongs to
Filipino citi!ens, only H8,888 shares
shall be counted as owned by Filipinos
and the other H8,888 shall be recorded
as belonging to aliens.
'he first part of paragraph 4, D%J
%pinion 2o. 8-8, stating 7shares
belonging to corporations or
partnerships at least >8C of the capital
of which is owned by Filipino citi!ens
shall be considered as of "hilippine
nationality,7 pertains to the control test
or the liberal rule. %n the other hand, the
second part of the D%J %pinion which
provides, 7if the percentage of the
Filipino ownership in the corporation or
partnership is less than >8C, only the
number of shares corresponding to such
percentage shall be counted as
"hilippine nationality,7 pertains to the
stricter, more stringent grandfather rule.
/n other words, based on the said S)C
?ule and D%J %pinion, the randfather
?ule or the second part of the S)C ?ule
applies only when the >8<38 Filipino<
foreign e.uity ownership is in doubt 1i.e.,
in cases where the #oint venture
corporation with Filipino and foreign
stoc$holders with less than >8C Filipino
stoc$holdings Jor H9CK invests in other
#oint venture corporation which is either
>8<38C Filipino<alien or the H9C less
Filipino5. Stated differently, where the
>8<38 Filipino< foreign e.uity ownership
is not in doubt, the randfather ?ule will
not apply. 1emphasis supplied5
&fter a scrutiny of the evidence e*tant
on record, the Court finds that this case
calls for the application of the
grandfather rule since, as ruled by the
"%& and affirmed by the %", doubt
prevails and persists in the corporate
ownership of petitioners. &lso, as found
by the C&, doubt is present in the >8<38
Filipino e.uity ownership of petitioners
2arra, =c&rthur and 'esoro, since their
common investor, the +88C Canadian
corporationNN=(=/, funded them.
However, petitioners also claim that
there is 7doubt7 only when the
stoc$holdings of Filipinos are less than
>8C.3A
'he assertion of petitioners that 7doubt7
only e*ists when the stoc$holdings are
less than >8C fails to convince this
Court. D%J %pinion 2o. -8, which
petitioners .uoted in their petition, only
made an e*ample of an instance where
7doubt7 as to the ownership of the
corporation e*ists. /t would be ludicrous
to limit the application of the said word
only to the instances where the
stoc$holdings of non<Filipino
stoc$holders are more than 38C of the
total stoc$holdings in a corporation. 'he
corporations interested in circumventing
our laws would clearly strive to have
7>8C Filipino %wnership7 at face value.
/t would be senseless for these applying
corporations to state in their respective
articles of incorporation that they have
less than >8C Filipino stoc$holders
since the applications will be denied
instantly. 'hus, various corporate
schemes and layerings are utili!ed to
circumvent the application of the
Constitution.
%bviously, the instant case presents a
situation which e*hibits a scheme
employed by stoc$holders to circumvent
the law, creating a cloud of doubt in the
CourtBs mind. 'o determine, therefore,
the actual participation, direct or indirect,
of =(=/, the grandfather rule must be
used.
A@S!C@N @ROADCASTING CORP v.
CA
FACTS(
/n +99-, &(S<C(2 (roadcasting
Corporation, through its vice president
Charo Santos<Concio, re.uested Liva
"roduction, /nc. to allow &(S<C(2 to air
at least +3 films produced by Liva.
"ursuant to this re.uest, a meeting was
held between LivaBs representative
1Licente Del ?osario5 and &(S<C(2Bs
)ugenio 0ope! 1eneral =anager5 and
Santos<Concio was held on &pril -,
+99-. During the meeting Del ?osario
proposed a film pac$age which will allow
&(S<C(2 to air +83 Liva films for ">8
million. 0ater, Santos<Concio, in a letter
to Del ?osario, proposed a
counterproposal of HA films 1including
the +3 films initially re.uested5 for "AH
million.
Del ?osario presented the counter offer
to LivaBs (oard of Directors but the
(oard re#ected the counter offer. Several
negotiations were subse.uently made
but on &pril -9, +99-, Liva made an
agreement with ?epublic (roadcasting
Corporation 1referred to as ?(S N or
=& 45 which gave e*clusive rights to
?(S to air +83 Liva films including the
+3 films initially re.uested by &(S<C(2.
&(S<C(2 now filed a complaint for
specific performance against Liva as it
alleged that there is already a perfected
contract between Liva and &(S<C(2 in
the &pril -, +99- meeting. 0ope!
testified that Del ?osario agreed to the
counterproposal and he 10ope!5 even
put the agreement in a nap$in which
was signed and given to Del ?osario.
