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G.R. No.

L-22619

December 2, 1924

NATIONAL COAL COMPANY, plaintiff-appellee,


vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.
Perfecto J. Salas Rodriguez for appellee.

JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the purpose of
recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the defendant, as
specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the Philippine Legislature
for the purpose of developing the coal industry in the Philippine Islands and is actually engaged in coal mining on reserved
lands belonging to the Government. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No.
2719, and prayed for a judgment ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal
interest from the date of the presentation of the complaint, and costs against the defendant.
The defendant answered denying generally and specifically all the material allegations of the complaint, except the legal
existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68 was
paid by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to the Government of the
Philippine Islands under the provisions of section 1496 of the Administrative Code and prayed that the complaint be
dismissed, with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by both
parties, the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in section 15 of Act
No. 2719 should be understood to mean "lands held in lease or usufruct," in harmony with the other provision of said Act;
that the coal lands possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act
No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in said section,
was the only tax which should be collected from the plaintiff; and sentenced the defendant to refund to the plaintiff the
sum of P11,081.11 which is the difference between the amount collected under section 1496 of the Administrative Code
and the amount which should have been collected under the provisions of said section 15 of Act No. 2719. From that
sentence the defendant appealed, and now makes the following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and
corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the
Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 2719,
or to the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing the
coal industry in the Philippine Island, in harmony with the general plan of the Government to encourage the development
of the natural resources of the country, and to provided facilities therefor. By said Act, the company was granted the
general powers of a corporation "and such other powers as may be necessary to enable it to prosecute the business of
developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling the coal contained in
said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the
majority stockholder, evidently in order to insure proper government supervision and control, and thus to place the
Government in a position to render all possible encouragement, assistance and help in the prosecution and furtherance of
the company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine
Legislature passed Act No. 2719 "to provide for the leasing and development of coal lands in the Philippine Islands." On
October 18, 1917, upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew
"from settlement, entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost immediately after the issuance of
said proclamation the National Coal Company took possession of the coal lands within the said reservation, with an area of
about 400 hectares, without any further formality, contract or lease. Of the 30,000 shares of stock issued by the company,
the Government of the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital
stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has mined
the coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the provisions of the
section 1496 of the Administrative Code. That contention of the plaintiff leads us to an examination of the evidence upon
the question of the ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the
land from which the coal in question was mined? If the evidence shows the affirmative, then the judgment should be
affirmed. If the evidence shows that the land does not belong to the plaintiff, then the judgment should be reversed, unless
the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Dalmacio
Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the plaintiff corporation
took possession of the land in question by virtue of the proclamation of the Governor-General, known as Proclamation No.

39 of the year 1917; that no document had been issued in favor of the plaintiff corporation; that said corporation had
received no permission from the Secretary of Agriculture and Natural Resources; that it took possession of said lands
covering an area of about 400 hectares, from which the coal in question was mined, solely, by virtue of said proclamation
(Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October,
1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale,
or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and
the Island of Polillo, Province of Tayabas." It will be noted that said proclamation only provided that all coal-bearing public
lands within said province and island should be withdrawn from settlement, entry, sale, or other disposition. There is
nothing in said proclamation which authorizes the plaintiff or any other person to enter upon said reversations and to mine
coal, and no provision of law has been called to our attention, by virtue of which the plaintiff was entitled to enter upon any
of the lands so reserved by said proclamation without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not
make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the
Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to
be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or
privileges than any other corporation which might be organized for the same purpose under the Corporation Law, and
certainly it was not the intention of the Legislature to give it a preference or right or privilege over other legitimate private
corporations in the mining of coal. While it is true that said proclamation No. 39 withdrew "from settlement, entry, sale, or
other disposition of coal-bearing public lands within the Province of Zamboanga . . . and the Island of Polillo," it made no
provision for the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who might,
under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in "an
Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section 1
of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any
manner except as provided in this Act," thereby giving a clear indication that no "coal-bearing lands of the public domain"
had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in
Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having
obtained permission from the Secretary of Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no greater powers
nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and
they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of article
1946 of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by authority of
section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands within
the Province of Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal Company,
but for any person or corporation of the Philippine Islands or of the United States.
(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows, without any
lease or other authority from either the Secretary of Agriculture and Natural Resources or any person having the power to
grant a leave or authority.
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The plaintiff
contends that it was liable only to pay the internal revenue and other fees and taxes provided for under section 15 of Act
No. 2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the internal revenue duty
provided for in section 1496 of the Administrative Code. That being the issue, an examination of the provisions of Act No.
2719 becomes necessary.
An examination of said Act (No. 2719) discloses the following facts important for consideration here:
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner except as
provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the obligation to the Government which shall be imposed by said Secretary
upon the lessee.lawphi1.net
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm,
association or corporation.
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved,
unappropriated coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural Resources; and,
second, that said Act (No. 2719) provides an internal revenue duty and tax imposed upon any person, firm, association or
corporation, who may be the owner of "coal-bearing lands." A reading of said Act clearly shows that the tax imposed
thereby is imposed upon two classes of persons only lessees and owners.

The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by reason of
what he believed to be some difference in the interpretation of the language used in Spanish and English. While there is
some ground for confusion in the use of the language in Spanish and English, we are persuaded, considering all the
provisions of said Act, that said section 15 has reference only to persons, firms, associations or corporations which had
already, prior to the existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to "holders or
lessees of coal lands' for the reason that practically all of the other provisions of said Act has reference to lessees or
holders. If section 15 means that the persons, firms, associations, or corporation mentioned therein are holders or lessees
of coal lands only, it is difficult to understand why the internal revenue duty and tax in said section was made different from
the obligations mentioned in section 3 of said Act, imposed upon lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing lands,
and is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section
1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton, fifty
centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a specific
internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption,
and upon things imported from the United States or foreign countries. It having been demonstrated that the plaintiff has
produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was produced, we are
clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax under the provisions of section 1496 of
the Administrative Code, and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719,
nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all responsibility
under the complaint. And, without any finding as to costs, it is so ordered.
Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS vs. COMMISSION ON AUDIT, ET. AL., GR.
NO. 169752, September 25, 2007.
FACTS: Petitioner PSPCA (PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS ) was incorporated
as a juridical entity by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. Act No. 1285
existed before both the Corporation Law and the constitution of the Securities and Exchange Commission.
The objects of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty 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.
Later, a COA Audit Team visited the Petitioner's office to have an audit survey pursuant to COA Office Order No. 2003-051
dated November 18, 2003. Petitioner claimed that it was a private entity not under the jurisdiction of COA. COA,
through memorandums, maintained that Petitioner is a government entity subject to audit jurisdiction. 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. The Office Order and Letter reiterated audit survey. Hence, Petitioner filed a petition for certiorari
under Rule 65 of the ROC.
ISSUE: Whether Phil. Society for the Prevention of Cruelty to Animals is a government entity.
HELD: NO. It is not government entity but a Quasi-Public Corporation. When a certain juridical entity is
impressed with public interest, it does not, by the circumstances alone, make the entity a public corporation,
inasmuch as a corporation may be private though its charter contains provisions of a public character
incorporated solely for public good. To determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State.
A Quasi-public corporation is a specie of private corporations that renders public service, supplies
public want, and other charitable objectives. While purposely organized for the gain and benefit of its members, they
are required by law to discharge functions for the public benefit. The qualifying factor is the type of service the
former renders to the public. If it performs public service, then it becomes a quasi-public corporation.
If a corporation created by the State as the latter's own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered public.

G.R. No. L-6776

May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,


vs.
UNG SIU SI TEMPLE, respondent-appellant.
Alejo F. Candido for appellant.
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.
REYES, J.B.L., J.:

The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on
January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No.
2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple",
operating through three trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese
nationality, founder and deaconess of the Temple, acting in representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March
14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a
parcel of land executed in favor of a religious organization whose founder, trustees and administrator are Chinese
citizens should be registered or not.
It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess,
founder, trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of
the provisions of the sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the acquisition of
land in the Philippines to its citizens, or to corporations or associations at least sixty per centum of the capital
stock of which is owned by such citizens adopted after the enactment of said Act No. 271, and the decision of the
Supreme Court in the case of Krivenko vs. the Register of Deeds of Manila, the deed of donation in question should
not be admitted for admitted for registration. (Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this
Court, claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act
No. 271 of the old Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether incorporated
in the Philippine Islands or in the name of other country, or not incorporated at all, to hold land in the Philippine
Islands upon which to build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the use
of such associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec.
1(7)].
We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the
Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the
Constitution was enacted, in so far as incompatible therewith. In providing that,
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to
individuals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections 1
and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or
associations at least sixty per centum of the capital of which is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement
is obviously to ensure that corporations or associations allowed to acquire agricultural land or to exploit natural resources
shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the
controlling membership should be composed of Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening
wedge to revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against
land holdings of that kind were among the factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article III
of the Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the free
exercise and enjoyment of religious profession or worship; or that one may not worship the Deity according to the dictates
of his own conscience unless upon land held in fee simple.
The resolution appealed from is affirmed, with costs against appellant.
G.R. No. L-6055

June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.

REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the crime of
falsification of a public and commercial document in that, having been entrusted with the preparation and registration of
the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the purpose of
engaging in business as a common carrier, he caused it to appear in said article of incorporation that one Arsenio Baylon, a
Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital stock of the corporation
when in reality, as the accused well knew, such was not the case, the truth being that the owner of the portion of the
capital stock subscribed to by Baylon and the money paid thereon were American citizen whose name did not appear in the
article of incorporation, and that the purpose for making this false statement was to circumvent the constitutional mandate
that no corporation shall be authorize to operate as a public utility in the Philippines unless 60 per cent of its capital stock
is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was effected
by the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose of the
corporation was to carry on the business of a common carrier by air, land or water; that its capital stock was P1,000,000,
represented by 9,000 preferred and 100,000 common shares, each preferred share being of the par value of p100 and
entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one vote; that the amount capital stock
actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin E. Shannahan, Albert W.
Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a Filipino and the other five all Americans;
that Baylon's subscription was for 1,145 preferred shares, of the total value of P114,500, and for 6,500 common shares, of
the total par value of P6,500, while the aggregate subscriptions of the American subscribers were for 200 preferred shares,
of the total par value of P20,000, and 59,000 common shares, of the total par value of P59,000; and that Baylon and the
American subscribers had already paid 25 per cent of their respective subscriptions. Ostensibly the owner of, or subscriber
to, 60.005 per cent of the subscribed capital stock of the corporation, Baylon nevertheless did not have the controlling vote
because of the difference in voting power between the preferred shares and the common shares. Still, with the capital
structure as it was, the article of incorporation were accepted for registration and a certificate of incorporation was issued
by the Securities and Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the corporation.
But it is admitted that the money paid on his subscription did not belong to him but to the Americans subscribers to the
corporate stock. In explanation, the accused testified, without contradiction, that in the process of organization Baylon was
made a trustee for the American incorporators, and that the reason for making Baylon such trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a total value
of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy came to
my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was considerable
difficulty to get them all together at one time because they were pilots. They had difficulty in deciding what their respective
share holdings would be. Onstott had invested a certain amount of money in airplane surplus property and they had
obtained a considerable amount of money on those planes and as I recall they were desirous of getting a corporation
formed right away. And they wanted to have their respective shares holdings resolved at a latter date. They stated that
they could get together that they feel that they had no time to settle their respective share holdings. We discussed the
matter and finally it was decided that the best way to handle the things was not to put the shares in the name of anyone of
the interested parties and to have someone act as trustee for their respective shares holdings. So we looked around for a
trustee. And he said "There are a lot of people whom I trust." He said, "Is there someone around whom we could get right
away?" I said, "There is Arsenio. He was my boy during the liberation and he cared for me when i was sick and i said i
consider him my friend." I said. They all knew Arsenio. He is a very kind man and that was what was done. That is how it
came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised Penal
Code, which read:
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty ofprision
mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who,
taking advantage of his official position, shall falsify a document by committing any of the following acts:
xxx

xxx

xxx

4. Making untruthful statements in a narration of facts.


ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision
correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:
xxx

xxx

xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding article in any
public or official document or letter of exchange or any other kind of commercial document.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition, pp.
407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration of facts
must be made with the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the
same author further maintains that even if such wrongful intent is proven, still the untruthful statement will not constitute
the crime of falsification if there is no legal obligation on the part of the narrator to disclose the truth. Wrongful intent to
injure a third person and obligation on the part of the narrator to disclose the truth are thus essential to a conviction for a
crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the articles of
incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his American coincorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by him which, as above
stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a malicious
perversion of the truth made with the wrongful intent circumventing section 8, Article XIV of the Constitution, which
provides that " no franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporation or other entities organized under the law of the Philippines,
sixty per centum of the capital of which is owned by citizens of the Philippines . . . ." Plausible though it may appear at first
glance, this opinion loses validity once it is noted that it is predicated on the erroneous assumption that the constitutional
provision just quoted was meant to prohibit the mere formation of a public utility corporation without 60 per cent of its
capital being owned by the Filipinos, a mistaken belief which has induced the lower court to that the accused was under
obligation to disclose the whole truth about the nationality of the subscribed capital stock of the corporation by revealing
that Baylon was a mere trustee or dummy of his American co-incorporators, and that in not making such disclosure
defendant's intention was to circumvent the Constitution to the detriment of the public interests. Contrary to the lower
court's assumption, the Constitution does not prohibit the mere formation of a public utility corporation without the
required formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization for
the operation of a public utility to a corporation already in existence but without the requisite proportion of Filipino capital.
This is obvious from the context, for the constitutional provision in question qualifies the terms " franchise", "certificate", or
"any other form of authorization" with the phrase "for the operation of a public utility," thereby making it clear that the
franchise meant is not the "primary franchise" that invest a body of men with corporate existence but the "secondary
franchise" or the privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how can
the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in the
articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason the
subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such revelation
was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no obligation to make it. In
the absence of such obligation and of the allege wrongful intent, defendant cannot be legally convicted of the crime with
which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in the
name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the laws
implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a public
utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A corporation
formed with capital that is entirely alien may subsequently change the nationality of its capital through transfer of shares to
Filipino citizens. conversely, a corporation originally formed with Filipino capital may subsequently change the national
status of said capital through transfer of shares to foreigners. What need is there then for a corporation that intends to
operate a public utility to have, at the time of its formation, 60 per cent of its capital owned by Filipinos alone? That
condition may anytime be attained thru the necessary transfer of stocks. The moment for determining whether a
corporation is entitled to operate as a public utility is when it applies for a franchise, certificate, or any other form of
authorization for that purpose. And that can be done after the corporation has already come into being and not while it is
still being formed. And at that moment, the corporation must show that it has complied not only with the requirement of
the Constitution as to the nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common
carrier by air, the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a
common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under article 59
of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime for the simple
reason that the alleged constitutional prohibition which he is charged for having tried to circumvent does not exist,
conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime
charged. The majority of the court, however, are also of the opinion that, even supposing that the act imputed to the
defendant constituted falsification at the time it was perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens with respect to the right to
operate public utilities in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the Constitution in
so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted, with
costs de oficio.

G.R. No. 147402

January 14, 2004

ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District
(LMWD), Tacloban City, petitioner,
vs.
COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M.
DALMAN, and Regional Director of COA Region VIII, respondents.

DECISION

CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the Commission on Audits ("COA") Resolution dated 3 January 2000 and the
Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos
request for COA to cease all audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District
("LMWD"). The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD.
Antecedent Facts
A Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a
letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a
reply dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees.
Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 ("PD 198") 2, as well as Section 18 of
Republic Act No. 6758 ("RA 6758"). The Regional Director referred petitioners reply to the COA Chairman on 18 October
1999.
On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD
previously paid to COA.
On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his
requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.
On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association
of Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.
The Ruling of the Commission on Audit
The COA ruled that this Court has already settled COAs audit jurisdiction over local water districts in Davao City Water
District v. Civil Service Commission and Commission on Audit,3 as follows:
The above-quoted provision [referring to Section 3(b) PD 198] definitely sets to naught petitioners contention that
they are private corporations. It is clear therefrom that the power to appoint the members who will comprise the
members of the Board of Directors belong to the local executives of the local subdivision unit where such districts
are located. In contrast, the members of the Board of Directors or the trustees of a private corporation are elected
from among members or stockholders thereof. It would not be amiss at this point to emphasize that a private
corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily,
said members or stockholders should be given a free hand to choose who will compose the governing body of
their corporation. But this is not the case here and this clearly indicates that petitioners are not private
corporations.
The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to
refund all auditing fees already paid.
The Issues
Petitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing
LMWD and requiring it to pay auditing fees. Petitioner raises the following issues for resolution:
1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a government-owned or
controlled corporation subject to the audit jurisdiction of COA;
2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local
water districts; and