&(S<C(2 also filed an in#unction
against ?(S to en#oin the latter from
airing the films. 'he in#unction was
granted. ?(S now filed a countersuit
with a prayer for moral damages as it
claimed that its reputation was debased
when they failed to air the shows that
they promised to their viewers. ?(S
relied on the ruling in "eople vs =anero
and =ambulao 0umber vs "2( which
states that a corporation may recover
moral damages if it :has a good
reputation that is debased, resulting in
social humiliation;. 'he trial court ruled
in favor of Liva and ?(S. 'he Court of
&ppeals affirmed the trial court.
ISSUE(
+. ,hether or not a contract was
perfected in the &pril -, +99- meeting
between the representatives of the two
corporations.
-. ,hether or not a corporation, li$e
?(S, is entitled to an award of moral
damages upon grounds of debased
reputation.
HELD(
+. 2o. 'here is no proof that a contract
was perfected in the said meeting.
0ope!B testimony about the contract
being written in a nap$in is not
corroborated because the nap$in was
never produced in court. Further, there
is no meeting of the minds because Del
?osarioBs offer was of +83 films for ">8
million was not accepted. &nd that the
alleged counter<offer made by 0ope! on
the same day was not also accepted
because thereBs no proof of such. 'he
counter offer can only be deemed to
have been made days after the &pril -
meeting when Santos<Concio sent a
letter to Del ?osario containing the
counter<offer. ?egardless, there was no
showing that Del ?osario accepted. (ut
even if he did accept, such acceptance
will not bloom into a perfected contract
because Del ?osario has no authority to
do so.
&s a rule, corporate powers, such as the
powerF to enter into contractsF are
e*ercised by the (oard of Directors. (ut
this power may be delegated to a
corporate committee, a corporate officer
or corporate manager. Such a
delegation must be clear and specific. /n
the case at bar, there was no such
delegation to Del ?osario. 'he fact that
he has to present the counteroffer to the
(oard of Directors of Liva is proof that
the contract must be accepted first by
the LivaBs (oard. Hence, even if Del
?osario accepted the counter<offer, it
did not result to a contract because it will
not bind Liva sans authori!ation.
-. 2o. 'he award of moral damages
cannot be granted in favor of a
corporation because, being an artificial
person and having e*istence only in
legal contemplation, it has no feelings,
no emotions, no senses, /t cannot,
therefore, e*perience physical suffering
and mental anguish, which call be
e*perienced only by one having a
nervous system. 2o moral damages can
be awarded to a #uridical person. 'he
statement in the case of "eople vs
=anero and =ambulao 0umber vs "2(
is a mere obiter dictum hence it is not
binding as a #urisprudence.
CIR vs. THE CLU@ FILIPINO, INC. DE
CE@U
GR No. L!'"/'# A Ma% B', '#0" A
Parees, 1.

FACTS(
'he Club Filipino, is a civic
corporation organi!ed under the laws of
the "hilippines with an original
authori!ed capital stoc$ of "--,888,
which was subse.uently increased to
"-88,888to operate and maintain a golf
course, tennis, gymnasiums, bowling
alleys, billiard tables and pools, and all
sorts of games not prohibited by general
laws and general ordinances, and
develop and nurture sports of any $ind
and any denomination for recreation and
healthy training of its members and
shareholders.
'here is no provision either in the
articles or in the by<laws relative to
dividends and their distribution, although
it is covenanted that upon its dissolution,
the ClubOs remaining assets, after
paying debts, shall be donated to a
charitable "hil. /nstitution in Cebu1&rt.
-4, )statutos del 1Statutes of the5
Club5.'he Club owns and operates a
club house, a bowling alley, a golf
course 1on a lot leased from the
government5, and a bar<restaurant
where it sells wines and li.uors, soft
drin$s, meals and short orders to its
members and their guests. 'he bar<
restaurant was a necessary incident to
the operation of the club and its golf<
course. 'he club is operated mainly with
funds derived from membership fees
and dues.
,hatever profits it had, were used to
defray its overhead e*penses and to
improve its golf<course. /n +9H+, as a
result of a capital surplus, arising rom
the re<valuation of its real properties, the
value or price of which increased, the
Club declared stoc$ dividendsF but no
actual cash dividends were distributed to
the stoc$holders ./n +9H-, a (/? agent
discovered that the Club has never paid
percentage ta* on the gross receipts of
its bar and restaurant, although it
secured licenses. /n a letter, the
Collector assessed against and
demanded from the Club "+-,8>6.63 as
fi*ed and percentage ta*es, surcharge
and compromise penalty. &lso, the
Collector denied the ClubBs re.uest to
cancel the assessment %n appeal, the
C'& reversed the Collector and ruled
that the Club is not liable for the
assessed ta* liabilities of "+-,8>6.63
allegedly due from it as a $eeper of bar
and restaurant as it is anon<stoc$
corporation. Hence, the Collector filed
the instant petition for review.
ISSUE( ,%2 the Club is a stoc$
corporationG
HELD( NO. /t is a non<stoc$ corporation.
'he facts that the capital stoc$ of the
Club is divided into shares, does not
detract from the finding of the trial court
that it is not engaged in the business of
operator of bar and restaurant. ,hat is
determinative of whether or not the Club
is engaged in such business is its ob#ect
or purpose, as stated in its articles and
by<laws. 'he actual purpose is not
controlled by the corporate formor by the
commercial aspect of the business
prosecuted, but maybe shown by
e*trinsic evidence, including the by<laws
and the method of operation. From the
e*trinsic evidence adduced, the C'&
concluded that the Club is not engaged
in the business as a bar$eeper and
restaurateur. For a stoc$ corporation to
e*ist, two re.uisites must be complied
withE
+. a capital stoc$ divided into
shares
-. and. an authority to distribute to
the holders of such shares,
dividends or allotments of the
surplus profits on the basis of the
shares held 1sec. A, &ct 2o.
+3H95.2owhere in its articles of
incorporation or by<laws could be
found an authority for the
distribution of its dividends or
surplus profits. Strictly spea$ing,
it cannot, therefore, be
considered a stoc$ corporation,
within the contemplation of the
corporation law.
REPU@LIC OF THE PHILIPPINES v.
CITC OF PARANADUE
G.R. No. '#''4# A 12*% '3, "4'"
MENDOEA,
1
FACTS(
.'his is a petition for review on certiorari
assailing the %rder of the ?egional 'rial
Court, (ranch +9H, "arana.ue City
1?'C5, which ruled that petitioner
"hilippine ?eclamation &uthority 1"?&5
is a government<owned and controlled
corporation 1%CC5, a ta*able entity,
and, therefore, not e*empt from
payment of real property ta*es.
'he "ublic )states &uthority 1")&5 is a
government corporation created by
virtue of ".D. 2o. +863 to provide a
coordinated, economical and efficient
reclamation of lands, and the
administration and operation of lands
belonging to, managed andIor operated
by, the government with the ob#ect of
ma*imi!ing their utili!ation and
hastening their development consistent
with public interest.
(y virtue of its mandate, "?& reclaimed
several portions of the foreshore and
offshore areas of =anila (ay, including
those located in "araPa.ue City.
"araPa.ue City 'reasurer issued
,arrants of 0evy on "?&Bs reclaimed
properties based on the assessment for
delin.uent real property for ta* years
-88+ and -88-. "?& asserted thatE
/t is not a %CC under the
&dministrative Code, nor is it a %CC
under Section +>, &rticle D// of the +964
Constitution because it is not re.uired to
meet the test of economic viability.
/t is a government instrumentality vested
with corporate powers and performing
an essential public service. &lthough it
has a capital stoc$ divided into shares, it
may not be classified as a stoc$
corporation because it lac$s the second
re.uisite of a stoc$ corporationE to
distribute dividends and allotment of
surplus and profits to its stoc$holders.
/t may not be classified as a non<stoc$
corporation because it has no members
and it is not organi!ed for charitable,
religious, educational, professional,
cultural, recreational, fraternal, literary,
scientific, social, civil service, or similar
purposes, li$e trade, industry, agriculture
and li$e chambers as provided in
Section 66 of the Corporation Code.
/t was not created to compete in the
mar$et place as there was no competing
reclamation company operated by the
private sector. &lso, while "?& is vested
with corporate powers under ".D. 2o.
+863, such circumstance does not ma$e
it a corporation but merely an
incorporated instrumentality and that the
mere fact that an incorporated
instrumentality of the 2ational
overnment holds title to real property
does not ma$e said instrumentality a
%CC. City of "araPa.ue 1respondent5
argued thatE
"?& since its creation consistently
represented itself to be a %CC. "?&Bs
very own charter 1".D. 2o. +8635
declared it to be a %CC and that it has
entered into several thousands of
contracts where it represented itself to
be a %CC. /n fact, "?& admitted in its
original and amended petitions and pre<
trial brief filed with the ?'C of
"araPa.ue City that it was a %CC.