3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations
auditing fees.
The Ruling of the Court
The petition lacks merit.
The Constitution and existing laws4 mandate COA to audit all government agencies, including government-owned and
controlled corporations ("GOCCs") with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IXD of the Constitution provides for COAs audit jurisdiction, as follows:
SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or
through the government, which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period
as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis
supplied)
The COAs audit jurisdiction extends not only to government "agencies or instrumentalities," but also to "governmentowned and controlled corporations with original charters" as well as "other government-owned or controlled corporations"
without original charters.
Whether LWDs are Private or Government-Owned
and Controlled Corporations with Original Charters
Petitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of
cases culminating in Davao City Water District v. Civil Service Commission 5 and just recently reiterated in De Jesus
v. Commission on Audit.6 Petitioner maintains that LWDs are not government-owned and controlled corporations with
original charters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to consider certain
interpretations of the applicable laws, which would give a "new perspective to the issue of the true character of water
districts."7
Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration ("LWUA") and not the LWDs.
Petitioner claims that LWDs are created "pursuant to" and not created directly by PD 198. Thus, petitioner concludes that
PD 198 is not an "original charter" that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1),
Article IX-D of the Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct
the creation of such entities, but only provides for their formation on an optional or voluntary basis. 8 Petitioner adds that
the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198.
Petitioners contention deserves scant consideration.
We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of
corporations. The first refers to private corporations created under a general law. The second refers to government-owned
or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.
The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens.9 The purpose of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other citizens. 10
In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be
unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily
exist under a general law. Stated differently, only corporations created under a general law can qualify as private
corporations. Under existing laws, that general law is the Corporation Code, 11 except that the Cooperative Code governs the
incorporation of cooperatives.12
The Constitution authorizes Congress to create government-owned or controlled corporations through special charters.
Since private corporations cannot have special charters, it follows that Congress can create corporations with special
charters only if such corporations are government-owned or controlled.

Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not
registered with the Securities and Exchange Commission. Section 14 of the Corporation Code states that "[A]ll corporations
organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x." LWDs
have no articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members
to elect the board directors of LWDs as in the case of all corporations registered with the Securities and Exchange
Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. This Court
has ruled that LWDs are not created under the Corporation Code, thus:
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are
those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created
under the said code, but on the contrary, they were created pursuant to a special law and are
governed primarily by its provision.13 (Emphasis supplied)
LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only governmentowned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or
controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is
constitutionally infirm.
Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their
legal existence and power from PD 198. Sections 6 and 25 of PD 198 14 provide:
Section 6. Formation of District. This Act is the source of authorization and power to form and maintain
a district. For purposes of this Act, a district shall be considered as a quasi-public corporation
performing public service and supplying public wants. As such, a district shall exercise the powers,
rights and privileges given to private corporations under existing laws, in addition to the powers
granted in, and subject to such restrictions imposed, under this Act.
(a) The name of the local water district, which shall include the name of the city, municipality, or province, or
region thereof, served by said system, followed by the words "Water District".
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include
all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or
portions thereof.
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by
or under the control of such city, municipality or province to such district upon the filing of resolution forming the
district.
(d) A statement identifying the purpose for which the district is formed, which shall include those purposes
outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of term of office for each.
(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section
44 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve,
alter or affect the district beyond that specifically provided for in this Act.
If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a
similar resolution shall be adopted in each city, municipality and province.
xxx
Sec. 25. Authorization. The district may exercise all the powers which are expressly granted by this
Title or which are necessarily implied from or incidental to the powers and purposes herein stated.
For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent
domain, the exercise thereof shall, however, be subject to review by the Administration. (Emphasis supplied)
Clearly, LWDs exist as corporations only by virtue of PD 198, which expressly confers on LWDs corporate powers.
Section 6 of PD 198 provides that LWDs "shall exercise the powers, rights and privileges given to private corporations under
existing laws." Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling
charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special
charter.
The phrase "government-owned and controlled corporations with original charters" means GOCCs created under special
laws and not under the general incorporation law. There is no difference between the term "original charters" and "special
charters." The Court clarified this in National Service Corporation v. NLRC15 by citing the deliberations in the
Constitutional Commission, as follows:

THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.


Commissioner Romulo is recognized.
MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows:
"including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this
amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters,
fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies
such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.
THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?
MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we
mean?
MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.
MR. FOZ. And not under the general corporation law.
MR. ROMULO. That is correct. Mr. Presiding Officer.
MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.
MR. NATIVIDAD. Mr. Presiding Officer, so those created by the general corporation law are out.
MR. ROMULO. That is correct. (Emphasis supplied)
Again, in Davao City Water District v. Civil Service Commission,16 the Court reiterated the meaning of the phrase
"government-owned and controlled corporations with original charters" in this wise:
By "government-owned or controlled corporation with original charter," We mean government owned
or controlled corporation created by a special law and not under the Corporation Code of the
Philippines. Thus, in the case of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:
"The Court, in National Service Corporation (NASECO) v. National Labor Relations
Commission, G.R. No. 69870, promulgated on 29 November 1988, quoting extensively from
the deliberations of the 1986 Constitutional Commission in respect of the intent and meaning
of the new phrase with original charter, in effect held that government-owned and
controlled corporations with original charter refer to corporations chartered by special law as
distinguished from corporations organized under our general incorporation statute the
Corporation Code. In NASECO, the company involved had been organized under the general
incorporation statute and was a subsidiary of the National Investment Development Corporation (NIDC)
which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special statute.
Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope
of the Civil Service." (Emphasis supplied)
Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has
the power to create corporations. This is a patently baseless assumption. The Local Government Code 17 does not vest in the
Sangguniang Bayan the power to create corporations.18 What the Local Government Code empowers the Sangguniang
Bayan to do is to provide for the establishment of a waterworks system "subject to existing laws." Thus, Section 447(5)(vii)
of the Local Government Code provides:
SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body
of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of
the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate
powers of the municipality as provided for under Section 22 of this Code, and shall:
xxx
(vii) Subject to existing laws, provide for the establishment, operation, maintenance, and repair of an
efficient waterworks system to supply water for the inhabitants; regulate the construction, maintenance,
repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water
supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all
territory within the drainage area of said water supply and within one hundred (100) meters of the
reservoir, conduit, canal, aqueduct, pumping station, or watershed used in connection with the water
service; and regulate the consumption, use or wastage of water;
x x x. (Emphasis supplied)
The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The
Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. However, the

Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even
assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations, the LWDs would
remain government-owned or controlled corporations subject to COAs audit jurisdiction. The resolution of the Sangguniang
Bayan would constitute an LWDs special charter, making the LWD a government-owned and controlled corporation with an
original charter. In any event, the Court has already ruled in Baguio Water District v. Trajano 19 that the Sangguniang
Bayan resolution is not the special charter of LWDs, thus:
While it is true that a resolution of a local sanggunian is still necessary for the final creation of a district, this Court
is of the opinion that said resolution cannot be considered as its charter, the same being intended only to
implement the provisions of said decree.
Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original
charter. In short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one
GOCC. Section 16, Article XII of the Constitution mandates that "Congress shall not, except by general law,"20 provide for
the creation of private corporations. Thus, the Constitution prohibits one special law to create one private corporation,
requiring instead a "general law" to create private corporations. In contrast, the same Section 16 states that "Governmentowned or controlled corporations may be created or established by special charters." Thus, the
Constitution permits Congress to create a GOCC with a special charter. There is, however, no prohibition on Congress to
create several GOCCs of the same class under one special enabling charter.
The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no
danger of creating special privileges to certain individuals, families or groups if there is one special law creating each
GOCC. Certainly, such danger will not exist whether one special law creates one GOCC, or one special enabling law creates
several GOCCs. Thus, Congress may create GOCCs either by special charters specific to each GOCC, or by one special
enabling charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs.
Petitioner also contends that LWDs are private corporations because Section 6 of PD 198 21 declares that LWDs "shall be
considered quasi-public" in nature. Petitioners rationale is that only private corporations may be deemed "quasi-public"
and not public corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed "quasipublic" because such corporation is already public. Petitioner concludes that the term "quasi-public" can only apply to
private corporations. Petitioners argument is inconsequential.
Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments
ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is
immaterial.
The Constitution vests in the COA audit jurisdiction over "government-owned and controlled corporations with original
charters," as well as "government-owned or controlled corporations" without original charters. GOCCs with original charters
are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original
charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The
nature or purpose of the corporation is not material in determining COAs audit jurisdiction. Neither is the manner of
creation of a corporation, whether under a general or special law.
The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. InPhilippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,22 the Court even ruled that the criterion of
ownership and control is more important than the issue of original charter, thus:
This point is important because the Constitution provides in its Article IX-B, Section 2(1) that "the Civil Service
embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including governmentowned or controlled corporations with original charters." As the Bank is not owned or controlled by the
Government although it does have an original charter in the form of R.A. No. 3518, 23 it clearly does
not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section
28 of the said law so provides. The consequence is that the relations of the Bank with its employees should be
governed by the labor laws, under which in fact they have already been paid some of their claims. (Emphasis
supplied)
Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD
198. There is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the
national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the
municipal or city mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six
years.24 The board directors of LWDs are not co-owners of the LWDs. LWDs have no private stockholders or members. The
board directors and other personnel of LWDs are government employees subject to civil service laws 25 and anti-graft laws.26
While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only means that the
appointees to the board of directors of LWDs shall come from the private sector. Once such private sector representatives
assume office as directors, they become public officials governed by the civil service law and anti-graft laws. Otherwise,
Section 8 of PD 198 would contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes
"government-owned or controlled corporations with original charters."
If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term
"agencies or instrumentalities" of the government and thus still subject to COAs audit jurisdiction. However, the stark and