/t argues that "?& is a stoc$ corporation
with an authori!ed capital stoc$ divided
into A million no par value shares, out of
which - million shares have been
subscribed and fully paid up. Section
+9A of the 0C of +99+ has withdrawn
ta* e*emption privileges granted to or
presently en#oyed by all persons,
whether natural or #uridical, including
%CCs.
ISSUE(
,hether or not petitioner is an
incorporated instrumentality of the
national government and is, therefore,
e*empt from payment of real property
ta* under sections -A31a5 and +AA1o5 of
?epublic &ct 4+>8 or the 0ocal
overnment Code vis<Q<vis =anila
/nternational &irport &uthority v. Court of
&ppeals.
HELD(
Res it is a overnment /nstrumentality.
However, it is not a %CC. ,hen the
law vests in a government
instrumentality corporate powers, the
instrumentality does not necessarily
become a corporation. Unless the
government instrumentality is organi!ed
as a stoc$ or non<stoc$ corporation, it
remains a government instrumentality
e*ercising not only governmental but
also corporate powers.
/ntroductory "rovisions of the
&dministrative Code of +964 defines a
%CC as any agency organi!ed as a
stoc$ or non<stoc$ corporation, vested
with functions relating to public needs
whether governmental or proprietary in
nature, and owned by the overnment
directly or through its instrumentalities
either wholly, or, where applicable as in
the case of stoc$ corporations, to the
e*tent of at least fifty<one 1H+5 percent of
its capital stoc$E * * *.
From the above definitions, it is clear
that a %CC must be 7organi!ed as a
stoc$ or non<stoc$ corporation7 while an
instrumentality is vested by law with
corporate powers. 0i$ewise, when the
law ma$es a government instrumentality
operationally autonomous, the
instrumentality remains part of the
2ational overnment machinery
although not integrated with the
department framewor$. =any
government instrumentalities are vested
with corporate powers but they do not
become stoc$ or non<stoc$ corporations,
which is a necessary condition before an
agency or instrumentality is deemed a
%CC.
'he fundamental provision above
authori!es Congress to create %CCs
through special charters on two
conditionsE +5 the %CC must be
established for the common goodF and
-5 the %CC must meet the test of
economic viability. /n this case, "?&
may have passed the first condition of
common good but failed the second one
< economic viability. Undoubtedly, the
purpose behind the creation of "?& was
not for economic or commercial
activities.
2either was it created to compete in the
mar$et place considering that there
were no other competing reclamation
companies being operated by the
private sector. Further, when local
governments invo$e the power to ta* on
national government instrumentalities,
such power is construed strictly against
local governments. 'he rule is that a ta*
is never presumed and there must be
clear language in the law imposing the
ta*. &ny doubt whether a person, article
or activity is ta*able is resolved against
ta*ation. 'his rule applies with greater
force when local governments see$ to
ta* national government
instrumentalities. &nother rule is that a
ta* e*emption is strictly construed
against the ta*payer claiming the
e*emption. However, when Congress
grants an e*emption to a national
government instrumentality from local
ta*ation, such e*emption is construed
liberally in favor of the national
government instrumentality.
Dante 0iban, et al. v. ?ichard ordon,
.?. 2o. +4HAH-, January +6, -8++
R E S O L U T I O N
LEONARDO!DE CASTRO, J.(
I. THE FACTS
"etitioners 0iban, et al., who were
officers of the (oard of Directors of the
Sue!on City ?ed Cross Chapter, filed
with the Supreme Court what they styled
as &etition to 'eclare )ichard *%
+ordon as ,a#ing -or!eited ,is Seat in
the Senate against respondent ordon,
who was elected Chairman of the
"hilippine 2ational ?ed Cross 1"2?C5
(oard of overnors during his
incumbency as Senator.
"etitioners alleged that by accepting the
chairmanship of the "2?C (oard of
overnors, respondent ordon ceased
to be a member of the Senate pursuant
to Sec. +A, &rticle L/ of the Constitution,
which provides that [n]o Senator % % %
may hold any other o!!ice or
employment in the +o#ernment, or any
su$di#ision, agency, or instrumentality
thereo!, including go#ernment(owned or
controlled corporations or their
su$sidiaries, during his term without
!or!eiting his seat% "etitioners cited the
case of Camporedondo vs. NLRC,
G.R. No. 129049, decided August 6,
1999,

which held that the "2?C is a
%CC, in supporting their argument that
respondent ordon automatically
forfeited his seat in the Senate when he
accepted and held the position of
Chairman of the "2?C (oard of
overnors.
Formerly, in its Decision dated July +H,
-889, the Court, voting 4<H,F'G held that
the office of the "2?C Chairman is 2%'
a government office or an office in a
%CC for purposes of the prohibition in
Sec. +A, &rticle L/ of the +964
Constitution. 'he "2?C Chairman is
elected by the "2?C (oard of
overnorsF he is not appointed by the
"resident or by any subordinate
government official. =oreover, the
"2?C is 2%' a %CC because it is a
privately<owned, privately<funded, and
privately<run charitable organi!ation and
because it is controlled by a (oard of
overnors four<fifths of which are
private sector individuals. 'herefore,
respondent ordon did not forfeit his
legislative seat when he was elected as
"2?C Chairman during his incumbency
as Senator.
'he Court however held further that the
"2?C Charter, ?.&. 9H, as amended
by "D +->3 and +>3A, is void insofar as
it creates the "2?C as a private
corporation since Section 4, &rticle D/L
of the +9AH Constitution
states that [t]he Congress shall not,
e.cept $y general law, pro#ide !or the
!ormation, organi/ation, or regulation o!
pri#ate corporations, unless such
corporations are owned or controlled $y
the +o#ernment or any su$di#ision or
instrumentality thereo!% 'he Court thus
directed the "2?C to incorporate under
the Corporation Code and register with
the Securities and )*change
Commission if it wants to be a private
corporation. 'he !allo of the Decision
readE
,H)?)F%?), we declare that the
office of the Chairman of the "hilippine
2ational ?ed Cross is not a government
office or an office in a government<
owned or controlled corporation for
purposes of the prohibition in Section
+A, &rticle L/ of the +964 Constitution.
,e also declare that Sections +, -, A,
31a5, H, >, 4, 6, 9, +8, ++, +-, and +A of
the Charter of the "hilippine 2ational
?ed Cross, or ?epublic &ct 2o. 9H, as
amended by "residential Decree 2os.
+->3 and +>3A, are L%/D because they
create the "2?C as a private
corporation or grant it corporate powers.
?espondent ordon filed a otion !or
C"ari!ication and#or !or
Reconsideration of the Decision. 'he
"2?C li$ewise moved to intervene and
filed its own otion !or $artia"
Reconsideration. 'hey basically
.uestioned the second part of the
Decision with regard to the
pronouncement on the nat2re o5 t6e
PNRC and the -onstit2tiona*it% o5
so+e provisions o5 t6e PNRC
C6arter.
II. THE ISSUE
,as it correct for the Court to have
passed upon and decided on the issue
of the constitutionality of the "2?C
charterG CorollarilyE ,hat is the nature
of the "2?CG
III. THE RULING
[The Court +)A0T1'
reconsideration and 23'-1' the
dispositi#e portion o! the 'ecision $y
deleting the second sentence thereo!%]
N%, it &as not correct !or t'e Court to
'ave decided on t'e constitutiona"
issue (ecause it &as not t'e ver) "is
mota o! t'e case. *'e $NRC is sui
generis in nature+ it is neit'er strict")
a G%CC nor a private corporation.

'he issue of constitutionality of ?.&. 2o.
9H was not raised by the parties, and
was not among the issues defined in the
body of the DecisionF thus, it was not the
very lis mota of the case. ,e have
reiterated the rule as to when the Court
will consider the issue of constitutionality
in Al#are/ #% &C3& )esources,
nc%, thusE
'his Court will not touch the issue of
unconstitutionality unless it is the
very lis mota. /t is a well<established rule
that a court should not pass upon a
constitutional .uestion and decide a law
to be unconstitutional or invalid, unless
such .uestion is raised by the
parties and that when it is raised, if the
record also presents some other ground
upon which the court may JrestK its
#udgment, that course will be adopted
and the constitutional .uestion will be
left for consideration until such .uestion
will be unavoidable.
J'Khis Court s6o2* not have declared
void certain sections of . . . the "2?C
Charter. /nstead, the Court should have
e*ercised #udicial restraint on this
matter, especially since there was some
other ground upon which the Court
could have based its
#udgment. Furthermore, the "2?C, the
entity most adversely affected by this
declaration of unconstitutionality, which
was not even originally a party to this
case, was being compelled, as a
conse.uence of the Decision, to
suddenly reorgani!e and incorporate
under the Corporation Code, a5ter +ore
t6an si8t% H04I %ears o5 e8isten-e in
t6is -o2ntr%.