undeniable fact is that the government owns LWDs. Section 45 27 of PD 198 recognizes government ownership of LWDs
when Section 45 states that the board of directors may dissolve an LWD only on the condition that "another public
entity has acquired the assets of the district and has assumed all obligations and liabilities attached thereto." The
implication is clear that an LWD is a public and not a private entity.
Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances
the theory that the "Water Districts owner is the District itself." 28 Assuming for the sake of argument that an LWD is "selfowned,"29 as petitioner describes an LWD, the government in any event controls all LWDs. First, government officials
appoint all LWD directors to a fixed term of office. Second, any per diem of LWD directors in excess of P50 is subject to the
approval of the Local Water Utilities Administration, and directors can receive no other compensation for their services to
the LWD.30 Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their facilities or
operations.31 This element of government control subjects LWDs to COAs audit jurisdiction.
Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of
water facilities from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping
at straws. Privatization involves the transfer of government assets to a private entity. Petitioner concedes that the owner of
the assets transferred under Section 6 (c) of PD 198 is no other than the LWD itself. 32 The transfer of assets mandated by
PD 198 is a transfer of the water systems facilities "managed, operated by or under the control of such city, municipality or
province to such (water) district." 33 In short, the transfer is from one government entity to another government entity. PD
198 is bereft of any indication that the transfer is to privatize the operation and control of water systems.
Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198
prevents COA from auditing LWDs. 34 Section 20 of PD 198 provides:
Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by
resolution a system of business administration and accounting for the district, which shall be patterned upon and
conform to the standards established by the Administration. Auditing shall be performed by a certified
public accountant not in the government service. The Administration may, however, conduct annual audits
of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses
incurred in connection therewith shall be borne equally by the water district concerned and the
Administration.35 (Emphasis supplied)
Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing
LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that
"[A]uditing shall be performed by a certified public accountant not in the government service." 36
PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit
jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction,
thus:
Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever,
or any investment of public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied)
The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential
Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations
of the Constitutional Commission elucidates this intent of the framers:
MR. OPLE: I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO
LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE
WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.
May I explain my reasons on record.
We know that a number of entities of the government took advantage of the absence of a legislature
in the past to obtain presidential decrees exempting themselves from the jurisdiction of the
Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an
empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive
in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the
empty shell under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the
billions of pesos invested in different corporations underneath it were exempted from the coverage of the
Commission on Audit.
Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut
levy is a form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers
are, in effect, public funds. And that was, I think, the basis of the PCGG in undertaking that last major
sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the UCPB,
through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private
organization.
So these are the fetuses of future abuse that we are slaying right here with this additional section.

May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE
GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE
JURISDICTION OF THE COMMISSION ON AUDIT.
THE PRESIDENT: May we know the position of the Committee on the proposed amendment of Commissioner
Ople?
MR. JAMIR: If the honorable Commissioner will change the number of the section to 4, we will accept the
amendment.
MR. OPLE: Gladly, Madam President. Thank you.
MR. DE CASTRO: Madam President, point of inquiry on the new amendment.
THE PRESIDENT: Commissioner de Castro is recognized.
MR. DE CASTRO: Thank you. May I just ask a few questions of Commissioner Ople.
Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled corporations and their
subsidiaries"? So that if these government-owned and controlled corporations and their subsidiaries are subjected
to the audit of the COA, any law exempting certain government corporations or subsidiaries will be already
unconstitutional.
So I believe, Madam President, that the proposed amendment is unnecessary.
MR. MONSOD: Madam President, since this has been accepted, we would like to reply to the point raised by
Commissioner de Castro.
THE PRESIDENT: Commissioner Monsod will please proceed.
MR. MONSOD: I think the Commissioner is trying to avoid the situation that happened in the past, because the
same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain
institutions were exempted from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit
so that this problem will never arise in the future.37
There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from
auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule
that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the
Constitution.
On the Legality of COAs
Practice of Charging Auditing Fees
Petitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA
6758,38 which states:
Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve
the independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from
receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local
government unit, government-owned or controlled corporations, and government financial institutions, except
those compensation paid directly by COA out of its appropriations andcontributions.
Government entities, including government-owned or controlled corporations including financial institutions and
local government units are hereby prohibited from assessing or billing other government entities, including
government-owned or controlled corporations including financial institutions or local government units for services
rendered by its officials and employees as part of their regular functions for purposes of paying additional
compensation to said officials and employees. (Emphasis supplied)
Claiming that Section 18 is "absolute and leaves no doubt," 39 petitioner asks COA to discontinue its practice of charging
auditing fees to LWDs since such practice allegedly violates the law.
Petitioners claim has no basis.
Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity
except "compensation paid directly by COA out of its appropriations and contributions." Thus, RA 6758 itself
recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. In Tejada v.
Domingo,40 the Court declared:
There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x
x to preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and
employees from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government

entity, local government unit, GOCCs and government financial institutions, except such compensation paid
directly by the COA out of its appropriations and contributions, and (2) government entities, including
GOCCs, government financial institutions and local government units from assessing or billing other government
entities, GOCCs, government financial institutions or local government units for services rendered by the latters
officials and employees as part of their regular functions for purposes of paying additional compensation to said
officials and employees.
xxx
The first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against
the GOCCs and government financial institutions. Under the first, COA personnel assigned to auditing units
of GOCCs or government financial institutions can receive only such salaries, allowances or fringe
benefits paid directly by the COA out of its appropriations and contributions. The contributions
referred to are the cost of audit services earlier mentioned which cannot include the extra
emoluments or benefits now claimed by petitioners. The COA is further barred from assessing or billing
GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit
functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)
In Tejada, the Court explained the meaning of the word "contributions" in Section 18 of RA 6758, which allows COA to
charge GOCCs the cost of its audit services:
x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost
of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual
audit cost shall include personnel services, maintenance and other operating expenses, depreciation on capital
and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted by the
GOCCs to the COA personnel assigned to the formers auditing units, the same shall be directly defrayed by COA
from its own appropriations x x x. 41
COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not to COA auditors.
Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs "actual audit cost." Neither has
petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention
must fail.
WHEREFORE, the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001
denying petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree
No. 198 is declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.
SO ORDERED.
Dante vs Liban

THE FACTS

Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City Red Cross Chapter, filed
with the Supreme Court what they styled as Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the
Senate against respondent Gordon, who was elected Chairman of the Philippine National Red Cross (PNRC) Board of
Governors during his incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors, respondent Gordon
ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the Constitution, which provides that [n]o Senator .
. . may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof,
including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his
seat. Petitioners cited the case of Camporedondo vs. NLRC, G.R. No. 129049, decided August 6, 1999, which held
that the PNRC is a GOCC, in supporting their argument that respondent Gordon automatically forfeited his seat in the
Senate when he accepted and held the position of Chairman of the PNRC Board of Governors.

Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,[1] held thatthe office of the PNRC Chairman is
NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of the 1987
Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is not appointed by the President or by any
subordinate government official. Moreover, the PNRC is NOT a GOCC because it is a privately-owned, privately-funded, and

privately-run charitable organization and because it is controlled by a Board of Governors four-fifths of which are private
sector individuals. Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman
during his incumbency as Senator.

The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is void insofar
as

it

creates

the

PNRC

as

private

corporation

since Section

7,

Article

XIV

of

the

1935

Constitution

states that [t]he Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality
thereof. The Court thus directed the PNRC to incorporate under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation. The fallo of the Decision read:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI
of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the
Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID
because they create the PNRC as a private corporation or grant it corporate powers.

Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC
likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically questioned the second
part of the Decision with regard to the pronouncement on the nature of the PNRC and the constitutionality of some
provisions of the PNRC Charter.

II.

THE ISSUE

Was it correct for the Court to have passed upon and decided on the issue of the constitutionality of the PNRC
charter? Corollarily: What is the nature of the PNRC?

III.

THE RULING

[The Court GRANTED reconsideration and MODIFIED the dispositive portion of the Decision by deleting the second
sentence thereof.]

NO, it was not correct for the Court to have decided on the constitutional issue because it was not
the very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a GOCC nor a private
corporation.

The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in
the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when the Court
will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus:

This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule
that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such
question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the

court may [rest] its judgment, that course will be adopted and the constitutional question will be left for consideration until
such question will be unavoidable.