Since its enactment, the "2?C Charter
was amended several times, particularly
on June ++, +9HA, &ugust +>, +94+,
December +H, +944, and %ctober +,
+949, by virtue of ?.&. 2o. 6HH, ?.&. 2o.
>A4A, ".D. 2o. +->3, and ".D. 2o.
+>3A, respectively. 'he passage of
several laws relating to the "2?CBs
corporate e*istence notwithstanding the
effectivity of the constitutional
proscription on the creation of private
corporations by law is a recognition that
the "2?C is not strictly in the nature of
a private corporation contemplated by
the aforesaid constitutional ban.
& closer loo$ at the nature of the "2?C
would show that there is none li$e itJ,K
not #ust in terms of structure, but also in
terms of history, public service and
official status accorded to it by the State
and the international community. 'here
is merit in "2?CBs contention that its
structure is sui generis. /t is in
recognition of this sui generis character
of the "2?C that ?.&. 2o. 9H has
remained valid and effective from the
time of its enactment in =arch --, +934
under the +9AH Constitution and during
the effectivity of the +94A Constitution
and the +964 Constitution. 'he "2?C
Charter and its amendatory laws have
not been .uestioned or challenged on
constitutional grounds, not even in this
case before the Court now. J'Khis Court
JmustK recogni!e the countryBs
adherence to the eneva Convention
and respect the uni.ue status of the
"2?C in consonance with its treaty
obligations. 'he eneva Convention
has the force and effect of law. Under
the Constitution, the "hilippines adopts
the generally accepted principles of
international law as part of the law of the
land. 'his constitutional provision must
be reconciled and harmoni!ed
with &rticle D//, Section +> of the
Constitution, instead of using the latter
to negate the former. (y re.uiring the
"2?C to organi!e under the
Corporation Code #ust li$e any other
private corporation, the Decision of July
+H, -889 lost sight of the "2?CBs
special status under international
humanitarian law and as an au*iliary of
the State, designated to assist it in
discharging its obligations under the
eneva Conventions.

'he "2?C, as a 2ational Society of the
/nternational ?ed Cross and ?ed
Crescent =ovement, can neither :be
classified as an instrumentality of the
State, so as not to lose its character of
neutrality; as well as its independence,
nor strictly as a private corporation since
it is regulated by international
humanitarian law and is treated as
an a28i*iar% of the State.
&lthough Jthe "2?CK is neither a
subdivision, agency, or instrumentality of
the government, nor a %CC or a
subsidiary thereof . . . so much so that
respondent, under the Decision, was
correctly allowed to hold his position as
Chairman thereof concurrently while he
served as a Senator, such a conclusion
does not ipso !acto imply that the "2?C
is a :private corporation; within the
contemplation of the provision of the
Constitution, that must be organi!ed
under the Corporation Code. J'Khe sui
generis character of "2?C re.uires us
to approach controversies involving the
"2?C on a case<to<case basis.
/n sum, the "2?C en#oys a special
status as an important ally and au*iliary
of the government in the humanitarian
field in accordance with its commitments
under international law. 'his Court
cannot all of a sudden refuse to
recogni!e its e*istence, especially since
the issue of the constitutionality of the
"2?C Charter was never raised by the
parties. /t bears emphasi!ing that the
"2?C has responded to almost all
national disasters since +934, and is
widely $nown to provide a substantial
portion of the countryBs blood
re.uirements. /ts humanitarian wor$ is
unparalleled. 'he Court should not
sha$e its e*istence to the core in an
untimely and drastic manner that would
not only have negative conse.uences to
those who depend on it in times of
disaster and armed hostilities but also
have adverse effects on the image of
the "hilippines in the international
community. 'he sections of the "2?C
Charter that were declared void must
therefore stay.
[Thus, )%A% 0o% 45 remains #alid and
constitutional in its entirety% The Court
23'-1' the dispositi#e portion o! the
'ecision $y deleting the second
sentence, to now read as !ollows6
,-.R./%R., we declare that the
o!!ice o! the Chairman o! the &hilippine
0ational )ed Cross is not a go#ernment
o!!ice or an o!!ice in a go#ernment(
owned or controlled corporation !or
purposes o! the prohi$ition in Section
17, Article 8 o! the 149: Constitution%]