[T]his Court should not have declared void certain sections of . . . the PNRC Charter. Instead, the Court should
have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could
have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of
unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the
Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of
existence in this country.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16,
1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643,
respectively. The passage of several laws relating to the PNRCs corporate existence notwithstanding the effectivity of the
constitutional proscription on the creation of private corporations by law is a recognition that the PNRC is not strictly in the
nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it[,] not just in terms of structure, but
also

in

terms

of

history,

public

service

and

official

status

accorded

to

it

by

the

State

and

the international community. There is merit in PNRCs contention that its structure is sui generis. It is in recognition of
this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in
March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987
Constitution. The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds,
not even in this case before the Court now.

[T]his Court [must] recognize the countrys adherence to the Geneva Convention and respect the unique status of
the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law. Under the
Constitution, the Philippines adopts the generally accepted principles of international law as part of the law of the land. This
constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using
the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under international humanitarian law and
as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions.

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither be
classified as an instrumentality of the State, so as not to lose its character of neutrality as well as its independence, nor
strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the
State.

Although [the PNRC] is neither a subdivision, agency, or instrumentality of the government, nor a GOCC 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 facto imply that the PNRC is a
private corporation within the contemplation of the provision of the Constitution, that must be organized under the
Corporation Code. [T]he sui generis character of PNRC requires us to approach controversies involving the PNRC on a caseto-case basis.

In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian
field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears
emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a
substantial portion of the countrys blood requirements. Its humanitarian work is unparalleled. The Court should not shake
its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who
depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must therefore stay.

[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive portion of
the Decision by deleting the second sentence, to now read as follows:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI
of the 1987 Constitution.]

THE FACTS

Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City Red Cross Chapter, filed
with the Supreme Court what they styled as Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the
Senate against respondent Gordon, who was elected Chairman of the Philippine National Red Cross (PNRC) Board of
Governors during his incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors, respondent Gordon
ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the Constitution, which provides that [n]o Senator .
. . may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof,
including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his
seat. Petitioners cited the case of Camporedondo vs. NLRC, G.R. No. 129049, decided August 6, 1999, which held
that the PNRC is a GOCC, in supporting their argument that respondent Gordon automatically forfeited his seat in the
Senate when he accepted and held the position of Chairman of the PNRC Board of Governors.

Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,[1] held thatthe office of the PNRC Chairman is
NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of the 1987
Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is not appointed by the President or by any
subordinate government official. Moreover, the PNRC is NOT a GOCC because it is a privately-owned, privately-funded, and
privately-run charitable organization and because it is controlled by a Board of Governors four-fifths of which are private
sector individuals. Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman
during his incumbency as Senator.

The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is void insofar
as

it

creates

the

PNRC

as

private

corporation

since Section

7,

Article

XIV

of

the

1935

Constitution

states that [t]he Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality
thereof. The Court thus directed the PNRC to incorporate under the Corporation Code and register with the Securities and
Exchange Commission if it wants to be a private corporation. The fallo of the Decision read:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI
of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the
Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID
because they create the PNRC as a private corporation or grant it corporate powers.

Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC
likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically questioned the second
part of the Decision with regard to the pronouncement on the nature of the PNRC and the constitutionality of some
provisions of the PNRC Charter.

II.

THE ISSUE

Was it correct for the Court to have passed upon and decided on the issue of the constitutionality of the PNRC
charter? Corollarily: What is the nature of the PNRC?

III.

THE RULING

[The Court GRANTED reconsideration and MODIFIED the dispositive portion of the Decision by deleting the second
sentence thereof.]

NO, it was not correct for the Court to have decided on the constitutional issue because it was not
the very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a GOCC nor a private
corporation.

The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in
the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when the Court
will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus:

This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule
that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such
question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the
court may [rest] its judgment, that course will be adopted and the constitutional question will be left for consideration until
such question will be unavoidable.

[T]his Court should not have declared void certain sections of . . . the PNRC Charter. Instead, the Court should
have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could
have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of
unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the
Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of
existence in this country.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16,
1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643,
respectively. The passage of several laws relating to the PNRCs corporate existence notwithstanding the effectivity of the
constitutional proscription on the creation of private corporations by law is a recognition that the PNRC is not strictly in the
nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it[,] not just in terms of structure, but
also

in

terms

of

history,

public

service

and

official

status

accorded

to

it

by

the

State

and

the international community. There is merit in PNRCs contention that its structure is sui generis. It is in recognition of
this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in
March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987
Constitution. The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds,
not even in this case before the Court now.

[T]his Court [must] recognize the countrys adherence to the Geneva Convention and respect the unique status of
the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law. Under the
Constitution, the Philippines adopts the generally accepted principles of international law as part of the law of the land. This
constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using
the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under international humanitarian law and
as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions.

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither be
classified as an instrumentality of the State, so as not to lose its character of neutrality as well as its independence, nor
strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the
State.

Although [the PNRC] is neither a subdivision, agency, or instrumentality of the government, nor a GOCC 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 facto imply that the PNRC is a
private corporation within the contemplation of the provision of the Constitution, that must be organized under the
Corporation Code. [T]he sui generis character of PNRC requires us to approach controversies involving the PNRC on a caseto-case basis.

In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian
field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears
emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a
substantial portion of the countrys blood requirements. Its humanitarian work is unparalleled. The Court should not shake
its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who
depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must therefore stay.

[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive portion of
the Decision by deleting the second sentence, to now read as follows:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government
office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI
of the 1987 Constitution.]

G.R. No. L-3869

January 31, 1952

S. DAVIS WINSHIP, plaintiff-appellant,


vs.
PHILIPPINE TRUST COMPANY, defendant-appellee.
Francisco R. Capistrano for appellant.
Lao and Feria for appellee.
PARAS, J.:
Prior to December, 1941, the Eastern Isles Import corporation organized under and existing by virtue of the laws of the
Philippines, all of the capital stock of which was and has been owned by American citizens, except one share with a par
value of P100 in the name of Antonia Sevilla and one share with a par value of P100 in the name of Edmund A.
Schwesinger, had a current account deposit with the Philippine Trust Company, and as of December 29, 1941, the balance
in favor of said depositor was P51,410.91. Prior to December, 1941, the Eastern Isles, Inc., a corporation organized under
and existing by virtue of the laws of the Philippines, all of the capital stock of which was and has been owned by American
citizens, except one share with a par value of P100 in the name of F. Capistrano, had a current account deposit with the
Philippine Trust Company, and as of December 29, 1941, the balance in favor of said depositor was P34,827.74. The
Eastern Isles, Incorporated made a withdrawal of P204.37 which was debited to said account on June 10, 1942.
On October 4, 1943, the Japanese Military Administration in the Philippines issued an order requiring all deposit accounts of
the hostile people (including corporations) to be transferred to the Bank of Taiwan, as the depository of the Japanese
Military Administration, which order the Philippine Trust Company was specifically directed to comply with. On September
29, 1944, in compliance with said order, the Philippine Trust Company transferred and paid the credit balances of the
current account deposits of the Eastern Isles Import Corporation and of the Eastern Isles, Inc. to the Bank of Taiwan.
The pre-war current deposit accounts of the Eastern Isles Import Corporation and of the Eastern Isles, Inc. were
subsequently transferred to S. Davis Winship who, on August 12, 1947, presented to the Philippine Trust Company checks
Nos. A-79212 and H-579401 covering the aforesaid deposits. The Philippine Trust Company, however, refused to pay said
checks, whereupon, on September 6, 1947, S. Davis Winship instituted the present action against the Philippine Trust
Company in the Court of First Instance of Manila, to recover upon the first cause of action the sum of P51,410.91 and under
the second cause of action the sum of P34,827.74.
In its answer, the defendant Philippine trust Company invoked the order of the Japanese Military Administration by virtue of
which it transferred the current deposit accounts in question to the Bank of Taiwan as the depository of the Bureau of
Enemy Property Custody of the Japanese Military Administration. After trial, the Court of First Instance of Manila rendered a
decision upholding the contention of the defendant and accordingly dismissing the complaint. From this decision plaintiff
appealed. In the case of Everett Steamship Corporation vs. Bank of the Philippine Islands, 84 Phil., 202; 47 O.G., No. 1 p.
165, we made the following pronouncement: This Court having ruled in the Haw Pia case that the collection by the Bank of
Taiwan of the China Banking Corporation's credit from the latter's debtor, by order of the Japanese Military Administration,
was not a confiscation but a mere sequestration of enemy's private personal property, and therefore the payment by the
plaintiff to the Bank of Taiwan was valid and released his obligation to the defendant bank, it follows that the Bank of
Taiwan of plaintiff's deposit, and by order of the Japanese Military Administration, was valid and released the defendant's
obligation to the plaintiff.'
In view of this pronouncement, we have to affirm the appealed judgment. As it has been stipulated by the parties that the
defendant transferred the deposits in question to the Bank of Taiwan in compliance with the order of the Japanese Military
Administration, the defendant was released from any obligation to the depositors or their transferee. Appellant's contention
that there is no positive showing that the transfer was made by the Philippine Trust Company in compliance with the order
of the Japanese Military Administration, and its logical effect is to make such act binding on said company. At any rate, the
defendant corporation has not impugned its validity.
In the case of Filipinas Compaia de Seguros vs. Christern Henefeld and Co., Inc., Phil., 54, we held that the nationality of a
private corporation is determined by the character or citizenship of its controlling stockholders; and this pronouncement is
of course decisive as to the hostile character of the Eastern Isles, Inc., as far as the Japanese Military Administration was
concerned, it being conceded that the controlling stockholders of said corporations were American citizens.
Wherefore, the appealed judgment is affirmed, with costs against the appellant. So ordered.
G.R. No. L-55289 June 29, 1982

REPUBLIC OF THE PHILIPPINES, represented by the Director of Lands, petitioner-appellant,


vs.
JUDGE CANDIDO P. VILLANUEVA, of the Court of First Instance of Bulacan, Malolos Branch VII, and IGLESIA NI
CRISTO, as a corporation sole, represented by ERAO G. MANALO, as Executive Minister,respondents-appellees.

AQUINO, J.:
Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome, this case involves the prohibition in section 11, Article
XIV of the Constitution that "no private corporation or association may hold alienable lands of the public domain except by
lease not to exceed one thousand hectares in area".
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an area of 313 square meters and an assessed
value of P1,350 were acquired by the Iglesia Ni Cristo on January 9, 1953 from Andres Perez in exchange for a lot with an
area of 247 square meters owned by the said church (Exh. D).
The said lots were already possessed by Perez in 1933. They are not included in any military reservation. They are inside an
area which was certified as alienable or disposable by the Bureau of Forestry in 1927. The lots are planted to santol and
mango trees and banana plants. A chapel exists on the said land. The land had been declared for realty tax purposes.
Realty taxes had been paid therefor (Exh. N).
On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly existing under Philippine laws, filed with the Court of
First Instance of Bulacan an application for the registration of the two lots. It alleged that it and its predecessors-in-interest
had possessed the land for more than thirty years. It invoked section 48(b) of the Public Land Law, which provides:
Chapter VIII.Judicial confirmation of imperfect or incomplete titles.
xxx xxx xxx
SEC. 48. The following-described citizens of the Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein, but whose titles have not been perfected or
completed, may apply to the Court of First Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate of title therefore, under the Land Register
Act, to wit:
xxx xxx xxx
(b) Those who by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive, and notorious possession and occupation of agricultural lands of the public domain, under
a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of
the application for confirmation of title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to a Government grant and shall be
entitled to a certificate of title under the provisions of this chapter." (As amended by Republic Act No.
1942, approved on June 22, 1957.)
The Republic of the Philippines, through the Direct/r of Lands, opposed the application on the grounds that applicant, as a
private corporation, is disqualified to hold alienable lands of the public domain, that the land applied for is public land not
susceptible of private appropriation and that the applicant and its predecessors-in-interest have not been in the open,
continuous, exclusive and notorious possession of the land since June 12, 1945.
After hearing, the trial court ordered the registration of the two lots, as described in Plan Ap-04-001344 (Exh. E), in the
name of the Iglesia Ni Cristo, a corporation sole, represented by Executive Minister Erao G. Manalo, with office at the
corner of Central and Don Mariano Marcos Avenues, Quezon City, From that decision, the Republic of the Philippines
appealed to this Court under Republic Act No. 5440. The appeal should be sustained.
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a corporation sole or a juridical person, is
disqualified to acquire or hold alienable lands of the public domain, like the two lots in question, because of the
constitutional prohibition already mentioned and because the said church is not entitled to avail itself of the benefits of
section 48(b) which applies only to Filipino citizens or natural persons. A corporation sole (an "unhappy freak of English
law") has no nationality (Roman Catholic Apostolic Adm. of Davao, Inc. vs. Land Registration Commission, 102 Phil. 596.
See Register of Deeds vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49 of the Public Land Law).
The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file any brief) that the two lots are private lands,
following the rule laid down in Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct. What was considered
private land in the Susi case was a parcel of land possessed by a Filipino citizen since time immemorial, as in Cario vs.
Insular Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The lots sought to be registered in this case
do not fall within that category. They are still public lands. A land registration proceeding under section 48(b) "presupposes
that the land is public" (Mindanao vs. Director of Lands, L-19535, July 10, 1967, 20 SCRA 641, 644).

As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not acquired from the Government, either by
purchase or by grant, belong to the public domain. An exception to the rule would be any land that should have been in the
possession of an occupant and of his predecessors-in-interest since time immemorial, for such possession would justify the
presumption that the land had never been part of the public domain or that it had been a private property even before the
Spanish conquest. "
In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of public agricultural land to obtain a
confirmation of his title under section 48(b) of the Public Land Law is a "derecho dominical incoativo"and that before the
issuance of the certificate of title the occupant is not in the juridical sense the true owner of the land since it still pertains to
the State.
The lower court's judgment is reversed and set aside. The application for registration of the Iglesia Ni Cristo is dismissed
with costs against said applicant.
SO ORDERED.
G.R. No. L-47553 January 31, 1981
JANE L. GARCIA, MAYORICO P. SANDICO, BELEN R. GARCIA and DANILO DIOKNO, petitioners,
vs.
COURT OF APPEALS (Special Tenth Division) and NATIONAL POWER CORPORATION, respondents.

FERNANDEZ, J.:
This is a petition for certiorari instituted by Jane L. Garcia, Mayorico P. Sandico, Belen R. Garcia, and Danilo Diokno against
the Court of Appeals (Special Tenth Division), and the National Power Corporation seeking the following relief :
WHEREFORE, premises considered, it is most respectfully prayed of the Court:
1. That the Decision of the Court of Appeals respecting Block 19, wherein it has adjudged private
respondent entitled to acquire title and ownership over the property by paying a compensation of PO.07
per square meter be reversed and that the Decision of the Court of First Instance of Pampanga adjudging
the private respondent to compensate herein petitioners for Block 19 in the amount of P15.00 per square
meter with interest at the legal rate from June 30, 1954 be upheld:
2. That, in the alternative to the petition next preceding, the private respondent be adjudged to pay
rentals for the use of Block 19 at the rate of P2.00 per square meter per annum from June 30, 1954 until
the same is vacated by it;
Petitioners further pray for such other reliefs as may be just and equitable in the premises.
Quezon City for Manila, Philippines, January 31, 1978.

The record discloses that on August 8, 1969, the private respondent National Power Corporation filed a complaint for
eminent domain with the Court of First Instance of Pampanga, Branch Five, docketed as Civil Case No. 3584 2praying that it
be allowed to acquire right of way easements over the property of petitioners consisting of two adjoining parcels of land
(Lots Nos. 633 and 634) with a total area of 15.98 hectares; that the said complaint alleges that the proposed right-of-way
is needed to construct the 69 KV Mexico-Balibago power line which will encompass some 2,835 square meters of
petitioner's property; 3 that on March 2, 1970, the defendants, petitioners herein, filed an answer asking that the complaint
for expropriation be dismissed and on the first and second counter-claims praying for the following:
1. Under the first cause of action, sentencing the plaintiff to pay the defendants rentals at the annual rate
of P2.00 per square meter for the use and occupancy of Block 19 with a total area of not less than 20,439
square meters, starting from the year 1957 and for as long as plaintiff uses and occupies the same; back
rentals to bear interest at the rate of 1 2 % per annum, until paid.
2. Under the second cause of action, sentencing plaintiff alternatively, i.e., in the event that expropriation
be granted as prayed for in the complaint - to pay defendants as compensation for the total
encompassed in Block 10 (not less than 6,000 square meters) at the price of P20.00 per square meter,
with 12 % interest computed from date of possession, until paid. 4
that on March 30, 1970, the plaintiff was placed in possession of the property sought to be expropriated 5 upon a previous
deposit on March 12, 1970 of a provisional amount of P5,670; 6 that after the issues were joined evidence was submitted by
both parties to the Clerk of Court, Andres B. Paras, as lone Commissioner, who submitted his Report 7 with the following
recommendation:
CONCLUSION
All told this Commissioner respectfully recommends that judgment be rendered;

(1) Expropriating the areas covered by Block 19 (20,439 sq. meters) and Block 10 (6,190 sq. meters) of
the subdivision plan (Exhibit 3) of the defendant's properties in favor of the plaintiff;
(2) Ordering plaintiff to pay the defendants Juana Garcia Sandico, Belen Garcia Diokno and Bienvenido
Garcia (a) by way of just compensation, the amount of P15.00 per square meter for the Total area
encomposed in Block 19 and Block 10, supra, with 6% interest computed from March 16, 1970, until paid,
(b) an amount to be fixed by the Court as and for attorney's fees.
San Fernando, Pampanga, September 8,1971.
RESPECTFULLY SUBMITTED:
(Sgd) ANDRES B. PARAS
Commissioner

that mainly on the basis of the above report, the lower court rendered a decision, the dispositive part of which reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Expropriating the area covered by Block 10 (6,190 square meters) and Block 19 (20,439 square
meters) of the subdivision plan of defendants' properties, with an aggregate area of 26,629 square
meters, in favor of the plaintiff;
b) Ordering the plaintiff to pay the defendants Juan Garcia Sandico, Belen Garcia Diokno and Bienvenido
Garcia the amount of P 15.00 per square meter for the area herein expropriated which totals
P399,435.00, with interest at the legal rate computed as follows:
A) For the area covered by Block 10, from June 30, 1954;
B) For the area covered by Block 19, from March 30, 1970.
until fully paid and to pay Five (5%) per cent of the amount involved as and for attorney's fees and
expenses of litigation, and to pay the costs of the suit.
SO ORDERED.
San Fernando, Pampanga, November 16,1971.
(Sgd) HONORIO ROMERO
Judge

that the plaintiff, private respondent National Power Corporation, appealed to the Court of Appeals;
1977, the Court of Appeals rendered its decision modifying the trial court's decision as follows:

10

that on October 28,

Wherefore, judgment is hereby rendered:


1. Expropriating in favor of the plaintiff the area covered by Block 10 (6,190 square
meters) and Block 19 (20,439 square meters) of the subdivision plan of the defendants'
property;
2. Ordering the plaintiff to pay the defendants Juan Garcia Sandico, Belen Garcia Diokno
and Bienvenido Garcia the purchase price of Block 10 (6,190 square meters) in the
amount of P87,180.00 at P15.00 per square meter and at the same time ordering the
Provincial Treasurer of Pampanga to release to the said defendants the amount of
P5,670 deposited with him on February 26, 1970 as evidenced by Official Receipt No.
2497123 dated March 11, 1970 with interest at the legal rate on the amount of
P187,180.00 from March 30, 1970;
3. Ordering the plaintiff to pay to the same defendants the amount of P14,511.69 as the
market value for Block 19 (20,439 square meters) at PO.07 per square meter with legal
interest from July 1, 1957.
The judgment of the lower court awarding attorney's fees and costs are hereby eliminated.
SO ORDERED;

11

that on November 24, 1977, the petitioners filed a motion for reconsideration of the decision of the Court of Appeals which
was denied in its resolution dated December 13, 1977 ; 12 and that the petitioners appealed to this Court assigning as sole
error allegedly committed by the Court of Appeals the following:
THE COURT OF APPEALS IN ITS DECISION OF OCTOBER 28,1977 IN CA-GR NO. 55720-R ERRED IN FIXING
THE AMOUNT OF JUST COMPENSATION AT P0.07 PER SQUARE METER, WHEN THE LOWER COURT FINDS
THIS TO BE P15.00 PER SQUARE METER. 13
The facts, as found by the Court of Appeals, are:
The defendants own Lot 633 and Lot 634 located in Mexico, Pampanga. Lot 633 has an area of 85,212
square meters. Lot 634 has an area of 74,613 square meters. Total area is 159,825 square meters.
According to the defendants' pleadings (p. 34, Record on Appeal), not denied in the plaintiff's pleading,
the National Power Corporation occupied as early as 1957 portions of the two (2) lots for the construction
of "steel towers and high power lines for 230 KV Ambuklao-Manila Line and 69 KV Mexico-Tarlac Line."
The portions of the two (2) lots occupied has an area of 20,439 square meters. It is designated as Block
19 in the sketch plan (Exhibit 3). Up to now the plaintiff has not paid anything for the portion occupied,
either as rental or as purchase price.
As early as March 10, 1960 these two (2) lots were surveyed for the purpose of converting them into
'Conching Subdivision' (Exhibit 3) for residential purposes. The two (2) lots were subdivided into 19 blocks
(Block No. 1 to 19). Except Block 19 which has been occupied by the NPC since 1957, the other blocks
were subdivided into residential lots, totalling 350 lots in all. Block 19 occupied by the NPC was not
subdivided into lots because of the steel towers and the power lines of the NPC, which make the said
block dangerous for residential purposes.
The plan and the technical descriptions were duly approved by the court as early as August 23, 1962
(Exh. 2-A). The subdivision plan was in turn approved by the Land Registration Commission on July
23,1962 and by the Municipal Council of Mexico, Pampanga on January 22, 1962 (Exhibit 4).
After the subdivision plan was approved, steps were taken to improve the property. Asphalted roads and
gutters have been constructed. According to the Commissioner's Report, "there are men working in the
construction of an asphalt road and work is being done in full blast." The same report states that there
are more or less 25 houses of strong materials constructed in the area.
According to the defendants' evidence, not rebutted by the plaintiff, there are about 100 to 150 willing
buyers of lots in the subdivision.
May 8, 1969 the NPC instituted the instant action for expropriation of a 'right-of-way easement over a
portion of the two (2) lots. In Lot 633 the plaintiff wants to expropriate a portion consisting of 1,470
square meters. In Lot 634 the area to be expropriated is 2,835 square meters. Total area to be
expropriated is 2,835 square meters (Exhibit A). The entire area to be expropriated is within Block 10 of
Conching Subdivision (Exhibit 3) which is adjacent to Block 19. (Vide, Exhibit 3). The plaintiff intends to
use the area to be expropriated for the "construction and maintenance of its 69 KV Mexico-Balibago
Transmission Line." The plaintiff offers to pay to the defendants an easement fee in the nominal sum of
P1.00 and 10.00 for its tower to be
constructed. 14
Anent the error assigned by the petitioners, the pertinent portions of the decision of the Court of Appeals are:
The final question involves the determination of the just compensation. Just compensation is the market
value of the property. It should be determined at the time of the taking. It is the price which it will
command where it is offered for sale by one who desires, but is not obliged to sell, and is bought by one
who is under no necessity of having it. (Manila Railway Co. vs. Velasquez, 32, Phil. 286; Manila Railroad
Co. vs. Caligsihan, 40 Phil., 326).
The market value must be determined as of the time the plaintiff takes possession. Thus when possession
is ahead of the filing of the complaint, the date of possession determines the market value. (Republic vs.
PNB, L-14158, 41261).
We first determine the market value of Block 10 consisting of 6,190 square meters. The defendants'
witnesses, namely, Garcia Sandico (tsn., January 9, 1971 p. 27), Gonzalo Mapayo (tsn., Feb. 6, 1971),
Igino Sason (tsn., Feb. 6, 1971), Igino Sason (tsn., May 8, 1971), and Jose Angeles (tsn., May 15, 1975) all
testified that the prices of the residential lots in the subdivision as of 1971 was P15.00 to P20.00 per
square meter. The contract to sell dated November 18, 1965 (Exhibit 5) shows that the price per square
meter is P15.00. Another contract to sell dated October 9, 1967 (Exhibit 5-A) shows a purchaser price of
P15.00 per square meter. A request for reservation date July 6, 1970 (Exhibit 6) shows a purchase price of
P17.00 per square meter. Other requests for reservation in 1969 and 1970 show a purchase price ranging
from P15.00 to P17.00 per square meter (Exhibits 6-A to 6-H, inclusive.)

On the other hand, the plaintiff presented only a tax declaration to prove the market value. A tax declaration is only prima
facie evidence of market value which may be overcome by satisfactory evidence presented by the owners of the property
to be expropriated.
We therefore agree with the finding of the lower court that the price of Block 10 consisting of 6,190
square meters at P15,00 per square meter is P92,850.00. It appears, however, that as of February 26,
1970 the plaintiff deposited with the Provincial Treasurer of Pampanga the amount of P5,670 for the
compensation of the property. Deducting P5,670 from P92,850.00 the unpaid balance for Block 10 is
P87,180.00.
Block 19 presents a different problem. Said property was occupied, according to the allegations of the
defendants' counterclaim not denied in the plaintiff's reply thereto, in 1957 by the plaintiff. In other
words, the possession of the property took place 13 years before the defendants filed their counterclaim
praying for the damages with respect to the occupation of Block 19. The defendants did not present
evidence as to the market value of Block 19 as of 1957. The tax declaration therefore should constitute
the prima facie evidence of the market value for the purpose of determining the just compensation.
(Province of Ilocos Norte vs. Compania General de Tabacos, L-7361, April 20, 1956, 53 O.G. 7687). As per
tax declaration (Exhibits B, B- 1) the market value should be P.07 per square meter or a total amount of
P14,511.69 for Block 19 which consists of 20,439 square meters. 15
The error raised refers solely to Block 19 of the petitioners' property.
It is apparent that the substantial reduction of what compensation has to be paid for Block 19 came about as a result of the
application of the doctrine enunciated in the case of the Republic vs. Phil. National Bank, et al., 16clarifying the question
petition as to what date the market value of condemned property should be fixed, that "where the taking of the property
precedes the institution of the condemnation proceedings, the value should be fixed as of the time of the taking". A careful
reading of this case and the cases 17 mentioned therein shows certain material facts which are not Identical to the case at
bar, to wit: 1) the properties in question became the subject of expropriation proceedings initiated by the plaintiff
Government, and 2) that the possession or "taking" of the Government of the properties in question, whether it was made
before or after the filing of the complaint for expropriation was made for purposes of eminent domain or with the intent to
expropriate. 18 Hence, the Court of Appeals, in reducing the amount from P15.00 per square meter to P0.07 per square
meter, made the value stated in the tax declaration of Block 19 in 1957 its basis on the assumption that in the said year
1957 the private respondent had taken possession of the land for the purpose of eminent domain and on the further
presumption that subsequent thereto an action for expropriation was entered in court over this property. However, these
facts assumed by the Court of Appeals are not borne by the evidence on record.
Civil Case No. 3584 of the Court of First Instance of Pampanga, Branch V, entitled "National Power Corporation vs. Jane L.
Garcia, et al.," is an action for expropriation but what was sought to be expropriated in the action was a right of way for the
use of private respondent in the construction of its 69 KV Mexico-Balibago transmission line. This purpose of private
respondent is stated in paragraph 5 of the Complaint 19 and indicated and shaded in red on the sketch attached to the
complaint as Annex "A". 20 Said paragraph reads:
The plaintiff needs right-of-way easements over portions of the parcels of land hereinabove described for
the consideration and maintenance of its KV Mexico-Balibago transmission line, which portions are
indicated and shaded in red on the sketches attached hereto, marked as Annex "A".
The writ of possession directed the Sheriff "to place the plaintiff National Power Corporation in immediate possession of
what is needed of the defendants' lands for a right-of-way easement subject of this expropriation proceedings." 21 The
Ambuklao-Manila and Mexico-Tarlac transmission lines established as early as 1953 and 1957 traversing properties covered
by Block 19 were not the subject matter of the said action.
Moreover, in the second paragraph of private respondents' answer to defendant's compulsory counterclaim, 22 it is alleged
that the construction of the Ambuklao-Manila and Mexico-Tarlac transmission lines were with the permission of petitioners'
predecessor-in-interest, their father, Eutiquiano Garcia. As shown by the transcript of the stenographic notes of the
proceedings of June 26, 1971, 23 Mr. Eladio Espiritu, a witness of the private respondent, attempted to establish that the
entry of private respondent to petitioners' property was with the consent of their predecessor. Likewise, as found by the
Commissioner in his Report, 24 all that the plaintiff, private respondent herein, could show was an alleged authority to
construct the Ambuklao-Manila line only, allegedly signed by defendants' father (Exhibit "M"), pending completion of the
negotiation of the compensation to be paid. Exhibit "M", in clear and unmistakable terms, states the nature of the
possession that the private respondent was granted at the time. The title of this document is "PERMISSION TO OCCUPY
LAND" which undoubtedly grants to the National Power Corporation a privilege and the same is subject to the terms and
conditions embodied in the document. 25 As the private respondent's entry was gained through permission, it did not have
the intention to acquire ownership either by voluntary purchase or by the exercise of eminent domain. And the fact remains
that the private respondent never completed the negotiation as to compensation. Not only this, private respondent went on
to construct another line the 69 KV Mexico-Tarlac without defendants' permission nor a court authorization. 26 All these
prove the private respondent's intention not to expropriate Block 19, as it did not seek so in the action it instituted on
August 8, 1969. Neither did it have the intention to do so in 1953 as shown by the terms in Exhibit "M". It is clear,
therefore, that the private respondent not only did not take possession with intent to expropriate Block 19, but that it did
not institute expropriation proceedings over the same.

Consequently, since the areas covered by Block 19 were never entered into or possessed for purposes of eminent domain,
nor did they become the subject of an action for eminent domain, neither the date of entry nor the filing of the action by
private respondent for expropriation of a "right-of-way" easement on December 8, 1969 could be reckoned with as the
basis for the determination of just compensation.
Hence, the conclusion of the Court of Appeals that the fair market value of the property in question based on the tax
assessment in 1957 is an error of law, as it is a conclusion predicated on the wrong assumption that there was a taking or
possession of Block 19 in 1957 for purposes of expropriation and that there was an action for expropriation of the same.
It is significant that the expropriation of Block 19 came about only when the trial court declared that inasmuch as the
private respondent cannot acquire easement of right-of-way over Block 19, much less own it through prescription, the only
way for the private respondent to justify its continued occupation of Block 19 is to expropriate the same. This declaration of
the trial court was affirmed by the Court of Appeals. The petitioners cannot legally impugn now for the first time on appeal
to this Court the trial court's directive to expropriate Block 19 for public use. Well-settled is the rule that questions not
raised in the lower court cannot now be raised for the first time on appeal. 27 Hence, the expropriation of Block 19 is final.
By virtue of the special and peculiar circumstances of the case at bar, there being no taking of the property in question for
purposes of eminent domain nor condemnation proceedings instituted over the same to speak of, the time as of which the
market value should be fixed is the time when the trial court made its order of expropriation. It is the date of appropriation
or the investing date which as everyone knows required more than a day, sometimes weeks to carry through as would an
ordinary real estate purchase and sale. Hence, in estimating the market value, all the capabilities of the property and all
the uses to which it may be applied or for which it is adapted are to be considered and not merely the condition it is in the
time and the use to which it is then applied by the owner. All the facts as to the condition of the property and its
surroundings, its improvements and capabilities may be shown and considered in estimating its value.
Anent the compensation to be paid for Block 19, the reasons relied upon by the trial court which appear just, equitable, and
in consonance with established jurisprudence are:
In the mind of the Court, the contentions so advanced by the plaintiff cannot be maintained, and the
authority just cited is not applicable in the instant case. In the first place, it was clearly shown by the
defendants that the properties herein involved have been converted into a subdivision way back in 1962.
In support of this, the defendants presented the order of this Court approving the subdivision plan, which
was likewise approved by the Land Registration Commission, and the resolution of the municipal council
of Mexico-Pampanga relative to the same subdivision. Moreover, as earlier discuss the Court is guided by
the Commissioner's Report and Findings of the ocular inspection in determining the nature of the
properties involved. In effect, therefore, the Court is of the opinion that the evidence presented by the
defendants outweigh the evidence presented for the plaintiff by preponderance.
Furthermore, by the testimonies of the witnesses, it was established that the properties, being converted
into a subdivision sell at P15.00 to P20.00 per square meter and there are many willing buyers at this
price range. However, the plaintiff, in an effort to contradict this claim presented the appraisal made by
the provincial appraisal committee for the province of Pampanga, which appraisal gave the valuation of
P6.00 to P8.00 per square meter for lots adjoining the lots of the defendants. These prices or evaluation,
however, in the opinion of the Court, cannot be and are not the determinative factors in determining the
value of the defendants' properties. It has been established by the evidence on record and confirmed by
the report of the Commissioner, that the Conching Subdivision, where the subject properties form parts,
are located along the national highway; that it is near the town proper of Mexico, Pampanga were the
school and church sites are situated. In giving valuation to properties, these factors, namely, the relation
or distance of the premises towards the national highway, to the town proper, and to other commercial
sites such as schools and churches, must be given consideration. In this particular case, the properties,
being along the national highway, near the town proper of Mexico, Pampanga and likewise near the
school and church sites, must be given valuation commensurate to its standing. This being the case, the
Court believes that the value of P15.00 per square meter is reasonable to be given to the defendants'
properties. The defendants therefore are entitled to the payment of P15.00 per square meter for their
properties object of this expropriation proceedings which are Blocks 10 and 19 of the subdivision plan
with an aggregate area of 26,439 square meters.
The fair market value of Block 19 should be fixed at P15.00 per square meter.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. NO. 55720-R is hereby modified as to Block 19 of the
subdivision plan of petitioners' property and the private respondent, National Power Corporation, is ordered to pay to the
petitioners the amount of P306,585.00 as the market value for Block 19 (20,439 square meters) at P15.00 per square
meter with legal interests from March 30, 1970. No pronouncement as to costs.

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